As filed with the Securities and Exchange Commission on March 16, 1998
Registration No. 333-[ ]
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AXIA BANCORP, INC.
(Name of Small Business Issuer in Its Charter )
Federal 6712 (To be applied for)
(State or Jurisdiction (Primary Standard (I.R.S. Employer
of Incorporation or Industrial Classification Code Identification No.)
Organization) Number)
1410 St. Georges Avenue
Avenel, New Jersey 07001
(732) 499-7200
(Address and Telephone Number of Principal Executive Offices)
1410 St. Georges Avenue
Avenel, New Jersey 07001
(Address of Principal Place of Business or Intended Principal Place of Business)
John R. Bowen
1410 St. Georges Avenue
Avenel, New Jersey 07001
(732) 499-7200
(Name, Address and Telephone Number of Agent for Service)
Copies to:
Eric Luse, Esq.
Kenneth R. Lehman, Esq.
Luse Lehman Gorman Pomerenk & Schick, P.C.
5335 Wisconsin Avenue, N.W., Suite 400
(202) 274-2000
Washington, D.C. 20015
Approximate date of proposed sale to the public: As soon as practicable after
this registration statement becomes effective.
If this Form is filed to register additional shares for an offering pursuant to
Rule 462(b) under the Securities Act please check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering: |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: |_|
If the delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: |_|
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: |X|
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Proposed
Proposed maximum
maximum aggregate
Title of each class of Amount to be offering price offering price Amount of
securities to be registered registered per share (1) registration fee
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $1.00 par value per share 1,833,646 shares $10.00 $18,336,460 $5,410.00
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the registration statement shall become effective on such
date as the Securities and Exchange Commission, acting pursuant to said Section
8(a), may determine.
<PAGE>
PROSPECTUS
Axia Bancorp, Inc.
(Proposed Holding Company for Liberty Bank)
1,594,475 Shares of Common Stock
Axia Bancorp, Inc., a federal corporation (the "Company"), is offering up
to 1,594,475 shares (subject to adjustment to up to 1,833,646 shares as
described herein) of its common stock, par value $1.00 per share (the "Common
Stock"), in connection with the mutual holding company reorganization (the
"Reorganization") of Axia Federal Savings Bank (the "Bank") pursuant to a Plan
of Reorganization from Mutual Savings Association to Mutual Holding Company and
Stock Issuance Plan (the "Plan of Reorganization"). As part of the
Reorganization, the Bank will convert from a mutual savings bank to a stock
savings bank to be named "Liberty Bank" and will become a wholly-owned
subsidiary of the Company. The Company will issue a majority of its Common Stock
to Axia Bancorp, MHC (the "Mutual Holding Company") and sell a minority of its
Common Stock to the public in a subscription offering and possibly a community
offering.
Non-transferable rights to subscribe for Common Stock in a subscription
offering (the "Subscription Offering") have been granted, in the following order
of priority: (i) depositors of the Bank with aggregate account balances of $50
or more as of September 30, 1996 (the "Eligibility Record Date," and such
account holders are defined as "Eligible Account Holders"); (ii) the Bank's
employee stock ownership plan and related trust (the "ESOP") in an amount up to
8% of the shares of Common Stock to be sold in the Offering (as defined below);
(iii) depositors of the Bank with aggregate account balances of $50 or more as
of March 31, 1998 (the "Supplemental Eligibility Record Date") who are not
Eligible Account Holders ("Supplemental Eligible Account Holders"); and (iv)
depositors of the Bank as of May ___, 1998 (the "Voting Record Date") and
borrowers of the Bank as of December 10, 1986 whose loans are outstanding as of
the Voting Record Date, who are not Eligible Account Holders or Supplemental
Eligible Account Holders ("Other Members"). Subscription rights are
nontransferable. 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 (the "OTS"). Shares of
Common Stock not subscribed for in the Subscription Offering may be offered for
sale in a community offering (the "Community Offering") to certain members of
the general public with preference given to natural persons residing in the New
Jersey counties of Union and Middlesex (the "Community"). The Community
Offering, if any, may commence at any time after the commencement of the
Subscription Offering. The Company retains the right, in its sole discretion, to
accept or reject any order in the Community Offering. The Subscription Offering
and Community Offering are referred to collectively as the "Offering."
(continued on next page)
FOR INFORMATION ON HOW TO SUBSCRIBE, CALL THE STOCK INFORMATION CENTER AT
(732) ________ FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY EACH PROSPECTIVE INVESTOR, SEE "RISK FACTORS"
BEGINNING ON PAGE ______.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, OR ANY
OTHER FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, NOR
HAS SUCH COMMISSION, OFFICE OR OTHER AGENCY OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE
FUND OR ANY OTHER GOVERNMENT AGENCY.
<TABLE>
<CAPTION>
Estimated Minority Estimated Underwriting
Ownership Interest (2) Commissions and Other Estimated Net
Subscription Price (1) Fees and Expenses (3) Proceeds (4)
<S> <C> <C> <C> <C>
Minimum Price Per Share............ $10.00 N/A $.51 $9.49
Midpoint Price Per Share........... $10.00 N/A $.43 $9.57
Maximum Price Per Share............ $10.00 N/A $.38 $9.62
Minimum Total...................... $11,785,250 47.0% $600,000 $11,185,250
Midpoint Total..................... $13,865,000 47.0% $600,000 $13,265,000
Maximum Total...................... $15,944,750 47.0% $600,000 $15,344,750
Adjusted Maximum Total (5)......... $18,336,460 47.0% $600,000 $17,736,460
=================================== ======================= ====================== ========================= ====================
(footnotes on following page)
</TABLE>
[RYAN, BECK LOGO]
The date of this Prospectus is May _____, 1998
<PAGE>
Pursuant to the Plan, the Bank will organize the Mutual Holding Company
as a federally-chartered mutual holding company, which will own at least a
majority of the Common Stock of the Company for so long as the Mutual Holding
Company remains in existence. The Bank will be a wholly-owned subsidiary of the
Company. The shares of Common Stock sold in the Offering will represent a
minority ownership interest equal to 47% of the Common Stock of the Company. The
remaining issued and outstanding shares will be owned by the Mutual Holding
Company. References to the Bank shall include Axia Federal Savings Bank in its
current mutual form, or Liberty Bank as indicated by the context. References to
the "Stock Bank" shall mean Liberty Bank.
The minimum number of shares that may be purchased is 25 shares. Except
for the ESOP, no Eligible Account Holder, Supplemental Eligible Account Holder
or Other Member may in their capacities as such purchase in the Subscription
Offering more than $100,000 of Common Stock. No person, together with associates
of and persons acting in concert with such person, may purchase in the Offering
more than $200,000 of Common Stock; provided, however, that the maximum purchase
limitation may be increased or decreased at the sole discretion of the Company
and the Bank. See "The Reorganization--Subscription Offering and Subscription
Rights," "--Community Offering" and "--Limitations on Common Stock Purchases."
The Subscription Offering and Community Offering will terminate at
10:00 a.m., New Jersey time, on June ____, 1998 (the "Expiration Date") unless
either or both are extended by the Bank and the Company, with the approval of
the OTS, if necessary. The Bank and the Company are not required to give
subscribers notice of any such extension. The Community Offering must be
completed within 45 days after the expiration 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 or termination
of the Reorganization; provided that all subscribers will have their funds
returned promptly, with interest, and all withdrawal authorizations will be
canceled if the Reorganization is not completed within 45 days after the
expiration of the Subscription Offering, unless such period has been extended
with the consent of the OTS, if necessary. See "The Reorganization--Subscription
Offering and Subscription Rights" and "--Procedure for Purchasing Shares in
Subscription and Community Offerings."
The Company has applied to have the Common Stock quoted on the Nasdaq
National Market under the symbol "AXIA." The Company has never issued stock to
the public or any person, and there can be no assurance that an active and
liquid trading market for the Common Stock will develop or that purchasers will
be able to sell their shares at or above the Subscription Price. Ryan, Beck &
Co., Inc. ("Ryan Beck") has advised the Company that it intends to act as a
market maker for the Common Stock following consummation of the Reorganization.
See "Market for the Common Stock."
- -------------------------------
(footnotes for preceding table)
(1) Determined in accordance with an independent appraisal prepared by FinPro,
Inc. ("FinPro") dated as of __________, 1998, which states that the
estimated pro forma market value of the Common Stock ranged from
$25,075,000 to $33,925,000, with a midpoint of $29,500,000 (the "Valuation
Range"). The independent appraisal of FinPro is based upon estimates and
projections that are subject to change, and the valuation is not a
recommendation for purchasing the Common Stock nor an assurance as to the
price for which a purchaser of Common Stock will thereafter be able to sell
the Common Stock. The Boards of Directors of the Company and the Bank have
determined to offer 47% of the Company's to-be-outstanding shares of Common
Stock to the public in the Offering. Accordingly $11.8 million to $15.9
million of Common Stock or between 1,178,525 and 1,594,475 shares of Common
Stock are being offered at the subscription price of $10.00 per share in
the Offering. See "The Reorganization and Offering--Stock Pricing and
Number of Shares to be Offered in the Offering."
(2) The Company will issue to the Mutual Holding Company 53% of the shares of
Common Stock that will be outstanding at the conclusion of the
Reorganization and Offering; 47% of the Company's to-be outstanding shares
will be sold in the Offering.
(3) Consists of the estimated costs to the Bank and the Company arising from
the Reorganization and Offering, including estimated expenses of
approximately $465,000, and marketing and advisory fees to be paid to Ryan
Beck of $135,000. See "The Reorganization and Offering--Plan of
Distribution and Selling Commissions." The actual fees and expenses may
vary from the estimates.
(4) Actual net proceeds may vary substantially from estimated amounts depending
upon the number of shares sold and other factors. Includes the purchase of
shares of Common Stock by the Bank's ESOP which is intended to be funded by
a loan to the ESOP from the Company or from a third party, which will be
deducted from the Company's stockholders' equity. See "Use of Proceeds" and
"Pro Forma Data."
(5) As adjusted to reflect a 15% increase in the maximum of the Valuation Range
and a corresponding 15% increase in the maximum of the Offering Range
immediately prior to the completion of the Offering due to regulatory
considerations or changes in market and financial conditions. See "Pro
Forma Data" and "The Reorganization and Offering--Stock Pricing and Number
of Shares to be Issued." For a discussion of the distribution and
allocation of the additional shares, if any, see "The Reorganization and
Offering--Subscription Offering and Subscription Rights," "--Community
Offering" and "--Limitations on Common Stock Purchases."
2
<PAGE>
[INSERT MAP]
3
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE REORGANIZATION AND OFFERING
Q: What is the purpose of the Reorganization and Offering?
A: The primary purpose of the Reorganization is to establish a stock
holding company and to raise additional capital for the Bank, which will enable
it to compete and expand more effectively in the financial services marketplace.
The Reorganization will permit the Company to issue capital stock, which is a
source of capital not available to mutual savings banks, and will enable
depositors, employees, management and directors to obtain an equity ownership
interest in the Bank. The Reorganization also will provide the Bank with greater
flexibility to structure and finance the expansion of its operations, including
the potential acquisition of other financial institutions, and to diversify into
other financial services, to the extent permissible by applicable law and
regulation.
Q: Who will be the minority stockholders of the Company?
A: All persons who purchase Common Stock in the Offering, including the ESOP
will be the minority stockholders (the "Minority Stockholders") of the
Company, and will own 47% of its Common Stock upon completion of the
Offering. The Mutual Holding Company will own 53% of the Common Stock of
the Company, and will remain its majority stockholder as long as the Mutual
Holding Company remains in existence.
Q: Why is the Bank forming a two-tier mutual holding company and conducting a
minority stock offering instead of undergoing a full conversion to stock
form?
A: The Bank's Board of Directors determined that the two-tier mutual holding
company structure was in the best interests of the Bank, its members and
the communities served by the Bank. A savings institution that converts
from the mutual to stock form of organization using the mutual holding
company structure sells less than half of its shares at the time of the
Reorganization. By doing so, the converting institution raises less than
half the proceeds than would be obtained in a full conversion. In addition,
because the Mutual Holding Company controls a majority of the Company's
Common Stock, the Board of Directors believes that the Reorganization will
permit the Bank to achieve the benefits of being a stock company without
the loss of control that often follows a full conversion.
Q: How do investors order Common Stock?
A: Prospective investors must complete the order form and certification
(together, the "Stock Order Form"), together with full payment for the
shares purchased, so that it is received on or before 10:00 a.m., New
Jersey time, on June ____, 1998.
Q: How much stock may be ordered?
A: The minimum number of shares that may be purchased is 25 shares. Except for
the ESOP, no Eligible Account Holder, Supplemental Eligible Account Holder
or Other Member may in their capacities as such purchase in the
Subscription Offering more than $100,000 of Common Stock. No person,
together with associates of and persons acting in concert with such person,
may purchase in the Offering more than $200,000 of Common Stock; provided,
however, that the maximum purchase limitation may be increased or decreased
at the sole discretion of the Company and the Bank.
Q: What happens if there are not enough shares to fill all orders?
A: If the Offering is oversubscribed, the Bank will allocate shares based on
the purchase priorities that have been adopted in the Plan of
Reorganization. These purchase priorities are in accordance with OTS
regulations.
4
<PAGE>
If the Offering is oversubscribed in a particular category, then shares
will be allocated among all subscribers in that category based on a formula
that is described in detail in "The Reorganization and Offering." The
priorities are described in answer to the next question.
Q: Who will be permitted to purchase Common Stock?
A: The Common Stock will be offered on a priority basis to the following
persons:
o holders of deposit accounts in the Bank with aggregate account
balances of $50 or more on September 30, 1996 ("Eligible Account
Holders");
o the Bank's ESOP;
o holders of deposit accounts in the Bank with aggregate account
balances of $50 or more on March 31, 1998 ("Supplemental Eligible
Account Holders");
o holders of deposit accounts in the Bank on _______________, 1998, the
voting record date for the Special Meeting (the "Voting Record Date")
and borrowers of the Bank as of December 10, 1986 whose loans are
outstanding as of the Voting Record Date, who are not Eligible Account
Holders or Supplemental Eligible Account Holders ("Other Members").
If the above persons do not subscribe for all of the shares, the remaining
shares will be offered to certain members of the general public, with
preference given to natural persons residing in the New Jersey Counties of
Union and Middlesex.
Q: What will happen if a depositor does not order any Common Stock?
A: Depositors are not required to purchase Common Stock. Deposit accounts,
certificate accounts and any loans held with the Bank will not be affected
by the Reorganization.
Q: How should potential investors decide whether to buy Common Stock in the
Offering?
A: In order to make an informed investment decision, potential investors
should read this entire Prospectus, particularly the section titled "Risk
Factors."
Q: Who can help answer any questions about the Offering?
Please contact the Stock Information Center at the following address:
Stock Information Center
Axia Federal Savings Bank
1410 St. Georges Avenue
Avenel, New Jersey 07001
(732) 499-_____
5
<PAGE>
SUMMARY
The following summary does not purport to be complete, and is qualified
in its entirety by the more detailed information including the Consolidated
Financial Statements and Notes thereto of the Bank appearing elsewhere in this
Prospectus.
The Reorganization and Offering
The Reorganization involves a number of steps, including the following:
o The Bank will establish the Company and the Mutual Holding Company,
neither of which will have any assets prior to the completion of the
Reorganization.
o The Bank will convert from a mutual savings bank to a stock savings
bank and issue 100% of its capital stock to the Company.
o The Company will issue between 2,507,500 and 3,392,500 shares of its
Common Stock in the Reorganization; 53% of these shares (or between
1,328,975 shares and 1,798,025 shares) will be issued to the Mutual
Holding Company, and 47% (or between 1,178,525 shares and 1,594,475
shares) will be sold to depositors and possibly the public.
o Membership interests that depositors had in the Bank will become
membership interests in the Mutual Holding Company. As a result,
members of the Bank who controlled 100% of the votes eligible to be
cast by the Bank's members prior to the Reorganization will, through
the Mutual Holding Company, control 53% of the votes eligible to be
cast by the Bank's stockholders immediately following the
Reorganization.
Description of the Mutual Holding Company Structure
Following completion of the Reorganization, the corporate structure of the
Bank will be as follows:
----------------
- ----------------- Public
Axia Bancorp, MHC Stockholders
- ----------------- (Including ESOP)
----------------
53% of the 47% of the
Common Common
Stock Stock
------------------
Axia Bancorp, Inc.
------------------
100% of the
Common Stock
------------
Liberty Bank
------------
The mutual holding company structure differs in significant respects
from the savings and loan holding company structure that is used in a standard
mutual-to-stock conversion. In a standard conversion, a converting mutual
institution or its newly-formed holding company sells 100% of its common stock
in a stock offering. A savings
6
<PAGE>
institution that converts from the mutual to stock form of organization using
the mutual holding company structure sells less than half of its shares at the
time of the reorganization. By doing so, a converting institution using the
mutual holding company structure will raise less than half the capital that it
would have raised in a standard mutual to stock conversion.
The shares that are issued to the Mutual Holding Company may be
subsequently sold to the Bank's depositors if the Mutual Holding Company
converts from the mutual to the stock form of organization. See "Conversion of
the Mutual Holding Company to the Stock Form of Organization." In addition,
because the Mutual Holding Company controls a majority of the Company's Common
Stock, the Reorganization and Offering will permit the Bank to achieve the
benefits of a stock company without a loss of control that often follows a
standard conversion from mutual to stock form. Sales of locally based,
independent savings institutions to larger, regional financial institutions can
result in closed branches, fewer choices for consumers, employee layoffs and the
loss of community support for and involvement by financial institutions.
Because the Mutual Holding Company is a mutual corporation, its actions
will not necessarily always be in the best interests of the Company's
stockholders. In making business decisions, the Mutual Holding Company's Board
of Directors, will consider a variety of constituencies, including the
depositors of the Bank, the employees of the Bank, and the communities in which
the Bank operates. As the majority stockholder of the Company, the Mutual
Holding Company is also interested in the continued success and profitability of
the Bank and the Company. Consequently, the Mutual Holding Company will act in a
manner that furthers the general interest of all of its constituencies,
including, but not limited to, the interest of the stockholders of the Company.
The Mutual Holding Company believes that the interests of the stockholders of
the Company, and those of the Mutual Holding Company's other constituencies, are
in many circumstances the same, such as the increased profitability of the
Company and the Bank and continued service to the communities in which the Bank
operates.
Conversion of the Mutual Holding Company to the Stock Form of Organization
OTS regulations and the Plan of Reorganization permit the Mutual
Holding Company to convert from the mutual to the capital stock form of
organization (a "Conversion Transaction"). If the Mutual Holding Company were to
undertake a Conversion Transaction, the transaction would in most circumstances
be structured as follows:
o The Mutual Holding Company and the Company would cease to exist.
o The Bank would form a new stock holding company.
o The new stock holding company would sell shares of its common stock in
a subscription offering to certain of the Mutual Holding Company's
members.
o In addition to the shares it would sell in the subscription offering,
the new stock holding company would issue shares of its common stock
to the Company's stockholders in exchange for their shares of the
Company's Common Stock.
After the Conversion Transaction, the Company's public stockholders
would own approximately the same percentage of the new stock holding company as
they owned of the Company. Purchasers in the Conversion Transaction subscription
offering would own approximately the same percentage of the new stock holding
company as the Mutual Holding Company owned in the Company prior to the
Conversion Transaction. If the Mutual Holding Company waived any dividends paid
by the Company prior to the Conversion Transaction, however, then the Company's
stockholders would receive a smaller percentage of the new stock holding
company's common stock. See "Regulation--Holding Company Regulation." There can
be no assurance that the Mutual Holding Company will convert to the stock form,
and the Board of Directors has no current plan to do so.
7
<PAGE>
Axia Bancorp, MHC
The Mutual Holding Company will be organized by the Bank as a
federally-chartered mutual holding company, and will own 53% of the Common Stock
of the Company upon completion of the Reorganization. It is expected that the
Mutual Holding Company will not engage in any business activity other than to
hold a majority of the Common Stock of the Company and to invest any funds held
by the Mutual Holding Company. The Mutual Holding Company's offices will be
located at 1410 St. Georges Avenue, Avenel, New Jersey 07001, and its telephone
number at that location will be (732) 499-7200. See "The Mutual Holding
Company."
Axia Bancorp, Inc.
The Company will be organized by the Bank as a federally-chartered
corporation for the purpose of owning all of the capital stock of the Bank upon
completion of the Reorganization. It is expected that the Company will not
engage in any business activity other than to hold 100% of the common stock of
the Bank, to make the loan to the ESOP, and to invest up to 50% of the net
proceeds of the Offering. The Company's offices will be located at 1410 St.
Georges Avenue, Avenel, New Jersey 07001, and its telephone number at that
location will be (732) 499-7200. See "The Company," "Use of Proceeds" and
"Regulations and Supervision--Holding Company Regulation."
Axia Federal Savings Bank
The Bank was organized as a building and loan association in 1927 and
became a federal savings and loan association in 1942. In 1986 it converted to a
federal mutual savings bank charter. The Bank conducts its business from its
corporate headquarters located in Avenel, New Jersey and three branch offices
located in Union and Middlesex Counties, New Jersey. The Bank has traditionally
operated as a community-oriented lender offering various mortgage and consumer
loan products. The Bank is primarily engaged in the business of offering savings
and other FDIC-insured deposits to the general public and using the funds from
such deposits to originate loans secured by one-to-four family residences
located in Union and Middlesex Counties. Loans secured by one-to-four family
residences totalled $143.6 million, or 93.9%, of the Bank's total loan portfolio
at December 31, 1997. At December 31, 1997, the Bank had total assets of $217.4
million, total deposits of $198.4 million, and retained earnings of $16.5
million. The Bank's executive offices are located at 1410 St. Georges Avenue,
Avenel, New Jersey 07001, and its telephone number at that location is (732)
499-7200. See "The Bank" and "Business of the Bank."
The Stock Offering
The Company is offering for sale between 1,178,525 and 1,594,475 shares
of its Common Stock, for a price per share of $10.00. The Bank and the Company
may increase the Offering to up to 1,833,646 shares without further notice to
investors if the maximum of the Valuation Range is increased as a result of
market or financial conditions prior to completion of the Offering. The number
of shares that are sold in the Offering is subject to approval of the OTS.
Stock Purchase Priorities
The Company will offer Common Stock on the basis of purchase
priorities. Certain depositors and the ESOP will receive subscription rights to
purchase shares. The Company may offer shares not purchased in the Subscription
Offering to the general public in a Community Offering. The Bank has engaged
Ryan Beck to assist the Bank and the Company on a best efforts basis in selling
the Common Stock in the Offering.
Prohibition on Transfer of Subscription Rights
No person may sell or assign subscription rights. Any transfer of
subscription rights is prohibited by law. See "The Reorganization
Offering--Restrictions on Transfer of Subscription Rights and Shares."
8
<PAGE>
Stock Pricing and Number of Shares to be Issued
The Bank's Board of Directors set the subscription price per share at
$10.00 (the "Subscription Price"), the subscription price most commonly used in
stock offerings involving mutual to stock conversions of mutual savings
institutions. The number of shares of Common Stock issued in the Offering is
based on the independent valuation prepared by FinPro, Inc., Liberty Corner, New
Jersey (the "Independent Valuation"). The Independent Valuation states that as
of February __, 1998, the estimated market value of the Company after giving
effect to the Reorganization ranged from a minimum of $25,075,000 to a maximum
of $33,925,000, with a midpoint of $29,500,000. Based on the Independent
Valuation and the Subscription Price, the number of shares of Common Stock that
the Company will issue will range from between 2,507,000 shares to 3,392,500
shares. The Board of Directors has decided to offer 47% of these shares, or
between 1,178,525 shares and 1,594,475 shares, to depositors and the public
pursuant to this Prospectus. The Board determined to sell 47% of the stock in
the Offering in order to raise the maximum amount of proceeds while permitting
the Company to issue additional shares of Common Stock in the future pursuant to
the restricted stock plan (the "Recognition Plan") and stock option plan (the
"Stock Option Plan") that the Company intends to adopt no sooner than six months
after the Reorganization and Offering. The 53% of the shares of Company's Common
Stock that are not sold in the Offering will be issued to the Mutual Holding
Company.
Changes in the market and financial conditions and demand for the
Common Stock may result in an increase of up to 15% in the Independent Valuation
(to up to $39,013,750) and a corresponding increase in the maximum of the
Offering Range (to up to 1,833,646 shares). The number of shares issued is
subject to approval of the OTS. Subscribers will not be notified if the maximum
of the Independent Valuation and the maximum of the Offering Range are increased
by 15% or less. However, subscribers will be notified if the maximum of the
Independent Valuation is increased by more than 15%, or if the minimum of the
Independent Valuation is decreased. The Independent Valuation is not a
recommendation of as to the advisability of purchasing Common Stock, and
investors should not buy Common Stock based on the Independent Valuation.
Termination of the Offering
The Subscription Offering will terminate at 10:00 a.m., New Jersey
time, on June __, 1998. The Community Offering, if any, may commence any time
following commencement of the Subscription Offering. The Company may terminate
the Community Offering at any time prior to ___________, 1998, or later if
permitted by the OTS.
Benefits Plans
The Bank's full-time employees will participate in the ESOP. The
Company also intends to implement the Recognition Plan and Stock Option Plan
following completion of the Reorganization, which will benefit the Bank and the
Company's officers and directors. If the Recognition Plan is adopted, certain
officers and directors will be awarded shares of Common Stock at no cost to
them. However, the Recognition Plan and Stock Option Plan may not be adopted
until at least six months after completion of the Reorganization and are subject
to shareholder approval.
Use of the Proceeds Raised from the Sale of Common Stock
Net proceeds from the sale of the Common Stock are estimated to be
between $11.4 million and $15.3 million, depending on the number of shares of
Common Stock sold and the expenses of the Offering. Up to 50% of the net
proceeds of the Offering will be retained by the Company and used for general
business purposes, including a loan by the Company to the ESOP to enable the
ESOP to purchase up to 8% of the Common Stock issued in the Offering. The
remaining net proceeds retained by the Company will be invested initially in
short- and medium-term investments and securities, including mortgage-backed
securities, Treasury obligations and deposits of the Bank. To the extent shares
are unavailable to satisfy the ESOP's subscription for 8% of the Common Stock
issued, the ESOP may purchase Common Stock in open market transactions
subsequent to the Offering. Net proceeds from the Offering will be used by the
Bank for general corporate purposes, including origination of loans and purchase
of investments in the ordinary course of business. Initially, the net proceeds
are expected to be invested primarily in mortgage-backed securities and short-
and medium-term Treasury securities. The Bank also may use the proceeds for the
expansion of its facilities and to acquire branch offices and deposits. See "Use
of Proceeds."
9
<PAGE>
Dividends
Although no decision has been made yet regarding the payment of
dividends, the Company will consider a policy of paying quarterly cash dividends
on the Common Stock, with the first such dividend to be declared and paid as
early as the first full quarter following completion of the Offering. There can
be no assurance that dividends will be paid or, if paid, what the amount of the
dividends will be, or whether such dividends, once paid, will continue to be
paid.
Market for the Common Stock
The Company was recently formed and has never issued capital stock. The
Bank, as a mutual institution, has never issued capital stock. The Company has
applied to have the Common Stock quoted on the Nasdaq National Market under the
symbol "AXIA." The requirements for listing include a minimum number of publicly
traded shares, market makers and record holders, and a minimum market
capitalization. Although under no obligation to do so, Ryan Beck has indicated
its intention to make a market in the Common Stock, and based on management's
analysis of the results of recent conversion stock offerings, the Bank believes
that the Company will satisfy these requirements. If the Company is unable, for
any reason, to list the Common Stock on the Nasdaq National Market, or to
continue to be eligible for such listing, then management believes that the
Common Stock will be traded on the over-the-counter market with quotations
available through the OTC Bulletin Board.
Risk Factors
The purchase of Common Stock involves a substantial degree of risk.
Prospective shareholders should carefully consider the matters set forth in this
Prospectus, including "Risk Factors."
10
<PAGE>
SELECTED CONSOLIDATED FINANCIAL
AND OTHER DATA OF AXIA FEDERAL SAVINGS BANK AND SUBSIDIARY
The following tables set forth selected consolidated historical
financial and other data of the Bank (including its subsidiary) for the periods
and at the dates indicated. The information is derived in part from and should
be read in conjunction with the Consolidated Financial Statements and Notes
thereto of the Bank contained elsewhere herein.
At December 31,
-------------------
1997 1996
-------- --------
(In Thousands)
Financial Condition Data:
Total assets .............................................$217,437 $201,574
Loans Receivable, net .................................... 152,200 130,690
Securities available for sale:
Investment ............................................ 992 4,064
Mortgage-backed securities ............................ 52,925 55,525
Deposits ................................................. 198,363 184,709
Retained earnings-substantially restricted ............... 16,541 14,812
Year Ended December 31,
-----------------------
1997 1996(1)
--------- --------
(In Thousands)
Operating Data:
Interest income...........................................$ 15,083 $ 13,723
Interest expense.......................................... 9,004 8,049
--------- --------
Net interest income....................................... 6,079 5,674
Provision for loan losses................................. 200 43
--------- --------
Net interest income after provision
for loan losses........................................ 5,879 5,631
--------- --------
Non-interest income:
Fees and service charges............................... 299 278
Gain on sales of securities............................ 129 --
Other non-interest income.............................. 104 73
--------- --------
Total non-interest income.......................... 532 351
--------- --------
Non-interest expense:
Salaries and employee benefits......................... 1,980 1,967
Net occupancy expense.................................. 445 469
Equipment.............................................. 416 355
Advertising............................................ 184 97
Federal insurance premium.............................. 120 1,382
Miscellaneous.......................................... 836 820
--------- --------
Total non-interest expense......................... 3,981 5,090(1)
--------- --------
Income before income taxes................................ 2,430 892
Income taxes.............................................. 877 283(1)
--------- --------
Net income................................................$ 1,553 $ 609(1)
========= ========
- -------------------------------
(1) Operating data for the year ended December 31, 1996 includes the effect
of a one-time Savings Association Insurance Fund ("SAIF")
recapitalization assessment of $1.0 million, or $648,000 net of taxes.
Excluding this non-recurring assessment, total non-interest expense would
have been $4.0 million, income taxes would have totalled $648,000 and net
income would have been $1.3 million.
11
<PAGE>
At or For The Year
Ended December 31,
------------------------
1997 1996
--------- --------
Selected Ratios:
Performance Ratios:
Return on assets (ratio of net income to
average total assets)........................... 0.73% 0.32%
Return on retained earnings (ratio of net
income to average equity)....................... 9.95% 4.23%
Interest rate spread information (1):
Average during period........................... 2.54% 2.65%
End of period................................... 2.61% 2.67%
Net interest margin (net income divided by
average interest-earning assets)................ 2.92% 3.01%
Operating expenses to
average total assets............................ 1.88% 2.64%
Average interest-earning assets to
average interest-bearing liabilities............ 108.77% 108.31%
Asset Quality Ratios:
Non-performing assets to total assets............. 0.49% 0.46%
Allowance for loan losses to
non-performing loans............................ 79.57% 59.27%
Allowance for loan losses to
loans receivable, net........................... 0.48% 0.41%
Capital Ratios:
Retained earnings to total assets
at end of period................................ 7.61% 7.35%
Average retained earnings to
average assets.................................. 7.37% 7.47%
Other Data:
Number of branch offices at end of period......... 3 3
- -----------------------
(1) 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.
12
<PAGE>
RISK FACTORS
Potential Effects of Changes in Interest Rates and the Current Interest Rate
Environment
The net income of the Bank substantially depends on its net interest
income, which is the difference between the interest income earned on its
interest-earning assets and the interest expense paid on its interest-bearing
liabilities. Like most savings institutions, the Bank's earnings are affected by
changes in market interest rates, and other economic factors beyond its control.
If an institution's interest-earning assets have longer effective maturities
than its interest-bearing liabilities, the yield on the institution's
interest-earning assets generally will adjust more slowly than the cost of its
interest-bearing liabilities and, as a result, the institution's net interest
income and interest rate spread generally would be adversely affected by
material and prolonged increases in interest rates. Accordingly, an increase in
interest rates generally would result in a decrease in the Bank's average
interest rate spread and net interest income. As a result of increases in the
rates paid by the Bank on its deposits without a commensurate increase in the
yields earned on its interest-earning assets, the Bank's average interest rate
spread decreased to 2.54% for the year ended December 31, 1997 from 2.65% for
the year ended December 31, 1996. No assurance can be given that the Bank's
average interest rate spread will not decrease in future periods. Any such
decrease in the Bank's average interest rate spread would adversely affect the
Bank's net interest income. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Assets and Liability Management."
In addition to affecting interest income and expense, changes in
interest rates also can affect the value of the Bank's interest-earning assets,
which comprise fixed- and adjustable-rate instruments, and the ability to
realize gains from the sale of such assets. Generally, the value of fixed-rate
instruments fluctuates inversely with changes in interest rates. At December 31,
1997, the Bank had $53.9 million of securities available for sale and the Bank
had $652,000 of net unrealized gains with respect to such securities, which were
included, net of income taxes, as a separate component in the Bank's retained
earnings, as of such date.
Changes in interest rates also can affect the average life of loans and
mortgage-backed securities. The relatively lower interest rates in recent
periods have resulted in increased prepayments of loans and mortgage-backed
securities, as many borrowers have refinanced their mortgages to reduce their
borrowing costs. Under these circumstances, the Bank is subject to reinvestment
risk to the extent that it is not able to reinvest such prepayments at rates
which are comparable to the rates on the prepaid loans or securities. Moreover,
volatility in interest rates also can result in the flow of funds away from the
Bank into other investments such as U.S. Government and corporate securities and
investments which generally pay higher rates of return than the rates paid on
deposits by savings institutions.
Uncertainty as to Future Growth Opportunities and Ability to Successfully Deploy
Offering Proceeds
The Bank intends to use the net proceeds of the Offering to increase
its loan and deposit growth. It may also seek to expand its banking franchise by
acquiring other financial institutions or branches. The Bank's ability to grow
through selective acquisitions of other financial institutions or branches of
such institutions will depend on successfully identifying, acquiring and
integrating such institutions or branches. There can be no assurance the Bank
will be able to generate internal growth or to identify attractive acquisition
candidates, acquire such candidates on favorable terms, successfully integrate
any acquired institutions or branches into the Bank, or increase profits
sufficiently to offset the increase in expenses that will result from an
acquisition. Neither the Company nor the Bank has any specific plans,
arrangements or understandings regarding any additional expansions or
acquisitions at this time.
Possible Increase in Valuation Range and Number of Shares Issued
The amount of Common Stock to be issued in the Reorganization may be
increased by up to 15% to reflect changes in market and financial conditions
following the commencement of the Subscription and Community Offerings. If the
Independent Valuation increases, then the interests of those who purchase shares
in the Offering will be diluted because more shares will be outstanding at the
conclusion of the Offering. Such an increase in the number
13
<PAGE>
of shares issued in the Reorganization will also decrease a subscriber's pro
forma annualized net earnings per share and pro forma stockholders' equity per
share. See "Pro Forma Data."
Reduced Return on Equity After Reorganization
Return on equity (net income for a given period divided by average
equity during that period) is a ratio used by many investors to compare the
performance of a particular financial institution to its peers. The Bank's
return on equity for the year ended December 31, 1997 was 9.95%. See "Selected
Financial and Other Data of Axia Federal Savings Bank" for numerical information
regarding the Bank's historical return on equity and "Capitalization" for a
discussion of the Company's estimated pro forma consolidated capitalization as a
result of the Offering. In addition, the expenses associated with the ESOP and
the Recognition Plan (see "Pro Forma Data"), along with other
post-Reorganization expenses, are expected to contribute initially to reduced
earnings. In the short-term, the Bank will have difficulty in improving its
interest rate spread and thus the return on equity to stockholders.
Consequently, for the foreseeable future, investors should not expect a return
on equity that will meet or exceed the average return on equity for publicly
traded thrift institutions, and no assurances can be given that this goal can be
attained.
Control by the Mutual Holding Company
As the majority stockholder of the Company, the Mutual Holding Company
will be able to elect all of the directors of the Company and direct its
business and affairs. The Company will be controlled by its Board of Directors
which will consist initially of those persons who currently are directors of the
Bank. After the Reorganization, the initial Board of Directors of the Mutual
Holding Company will also consist of those persons who currently are members of
the Board of Directors of the Bank. As a result, it is expected that the Board
of Directors of the Mutual Holding Company will exercise control over the Mutual
Holding Company and, consequently, may be capable of perpetuating the Board of
Directors and management of the Mutual Holding Company, the Company and the
Bank. The purchasers of the Common Stock in the Offering will be Minority
Stockholders of the Company and will have limited influence in electing
directors or otherwise directing the affairs of the Company as long as the
Mutual Holding Company remains in existence. The Company's Federal charter will
prohibit cumulative voting. Therefore, the Mutual Holding Company will have the
power to elect all the directors of the Company. No assurances can be given that
the Mutual Holding Company will not take action that the Minority Stockholders
believe to be contrary to their interests.
Minority Public Ownership and Certain Anti-Takeover Provisions
Voting Control of the Mutual Holding Company. Under OTS regulations and
the Plan of Reorganization, a majority of the Company's voting shares must be
owned by the Mutual Holding Company, and the Mutual Holding Company will own
53.0% of the Common Stock outstanding at the completion of the Offering. The
Mutual Holding Company will be controlled by its executive officers and
directors, who initially will consist of persons who are executive officers and
directors of the Company. Executive officers and directors of the Company will
own ___% of the Common Stock outstanding at the completion of the Offering
(assuming shares are sold at the midpoint of the Offering Range and that
executive officers and directors receive all the shares for which they are
expected to subscribe), and, based on such assumptions, the Mutual Holding
Company and executive officers and directors as a group would own ____% of the
Common Stock outstanding at the conclusion of the Offering. The Mutual Holding
Company will elect all members of the Board of Directors of the Company and,
with certain exceptions, will control the outcome of matters presented to the
stockholders of the Company for resolution by vote. The situations in which the
Mutual Holding Company may not control the outcome of such vote include any
stockholder vote to approve a restricted stock plan or stock option plan
instituted within one year of the Offering (which would require the approval of
a majority of the shares other than shares held by the Mutual Holding Company),
any stockholder vote relating to the Mutual Holding Company's conversion from
the mutual to the stock form of organization (which would require the approval
of a majority of shares other than shares held by the Mutual Holding Company and
of two-thirds of all shares including shares held by the Mutual Holding
Company), or any other stockholder vote in which the OTS may impose such a
requirement. The Mutual Holding Company, acting through its Board of Directors,
will be able to control the business and operations of the Company and the Bank
and will be able to prevent any challenge to the
14
<PAGE>
ownership or control of the Company by stockholders other than the Mutual
Holding Company. Although OTS regulations and the Plan of Reorganization permit
the Mutual Holding Company to convert from the mutual to the capital stock form
of organization, there can be no assurance when, if ever, a conversion of the
Mutual Holding Company will occur.
Provisions in the Company's and the Bank's Governing Instruments. In
addition, certain provisions of the Company's charter and bylaws, particularly a
provision limiting voting rights, as well as certain federal regulations will
assist the Company in maintaining its status as an independent publicly owned
corporation. These provisions provide for, among other things, staggered boards
of directors, no cumulative voting for directors, limits on the calling of
special meetings of shareholders, and limits on the ability to vote Common Stock
in excess of 10% of outstanding shares (except as to shares held by the Mutual
Holding Company and the ESOP).
Possible Dilution in Ownership Interest
Dividend Waivers by the Mutual Holding Company. It has been the policy
of many mutual holding companies to waive the receipt of dividends declared by
their subsidiaries. OTS regulations require that mutual holding companies
receive OTS approval before they waive dividends. The OTS has generally
permitted mutual holding companies to waive dividends under certain conditions.
Management believes that one of the conditions to such permission would be that,
in the event the Mutual Holding Company undertakes a Conversion Transaction in
the future, any waived dividends would reduce the percentage of the resulting
entity's shares of common stock issued to Minority Stockholders in exchange for
their shares of Common Stock. The Plan of Reorganization also provides for such
an adjustment. See "Regulation--Holding Company Regulation--Conversion of the
Mutual Holding Company to Stock Form." The Mutual Holding Company has not
determined whether it will waive dividends declared by the Company. There is no
assurance that the OTS would approve the waiver of dividends should the Mutual
Holding Company request it to do so.
Terms of Any Conversion Transaction. If the Mutual Holding Company
conducts a Conversion Transaction, the stock offering that would be conducted as
part of the Conversion Transaction would include maximum purchase limitations
that restrict the amount of stock that a person could purchase. Minority
Stockholders would be likely to receive shares of the resulting entity in
exchange for their shares of Common Stock. Under current OTS policy, the shares
of the resulting entity that Minority Stockholders receive in exchange for their
shares of Common Stock will be included in the maximum purchase limitations that
apply to the stock offering. This means that certain Minority Stockholders may
not be able to exercise subscription rights to purchase shares of common stock
sold in the Conversion Transaction, and in certain circumstances, may be
required by the OTS to divest shares of Common Stock.
Implementation of Proposed Stock Benefit Plans
Following the Reorganization, the Company intends to seek stockholder
approval of the Recognition Plan and the Stock Option Plan at a meeting of
stockholders which, under current OTS regulation, may be held no earlier than
six months after completion of the Offering. If the Recognition Plan is approved
by stockholders of the Company, the Recognition Plan intends to acquire an
amount of Common Stock equal to 4% of the shares of Common Stock sold in the
Offering. Such shares would be granted to officers and directors of the Bank at
no cost to these recipients. If the Stock Option Plan is approved by
stockholders of the Company, the Company intends to reserve for future issuance
pursuant to such plan a number of shares of Common Stock equal to 10% of the
Common Stock sold in the Offering. Options to purchase these shares of Common
Stock will be granted to officers and directors of the Bank and the Company at
no cost to them.
Possible Dilutive Effective of Issuance of Additional Shares
Shares of Common Stock to be acquired by the Recognition Plan or issued
upon exercise of stock options may be acquired in the open market with funds
provided by the Company, or from authorized but unissued shares of Common Stock.
In the event that such shares are issued from authorized but unissued shares of
Common Stock, the
15
<PAGE>
voting interests of stockholders will be diluted by approximately 4.86% and net
earnings per share and stockholders' equity per share would be decreased.
Higher Compensation Expenses in Future Periods
The Bank's and the Company's compensation expense is likely to increase
substantially in the future due to the additional stock benefit plans that the
Bank and the Company intend to implement. Among the benefit plans that the Bank
and the Company intend to establish are the Recognition Plan and the ESOP.
Generally accepted accounting principles will require the Company to record
compensation expense upon the vesting of shares of restricted stock awarded
pursuant to the Recognition Plan and upon the commitment to release shares under
the ESOP. For the ESOP, the compensation expense will be equal to the fair value
of the shares at the time the shares are committed to be released, and future
increases and decreases in fair value of Common Stock committed to be released
will have a corresponding effect on compensation expense related to the ESOP. To
the extent that the fair value of the Bank's ESOP shares differ from the cost of
such shares, the differential will be charged or credited to equity.
Competition
Competition in the banking and financial services industry is intense.
In its market area, the Bank competes for loans and deposits with commercial
banks, savings institutions, mortgage brokerage firms, credit unions, finance
companies, mutual funds, insurance companies, and brokerage and investment
banking firms operating locally and elsewhere. Many of these competitors have
substantially greater resources and lending limits than the Company and the Bank
and may offer certain services that the Company and the Bank do not or cannot
provide. Such competition may have an adverse effect on the Company's and the
Bank's growth and profitability in the future.
Lack of Active Market for the Common Stock
The Company has never issued capital stock to the public, and due to
the relatively small size of the Offering there can be no assurance that an
active and liquid trading market for the Common Stock will develop or be
maintained. It is anticipated that the Common Stock will be quoted on the Nasdaq
National Market. Ryan Beck has indicated its intention to make a market in the
Common Stock, although it is not required to do so. If the Common Stock cannot
be quoted and traded on the Nasdaq National Market, it is expected that the
Common Stock will be traded on the over-the-counter market with quotations
available through the OTC Bulletin Board. Investors who purchase shares of
Common Stock, may not be able to sell them when they want to at a price that
equals or exceeds the price paid for the Common Stock.
Regulatory Oversight and Legislation
The Bank is subject to extensive regulation, supervision and
examination by the OTS, as its chartering authority, and by the FDIC as insurer
of its deposits up to applicable limits. The Bank is a member of the Federal
Home Loan Bank (the "FHLB") of New York and is subject to certain limited
regulations promulgated by the Board of Governors of the Federal Reserve System
(the "FRB"). As the holding company of the Bank, the Company also will be
subject to regulation and oversight by the OTS. Such regulation and supervision
govern the activities in which an institution can engage and are intended
primarily for the protection of the insurance fund and depositors. Regulatory
authorities have been granted extensive discretion in connection with their
supervisory and enforcement activities which are intended to strengthen the
financial condition of the banking and thrift industries, including the
imposition of restrictions on the operation of an institution, the
classification of assets by an institution and the adequacy of an institution's
allowance for loan losses. Any change in such regulation and oversight, whether
by the OTS, the FDIC or Congress, could have a material impact on the Company,
the Bank and their respective operations.
See "Regulation."
Legislation is proposed periodically providing for a comprehensive
reform of the banking and thrift industries, and has included provisions that
would (i) require federal savings associations to convert to a national bank or
a state-chartered bank or thrift, (ii) require all savings and loan holding
companies to become bank holding
16
<PAGE>
companies and (iii) abolish the OTS. It is uncertain when or if any of this type
of legislation will be passed and, if passed, in what form the legislation would
be passed. As a result, management cannot accurately predict the possible impact
of such legislation on the Bank.
Capability of the Bank's Data Processing Hardware to Accommodate the Year 2000
Like many financial institutions the Bank relies upon computers for the
daily conduct of its business and for data processing generally. There is
concern among industry experts that on January 1, 2000 computers will be unable
to "read" the new year and there may be widespread computer malfunctions. The
Bank generally relies on independent third parties to provide data processing
services to the Bank, and has been advised by such parties that the issue is
being addressed. Based on these representations, management does not believe
that significant additional costs will be incurred in connection with the year
2000 issue. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Capability of the Bank's Data Processing Hardware to
Accommodate the Year 2000."
THE MUTUAL HOLDING COMPANY
The Mutual Holding Company will be formed as a federal mutual holding
company and will initially own 53% of the Common Stock. The Company has not yet
been formed, although the OTS has approved an application for the Mutual Holding
Company to become a savings and loan holding company. The Mutual Holding Company
will have all of the powers set forth in its federal charter, and federal law
and OTS regulations. The Mutual Holding Company initially will not conduct any
active business other than activities relating to its investment in a majority
of the Common Stock and maintenance of books and records relating to its
members. The Mutual Holding Company does not intend to employ any persons other
than its officers, although it may utilize the Bank's support staff from time to
time. Federal law and OTS regulations, and the Plan of Reorganization, require
that as long as the Mutual Holding Company is in existence it must own a
majority of the Common Stock. Federal law and OTS regulations, and the Plan of
Reorganization, permit the Mutual Holding Company to convert to the capital
stock form of organization. The manner in which such a transaction would be
conducted and the regulations and policy affecting such a transaction are
described in "Regulation--Holding Company Regulation."
Although many federal mutual holding companies waive the receipt of
cash dividends declared by their subsidiaries, the Mutual Holding Company has
not determined whether or not it will do so, and intends to make such a
determination at the time the Company declares a dividend, if any. OTS
regulations require the Mutual Holding Company to give the OTS prior written
notice of any such waiver, and the conditions pursuant to which the OTS
generally approves dividend waivers are described in "Regulation--Holding
Company Regulation." The Mutual Holding Company's Board of Directors will waive
dividends paid by the Company if the Board determines that such a waiver is in
the Mutual Holding Company's members' best interest because, among other
reasons: (i) the Mutual Holding Company has no need for the dividend considering
its business operations; (ii) the cash that would be received could be invested
by the Company or the Bank at a more favorable rate of return; (iii) such waiver
may increase the capital of the Bank and enhance its business so that members
will continue to have access to the offices and services of the Bank; and (iv)
such waiver preserves the net worth of the Mutual Holding Company through its
principal asset (the Company, and indirectly, the Bank), which would be
available for distribution in the unlikely event of a voluntary liquidation of
the Company and the Bank after satisfaction of claims of depositors and
creditors. The Board of Directors may consider other factors in determining
whether such waiver is consistent with its fiduciary duties to members of the
Mutual Holding Company. Any waiver of dividends by the Mutual Holding Company is
likely to result in a downward adjustment to the ratio pursuant to which shares
of Common Stock are exchanged for shares of the resulting company in any future
Conversion Transaction.
The Mutual Holding Company's Board of Directors will accept dividends
paid by the Company in an amount necessary to pay the Mutual Holding Company's
expenses, and will accept additional dividends if it determines that accepting
such dividends is in the Mutual Holding Company's members' best interest
because, among other reasons: (i) the Mutual Holding Company may increase its
direct ownership of the Company, and indirect ownership of the Bank, by using
cash dividends to purchase additional shares of Common Stock in the open market
from time to time;
17
<PAGE>
and (ii) such dividends may be used to promote activities that are in the
interest of members and the Bank's community. Any purchases of Common Stock by
the Mutual Holding Company will increase the percentage of the outstanding
shares of Common Stock held by the Mutual Holding Company and, in a Conversion
Transaction, will decrease the aggregate number of shares of the resulting
company issued to Minority Stockholders in exchange for their shares of Common
Stock.
The office of the Mutual Holding Company will be located at 1410 St.
Georges Avenue, Avenel, New Jersey 07001, and its telephone number will be (732)
499-7200.
THE COMPANY
The Company will be organized for the purpose of acquiring all of the
outstanding shares of common stock of the Bank. Immediately after the
Reorganization, it is expected that the only business activities of the Company
will be the ownership of 100% of the common stock of the Bank, making the loan
to the ESOP, and investing the remainder of the 50% of the net proceeds received
in the Offering. See "Use of Proceeds." Initially, the Company will neither own
nor lease any property, but instead will 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 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. See "Management of
the Company."
Management believes that the holding company structure will provide the
Company with additional flexibility to diversify its business activities through
existing or newly formed subsidiaries, or through acquisitions of or mergers
with other financial institutions and financial services related companies, or
for other business or investment purposes, including the possible repurchase of
Common Stock as permitted by the OTS. Although there are no current
arrangements, understandings or agreements, written or oral, regarding any such
opportunities or transactions, the Company will be in a position after the
Reorganization, subject to regulatory limitations and the Company's financial
position, to take advantage of any such acquisition and expansion opportunities
that may arise. The initial activities of the Company are anticipated to be
funded by the proceeds from the Offering permitted to be retained by the Company
and earnings thereon or, alternatively, through dividends received from the
Bank.
The Company's offices will be located at 1410 St. Georges Avenue,
Avenel, New Jersey 07001, and its telephone number will be (732) 499-7200.
THE BANK
The Bank was organized as a building and loan association in 1927 and
became a federal savings and loan association in 1942. In 1986 it converted to a
federal savings bank charter. The Bank conducts its business from its corporate
headquarters located in Avenel, New Jersey and three branch offices located in
Union and Middlesex Counties, New Jersey. The Bank has traditionally operated as
a community-oriented savings institution providing mortgage and consumer loans
to its local community. The Bank is primarily engaged in the business of
offering FDIC-insured deposits to the general public through its offices and
using those funds to originate mortgage loans secured by one-to-four family
residences located primarily in Union and Middlesex Counties. Loans secured by
one-to-four family residences totalled $143.6 million, or 93.9%, of the Bank's
total loan portfolio at December 31, 1997. At December 31, 1997, the Bank had
total assets of $217.4 million, total deposits of $198.4 million, and retained
earnings of $16.5 million.
The Bank's executive offices are located at 1410 St. Georges Avenue,
Avenel, New Jersey 07001, and its telephone number at that location is (732)
499-7200.
18
<PAGE>
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
At December 31, 1997, the Bank exceeded all OTS regulatory capital
requirements. Set forth below is a summary of the Bank's compliance with the OTS
capital standards as of December 31, 1997, on a historical and pro forma basis
assuming that the indicated number of shares were sold as of such date, and that
the Company contributes to the Bank 50% of the estimated net proceeds of the
Offering. See "Pro Forma Data" for the assumptions used to determine the net
proceeds of the Offering.
<TABLE>
<CAPTION>
Pro Forma at December 31, 1997, Based Upon the Sale of
-----------------------------------------------------------------------------------
1,833,646 Shares
1,178,525 Shares at 1,368,500 Shares at 1,594,475 Shares at At Adjusted
Historical at Minimum of Midpoint of Maximum of Maximum of
December 31, 1997 Offering Range Offering Range Offering Range Offering Range (1)
------------------ ----------------- ----------------- ----------------- ------------------
Percent Percent Percent Percent Percent
of of of of of
Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2)
------ --------- ------ --------- ------ --------- ------ --------- ------ ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP capital............. $ 16,541 7.61% $ 20,721 9.35% $ 21,511 9.67% $ 22,298 9.99% $ 23,210 10.36%
Tangible capital:
Capital level (3)...... $ 16,123 7.43% $ 20,303 9.18% $ 21,093 9.50% $ 21,880 9.82% $ 22,792 10.19%
Requirement............ 3,255 1.50 3,318 1.50 3,331 1.50 3,344 1.50 3,355 1.50
-------- ------ --------- ------ --------- ------ -------- ------ -------- -----
Excess............... $ 12,868 5.93% $ 16,985 7.68% $ 17,763 8.04% $ 18,538 8.32% $ 19,437 8.69%
======== ====== ========= ====== ========= ====== ======== ====== ======== =====
Core capital:
Capital level (3)...... $ 16,123 7.43% $ 20,303 9.18% $ 21,093 9.50% $ 21,880 9.82% $ 22,792 10.19%
Requirement (4)........ 6,511 3.00 6,636 3.00 6,660 3.00 6,683 3.00 6,711 3.00
-------- ------ --------- ------ --------- ------ -------- ------ -------- -----
Excess............... $ 9,612 4.43% $ 13,667 6.18% $ 14,433 6.50% $ 15,197 6.82% $ 16,081 7.19%
======== ====== ========= ====== ========= ====== ======== ====== ======== =====
Risk-based capital:
Capital level (3)(5) $ 16,834 17.69% $21,014 21.60% $21,804 22.33% $22,591 23.04% $23,503 23.86%
Requirement............ 7,614 8.00 7,781 8.00 7,813 8.00 7,844 8.00 7,881 8.00
-------- ------ --------- ------ --------- ------ -------- ------ -------- -----
Excess............... $ 9,220 9.69% $ 13,233 13.60% $ 13,991 14.33% $ 14,747 15.04% $ 15,622 15.86%
======== ====== ========= ====== ========= ====== ======== ====== ======== =====
</TABLE>
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Offering Range of up to 15% to
reflect changes in market and financial conditions following commencement
of the Subscription Offering and the Community Offering, if any, as well as
to reflect demand for the Common Stock.
(2) Tangible and core capital levels are shown as a percentage of total
adjusted assets. Risk-based capital levels are shown as a percentage of
risk-weighted assets. Pro forma total adjusted and risk-weighted assets
used for the capital calculations include the proceeds of the ESOP's
purchase of 8%of the Common Stock issued in the Offering.
(3) Regulatory capital levels exclude net unrealized gains on securities. Pro
forma capital levels assume that the Bank funds the Recognition Plan
purchases of a number of shares equal to 4% of the Common Stock sold in the
Offering, the ESOP purchases 8% of the shares sold in the Offering, and the
Mutual Holding Company is capitalized with $100,000. See "Management of the
Bank" for a discussion of the Recognition Plan and ESOP.
(4) The current OTS core capital requirement for savings banks is 3% of total
adjusted assets. The OTS has proposed core capital requirements that would
require a core capital ratio of 3% of total adjusted assets for savings
banks that receive the highest supervisory rating for safety and soundness,
and a 4% to 5% core capital ratio requirement for all other savings banks.
See "Regulation--Federal Regulation of Savings Institution--Capital
Requirements."
(5) Pro forma amounts and percentages assume net proceeds are invested in
assets that carry a 50% risk-weighting.
USE OF PROCEEDS
The net proceeds from the sale of Common Stock, based on the minimum,
midpoint, maximum and 15% above the maximum of the Offering Range, are estimated
at $11.2 million, $13.3 million, $15.3 million and $17.7 million, respectively.
The Company will be unable to utilize any of the net proceeds of the Offering
until the consummation of the Reorganization.
The Company will retain up to 50% of the net proceeds of the Offering.
Net proceeds retained by the Company will be used to fund the loan to the Bank's
ESOP to acquire up to 8% of the Common Stock issued in the Offering. Any
remaining net proceeds retained by the Company will be invested in short-term
and medium-term investment securities, including mortgage-backed securities,
Treasury obligations, and deposits of the Bank. The Company will contribute to
the Bank at least 50% of the net proceeds of the Offering, which will be added
to the
19
<PAGE>
Bank's general funds that management currently intends to use initially for
general corporate purposes, including investment in one-to-four family
residential real estate loans and other loans and investment in short-term and
intermediate-term securities and mortgage-backed securities.
The net proceeds retained by the Company and proceeds contributed to
the Bank, may also be used to support the future expansion of operations through
branch acquisitions, the establishment of new branch offices, and the
acquisition of financial institutions or their assets or diversification into
other banking related businesses. However, neither the Company nor the Bank has
any specific plans, arrangements or understandings regarding any additional
expansions or acquisitions at this time.
Upon completion of the Reorganization, the Board of Directors of the
Company will have the authority to repurchase stock, subject to statutory and
regulatory requirements. Based upon facts and circumstances following the
Reorganization and subject to applicable regulatory requirements, the Board of
Directors may determine to repurchase Common Stock in the future. Such facts and
circumstances may include but will not be limited to (i) market and economic
factors such as the price at which the Common Stock is trading in the market,
the volume of trading, the attractiveness of other investment alternatives in
terms of the rate of return and risk involved in the investment, the ability to
increase the book value and/or earnings per share of the remaining outstanding
shares, and the opportunity to improve the Company's return on equity; (ii) the
avoidance of dilution to stockholders by not having to issue additional shares
to cover the exercise of stock options or to fund employee stock benefit plans;
and (iii) any other circumstances in which repurchases would be in the best
interests of the Company and its shareholders. In the event the Company
determines to repurchase stock, such repurchases may be made at market prices
which may be in excess of the Subscription Price in the Offering.
DIVIDEND POLICY
Although no decision has been made yet regarding the payment of
dividends, the Company will consider a policy of paying quarterly cash dividends
on the Common Stock, with the first such dividend to be declared and paid as
early as the first full quarter following completion of the Offering.
Declarations of dividends by the Company's Board of Directors will depend upon a
number of factors, including the amount of the net proceeds from the Offering
retained by the Company, 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. Consequently, there can be no assurance that
dividends will in fact be paid on the Common Stock or that, if paid, such
dividends will not be reduced or eliminated in future periods. See "Market for
the Common Stock."
The Company will not be subject to OTS regulatory restrictions on the
payment of dividends although the source of such dividends depend in part upon
the receipt of dividends from the Bank. The Bank must provide the OTS with 30
days prior notice of its intention to make a capital distribution to the
Company. OTS regulations in certain circumstances limit the amount of any
capital distribution by federal savings banks. In addition, the portion of the
Bank's earnings which has been appropriated for bad debt reserves and deducted
for federal income tax purposes cannot be used by the Bank to pay cash dividends
to the Company without the payment of federal income taxes by the Bank at the
then current income tax rate on the amount deemed distributed, which would
include the amount of any federal income taxes attributable to the distribution.
The Company does not contemplate any distribution by the Bank that would result
in a recapture of the Bank's bad debt reserve or otherwise create federal tax
liabilities. See "Taxation--Federal Income Taxes" and Note 9 to Consolidated
Financial Statements, and "Regulation--Federal Regulation of Savings
Institutions--Limitations on Capital Distributions."
Additionally, in connection with the Reorganization, the Company and
the Bank have committed to the OTS that during the one-year period following the
consummation of the Reorganization and the Offering, the Company will not take
any action to declare an extraordinary dividend to stockholders which would be
treated by recipient stockholders as a tax-free return of capital for federal
income tax purposes without prior approval of the OTS.
20
<PAGE>
MARKET FOR THE COMMON STOCK
The Company was recently formed and has never issued capital stock. The
Bank, as a mutual institution, has never issued capital stock. The Company has
applied to have the Common Stock quoted on the Nasdaq National Market under the
symbol "AXIA." The requirements for listing include a minimum number of publicly
traded shares, market markers and record holders, and a minimum market
capitalization. Although under no obligation to do so, Ryan Beck has indicated
its intention to make a market in the Common Stock. Based on management's
analysis of the results of recent conversion stock offerings, the Bank believes
that the Company will satisfy these requirements. If the Company is unable, for
any reason, to list the Common Stock on the Nasdaq National Market, or to
continue to be eligible for such listing, then Management believes that the
Common Stock will be traded on the over-the-counter market with quotations
available through the OTC Bulletin Board.
Additionally, the development of a public market having the desirable
characteristics of depth, liquidity and orderliness depends on the existence of
willing buyers and sellers, the presence of which is not within the control of
the Company, the Bank or any market maker. There can be no assurance that
persons purchasing the Common Stock will be able to sell their shares at or
above the Subscription Price. Therefore, purchasers of the Common Stock should
have a long-term investment intent and should recognize that a possibly limited
trading market may make it difficult to sell the Common Stock, and may have an
adverse effect on the price of the Common Stock.
CAPITALIZATION
The following table presents the historical capitalization of the Bank
at December 31, 1997, and the pro forma consolidated capitalization of the
Company as of that date after giving effect to the Reorganization and Offering,
based upon the assumptions set forth in the "Pro Forma Data" section.
<TABLE>
<CAPTION>
Pro Forma Consolidated Capitalization
Based Upon the Issuance of
---------------------------------------------------------
3,901,375
2,507,500 2,950,000 3,392,500 Shares of
Shares at Shares at Shares at Adjusted
Minimum Midpoint Maximum Maximum
Historical of Valuation of Valuation of Valuation of Valuation
Capitalization Range Range Range Range(1)
-------------- ----- ----- ----- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Deposits (2)............................ $ 198,363 $198,363 $ 198,363 $ 198,363 $198,363
Escrow funds............................ 1,660 1,660 1,660 1,660 1,660
--------- -------- --------- --------- --------
Total deposits and escrow funds......... $ 200,023 $200,023 $ 200,023 $ 200,023 $200,023
========= ======== ========= ========= ========
Stockholders' equity (3):
Preferred Stock, $1.00 par value, 10,000,000
shares authorized; none to be issued -- -- -- -- --
Common Stock, $1.00 par value, 20,000,000
shares authorized; minority shares to be issued
as reflected......................... -- 2,508 2,950 3,393 3,901
Additional paid-in capital............ -- 8,627 10,315 11,952 17,690
Net unrealized holding gain on securities 418 418 418 418 13,835
Less:
Common Stock acquired by ESOP (4) -- 943 1,109 1,276 1,467
Common Stock acquired by
Recognition Plan (5).............. -- 471 555 638 733
--------- -------- --------- --------- --------
Retained earnings, substantially restricted(6) 16,123 16,123 16,123 16,123 16,123
Total stockholders' equity........ $ 16,541 $ 26,312 $ 28,142 $ 29,972 $ 32,077
========= ======== ========= ========= ========
Total stockholders' equity as a percentage of
pro forma total assets.............. 7.61% 11.0% 11.6% 12.1% 12.8%
========= ======== ========= ========= ========
</TABLE>
(footnotes on following page)
21
<PAGE>
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the maximum of the Valuation Range and
the maximum of the Offering Range of up to 15% to reflect changes in market
and financial conditions following the commencement of the Offering.
(2) Excludes withdrawals from deposit accounts for the purchase of Common
Stock. Such withdrawals will reduce pro forma deposits by the amount
thereof.
(3) Does not reflect additional shares of Common Stock that could be purchased
pursuant to the Stock Option Plan, if implemented, under which directors,
executive officers and other employees of the Company would be granted
options to purchase an aggregate amount of Common Stock equal to 10% of the
shares issued in the Offering. Implementation of the Stock Option Plan
requires shareholder approval, which may be sought no earlier than six
months following the Reorganization.
(4) Assumes purchases by the ESOP of a number of shares equal to 8% of the
shares sold in the Offering. The funds used to acquire the ESOP shares will
be borrowed from the Company. See "Use of Proceeds." The Bank intends to
make contributions to the ESOP sufficient to service and ultimately retire
its debt. The Common Stock acquired by the ESOP is reflected as a reduction
of shareholders' equity. As the ESOP debt is repaid, shares will be
released and allocated to participants' accounts. See "Management--Benefit
Plans--Employee Stock Ownership Plan and Trust."
(5) Assuming the receipt of shareholder approval, the Company intends to
implement the Recognition Plan. Assuming such implementation, the
Recognition Plan will purchase an amount of shares equal to 4% of the
Common Stock sold in the Offering. Such shares may be purchased from
authorized but unissued shares or in the open market. The Common Stock to
be purchased by the Recognition Plan represents unearned compensation and
is, accordingly, reflected as a reduction to pro forma stockholders'
equity.
(6) Retained earnings are substantially restricted, see "Financial Statements."
Pro forma amounts are reduced by $100,000 that will be used to capitalize
the Mutual Holding Company.
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Offering is completed. The following estimated pro forma
information is based upon the assumption that the Reorganization expenses,
including the fees payable to Ryan Beck, will be approximately $600,000, and the
Mutual Holding Company will be capitalized with $100,000. Actual expenses may
vary from those estimated.
Pro forma consolidated net income of the Company for the year ended
December 31, 1997 has been calculated as if the Company had been in existence
and estimated net proceeds received by the Company and the Bank had been
invested at an assumed interest rate of 5.55% for the year ended December 31,
1997. The reinvestment rate was calculated based on the one year U.S. Treasury
bill rate (which, in light of changes in interest rates in recent periods are
deemed by the Company and the Bank to more accurately reflect pro forma
reinvestment rates than the arithmetic average method). The effect of
withdrawals from deposit accounts for the purchase of Common Stock has not been
reflected. The pro forma after-tax yield on the estimated net proceeds is
assumed to be 3.50% for the year ended December 31, 1997, based on an effective
tax rate of 37.0%. Historical and pro forma per share amounts have been
calculated by dividing historical and pro forma amounts by the indicated number
of shares of Common Stock. No effect has been given in the pro forma
stockholders' equity calculations for the assumed earnings on the net proceeds.
It is assumed that the Company will retain 50% of the estimated adjusted net
Offering proceeds.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity represents
the difference between the stated amount of assets and liabilities of the
Company computed in accordance with generally accepted accounting principles
("GAAP"). The pro forma stockholders' equity is not intended to represent the
fair market value of the Common Stock and may be greater than amounts that would
be available for distribution to stockholders in the event of liquidation.
22
<PAGE>
The following table summarizes historical data of the Bank and pro
forma data of the Company at or for the year ended December 31, 1997, based on
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
Reorganization. No effect has been given in the tables to the possible issuance
of additional shares reserved for future issuance pursuant to the Stock Option
Plan. See "The Reorganization--Liquidation Rights," and "Management of the
Bank--Directors' Compensation," and "--Executive Compensation."
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1997
Based upon the Sale for $10.00 of
---------------------------------------------------
1,178,525 1,386,500 1,594,475 1,833,646
Shares Shares Shares Shares (1)
------ ------ ------ ----------
(Dollars in Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
Gross proceeds.............................................. $ 11,785 $ 13,865 $ 15,945 $ 18,336
Less Offering expenses...................................... 600 600 600 600
---------- ---------- ---------- ----------
Estimated net proceeds.................................... $ 11,185 $ 13,265 $ 15,345 $ 17,636
---------- ---------- ---------- ----------
Common Stock purchased by ESOP.............................. (943) (1,109) (1,276) (1,467)
Common Stock purchased by Recognition Plan.................. (471) (555) (638) (733)
---------- ----------- ----------- -----------
Estimated investable proceeds............................. $ 9,771 $ 11,601 $ 13,431 $ 15,536
========== ========== ========== ==========
Net earnings:
Historical................................................ $ 1,553 $ 1,553 $ 1,553 $ 1,553
Pro forma income on net proceeds (2)...................... 342 406 470 543
Pro forma ESOP adjustment (3)............................. (59) (70) (80) (92)
Pro forma Recognition Plan adjustment (4)................. (59) (70) (80) (92)
---------- ----------- ----------- -----------
Pro forma net earnings................................. $ 1,777 $ 1,819 $ 1,863 $ 1,912
========== ========== ========== ==========
Per share net earnings: (5) (6)
Historical................................................ $ 0.62 $ 0.53 $ 0.46 $ 0.40
Pro forma income on net proceeds (2)...................... 0.14 0.14 0.14 0.14
Pro forma ESOP adjustment (3)............................. (0.02) (0.02) (0.02) (0.02)
Pro forma Recognition Plan adjustment (4)................. (0.02) (0.02) (0.02) (0.02)
---------- ----------- ----------- -----------
Pro forma net earnings per share (5)................... $ 0.74 $ 0.64 $ 0.57 $ 0.51
========== ========== ========== ==========
Stockholders' equity:
Historical (8)............................................ $ 16,541 $ 16,541 $ 16,541 $ 16,541
Estimated adjusted net proceeds (9)....................... 11,185 13,265 15,345 17,736
Common Stock acquired by ESOP (3)......................... (943) (1,109) (1,276) (1,467)
Common Stock acquired by Recognition Plan (4)............. (471) (555) (638) (733)
---------- ----------- ----------- -----------
Pro forma stockholders' equity............................ $ 26,312 $ 28,142 $ 29,972 $ 32,077
========== ========== ========== ==========
Stockholders' equity per share: (5) (7)
Historical................................................ $ 6.60 $ 5.61 $ 4.88 $ 4.24
Estimated adjusted net proceeds (8)....................... 4.46 4.50 4.52 4.55
Common Stock acquired by ESOP (3)......................... (0.38) (0.38) (0.38) (0.38)
Common Stock acquired by Recognition Plan (4)............. (0.19) (0.19) (0.19) (0.19)
---------- ----------- ----------- -----------
Pro forma stockholders' equity per share (5).............. $ 10.49 $ 9.54 $ 8.83 $ 8.22
========== ========== ========== ==========
Offering price as a percentage of pro forma stockholders' equity 95.33% 104.82% 113.25% 121.65%
======== ========== ======= ==========
Offering price to pro forma net earnings per share (5) 13.51x 15.63x 17.54x 19.61x
======== ======== ======== ======
</TABLE>
(footnotes on following page)
23
<PAGE>
(1) Assumes that at the conclusion of the Offering the maximum of the Valuation
Range increases by 15% to $39,013,750 and that the Bank increases the
number of shares sold in the Offering to 1,833,646.
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Stock. Since funds on deposit at the Bank may
be withdrawn to purchase shares of Common Stock (which will reduce deposits
by the amount of such purchases), the net amount of funds available to the
Bank for investment following receipt of the net proceeds of the Offering
will be reduced by the amount of such withdrawals.
(3) Assumes that 8% of the shares of Common Stock sold in the Offering will be
purchased by the ESOP. The funds used to acquire such shares will be
borrowed by the ESOP from the Company. The Bank intends to make annual
contributions to the ESOP in an amount at least equal to the principal and
interest requirements of the debt, which is expected to have a maturity of
10 years. The pro forma net earnings assume that the Bank's total annual
contribution is equivalent to the debt service requirement for the year
ended December 31, 1997, and was made at the end of each period.
(4) Subsequent to the completion of the Offering, and subject to the approval
by stockholders the Recognition Plan intends to purchase an aggregate
number of shares of Common Stock equal to 4% of the shares to be issued in
the Offering. The shares may be acquired directly from the Company from
authorized but unissued shares, or through open market purchases. The funds
to be used by the Recognition Plan to purchase the shares will be provided
by the Company or the Bank. Assumes that the Recognition Plan acquires the
shares from the Company at the Subscription Price with funds contributed by
the Company, and that 20% of the amount contributed to the Recognition Plan
is amortized as an expense for the year ended December 31, 1998.
(5) Assumes 2,507,500 shares, 2,950,000 shares, 3,392,500 shares, and 3,901,375
shares are outstanding at the minimum, midpoint, maximum, and adjusted
maximum of the Valuation Range. Such number of shares includes shares sold
in the Offering and shares issued to the Mutual Holding Company in the
Reorganization. No effect has been given to the issuance of additional
shares of Common Stock pursuant to the Company's stock option plans.
(6) Annualized where appropriate.
(7) Stockholders' equity represents the excess of the carrying value of the
assets of the Bank over its liabilities. The amounts shown do not reflect
the federal income tax consequences of the potential restoration to income
of the bad debt reserves for income tax purposes, which would be required
in the event of liquidation.
(8) Includes assumed proceeds from sale to the Recognition Plans for $10.00 per
share of a number of authorized but unissued shares equal to 4% of the
number of shares sold in the Offering. Purchases by the Recognition Plan
will be made at the fair market value of such shares at the time of
purchase, which may be more or less than $10.00.
24
<PAGE>
AXIA FEDERAL SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of the Bank and
subsidiary for the fiscal years ended December 31, 1997 and 1996 have been
audited by Radics & Co., LLC, independent certified public accountants, whose
report thereon appears elsewhere in this Prospectus. These statements should be
read in conjunction with the Consolidated Financial Statements and Notes thereto
and Management's Discussion and Analysis of Financial Condition and Results of
Operations included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
For the Years Ended
-------------------------------
1997 1996
------------- --------------
Interest income:
<S> <C> <C>
Loans (see notes 1 and 3).................................... $ 10,942,843 $ 9,067,269
Mortgage-backed securities available for sale (see note 1) 3,536,358 4,036,856
Investment securities available for sale (see note 1) 197,426 248,508
Other interest-earning assets (see note 1)................... 406,373 370,650
------------- -------------
Total interest income...................................... 15,083,000 13,723,283
------------- -------------
Interest expense:
Deposits (see notes 1 and 6)................................. 8,908,267 8,048,040
Advances..................................................... 95,774 645
------------- -------------
Total interest expense..................................... 9,004,041 8,048,685
------------- -------------
Net interest income............................................. 6,078,959 5,674,598
Provision for loan losses (see notes 1 and 3)................... 200,000 43,056
------------- -------------
Net interest income after provision for loan losses............. 5,878,959 5,631,542
------------- -------------
Non-interest income:
Fees and service charges on deposits......................... 178,606 171,440
Fees and service charges on loans............................ 120,302 106,866
Gain on sales of securities available for sale............... 128,716 --
Gain on sale of office building.............................. -- 23,372
Gain on sale of loans........................................ 4,395 --
Miscellaneous................................................ 99,929 49,470
------------- -------------
Total non-interest income.................................. 531,948 351,148
------------- -------------
Non-interest expenses:
Salaries and employee benefits (see note 8).................. 1,980,390 1,966,496
Net occupancy expense of premises (see note 1)............... 445,516 468,782
Equipment (see note 1)....................................... 415,666 355,226
Advertising.................................................. 184,000 97,432
Federal insurance premium ................................... 119,643 1,382,048
Loss from foreclosed real estate (see note 12)............... 3,144 3,945
Miscellaneous (see note 1)................................... 832,393 816,358
------------- -------------
Total non-interest expense................................. 3,980,752 5,090,287
------------- -------------
Income before income taxes...................................... 2,430,155 892,403
Income taxes (see notes 1 and 9)................................ 876,950 283,481
------------- -------------
Net income...................................................... $ 1,553,205 $ 608,922
============= =============
</TABLE>
See notes to consolidated financial statements.
25
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Company has not yet been formed and, accordingly, has no results of
operations. The Bank's results of operations depend primarily on its net
interest income, which is the difference between the income earned on its loan
and securities portfolios and the interest expense paid on interest-bearing
liabilities. Results of operations are also affected by the Bank's provision for
loan losses, fees and service charges on deposits and loans, and gains on sales
of securities. The Bank's non-interest expense consists primarily of salaries
and employee benefits, occupancy expense, equipment expense, federal deposit
insurance premiums, advertising and other expenses. Results of operations are
also significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.
Business Strategy
The Bank has several strategies designed to enhance profitability
consistent with safety and soundness. These strategies include but are not
limited to: (i) emphasizing one-to-four family residential real estate lending;
(ii) complementing the Bank's traditional lending by increasing consumer,
multi-family and commercial real estate loans; (iii) maintaining asset quality;
(iv) expanding its deposit products to include checking and other transaction
accounts; and (v) growing at a controlled rate as market conditions permit and
consistent with profitability objectives. The Bank is subject to intense
competition, and there can be no assurances that the Company will successfully
implement these strategies.
o Emphasizing Traditional One-to-Four Family Residential Real Estate
Lending. Historically, the Bank has emphasized one-to-four family residential
lending within the Bank's primary market area. As of December 31, 1997,
approximately 93.9% of the Bank's total loan portfolio consisted of one-to-four
family residential real estate loans. During the year ended December 31, 1997,
the Bank originated $38.6 million of one-to-four family residential real estate
loans, and the Bank's portfolio of such loans totaled $143.6 million at December
31, 1997. Although the yields on residential mortgage loans are often less than
the yields on consumer loans and commercial real estate loans, the Bank intends
to continue to emphasize one-to-four family lending because of its expertise
with such lending, and the relatively low delinquency rates on one-to-four
family mortgage loans compared to other loans.
o Increasing Consumer and Other Lending. To complement the Bank's
continued emphasis on one-to-four family residential real estate lending, the
Bank intends to increase consumer, multi-family and commercial real estate
lending as market conditions permit, and consistent with safety and soundness.
As of December 31, 1997, commercial and multi-family residential real estate
loans totaled $3.2 million, or 2.1% of the Bank's gross loan portfolio, and
consumer loans totaled $6.2 million, or 4.1% of the Bank's gross loan portfolio.
To accomplish the desired growth in these areas, the Bank has evaluated consumer
and multi-family loan products offered by competitors, and intends to offer
variations that management believes will be attractive to consumers in the
Bank's market area. The Bank will also increase its advertising of these loan
products to compete more effectively in its marketplace. Management believes
that it can safely originate, service and monitor these loans; however, such
loans generally have greater credit risk than one-to-four family residential
real estate loans.
o Maintaining Asset Quality While Implementing the Bank's Lending
Strategies. As of December 31, 1997, the Bank had $934,000 of loans delinquent
90 days or more, which represented .61% of net loans. The Bank's allowance for
loan losses as of December 31, 1997 was $723,000, or .48% of net loans and 77.5%
of nonperforming loans. During the year ended December 31, 1997, the Bank
charged-off loans totaling $11,000. The Bank had no loan charge-offs in 1996.
The Bank's goal is to gradually increase its portfolio of multi-family loans
while applying prudent underwriting standards. It may be necessary to increase
the provision for loan losses, which will have an adverse effect on the Bank's
net income.
26
<PAGE>
o Attracting Checking and Other Transaction Accounts. As of December
31, 1997 the Bank had $15.9 million of transaction accounts, which represented
8.0% of total deposits. Of total checking accounts, $3.4 million were
non-interest bearing deposits. At December 31, 1997, the Bank had $45.2 million
of savings accounts, which represented 22.8% of total deposits. The Bank's goal
is to continue to increase these types of deposits through advertising. The Bank
believes that building relationships with core deposit customers is an effective
means of marketing and selling loan products and other services.
o Sustained Growth and Profitability. Total assets of the Bank have
grown by 35.6% during the past five years from $160.3 million at December 31,
1992 to $217.4 million at December 31, 1997. The Bank intends to continue to
grow and expand its operations as market conditions permit, and consistent with
management's profitability objectives. The Bank may effect such growth through
new branches and branch acquisitions.
Management of Market Risk
General. As with other savings institutions, the Bank's most
significant form of market risk is interest rate risk. The Bank's assets,
consisting primarily of mortgage loans, have longer maturities than its
liabilities, consisting primarily of deposits. As a result, a principal part of
the Bank's business strategy is to manage interest rate risk and reduce the
exposure of the Bank's net interest income to changes in market interest rates.
Accordingly, the Board of Directors has established an Asset/Liability
Management Committee which is responsible for evaluating the interest rate risk
inherent in the Bank's assets and liabilities, determining the level of risk
that is appropriate given the Bank's business strategy, operating environment,
capital, liquidity and performance objectives, and managing this risk consistent
with the guidelines approved by the Board of Directors. The Asset/Liability
Management Committee consists of senior management operating under a policy
adopted by the Board of Directors and meets at least quarterly to review the
Bank's asset/liability policies and interest rate risk position. See "Risk
Factors--Potential Effects of Changes in Interest Rates and the Current Interest
Rate Environment."
In recent years, the Bank has used the following strategies to manage
interest rate risk: (1) emphasizing one-to- four family adjustable rate mortgage
("ARM") and fixed-rate mortgage lending with maturities of 15 years or less, (2)
purchasing adjustable rate mortgage-backed securities guaranteed by FNMA or
FHLMC, (3) increasing adjustable rate home equity lending and fixed rate home
equity lending with maturities of five years or less, and (4) investing in
shorter-term securities which generally have lower yields compared to longer
term investments, but which better position the Bank to reinvest its assets if
market interest rates increase. The Bank does not engage in, trading activities
or use derivative instruments to control interest rate risk.
The Bank's current investment strategy is to maintain a securities
portfolio that provides a source of liquidity and that contributes to the Bank's
overall profitability and asset mix within given quality and maturity
considerations. The securities portfolio consists primarily of U.S. Treasury,
Federal Government and government sponsored corporation securities. All of the
Bank's investment securities, other than FHLB stock, are classified as available
for sale to provide management with the flexibility to make adjustments to the
portfolio in the event of changes in interest rates, to fulfill unanticipated
liquidity needs, or to take advantage of alternative investment opportunities.
Net Portfolio Value. In recent years, the Bank had measured the
interest rate sensitivity by computing the "gap" between the assets and
liabilities which were expected to mature or reprice within certain time
periods, based on assumptions regarding loan prepayment and deposit decay rates
formerly provided by the OTS. However, the OTS now requires the computation of
amounts by which the net present value of an institution's cash flow from
assets, liabilities and off balance sheet items (the institution's net portfolio
value or "NPV") would change in the event of a range of assumed changes in
market interest rates. These computations estimate the effect on an
institution's NPV from instantaneous and permanent 1% to 4% (100 to 400 basis
points) increases and decreases in market interest rates.
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<PAGE>
The following table presents the Bank's NPV at December 31, 1997, as
calculated by the OTS, which is based upon quarterly information that the Bank
provided voluntarily to the OTS.
Percentage Change in Net Portfolio Value
Changes
in Market Projected Estimated Amount of
Interest Rates Change (1) NPV Change
- ----------------- ------------------ ------------------- ----------------
(basis points)
(Dollars in Thousands)
400 (71.0)% $ 6,034 $ (14,786)
300 (50.0)% 10,417 (10,403)
200 (30.0)% 14,543 (6,277)
100 (13.0)% 18,174 (2,646)
0 --% 20,820 --
(100) 8.0% 22,424 1,604
(200) 11.0% 23,035 2,215
(300) 11.0% 23,170 2,349
(400) 16.0% 24,153 3,332
- -------------------------
(1) Calculated as the amount of change in the estimated NPV divided by the
estimated NPV assuming no change in interest rates.
Certain shortcomings are inherent in the methodology used in the above
interest rate risk measurement. Modeling changes in NPV requires making certain
assumptions which may or may not reflect the manner in which actual yields and
costs respond to changes in market interest rates. In this regard, the NPV table
presented assumes that the composition of the Bank's interest sensitive assets
and liabilities existing at the beginning of a period remain constant over the
period being measured and assumes that a particular change in interest rates is
reflected uniformly across the yield curve regardless of the duration to
maturity or repricing of specific assets and liabilities. Accordingly, although
the NPV table provides an indication of the Bank's interest rate risk exposure
at a particular point in time, such measurements are not intended to and do not
provide a precise forecast of the effect of changes in market interest rates on
the Bank's net interest income, and will differ from actual results.
Comparison of Financial Condition at December 31, 1997 and 1996
Assets. Total assets for the year ended December 31, 1997 increased by
$15.9 million, or 7.9%, to $217.4 million from $201.5 million. The increase in
total assets resulted primarily from a $21.5 million, or a 16.3%, increase in
gross loans receivable to $153.0 million from $131.5 million. This increase was
partially offset by a $2.6 million, or 4.7%, decrease in mortgage backed
securities from $55.5 million to $52.9 million. The increase in loans receivable
resulted primarily from continued demand for one-to four-family mortgage loans
as the Bank originated $38.6 million of such mortgage loans during 1997.
Mortgage backed securities decreased primarily because the Bank was able to
invest part of the proceeds of mortgage-backed securities prepayments and
repayments in new one-to four-family mortgage loans. Government and government
agency securities decreased by $3.0 million, or 75.6% from $4.0 million to $1.0
million. This decrease was the result of a maturity of one investment security
and another being called by the issuer.
Liabilities. Total liabilities for the year ended December 31, 1997,
increased by $14.1 million, or 7.6% from $186.7 million to $200.8 million. This
increase was primarily due to a $11.1 million, or 8.8%, increase in certificates
of deposit to $137.3 million from $126.2 million which resulted, in part, from
increased advertising in the Bank's market area.
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<PAGE>
Total Retained Earnings. Total retained earnings as of the year ended
December 31, 1997, increased by $1.7 million, or 11.5% to $16.5 million from
$14.8 million. The increase in total retained earnings was due to net income of
$1.56 million and a $175,000 increase in the unrealized gain on securities (net
of taxes) available for sale.
Analysis of Results of Operations
Net Interest Income. Net interest income represents the difference
between income on interest-earning assets and expense on interest-bearing
liabilities. Net interest income depends on the interest yield on interest
earning assets and the interest paid on interest-bearing liabilities, as well as
the relative amounts of interest-earning assets and interest-bearing
liabilities.
29
<PAGE>
The following table sets forth certain information relating to the Bank
at December 31, 1997, and for the years ended December 31, 1997 and 1996. For
the periods indicated, the total dollar amount of interest income from average
interest-earning assets and the resultant yields, as well as the interest
expense on average interest-bearing liabilities and the resultant cost, is
expressed both in dollars and rates. No tax equivalent adjustments were made.
All average balances are monthly averages.
<TABLE>
<CAPTION>
Years Ended December 31,
At --------------------------------------------------------------
December 31, 1997 1997 1996
-------------------- ------------------------------- -----------------------------
Yield/ Average Yield/ Average Yield/
Balance Cost Balance Interest Cost Balance Interest Cost
------- ---- ------- -------- ---- ------- -------- ----
(Dollars in Thousands)
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable (1)(2)..... $152,923 7.54% $144,513 $10,944 7.57% $117,720 $ 9,067 7.70%
Mortgage-backed securities 52,925 6.51 53,333 3,536 6.63 61,131 4,037 6.60
Investment securities....... 992 6.49 3,126 197 6.30 3,264 249 7.63
Other interest-earning assets 6,543 5.91 7,086 406 5.73 6,602 371 5.62
------ ------ ------ ------- -----
Total interest-earning assets 213,383 7.23 208,058 15,083 7.25 188,717 13,724 7.27
------ ------
Non-interest earning assets 4,054 3,572 3,855
--------- --------- -------
Total assets................... $217,437 $211,630 $192,572
======== ======== ========
Interest-bearing liabilities:
Interest bearing deposits
Demand.................... $12,505 1.77 $12,358 $ 244 1.97 $12,453 290 2.33
Savings and Club.......... 45,168 3.00 44,803 1,346 3.00 44,426 1,312 2.95
Certificate of deposit.... 137,314 5.52 132,467 7,318 5.52 117,347 6,446 5.49
Borrowed funds.............. -- -- 1,663 96 5.77 12 1 5.49
------- ------- ------- ------- -------
Total interest-bearing liabilities 194,987 4.62 191,291 9,004 4.71 174,238 8,049 4.62
------ -----
Non-interest bearing liabilities 5,909 4,734 3,943
Retained earnings.............. 16,541 15,605 14,391
------- ------- -------
Total liabilities and retained
earnings..................... $217,437 $211,630 $192,572
======== ======== ========
Net interest income............ $ 6,079 $ 5,675
======= =======
Net interest rate spread....... 2.61% 2.54% 2.65%
====== ====== =====
Net yield on average
interest-earning assets...... 2.92% 3.01%
====== =====
Ratio of average interest-earning assets
to interest-bearing liabilities 1.09x 1.08x
==== ====
</TABLE>
(1) Calculated net of deferred loan fees and discounts and loans in process.
(2) Includes non-accrual loans.
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<PAGE>
The table below sets forth information regarding changes in the Bank's
interest income and interest expense for the periods indicated. For each
category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume
(changes in volume multiplied by old rate) and (ii) changes in rate (changes in
rate multiplied by old volume). Changes attributable to both rate and volume,
which cannot be segregated, have been allocated proportionately to the change
due to volume and the change due to rate.
Year Ended
December 31, 1996 vs December 31, 1997
Increase (Decrease)
Due to
-----------------------------------------
Volume Rate Total
------ ---- -----
(In Thousands)
Interest income:
Loans receivable................. $ 2,032 $ (155) $ 1,877
Mortgage backed securities....... (519) 18 (501)
Investment securities............ (10) (42) (52)
Other interest-earning assets.... 28 7 35
---------- --------- ----------
Total interest income........ 1,531 (172) 1,359
---------- ---------- ----------
Interest expense:
Interest-bearing demand.......... (2) (44) (46)
Savings and club accounts........ 11 23 34
Certificates of deposit.......... 837 35 872
Borrowed funds................... 95 0 95
---------- --------- ----------
Total interest expense....... 941 14 955
---------- --------- ----------
Change in interest income............. $ 590 $ (186) $ 404
========== ========== ==========
Comparison of Operating Results For the Years Ended December 31, 1997 and 1996
General. The Bank's net income depends primarily on its level of net
interest income, which is the difference between interest earned on the Bank's
interest-earning assets, consisting primarily of one-to-four family mortgage
loans, mortgage-backed securities, home equity loans, commercial real estate
loans, multi-family real estate loans, and investment securities, and the
interest paid on interest-bearing liabilities, consisting primarily of deposits.
Net interest income is affected primarily by (i) the Bank's interest rate
spread, which is the difference between the average yield earned on
interest-earning assets and the average rate paid on interest-bearing
liabilities, and by (ii) the average balance of interest-earning assets as
compared to interest-bearing liabilities. The Bank's net income is also affected
by its level of non-interest income consisting primarily of fees and service
charges on deposits and loans, and gains on sale of securities, loans and other
assets, as well as its level of non-interest expense, including salaries and
employee benefits, occupancy, equipment, advertising, deposit insurance,
professional services and other non-interest expenses.
Interest Income. Interest income increased by $1.4 million, or 10.2%,
to $15.1 million for the year ended December 31, 1997 from $13.7 million for the
prior year. The increase was due to a $1.9 million increase in income on loans
and a $35,000 increase in income on other interest earning assets, which was
only partially offset by a $500,000 decrease in income from mortgage backed
securities, and a $52,000 decrease in income from investment securities. The
increase in income from loans was attributable primarily to a $26.8 million, or
22.8%, increase in the average balance of loans to $144.5 million from $117.7
million, which was offset by a 13 basis point decrease in the average yield on
loans to 7.57% in 1997 from 7.70% in 1996. The increase in the Bank's average
loan portfolio resulted from the Bank's originations exceeding repayments by
$21.5 million. The Bank's strategy is to continue to prudently grow its loan
portfolio, although there can be no assurances that the Bank will be able to do
so. The decrease in average yield on loans receivable resulted from originating
lower yielding residential mortgage loans in a relatively low interest rate
environment.
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<PAGE>
Interest income on the Bank's investment securities decreased by
$52,000, or 20.5%, to $197,000 from approximately $249,000. The decrease in
interest income on investment securities resulted from a scheduled maturity of
one investment and another investment being called, the interest rate of which
exceeded the average rate for the Bank's investment securities, which resulted
in a decrease in the average yield on investment securities to 6.30% during 1997
from 7.63% during 1996. Interest income on mortgage-backed securities decreased
by $500,000, or 12.5%, to $3.5 million in 1997 from $4.0 million in 1996. The
decrease in interest income on mortgage-backed securities resulted from a $7.8
million, or 12.8%, decrease in average mortgage-backed securities to $53.3
million from $61.1 million, which was only partially offset by a slight increase
in the yield on average mortgage-backed securities to 6.63% from 6.60%. The
yield on mortgage-backed securities decreased to 6.51% at December 31, 1997. The
decline in yield as of December 31, 1997 resulted primarily from management's
strategy to replace $27.0 million of fixed rate mortgage backed securities with
$27.0 million of adjustable rate mortgage securities. This strategy was
implemented in the third and fourth quarters of 1997 in an effort to reduce the
Bank's overall interest rate risk. The decrease in the average balance of
mortgage-backed securities also resulted from prepayments of the underlying
mortgage loans in a declining interest rate environment and the reinvestment of
the proceeds of such prepayments in one-to-four family mortgage loans.
Interest Expense. Interest expense increased by $955,000, or 11.9%, to
$9.0 million for the year ended December 31, 1997 from $8.0 million for the
prior year. This increase was the result of a $17.1 million, or 9.8%, increase
in the Bank's average interest bearing liabilities combined with a slight
increase in the Bank's average cost of funds to 4.71% from 4.62%. The increase
in average interest bearing liabilities resulted primarily from increases in the
average balances of the Bank's certificate of deposit products, as well as, an
increase in other borrowed funds. The increase in the average cost of the Bank's
deposits resulted from increasing the rates paid on deposits in order to better
compete with rates offered by other financial institutions.
Net Interest Income. Net interest income increased by $404,000, or
7.1%, to $6.1 million from $5.7 million. The increase in net interest income
resulted from a greater increase in average interest earning assets compared to
average interest bearing liabilities, which was partially offset by a narrowing
of the Bank's average interest rate spread to 2.54% in 1997 from 2.65% in 1996.
Management believes that the narrowing of the Bank's interest rate spread is due
in part to the relatively large percentage of the Bank's total loan portfolio
that had been originated in the low interest rate environment of the past two
years, and the large percentage (69.2%) of the Bank's total deposits consisting
of certificates of deposit. The Bank's net interest income spread was 2.61% at
December 31, 1997.
Provision for Loan Losses. The Bank establishes provisions for loan
losses, which are charged to operations, in order to maintain the allowance for
loan losses at a level which is deemed appropriate to absorb future charge-offs
of loans deemed uncollectible. In determining the appropriate level of the
allowance for loan losses, management considers past and anticipated loss
experience, valuations of real estate collateral, current and anticipated
economic conditions, volume and type of lending and the levels of nonperforming
and other classified loans. The amount of the allowance is based on estimates
and the ultimate losses may vary from such estimates. Management of the Bank
assesses the allowance for loan losses on a quarterly basis and makes provisions
for loan losses monthly in order to maintain the adequacy of the allowance.
The Bank provided $200,000 and $43,000 in loan loss provisions during
the years ended December 31, 1997 and 1996, respectively. At December 31, 1997
and 1996 the Bank's allowance for loan losses was $723,000 and $534,000,
respectively, and the Bank's loans delinquent for ninety days or more were
$934,000 and $927,000, respectively. The Bank's allowance for loan losses as a
percentage of total nonperforming loans at December 31, 1997 and 1996 was 77.4%
and 57.6%, respectively. While management believes that, based on information
currently available, the Bank's allowance for loan losses is sufficient to cover
losses inherent in its loan portfolio at this time, future loan loss provisions
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 allowance for loan losses and may require the Bank to
recognize additional provisions based on their judgment of information available
to them at the
32
<PAGE>
time of their examination. See "Business of the Bank--Nonperforming Assets and
Delinquencies" and "--Allowance for Loan Losses".
Noninterest Income. Noninterest income consists primarily of fees and
service charges on deposit accounts and loans, gain on sale of securities and
other assets, and other income. Noninterest income increased by $181,000, or
51.6%, to $532,000 for the year ended December 31, 1997 from $351,000 for the
prior year, as service charges increased by $20,000 or 7.2%, and gain on sale of
securities increased to $129,000 from no gain in the prior year, and other
income increased by $32,000, or 44.4%.
Noninterest Expense. Noninterest expense decreased by $1.1 million, or
21.8%, to $4.0 million for the year ended December 31, 1997 from $5.1 million
for the prior year. The decrease was due to a $1.3 million decrease in deposit
insurance as a result of legislation, enacted in September 1996, to recapitalize
the SAIF. The one-time assessment was 65.7 basis points per $100 in SAIF-insured
deposits held as of March 31, 1995, payable on November 30, 1996. For the Bank,
the assessment amounted to $1.0 million (or approximately $648,000, on an
after-tax basis), based on the Bank's SAIF-insured deposits as of March 31,
1995. Excluding this one-time assessment, non-interest expense totaled $4.0
million for the year ended December 31, 1996. In addition, beginning January 1,
1997, pursuant to the legislation, interest payments on FICO bonds issued in the
late 1980's by the Financing Corporation to recapitalize the former Federal
Savings and Loan Insurance Corporation are paid jointly by institutions insured
by the Bank Insurance Fund (the "BIF") and SAIF-insured institutions. The FICO
assessment will be 1.29 basis points per $100 of BIF deposits and 6.44 basis
points per $100 in SAIF deposits. Beginning January 1, 2000, the FICO interest
payments will be paid pro-rata by banks and thrifts based on deposits
(approximately 2.4 basis points per $100 of deposits).
Salaries and employee benefits increased by $14,000, or 0.7%, to $1.98
million for the year ended December 31, 1997 from $1.97 million for the prior
year. Net occupancy expense decreased slightly in 1997 from 1996 because of the
sale of a previously closed branch office. Equipment expense increased by
$60,000, or 17.0%, because of an increase in data processing expense.
Advertising expense increased $87,000, or 88.8%, because of increased
advertising to promote the Bank's new consumer loans and other loan products and
services.
Following the completion of the Reorganization, noninterest expense is
likely to increase as a result of added expenses associated with being a public
company and complying with the financial and business reports required to be
filed with regulatory agencies. In addition, compensation expense will increase
as a result of the implementation of the ESOP, Recognition Plan and Stock Option
Plan. See "Risk Factors--Implementation of Proposed Stock Benefit Plans."
Provision for Income Taxes. The Bank's provision for income taxes was
$877,000 and $283,000 for the years ended December 31, 1997 and 1996,
respectively. The higher provision for the year ended December 31, 1997 related
primarily to an increase in income before income taxes.
Net Income. Net income increased by $944,000, or 155.1% to $1.6 million
for the year ended December 31, 1997 from $609,000 for the prior year. The
increase was primarily due to $404,000 increase in net interest income, a
$181,000 increase in non-interest income, and a $1.1 million decrease in
noninterest expense (primarily due to the special assessment in 1996 to
recapitalize the SAIF), which were only partially offset by a $157,000 increase
in the provision for loan losses and a $594,000 increase in the provision for
income taxes. Excluding the special SAIF assessment, net income totaled $1.3
million for the year ended December 31, 1996.
Liquidity and Capital Resources
The objective of the Bank's liquidity management is to ensure the
availability of sufficient cash flows to meet all financial commitments and to
capitalize on opportunities for expansion. Liquidity management addresses the
33
<PAGE>
Bank's ability to meet deposit withdrawals on demand or at contractual maturity,
to repay borrowings as they mature, and to fund new loans and investments as
opportunities arise.
The Bank's primary sources of internally generated funds are principal
and interest payments on loans receivable, cash flows generated from operations,
and cash flows generated by investments. External sources of funds include
increases in deposits and advances from the FHLB of New York. At December 31,
1997, the Bank had outstanding $2.1 million in commitments to originate loans.
If the Bank requires funds beyond its internal funding capabilities, agreements
with the FHLB of New York are available to borrow funds up to $10.5 million. At
December 31, 1997, approximately $90.3 million in certificates of deposit were
scheduled to mature within a year. The Bank's experience has been that a large
portion of its maturing certificates of deposit accounts remain on deposit with
the Bank.
The Bank is required under applicable federal regulations to maintain
specified levels of "liquid" investments in qualifying types of U.S. Government,
federal agency and other investments having maturities of five years or less.
Current OTS regulations require that a savings association maintain liquid
assets of not less than 4% of its average daily balance of net withdrawable
deposit accounts and borrowings payable in one year or less. Monetary penalties
may be imposed for failure to meet applicable liquidity requirements. At
December 31, 1997, the Bank's liquidity, as measured for regulatory purposes,
was in excess of the minimum OTS requirement.
Following the Reorganization, the Company will initially conduct no
business other than holding the capital stock of the Bank, the loan it will make
to the ESOP, and the investment of the remaining 50% of the net proceeds of the
Offering. See "Use of Proceeds." In the future, the Company's primary source of
funds, other than income from its investments and principal and interest
payments received on the ESOP loan, is expected to be capital dividends from the
Bank. As a stock savings association, the Bank may not declare or pay a cash
dividend on or repurchase any of its capital stock if the effect of such
transaction would be to reduce its net worth to an amount which is less than the
minimum amount required by applicable federal regulations. At December 31, 1997,
the Bank was in compliance with all applicable capital requirements.
Capability of the Bank's Data Processing Hardware to Accommodate the Year 2000
Like many financial institutions the Bank relies upon computers for the
daily conduct of its business and for data processing generally. There is
concern among industry experts that on January 1, 2000 computers will be unable
to "read" the new year and there may be widespread computer malfunctions. The
Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. Any of the Bank's
computer programs that would have date-sensitive software may recognize a date
during "00" as the year 1900 rather than the year 2000. This could result in a
systems failure or miscalculations causing disruptions of operations, including
among other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
The Bank recognized that a comprehensive and coordinated plan of action
was needed to ensure complete readiness to perform Year 2000 processing. Year
2000 compliance responsibility has been assigned to initiate and implement the
Year 2000 project, policies, document readiness of the Bank to accommodate Year
2000 processing, and to track and test progress towards full compliance. The
Bank generally relies on independent third parties to provide data processing
service to the Bank, and has been advised by its data processing service center
that the issue is being addressed. The Bank is also in the process of ensuring
that external vendors and additional servicers are adequately addressing the
system and software issues related to the Year 2000.
Beginning in the third quarter of 1998, the Bank will coordinate
end-to-end tests with primary servicers, which allow the Bank to simulate daily
processing on sensitive century dates. In the evaluation, the Bank will ensure
that critical operations will continue if servicers or vendors are unable to
achieve the Year 2000 requirements. The Bank expects to complete the Year 2000
project no later than December 31, 1998. The Bank is in the process of
34
<PAGE>
determining the costs and time associated with the Year 2000 project and does
not expect that the total cost of the Year 2000 project will have a material
adverse impact on the financial condition or operations of the Bank. To date,
the Bank has not incurred or expensed any amount related to the assessment of,
and preliminary efforts in connection with the Year 2000 project and the
development of a remediation plan.
Impact of New Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income," which establishes standards for reporting and display of
comprehensive income and its components in a full set of general-purpose
financial statements. The comprehensive income and related cumulative equity
impact of comprehensive income items will be required to be disclosed
prominently as part of the notes to the financial statements. Only the impact of
unrealized gains or losses on securities available for sale is expected to be
disclosed as an additional component of the Bank's income under the requirements
of SFAS No. 130. This statement is effective for fiscal years beginning after
December 15, 1997.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments
of an Enterprise and Related Information," which changes the way public
companies report information about segments of their business on their annual
financial statements and requires them to report selected segment information in
their quarterly reports issued to shareholders. It also requires entity wide
disclosures about the products and services an entity provides, the foreign
countries in which it holds assets and reports revenues, and its major
customers. This statement is effective for fiscal years beginning after December
15, 1997.
Impact of Inflation and Changing Prices
The financial statements and related financial data presented herein
have been prepared in accordance with GAAP, which requires the measurement of
financial position and operating results in terms of historical dollars, without
considering changes in relative purchasing power over time due to inflation.
Unlike most industrial companies, virtually all of the Bank's assets
and liabilities are monetary in nature. As a result, interest rates generally
have a more significant impact on a financial institution's performance than
does the effect of inflation.
BUSINESS OF THE BANK
General
The Bank operates, and intends to continue to operate, as a
community-oriented financial institution dedicated to serving the credit and
savings needs of its customers. The Bank's business consists primarily of
accepting FDIC-insured deposits from the general public and using those funds to
originate one-to-four family residential real estate loans, and, to a lesser
extent, consumer loans, multi-family real estate loans and commercial real
estate loans. See "--Lending Activities."
Market Area
The Bank's headquarters is located in Avenel, New Jersey in the
township of Woodbridge. Branch offices of the Bank are located in East
Brunswick, Rahway and Linden, all of which branches, and the main office, are
located in the Bank's primary market area consisting of Middlesex and Union
Counties. Middlesex and Union Counties are contiguous and are located in the
eastern central part of New Jersey. As of 1990, Middlesex and Union Counties had
a population of approximately 672,000 and 494,000, respectively. Their economies
are based on retail services and light manufacturing, especially
pharmaceuticals. Both Johnson and Johnson and Merck and Co. have an
administrative and research presence in this market. Among the largest employers
in Middlesex and Union Counties
35
<PAGE>
are John F. Kennedy Medical Center, Robert Wood Johnson Medical Center, Merck
and Co. and Johnson & Johnson. The Bank faces intense competition from many
financial institutions for deposits and loan originations. See "Risk
Factors--Strong Competition Within the Bank's Market Area."
Lending Activities
General. At December 31, 1997, the Bank's net loans receivable totaled
$152.2 million, or 70.0% of total assets at that date. The Bank has
traditionally concentrated its lending activities on first mortgage loans
secured by one-to-four family properties that conform to the underwriting
guidelines of FNMA and FHLMC (often referred to as "conforming loans"). FNMA and
FHLMC are federally chartered corporations that purchase loans in the secondary
mortgage market and issue mortgage-backed securities that are secured by the
underlying mortgages. Mortgage loans secured by one-to-four family properties
totalled $143.6 million, or 93.9% of gross loans receivable at December 31,
1997. In addition, the Bank originates construction loans, multi-family
residential real estate loans, commercial real estate loans, home equity loans
and other consumer loans.
Loan Portfolio Analysis. The following table sets forth the composition
of the Bank's loan portfolio at the dates indicated. The Bank had no
concentration of loans exceeding 10% of total gross loans other than as
disclosed below.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------------
1997 1996
------------------------ ------------------------
Amount Percent Amount Percent
------ ------- ------ -------
(Dollars in Thousands)
Real estate loans:
<S> <C> <C> <C> <C>
One-to-four family................... $ 143,623 93.88% $ 120,892 92.11%
Multi-family......................... 1,258 0.82 1,875 1.43
Commercial........................... 1,906 1.25 2,035 1.55
Construction......................... -- -- 237 0.00
---------- ------ ---------- -------
Total real estate loans........... 146,787 95.95 125,039 95.09
---------- ------ ---------- -------
Consumer loans:
Home equity.......................... 5,706 3.73 5,364 4.08
Other................................ 491 0.32 1,101 0.84
---------- ------ ---------- -------
Total consumer loans................. 6,197 4.05 6,465 4.92
---------- ------ ---------- -------
Total loans.......................... 152,984 100.00% 131,504 100.00%
---------- ====== ---------- =======
Less:
Loans in process..................... -- 3
Deferred loan origination fees....... 61 277
Allowance for loan losses............ 723 534
---------- ----------
Total loans, net.......................... $ 152,200 $ 130,690
========== ==========
</TABLE>
36
<PAGE>
Loan Portfolio Composition. The following table shows the composition
of the Bank's loan portfolios by fixed and adjustable rate at the dates
indicated.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------
1997 1996
---------------------- -----------------------
Amount Percent Amount Percent
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Fixed rate loans:
Real estate:
One-to-four family............................... $ 73,490 48.04% $ 80,748 61.40%
Multi-family..................................... 1,193 0.78 1,107 0.84
Commercial....................................... 799 0.52 918 0.70
Construction..................................... -- -- 237 0.18
--------- --------- --------- ---------
Total real estate loans....................... 75,482 49.34 83,010 63.12
--------- --------- --------- ---------
Consumer........................................... 3,838 2.51 2,925 2.22
--------- --------- --------- ---------
Total fixed rate loans........................ 79,320 51.85 85,935 65.35
Adjustable rate loans:
Real estate:
One-to-four family............................... 70,133 45.84 40,144 30.53
Multi-family..................................... 65 0.04 768 0.58
Commercial....................................... 1,107 0.72 1,117 0.85
Construction..................................... -- -- -- --
--------- --------- --------- ---------
Total real estate loans....................... 71,305 46.61 42,029 31.96
Consumer........................................... 2,359 1.54 3,540 2.69
--------- --------- --------- ---------
Total adjustable rate loans................... 73,664 48.15 45,569 34.65
--------- --------- --------- ---------
Total loans................................... $ 152,984 100.00% $ 131,504 100.00%
========= ========= ========= =========
Less:
Loans in process................................... -- 3
Deferred fees and discounts........................ 61 277
Allowance for loan losses.......................... 723 534
--------- ---------
Total loans receivable, net................... $ 152,200 $ 130,690
========= =========
</TABLE>
One-to-Four Family Real Estate Lending. Historically, the Bank has
concentrated its lending activities on the origination of conforming first
mortgage loans secured by one-to-four family residences located in its primary
market area. At December 31, 1997, $143.6 million, or 93.9%, of the Bank's gross
loans receivable, consisted of one-to-four family residential real estate loans.
The Bank originated $38.6 million and $38.3 million of one-to-four family
residential mortgage loans during the years ended December 31, 1997 and 1996,
respectively.
The Bank originates fixed rate mortgage loans and adjustable rate
mortgage ("ARM") loans. The Bank's fixed-rate one-to-four family mortgage loans
have maturities ranging from 10 to 30 years and are fully amortizing with
monthly payments sufficient to repay the total amount of the loan with interest
at the end of the loan term. Fixed rate loans are generally originated under
terms, conditions and documentation which permit them to be sold to FNMA and
FHLMC in the secondary mortgage market, although the Bank rarely sells
fixed-rate loans. The Bank's fixed-rate loans customarily include "due on sale"
clauses, which give the Bank the right to declare a loan immediately due and
payable in the event the borrower sells or otherwise disposes of the real
property subject to the mortgage and the loan is not paid.
The Bank offers ARM loans at competitive interest rates and terms. At
December 31, 1997, $51.3 million, or 33.6%, of the Bank's gross loan portfolio
consisted of ARM loans or other loans subject to periodic interest rate
adjustments. Substantially all of the Bank's ARM loans meet the underwriting
standards of FNMA or FHLMC, even though the Bank originates ARM loans primarily
for its own portfolio. Most of the Bank's ARM loans have interest rates that
adjust every year based on the one year Treasury constant maturity index. The
Bank also originates ARM loans that have fixed interest rates for an initial
period of three to ten years, and thereafter adjust annually based on the one
year Treasury constant maturity index. A small percentage of the Bank's ARM
loans adjust based on other indices. Most of the Bank's ARM loans amortize over
a 30-year period. The Bank determines whether a borrower
37
<PAGE>
qualifies for an ARM loan based on the initial interest rate on the loan, except
that one year ARM loan borrowers are qualified at the initial rate plus 2%. The
Bank's current ARM loans do not provide for negative amortization. The Bank's
ARM loans generally provide for annual and lifetime interest rate adjustment
limits of 2% and 6%, respectively. The Bank offers initial interest rates that
may be more than 2% below the interest rate to which the loan may adjust after
the first adjustment date, (based on market interest rates at the time the loan
is originated). Accordingly, because of the Bank's 2% interest rate adjustment
limitation, the interest rates on these loans would not adjust to the
fully-indexed rate at the end of the adjustment period if interest rates were to
increase or remain unchanged at the end of the adjustment period.
Borrower demand for ARM loans versus fixed-rate mortgage loans is
affected by market interest rates, borrowers' expectations of future changes in
the level of market interest rates, and the difference between the initial
interest rates and fees charged for each type of loan. The relative amount of
fixed-rate mortgage loans and ARM loans that the Bank originates at any time is
largely determined by borrowers' demand for each type of loan.
Retaining ARM loans helps reduce the Bank's exposure to changes in
interest rates. There are, however, potential credit risks associated with ARM
loans in a rising interest rate environment. Specifically, during periods of
rising interest rates the risk of default on ARM loans may increase as a result
of repricing and the increased monthly payments required of the borrower. See
"Risk Factors--Potential Changes in Interest Rates and the Current Interest Rate
Environment." In addition, although ARM loans allow the Bank to increase the
sensitivity of its asset base to changes in market interest rates, the extent of
this interest sensitivity is limited by the annual and lifetime interest rate
adjustment limits. Because of these considerations, the Bank has no assurance
that yields on ARM loans will be sufficient to offset increases in the Bank's
cost of funds. The Bank believes these risks, which have not had a material
adverse effect on the Bank to date, generally are less than the risks associated
with holding long-term, fixed-rate loans in portfolio during a rising interest
rate environment.
The Bank requires title insurance insuring the status of the underlying
mortgaged properties and an acceptable attorney's opinion on all loans where
real estate is the primary source of security. The Bank also requires that fire
and casualty insurance be maintained in an amount at least equal to the
outstanding loan balance and, if appropriate, flood insurance also must be
maintained.
Pursuant to underwriting guidelines adopted by the Bank's Board of
Directors, the Bank can lend up to 95% of the appraised value of the property
securing a one-to-four family residential loan. The Bank does not require
private mortgage insurance for loans of up to and including 80% of the appraised
value of the property. The Bank requires private mortgage insurance for between
17% and 30% of the amount of the loan for loans of 80% to 95% of the appraised
value of the property.
Multi-Family Residential Real Estate Lending. The Bank originates
mortgage loans secured by multi-family residential properties (consisting of
more than four units). At December 31, 1997, $1.3 million, or 0.8%, of the
Bank's total gross loan portfolio consisted of loans secured by multi-family
residential real estate. The majority of the Bank's multi-family residential
real estate loans are secured by apartment buildings located in the Bank's
primary market area. The Bank offers both fixed rate and adjustable rate
multi-family residential real estate loans. Fixed rate loans are generally
offered with balloon terms of three, five and seven years, with a 25 year
amortization period, and with a "balloon" or final principal payment due at
maturity. The Bank also offers a 15 year fixed rate multi-family residential
loan with a 15 year term and amortization period and a one year adjustable rate
loan with a 25 year term and amortization period. The interest rate on the
adjustable rate loans is tied to the one year constant maturity Treasury index,
with annual and lifetime interest rate adjustment limits of 2% and 6%,
respectively. At December 31, 1997, the average balance of the Bank's
multi-family residential real estate loans was $251,000, and the largest such
loan had a balance of $484,068 and was performing in accordance with its
contractual terms.
The Bank requires appraisals of all properties securing multi-family
residential real estate loans. Appraisals are performed by an independent State
licensed and qualified appraiser approved by the Bank, and all appraisals are
reviewed by management. The Bank, when underwriting such loans, considers the
quality of the real estate, the credit of the borrower, the cash flow of the
project and the quality of management involved with the property. Loan-to-value
38
<PAGE>
ratios on the Bank's multi-family residential real estate loans are generally
limited to 75%. As part of the criteria for underwriting multi-family
residential real estate loans, the Bank generally imposes a debt coverage ratio
(the ratio of net cash from operations before payment of debt service to debt
service) of not less than 1.25. The Bank's policy is also to obtain personal
guarantees from the principals of its corporate borrowers on multi-family
residential real estate loans.
Multi-family residential real estate loans generally have higher
interest rates than those available on one-to-four family residential loans.
However, loans secured by multi-family residential real estate usually have
higher balances and are more difficult to evaluate and monitor and, therefore,
may involve a greater degree of credit risk than one-to-four family residential
mortgage loans. If the estimated value is inaccurate, the value of the property
may be insufficient to assure full repayment in the event of default and
foreclosure. Because payments on such loans often depend on the successful
operation and management of the properties, repayment of such loans may be
affected by adverse conditions in the real estate market or the economy. The
Bank seeks to minimize these risks by limiting the maximum loan-to-value ratio,
and strictly scrutinizing the financial condition of the borrower, the quality
of the collateral and the management of the property securing the loan. The Bank
also generally obtains loan guarantees from financially capable parties based on
a review of personal financial statements.
Commercial Real Estate Lending. The Bank originates mortgage loans for
the acquisition and refinancing of commercial real estate properties. At
December 31, 1997, $1.9 million, or 1.3% of the Bank's total gross loan
portfolio consisted of loans secured by commercial real estate properties. The
majority of the Bank's commercial real estate loans are secured by office
buildings, and retail stores, which are located in the Bank's primary market
area. The Bank offers both fixed rate and adjustable rate commercial real estate
loans. Fixed rate loans are generally approved with terms of three, five and
seven years, with a 25 year amortization period, resulting in a balloon payment
at the end of the stated term. The Bank also offers an adjustable rate
commercial real estate loan with annual interest rate adjustments tied to the
one year Treasury constant maturity index, and with annual and lifetime interest
rate adjustment limits of 2% and 6%, respectively. Adjustable rate commercial
real estate loans are offered for terms of 25 years and are fully amortizing. At
December 31, 1997, the average balance of the Bank's commercial real estate
loans was $163,085, and the largest such loan had a balance of $682,060 and was
performing in accordance with its contractual terms.
The Bank requires appraisals of all properties securing commercial real
estate loans. Appraisals are performed by an independent State licensed and
qualified appraiser approved by the Bank, all of which are reviewed by
management. The Bank, when underwriting such loans, considers the quality and
location of the real estate, the credit of the borrower, the cash flow of the
project and the quality of management involved with the property.
Loan-to-value ratios on the Bank's commercial real estate loans are
generally limited to 75% of the appraised value of the secured property. As part
of the criteria for underwriting commercial real estate loans, the Bank
generally imposes a debt coverage ratio (the ratio of net cash from operations
before payment of debt service to debt service) of not less than 1.25. It is
also the Bank's policy to obtain personal guarantees from the principals of its
corporate borrowers on its commercial real estate loans.
Commercial real estate loans generally have higher interest rates than
those available on one-to-four family residential loans. However, loans secured
by such properties usually have higher balances and are more difficult to
evaluate and monitor and, therefore, may involve a greater degree of risk than
one-to-four family residential mortgage loans. If the estimated value is
inaccurate, in the event of default and foreclosure the value of the property
securing the loan may be insufficient to assure full repayment. Because payments
on such loans often depend on the successful development, operation and
management of the properties, repayment of such loans may be affected by adverse
conditions in the real estate market or the economy. The Bank seeks to minimize
these risks by limiting the maximum loan-to-value ratio and strictly
scrutinizing the financial condition of the borrower, the quality of the
collateral and the management of the property securing the loan. The Bank also
obtains loan guarantees from financially capable parties based on a review of
personal financial statements.
39
<PAGE>
Construction Lending. To a lesser extent, the Bank originates
residential construction loans to local home builders, generally with whom it
has an established relationship, and to individuals who have a contract with a
builder for the construction of their residence. The Bank's construction loans
are generally secured by property located in the Bank's primary market area. At
December 31, 1997, the Bank had no construction loans outstanding.
The Bank's construction loans to home builders generally have fixed
interest rates and are for a term of 12 months. Construction loans to builders
typically are originated with a maximum loan to value ratio of 80%. Construction
loans to individuals are generally originated pursuant to the same policy
guidelines regarding loan to value ratios that are used in connection with loans
secured by one-to-four family residential real estate.
Construction loans to builders are made where the home is pre-sold or
on a speculative (unsold) basis. However, the Bank generally limits the number
of outstanding loans on unsold homes under construction to individual builders,
with the amount dependent on the financial strength of the builder, the present
exposure of the builder, and prior sales of homes in the development. Prior to
making a commitment to fund a construction loan, the Bank requires an appraisal
of the property, and all appraisals are reviewed by management. Loan proceeds
are disbursed after an inspection of the property based on a percentage of
completion. Monthly payment of accrued interest is required.
Construction loans generally have higher interest rates with shorter
terms to maturity relative to single-family permanent mortgage lending.
Construction loans, however, are generally considered to involve a higher degree
of risk than single-family permanent mortgage loans because of the inherent
difficulty in estimating both a property's value at completion of the project
and the estimated cost of the project. If the estimate of construction costs is
inaccurate, the Bank may be required to advance funds beyond the amount
originally committed to permit completion of the project. If the estimate of
value upon completion is inaccurate, the value of the property may be
insufficient to assure full repayment. Projects may also be jeopardized by
disagreements between borrowers and builders and by the failure of builders to
pay subcontractors. Loans to builders to construct homes for which no purchaser
has been identified carry more risk because the repayment of the loan depends on
the builder's ability to sell the property prior to the time that the
construction loan is due. The Bank has attempted to minimize the foregoing risks
by, among other things, limiting its construction lending primarily to
residential properties and generally requiring personal guarantees from the
principals of its corporate borrowers.
Consumer Lending. The Bank's consumer loans consist of both fixed-rate
and adjustable-rate line of credit home equity loans, and loans secured by
deposit accounts. The Bank's home equity loans and lines of credit are secured
by a first or second mortgage on residential property, and have fixed and
variable interest rates that are tied to The Wall Street Journal prime lending
rate (the "Prime Rate"). Variable interest rate equity lines of credit adjust
monthly and generally have terms of up to 20 years. Home equity loans are
offered with fixed interest rates and have terms from five to 20 years. Loans
secured by deposit accounts do not have a fixed term, and are due and payable
when the underlying deposit account or certificate is withdrawn or matures. At
December 31, 1997, consumer loans totalled $6.2 million, or 4.1% of the total
loan portfolio. The Bank promotes consumer loans by contacting existing
customers and by other promotions and advertising directed at existing and
prospective customers. All of the Bank's consumer loans are secured by real
estate or deposits. At December 31, 1997, $3.8 million, or 61.3% of consumer
loans had fixed interest rates, and $2.4 million, or 38.7%, had adjustable
interest rates.
Consumer lending is an important part of the Bank's business because
such loans generally have shorter terms and higher yields than one-to-four
family mortgage loans, thus reducing exposure to changes in interest rates. In
addition, consumer loans expand the products and services offered by the Bank to
better meet all of the financial services needs of its customers. Consumer loans
generally involve greater credit risk than residential mortgage loans because of
the difference in the underlying collateral. Repossessed collateral for a
defaulted consumer loan may not provide an adequate source of repayment of the
outstanding loan balance because of the greater likelihood of damage, loss or
depreciation in the underlying collateral. The remaining deficiency often does
not warrant further substantial collection efforts against the borrower beyond
obtaining a deficiency judgment. In addition, consumer loan collections depend
on the borrower's personal financial stability. Furthermore, the application of
various federal and state laws, including federal and state bankruptcy and
insolvency laws, may limit the amount that can be recovered on such loans.
40
<PAGE>
The Bank believes that these risks are not as prevalent in the case of the
Bank's consumer loan portfolio because a large percentage of the portfolio
consists of home equity loans that are underwritten so that their credit risk is
substantially similar to that of one-to-four family residential mortgage loans.
Nevertheless, these loans have greater credit risk than one-to-four family
residential mortgage loans because they often are secured by mortgages
subordinated to the existing first mortgage on the property, which may or may
not be held by the Bank.
The Bank's underwriting procedures for consumer loans include an
assessment of the applicant's credit history and the ability to meet existing
and proposed debt obligations. Although the applicant's creditworthiness is the
primary consideration, the underwriting process also includes a comparison of
the value of the security, to the proposed loan amount. The Bank underwrites and
originates its consumer loans internally, which the Bank believes limits its
exposure to credit risks associated with loans underwritten or purchased from
brokers and other external sources.
Maturity of Loan Portfolio. The following table sets forth certain
information at December 31, 1997 regarding the dollar amount of loans maturing
in the Bank's portfolio based on their contractual terms to maturity, but does
not include scheduled payments or potential prepayments. Demand loans and loans
with no stated maturity are reported as becoming due within one year. Loan
balances do not include undisbursed loan proceeds, unearned discounts, unearned
income and allowance for loans losses.
<TABLE>
<CAPTION>
One-to-Four
Family Multi-Family Commercial Consumer Total
------ ------------ ---------- -------- -----
(In Thousands)
Amounts Due:
<S> <C> <C> <C> <C> <C>
Within 1 year............................... $ 91 $ -- $ 75 $ 184 $ 350
Over 1 to 2 years........................... 158 -- -- 98 256
Over 2 to 3 years........................... 109 -- -- 156 265
Over 3 to 5 years........................... 3,910 -- -- 494 4,404
Over 5 to 10 years.......................... 19,162 484 23 1,536 21,205
Over 10 to 25 years......................... 47,133 774 1,049 3,729 52,685
Over 25 years............................... 73,060 -- 759 -- 73,819
--------- --------- --------- --------- ---------
Total amount due............................ $ 143,623 $ 1,258 $ 1,906 $ 6,197 $ 152,984
========= ========= ========= ========= =========
</TABLE>
The following table sets forth the dollar amount of all loans for which
final payment is not due until after December 31, 1998. The table also shows the
amount of loans which have fixed rates of interest and those which have
adjustable rates of interest.
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In Thousands)
Real estate loans:
One-to-four family ....$ 73,364 $ 70,168 $ 143,532
Multi-family........... 1,193 65 1,258
Commercial............. 724 1,107 1,831
------------- ------------- -------------
Total real estate loans.. 75,281 71,340 146,621
------------- ------------- -------------
Consumer................. 3,831 2,182 6,013
------------- ------------- -------------
Total loans............$ 79,112 $ 73,522 $ 152,634
============= ============= =============
Scheduled contractual principal repayments of loans do not necessarily
reflect the actual life of such loans. The actual life of a loan is often less
than its contractual term because of the possibility of prepayment. In addition,
due-on-sale clauses on mortgage loans give the Bank the right to declare loans
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage and the loan is not repaid. The
average life of the Bank's mortgage loans portfolio tends to increase, however,
when current mortgage loan market interest rates are substantially higher than
interest rates on existing mortgage loans. Conversely, the average life of the
Bank's loan portfolio would decrease when interest rates on existing mortgage
loans are substantially higher than current mortgage loan market interest rates.
41
<PAGE>
Loan Solicitation and Processing. The Bank's lending activities are
subject to the written underwriting standards and loan origination procedures
established by the Board of Directors. Loan originations come from a number of
sources. The principal sources of loan originations are newspaper advertising,
real estate agents, home builders, walk-in customers, referrals and existing
customers. The Bank uses professional fee appraisers for residential real estate
loans and construction loans and all commercial real estate loans. The Bank
requires hazard, title and, to the extent applicable, flood insurance on all
property securing its real estate loans. Mortgage loan applications are
initiated by loan officers. All loans of $500,000 or more must be approved by
the Board of Directors. Loans of less than $500,000 may be approved by the
Bank's Loan Committee, which consists of the Bank's President and two lending
officers.
42
<PAGE>
Loan Originations, Sales and Purchases. The following table sets forth
total loans originated and repaid during the periods indicated.
Years Ended December 31,
-----------------------------
1997 1996
------------- ------------
(In Thousands)
Originations:
Adjustable rate:
Real Estate
One-to-four family (1)..................... $ 22,317 $ 22,542
Multi-family............................... -- --
Commercial................................. -- --
Construction............................... -- --
Consumer..................................... 1,654 2,122
--------- ---------
Total adjustable rate...................... 23,971 24,664
Fixed rate:
Real estate
One-to-four family......................... 16,234 15,713
Multi-family............................... -- --
Commercial................................. -- --
Construction............................... 140 631
Consumer..................................... 838 564
--------- ---------
Total fixed rate........................... 17,212 16,908
--------- ---------
Total loans originated..................... 41,183 41,572
--------- ---------
Purchases:
Real estate
One-to-four family........................... -- --
Multi-family................................. -- 97
Commercial................................... -- --
Consumer....................................... -- --
--------- ---------
Total loans purchased........................ -- 97
--------- ---------
Sales and Repayments:
Real estate....................................
One-to-four family........................... -- --
Multi-family................................. -- --
Commercial................................... -- --
Consumer....................................... 647 --
--------- ---------
Total loans sold............................. 647 --
--------- ---------
Principal repayments.............................. 19,056 15,524
--------- ---------
Total reductions............................... 19,703 15,524
--------- ---------
Increase in other items, net...................... 30 62
--------- ---------
Net increase (decrease)........................ $ 21,510 $ 26,207
========= =========
(1) Originations include mortgage loans which adjust annually after an initial
fixed rate period of five, seven or ten years in the following amounts:
Years Ended December 31,
----------------------------
1997 1996
----------- ------------
(In Thousands)
Initial fixed rate:
Five years................................ $ 6,087 $ 2,871
Seven years............................... 6,909 3,377
Ten years................................. 1,027 2,866
Loan Commitments. The Bank issues commitments for mortgage loans
conditioned upon the occurrence of certain events. Such commitments are made in
writing on specified terms and conditions and generally remain outstanding for
45 to 60 days from the date the commitment is issued, depending on the type of
transaction. At
43
<PAGE>
December 31, 1997, the Bank had total loan commitments of $2.1 million and
commitments to customers for unused lines of credit of $3.1 million outstanding.
See Note 10 of Notes to Consolidated Financial Statements.
Loan Fees. In addition to interest earned on loans, the Bank receives
income from fees in connection with loan originations, late payments and for
miscellaneous services related to its loans. Income from these activities varies
from period-to-period depending upon the volume and type of loans made and
competitive conditions.
The Bank charges loan origination fees which are calculated as a
percentage of the amount borrowed. In accordance with applicable accounting
procedures, loan origination fees in excess of loan origination costs are
deferred and recognized over the contractual remaining lives of the related
loans on a level yield basis. Discounts and premiums on loans purchased are
accreted and amortized in the same manner. The Bank recognized income of $69,000
and $44,000 of deferred loan fees during the years ended December 31, 1997 and
1996, respectively.
Nonperforming Assets and Delinquencies. When a borrower fails to make a
required payment on a loan, the Bank attempts to cure the deficiency by
contacting the borrower and seeking the payment. Computer generated late notices
are mailed 15 days after a payment is due. In most cases, deficiencies are cured
promptly. If a delinquency continues, additional contact is made either through
a notice or other means, and the Bank will attempt to work out a payment
schedule and actively encourage delinquent borrowers to seek home ownership
counseling. While the Bank generally prefers to work with borrowers to resolve
such problems, the Bank will institute foreclosure or other proceedings, as
necessary, to minimize any potential loss.
Loans are placed on nonaccrual status generally if, in the opinion of
management, principal or interest payments are not likely to be received in
accordance with the terms of the loan agreement, or when principal or interest
is past due 90 days or more. Interest accrued but not collected at the date the
loan is placed on nonaccrual status is reversed against income when it is
considered uncollectible. Loans may be reinstated to accrual status when
payments are under 90 days past due and, in the opinion of management,
collection of the remaining past due balances can be reasonably expected.
The Bank's Board of Directors is informed monthly of the status of all
mortgage loans delinquent more than 60 days, all loans in foreclosure and all
foreclosed and repossessed property owned by the Bank.
44
<PAGE>
The following table sets forth information with respect to the Bank's
nonperforming assets at the dates indicated. As of such dates, the Bank had no
restructured loans within the meaning of SFAS No. 15.
At December 31,
-----------------
1997 1996
---- ----
(Dollars in Thousands)
Non-accruing loans:
One to four family.............................. $ 844 $ 841
Multi-family.................................... 65 63
Commercial...................................... -- --
Consumer........................................ -- --
-------- --------
Total........................................... 909 904
-------- --------
Accruing loans delinquent more than 90 days:
One to four family.............................. -- --
Multi-family.................................... -- --
Commercial...................................... -- --
Consumer (1).................................... 25 26
-------- --------
Total........................................... 25 26
-------- --------
Real estate owned............................... 121 --
-------- --------
Total non-performing assets..................... $ 1,055 $ 930
======== ========
Total as a percentage of total assets........... 0.49% 0.46%
- ---------------------
(1) Consists of student loans backed by a government guarantee.
Interest income that would have been recorded for the fiscal years
ended December 31, 1997 and 1996 had nonaccruing loans been current in
accordance with their original terms amounted to $84,000 and $77,000,
respectively. The Bank recorded $36,000 and $35,000, respectively, of interest
income on such loans for such periods.
The following table sets forth the Bank's loan delinquencies by type,
by amount and by percentage of type at December 31, 1997.
<TABLE>
<CAPTION>
Loans delinquent for:
--------------------------------------------------------------------------------------
60-89 days 90 Days and Over Total Delinquent Loans
-------------------------- --------------------------- ----------------------------
Percent Percent Percent
of Loan of Loan of Loan
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
Real Estate:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One-to-four family.......... 4 $ 208 0.14 9 $ 844 0.59 13 $1,052 0.73
Multi-family................ -- -- -- 1 65 5.17 1 65 5.17
Commercial.................. -- -- -- -- -- -- -- -- --
Consumer....................... 2 6 0.10 7 25 0.40 9 31 0.50
---- ------- ---- ------ ---- ------
6 $ 214 0.14 17 $ 934 0.61 23 $1,148 0.75
==== ======= ==== ====== ==== ======
</TABLE>
Real Estate Acquired in Settlement of Loans. Real estate acquired by
the Bank as a result of foreclosure or by deed-in-lieu of foreclosure is
classified as real estate acquired in settlement of loans until sold. Foreclosed
real estate is held for sale and such assets are carried at fair value minus
estimated cost to sell the property. After the date of acquisition, all costs
incurred in maintaining the property are expensed and costs incurred for the
improvement or
45
<PAGE>
development of such property are capitalized up to the extent of their fair
value. At December 31, 1997, the Bank had $121,000 of real estate acquired in
settlement of loans.
Restructured Loans. Under GAAP, the Bank is required to account for
certain loan modifications or restructuring as a "troubled debt restructuring."
In general, the modification or restructuring of a debt constitutes a troubled
debt restructuring if the Bank for economic or legal reasons related to the
borrower's financial difficulties grants a concession to the borrowers that the
Bank would not otherwise consider. Debt restructurings or loan modifications for
a borrower do not necessarily always constitute troubled debt restructurings,
however, and troubled debt restructurings do not necessarily result in
nonaccrual loans. The Bank had no restructured loans as of December 31, 1997.
Asset Classification. The OTS has adopted various regulations regarding
problem assets of savings institutions. The regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, OTS examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: substandard,
doubtful and loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the insured institution will
sustain some loss if the deficiencies are not corrected. Doubtful assets have
the weaknesses of substandard assets with the additional characteristic that the
weaknesses make collection or liquidation in full on the basis of currently
existing facts, conditions and values questionable, and there is a high
possibility of loss. An asset classified as loss is considered uncollectible and
of such little value that continuance as an asset of the institution is not
warranted. If an asset or portion thereof is classified as loss, the insured
institution establishes specific allowances for loan losses for the full amount
of the portion of the asset classified as loss. All or a portion of general loan
loss allowances established to cover possible losses related to assets
classified substandard or doubtful can be included in determining an
institution's regulatory risk based capital, while specific valuation allowances
for loan losses generally do not qualify as regulatory capital. Assets that do
not currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are designated "special mention" and monitored by the Bank. As of December 31,
1997, the Bank had $285,000 of assets classified as "special mention."
At December 31, 1997, the Bank's had $1.1 million of assets classified
substandard, and no assets classified doubtful or loss.
Allowance for Loan Losses. The Bank has established a systematic
methodology for the determination of provisions for loan losses. The methodology
is set forth in a formal policy and takes into consideration the need for an
overall general valuation allowance as well as specific allowances that are tied
to individual loans.
In originating loans, the Bank recognizes that losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the creditworthiness of the borrower over the term of
the loan, general economic conditions and, in the case of a secured loan, the
quality of the security for the loan. The Bank increases its allowance for loan
losses by charging provisions for loan losses against the Bank's income.
The general valuation allowance is maintained to cover losses inherent
in the loan portfolio. Management's periodic evaluation of the adequacy of the
allowance is based on the Bank's past loan loss experience, known and inherent
risks in the portfolio, adverse situations that may affect the borrower's
ability to repay, the estimated value of any underlying collateral, current
economic conditions and the size and growth of the loan portfolio. Specific
valuation allowances are established to absorb losses on loans for which full
collectibility cannot be reasonably assured. The amount of the allowance is
based on the estimated value of the collateral securing the loan and other
analyses pertinent to each situation. Generally, a provision for losses is
charged against income monthly to maintain the allowances.
At December 31, 1997, the Bank had an allowance for loan losses of
$724,000. Management believes that the amount maintained in the allowance at
December 31, 1997 will be adequate to absorb losses inherent in the portfolio.
Although management believes that it uses the best information available to make
such determinations,
46
<PAGE>
future adjustments to the allowance for loan losses may be necessary and results
of operations could be significantly and adversely affected if circumstances
differ substantially from the assumptions used in making the determinations.
Furthermore, while the Bank believes it has established its existing allowance
for loan losses in accordance with GAAP, there can be no assurance that
regulators, in reviewing the Bank's loan portfolio, will not request the Bank to
increase significantly its allowance for loan losses. In addition, because
future events affecting borrowers and collateral cannot be predicted with
certainty, there can be no assurance that the existing allowance for loan losses
is adequate or that substantial increases will not be necessary should the
quality of any loan deteriorate as a result of the factors discussed above. Any
material increase in the allowance for loan losses may adversely affect the
Bank's financial condition and results of operations.
The following table sets forth an analysis of the Bank's allowance for
loan losses.
<TABLE>
<CAPTION>
At and For the Years
Ended December 31,
----------------------------------
1997 1996
--------------- --------------
(Dollars in Thousands)
<S> <C> <C>
Balance at beginning of period.............................. $ 534 $ 490
--------- ---------
Charge-offs
Real estate:
One-to-four family....................................... 11 --
Multi-family and other................................... -- --
--------- ---------
Total.................................................. 11 --
Total Recoveries............................................ -- 1
Net charge-offs............................................. 11 (1)
--------- ----------
Additions charged to operations............................. 200 43
--------- ---------
Balance at end of period.................................... $ 723 $ 534
========= =========
Ratio of net charge-offs during the period to average loans
outstanding during the period............................ 0.01% --
========= =========
Ratio of net charge-offs during the period to average
non-performing assets.................................... 1.04% --
========= =========
</TABLE>
The activity in allowance for loan losses follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------
1997 1996
--------------- -------------
(In Thousands)
<S> <C> <C>
Balance - beginning......................................... $ 534 $ 490
Provisions charged to operations............................ 200 43
Loans charged off, net of recoveries........................ (11) 1
--------- ---------
Balance - ending............................................ $ 723 $ 534
========= =========
</TABLE>
47
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category at the dates indicated. Management believes that the
allowance can be allocated by category only on an approximate basis. The
allocation of the allowance to each category is not necessarily indicative of
future losses and does not restrict the use of the allowance to absorb losses in
any other category.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------
1997 1996
------------------------------------- -------------------------------------
% of % of
Loan Loans in Loan Loans in
Amount of Amounts Each Category Amount of Amounts Each Category
Loan Loss by to Total Loan Loss by to Total
Allowances Category Loans Allowances Category Loans
---------- -------- ----- ---------- -------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to Four-family..................... $ 402 $ 143,623 93.88% $ 356 $ 121,129 92.10%
Multi-family............................ 22 1,258 0.82 42 1,875 1.43
Commercial real estate.................. 37 1,906 1.25 61 2,035 1.55
Home equity............................. 59 5,706 3.73 75 5,364 4.08
Other consumer.......................... 3 491 0.32 -- 1,101 0.84
Unallocated............................. 200 -- 0.00 -- -- 0.00
------- --------- ------ ------ --------- -----
$ 723 $ 152,984 100.00% $ 534 $ 131,504 100.00%
======= ========= ====== ====== ========= ======
</TABLE>
Investment Activities
The Bank is permitted under federal law to invest in various types of
liquid assets, including U.S. Treasury obligations, government sponsored
corporation securities, securities of various federal agencies and of state and
municipal governments, deposits at the FHLB of New York, certificates of deposit
of federally insured institutions, certain bankers' acceptances and federal
funds. Subject to various restrictions, the Bank may also invest a portion of
its assets in commercial paper and corporate debt securities. The Bank is not
permitted to invest in corporate equity securities. Savings institutions like
the Bank are also required to maintain an investment in FHLB stock. The Bank is
required under federal regulations to maintain a minimum amount of liquid
assets. See "Regulation" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
The Bank purchases investment securities with excess liquidity arising
when investable funds exceed loan demand. The Bank's current investment policy
limits investments to U.S. Government and government sponsored corporation
securities, certificates of deposit, marketable corporate debt obligations, and
mortgage-backed securities. The Bank's investment policy does not permit
engaging directly in hedging activities or purchasing high risk mortgage
derivative products or non-investment grade corporate bonds. Investments are
made based on certain considerations, which include the interest rate, yield,
settlement date and maturity of the investment, the Bank's liquidity position,
and anticipated cash needs and sources (which in turn include outstanding
commitments, upcoming maturities, estimated deposits and anticipated loan
amortization and repayments). The effect that the proposed investment would have
on the Bank's credit and interest rate risk and risk-based capital is also
considered.
48
<PAGE>
The following table sets forth the carrying value of the Bank's
investment portfolio, at the dates indicated. All investment securities, other
than FHLB stock, are available for sale.
<TABLE>
<CAPTION>
At December 31,
1997 1996
------------------- ------------------
Carrying % of Carrying % of
Value Total Value Total
----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Federal agency obligations........................... $ 1,000 13.27% $ 3,944 39.10%
Unrealized gain (loss), net.......................... (8) (0.10) 57 0.57
---------- -------- --------- -------
Total investment securities available for sale 992 13.17 4,001 39.67
FHLB Stock........................................... 1,804 23.94 1,615 16.01
--------- ------- --------- -------
Total investments and FHLB stock..................... 2,796 37.11 5,616 55.68
--------- ------- --------- -------
Average remaining life of investment securities 6 years 6 years
Other interest earning assets:
Interest bearing deposits in banks................... 4,739 62.89% 4,471 44.32%
--------- ------- --------- -------
Total................................................ $ 7,535 100.00% $ 10,087 100.00%
========= ======= ========= ======
</TABLE>
The following table sets forth the composition of the Bank's
mortgage-backed securities at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------
1997 1996
-------------------- --------------------
Carrying % of Carrying % of
Value Total Value Total
----- ----- ----- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C>
GNMA................................................. $ 1,184 2.24% $ 1,813 3.27%
FNMA................................................. 19,922 37.64 12,300 22.15
FHLMC................................................ 30,614 57.84 40,604 73.13
--------- ------- --------- -------
Total mortgage-backed securities available for sale 51,720 97.72 54,717 98.55
Net unamortized premium, (discounts)................. 545 1.03 487 0.88
Unrealized gains, net................................ 660 1.25 321 0.57
--------- ------- --------- -------
Total mortgage backed securities available for sale $52,925 100.00% $55,525 100.00%
======= ====== ======= ======
</TABLE>
The following table shows mortgage-backed securities purchases and
repayment activities of the Bank for the periods indicated.
Years Ended December 31
-------------------------
1997 1996
---------- ----------
(In Thousands)
Purchases:
Adjustable-rate.................................... $ 29,207 $ 4,280
Fixed-rate......................................... 12,072 2,000
--------- ---------
Total purchases................................. 41,279 6,280
--------- ---------
Sales:
Adjustable rate.................................... -- --
Fixed-rate......................................... 30,714 --
--------- ---------
Total sales..................................... 30,714 --
--------- ---------
Principal Repayments............................... 13,375 14,051
Increase (decrease) in other items, net............ 210 (373)
--------- ---------
Net increase (decrease)......................... $ (2,600) $ (8,144)
========= =========
49
<PAGE>
The following table sets forth the amount of investment and
mortgage-backed securities which mature during each of the periods indicated and
the weighted average yields for each of the range at maturities at December 31,
1997.
<TABLE>
<CAPTION>
After One Year After Five Years
One Year or Less Through Five Years Through Ten Years After Ten Years Total
------------------ ------------------ ------------------ ----------------- ----------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
------------------ ------------------ ------------------ ----------------- ----------------
(Dollars in Thousands)
Securities available for sale:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government Securities...... $ -- --% $ -- --% $ -- --% $ -- --% $ -- --%
Federal Agency Debentures....... -- -- -- -- 1,000 6.49 -- -- 1,000 6.49
Mortgage Backed Securities...... 71 5.56 5,113 6.49 -- -- 47,081 6.38 52,265 6.39
----- ------- ------- ------- -------
Total Investment Securities........ $ 71 5.56% $ 5,113 6.49% $ 1,000 6.49% $47,081 6.38% $53,265 6.39
===== ======= ======= ======= =======
Weighted Average Rate.............. 5.50% 6.55% 6.49% 6.49% 6.50%
</TABLE>
50
<PAGE>
Deposit Activities and Other Sources of Funds
General. Deposits are the major external source of funds for the Bank's
lending and other investment activities. In addition, the Bank also generates
funds internally from loan principal repayments and prepayments and maturing
investment securities. Scheduled loan repayments are a relatively stable source
of funds, while deposit inflows and outflows and loan prepayments are influenced
significantly by general interest rates and money market conditions. Borrowings
from the FHLB of New York may be used on a short-term basis to compensate for
reductions in the flow of funds from other sources or as a long-term funding
strategy. Presently, the Bank has no other borrowing arrangements.
Deposit Accounts. The Bank's deposit products include negotiable order
of withdrawal ("NOW") accounts, demand deposit accounts, money market accounts,
regular passbook savings, statement savings accounts and term certificate
accounts. Deposit account terms vary with the principal difference being the
minimum balance deposit, early withdrawal penalties and the interest rate. The
Bank reviews its deposit mix and pricing weekly. The Bank does not utilize
brokered deposits, nor has it sought jumbo certificates of deposit.
The Bank believes it is competitive in the type of accounts and
interest rates it offers on its deposit products. The Bank determines the rates
paid based on a number of conditions, including rates paid by competitors, rates
on U.S. Treasury securities, rates offered on various FHLB of New York lending
programs, and the deposit growth rate the Bank is seeking to achieve.
The Bank may use premiums to attract new checking accounts,
particularly in conjunction with new branch openings. These premiums are
reflected as an increase in the Bank's advertising and promotion expense, as
well as its cost of funds. The Bank also attracts business checking accounts and
promotes individual retirement accounts ("IRAs").
In the unlikely event the Bank is liquidated after the Reorganization,
depositors would be entitled to full payment of their deposit accounts before
any payment is made to any stockholder of the Bank.
The following table sets forth an analysis of deposit accounts by type,
maturity, and rate at December 31, 1997 and 1996, as well as the savings flows.
<TABLE>
<CAPTION>
At December 31, 1997 At December 31, 1996
------------------------------- ------------------------------
Weighted Increase Weighted
Average % of (Decrease) Average % of
Amount Rate Total in Amount Amount Rate Total
------ ---- ----- --------- ------ ---- -----
(Dollars in Thousands)
Transactions and savings deposits
<S> <C> <C> <C> <C> <C> <C> <C>
Non-interest bearing.................. $ 3,376 --% 1.70% $ 959 $ 2,417 --% 1.31%
Money market accounts................. 2,809 2.69 1.42 (351) 3,160 2.75 1.71
NOW accounts.......................... 9,696 1.50 4.89 880 8,816 2.25 4.77
Passbook and statement savings........ 45,168 3.00 22.77 1,048 44,120 2.99 23.89
Certificate accounts with remaining
maturities of:
6 months or less...................... 62,587 5.30 31.55 9,613 52,974 5.05 28.68
Over 6 to 12 months................... 27,714 5.37 13.97 (4,188) 31,902 5.50 17.27
Over 12 months........................ 47,013 5.89 23.70 5,693 41,320 5.75 22.37
------- ------ ------- ------- ------
Total certificates.................. 137,314 5.52 69.22 11,118 126,196 5.39 68.32
------- ------ ------- ------- ------
Total deposits...................... $198,363 4.62% 100.00% $13,654 $184,709 4.55% 100.00%
======== ====== ======= ======== ======
</TABLE>
51
<PAGE>
Deposit Flow. The following table sets forth the balances (inclusive of
interest credited) and changes in dollar amounts of deposits in the various
types of accounts offered by the Bank between the dates indicated.
December 31, 1997 December 31, 1996 Change
----------------- ----------------- ------
(In Thousands)
NOW Accounts........................ $ 15,878 $ 13,648 $ 2,230
Passbook and statement savings...... 45,171 44,117 1,054
Certificates of deposit............. 115,717 107,912 7,805
Individual retirement accounts...... 21,597 19,032 2,565
-------- -------- -------
Total Deposits...................... $198,363 $184,709 $13,654
======== ======== =======
Time Deposits by Maturities. The following table sets forth the amount
of time deposits in the Bank categorized by rates and maturities at December 31,
1997.
<TABLE>
<CAPTION>
After
December 31, December 31, December 31, December 31,
1998 1999 2000 2000 Total
--------------- --------------- --------------- ---------------- -----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
4.00-5.99%....... $ 88,289 $ 22,656 $ 15,559 $ 1,316 $ 127,820
6.00-7.99%....... 2,012 782 6,700 -- 9,494
--------- --------- --------- -------- ----------
Total............ $ 90,301 $ 23,438 $ 22,259 $ 1,316 $ 137,314
========= ========= ========= ======== ==========
</TABLE>
The following table indicates the amount of the Bank's certificates of
deposit and other deposits by time remaining until maturity as of December 31,
1997.
<TABLE>
<CAPTION>
Maturity
--------------------------------------------------------
3 Months 4 Months 13 Months 37 Months
Or Less to 12 Months to 36 Months and Over Total
-------- ------------ ------------ --------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Certificates of Deposit
less than $100,000............ $31,220 $54,072 $42,613 $1,097 $129,002
Certificates of Deposit
of $100,000 or more........... 2,482 2,532 3,080 218 8,312
------- ------- ------- ------ --------
Total Certificates of Deposit.... $33,702 $56,604 $45,693 $1,315 $137,314
======= ======= ======= ====== ========
</TABLE>
Deposit Activity. The following table sets forth the deposit activity of
the Bank for the periods indicated.
Years Ended December 31,
------------------------
1997 1996
-------- --------
(In Thousands)
Beginning balance.................................... $184,709 $169,842
-------- --------
Net increase (decrease) before interest credited..... 5,283 7,343
Interest credited.................................... 8,371 7,524
-------- --------
Net increase (decrease) in savings deposits.......... 13,654 14,867
-------- --------
Ending balance....................................... $198,363 $184,709
======== ========
Borrowings. Savings deposits are the primary source of funds for the
Bank's lending and investment activities and for its general business purposes.
The Bank has the ability to use advances from the FHLB of New York to supplement
its supply of lendable funds and to meet deposit withdrawal requirements. The
FHLB of New York functions as a central reserve bank providing credit for
savings associations and certain other member financial institutions. As a
member of the FHLB of New York, the Bank is required to own capital stock in the
FHLB of New York and is authorized to apply for advances on the security of such
stock and certain of its mortgage loans and other assets (principally securities
that are obligations of, or guaranteed by, the U.S. Government) provided certain
creditworthiness standards have been met. Advances are made pursuant to several
different credit programs. Each credit program has its own interest rate and
range of maturities. Depending on the program, limitations on the amount of
advances are based on the financial condition of the member institution and the
adequacy of collateral pledged to secure the credit.
52
<PAGE>
The following table sets forth the maximum month-end balance and
average balance of FHLB of New York advances for the periods indicated.
Year Ended December 31,
-----------------------------
1997 1996
--------------- ----------
(In Thousands)
Maximum Balance:
FHLB advances............................. $ 7,500 $ 800
Average Balance:
FHLB advances............................. $ 1,663 $ 12
At December 31, 1997 and 1996, no advances were outstanding from the
FHLB of New York.
Competition
The Bank faces intense competition in its primary market area for the
attraction of savings deposits (its primary source of lendable funds) and the
origination of loans. Its most direct competition for savings deposits has
historically come from commercial banks, credit unions, other thrifts operating
in its market area, mutual funds and other financial institutions such as
brokerage firms and insurance companies. Particularly in times of high interest
rates, the Bank has faced additional significant competition for investors'
funds from short-term money market securities and other corporate and government
securities. The Bank's competition for loans comes from commercial banks, thrift
institutions, credit unions and mortgage bankers. Such competition for deposits
and the origination of loans may limit the Bank's growth in the future. See
"Risk Factors--Strong Competition Within the Bank's Market Area."
Subsidiary Activities
Under OTS regulations, the Bank generally may invest up to 3% of its
assets in service corporations, provided that at least one-half of investment in
excess of 1% is used primarily for community, inner-city and community
development projects. The Bank's investment in its wholly-owned service
corporation, Axia Financial Corporation which was $19,522 at December 31, 1997,
did not exceed these limits. The Bank's other service corporation, Axia
Financial Services, is unfunded and inactive at this time.
Properties
The following table sets forth certain information regarding the Bank's
offices at December 31, 1997.
Location Year Opened Approximate Square Feet Deposits
- -------- ----------- ----------------------- --------
1410 St. Georges Avenue 1986 9,200 $57.6 million
Avenel, NJ 07001
1515 Irving Street 1995 7,300 $42.0 million
Rahway, NJ 07065
225 North Wood Ave. 1977 1,400 $39.2 million
Linden, NJ 07036
755 State Highway 18 1974 2,000 $59.5 million
East Brunswick, NJ 08816
At December 31, 1997, the net book value of the Bank's office
properties and fixtures, furniture, and equipments was $2.1 million.
53
<PAGE>
Employees
As of December 31, 1997, the Bank had 43 full-time and 1 part-time
employees none of whom is represented by a collective bargaining unit. The Bank
believes its relationship with its employees is good.
Legal Proceedings
Periodically, there have been various claims and lawsuits involving the
Bank, such as claims to enforce liens, condemnation proceedings on properties in
which the Bank holds security interests, claims involving the making and
servicing of real property loans and other issues incident to the Bank's
business. The Bank is not a party to any pending legal proceedings that it
believes would have a material adverse effect on the financial condition or
operations of the Bank.
REGULATION
As a federally chartered SAIF-insured savings bank, the Bank is subject
to examination, supervision and extensive regulation by the OTS and the FDIC.
The Bank is a member of the FHLB of New York. 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 Bank also is subject to regulation by the Board of Governors of
the Federal Reserve System (the "Federal Reserve Board") governing reserves to
be maintained against deposits and certain other matters. The OTS examines the
Bank and prepares reports for the consideration of the Bank's Board of
Directors. The FDIC also examines the Bank in its role as the administrator of
the SAIF. The Bank's relationship with its depositors and borrowers also is
regulated to a great extent by both federal and state laws, especially in such
matters as the ownership of savings accounts and the form and content of the
Bank's mortgage documents. Any change in such regulation, whether by the FDIC,
OTS, or Congress, could have a material adverse impact on the Company and the
Bank and their operations.
Federal Regulation of Savings Institutions
Business Activities. The activities of savings institutions are
governed by the Home Owners' Loan Act, as amended (the "HOLA") and, in certain
respects, the Federal Deposit Insurance Act (the "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 savings association
may engage. The description of statutory provisions and regulations applicable
to savings associations set forth herein does not purport to be a complete
description of such statutes and regulations and their effect on the Bank.
Loans to One Borrower. Under the HOLA, savings institutions are
generally subject to the national bank limits on loans to a single or related
group of borrowers. Generally, this limit is 15% of the Bank's unimpaired
capital and surplus, and 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. The OTS by regulation has
amended the loans to one borrower rule to permit savings associations meeting
certain requirements to extend loans to one borrower in additional amounts under
circumstances limited essentially to loans to develop or complete residential
housing units.
Qualified Thrift Lender Test. In general, savings associations are
required to maintain at least 65% of their portfolio assets in certain qualified
thrift investments (which consist primarily of loans and other investments
related to residential real estate and certain other assets). A savings
association that fails the qualified thrift lender test is subject to
substantial restrictions on activities and to other significant penalties.
Recent legislation permits a savings association to qualify as a qualified
thrift lender not only by maintaining 65% of portfolio assets in qualified
thrift investments (the "QTL test") but also, in the alternative, by qualifying
under the Internal Revenue Code of 1986, as amended (the "Code") as a "domestic
building and loan association." The Bank is a domestic building and loan
association as defined in the Code.
54
<PAGE>
Recent legislation also expands the QTL test to provide savings
associations with greater authority to lend and diversify their portfolios. In
particular, credit card and education loans may now be made by savings
associations without regard to any percentage-of-assets limit, and commercial
loans may be made in an amount up to 10 percent of total assets, plus an
additional 10 percent for small business loans. Loans for personal, family and
household purposes (other than credit card, small business and educational
loans) are now included without limit with other assets that, in the aggregate,
may account for up to 20% of total assets. At December 31, 1997, under the
expanded QTL test, approximately 99.99% of the Bank's portfolio assets were
qualified thrift investments, which exceeded then applicable requirements.
Limitation on Capital Distributions. OTS regulations impose limitations
upon all capital distributions by savings institutions, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to stockholders
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. An institution, such as the
Bank, that exceeds all fully phased-in capital requirements before and after a
proposed capital distribution ("Tier 1 Association") and has not been advised by
the OTS that it is in need of more than normal supervision, could, after prior
notice 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; provided that the institution would not
be undercapitalized, as that term is defined in the OTS Prompt Corrective Action
regulations, following the capital distribution. Any additional capital
distributions would require prior regulatory approval. In the event the Bank's
capital fell below its fully-phased in requirement 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 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
borrowings payable in one year or less. Monetary penalties may be imposed for
failure to meet these liquidity requirements. The Bank's average liquidity ratio
at December 31, 1997 was 37.9%, which exceeded the then applicable requirements.
Community Reinvestment Act and Fair Lending Laws. Savings association
share a responsibility under the Community Reinvestment Act ("CRA") and related
regulations of the OTS to help meet the credit needs of their communities,
including low- and moderate-income neighborhoods. In addition, the Equal Credit
Opportunity Act and the Fair Housing Act (together, the "Fair Lending Laws")
prohibit lenders from discriminating in their lending practices on the basis of
characteristics specified in those statutes. An institution's failure to comply
with the provisions of CRA could, at a minimum, result in regulatory
restrictions on its activities, and failure to complete with the Fair Lending
Laws could result in enforcement actions by the OTS, as well as other federal
regulatory agencies and the Department of Justice. The Bank received a
satisfactory CRA rating under the current CRA regulations in its most recent
federal examination by the OTS.
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 nonsavings institution subsidiaries) or to make loans to certain
insiders, is limited by Sections 23A and 23B of the Federal Reserve Act ("FRA").
Section 23A limits the aggregate amount of 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 provides 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 nonaffiliated companies.
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Enforcement. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring
enforcement action against all "institution-related parties," including
stockholders, and 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 and/or
directors of the institutions, receivership, conservatorship or the termination
of deposit insurance. Civil penalties cover a wide range of violations and
actions, and range up to $25,000 per day, unless a finding of reckless disregard
is made, in which case penalties may be as high as $1 million per day. Under the
FDI Act, the FDIC has the authority to recommend to the Director of 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.
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 adopted a final regulation and Interagency Guidelines
Prescribing Standards for Safety and Soundness ("Guidelines") to implement the
safety and soundness standards required under the FDI Act. 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 systems; credit underwriting; loan
documentation; interest rate risk exposure; asset growth; 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 stockholders' equity (including retained earnings),
certain noncumulative 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 estimated economic value of the association's assets, as
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<PAGE>
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 the effective date of the capital
component in order to provide it with an opportunity to review the interest rate
risk approaches taken by the other federal banking agencies.
At December 31, 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 December 31, 1997, and pro forma amounts and percentages based
upon the issuance of the shares within the Offering Range and assuming that a
portion of the net proceeds are retained by the Company.
Thrift Charter. Congress has been considering legislation in various
forms that would require federal thrifts, such as the Bank, to convert their
charters to national or state bank charters. Legislation enacted in 1996
required the Treasury Department to prepare for Congress a comprehensive study
on development of a common charter for federal savings associations and
commercial banks; and provided for the merger of the BIF and the SAIF into a
single deposit insurance fund on January 1, 1999 provided the thrift charter was
eliminated. The Bank cannot determine whether, or in what form, such legislation
may eventually be enacted and there can be no assurance that any legislation
that is enacted would not adversely affect the Bank and the Company.
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 total risk-based capital of less than
8.0% or a leverage ratio or a Tier 1 core capital ratio that is less than 4.0%
is considered to be undercapitalized. A savings institution that has total
risk-based capital of less than 6.0%, a Tier 1 core 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 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
institution receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." In addition, numerous
mandatory supervisory actions become immediately applicable to the institution,
including, but not limited to, restrictions on growth, investment activities,
capital distributions, and affiliate transactions. The OTS may 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, consisting of (1) well capitalized, (2)
adequately capitalized or (3) undercapitalized, and 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 which 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
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category and supervisory category to which it is assigned. 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.
Federal Home Loan Bank System
The Bank, as a federal association, is required to be 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 of New York, is required to acquire and hold shares of capital stock in
that 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. As of December 31, 1997, the Bank was in compliance with this
requirement. 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.
Federal Reserve System
The Federal Reserve Board regulations require savings institutions to
maintain noninterest-earning reserves against their transaction accounts
(primarily NOW and regular checking accounts). At December 31, 1997, the Bank
was in compliance with these reserve requirements. The balances maintained to
meet the reserve requirements imposed by the FRB may be used to satisfy
liquidity requirements imposed by the OTS.
Holding Company Regulation
Generally. The Mutual Holding Company and the Company are
nondiversified mutual savings and loan holding companies within the meaning of
the HOLA, as amended. As such, the Mutual Holding Company and the Company are
registered with the OTS and are subject to OTS regulations, examinations,
supervision and reporting requirements. In addition, the OTS has enforcement
authority over the Mutual Holding Company and the Company and any nonsavings
institution subsidiaries. Among other things, this authority permits the OTS to
restrict or prohibit activities that are determined to be a serious risk to the
subsidiary savings institution. As federal corporations, the Company and the
Mutual Holding Company are generally not subject to state business organizations
law.
Permitted Activities. Pursuant to Section 10(o) of the HOLA and OTS
regulations and policy, a mutual holding company and a federally chartered
mid-tier holding company such as the Company may engage in the following
activities: (i) investing in the stock of a savings association; (ii) acquiring
a mutual association through the merger of such association into a savings
association subsidiary of such holding company or an interim savings association
subsidiary of such holding company; (iii) merging with or acquiring another
holding company, one of whose subsidiaries is a savings association; (iv)
investing in a corporation, the capital stock of which is available for purchase
by a savings association under federal law or under the law of any state where
the subsidiary savings association or associations share their home offices; (v)
furnishing or performing management services for a savings association
subsidiary of such company; (vi) holding, managing or liquidating assets owned
or acquired from a savings subsidiary of such company; (vii) holding or managing
properties used or occupied by a savings association subsidiary of such company
properties used or occupied by a savings association subsidiary of such company;
(viii) acting as trustee under deeds of trust; (ix) any other activity (A) that
the Federal Reserve Board, by regulation, has determined to be permissible for
bank holding companies under Section 4(c) of the Bank Holding Company Act of
1956, unless the Director, by regulation, prohibits or limits any such activity
for savings and loan holding companies; or (B) in which multiple savings and
loan holding companies were authorized (by regulation) to directly engage on
March 5, 1987; and (x) purchasing, holding, or disposing of stock acquired in
connection with a qualified stock issuance if the purchase of such stock by such
savings and loan holding company is approved by the Director. If a mutual
holding company acquires or merges with another holding company, the holding
company acquired or the holding company resulting from such merger or
acquisition may only invest in assets and engage in activities listed in (i)
through
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(x) above, and has a period of two years to cease any nonconforming activities
and divest of any nonconforming investments.
The HOLA prohibits a savings and loan holding company, including the
Company and the Mutual Holding Company, directly or indirectly, or through one
or more subsidiaries, from acquiring another savings institution or holding
company thereof, without prior written approval of the OTS. It also prohibits
the acquisition or retention of, with certain exceptions, more than 5% of a
nonsubsidiary savings institution, a nonsubsidiary holding company, or a
nonsubsidiary company engaged in activities other than those permitted by the
HOLA; or acquiring or retaining control of an institution that is not federally
insured. In evaluating applications by holding companies to acquire savings
institutions, the OTS must consider the financial and managerial resources,
future prospects of the company and institution involved, the effect of the
acquisition on the risk to the insurance fund, 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, subject to two exceptions: (i) the approval of
interstate supervisory acquisitions by savings and loan holding companies, and
(ii) the acquisition of a savings institution in another state if the laws of
the state of the target savings institution specifically permit such
acquisitions. The states vary in the extent to which they permit interstate
savings and loan holding company acquisitions.
Waivers of Dividends by the Mutual Holding Company. OTS regulations
require the Mutual Holding Company to notify the OTS of any proposed waiver of
its right to receive dividends. The OTS' reviews dividend waiver notices on a
case-by-case basis, and, in general, does not object to any such waiver if: (i)
the mutual holding company's board of directors determines that such waiver is
consistent with such directors' fiduciary duties to the mutual holding company's
members; (ii) for as long as the savings association subsidiary is controlled by
the mutual holding company, the dollar amount of dividends waived by the mutual
holding company are considered as a restriction to the retained earnings of the
savings association, which restriction, if material, is disclosed in the public
financial statements of the savings association as a note to the financial
statements; (iii) the amount of any dividend waived by the mutual holding
company is available for declaration as a dividend solely to the mutual holding
company, and, in accordance with SFAS 5, where the savings association
determines that the payment of such dividend to the mutual holding company is
probable, an appropriate dollar amount is recorded as a liability; (iv) the
amount of any waived dividend is considered as having been paid by the savings
association in evaluating any proposed dividend under OTS capital distribution
regulations; and (v) in the event the mutual holding company converts to stock
form, the appraisal submitted to the OTS in connection with the conversion
application takes into account the aggregate amount of the dividends waived by
the mutual holding company.
Conversion of the Mutual Holding Company to Stock Form. OTS regulations
and the Plan of Reorganization permit the Mutual Holding Company to undertake a
Conversion Transaction. There can be no assurance when, if ever, a Conversion
Transaction will occur, and the Board of Directors has no current intention or
plan to undertake a Conversion Transaction. In a Conversion Transaction a new
holding company would be formed as the successor to the Company (the "New
Holding Company"), the Mutual Holding Company's corporate existence would end,
and certain depositors of the Bank would receive the right to subscribe for
additional shares of the New Holding Company. In a Conversion Transaction, each
share of Common Stock held by Minority Stockholders would be automatically
converted into a number of shares of common stock of the New Holding Company
determined pursuant an exchange ratio that ensures that after the Conversion
Transaction, subject to the Dividend Waiver Adjustment described below and any
adjustment to reflect the receipt of cash in lieu of fractional shares, the
percentage of the to-be outstanding shares of the New Holding Company issued to
Minority Stockholders in exchange for their Common Stock would be equal to the
percentage of the outstanding shares of Common Stock held by Minority
Stockholders immediately prior to the Conversion Transaction. The total number
of shares held by Minority Stockholders after the Conversion Transaction would
also be affected by any purchases by such persons in the offering that would be
conducted as part of the Conversion Transaction.
The Dividend Waiver Adjustment would decrease the percentage of the
to-be outstanding shares of common stock of the New Holding Company issued to
Minority Stockholders in exchange for their shares of Common Stock
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to reflect (i) the aggregate amount of dividends waived by the Mutual Holding
Company and (ii) assets other than Common Stock held by the Mutual Holding
Company. Pursuant to the Dividend Waiver Adjustment, the percentage of the to-be
outstanding shares of the New Holding Company issued to Minority Stockholders in
exchange for their shares of Common Stock would be equal to the percentage of
the outstanding shares of Common Stock held by Minority Stockholders multiplied
by the Dividend Waiver Fraction. The Dividend Waiver Fraction is equal to the
product of (a) a fraction, of which the numerator is equal to the Company's
stockholders' equity at the time of the Conversion Transaction less the
aggregate amount of dividends waived by the Mutual Holding Company and the
denominator is equal to the Company's stockholders' equity at the time of the
Conversion Transaction, and (b) a fraction, of which the numerator is equal to
the appraised pro forma market value of the New Holding Company minus the value
of the Mutual Holding Company's assets other than Common Stock and the
denominator is equal to the pro forma market value of the New Holding Company.
Federal Securities Law
The Common Stock to be issued in the Offering will be registered with
the SEC under the Securities Exchange Act of 1934 (the "Exchange Act"). The
Company will be subject to the information, proxy solicitation, insider trading
restrictions and other requirements of the SEC under the Exchange Act. Common
Stock held by persons who are affiliates (generally officers, directors and
principal stockholders) of the Company may not be resold without registration or
unless sold in accordance with certain resale restrictions. If the Company meets
specified current public information requirements, each affiliate of the Company
is able to sell in the public market, without registration, a limited number of
shares in any three-month period.
TAXATION
Federal Income Taxes
General. The Bank is, and the Company will be, subject to federal
income taxation in the same general manner as other corporations, with some
exceptions discussed below. The following discussion of federal taxation is
intended only to summarize certain pertinent federal income tax matters and is
not a comprehensive description of the tax rules applicable to the Bank.
Method of Accounting. For federal income tax purposes, the Bank
currently reports its income and expenses on the accrual method of accounting
and uses a tax year ending December 31 for filing its federal income tax
returns. The Small Business Protection Act of 1996 (the "1996 Act") eliminated
the use of the reserve method of accounting for bad debt reserves by savings
institutions, effective for taxable years beginning after 1995.
Bad Debt Reserves. Prior to the 1996 Act, the Bank was permitted to
establish a reserve for bad debts and to make annual additions to the reserve.
These additions could, within specified formula limits, be deducted in arriving
at the Bank's taxable income. As a result of the 1996 Act, the Bank must use the
specific charge off method in computing its bad debt deduction beginning with
its 1996 Federal tax return. In addition, the federal legislation requires the
recapture (over a six year period) of the excess of tax bad debt reserves at
December 31, 1995 over those established as of December 31, 1987. The amount of
such reserve subject to recapture as of December 31, 1997, was approximately
$880,000.
Taxable Distributions and Recapture. Prior to the 1996 Act, bad debt
reserves created prior to January 1, 1988 were subject to recapture into taxable
income should the Bank fail to meet certain thrift asset and definitional tests.
New federal legislation eliminated these thrift related recapture rules.
However, under current law, pre-1988 reserves remain subject to recapture should
the Bank make certain non-dividend distributions or cease to maintain a savings
bank charter.
At December 31, 1997, the Bank's total federal pre-1988 reserve was
approximately $3.0 million. This reserve reflects the cumulative effects of
federal tax deductions by the Bank for which no Federal income tax provision has
been made.
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Minimum Tax. The Code imposes an alternative minimum tax ("AMT") at a
rate of 20% on a base of regular taxable income plus certain tax preferences
("alternative minimum taxable income" or "AMTI"). The AMT is payable to the
extent such AMTI is in excess of an exemption amount. Net operating losses can
offset no more than 90% of AMTI. Certain payments of alternative minimum tax may
be used as credits against regular tax liabilities in future years. The Bank has
not been subject to the alternative minimum tax and has no such amounts
available as credits for carryover.
Net Operating Loss Carryovers. A financial institution may carry back
net operating losses to the preceding two taxable years and forward to the
succeeding 20 taxable years. This provision applies to losses incurred in
taxable years beginning after 1986. At December 31, 1997, the Bank had no net
operating loss carryforwards for federal income tax purposes.
Corporate Dividends-Received Deduction. 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
80% in the case of dividends received from corporations with which a corporate
recipient does not file a consolidated return, and corporations which own less
than 20% of the stock of a corporation distributing a dividend may deduct only
70% of dividends received or accrued on their behalf.
The Bank is not currently under audit with respect to its federal
income tax returns.
State and Local Taxation
State of New Jersey. The Bank files New Jersey income tax returns. For
New Jersey income tax purposes, savings institutions are presented taxed at a
rate equal to 3% of taxable income. For this purpose, "taxable income" generally
means federal taxable income, subject to certain adjustments (including the
addition of net interest income on state and municipal obligations). The Bank is
not currently under audit with respect to its New Jersey income tax returns.
The Company will be required to file a New Jersey income tax return
because it will be doing business in New Jersey. For New Jersey tax purposes,
regular corporations are presently taxed at a rate equal to 9% 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 obligation). However, if the Company meets certain
requirements, it may be eligible to elect to be taxed as a New Jersey Investment
Company at a tax rate presently equal to 2.25% (25% of 9%) of taxable income.
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MANAGEMENT OF THE COMPANY
The Board of Directors of the Company will consist of nine members and
will be divided into three classes and will be elected by the stockholders of
the Company, for staggered three year terms and until their successors are
elected and qualified. One class of directors, consisting of directors John C.
Marsh, McGovern and Taylor, Jr. will have terms of office expiring in 2001; a
second class, consisting of directors Bowen, Widmer and Donald F. Marsh will
have terms of office expiring in 1999; and a third class, consisting of
directors Caruso, Fox and Bryson have terms of office expiring in 2000. Their
names and biographical information are set forth under "Management of the
Bank--Directors."
The following individuals will hold positions as executive officers of
the Company as is set forth below opposite their names.
Name Position With the Company
---- -------------------------
John R. Bowen....................... President and Chief Executive Officer
Michael J. Widmer................... Executive Vice President and
Chief Financial Officer
Lucille Capece...................... Vice President
Brian C. Messett.................... Vice President
Joseph F. Coccaro................... Treasurer
Leslie C. Whelan.................... Corporate Secretary
The executive officers of the Company will be elected annually and hold
office until their respective successors have been elected and qualified or
until death, resignation or removal by the Board of Directors.
The Board of Directors initially is expected to have, among others, a
standing Executive Committee and Finance and Audit Committee. The Company's full
Board of Directors will act as the Nominating Committee, or may appoint a
Nominating Committee. The Company does not intend initially to have a
compensation committee, as it is not anticipated that the officers of the
Company will initially be compensated as such.
The Executive Committee initially will consist of Directors Fox (who
will serve as Chairman), Bowen, Donald F. Marsh and Taylor, Jr. The Executive
Committee is expected to meet as necessary when the Board is not in session to
exercise general control and supervision in all matters pertaining to the
interests of the Stock Company, subject at all times to the direction of the
Board of Directors.
The Finance and Audit Committee initially will consist of Directors
Taylor, Jr. (who will serve as Chairman), Caruso, Donald F. Marsh, and McGovern.
The Finance and Audit Committee is expected to meet as necessary to review and
recommend the independent auditors to be engaged by the Company, to review the
audit report with the independent auditors of the Company and to review and
approve the internal audit program 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 compensation of the directors and officers of the
Company during the past five years is set forth under "Management of the Bank."
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MANAGEMENT OF THE BANK
Directors and Executive Officers of the Bank
Upon completion of the Reorganization, the directors of the Bank will
consist of those persons who currently serve on the Board of Directors of the
Bank. The directors of the Bank will have three year terms which will be
staggered to provide for the election of approximately one-third of the board
members each year. Directors of the Bank will be elected by the Company as sole
stockholder of the Bank. The directors and executive officers of the Bank are as
follows:
<TABLE>
<CAPTION>
Age at Current
Name December 31, 1997 Position Director Since (1) Term Expires
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John R. Bowen 57 Chairman, President & 1973 1999
Chief Executive Officer
Michael J. Widmer 38 Executive Vice President, 1998 1999
Chief Financial Officer
and Director
Donald F. Marsh 94 Director 1930 1999
Anthony V. Caruso 71 Director and Legal Counsel 1984 (2) 2000
John W. Fox 60 Director 1968 2000
Nelson L. Taylor, Jr. 67 Director 1966 2001
John C. Marsh 70 Director 1968 2001
Paul J. McGovern 51 Director 1988 2001
Neil R. Byrson, DDS 57 Director 1990 2000
</TABLE>
- --------
(1) Reflects initial appointment to the Board of Directors of the Bank.
(2) Also previously served as a director from January 1958 through May 1977.
Executive Officers Who Are Not Directors
The following table sets forth information regarding the executive
officers of the Bank who are not also directors.
Positions
Age At Held in the
Name December 31, 1997 Bank
---- ----------------- --------------
Lucille Capece 53 Vice President
Brian C. Messett 38 Vice President
Joseph F. Coccaro 40 Treasurer
Leslie C. Whelan 34 Secretary
The principal occupation during the past five years of each director
and executive officer of the Bank is set forth below. All directors have held
their present positions for five years unless otherwise stated.
John R. Bowen is the President, Chief Executive Officer and Chairman of
the Board of Directors. Mr. Bowen has been employed by the Bank in various
capacities since 1964. Mr. Bowen was elected President and Chief Executive
Officer in 1973 and Chairman in 1995. He serves as Vice Chairman of the Board of
Trustees of the Rahway Center Partnership, a non-profit community development
organization.
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Michael J. Widmer has served as Chief Financial Officer of the Bank
since February 1998 and Executive Vice President of the Bank since March 1996.
Mr. Widmer is a member of the Board of Trustees of the Union County Arts Center.
Mr. Widmer served as President and as a member of the Board of Directors of
Chatham Savings Bank in Chatham, New Jersey from 1990 to 1996.
Donald F. Marsh served as Chairman of the Board of Directors of the
Bank from 1967 until 1995. Mr. Marsh is retired from the position of President,
Chief Executive Officer and a member of the Board of Directors of Boorum &
Pease, Co. and subsidiaries, manufacturers of office supplies and equipment.
Anthony V. Caruso has served as the Bank's legal counsel since 1963.
Mr. Caruso is a practicing attorney with thirty-nine years of experience. Mr.
Caruso is a former Municipal Judge of Rahway, New Jersey and is a member of the
Board of Governors of The Rahway Hospital.
John W. Fox is a General Partner of The Linden Investment Co., a real
estate investment company. Mr. Fox is Chairman of the Board of Trustees of
Children's Specialized Hospital, Mountainside, New Jersey.
Nelson L. Taylor, Jr. is the President and Owner of West End Garage,
Inc., a Chrysler Plymouth automobile agency in Rahway, New Jersey. Mr. Taylor is
a member of the Board of Governors of The Rahway Hospital.
John C. Marsh is President and Chief Executive Officer of Consumers
International. Prior to that position, Mr. Marsh held various administrative
positions in area hospitals. Mr. Marsh is a former Mayor of the City of Rahway,
New Jersey.
Paul J. McGovern is retired from the position of Senior Director of
Internal Auditing for Merck & Co., Inc. Mr. McGovern is a Certified Public
Accountant. Mr. McGovern is a member of the Board of Trustees of Don Bosco
Preparatory School, Ramsey, New Jersey.
Neil R. Bryson is a Doctor of Dental Surgery, a Board Certified
Periodontist, a Prosthiodontist and a member of the American Dental Association
in private practice in Colonia, New Jersey.
Lucille Capece has served as Vice President of Operations of the Bank
since 1979.
Brian C. Messett joined the Bank as Vice President of Lending in August
of 1997. Prior to joining the Bank, Mr. Messett was Assistant Vice President of
Lending for Spencer Savings Bank, Garfield, New Jersey.
Joseph F. Coccaro has served as Treasurer of the Bank since 1988.
Leslie C. Whelan joined the Bank in 1991 and has served as Corporate
Secretary since October of 1993.
Meetings of the Board of Directors of the Bank
The Board of Directors of the Bank meets monthly and may have
additional special meetings as may be called by the Chairman or as otherwise
provided by the Bank's current Bylaws. During the fiscal year ended December,
1997, the Board held 14 meetings. No director attended fewer than 75% in the
aggregate of the total number of meetings of the Board or Board Committees on
which such Director served during fiscal 1997.
Directors Compensation
During the year ended December 31, 1997, directors of the Bank received
a retainer fee of $12,000, plus a fee of $300 per board meeting or committee
meeting attended. The Bank provides all employees with medical, dental and life
insurance, and also offers these benefits to its directors. During the year
ended December 31, 1997 the Bank provided insurance benefits to directors Donald
F. Marsh, Taylor, Jr., Bryson, and Caruso of $3,600, $7,200, $11,700 and $11,000
respectively. Employee directors Bowen and Widmer received
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benefits of $11,700 and $7,500, respectively, pursuant to these plans. The Bank
also provides that a director's beneficiary will receive a $10,000 cash payment
should the director die while in office.
Executive Compensation
Summary Compensation Table. The following table sets forth for the year
ended December 31, 1997, certain information as to the total remuneration paid
by the Bank to the Chief Executive Officer and the Executive Vice President,
each of whose salary and bonuses exceeded $100,000 in 1997.
<TABLE>
<CAPTION>
Summary Compensation Table
- -------------------------------------------------------------------------------------------------------------------
Long-Term
Compensation
Annual Compensation(1) Awards
- ------------------------------------------------------------------------- --------------------
Other Restricted
Annual Stock Options/ All Other
Name and Principal Fiscal Compensation Award SARs Compensation
Position Year(1) Salary($)(2) Bonus($) ($)(3) ($) (#) ($)
------------------ ------- ------------ -------- ------------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
John R. Bowen, 1997 186,200 16,320 -- -- -- --
President and Chief
Executive Officer
Michael J. Widmer, 1997 97,000 8,262 -- -- -- --
Executive Vice President
</TABLE>
- ----------
(1) In accordance with the rules on executive officer and director compensation
disclosure adopted by the SEC, Summary Compensation information is excluded
for the fiscal years ended December 31, 1996 and 1995, as the Bank was not
a public company during such periods.
(2) Salary amount for Mr. Bowen includes directors fees of $16,200 for the year
ended December 31, 1997.
(3) The Bank also provides certain members of senior management with the use of
an automobile, and all employees of the Bank with medical, dental and life
insurance. These benefits did not exceed the lesser of $50,000 or 10% of
the total annual salary and bonus reported for each officer.
Benefit Plans
Employment Agreements. The Bank intends to enter into employment
agreements with Messrs. Bowen and Widmer and Ms. Capece, each of which will
provide for a term of 36 months. On each anniversary date, the agreement may be
extended for an additional twelve months, so that the remaining term shall be 36
months. If the agreement is not renewed, the agreement will expire 36 months
following the anniversary date. The agreement provides for, among other things,
base salary (which may be increased, but not decreased), participation in stock
benefit plans and other employee and fringe benefits applicable to executive
personnel. The agreement provides for termination by the Bank for cause at any
time. In the event the Bank terminates the executive's employment for reasons
other than for disability, retirement or for cause, or in the event of the
executive's resignation from the Bank upon (i) failure to re-elect the executive
to his current offices, (ii) a material change in the executive's functions,
duties or responsibilities, (iii) liquidation or dissolution of the Bank or
Company, (iv) a breach of the agreement by the Bank or, (v) a change in control
of the Bank or Company, the executive, or in the event of death, the executive's
beneficiary would be entitled to severance pay in an amount equal to three times
the annual rate of Base Salary (which includes any salary deferred at the
election of Mr. Bowen, Mr. Widmer or Ms. Capece) at the time of termination,
plus the
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<PAGE>
highest annual cash bonus paid to him during the prior three years. The Bank
would also continue the executive's life, health, dental and disability coverage
for 36 months from the date of termination. In the event the payments to the
executive would include an "excess parachute payment" as defined by Code Section
280G (relating to payments made in connection with a change in control), the
payments would be reduced in order to avoid having an excess parachute payment.
The executives' employment may be terminated upon his/her retirement at
age 65, or such later age as consented to by the Bank or in accordance with any
retirement policy established by the Bank. Upon the executive's retirement,
he/she will be entitled to all benefits available to him/her under any
retirement or other benefit plan maintained by the Bank. In the event of the
executive's disability for a period of six months, the Bank may terminate the
agreement provided that the Bank will be obligated to pay the executive his/her
Base Salary for the remaining term of the agreement or one year, whichever is
longer, reduced by any benefits paid to the executive pursuant to any disability
insurance policy or similar arrangement maintained by the Bank. In the event of
the executive's death, the Bank will pay his/her Base Salary to his/her named
beneficiaries for one year following his/her death, and will also continue
medical, dental, and other benefits to his/her family (as applicable) for one
year.
The employment agreement provides that, following termination of
employment, the executive will not compete with the Bank for a period of one
year within 25 miles of any existing branch of the Bank or within 25 miles of
any office for which the Bank and/or the Company has filed for regulatory
approval to establish an office.
Defined Benefit Pension Plan. The Bank maintains The Retirement Plan
for Employees of Axia Federal Savings Bank in RSI Retirement Trust, which is a
qualified, tax-exempt defined benefit plan ("Retirement Plan"). All employees
age 20 1/2 or older who have worked at the Bank for a period of one year and
have been credited with 1,000 or more hours of service with the Bank during the
year are eligible to participant in the Retirement Plan provided, however, that
leased employees, employees paid on a contract basis and employees in a unit
covered by a collective bargaining agreement are not eligible to participate.
The Bank annually contributes an amount to the Retirement Plan necessary to
satisfy the actuarially determined minimum funding requirements in accordance
with the Employee Retirement Income Security Act ("ERISA").
The regular form of all retirement benefits (normal, early or
disability) is guaranteed for the life of the retiree, but not less than 120
monthly installments. For a married participant, the normal form of benefit is a
joint and 50% survivor annuity where, upon the participant's death, the
participant's spouse is entitled to receive a benefit equal to 50% of that paid
during the participant's lifetime. Alternatively, a participant may elect (with
proper spousal consent, if necessary) an optional form of benefit. These
optional forms include various annuity forms as well as a lump sum payment. All
forms in which a participant's benefit may be paid will be actuarially
equivalent to a ten (10) year period certain and life benefit. For an unmarried
participant, benefits payable upon death are made in a lump sum.
The normal retirement benefit payable at the later of age 65 or the
fifth anniversary of participation in the plan, is an amount equal to the
greater of (i) 30.5% of a participant's average annual earnings, plus 19.5% of
the amount in excess of $10,000, multiplied by a fraction, not to exceed 1, the
numerator of which is the number of years of the Participant's credited service
at normal retirement date and the denominator of which is 30 and (ii) 2% of a
participant's average annual earnings multiplied by the participant's years of
credited service (up to a maximum of 10 years). Retirement benefits are also
payable upon retirement due to early and late retirement or death. A reduced
benefit is payable upon early retirement at age 55 and , for employees who first
become participants on or after January 1, 1998, ten (10) years of credited
service, or after the sum of the participant's attained age and vested service
equals 75. Upon termination of employment other than as specified above, a
participant who is employed on or after January 1, 1998 and has 5 years of
vested service after age 18 is eligible to receive his or her accrued benefit
commencing, generally, on such participant's normal retirement date. (Employees
employed prior to January 1, 1998 are eligible to receive a vested retirement
benefit that vests after age 18 over a five year period at a rate of 20% per
year, beginning in the second year of service, until a participant is 100%
vested after five years). For the plan year ended December 31, 1997, the Bank
made a contribution to the Retirement Plan of $102,039.
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The following table indicates the annual retirement benefit that would
be payable under the Retirement Plan upon retirement at age 65 in calendar year
1997, expressed in the form of a single life annuity for the average salary and
benefit service classifications specified below.
High Five-Year
Average Years of Service and Benefit Payable at Retirement
---------------------------------------------------------------
Compensation 15 20 25 30 35 40
- -------------- ---------------------------------------------------------------
$50,000 $11,525 $15,367 $19,208 $23,050 $23,050 $23,050
75,000 17,775 23,700 29,625 35,550 35,550 35,550
100,000 24,025 32,033 40,042 48,050 48,050 48,050
125,000 30,275 40,367 50,458 60,550 60,550 60,550
160,000 39,025 52,033 65,042 78,050 78,050 78,050
As of December 31, 1997, Messrs. Bowen and Widmer had 33 years and two
years, respectively, of credited service (i.e., benefit service), under the
plan.
Employee Stock Ownership Plan and Trust
The Bank intends to implement the ESOP in connection with the
Reorganization. Employees with at least one year of employment in which they
complete 1000 hours of service for the Bank and who have attained age 21 are
eligible to participate. As part of the Reorganization, the ESOP intends to
borrow funds from the Company and use those funds to purchase a number of shares
equal to up to 8.0% of the Common Stock to be sold in the Offering. Collateral
for the loan will be the common stock purchased by the ESOP. The loan will be
repaid principally from the Bank's discretionary contributions to the ESOP over
a period of not less than ten years. It is anticipated that the interest rate
for the loan will be a floating rate equal to the Prime Rate. Shares purchased
by the ESOP will be held in a suspense account for allocation among participants
as the loan is repaid.
Contributions to the ESOP and shares released from the suspense account
in an amount proportional to the repayment of the ESOP loan will be allocated
among ESOP participants on the basis of compensation in the year of allocation.
Participants in the ESOP will receive credit for service prior to the effective
date of the ESOP. Benefits generally vest after five years of credited service,
upon normal retirement (as defined in the ESOP), early retirement, disability or
death of the participant. A participant who terminates employment for reasons
other than death, retirement, or disability prior to five years of credited
service will forfeit his benefits under the ESOP. Benefits will be payable in
the form of common stock and/or cash upon death, retirement, early retirement,
disability or separation from service. The Bank's contributions to the ESOP are
discretionary, subject to the loan terms and tax law limits, and, therefore,
benefits payable under the ESOP cannot be estimated. Pursuant to The American
Institute of Certified Public Accountants Statement of Position 93-6,
"Employers' Accounting for Employee Stock Ownership Plans" the Bank is required
to record compensation expense in an amount equal to the fair market value of
the shares released from the suspense account each year.
In connection with the establishment of the ESOP, the Bank will
establish a committee of non-employee directors to administer the ESOP. The Bank
will either appoint its non-employee directors or an independent financial
institution to serve as trustee of the ESOP. 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 participating employees. Under the ESOP,
nondirected shares, and shares held in the suspense account, will be voted in a
manner calculated to most accurately reflect the instructions it has received
from participants regarding the allocated stock so long as such vote is in
accordance with the provisions of ERISA.
Stock Option Plan. At a meeting of the Company's shareholders to be
held no earlier than six months after the completion of the Offering, the Board
of Directors intends to submit for shareholder approval a stock option plan
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for directors and officers of the Bank and of the Company (the "Stock Option
Plan"). If approved by the shareholders, Common Stock in an aggregate amount
equal to 10% of the shares sold in the Offering would be reserved for issuance
by the Company upon the exercise of the stock options granted under the Stock
Option Plan. Ten percent of the shares issued in the Offering would amount to
117,853 shares, 138,650 shares, 159,448 shares or 183,365 shares at the minimum,
midpoint, maximum and adjusted maximum of the Offering Range, respectively. No
options would be granted under the Stock Option Plan until the date on which
shareholder approval is received.
It is anticipated that options would be granted for terms of
approximately 10 years. Options granted under the Stock Option Plan would be
adjusted for capital changes such as stock splits and stock dividends. Awards
would be 100% vested upon termination of employment due to death or disability,
and if the Stock Option Plan is adopted more than 12 months after the Offering,
awards may be 100% vested upon normal retirement or a change in control of the
Bank or the Company. Under OTS rules, if the Stock Option Plan is adopted within
the first 12 months after the Offering, no individual officer may receive more
than 25% of the awards under the plan, no outside director may receive more than
5% of the awards under the plan, all outside directors as a group may receive no
more than 30% of the awards under the plan in the aggregate, the exercise price
of the options must be equal to the fair market value of the shares on the date
of grant, options may become exercisable at a rate of no more than 20% at the
end of each 12 months of service with the Bank after the date of grant (subject
to early vesting only in the event of death or disability), and the plan must be
approved by a majority of Minority Stockholders.
The Stock Option Plan would be administered by a Committee of
non-employee members of the Company's Board of Directors. Options granted under
the Stock Option Plan to employees could be "incentive" stock options designed
to result in a beneficial tax treatment to the employee but no tax deduction to
the Company. Non-qualified stock options could also be granted under the Stock
Option Plan and would be granted to the non-employee directors who receive
grants of stock options. In the event an option recipient terminated his
employment or service as an employee or director, the options would terminate
during certain specified periods.
Recognition and Retention Plan. At a meeting of the Company's
shareholders to be held no earlier than six months after the completion of the
Offering, the Board of Directors also intends to submit a Recognition and
Retention Plan (the "Recognition Plan") for shareholder approval. The
Recognition Plan will provide the Bank's directors and officers an ownership
interest in the Company in a manner designed to encourage them to continue their
service with the Bank. The Bank will contribute funds to the Recognition Plan
from time to time to enable it to acquire an aggregate amount of common stock
equal to up to 4% of the shares of Common Stock sold in the Offering, either
directly from the Company or in open market purchases. Four percent of the
shares issued in the Offering would amount to 47,141 shares, 55,460 shares,
63,779 or 73,346 shares at the minimum, midpoint, maximum and adjusted maximum
of the Offering Range, respectively. In the event that additional authorized but
unissued shares would be acquired by the Recognition Plan after the Offering,
the interests of existing shareholders would be diluted. The executive officers
and directors will be awarded common stock under the Recognition Plan without
having to pay cash for the shares. No awards under the Recognition Plan would be
made until the date the Recognition Plan is approved by the Company's
shareholders.
Awards under the Recognition Plan would be nontransferable and
nonassignable, and during the lifetime of the recipient could only be earned by
him. Awards would be adjusted for capital changes such as stock dividends and
stock splits and would be 100% vested upon termination of employment due to
death or disability. If the Recognition Plan is adopted more than 12 months
after the Offering, awards may be 100% vested upon normal retirement or a change
in control of the Bank or the Company. If employment or service were to
terminate for other reasons, the award recipient would forfeit any nonvested
award. If employment or service is terminated for cause (as defined in the
Recognition Plan), shares not already delivered under the Recognition Plan would
be forfeited.
Under OTS rules, if the Recognition Plan is adopted within the first 12
months after the Offering, no individual officer may receive more than 25% of
the awards under the plan, no outside director may receive more than 5% of the
awards under the plan, all outside directors as a group may receive no more than
30% of the awards under the plan in the aggregate, awards may vest at a rate of
no more than 20% at the end of each 12 months of
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<PAGE>
service with the Bank after the date of grant (subject to early vesting only in
the event of death or disability), and the plan must be approved by a majority
of Minority Stockholders.
When shares become vested under the Recognition Plan, the participant
will recognize income equal to the fair market value of the common stock earned,
determined as of the date of vesting, unless the recipient makes an election
under ss. 83(b) of the Code to be taxed earlier. The amount of income recognized
by the participant would be a deductible expense for tax purposes for the
Company. If the Recognition Plan is adopted within one year following the
Offering, dividends and other earnings will accrue and be payable to the award
recipient when the shares vest. If the Recognition Plan is adopted within one
year following the Offering, shares not yet vested under the Recognition Plan
will be voted by the trustee of the Recognition Plan, taking into account the
best interests of the recipients of the Recognition Plan awards. If the
Recognition Plan is adopted more than one year following the Offering, dividends
declared on unvested shares will be distributed to the participant when paid,
and the participant will be entitled to vote the unvested shares.
Transactions With Certain Related Persons
The Bank offers to directors, officers, and employees real estate
mortgage loans secured by their principal residence. All loans to the Bank's
directors, officers and employees are made on substantially the same terms,
including interest rates and collateral as those prevailing at the time for
comparable transactions, and do not involve more than minimal risk of
collectibility.
Director Anthony V. Caruso has served as the Bank's legal counsel since
1963. During the year ended December 31, 1997 the Bank paid $61,100 in legal
fees to Mr. Caruso.
PARTICIPATION BY MANAGEMENT
The following table sets forth information regarding intended common
stock subscriptions by each of the Directors and executive officers of the Bank
and Directors of the Company who do not serve as directors of the Bank and their
families, and by all such Directors and executive officers as a group. In the
event the individual maximum purchase limitation is increased, persons
subscribing for the maximum amount may increase their purchase order. This table
excludes shares to be purchased by the ESOP, as well as any Recognition Plan
awards or stock option grants that may be made no earlier than six months after
the completion of the Reorganization. See "Management of the Bank--Recognition
and Retention Plan" and "--Stock Option Plan."
<TABLE>
<CAPTION>
Percent of
Shares Issued
Position Aggregate Price in the
Name With the Bank Total Shares of Shares Offering(1)
---- ------------------------ ------------ --------------- ------------
<S> <C> <C> <C> <C>
John R. Bowen Chairman, President &
Chief Executive Officer
Michael J. Widmer Executive Vice President,
Chief Financial Officer
and Director
Donald F. Marsh Director
Anthony V. Caruso Director and Legal Counsel
John W. Fox Director
Nelson L. Taylor, Jr. Director
John C. Marsh Director
Paul J. McGovern Director
Neil R. Bryson, DDS Director
All directors and
executive officers
as a group
(_____ persons)
</TABLE>
- ---------
* Less than 1%.
(1) At the midpoint of the Offering Range.
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<PAGE>
THE REORGANIZATION AND OFFERING
THE BOARD OF DIRECTORS OF THE BANK, AND THE OTS, HAVE APPROVED THE PLAN
OF REORGANIZATION, SUBJECT TO APPROVAL BY THE MEMBERS OF THE MUTUAL HOLDING
COMPANY 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.
General
On October 15, 1997, the Board of Directors of the Bank adopted the
Plan of Reorganization, pursuant to which the Bank will be converted from a
federally chartered mutual savings bank to a federally chartered stock savings
bank. The Plan of Reorganization was approved by the OTS, subject to, among
other things, approval of the Plan of Reorganization by the Bank's members. The
Special Meeting of Members has been called for this purpose.
Pursuant to the Plan of Reorganization, the Reorganization will be
effected as follows or in any other manner that is consistent with applicable
federal law and regulations and the intent of the Plan of Reorganization.
(i) the Bank will organize an interim stock savings bank as a wholly-owned
subsidiary ("Interim One");
(ii) Interim One will organize an interim stock savings bank as a
wholly-owned subsidiary ("Interim Two");
(iii) Interim One will organize the Company as a wholly-owned subsidiary;
(iv) the Bank will exchange its charter for a federal stock savings bank
charter and Interim One will exchange its charter for a federal mutual
holding company charter to become the Mutual Holding Company;
(v) simultaneously with step (iv), Interim Two will merge with and into
the Bank with the Bank as the resulting institution;
(vi) all of the initially issued stock of the Bank will be transferred to
the Mutual Holding Company in exchange for membership interests in the
Mutual Holding Company;
(vii)the Mutual Holding Company will contribute the capital stock of the
Bank to the Company, and the Bank will become a wholly-owned
subsidiary of the Company; and
(viii) contemporaneously with the Reorganization, the Company will sell the
shares of Common Stock in the Offering.
The Company expects to receive the approval of the OTS to become a
savings and loan holding company and to own all of the common stock of the Bank.
The Company intends to contribute at least 50% of the net proceeds of the
Offering to the Bank. The Reorganization 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 generally for consummation of the Reorganization in
accordance with the steps set forth above. As part of the Reorganization the
Company will offer shares of Common Stock for sale in the Subscription Offering
to Eligible Account Holders, the Bank's ESOP, Supplemental Eligible Account
Holders and Other Members. Subject to the prior rights of these holders of
subscription rights, the Company will offer Common Stock for sale in a Community
Offering that may commence anytime subsequent to the commencement of the
Subscription Offering to certain members of the general public, with a
preference given to natural persons residing in the Community. The Bank has the
right to accept or reject, in its sole discretion, in whole or in part, any
orders to purchase shares of the
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Common Stock received in the Community Offering. The Community Offering must be
completed within 45 days after the completion of the Subscription Offering
unless otherwise extended by the OTS. See "--Community Offering."
The number of shares of Common Stock to be issued in the Offering will
be determined based upon an independent appraisal of the estimated pro forma
market value of the Common Stock of the Company. All shares of Common Stock to
be issued and sold in the Offering will be sold at the same price. The
Independent Valuation will be updated and the final number of the shares to be
issued in the Offering will be determined at the completion of the Offering. See
"--Stock Pricing and Number of Shares to be Issued" for more information as to
the determination of the estimated pro forma market value of the Common Stock.
This summary of the Reorganization is qualified in its entirety by
reference to the provisions of the Plan of Reorganization. A copy of the Plan of
Reorganization is available for inspection at each branch of the Bank and at the
Northeast Region and Washington, D.C. offices of the OTS. The Plan of
Reorganization is also filed as an Exhibit to the Application to Convert from
Mutual to Stock Form of which this Prospectus is a part, copies of which may be
obtained from the OTS. See "Additional Information."
Purposes of the Reorganization
In adopting the Plan of Reorganization, the Board of Directors
unanimously determined that the Reorganization is in the best interest of the
Bank. The primary purpose of the Reorganization is to establish a structure that
will enable the Bank to compete and expand more effectively in the financial
services marketplace, and that will enable the Bank's depositors, employees,
management and directors to obtain an equity ownership interest in the Bank. The
holding company structure permits the Company to issue capital stock, which is a
source of capital not available to mutual savings banks. Since the Company is
not offering all of its common stock for sale to depositors and the public in
the Offering (but is issuing a majority of its stock to the Mutual Holding
Company), the Reorganization will result in less capital raised in comparison to
a standard mutual-to-stock conversion. The Reorganization, however, will also
offer the Bank the opportunity to raise additional capital since the stock held
by the Mutual Holding Company will be available for sale in the future in the
event of the Mutual Holding Company decides to convert to the capital stock form
of organization. See "Regulation--Holding Company Regulation--Conversion of the
Mutual Holding Company to Stock Form."
The Reorganization will also provide greater flexibility to structure
and finance the expansion of the Company's operations, including the potential
acquisition of other financial institutions, and to diversify into other
financial services. The holding company form of organization is expected to
provide additional flexibility to diversify the Bank's business activities
through existing or newly formed subsidiaries, or through acquisitions of or
mergers with other financial institutions, as well as other companies. Although
the Bank and the Company have no current arrangements, understandings or
agreements regarding any such opportunities, the Company will be in a position
after the Reorganization, subject to regulatory limitations and the Company's
financial position, to take advantage of any such opportunities that may arise.
Lastly, the Reorganization will enable the Bank to better manage its capital by
giving broader investment opportunities through the holding company structure,
and enable the Company to distribute capital to its stockholders in the form of
dividends. Because only a minority of the common stock will be offered for sale
in the Offering, the current mutual form of ownership and ability to remain an
independent savings bank and to provide community-oriented financial services
will be preserved through the mutual holding company structure.
The Board of Directors believes that these advantages outweigh the
potential disadvantages of the mutual holding company structure, which may
include: (i) the inability of stockholders other than the Mutual Holding Company
to obtain majority ownership of the Company and the Bank, which may result in
the perpetuation of the management and Board of Directors of the Bank and the
Company; and (ii) that the mutual holding company structure is a relatively new
form of corporate ownership, and new regulatory policies relating to the mutual
interest in the Mutual Holding Company that may be adopted from time-to-time may
have an adverse impact on minority stockholders. A majority of the voting stock
of the Company will be owned by the Mutual Holding Company, which is a mutual
institution that will be controlled by members. While this structure will permit
management to focus on
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<PAGE>
the Company's and the Bank's long-term business strategy for growth and capital
redeployment, it will also serve to perpetuate the existing management and
directors of the Bank. The Mutual Holding Company will be able to elect all
members of the Board of Directors of the Company, and will be able to control
the outcome of all matters presented to the stockholders of the Company for
resolution by vote except for certain matters that must be approved by more than
a majority of stockholders of the Company. No assurance can be given that the
Company will not take action adverse to the interests of the Minority
Stockholders. For example, the Company could revise the dividend policy or
defeat a candidate for the Board of Directors of the Bank or other proposals put
forth by the Minority Stockholders.
The Reorganization does not preclude the Reorganization of the Mutual
Holding Company from the mutual to stock form of organization. A conversion of
the Mutual Holding Company from the mutual to stock form of organization is not
anticipated for the foreseeable future. See "Regulation--Holding Company
Regulation--Conversion of the Mutual Holding Company to Stock Form."
Approvals Required
The affirmative vote of a majority of the total eligible votes of the
members of the Bank at the Special Meeting of Members is required to approve the
Plan of Reorganization. Consummation of the Reorganization is also subject to
the approval of the OTS.
Effects of Reorganization on Depositors, Borrowers and Members
General. Following the completion of the Reorganization, all members of
the Bank as of the effective date of the Reorganization will become members of
the Mutual Holding Company so long as they continue to hold deposit accounts
with the Bank. In addition, all persons who become depositors subsequent to the
Reorganization will become members of the Mutual Holding Company.
Continuity. While the Reorganization 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 Reorganization, 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 the
Reorganization will serve as Directors of the Bank after the Reorganization.
Effect on Deposit Accounts. Under the Plan of Reorganization, each
depositor in the Bank at the time of the Reorganization will automatically
continue as a depositor after the Reorganization, 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 Reorganization. Depositors will continue to hold their existing
certificates, passbooks and other evidences of their accounts.
Effect on Loans. No loan outstanding from the Bank will be affected by
the Reorganization, and the amount, interest rate, maturity and security for
each loan will remain as they were contractually fixed prior to the
Reorganization.
Effect on Voting Rights of Members. At present, all depositors of the
Bank are members of, and have voting rights in, the Bank as to all matters
requiring membership action. Upon completion of the Reorganization, all voting
rights in the Bank will be vested in the Company as the sole shareholder of the
Bank. Exclusive voting rights with respect to the Company will be vested in the
holders of Common Stock. Depositors of the Bank will not have voting rights
after the Reorganization except to the extent that they become stockholders of
the Company through the purchase of Common Stock.
Tax Effects. The Bank will receive an opinion with regard to federal
and state income taxation to the effect that the adoption and implementation of
the Plan of Reorganization will not be taxable for federal or state income tax
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purposes to the Bank, the Mutual Holding Company, members of the Bank, eligible
account holders or the Company. See "--Tax Effects of the Reorganization."
Effect on Liquidation Rights. Were the Bank to liquidate prior to the
Reorganization, all claims of creditors of the Bank, including those of
depositors to the extent of their deposit balances, would be paid first. In the
unlikely event that the Bank were to liquidate after Reorganization and
Offering, all claims of creditors (including those of depositors, to the extent
of their deposit balances) would also be paid first, with any assets remaining
thereafter distributed to the Company as the holder of the Bank's capital stock.
Stock Pricing and Number of Shares to be Issued
The Plan of Reorganization and Federal regulations require that the
aggregate purchase price of the Common Stock in the Offering must be based on
the appraised pro forma market value of the Common Stock, as determined by an
independent valuation (the "Independent Valuation"). The Bank has retained
FinPro, Inc. ("FinPro") to make such valuation. For its services in making such
appraisal, FinPro will receive a fee of $13,500 (which amount does not include a
fee of $11,000 to be paid to FinPro for assistance in preparation of a business
plan). The Bank and the Company have agreed to indemnify FinPro and its
employees and affiliates against certain losses (including any losses in
connection with claims under the federal securities laws) arising out of its
services as appraiser, except where FinPro's liability results from its
negligence or bad faith.
The Independent Valuation was prepared by FinPro in reliance upon the
information contained in the Prospectus, including the Consolidated Financial
Statements. FinPro also considered the following factors, among others: the
present and projected operating results and financial condition of the Company
and the Bank 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 publicly traded savings institutions located in the
mid-Atlantic region and on a national basis; the aggregate size of the Offering;
the impact of the consolidated stockholders' equity and earnings potential; the
proposed dividend policy of the Company; and the trading market for securities
of comparable institutions and general conditions in the market for such
securities.
The Independent Valuation, however, is not intended, and must not be
construed, as a recommendation of any kind as to the advisability of purchasing
such shares. FinPro did not independently verify the Consolidated Financial
Statements and other information provided by the Bank, nor did FinPro value
independently the assets or liabilities of the Bank. The Independent Valuation
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
valuation is necessarily based upon estimates and projections of a number of
matters, all of which are subject to change from time to time, no assurance can
be given that persons purchasing such shares in the Offering will thereafter be
able to sell such shares at prices at or above the Purchase Price.
The Independent Valuation states that as of March ___, 1998, the
estimated pro forma market value of the Common Stock ranged from a minimum of
$25,075,000 to a maximum of $33,925,000 with a midpoint of $29,500,000 (the
"Estimated Valuation Range"). The Board of Directors reviewed the Independent
Valuation and, in particular, considered (i) the Bank's financial condition and
results of operations for the year ended December 31, 1997, (ii) financial
comparisons of the Bank in relation to financial institutions of similar size
and asset quality, and (iii) stock market conditions generally and in particular
for financial institutions, all of which are set forth in the Independent
Valuation. The Board also reviewed the methodology and the assumptions used by
FinPro in preparing the Independent Valuation. The Bank's Board of Directors
determined to offer the shares in the Offering for the Subscription Price of
$10.00 per share. Based on the Estimated Valuation Range and the Subscription
Price, the number of shares of Common Stock that the Company will issue will
range from 2,507,500 shares to 3,392,500 shares, with a midpoint of 2,950,000
shares. The Bank's Board of Directors determined to offer 47% of such shares in
the Offering, or between 1,178,525 shares and 1,594,475 shares with a midpoint
of 1,386,500 shares (the "Offering Range"). The 53% of the to-be outstanding
shares of Common Stock that are not sold in the Offering will be issued to the
Mutual Holding Company.
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Following commencement of the Subscription Offering, the Independent
Appraisal may be updated and the Estimated Valuation Range may be amended, if
necessitated by subsequent developments in the financial condition of the Bank,
market conditions generally, or the results of the Offering. The maximum of the
Estimated Valuation Range may be increased by up to 15% to up to $39,013,750,
which will result in a corresponding increase in the maximum of the Offering
Range to up to 1,833,646 shares without the resolicitation of subscribers. The
minimum of the Estimated Valuation Range and the minimum of the Offering Range
may not be decreased without a resolicitation of subscribers. If the update to
the Independent Valuation at the conclusion of the Offering results in an
increase in the maximum of the Estimated Valuation Range to more than
$39,013,750, or a decrease in the minimum of the Estimated Valuation Range to
less than $25,075,000, then the Company, after consulting with the OTS, may
terminate the Plan of Reorganization and return all funds promptly with interest
at the Bank's passbook rate of interest on payments made by check, certified or
teller's check, bank draft or money order, extend or hold a new Subscription
Offering, Community Offering, or both, establish a new Estimated Valuation Range
and Offering Range, commence a resolicitation of subscribers, or take such other
actions as permitted by the OTS in order to complete the Reorganization and the
Offering. If a resolicitation is commenced, unless subscribers respond
affirmatively by the close of the resolicitation period as to which all
subscribers would be notified, all funds will be promptly returned, with
interest, to subscribers as described above. A resolicitation, if any, following
the conclusion of the Subscription and Community Offerings would not exceed 45
days unless further extended by the OTS for periods of up to 90 days through no
later than June ____, 2000.
An increase in the Independent Valuation and the number of shares to be
issued in the Reorganization would decrease both a subscriber's ownership
interest and the Company's pro forma earnings and stockholders equity on a per
share basis while increasing pro forma earnings and stockholder's equity on an
aggregate basis. A decrease in the Independent Valuation and the number of
shares to be issued in the Reorganization would increase both a subscriber's
ownership interest and the Company's pro forma earnings and stockholders' equity
on a per share basis while decreasing pro forma net income and stockholders'
equity on an aggregate basis. For a presentation of the effects of such changes,
see "Pro Forma Data."
Copies of the appraisal report of FinPro 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."
No sale of shares of Common Stock may be consummated unless, prior to
such consummation, FinPro confirms to the Bank and the OTS that, to the best of
its knowledge, nothing of a material nature has occurred that, taking into
account all relevant factors, would cause FinPro to conclude that the
Independent Valuation is incompatible with its estimate of the pro forma market
value of the Common Stock of the Company at the conclusion of the Offering. If
such confirmation is not received, the Bank may extend the Offering, reopen or
begin a new offering, establish a new Estimated Valuation Range and begin a
resolicitation of all purchasers with the approval of the OTS or take such other
actions as permitted by the OTS in order to complete the Offering.
Subscription Offering and Subscription Rights
In accordance with the Plan of Reorganization, rights to subscribe for
the purchase of Common Stock in the Subscription Offering have been granted
under the Plan of Reorganization in the following order of descending priority.
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, minimum, and overall purchase
limitations set forth in the Plan of Reorganization and as described below under
"--Limitations on Common Stock Purchases."
Priority 1: Eligible Account Holders. Each depositor with aggregate
deposit account balances of $50 or more (a "Qualifying Deposit") as of September
30, 1996 (the "Eligibility Record Date," and such account holders, "Eligible
Account Holders") will receive, nontransferable subscription rights to subscribe
in the Subscription Offering for Common Stock equal to up to the greater of
$100,000, or fifteen times the product (rounded down to the next whole number)
obtained by multiplying the aggregate number of shares of Common Stock issued in
the Offering by a fraction
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of which the numerator is the amount of the Eligible Account Holder's Qualifying
Deposit 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 shares purchased by the ESOP
from any increase in the shares offered pursuant to an increase in the maximum
of the Offering Range. See "--Limitations on Common Stock Purchases." If there
are not sufficient shares available to satisfy all subscriptions, shares first
will be allocated so as to permit each subscribing Eligible Account Holder to
purchase a number of shares sufficient to make his total allocation equal to the
lesser of 100 shares or the number of shares for which he subscribed.
Thereafter, unallocated shares (except for additional shares issued to the ESOP
upon an increase in the maximum of the Offering Range) will be allocated to each
subscribing Eligible Account Holder whose subscription remains unfilled in the
proportion that the amount of his aggregate Qualifying Deposit bears to the
total amount of Qualifying Deposits of all subscribing Eligible Account Holders
whose subscriptions remain unfilled. If an amount so allocated exceeds the
amount subscribed for by any one or more Eligible Account Holders, the excess
shall be reallocated among those Eligible Account Holders whose subscriptions
are not fully satisfied until all available shares have been allocated.
To ensure proper allocation of stock, each Eligible Account Holder must
list on his Order Form all deposit accounts in which he has an ownership
interest on the Eligibility Record Date. Failure to list an account could result
in fewer shares being allocated than if all accounts had been disclosed. Neither
the Company nor the Bank nor any of their agents shall be responsible for orders
on which all Qualifying Deposit accounts have not been fully and accurately
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 twelve months preceding the
Eligibility Record Date.
Priority 2: Employee Plans. To the extent that there are sufficient
shares remaining after satisfaction of subscriptions by Eligible Account
Holders, the ESOP will receive, nontransferable subscription rights to purchase
Common Stock in the Offering on behalf of ESOP participants subject to the
purchase limitations described herein. The ESOP intends to subscribe for up to
8% of the Common Stock issued in the Offering. The right of the Employee Plans
to subscribe for shares in subordinate to the right of the Eligible Account
Holders to subscribe for shares. However, in the event the offering results in
the issuance of shares above the maximum of the Offering Range (1,594,475
shares), the Employee Plans have a priority right to fill their subscription.
Priority 3: Supplemental Eligible Account Holders. To the extent that
there are sufficient shares remaining after satisfaction of subscriptions by
Eligible Account Holders and the ESOP, each depositor with a Qualifying Deposit
as of March 31, 1998 (the "Supplemental Eligibility Record Date") who is not an
Eligible Account Holder ("Supplemental Eligible Account Holder") will receive,
nontransferable subscription rights to subscribe in the Subscription Offering
for Common Stock equal to the greater of $100,000, or fifteen times the product
(rounded down to the next whole number) obtained by multiplying the aggregate
number of shares of Common Stock issued in the Offering, 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. See "--Limitations on Common Stock Purchases." If there are not
sufficient shares available to satisfy all subscriptions, shares first will be
allocated so as to permit each subscribing Supplemental Eligible Account Holder
to purchase a number of shares sufficient to make his total allocation equal to
the lesser of 100 shares or the number of shares for which he subscribed.
Thereafter, unallocated shares will be allocated to each subscribing
Supplemental Eligible Account Holder and whose subscription remains unfilled in
the proportion that the amount of his Qualifying Deposit bears to the total
amount of Qualifying Deposits of all subscribing Supplemental Eligible Account
Holders whose subscriptions remain unfilled.
To ensure proper allocation of stock, each Supplemental Eligible
Account Holder must list on his Order Form all deposit accounts in which he has
an ownership interest on the Supplemental Eligibility Record Date. Failure to
list an account could result in less shares being allocated than if all accounts
had been disclosed. Neither the Company nor the Bank nor any of their agents
shall be responsible for orders on which all Qualifying Deposit accounts have
not been fully and accurately disclosed.
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Priority 4: Other Members. To the extent that there are shares
remaining after satisfaction of subscriptions by Eligible Account Holders, the
Employee Plans, and Supplemental Eligible Account Holders, each depositor on the
Voting Record Date and each borrower of the Bank as of December 10, 1986 whose
loans are outstanding as of the Voting Record Date ("Other Members") who are not
Eligible Account Holders or Supplemental Eligible Account Holders will receive,
nontransferable subscription rights to subscribe in the Subscription Offering
for Common Stock equal to up to the greater of $100,000, or .10% of the total
offering of shares, subject to the overall purchase limitation. See
"--Limitations on Stock Purchases." If there are not sufficient shares available
to satisfy all subscriptions, available shares will be allocated in proportion
to the amounts of the subscriptions.
Expiration Date for the Subscription Offering. The Subscription
Offering will expire on June __, 1998, unless extended for up to 45 days or such
additional periods by the Bank with the approval of the OTS, if necessary (as so
extended, the "Expiration Date"). The Bank and the Company are not required to
give subscribers notice of any such extension. Subscription rights which have
not been exercised prior to the Expiration Date will become void.
Members in Nonqualified States or Foreign Countries. The Company will
make reasonable efforts to comply with the securities laws of all states in the
United States in which persons entitled to subscribe for stock pursuant to the
Plan of Reorganization reside. However, the Company is not required to offer
stock in the Offering to any person who resides in a foreign country or resides
in a state of the United States with respect to which (i) a small number of
persons otherwise eligible to subscribe for shares of Common Stock reside in
such state; or (ii) the Company 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 or its officers or
directors, under the securities laws of such state, register as a broker,
dealer, salesman or selling agent or to register or otherwise qualify the
subscription rights or Common Stock for sale or subject any filing with respect
thereto in such state. Where the number of persons eligible to subscribe for
shares in one state is small, the Company will base its decision as to whether
or not to offer the Common Stock in such state on a number of factors, including
the size of accounts being 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.
Community Offering
Any shares of Common Stock not subscribed for in the Subscription
Offering may be offered for sale in a Community Offering. If a Community
Offering is conducted, it will be for a period of not more than 45 days unless
extended by the Company and the Bank, and may commence anytime subsequent to the
commencement of the Subscription Offering. The Common Stock will be offered and
sold in the Community Offering, in accordance with OTS regulations, so as to
achieve the widest distribution of the Common Stock. No person, by himself or
herself, or with an associate or group of persons acting in concert, may
subscribe for or purchase more than $200,000 of Common Stock offered in the
Community Offering. Further, the Company may limit total subscriptions so as to
assure that the number of shares available for the public offering may be up to
a specified percentage of the number of shares of Common Stock. Finally, the
Company may reserve shares offered in the Community Offering for sales to
institutional investors.
In the event of an oversubscription for shares in the Community
Offering, shares may be allocated in the sole discretion of the Bank (to the
extent shares remain available) first to cover orders of natural persons
residing in the Bank's local community of the New Jersey counties of Union and
Middlesex (the "Community"), then to cover the orders of any other person
subscribing for shares in the Community Offering so that each such person may
receive 1,000 shares, and thereafter, on a pro rata basis to such persons based
on the amount of their respective subscriptions.
The terms "residence," "reside," "resided" or "residing" as used herein
with respect to any person shall mean any person who occupied a dwelling within
the Bank's Community, has an intent to remain within the Community for a period
of time, and manifests the genuineness of that intent by establishing an ongoing
physical presence within the Community together with an indication that such
presence within the Community is something other than merely transitory in
nature. To the extent the person is a corporation or other business entity, the
principal place of business or headquarters shall be in the Community. To the
extent a person is a personal benefit plan, the circumstances of
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the beneficiary shall apply with respect to this definition. In the case of all
other benefit plans, the circumstances of the trustee shall be examined for
purposes of this definition. The Bank may utilize deposit or loan records or
such other evidence provided to it to make a determination as to whether a
person is a resident. In all cases, however, such a determination shall be in
the sole discretion of the Bank.
The Bank and the Company, in their sole discretion, may reject
subscriptions, in whole or in part, received from any person.
Syndicated Community Offering
Any shares of Common Stock not sold in the Subscription Offering or in
the Community Offering, if any, may be offered for sale to the general public by
a selling group of broker-dealers, which may include Ryan Beck, to be managed by
Ryan Beck in a Syndicated Community Offering, subject to terms, conditions and
procedures as may be determined by the Bank and the Company in a manner that is
intended to achieve the widest distribution of the Common Stock subject to the
rights of the Company to accept or reject in whole or in part all orders in the
Syndicated Community Offering. It is expected that the Syndicated Community
Offering will commence as soon as practicable after termination of the
Subscription Offering and the Community Offering, if any. The Syndicated
Community Offering shall be completed within 45 days after the termination of
the Subscription Offering, unless such period is extended as provided herein.
The Company will pay a fee of up to 5.5% of the total dollar amount of the
Common Stock sold by selected dealers.
If for any reason a Syndicated Community Offering of unsubscribed
shares of Common Stock cannot be effected and any shares remain unsold after the
Subscription Offering and any Community Offering, the Boards of Directors of the
Bank and the Company will seek to make other arrangements to sell the remaining
shares. Such other arrangements will be subject to OTS approval and to
compliance with applicable state and federal securities laws.
Plan of Distribution and Selling Commissions
Offering materials for the Offering initially have been distributed to
certain persons by mail, with additional copies made available at the Bank's
offices and by Ryan Beck. All prospective purchasers are to send payment along
with a properly completed Order Form directly to the Bank, where such funds will
be held in a segregated special escrow account and not released until the
Offering is completed or terminated.
To assist in the marketing of the Common Stock, the Bank and the
Company have retained Ryan Beck, a broker-dealer registered with the National
Association of Securities Dealers, Inc. (the "NASD"). Ryan Beck will provide
advisory assistance and assist the Bank in the Offering as follows: (i) in
training and educating the Bank's employees regarding the mechanics and
regulatory requirements of the Reorganization; (ii) in conducting any
informational meetings for employees, customers and the general public; (iii) in
coordinating the selling efforts in the Bank's local communities; and (iv)
keeping records of all orders for Common Stock. For these services, Ryan Beck
will receive an advisory and marketing fee of $135,000. Offers and sales in the
Offering will be on a best efforts basis and, as a result, Ryan Beck is not
obligated to purchase Shares of the Common Stock in the Offering.
The Bank also will reimburse Ryan Beck for its reasonable out-of-pocket
expenses associated with its marketing effort, the estimated maximum of which
are $35,000 (including legal fees up to a maximum of $25,000). The Bank has made
an advance payment to Ryan Beck in the amount of $25,000. The Bank and the
Company will indemnify Ryan Beck against liabilities and expenses (including
legal fees) incurred in connection with certain claims or litigation arising out
of or based upon untrue statements or omissions contained in the offering
material for the Common Stock, including liabilities under the Securities Act of
1933.
Certain directors and executive officers of the Company and Bank may
participate in the solicitation of offers to purchase Common Stock. Such persons
will be reimbursed by the Bank for their reasonable out-of-pocket expenses,
including, but not limited to, de minimis telephone and postage expenses,
incurred in connection with such solicitation. Other regular, full-time
employees of the Bank may participate in the Offering but only in ministerial
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capacities, providing clerical work in effecting a sales transaction or
answering questions of a potential purchaser provided that the content of the
employee's responses is limited to information contained in the Prospectus or
other offering documents, and no offers or sales may be made by tellers or at
the teller counter. All sales activity will be conducted in a segregated or
separately identifiable area of the Bank's offices apart from the area
accessible to the general public for the purpose of making deposits or
withdrawals. Other questions of prospective purchasers will be directed to
executive officers or registered representatives. 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 Securities Exchange Act of 1934 (the "Exchange Act"), and sales of
Common Stock will be conducted within the requirements of Rule 3a4-1, so as to
permit officers, directors and employees to participate in the sale of Common
Stock. No officer, director or employee of the Company or the Bank will be
compensated in connection with his participation by the payment of commissions
or other remuneration based either directly or indirectly on the transactions in
the Common Stock.
Procedure for Purchasing Shares
Expiration Date. The Offering will terminate at 10:00 a.m., New Jersey
time, on June __, 1998, unless extended by the Company, with prior approval of
the OTS, if required, for up to an additional 45 days. Such extension may be
granted by the Company, in its sole discretion, without further approval or
additional notice to purchasers in the Offering. Any extension of the Offering
beyond the Expiration Date would be subject to OTS approval and potential
purchasers would be given the right to increase, decrease, or rescind their
orders for Common Stock. If the minimum number of shares offered in the Offering
(1,178,525 shares) is not sold by the Expiration Date the Company may terminate
the Offering and promptly refund all orders for Common Stock. If the number of
shares is reduced below the minimum of the Offering Range, purchasers will be
given an opportunity to increase, decrease, or rescind their orders.
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 an Order Form
will confirm receipt or delivery in accordance with Rule 15c2-8. Order Forms
will be distributed only with a Prospectus.
The Company reserves the right in its sole discretion to terminate the
Offering at any time and for any reason, in which case the Company will promptly
return all purchase orders, plus interest at its current passbook rate from the
date of receipt and cancel all authorized withdrawals from savings accounts.
Use of Order Forms. In order to purchase the Common Stock, each
purchaser must complete an Order Form, except for certain persons purchasing in
the Syndicated Community Offering as more fully described above. Incomplete
Order Forms will not be accepted. Any person receiving an Order Form who desires
to purchase Common Stock must do so prior to 10:00 a.m., New Jersey time, on
June __, 1998 by delivering (by mail or in person) to the Company a properly
executed and completed Order Form, together with full payment for the shares
purchased. Once tendered, an Order Form cannot be modified or revoked without
the consent of the Company. The Company reserves the absolute right, in its sole
discretion, to reject orders received in the Community Offering, in whole or in
part, at the time of receipt or at any time prior to completion of the Offering.
Each person ordering shares is required to represent that he is purchasing such
shares for his own account and that he has no agreement or understanding with
any person for the sale or transfer of such shares. The interpretation by the
Company of the terms and conditions of the Plan of Reorganization and of the
acceptability of the Order Forms will be final.
Payment for Shares. Payment for all shares will be required to
accompany all completed Order Forms for the purchase to be valid. Payment for
shares may be made by (i) cash, (ii) check or money order made payable to the
Company, or (iii) authorization of withdrawal from savings accounts (including
certificates of deposit) maintained with the Bank. Appropriate means by which
such withdrawals may be authorized are provided in the Order Forms. Once such a
withdrawal amount has been authorized, a hold will be placed on such funds,
making them unavailable to the depositor until the Offering has been completed
or terminated. In the case of payments authorized to be made
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through withdrawal from deposit accounts, all funds authorized for withdrawal
will continue to earn interest at the contract rate until the Offering is
completed or terminated. Interest penalties for early withdrawal applicable to
certificate accounts will not apply to withdrawals authorized for the purchase
of shares; however, if a withdrawal results in a certificate account with a
balance less than the applicable minimum balance requirement, the certificate
shall be canceled at the time of withdrawal without penalty, and the remaining
balance will earn interest at the passbook rate subsequent to the withdrawal. In
the case of payments made by cash, check or money order, such funds will be
placed in a segregated savings account and interest will be paid by the Bank at
the current passbook rate per annum, from the date payment is received until the
Offering is completed or terminated. An executed Order Form, once received by
the Bank, may not be modified, amended or rescinded without the consent of the
Bank, unless the Offering is not completed by the Expiration Date, in which
event purchasers may be given the opportunity to increase, decrease, or rescind
their orders for a specified period of time.
A depositor interested in using his or her IRA funds to purchase Common
Stock must do so through a self-directed IRA. Since the Bank does not offer such
accounts, it will allow a depositor to make a trustee-to-trustee transfer of the
IRA funds to a trustee offering a self-directed IRA program with the agreement
that such funds will be used to purchase the Common Stock in the Offering. There
will be no early withdrawal or IRS interest penalties for such transfers. The
new trustee would hold the Common Stock in a self-directed account in the same
manner as the Bank now holds the depositor's IRS funds. An annual administrative
fee may be payable to the new trustee. Depositors interested in using funds in a
Bank IRA to purchase Common Stock should contact the Stock Center at the Bank as
soon as possible so that the necessary forms may be forwarded for execution and
returned prior to the Expiration Date.
In addition, the provisions of ERISA and Service regulations require
that executive officers, directors and 10% stockholders who use self-directed
IRA funds to purchase shares of Common Stock in the Offering, make such purchase
for the exclusive benefit of the IRA participant.
The ESOP will not be required to pay for shares purchased until
consummation of the Offering, provided that there is in force from the time the
order is received a loan commitment from an unrelated financial institution or
the Company to lend to the ESOP the necessary amount to fund the purchase.
Delivery of Stock Certificates. Certificates representing Common Stock
issued in the Offering and Bank checks representing interest paid on
subscriptions made by cash, check, or money order will be mailed by the Bank to
the persons entitled thereto at the address noted on the Order Form, as soon as
practicable following consummation of the Offering and receipt of all necessary
regulatory approvals. Any certificates returned as undeliverable will be held by
the Bank until claimed by persons legally entitled thereto or otherwise disposed
of in accordance with applicable law. Until certificates for the Common Stock
are available and delivered to purchasers, purchasers may not be able to sell
the shares of stock which they ordered. Regulations prohibit the Bank from
lending funds or extending credit to any persons to purchase Common Stock in the
Offering.
Other Restrictions. Notwithstanding any other provision of the Plan of
Reorganization, no person is entitled to purchase any Common Stock to the extent
such purchase would be illegal under any federal or state law or regulation
(including state "blue-sky" registrations), or would violate regulations or
policies of the NASD, particularly those regarding free riding and withholding.
The Bank and/or its agents may ask for an acceptable legal opinion from any
purchaser as to the legality of such purchase and may refuse to honor any such
purchase order if such opinion is not timely furnished.
Restrictions on Transfer of Subscription Rights and Shares
Prior to the completion of the Reorganization, the OTS conversion
regulations prohibit any person with subscription rights from transferring or
entering into any agreement or understanding to transfer the legal or beneficial
ownership of the subscription rights issued under the Plan of Reorganization 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
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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 Reorganization.
The Bank and the Company will pursue any and all legal and equitable
remedies in the event they become aware of the transfer of subscription rights
and will not honor orders known by them to involve the transfer of such rights.
Limitations on Common Stock Purchases
The following additional limitations have been imposed upon purchases
of shares of Common Stock. Defined terms used in this section and not otherwise
defined in this Prospectus shall have the meaning set forth in the Plan of
Reorganization. In all cases, the Bank shall have the right, in its sole
discretion, to determine whether prospective purchasers are "Associates," or
"Acting in Concert" as defined by the Plan and in interpreting any and all other
provisions of the Plan. All such determinations are in the sole discretion of
the Bank, and may be based on whatever evidence the Bank chooses to use in
making any such determination.
(1) The aggregate amount of outstanding Common Stock of the Company
owned or controlled by persons other than Mutual Holding Company at the close of
the Offering shall not exceed 49.9% of the Company's total outstanding Common
Stock.
(2) No Person may purchase more than $100,000, and no person or group
of persons Acting in Concert may purchase more than $200,000 of Common Stock
issued in the Offering to Persons other than the Mutual Holding Company, except
that: (i) the Company may, in its sole discretion and without further notice to
or solicitation of subscribers or other prospective purchasers, increase such
maximum purchase limitation to up to 5% of the number of shares issued in the
Offering; (ii) Tax-Qualified Employee Plans may purchase up to 10% of the shares
issued in the Offering; and (iii) for purposes of this paragraph shares to be
held by any Tax-Qualified Employee Plan and attributable to a person shall not
be aggregated with other shares purchased directly by or otherwise attributable
to such person.
(3) The aggregate amount of Common Stock acquired in the Offering by
all Management Persons and their Associates, exclusive of any stock acquired by
such persons in the secondary market, shall not exceed 31% of the outstanding
shares of Common Stock of the Company held by persons other than the Mutual
Holding Company at the close of the Offering. In calculating the number of
shares held by Management Persons and their Associates under this paragraph or
under the provisions of paragraph 4 below, shares held by any Tax-Qualified
Employee Benefit Plan or any Non-Tax-Qualified Employee Benefit Plan of the Bank
that are attributable to such persons shall not be counted.
(4) The aggregate amount of Common Stock acquired in the Offering by
all Management Persons and their Associates, exclusive of any common stock
acquired by such persons in the secondary market, shall not exceed 31% of the
stockholders' equity of the Bank. In calculating the number of shares held by
Management Persons and their Associates under this paragraph or under the
provisions of paragraph 3 of this section, shares held by any Tax-Qualified
Employee Benefit Plan or any Non-Tax-Qualified Employee Benefit Plan of the Bank
that are attributable to such persons shall not be counted.
(5) The Boards of Directors of the Bank and the Company may, in their
sole discretion, increase the maximum purchase limitation to up to 9.9%,
provided that orders for Common Stock in excess of 5% of the number of shares of
Common Stock issued in the Offering shall not in the aggregate exceed 10% of the
total shares of common stock issued in the Offering (except that this limitation
shall not apply to purchases by Tax-Qualified Employee Plans). If such 5%
limitation is increased, subscribers for the maximum amount will be, and certain
other large subscribers in the sole discretion of the Company and the Bank may
be, given the opportunity to increase their
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subscriptions up to the then applicable limit. Requests to purchase additional
shares of Common Stock under this provision will be determined by the Board of
Directors of the Company, in its sole discretion.
(6) In the event of an increase in the total number of shares offered
in the Subscription Offering due to an increase in the maximum of the Estimated
Valuation Range of up to 15% (the "Adjusted Maximum"), the additional shares
will be issued in the following order of priority: (i) to fill the Employee
Plans' subscription; (ii) in the event that there is an oversubscription at the
Eligible Account Holder, Supplemental Eligible Account Holder, to fill
unfulfilled subscriptions of such subscribers according to their respective
priorities set forth in the Plan of Reorganization.
(7) Notwithstanding any other provision of the Plan of Reorganization,
no person shall be entitled to purchase any Common Stock to the extent such
purchase would be illegal under any federal law or state law or regulation or
would violate regulations or policies of the NASD, particularly those regarding
free riding and withholding. The Company and/or its agents may ask for an
acceptable legal opinion from any purchaser as to the legality of such purchase
and may refuse to honor any purchase order if such opinion is not timely
furnished.
(8) The Board of Directors of the Company has the right in its sole
discretion to reject any order submitted by a person whose representations the
Board of Directors believes to be false or who it otherwise believes, either
alone or acting in concert with others, is violating, circumventing, or intends
to violate, evade or circumvent the terms and conditions of the Plan of
Reorganization.
The Company, in its sole discretion, may make reasonable efforts to
comply with the securities laws of any state in the United States in which its
depositors reside, and will only offer and sell the common stock in states in
which the offers and sales comply with such states' securities laws. However, no
person will be offered or allowed to purchase any common stock under the Plan if
they reside in a foreign country or in a state of the United States with respect
to which any of the following apply: (i) a small number of persons otherwise
eligible to purchase shares under the Plan reside in such state or foreign
county; (ii) the offer or sale of shares of common stock to such persons would
require the Bank or its employees to register, under the securities laws of such
state or foreign country, as a broker or dealer or to register or otherwise
qualify its securities for sale in such state or foreign country; or (iii) such
registration or qualification would be impracticable for reasons of cost or
otherwise.
OTS regulations define "acting in concert" as (i) knowing participation
in a joint activity or interdependent conscious parallel action towards a common
goal whether or not pursuant to an express agreement, or (ii) a combination or
pooling of voting or other interests in the securities of an issuer for a common
purpose pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise. The Bank will presume that
certain persons are acting in concert based upon various facts, including the
fact that persons have joint account relationships or the fact that such persons
have filed joint Schedules 13D with the SEC with respect to other companies.
Directors are not treated as Associates of one another solely because
of their board membership. Compliance with the foregoing limitations does not
necessarily constitute compliance with other regulatory restrictions on
acquisitions of the Common Stock. For a further discussion of limitations on
purchases of the common stock during and subsequent to Reorganization, see
"--Certain Restrictions on Purchases or Transfer of Shares After
Reorganization."
Tax Effects of the Reorganization
The Bank intends to proceed with the Reorganization on the basis of an
opinion from its special counsel, Luse Lehman Gorman Pomerenk & Schick, P.C.,
Washington, D.C., as to certain tax matters that are material to the
Reorganization. The opinion is based, among other things, on certain
representations made by the Bank, including the representation that the exercise
price of the subscription rights to purchase the Common Stock will be
approximately equal to the fair market value of the stock at the time of the
completion of the Reorganization. With
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respect to the subscription rights, the Bank has received an opinion of FinPro
which, based on certain assumptions, concludes that the subscription rights to
be received by Eligible Account Holders, Supplemental Eligible Account Holders
and Other Members do not have any economic value at the time of distribution or
the time the subscription rights are exercised, whether or not a Community
Offering takes place, and Luse Lehman Gorman Pomerenk & Schick, P.C.'s opinion
is given in reliance thereon. If the subscription rights granted to Eligible
Account Holders and Supplemental Eligible Account Holders are deemed to have an
ascertainable value, receipt of such rights could result in taxable gain to
those Eligible Account Holders and Supplemental Eligible Account Holders who
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. Lehman Gorman Pomerenk &
Schick, P.C.'s opinion provides substantially as follows:
1. The change in the Bank's form from a mutual savings bank to a stock
savings bank (the "Stock Bank") will qualify as a reorganization under
Section 368(a)(1)(F) of the Internal Revenue Code, as amended
("Code"), and no gain or loss will be recognized to the Bank in either
its mutual form or stock form by reason of the Reorganization.
2. No gain or loss will be recognized by the Bank or the Stock Bank upon
the transfer of the Bank's assets to the Stock Bank solely in exchange
for shares of Stock Bank stock and the assumption by the Stock Bank of
the liabilities of the Bank.
3. Stock Bank's holding period in the assets received from the Bank will
include the period during which such assets were held by the Bank.
4. Stock Bank's basis in the assets of the Bank will be the same as the
basis of such assets in the Bank immediately prior to the
Reorganization.
5. The Stock Bank will succeed to and take into account the Bank's
earnings and profits or deficit in earnings and profits, as of the
date of the Reorganization.
6. The Stock Bank's depositors will recognize no gain or loss solely by
reason of the Reorganization.
7. The Mutual Holding Company and the Minority Stockholders will
recognize no gain or loss upon the transfer of Stock Bank stock and
cash, respectively, to the Company in exchange for Common Stock of the
Company.
8. The Company will recognize no gain or loss upon its receipt of
property from the Mutual Holding Company and Minority Stockholders in
exchange for Common Stock of the Company.
9. The basis of the Company Common Stock to the Minority Stockholders
will be the actual purchase price thereof, and the holding period for
Common Stock acquired through the exercise of subscription rights will
begin on the date the rights are exercised.
The opinions of Luse Lehman Gorman Pomerenk & Schick, P.C., unlike a
letter ruling issued by the Internal Revenue Service (the "Service"), are not
binding on the Service and the conclusions expressed herein may be challenged at
a future date. The Service has issued favorable rulings for transactions
substantially similar to the proposed Reorganization, but any such ruling may
not be cited as precedent by any taxpayer other than the taxpayer to whom the
ruling is addressed. The Bank does not plan to apply for a letter ruling
concerning the transactions described herein.
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The Bank has also received an opinion from Radics & Co., LLC that
implementation of the Plan will not result in any New Jersey income tax
liability to the Bank, its depositors, borrowers, the Company or the Mutual
Holding Company.
Certain Restrictions on Purchase or Transfer of Shares After Reorganization
All Common Stock purchased in the Offering 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 Reorganization, 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 and the Company and certain
other persons in receipt of material non-public information will also be subject
to the insider trading rules promulgated pursuant to the Exchange Act.
Purchases of outstanding shares of Common Stock of the Company by
directors, executive officers (or any person who was an executive officer or
director of the Bank after adoption of the Plan of Reorganization) and their
associates during the three-year period following the Reorganization may be made
only through a broker or dealer registered with the SEC, except with the prior
written approval of the OTS. This restriction does not apply, however, to
negotiated transactions involving more than 1% of the Company's outstanding
Common Stock or to the purchase of stock pursuant to a stock option plan or any
tax qualified employee stock benefit plan of or non-tax qualified employee stock
benefit plan of the Bank or Company (including any employee plan, recognition
plan or restricted stock plan).
OTS regulations and policy currently prohibit the Company from
repurchasing any of its shares within three years following the Offering unless
the repurchase is (i) part of a general repurchase made on a pro rata basis
pursuant to an offer approved by the OTS and made to all stockholders (except
the Mutual Holding Company may be excluded from the repurchase with OTS
approval), (ii) limited to the repurchase of qualifying shares of a director, or
(iii) in open market transactions by a tax-qualified or nontax qualified
employee benefit plan in an amount reasonable and appropriate to fund such plan.
RESTRICTIONS ON THE ACQUISITION OF THE COMPANY AND THE BANK
General
The following discussion is a general summary of certain regulatory
restrictions on the acquisition of the Common Stock. In addition, the following
discussion generally summarizes certain provisions of the charter and bylaws of
the Company and the Bank and certain regulatory provisions that may be deemed to
have an "anti-takeover" effect.
The Mutual Holding Company Structure
Under OTS regulations, the Plan of Reorganization, and the charter of
the Company, at least a majority of the Company's voting shares must be owned by
the Mutual Holding Company. The Mutual Holding Company will be controlled by its
Board of Directors, which will initially consist of the same persons who are
members of the Board of Directors of the Bank and the Company. The Mutual
Holding Company will be able to elect all members of the Board of Directors of
the Company, and as a general matter, will be able to control the outcome of all
matters presented to the stockholders of the Company for resolution by vote,
except for matters that require a vote greater than a majority. The Mutual
Holding Company, acting through its Board of Directors, will be able to control
the business, and operations of the Company and the Bank, and will be able to
prevent any challenge to the ownership or control of the Company by Minority
Stockholders. Accordingly, a change in control of the Company and the Bank
cannot occur unless the Mutual Holding Company first converts to the stock form
of organization. Although OTS
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regulations and policy and the Plan of Reorganization permit the Mutual Holding
Company to convert from the mutual to the capital stock form of organization,
the Board of Directors has no current plan to do so.
Provisions of the Company's Charter and Bylaws
In addition to the anti-takeover aspects of the mutual holding company
structure, the following discussion is a general summary of certain provisions
of the Company's charter and bylaws and certain other regulatory provisions
which will restrict the ability of stockholders to influence management
policies, and which may be deemed to have an "anti-takeover" effect. The
following description of certain of these provisions is necessarily general and,
with respect to provisions contained in the Company's and the Bank's proposed
charter and bylaws and the Bank's proposed stock charter and bylaws, reference
should be made in each case to the document in question, each of which is part
of the Bank's application to the OTS and the Company's Registration Statement
filed with the SEC. See "Additional Information."
Classified Board of Directors and Related Provisions. The Company's
Charter provides that the Board of Directors is to be divided into three classes
which shall be as nearly equal in number as possible. The directors in each
class hold office for terms of three years and until their successors are
elected and qualified. One class is elected annually. Management of the Company
believes that the staggered election of directors tends to promote continuity
and stability of management but makes it more difficult for stockholders to
change a majority of the directors because it generally takes at least two
annual elections of directors for this to occur.
Absence of Cumulative Voting. The Company's Charter provides that there
shall be no cumulative voting rights in the election of directors.
Authorization of Preferred Stock. The Company's Charter authorizes
shares of serial preferred stock, without par value. The Company is authorized
to issue preferred stock from time to time in one or more series subject to
applicable provisions of law; and the Board of Directors is authorized to fix
the designations, and relative preferences, limitations, voting rights, if any,
including without limitation, conversion rights of such shares (which could be
multiple or as a separate class). In the event of a proposed merger, tender
offer or other attempt to gain control of the Company that the Board of
Directors does not approve, it might be possible for the Board of Directors to
authorize the issuance of a series of preferred stock with rights and
preferences that would impede the completion of such a transaction. An effect of
the possible issuance of preferred stock, therefore, may be to deter a future
takeover attempt. The Board of Directors has no present plans or understandings
for the issuance of any preferred stock but it may issue any preferred stock on
terms which the Board considers to be in the best interests of the Company and
its stockholders.
Restrictions on Acquisitions of Securities. The Company's Charter
provides that for a period of five years from the effective date of the charter,
no person other than the Mutual Holding Company, may directly or indirectly
offer to acquire or acquire the beneficial ownership of more than 10% of any
class of equity security of the Company. In addition, for a period of five years
following the effective date of the Charter each share beneficially owned in
violation of the foregoing percentage limitation shall not be counted as shares
entitled to vote, shall not be voted by any person or counted as voting shares
in connection with any matter submitted to stockholders for a vote, and shall
not be counted as outstanding for purposes of determining a quorum or the
affirmative vote necessary to approve any matter submitted to the stockholders
for a vote.
Special Meeting of Stockholders. The Company's Charter provides that
for five years after the effective date of the Charter, special meetings of
stockholders relating to changes in control of the Company or amendments to the
Charter may be called only by the Board of Directors.
Change in Bank Control Act and Savings and Loan Holding Company Provisions of
the HOLA
The Change in Bank Control Act provides that no person, acting directly
or indirectly or through or in concert with one or more other persons, may
acquire control of a savings and loan holding company unless the OTS
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has been given 60 days' prior written notice. The Home Owners' Loan Act provides
that no company may acquire "control" of a savings and loan holding company
without the prior approval of the OTS. Any company that acquires such control
becomes a "savings and loan holding company" subject to registration,
examination, and regulation by the OTS. Pursuant to federal regulations, control
of a savings and loan holding company is conclusively deemed to have been
acquired by, among other things, the acquisition of more than 25% of any class
of voting stock of the institution or the ability to control the election of a
majority of the directors of the institution. Moreover, control is presumed to
have been acquired, subject to rebuttal, upon the acquisition of more than 10%
of any class of voting stock, or of more than 25% of any class of stock, of a
savings and loan holding company, where certain enumerated "control factors" are
also present in the acquisition. The OTS may prohibit an acquisition of control
if (i) it would result in a monopoly or substantially lessen competition, (ii)
the financial condition of the acquiring person might jeopardize the financial
stability of the institution, or (iii) the competence, experience, or integrity
of the acquiring person indicates that it would not be in the interest of the
depositors or of the public to permit the acquisition of control by such person.
The foregoing restrictions do not apply to the acquisition of the Company's
capital stock by one or more tax-qualified employee stock benefit plans,
provided that the plan or plans do not have beneficial ownership in the
aggregate of more than 25% of any class of equity security of the Company.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
Company Capital Stock
The 30,000,000 shares of capital stock authorized by the Company's
Charter are divided into two classes, consisting of 20,000,000 shares of common
stock ($1.00 par value) and 10,000,000 shares of serial preferred stock. The
aggregate stated value of the issued shares will constitute the capital account
of the Company on a consolidated basis. The balance of the Subscription Price of
Common Stock, less expenses of the Reorganization and Offering, will be
reflected as paid-in capital on a consolidated basis. See "Capitalization." Upon
payment of the Subscription Price for the Common Stock, in accordance with the
Plan, all such stock will be duly authorized, fully paid, validly issued and
nonassessable.
Common Stock. Each share of the Common Stock will have the same
relative rights and will be identical in all respects with each other share of
the Common Stock. The Common Stock of the Company will represent
non-withdrawable capital, will not be of an insurable type and will not be
insured by the FDIC. The holders of the Common Stock will possess exclusive
voting power in the Company. Each stockholder will be entitled to one vote for
each share held on all matters voted upon by stockholders, subject to the
limitation discussed under "Restrictions on Acquisition of the
Company--Provisions of the Company's Charter and Bylaws." If the Company issues
preferred stock subsequent to the Reorganization, holders of the preferred stock
may also possess voting powers.
No Preemptive Rights. Holders of the Common Stock will not be entitled
to preemptive rights with respect to any shares which may be issued. The Common
Stock will not be subject to call for redemption, and, upon receipt by the
Company of the full purchase price therefor, each share of the Common Stock will
be fully paid and nonassessable.
Preferred Stock. After the Reorganization, the Board of Directors of
the Company will be authorized to issue preferred stock in series and to fix and
state the voting powers, designations, preferences and relative, participating,
optional or other special rights of the shares of each such series and the
qualifications, limitations and restrictions thereof. Preferred stock may rank
prior to the Common Stock as to dividend rights, liquidation preferences, or
both, and may have full or limited voting rights. The holders of preferred stock
will be entitled to vote as a separate class or series under certain
circumstances, regardless of any other voting rights which such holders may
have.
Except as discussed herein, the Company has no present plans for the
issuance of the additional authorized shares of Common Stock or for the issuance
of any shares of preferred stock. In the future, the authorized but unissued and
unreserved shares of Common Stock will be available for general corporate
purposes including but not limited to possible issuance as stock dividends or
stock splits, in future mergers or acquisitions, under a cash dividend
reinvestment and stock purchase plan, in a future underwritten or other public
offering or under an employee stock
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ownership plan, stock option or restricted stock plan. The authorized but
unissued shares of preferred stock will similarly be available for issuance in
future mergers or acquisitions, in a future underwritten public offering or
private placement or for other general corporate purposes. Except as described
above or as otherwise required to approve the transaction in which the
additional authorized shares of Common Stock or authorized shares of preferred
stock would be issued, no stockholder approval will be required for the issuance
of these shares. Accordingly, the Board of Directors of the Company, without
stockholder approval, can issue preferred stock with voting and conversion
rights which could adversely affect the voting power of the holders of Common
Stock.
Dividends. Upon consummation of the formation of the Company, the
Company's only asset will be the Bank's common stock and $100,000. Although it
is anticipated that the Company will retain up to 50% of the net proceeds of the
Offering, dividends from the Bank will be an important source of income for the
Company. Should the Bank elect to retain its income, the ability of the Company
to pay dividends to its own shareholders may be adversely affected. Furthermore,
if at any time in the future the Company owns less than 100% of the outstanding
stock of the Bank, certain tax benefits under the Code as to inter-company
distributions will not be fully available to the Company and it will be required
to pay federal income tax on a portion of the dividends received from the Bank,
thereby reducing the amount of income available for distribution to the
shareholders of the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Chase Mellon
Shareholder Services.
EXPERTS
The consolidated financial statements of the Bank as of December 31,
1997 and 1996 have been included herein in reliance upon the report of Radics &
Co., LLC, independent certified public accountants, appearing elsewhere herein,
and upon the authority of said firm as experts in accounting and auditing.
FinPro 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 Reorganization and its opinion with
respect to subscription rights.
LEGAL OPINIONS
The legality of the Common Stock and the federal income tax
consequences of the Reorganization will be passed upon for the Bank and Company
by Luse Lehman Gorman Pomerenk & Schick, P.C., Washington, D.C., special counsel
to the Bank and Company. The New Jersey income tax consequences of the
Reorganization will be passed upon for the Bank and the Company by Radics & Co.,
LLC. Certain legal matters will be passed upon for Ryan Beck by McCarter &
English, LLP, Newark, New Jersey.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information, including
the Reorganization Valuation Appraisal Report which is an exhibit to the
Registration Statement, can be examined without charge at the public reference
facilities of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of such material can be obtained from the SEC at prescribed rates.
The SEC maintains a web site (http://www.sec.gov) that contains reports, proxy
and information statements and other information regarding registrants,
including the Company, that file electronically. 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.
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In connection with the Reorganization, the Bank has filed with the OTS
a notice of its intent to reorganize into a mutual holding company and to
conduct a minority stock issuance, and the Company filed with the OTS an
application to become a savings and loan holding company. 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
District Director of the OTS located at 10 Exchange Place, 18th Floor, Jersey
City, New Jersey 07302.
In connection with the Reorganization, the Company will register its
Common Stock with the SEC under Section 12(g) of the Exchange Act, and, upon
such registration, the Company and the holders of its stock will become subject
to the proxy solicitation rules, reporting requirements and restrictions on
stock purchases and sales by directors, officers and greater than 10%
stockholders, the annual and periodic reporting and certain other requirements
of the Exchange Act. Under the Plan of Reorganization, the Company has
undertaken that it will not terminate such registration for a period of at least
three years following the Reorganization.
A copy of the Federal Stock Charter and Bylaws of the Company and the
Bank are available without charge from the Bank.
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AXIA FEDERAL SAVINGS BANK
AND SUBSIDIARY
Consolidated Financial Statements
CONTENTS
Page
INDEPENDENT AUDITORS' REPORT............................................ F-2
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(As of December 31, 1997 and 1996)................................. F-3
CONSOLIDATED STATEMENTS OF INCOME
(For the years ended December 31, 1997 and 1996)................... 25
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
(For the years ended December 31, 1997 and 1996)................... F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(For the years ended December 31, 1997 and 1996)................... F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(For the years ended December 31, 1997 and 1996)................... F-7
All schedules are omitted as the required information is not applicable or the
information is presented in the consolidated financial statements.
Financial statements of Axia Bancorp, Inc. (the "Company") are not presented
herein because the Company has not yet issued any stock, has no assets and no
liabilities, and has not conducted any business other than of an organizational
nature.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To The Board of Directors
Axia Federal Savings Bank
We have audited the accompanying consolidated statements of financial condition
of Axia Federal Savings Bank (the "Savings Bank") and Subsidiary as of December
31, 1997 and 1996 and the related consolidated statements of income, retained
earnings and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Savings Bank's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to in the second
preceding paragraph present fairly, in all material respects, the consolidated
financial position of Axia Federal Savings Bank and Subsidiary as of December
31, 1997 and 1996, and the results of their operations and their cash flows for
the years then ended, in conformity with generally accepted accounting
principles.
/s/ Radics & Co., LLC
January 23, 1998
F-2
<PAGE>
AXIA FEDERAL SAVINGS BANK
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
----------------------------------------------
<TABLE>
<CAPTION>
December 31,
---------------------------
Note(s) 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Assets
- ------
Cash and amounts due from depository institutions $ 1,192,270 $ 1,303,678
Interest-bearing deposits in other banks 4,738,621 4,471,105
------------ ------------
Total cash and cash equivalents 1 and 11 5,930,891 5,774,783
Securities available for sale 1,2 and 11 53,917,520 59,589,169
Loans receivable 1,3 and 11 152,199,868 130,689,693
Premises and equipment 1,4 and 10 2,113,904 2,308,323
Foreclosed real estate 1 121,064 --
Federal Home Loan Bank of New York stock 1,804,100 1,615,400
Interest receivable 1,5 and 11 1,219,978 1,223,487
Other assets 9 and 13 129,395 372,903
------------ ------------
Total assets $217,436,720 $201,573,758
============ ============
Liabilities and retained earnings
- ---------------------------------
Liabilities
- -----------
Deposits 6 and 11 $198,362,828 $184,709,001
Advance payments by borrowers for taxes and insurance 1,659,615 1,484,384
Other liabilities 1,8 and 9 873,434 568,610
------------ ------------
Total liabilities 200,895,877 186,761,995
------------ ------------
Commitments and contingencies 10 -- --
Retained earnings 7,9 and 13
- -----------------
Retained earnings - substantially restricted 16,122,933 14,569,728
Unrealized gain on securities available for sale, net 1 417,910 242,035
------------ ------------
Total retained earnings 16,540,843 14,811,763
------------ ------------
Total liabilities and retained earnings $217,436,720 $201,573,758
============ ============
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
AXIA FEDERAL SAVINGS BANK
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
--------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Retained Gain on
Earnings - Securities
Substantially Available
Restricted For Sale, net Total
------------- ------------- ------------
<S> <C> <C> <C>
Balance, December 31, 1995 $ 13,960,806 $ 408,239 $ 14,369,045
Net income for the year ended December 31, 1996 608,922 -- 608,922
Change in unrealized gain on securities
available for sale, net -- (166,204) (166,204)
------------- ------------- ------------
Balance, December 31, 1996 14,569,728 242,035 14,811,763
Net income for the year ended December 31, 1997 1,553,205 -- 1,553,205
Change in unrealized gain on securities
available for sale, net -- 175,875 175,875
------------- ------------- ------------
Balance, December 31, 1997 $ 16,122,933 $ 417,910 $ 16,540,843
============= ============= ============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
AXIA FEDERAL SAVINGS BANK AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------
1997 1996
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,553,205 $ 608,922
Adjustments to reconcile net income to net cash
provided by operating activities:
Deferred income taxes (24,501) (21,793)
Depreciation and amortization of premises and equipment 218,465 216,424
Amortization of premiums, net of accretion of discounts
and deferred loan fees 60,411 100,565
Loss on sale of real estate owned 520 --
Provision for loan losses 200,000 43,056
Gain on sale of securities available for sale (128,716) --
Gain on sale of premises and equipment -- (23,372)
Gain on sale of loans (4,395) --
Decrease in accrued interest receivable 3,509 68,844
Decrease (increase) in other assets 243,508 (172,067)
(Decrease) in accrued interest payable (1,154) (946)
Increase (decrease) in other liabilities 230,278 (200,324)
------------ ------------
Net cash provided by operating activities 2,351,130 619,309
------------ ------------
Cash flows from investing activities:
Purchases of securities available for sale (41,279,181) (6,280,414)
Principal repayments on securities available for sale 13,375,397 14,051,794
Calls of securities available for sale 2,000,000 1,000,000
Proceeds from sale of securities available for sale 31,842,498 --
Net increase in loans receivable (22,422,328) (26,144,078)
Proceeds from sale of loans receivable 651,014 --
Net additions to premises and equipment (24,046) (254,510)
Proceeds from sale of office building -- 84,000
Capitalized expense on foreclosed real estate (675) --
Proceeds from sale and recovery from insurance on foreclosed
real estate 20,787 134,068
Purchase of Federal Home Loan Bank of New York stock (188,700) (78,400)
------------ ------------
Net cash (used in) investment activities (16,025,234) (17,487,540)
------------ ------------
Cash flows from financing activities:
Increase in deposits 13,654,981 14,867,718
Increase in advance payments by borrowers for taxes
and insurance 175,231 295,709
------------ ------------
Net cash provided by financing activities 13,830,212 15,163,427
------------ ------------
Net increase (decrease) in cash and cash equivalents 156,108 (1,704,804)
Cash and cash equivalents - beginning 5,774,783 7,479,587
------------ ------------
Cash and cash equivalents - ending $ 5,930,891 $ 5,774,783
============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
AXIA FEDERAL SAVINGS BANK
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 9,005,195 $ 8,049,631
=========== ===========
Income taxes, net of refunds $ 455,900 $ 493,017
=========== ===========
Supplemental disclosure of noncash activities:
Loans receivable transferred from foreclosed real estate $ 204,696 $ --
=========== ===========
Loan to facilitate the sale of foreclosed real estate $ (63,000) $ --
=========== ===========
Loan made in conjunction with sale of office building $ -- $ 75,000
Imputed interest -- (13,544)
----------- -----------
$ -- $ 61,456
=========== ===========
Unrealized gain on securities available for sale:
Unrealized appreciation (depreciation) $ 274,922 $ (259,611)
Deferred income taxes (benefit) (99,047) 93,407
----------- -----------
$ 175,875 $ (166,204)
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
AXIA FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- ---------------------------------------------
Principles of consolidation
---------------------------
The consolidated financial statements include the accounts of the
Savings Bank and its wholly owned subsidiary, Axia Financial
Corporation (the "Corporation"). All significant intercompany accounts
and transactions have been eliminated in consolidation.
Basis of presentation
---------------------
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles. In preparing the
consolidated financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the consolidated statement of
financial condition and revenues and expenses for the period then
ended. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant
changes relate to the determination of the allowance for loan losses
and the assessment of prepayment risks associated with mortgage-backed
securities. Management believes that the allowance for loan losses is
adequate and that the risks associated with mortgage-backed securities
prepayments have been properly recognized. While management uses
available information to recognize losses on loans, future additions to
the allowance for loan losses may be necessary based on changes in
economic conditions in the market area. Additionally, assessments of
prepayment risks related to mortgage-backed securities are based upon
current market conditions, which are subject to frequent change.
In addition, various regulatory agencies, as an integral part of their
examination process, periodically review the Savings Bank's allowances
for loan losses. Such agencies may require the Savings Bank to
recognize additions to the allowance based on their judgments about
information available to them at the time of their examination.
Cash and cash equivalents
-------------------------
Cash and cash equivalents include cash and amounts due from depository
institutions and interest-bearing deposits in other banks with initial
maturities of three months or less.
Securities
----------
Investments in debt securities that the Savings Bank has the positive
intent and ability to hold to maturity are classified as
held-to-maturity securities and reported at amortized cost. Debt and
equity securities that are bought and held principally for the purpose
of selling them in the near term are classified as trading securities
and reported at fair value, with unrealized holding gains and losses
included in earnings. Debt and equity securities not classified as
trading securities nor as held-to-maturity securities are classified as
available for sale securities and reported at fair value, with
unrealized holding gains or losses, net of applicable deferred income
taxes, reported in a separate component of retained earnings.
F-7
<PAGE>
AXIA FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)
- ---------------------------------------------
Securities (Cont'd.)
----------
Premiums and discounts on all securities are amortized/accreted using
the interest method. Interest and dividend income on securities, which
includes amortization of premiums and accretion of discounts, is
recognized in the consolidated financial statements when earned. The
adjusted cost basis of an identified security sold or called is used
for determining security gains and losses recognized in the
consolidated statements of income.
Loans receivable
----------------
Loans receivable are stated at unpaid principal balances, less the
allowance for loan losses and net deferred loan origination fees and
discounts.
The Savings Bank defers loan origination fees and certain direct loan
origination costs and accretes such amounts as an adjustment of yield
over the contractual lives of the related loans. Discounts on loans are
recognized as income by use of a method which approximates the
level-yield method over the terms of the respective loans.
Allowance for loan losses
-------------------------
An allowance for loan losses is maintained at a level considered
adequate to absorb future loan losses. Management of the Savings Bank,
in determining the allowance for loan losses, considers the risks
inherent in its loan portfolio and changes in the nature and volume of
its loan activities, along with general economic and real estate market
conditions. The Savings Bank utilizes a two tier approach: (1)
identification of impaired loans and the establishment of specific loss
allowances on such loans; and (2) establishment of general valuation
allowances on the remainder of its loan portfolio. The Savings Bank
maintains a loan review system which allows for a periodic review of
its loan portfolio and the early identification of potential impaired
loans. Such system takes into consideration, among other things,
delinquency status, size of loans, types of collateral and financial
condition of the borrowers. Specific loan loss allowances are
established for identified loans based on a review of such information
and/or appraisals of the underlying collateral. General loan loss
allowances are based upon a combination of factors including, but not
limited to, actual loan loss experience, composition of the loan
portfolio, current economic conditions and management's judgment.
Although management believes that adequate specific and general loan
loss allowances are established, actual losses are dependent upon
future events and, as such, further additions to the level of the loan
loss allowance may be necessary.
Impaired loans are 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 loan's observable market price or the
fair value of the collateral if the loan is collateral dependent. A
loan evaluated for impairment is deemed to be impaired when, based on
current information and events, it is probable that the Savings Bank
will be unable to collect all amounts due according to the contractual
terms of the loan agreement. All loans identified as impaired are
evaluated independently. The Savings Bank does not aggregate such loans
for evaluation purposes. Payments received on impaired loans are
applied first to accrued interest receivable and then to principal. The
Savings Bank does not have any loans deemed to be impaired.
F-8
<PAGE>
AXIA FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)
- ---------------------------------------------
Concentration of risk
---------------------
The Savings Bank's lending activity is concentrated in loans secured by
real estate located in the State of New Jersey.
Premises and equipment
----------------------
Premises and equipment are comprised of land, at cost, and buildings,
building improvements, furnishings and equipment and leasehold
improvements, at cost, less accumulated depreciation and amortization.
Depreciation and amortization charges are computed on the straight-line
method over the following estimated useful lives:
Buildings and improvements 30 to 50 years
Furnishings and equipment 3 to 10 years
Leasehold improvements Shorter of estimated useful
life or term of lease
Significant renewals and betterments are charged to the premises and
equipment account. Maintenance and repairs are charged to operations in
the year incurred.
Foreclosed real estate
----------------------
Real estate properties acquired through, or in lieu of, foreclosure are
initially recorded at the lower of cost or estimated fair value at date
of acquisition. Subsequent valuations are periodically performed and an
allowance for losses established by a charge to operations if the
carrying value of a property exceeds its fair value less estimated
selling costs. Costs relating to development or improvement of
properties for sale are capitalized. Income and expenses of holding and
operating properties are recorded in operations as incurred or earned.
Gains and losses from sales of these properties are recognized as
incurred.
F-9
<PAGE>
AXIA FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)
- ---------------------------------------------
Allowance for uncollected interest
----------------------------------
The Savings Bank provides an allowance for the loss of uncollected
interest on loans based upon management's evaluation of the
collectibility of such interest. Such interest ultimately collected is
credited to income in the period of recovery.
Income taxes
------------
The Savings Bank and its subsidiary file a consolidated federal income
tax return. Income taxes are allocated based on the contribution of
income to the consolidated income tax return. Separate state income tax
returns are filed.
Federal and state income taxes have been provided on the basis of
reported income. The amounts reflected on the Savings Bank's tax return
differ from these provisions due principally to temporary differences
in the reporting of certain items for financial reporting and income
tax reporting purposes. Deferred income tax expense or benefit is
determined by recognizing deferred tax assets and liabilities for the
estimated future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. 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 earnings in
the period that includes the enactment date. The realization of
deferred tax assets is assessed and a valuation allowance provided,
when necessary, for that portion of the asset which is not likely to be
realized. Management believes, based upon current facts, that it is
more likely than not that there will be sufficient taxable income in
future years to realize all deferred tax assets.
Interest rate risk
------------------
The Savings Bank is principally engaged in the business of attracting
deposits from the general public and using these deposits, together
with other funds, to purchase securities and to make loans secured by
real estate. The potential for interest-rate risk exists as a result of
the generally shorter duration of the Savings Bank's interest-sensitive
liabilities compared to the generally longer duration of
interest-sensitive assets. In a rising rate environment, liabilities
will reprice faster than assets, thereby reducing net interest income.
For this reason, management regularly monitors the maturity structure
of the Savings Bank's interest-earning assets and interest-bearing
liabilities in order to measure its level of interest-rate risk and to
plan for future volatility.
Fair value of financial instruments
-----------------------------------
The fair value of a financial instrument is defined as the amount at
which the instrument could be exchanged in a current transaction
between willing parties, other than a forced or liquidation sale.
Significant estimations were used for the purposes of this disclosures.
Estimated fair value have been determined using the best available data
and estimation methodology suitable for each category of financial
instruments. The estimation methodologies used and assumptions made in
estimating fair values of financial instruments are set forth below.
F-10
<PAGE>
AXIA FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)
- ---------------------------------------------
Cash and cash equivalents and accrued interest receivable
---------------------------------------------------------
The carrying amounts for cash and cash equivalents and accrued interest
receivable approximate fair value because they mature in three months
or less.
Securities
----------
The fair values for securities available for sale are based on quoted
market or dealer prices, if available. If quoted market or dealer
prices are not available, fair value is estimated using quoted market
prices for similar securities.
Loans receivable
----------------
Fair value is estimated by discounting future 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, of such
loans.
Deposits
--------
The fair value of demand deposits, savings accounts and club accounts
is equal to the amount payable on demand at the reporting date. The
fair value of certificates of deposit is estimated by discounting
future cash flows, using rates currently offered for deposits of
similar remaining maturities. The fair value estimates do not include
the benefit that results from the low-cost funding provided by deposit
liabilities compared to the cost of borrowing funds in the market.
Commitments
-----------
The fair value of loan commitments is estimated using fees currently
charged to enter into similar agreements taking into account the
remaining terms of the agreements and the present creditworthiness of
the counterparties. For fixed rate loan commitments, fair value also
considers the difference between current levels of interest and the
committed rates.
F-11
<PAGE>
AXIA FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd.)
- ---------------------------------------------
Impact of new accounting standards
----------------------------------
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130,
"Reporting Comprehensive Income". SFAS No. 130 requires that all items
that are components of "comprehensive income" be reported in a
financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income is defined as the "change in
equity [net assets] of a business enterprise during a period from
transactions and other events and circumstances from nonowner sources.
It includes all changes in equity during a period except those
resulting from investments by owners and distributors to owners".
Companies will be required to (a) classify items of other comprehensive
income by their nature in the financial statements and (b) display the
accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity-section
of a statement of financial position. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997 and requires
reclassification of prior periods presented. As the requirements of
SFAS No. 130 are disclosure-related, its implementation will have no
impact on the Savings Bank's consolidated financial condition or
results of operations.
In June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information". SFAS No. 131 requires that
enterprises report certain financial and descriptive information about
operating segments in complete sets of financial statements of the
company and in condensed financial statements of interim period issued
to shareholders. It also requires that a company report certain
information about their products and services, geographic areas in
which they operate and their major customers. SFAS No. 131 is effective
for fiscal years beginning after December 15, 1997 and requires interim
periods to be presented in the second year of application. As the
requirements of SFAS No. 131 are disclosure-related, its implementation
will have no impact on the Savings Bank's consolidated financial
condition or results of operations.
Reclassification
----------------
Certain amounts for the year ended December 31, 1996 have been
reclassified to conform to the current year's presentation.
F-12
<PAGE>
AXIA FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
2. SECURITIES AVAILABLE FOR SALE
- --------------------------------
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------
Gross Unrealized
Amortized ------------------------- Carrying
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Mortgage-backed:
Due in one year or less $ 71,353 $ -- $ 1,360 $ 69,993
Due after one year through five years 5,113,106 25,322 -- 5,138,428
Due after five years 47,080,077 636,835 -- 47,716,912
----------- ----------- ----------- -----------
52,264,536 662,157 1,360 52,925,333
U.S. Government Agencies
Due after five years 1,000,000 -- 7,813 992,187
----------- ----------- ----------- -----------
$53,264,536 $ 662,157 $ 9,173 $53,917,520
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
-----------------------------------------------------
Gross Unrealized
Amortized ------------------------- Carrying
Cost Gains Losses Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Mortgage-backed:
Due in one year or less $ 1,474,247 $ 5,672 $ -- $ 1,479,919
Due after one year through five years 2,170,818 24,897 27 2,195,688
Due after five years 51,558,568 693,144 402,605 51,849,107
----------- ----------- ----------- -----------
55,203,633 723,713 402,632 55,524,714
----------- ----------- ----------- -----------
U.S. Government Agencies:
Due after one year through five years 999,061 -- 9,061 990,000
Due after five years 3,008,413 -- 54,038 2,954,375
----------- ----------- ----------- -----------
4,007,474 -- 63,099 3,944,375
----------- ----------- ----------- -----------
Equity securities -- 120,080 -- 120,080
----------- ----------- ----------- -----------
$59,211,107 $ 843,793 $ 465,731 $59,589,169
=========== =========== =========== ===========
</TABLE>
Proceeds from the sales of securities available for sale during the year ended
December 31, 1997 totalled $31,842,498. Gross gains of $389,869 and gross losses
of $261,153 were realized on those sales. There were no sales of securities
available for sale during the year ended December 31, 1996.
Securities available for sale with a carrying value of approximately $220,000
and $476,000 at December 31, 1997 and 1996, respectively, were pledged to secure
public funds.
F-13
<PAGE>
AXIA FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
3. LOANS RECEIVABLE
- -------------------
December 31,
-----------------------------
1997 1996
------------ ------------
Real estate mortgage:
One-to-four family $142,551,575 $119,501,193
Multi-family 1,257,488 1,875,303
Commercial 1,906,160 2,034,955
FHA insured and VA guaranteed 1,072,455 1,390,124
------------ ------------
146,787,678 124,801,575
------------ ------------
Real estate construction -- 237,000
------------ ------------
Consumer:
Home improvement 6,644 9,819
Student education 90,148 782,919
Passbook or certificate 394,039 308,660
Home equity loans 2,978,788 2,606,151
Home equity line of credit 2,727,096 2,757,462
------------ ------------
6,196,715 6,465,011
------------ ------------
Total loans 152,984,393 131,503,586
------------ ------------
Less:
Loans in process -- 3,360
Allowance for loan losses 723,319 533,840
Deferred loan fees and discounts 61,206 276,693
------------ ------------
784,525 813,893
------------ ------------
$152,199,868 $130,689,693
============ ============
The Savings Bank has granted loans to its officers and directors and to their
associates. Related party loans are made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with unrelated persons and do not involve more than
normal risk of collectibility. Activity in such loans is as follows:
Year Ended December 31,
---------------------------
1997 1996
--------- ----------
Balance - beginning $ 438,000 $ 453,000
New loans 323,000 --
Repayments (19,000) (15,000)
Other changes (172,000) --
--------- ---------
Balance - ending $ 570,000 $ 438,000
========= =========
F-14
<PAGE>
AXIA FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
3. LOANS RECEIVABLE (Cont'd.)
- -------------------
Nonaccrual loans totalled approximately $909,000 and $904,000 at December 31,
1997 and 1996, respectively. Interest income recognized on these loans during
the years ended December 31, 1997 and 1996, was approximately $36,000 and
$35,000, respectively. Had these loans been performing in accordance with their
original terms, interest income for the years ended December 31, 1997 and 1996,
would have been approximately $84,000 and $77,000, respectively. The Savings
Bank is not committed to lend additional funds to the borrowers whose loans have
been placed on nonaccrual status.
The activity in allowance for loan losses follows:
Year Ended
December 31,
--------------------------
1997 1996
--------- ---------
Balance - beginning $ 533,840 $ 490,000
Provisions charged to operations 200,000 43,056
Loans charged off, net of recoveries (10,521) 784
--------- ---------
Balance - ending $ 723,319 $ 533,840
========= =========
At December 31, 1997 and 1996, loans serviced for the benefit of others totalled
approximately $337,000 and $416,000, respectively.
4. PREMISES AND EQUIPMENT
- -------------------------
December 31,
-------------------------
1997 1996
---------- ----------
Land $ 181,386 $ 181,386
---------- ----------
Buildings and improvements 628,179 628,179
Less accumulated depreciation 52,847 31,916
---------- ----------
575,332 596,263
---------- ----------
Leasehold improvements, net of amortization 983,089 1,031,998
---------- ----------
Furnishings and equipment 1,440,226 1,421,384
Less accumulated depreciation 1,066,129 922,708
---------- ----------
374,097 498,676
---------- ----------
$2,113,904 $2,308,323
========== ==========
F-15
<PAGE>
AXIA FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
5. INTEREST RECEIVABLE
- ----------------------
December 31,
------------------------
1997 1996
---------- ----------
Loans, net of allowance for uncollected
interest of $134,403 (1997) and $126,660 (1996) $ 769,385 $ 685,890
Mortgage-backed securities available for sale 426,039 450,057
Investment securities available for sale 23,958 86,776
Other interest-earnings assets 596 764
---------- ----------
$1,219,978 $1,223,487
========== ==========
6. DEPOSITS
- -----------
December 31,
----------------------------------------------
1997 1996
---------------------- ----------------------
Weighted Weighted
Average Average
Rate Amount Rate Amount
-------- ------------ -------- ------------
Demand accounts:
Non-interest bearing 0% $ 3,375,404 0% $ 2,417,617
Money Market 2.69% 2,809,401 2.75% 3,159,630
NOW 1.50% 9,695,916 2.25% 8,815,781
------------ ------------
1.39% 15,880,721 1.98% 14,393,028
Savings and clubs 3.00% 45,168,430 2.99% 44,120,173
Certificates of deposit 5.52% 137,313,677 5.39% 126,195,800
------------ ------------
4.62% $198,362,828 4.55% $184,709,001
============ ============
The scheduled maturities of certificates of deposit are as follows:
December 31,
--------------------------
Maturity Period 1997 1996
--------------- -------- --------
(In Thousands)
One year or less $ 90,301 $ 84,876
After one through three years 45,697 38,355
After three years 1,316 2,965
-------- --------
$137,314 $126,196
======== ========
At December 31, 1997 and 1996, certificates of deposit of $100,000 or more
totalled approximately $8,312,000 and $6,541,000, respectively.
F-16
<PAGE>
AXIA FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
6. DEPOSITS (Cont'd.)
- -----------
Interest expense on deposits consist of the following:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
Money Market $ 80,720 $ 93,505
NOW 163,128 196,627
Savings club 1,345,955 1,311,719
Certificates of deposit 7,344,414 6,476,132
---------- ----------
8,934,217 8,077,983
Less penalties for early withdrawal of certificates
of deposits 25,950 29,943
---------- ----------
$8,908,267 $8,048,040
========== ==========
</TABLE>
7. REGULATORY CAPITAL
- ---------------------
The Savings Bank is subject to various regulatory capital requirements
administered by the Federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Savings Bank. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Savings Bank must meet
specific capital guidelines that involve quantitative measures of the Savings
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Savings Bank's capital amounts and
classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
The Office of Thrift Supervision ("OTS") has prescribed capital requirements
which include three separate measurements of capital adequacy (the "Capital
Rule"). The Capital Rule requires each savings institution to maintain tangible
capital equal to at least 1.5% of its tangible assets and core capital equal to
at least 3.0% of its adjusted total assets. The Capital Rule further requires
each savings institution to maintain total capital equal to at least 8.0% of its
risk-weighted assets. The following table sets forth the capital position of the
Savings Bank as of December 31, 1997:
<TABLE>
<CAPTION>
Tangible Capital Core Capital Risk-based Capital
-------------------- -------------------- --------------------
Amount Percent Amount Percent Amount Percent
-------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
GAAP retained earnings $ 16,541 7.62% $ 16,541 7.62% $ 16,541 17.38%
Unrealized (gain) on securities
available for sale, net (418) (.19) (418) (.19) (418) (.44)
General loan loss allowance -- -- -- -- 711 .75
-------- ----- -------- ----- -------- -----
Regulatory capital 16,123 7.43 16,123 7.43 16,834 17.69
Required regulatory capital 3,255 1.50 6,510 3.00 7,614 8.00
-------- ----- -------- ----- -------- -----
Excess $ 12,868 5.93% $ 9,613 4.43% $ 9,220 9.69%
======== ===== ======== ===== ======== =====
</TABLE>
F-17
<PAGE>
AXIA FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
7. REGULATORY CAPITAL (Cont'd.)
- ---------------------
Quantitative measures established by regulation to ensure capital adequacy
require the Savings Bank to maintain minimum amounts and ratios of Total and
Tier I capital (as defined in the regulations) to risk-weighted assets (as
defined), and of Tier I capital to average assets (as defined). Management
believes, as of December 31, 1997, that the Savings Bank meets all capital
adequacy requirements to which it is subject.
As of March 31, 1997, the most recent notification from the OTS, the Savings
Bank was categorized as well capitalized under the regulatory framework for
prompt corrective action. To be categorized as well capitalized, the Savings
Bank must maintain minimum total, risk-based, and Tier I leverage ratios of 10%,
6% and 5%, respectively. There are no conditions existing or events which have
occurred since notification that management believes have changed the
institution's category.
8. BENEFIT PLANS
- ----------------
Retirement plan
- ---------------
The Savings Bank has a non-contributory pension plan covering all eligible
employees. The plan is a defined benefit plan which provides benefits based on a
participant's years of service and compensation. The Savings Bank's funding
policy is to contribute annually the maximum amount that can be deducted for
federal income tax purposes. The following tables set forth the plan's funded
status and components of net periodic pension cost:
<TABLE>
<CAPTION>
December 31,
--------------------------
1997 1996
----------- -----------
<S> <C> <C>
Actuarial present value of benefit obligation, including
vested benefits of $943,000 and $642,000, respectively $ 954,000 $ 670,000
=========== ===========
Projected benefit obligation $ 1,366,000 $ 1,067,000
Plan assets at fair value 1,047,000 809,000
----------- -----------
Projected benefit obligation in excess of plan assets 319,000 258,000
Unrecognized net transition liability (90,000) (54,000)
Unrecognized net (loss) (198,000) (130,000)
----------- -----------
Pension liability included in other liabilities $ 31,000 $ 74,000
=========== ===========
</TABLE>
Net periodic pension cost for the plan included the following components:
Year Ended
December 31,
----------------------
1997 1996
--------- ---------
Service cost $ 77,439 $ 74,260
Interest cost 80,404 68,982
Return on plan assets (97,001) (38,148)
Net amortization and deferral 41,197 2,343
--------- ---------
Net periodic pension cost
included in salaries and employee benefits $ 102,039 $ 107,437
========= =========
F-18
<PAGE>
AXIA FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
8. BENEFIT PLANS (Cont'd.)
- ----------------
Assumptions used in accounting for the plan are as follows:
Year Ended
December 31,
--------------------
1997 1996
-------- --------
Discount rate 7.5% 7.0%
Rate of increase in compensation 5.5% 5.0%
Long-term rate of return on plan assets 8.0% 7.0%
Postretirement benefits
- -----------------------
Postretirement benefits offered by the Savings Bank include health care and life
insurance coverage. The following tables set forth the plan's funded status and
components of postretirement benefit costs:
<TABLE>
<CAPTION>
December 31,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 274,758 $ 282,204
Other active plan participants 281,060 249,237
--------- ---------
Accumulated and unfunded postretirement benefit
obligation 555,818 531,441
Unrecognized prior service cost (421,711) (446,517)
Unrecognized net loss 50,143 37,617
--------- ---------
Postretirement obligation included in other liabilities $ 184,250 $ 122,541
========= =========
</TABLE>
Postretirement benefit cost for the plan included the following components:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
Service cost $ 21,004 $ 19,539
Interest cost on accumulated postretirement benefit
obligation 38,992 36,504
Amortization of unrecognized prior service costs 24,806 24,806
--------- ---------
Net postretirement benefit cost included in
compensation and employee benefits $ 84,802 $ 80,849
========= =========
</TABLE>
Assumptions used in accounting for the plan are as follows:
Year Ended
December 31,
------------------------
1997 1996
--------- ---------
Discount rate 7.50% 7.50%
Rate of increase in compensation 5.50% 5.50%
F-19
<PAGE>
AXIA FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
9. INCOME TAXES
- ---------------
The Savings Bank qualifies as a thrift institution under the provisions of the
Internal Revenue Code and, therefore, was permitted, prior to January 1, 1996,
to deduct from taxable income an allowance for bad debts based on eight percent
of taxable income before such deduction. Effective January 1, 1996, the Savings
Bank must calculate its bad debt deduction using either the experience or the
specific charge off method. Retained earnings at December 31, 1997, includes
approximately $3,009,000 of such bad debt, for which income taxes have not been
provided. If such amount is used for purposes other than for bad debts losses,
including distributions in liquidation, it will be subject to income tax at the
then current rate. See Note 12.
The components of income taxes are summarized as follows:
Year Ended
December 31,
------------------------------
1997 1996
--------- ---------
Current tax expense:
Federal income $ 827,699 $ 281,585
State income 73,752 23,689
--------- ---------
901,451 305,274
--------- ---------
Deferred tax (benefit):
Federal income (22,466) (20,058)
State income (2,035) (1,735)
--------- ---------
(24,501) (21,793)
--------- ---------
$ 876,950 $ 283,481
========= =========
The following table presents a reconciliation between the reported income taxes
and the income taxes which would be computed by applying the normal federal
income tax rate of 34% to income before income taxes:
<TABLE>
<CAPTION>
Year Ended
December 31,
-----------------------
1997 1996
--------- ---------
<S> <C> <C>
Federal income tax expense $ 826,253 $ 303,417
Increases (reductions) in income taxes resulting from:
New Jersey savings institution tax, net of federal income tax effect 47,333 14,490
Other items, net 3,364 (34,426)
--------- ---------
Effective income tax $ 876,950 $ 283,481
========= =========
</TABLE>
F-20
<PAGE>
AXIA FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
9. INCOME TAXES (Cont'd.)
- ---------------
The tax effects of existing temporary differences that give rise to significant
positions of deferred tax assets and deferred tax liabilities are as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
Deferred tax assets 1997 1996
------------------- --------- ---------
<S> <C> <C>
Benefit plans $ 84,742 $ 89,608
Deferred loan fees 80,311 98,602
Uncollected interest 49,729 45,572
Allowance for loss on loans 267,628 192,075
Other items 1,433 4,527
--------- ---------
483,843 430,384
--------- ---------
Deferred tax liabilities
------------------------
Unrealized gain on securities available for sale 235,074 136,027
Depreciation 128,936 108,950
Bad debt deduction in excess of base year 325,439 316,467
--------- ---------
689,449 561,444
--------- ---------
Net deferred tax liabilities included in other liabilities $(205,606) $(131,060)
========= =========
</TABLE>
Refundable income taxes of $232,757 at December 31, 1996 are included in other
assets. Current income tax liabilities of $192,516 at December 31, 1997 are
included in other liabilities.
10. COMMITMENTS AND CONTINGENCIES
- ---------------------------------
The Savings Bank is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers
and reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit and purchase securities. The
commitments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the consolidated statement of
financial condition. The Savings Bank's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit is represented by the contractual notional amount of those
instruments. The Savings Bank uses the same credit policies in making
commitments as it does for on-balance-sheet instruments.
F-21
<PAGE>
AXIA FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
10. COMMITMENTS AND CONTINGENCIES (Cont'd.)
- -------------------------------------------
Commitments to extend credit are agreements to lend a customer as long as there
is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since commitments may expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements. The Savings Bank evaluates each customer's creditworthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
the Savings Bank upon extension of credit, is based on management's credit
evaluation of the counterparty. Collateral held varies but primarily includes
residential real estate.
Commitments to purchase securities are contracts for delayed delivery of
securities in which the seller agrees to make delivery at a specified future
date of a specified instrument, at a specified price or yield. Risks arise from
the possible inability of counterparties to meet the terms of their contracts
and from movements in securities values and interest rates.
The Savings Bank has the following outstanding commitments:
<TABLE>
<CAPTION>
December 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
To originate loans, expiring in three months or less:
Mortgage $1,950,000 $2,410,000
Fixed rate home equity loans 74,000 90,000
Home equity credit lines 29,000 54,000
---------- ----------
$2,053,000 $2,554,000
========== ==========
</TABLE>
At December 31, 1997, of the $2,053,000 in commitments to originate loans,
$1,849,000 are for loans at fixed interest rates ranging from 6.50% to 9.625%
and $204,000 are for loans at adjustable interest rates with initial rates
ranging from 6.75% to 10.25%.
At December 31, 1997 and 1996, outstanding commitments related to unused home
equity lines of credit totalled approximately $3,098,000 and $3,633,000,
respectively. At December 31, 1997 and 1996, the Savings Bank had outstanding
$150,000 and $250,000, respectively, in loan participation purchase commitments.
Loan participation purchase commitments represent commitments to purchase
participation interests in loans where the interest rate will be set at the
funding date based upon the Federal Home Loan Bank of New York C.I.P. advance
rates plus a margin.
Commitments under home equity credit line programs represent undisbursed funds
from approved lines of credit. Unless specifically cancelled by notice from the
Savings Bank, these are firm commitments to the respective borrowers on demand.
The lines of credit are secured by one-to-four family residential property owned
by the borrowers. The interest rate charged for any month on funds disbursed
under the Homeowners' Equity Credit Line Program is 1.75% above the prime rate
as most recently published in The Wall Street Journal prior to the last business
day of the month immediately preceding the month in which the billing cycle
begins. The interest rate charged under the Preferred Home Equity Credit Line is
fixed at 6.49% for one year, and thereafter is adjusted monthly to a rate of
1.00% above the prime rate as discussed above.
F-22
<PAGE>
AXIA FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
10. COMMITMENTS AND CONTINGENCIES (Cont'd.)
- ---------------------------------
Rentals, including related expenses, under long-term operating leases for
certain branch offices amounted to approximately $178,000 and $166,000 for the
years ended December 31, 1997 and 1996, respectively. At December 31, 1997, the
minimum rental commitments under all noncancellable leases with initial or
remaining terms of more than one year and expiring through March 31, 2002 are as
follows:
Year Ending Minimum
December 31, Rent
------------- ---------
1998 $ 177,000
1999 181,000
2000 152,000
2001 117,000
2002 29,000
---------
$ 656,000
=========
The Savings Bank also has, in the normal course of business, commitments for
services and supplies. Management does not anticipate losses on any of these
transactions.
The Savings Bank is also a party to litigation which arises primarily in the
ordinary course of business. In the opinion of management, the ultimate
disposition of such litigation should not have a material effect on consolidated
financial position or operations.
11. FAIR VALUE OF FINANCIAL INSTRUMENTS
- ---------------------------------------
The carrying amounts and fair values of the Savings Bank's financial instruments
are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------------------------
1997 1996
---------------------- ----------------------
Carrying Estimated Carrying Estimated
Financial assets Amount Fair Value Amount Fair Value
---------------- -------- ---------- -------- ----------
(In Thousands)
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 5,931 $ 5,931 $ 5,775 $ 5,775
Securities available for sale 53,918 53,918 59,589 59,589
Loans receivable 152,200 154,192 130,690 131,153
Interest receivable 1,220 1,220 1,223 1,223
Financial liabilities
---------------------
Deposits 198,363 198,717 184,709 185,122
Commitments
-----------
To originate loans 2,053 2,053 2,554 2,554
Unused lines of credit 3,098 3,098 3,633 3,633
Loan participation purchase 150 150 250 250
</TABLE>
F-23
<PAGE>
AXIA FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
11. FAIR VALUE OF FINANCIAL INSTRUMENTS (Cont'd.)
- ---------------------------------------
The fair value estimates are made at a discrete point in time based on relevant
market information and information about the financial instruments. Because no
market exists for a significant portion of the Savings Bank's financial
instruments, fair value estimates are based on judgments regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. 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 fair value estimates were based on existing on-and-of balance
sheet financial instruments without attempting to value anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Other significant assets and liabilities that are not
considered financial assets and liabilities include premises and equipment and
advances from borrowers for taxes and insurance. 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 any of the estimates.
Finally, reasonable comparability between financial institutions may not be
likely due to the wide range of permitted valuation techniques and numerous
estimates which must be made given the absence of active secondary markets for
many of the financial instruments. This lack of uniform valuation methodologies
introduces a greater degree of subjectivity to these estimated fair values.
12. LEGISLATIVE MATTERS
- -----------------------
On September 30, 1996, legislation was enacted which, among other things,
imposed a special one-time assessment on Savings Association Insurance fund
("SAIF") member institutions, including the Savings Bank, to recapitalize the
SAIF and spread the obligation for payment of Financial Corporation ("FICO")
bonds across all SAIF and Bank Insurance Fund ("BIF") members. The special
assessment levied amounted to 65.7 basis points on SAIF assessable deposits held
as of March 31, 1995. The special assessment was recognized in September 1996
and was tax deductible. The Savings Bank took a charge of approximately
$1,012,000 as a result of the special assessment. This legislation eliminated
the substantial disparity between the amount that BIF and SAIF members had been
paying for deposit insurance premiums.
Currently, the Federal Deposit Insurance Corporation ("FDIC") has estimated
that, in addition to normal deposit insurance premiums, BIF members will pay a
portion of the FICO payments equal to 1.3 basis points on BIF-insured deposits
compared to 6.3 basis points by SAIF members on SAIF-insured deposits. All
institutions will pay a pro-rata share of the FICO payment on the earlier of
January 1, 2000 or the date upon which the last savings association ceases to
exist. The legislation also requires BIF and SAIF to be merged by January 1,
1999 provided that legislation is adopted to eliminate the savings association
charter and no savings associations remain as of that time.
The FDIC has lowered SAIF assessments to a range comparable to that of BIF
members, although SAIF members must also make the FICO payments described above.
Management cannot predict the precise level of FDIC insurance assessments on an
ongoing basis or whether the BIF and SAIF will eventually be merged.
F-24
<PAGE>
AXIA FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
12. LEGISLATIVE MATTERS (Cont'd.)
- -----------------------
On August 21, 1996, legislation was enacted to allow for the recapture of
post-1987 tax bad debt reserves ("excess reserves"). Prior to enactment, certain
thrift institutions such as the Savings Bank were allowed deductions for bad
debts under methods more favorable than those granted to other taxpayers. This
legislation repealed the Code Section 593 reserve method of accounting for bad
debts by thrift institutions, effective for taxable years beginning after 1995.
Thrift institutions that are treated as small banks are allowed to utilize the
experience method applicable to such institutions, while thrift institutions
that are treated as large banks are required to use only the specific charge off
method.
For small institutions such as the Savings Bank, the amount of the institution's
applicable excess reserves generally is the excess of (i) the balances of its
reserve for losses on qualifying real property loans and its reserve for losses
on nonqualifying loans as of the close of its last taxable year beginning before
January 1, 1996, over (ii) the greater of the balance of (a) its pre-1988 tax
reserves or (b) what the reserves would have been at the close of its last tax
year beginning before January 1, 1996, had the Savings Bank always used the
experience method. The amount of the applicable excess reserves will be
recaptured ratably over a six taxable year period, beginning with the first
taxable year beginning after 1995, subject to a residential loan requirement
which can delay the beginning of the recapture period by up to two years. The
Savings Bank has met the residential loan requirement and, as such, the
recapture period will begin in 1998. At December 31, 1995, the Savings Bank had
approximately $880,000 of excess reserves. Since the percentage of taxable
income method for tax bad debt deductions and the corresponding increase in the
tax bad debt reserve in excess of the base year have been recorded as temporary
differences pursuant to FASB Statement No. 109, this change in the tax law is
not expected to have a material effect on the Savings Bank's consolidated
financial statements.
13. PROPOSED CONVERSION TO STOCK FORM OF OWNERSHIP
- --------------------------------------------------
On October 15, 1997, the Board of Directors the Bank unanimously adopted the
Plan of Reorganization from Mutual Savings Association to Mutual Holding Company
and Stock Issuance (the "Plan"). Pursuant to the Plan, the Bank will: (i)
convert to a stock savings bank as the successor to the Bank in its current
mutual form; (ii) organize the Company as a federally-chartered corporation that
will own 100% of the common stock of the Stock Bank; and (iii) organize the
Mutual Holding Company as a federally-chartered mutual holding company that will
own at least 51% of the Common Stock of the Company so long as the Mutual
Holding Company remains in existence. The Stock Bank will succeed to the
business and operations of the Bank in its mutual form, and the Company will
sell 47% of its Common Stock in the Offering. The Plan must be approved by both
the OTS and by the Savings Bank's depositors and borrowers with outstanding
loans as of September 30, 1996, provided such loans remain outstanding as of the
voting record date (the "Members").
Following the completion of the reorganization, all depositors who had
membership or liquidation rights with respect to the Savings Bank as of the
effective date of the reorganization will continue to have such rights solely
with respect to the holding company so long as they continue to hold deposit
accounts with the Savings Bank. In addition, all persons who become depositors
of the Savings Bank subsequent to the reorganization will have such membership
and liquidation rights with respect to the holding company. Borrower members of
the Savings Bank at the time of the reorganization will have the same membership
rights in the holding company that they had in the Bank immediately prior to the
reorganization so long as their existing borrowings remain outstanding.
Borrowers will not receive membership rights in connection with any new
borrowings made after the reorganization.
F-25
<PAGE>
AXIA FEDERAL SAVINGS BANK AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
13. PROPOSED CONVERSION TO STOCK FORM OF OWNERSHIP (Cont'd.)
- --------------------------------------------------
The Company plans to offer to the public shares of common stock representing a
minority ownership of the estimated pro forma market value of the Savings Bank
as determined by an independent appraisal. The Mutual Holding Company will
maintain the majority ownership of the Company. Cost incurred in connection with
the offering, which totalled $5,000 at December 31, 1997, and is included in
other assets, will be recorded as a reduction of the proceeds from the offering.
The transaction is subject to approval by the OTS and the majority of the Bank's
members.
F-26
<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 the Company, the Bank or the Agent. 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 whom it is unlawful to
make such offer or solicitation in such jurisdiction. Neither the delivery of
this Prospectus nor any sale hereunder shall under any circumstances create any
implication that there has been no change in the affairs of the Company or the
Bank since any of the dates as of which information is furnished herein or since
the date hereof.
SUMMARY..........................................................
SELECTED CONSOLIDATED FINANCIAL
AND OTHER DATA OF AXIA FEDERAL SAVINGS BANK
AND SUBSIDIARY................................................
RISK FACTORS.....................................................
THE COMPANY......................................................
THE BANK.........................................................
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE......................
USE OF PROCEEDS..................................................
DIVIDEND POLICY..................................................
MARKET FOR THE COMMON STOCK......................................
CAPITALIZATION...................................................
PRO FORMA DATA...................................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS....................
BUSINESS OF THE BANK.............................................
REGULATION.......................................................
TAXATION.........................................................
MANAGEMENT OF THE COMPANY........................................
MANAGEMENT OF THE BANK...........................................
THE REORGANIZATION...............................................
RESTRICTIONS ON THE 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 OPINIONS...................................................
ADDITIONAL INFORMATION...........................................
Until June __, 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 a Prospectus when acting as
underwriters and with respect to their unsold allotments of subscriptions.
___________ Shares
Axia
Bancorp, Inc.
(Proposed Holding Company for
Liberty Bank)
COMMON STOCK
Par Value $1.00 per share
PROSPECTUS
RYAN, BECK & CO., INC.
May __, 1998
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers of Axia Federal Savings Bank,
and Axia Bancorp, Inc.
Generally, federal regulations define areas for indemnity coverage for
federal savings associations, and proposed federal regulations define areas for
indemnity coverage for federal MHC subsidiary holding companies, as follows:
(a) Any person against whom any action is brought by reason of the
fact that such person is or was a director or officer of the savings
association shall be indemnified by the savings association for:
(i) Reasonable costs and expenses, including reasonable
attorneys' fees, actually paid or incurred by such person in
connection with proceedings related to the defense or settlement of
such action;
(ii) Any amount for which such person becomes liable by reason of
any judgment in such action;
(iii) Reasonable costs and expenses, including reasonable
attorneys' fees, actually paid or incurred in any action to enforce
his rights under this section, if the person attains a final judgment
in favor of such person in such enforcement action.
(b) Indemnification provided for in subparagraph (a) shall be made to
such officer or director only if the requirements of this subsection are
met:
(i) The savings association shall make the indemnification
provided by subparagraph (a) in connection with any such action which
results in a final judgment on the merits in favor of such officer or
director.
(ii) The savings association shall make the indemnification
provided by subparagraph (a) in case of settlement of such action,
final judgment against such director or officer or final judgment in
favor of such director or officer other than on the merits except in
relation to matters as to which he shall be adjudged to be liable for
negligence or misconduct in the performance of duty, only if a
majority of the directors of the savings association determines that
such a director or officer was acting in good faith within what he was
reasonably entitled to believe under the circumstances was the scope
of his employment or authority and for a purpose which he was
reasonably entitled to believe under the circumstances was in the best
interest of the savings association or its members.
(c) As used in this paragraph:
(i) "Action" means any action, suit or other judicial or
administrative proceeding, or threatened proceeding, whether civil,
criminal, or otherwise, including any appeal or other proceeding for
review;
(ii) "Court" includes, without limitation, any court to which or
in which any appeal or any proceeding for review is brought;
(iii) "Final Judgment" means a judgment, decree, or order which
is appealable and as to which the period for appeal has expired and no
appeal has been taken;
(iv) "Settlement" includes the entry of a judgment by consent or
by confession or upon a plea of guilty or of nolo contendere.
<PAGE>
Item 25. Other Expenses of Issuance and Distribution Amount
* Legal Fees and Expenses.............................. $ 90,000
* Printing, Postage, Mailing, EDGAR and Application
photocopying ...................................... 150,000
* Appraisal and Business Plan Fees and Expenses........ 25,000
* Accounting Fees and Expenses......................... 30,000
** Underwriter's Fees and Expenses...................... 175,000
* Filing Fees (NASD, OTS and SEC)...................... 65,000
* State Securities fees................................ 15,000
* Other Expenses....................................... 40,000
-----------
* Total ............................................... $ 600,000
===========
* Estimated
** Axia Bancorp, Inc. has retained Ryan, Beck & Co. ("Ryan Beck") to assist in
the sale of common stock on best efforts basis in the Offerings.
Item 26. Recent Sales of Unregistered Securities
Not Applicable.
Item 27. Exhibits:
The exhibits filed as part of this registration statement are
incorporated by reference from the Exhibit Index.
Item 28. Undertakings
The undersigned Registrant hereby undertakes to:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any duration from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than 20
percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective
registration statement;
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial
bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
<PAGE>
The small business issuer will provide to the underwriter at the
closing specified in the Underwriting Agreement certificates in such
documentation and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
questions whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the Township of
Woodbridge, State of New Jersey, on March 13, 1998.
AXIA BANCORP, INC. (In formation)
By: /s/ John R. Bowen
----------------------------------
John R. Bowen
President and Chief Executive Officer
(Duly Authorized Representative)
POWER OF ATTORNEY
We, the undersigned directors and officers of Axia Bancorp, Inc. (in
formation, and the "Company") hereby severally constitute and appoint John R.
Bowen as our true and lawful attorney and agent, to do any and all things in our
names in the capacities indicated below which said John R. Bowen may deem
necessary or advisable to enable the Company to comply with the Securities Act
of 1933, and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with the registration statement on Form SB-2
relating to the offering of the Company's Common Stock, including specifically,
but not limited to, power and authority to sign for us in our names in the
capacities indicated below the registration statement and any and all amendments
(including post-effective amendments) thereto; and we hereby approve, ratify and
confirm all that said John R. Bowen shall do or cause to be done by virtue
thereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and as of the dates indicated.
Signatures Title Date
---------- ----- ----
/s/ John R. Bowen President, Chief Executive March 13, 1998
- ----------------------- Officer and Chairman of the
John R. Bowen Board
(Principal Executive Officer)
/s/ Michael J. Widmer Executive Vice President, Chief March 13, 1998
- ----------------------- Financial Officer and Director
Michael J. Widmer (Principal Financial Officer)
/s/ Joseph F. Coccaro Treasurer March 13, 1998
- ----------------------- (Principal Accounting Officer)
Joseph F. Coccaro
/s/ Neil R. Bryson, DDS Director March 13, 1998
- -----------------------
Neil R. Bryson, DDS
/s/ Anthony V. Caruso Director March 13, 1998
- -----------------------
Anthony V. Caruso
/s/ John W. Fox Director March 13, 1998
- -----------------------
John W. Fox
<PAGE>
Signatures Title Date
---------- ----- ----
/s/ Donald F. Marsh Director March 13, 1998
- -----------------------
Donald F. Marsh
/s/ John C. Marsh Director March 13, 1998
- -----------------------
John C. Marsh
/s/ Paul J. McGovern Director March 13, 1998
- -----------------------
Paul J. McGovern
/s/Nelson L. Taylor, Jr. Director March 13, 1998
- ----------------------
Nelson L. Taylor, Jr.
<PAGE>
As filed with the Securities and Exchange Commission on March 16, 1998
================================================================================
Registration No. 333-[ ]
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
EXHIBITS
TO
REGISTRATION STATEMENT
ON
FORM SB-2
------------------------------------
AXIA BANCORP, INC.
AVENEL, NEW JERSEY
<PAGE>
EXHIBIT INDEX
1.1 Engagement Letter between Axia Federal Savings Bank and Ryan, Beck &
Co., Inc.
1.2 Agency Agreement among Axia Bancorp, Inc., Axia Federal Savings Bank
and Ryan, Beck & Co., Inc.*
2 Plan of Reorganization from Mutual Savings Association to Mutual
Holding Company and Stock Issuance Plan
3.1 Proposed Federal Holding Company Charter of Axia Bancorp,
Inc.(contained in Exhibit 2)
3.2 Proposed Bylaws of Axia Bancorp, Inc.(contained in Exhibit 2)
4 Form of Common Stock Certificate of Axia Bancorp, Inc.
5 Opinion of Luse Lehman Gorman Pomerenk & Schick, P.C. regarding
legality of securities being registered
8.1 Form of Federal Tax Opinion of Luse Lehman Gorman Pomerenk & Schick,
P.C.
8.2 Form of State Tax Opinion*
8.3 Opinion of FinPro, Inc. with respect to Subscription Rights
10.1 Form of Employment Agreement
10.2 Form of Employee Stock Ownership Plan
21 Subsidiaries of the Registrant
23.1 Consent of Luse Lehman Gorman Pomerenk & Schick, P.C. (contained in
Opinions included on Exhibits 5 and 8.1)
23.2 Consent of Radics & Co., LLC
23.3 Consent of FinPro, Inc.
24 Power of Attorney (set forth on signature page)
27 EDGAR Financial Data Schedule
99.1 Appraisal Agreement between Axia Federal Savings Bank and FinPro, Inc.
99.2 Appraisal Report of FinPro, Inc.*
99.3 Proxy Statement
99.4 Marketing Materials
99.5 Order and Acknowledgment Form and Certification Form
* To be filed supplementally or by amendment.
Axia Federal Savings Bank
January 9, 1998
CONFIDENTIAL
January 9, 1998
Mr. John R. Bowen
Chairman, President & CEO
Axia Federal Savings Bank
1410 St. Georges Avenue
Avenel, New Jersey 07601-1158
Re: Mutual Holding Company Formation - Subscription
Enhancement & Administrative Services
Dear Mr. Bowen:
Ryan, Beck & Co. ("Ryan, Beck") is pleased to submit this engagement letter
setting forth the terms of the proposed engagement between Ryan, Beck and Axia
Federal Savings Bank, (the "Institution") in connection with the proposed
formation of a mutual holding company and sale of common stock by the
Institution.
1. BACKGROUND ON RYAN, BECK
Ryan, Beck, Inc., was organized in 1946 and is one of the nation's leading
investment bankers for financial institutions. The firm has been publicly held
since 1986 and is a registered broker-dealer with the Securities and Exchange
Commission, a member of the National Association of Securities Dealers, Inc.,
Securities Industry Association and a member of the Securities Investor
Protection Corporation. Ryan, Beck's corporate finance department is one of the
largest such groups devoted solely to financial institution matters in the
country. Moreover, Ryan, Beck is one of the largest market makers in bank and
thrift stocks.
2. MUTUAL HOLDING COMPANY FORMATION AND STOCK OFFERING
The Institution proposes to form a mutual holding company ("Holding Company")
pursuant to applicable regulations. In connection therewith, the Institution's
Board of Directors will adopt a stock issuance plan (the "Plan") whereby shares
of stock will be offered. In connection with the Institution's mutual holding
company formation and Community Offering, Ryan, Beck proposes to act as
financial advisor to the Institution with respect to the Plan and selling
agent/manager with respect to the offering of the shares of common stock (the
"Common Stock") in the Community Offering. Specific terms of services shall be
set forth in a definitive agency agreement (the "Definitive Agreement") between
Ryan, Beck and the Institution to be executed on the date the offering document
is declared effective by the appropriate regulatory authorities.
3. SERVICES TO BE PROVIDED BY RYAN, BECK
a. Advisory Services - Thorough planning is essential to a successful
conversion. Ryan, Beck serves as lead coordinator of the marketing and
logistic efforts necessary to prepare for an offering. Our actions are
intended to clearly define responsibilities and timetables, while avoiding
costly surprises. We assume responsibility for the initial preparation of
marketing materials--saving you time and legal expense. Moreover, as your
investment banker, Ryan, Beck will evaluate the financial, marketing and
regulatory issues involved in the Offerings. Our specific responsibilities
include:
- Participate in drafting the Prospectus and assist in obtaining all
requisite regulatory approvals;
- Review and opine to the Board of Directors on the adequacy of the
appraisal process;
- Develop a marketing plan for the Offerings including direct mail,
advertising, community meetings and telephone solicitation;
- Provide specifications and assistance in selecting a conversion agent,
printer and other professionals;
- Calculate the number of new phone lines required;
- Provide a list of equipment and supplies needed for the Conversion
Center;
- Draft marketing materials including letters, brochures, slide show
script advertisements; and
- Assist in arranging market-makers for post-conversion trading.
b. Administrative Services and Conversion Center Management - Ryan, Beck
manages your "best efforts" community offering. A successful conversion
requires an enormous amount of attention to detail. Working knowledge and
familiarity with the law and "lore" of bank regulators, Securities and
Exchange Commission and NASD is essential. Ryan, Beck's experience in
managing many thrift conversions will minimize the burden on your
management and disruption to normal banking business. At the same time, our
legal, accounting and regulatory background ensures that details are
attended to in a professional fashion. A conversion requires accurate and
timely record keeping and reporting. Furthermore, customer inquiries must
be handled professionally and accurately. The Conversion Center centralizes
all data and work effort relating to the conversion. If desired by the
Institution, Ryan, Beck will establish the Conversion Center at its
location in Livingston, New Jersey.
Ryan, Beck will supervise and administer the Conversion Center. We will
train Conversion Center staff to help record stock orders, answer customer
inquiries and handle special situations as they arise. Conversion Center
activities include the following:
- Provide experienced on-site registered representatives to minimize
disruption of day-to-day business. Only one employee from the
Institution will be requested;
- Identify and organize space for the on-site Conversion Center, the
focal point of conversion activity;
- Administer the Conversion Center. All substantive stock and proxy
related matters will be handled by employees of Ryan, Beck.
- Organize and implement all proxy solicitation efforts;
- Prepare procedures for processing proxies, stock orders and cash, and
for handling requests for information;
- Ryan, Beck will outsource all conversion agent/data
processing/transfer agent functions to Chase/Mellon Shareholder
Services;
- The cost of such services will be borne by the Institution and are
subject to separate agreement but are not expected to exceed $12,500;
- Provide scripts, training and guidance for the telephone team in
soliciting proxies and in the stock sales telemarketing effort;
- Educate the Institution's directors, officers and employees about the
conversion, their roles and relevant securities laws;
- Train branch managers and customer-contact employees on the proper
response to stock purchase inquiries;
- Train and supervise Conversion Center staff assisting with proxy and
order processing;
- Prepare daily sales reports for management and ensure funds received
balance to such reports;
- Coordinate functions with the data processing agent, printer, transfer
agent, stock certificate printer and other professionals;
- Design and implement procedures for handling IRA and Keogh orders; and
- Provide post-offering subscriber assistance and management of the
pro-ration process.
c. Securities Marketing Services - Ryan, Beck uses various sales techniques
including direct mail, advertising, community investor meetings, telephone
solicitation, and if necessary, selling group formation. The sales approach
is tailored to fit your specific situation. Our techniques are designed to
attract a stockholder base comprised largely of community oriented
individuals loyal to the Institution.
<PAGE>
Our specific actions include:
- Assign licensed registered representatives from our staff to work at
the Conversion Center to solicit orders on behalf of the Institution
from eligible prospects who have been targeted as likely and desirable
stockholders;
- Assist management in developing a list of potential investors who are
viewed as priority prospects;
- Respond to inquiries concerning the conversion and investment
opportunity;
- Organize, coordinate and participate in community informational
meetings. These meetings are intended to both relieve customer anxiety
and attract potential investors. The meetings generate widespread
publicity for the conversion while providing local exposure of the
Institution and promoting favorable stockholder relations;
- Supervise and conduct a telemarketing campaign to identify prospects
from among the Institution's customer base;
- Continually advise management on market conditions and the community's
responsiveness to the offering; and
- If appropriate, assemble a selling group of selected local
broker-dealers to assist in selling stock during the offering. In so
doing, prepare broker "fact sheets" and arrange "road shows" for the
purpose of stimulating local interest in the stock and informing the
brokerage community of the particulars of the offering.
4. COMPENSATION
a. For its services hereunder, the Institution will pay to Ryan, Beck a total
inclusive Advisory and Marketing fee of $135,000.
In the event of an undersubscription, Ryan, Beck will form a selling group
of NASD member firms (including Ryan, Beck) under a selected dealer
agreements (the "Selling Group"), a fee equal to five and one-half percent
(5.5%) in the aggregate. Ryan, Beck will not commence sales of the stock
through members of the Selling Group without prior approval of the
Institution.
Such fees (less the amount of any advance payments) are to be paid to Ryan,
Beck at the closing of the Conversion. The Institution will pay Ryan, Beck
$25,000 upon execution of this letter which will be applied to any fees due
hereunder, including fees payable pursuant to subparagraph (b) below. If,
pursuant to a resolicitation undertaken by the Institution, Ryan, Beck is
required to provide significant additional services, the parties shall
mutually agree to the dollar amount of the additional compensation due (if
any).
b. If (i) the Plan is abandoned or terminated by the Institution; (ii) the
Offerings are not consummated by December 31, 1998; (iii) Ryan, Beck
terminates this relationship because there has been a material adverse
change in the financial condition or operations of the Institution since
December 31, 1997; or (iv) immediately prior to commencement of the
Offerings, Ryan, Beck terminates this relationship for failure to
satisfactorily disclose all relevant information in the disclosure
documents or the existence of market conditions which might render the sale
of the shares by the Institution hereby contemplated inadvisable; Ryan,
Beck shall not be entitled to the fees set forth above under subparagraph
(a), but in addition to reimbursement of its reasonable out-of-pocket
expenses as set forth in paragraph 7 below, shall be entitled to receive
for its advisory and administrative services a fee of $25,000.
5. MARKET MAKING
Ryan, Beck agrees to use its best efforts to maintain a market and to solicit
other broker-dealers to make a market in the Common Stock after the Conversion.
6. DOCUMENTS
The Institution and its counsel will complete, file with the appropriate
regulatory authorities and, as appropriate, amend from time to time, the
information to be contained in the Institution's Application for Conversion and
any related exhibits thereto. In this regard, the Institution and its counsel
will prepare an Offering Circular and any other necessary disclosure documents
relating to the offering of the Common Stock in conformance with applicable
rules and regulations. As the Institution's financial advisor, Ryan, Beck will
in conjunction with counsel, conduct an examination of the relevant documents
and records of the Institution and will make such other reasonable investigation
as deemed necessary and appropriate under the circumstances. The Institution
agrees to make all such documents, records and other information deemed
necessary by Ryan, Beck, or its counsel, available to them upon reasonable
request. Ryan, Beck's counsel will prepare, subject to the approval of the
Institution's counsel, the Definitive Agreement. Ryan, Beck's counsel shall be
selected by Ryan, Beck, subject to the approval of the Institution which will
not unreasonably be withheld.
7. EXPENSES AND REIMBURSEMENT
The Institution will bear all of its expenses in connection with the Conversion
and the offering of its Common Stock including, but not limited to, the
Institution's attorney fees, NASD filing fees, "blue sky" legal fees, expenses
for appraisal, auditing and accounting services, advertising expenses, printing
expenses, temporary personnel expenses and the preparation of stock
certificates. In the event Ryan, Beck incurs such expenses on behalf of the
Institution, the Institution shall pay or reimburse Ryan, Beck for such
reasonable fees and expenses regardless of whether the Conversion is
successfully completed. Ryan, Beck will not incur any single expense of more
than $1,000, pursuant to this paragraph without the prior approval of the
Institution.
The Institution also agrees to reimburse Ryan, Beck for reasonable out-of-pocket
expenses, including legal fees and expenses, incurred by Ryan, Beck in
connection with the services contemplated hereunder. In no event shall the
Institution be required to reimburse Ryan, Beck for more than $25,000 in legal
fees, and $10,000 in other out-of-pocket expenses. The parties acknowledge,
however, that such caps may be exceeded in the event of any material delay in
the Offerings which would require an update of the financial information in
tabular form contained in the Prospectus for a period later than that set forth
in the original Prospectus filing. Not later than three days before closing, we
will provide you with a detailed accounting of all reimbursable expenses to be
paid at closing.
8. BLUE SKY
To the extent required by applicable state law, Ryan, Beck and the Institution
will need to obtain or confirm exemptions, qualifications or registration of the
Common Stock under applicable state securities laws and NASD policies. The cost
of such legal work and related filing fees will be paid by the Institution to
the law firm furnishing such legal work. The Institution will cause the counsel
performing such services to prepare a Blue Sky memorandum related to the
Offerings including Ryan, Beck's participation therein and shall furnish Ryan,
Beck a copy thereof addressed to Ryan, Beck or upon which such counsel shall
state Ryan, Beck may rely.
9. AVAILABILITY OF "STARS" PROGRAM
As an additional service to the Institution, Ryan, Beck will make available for
a period of 1 year following the completion of the Conversion, advisory services
through the Ryan, Beck Strategic Advisory Services ("STARS") program. If the
Institution elects to avail itself of the STARS program, Ryan, Beck will meet
with the Institution at its request. Ryan, Beck also will provide opinions and
recommendations, upon request, for the areas covered below:
Valuation Analysis
Merger and Acquisition Analysis
Merger and Acquisition Trends
Planning, Forecasting & Competitive Strategy Capital, Asset & Liability
Structure & Management Stock Repurchase Programs
Dividend Policy
Dividend Reinvestment Programs
Market Development and Sponsorship of Bank Securities
Financial Disclosure
Financial Relations
Financial Reports
Branch Sales and Purchases
Stock Benefit Plan
Analysis and Advisory Stockholder & Investor Relations
Presentations & Programs
Fairness Opinions
<PAGE>
Scanning of Potential Acquisition Candidates
Based on Published Statement Information
(This screening does not extend to any in-depth merger and
acquisition analyses or studies which are available under Ryan,
Beck's normal fee schedule, and does not include retention of Ryan,
Beck by the Institution for any specific merger/acquisition
situation.)
If the Institution elects to utilize the STARS program Ryan, Beck will waive the
regular retainer fee and hourly charges for this program for the first year. The
Institution also will reimburse Ryan, Beck's reasonable out-of-pocket expenses
incurred in conjunction with the performance of these services. Such
out-of-pocket expenses shall include travel, legal and other miscellaneous
expenses. Ryan, Beck will not incur any single expense in excess of $1,000
pursuant to this paragraph without the prior approval of the Institution.
If negotiations for a transaction conducted during the term of the STARS
Advisory Agreement described above result in the execution of a definitive
agreement and/or consummation of a transaction for which Ryan, Beck customarily
would be entitled to a fee for its advisory or other investment banking
services, Ryan, Beck shall receive a contingent advisory fee ("Advisory Fee") in
accordance with the terms of a separate engagement letter with respect to such
transaction.
10. INDEMNIFICATION
The Definitive Agreement will provide for indemnification of the type usually
found in underwriting agreements as to certain liabilities, including
liabilities under the Securities Act of 1933. The Institution also agrees to
defend, indemnify and hold harmless Ryan, Beck and its officers, directors,
employees and agents against all claims, losses, actions, judgments, damages or
expenses, including but not limited to reasonable attorneys' fees, arising
solely out of the engagement described herein, except that such indemnification
shall not apply to Ryan, Beck's own bad faith, willful misconduct or gross
negligence.
11. ARBITRATION
Any claims, controversies, demands, disputes or differences between or among the
parties hereto or any persons bound hereby arising out of, or by virtue of, or
in connection with, or otherwise relating to this Agreement shall be submitted
to and settled by arbitration conducted in Livingston, NJ before one or three
arbitrators, each of whom shall be knowledgeable in the field of securities law
and investment banking. Such arbitration shall otherwise be conducted in
accordance with the rules then obtaining of the American Arbitration
Association. The parties hereto agree to share equally the responsibility for
all fees of the arbitrators, abide by any decision rendered as final and
binding, and waive the right to appeal the decision or otherwise submit the
dispute to a court of law for a jury or non-jury trial. The parties hereto
specifically agree that neither party may appeal or subject the award or
decision of any such arbitrator to appeal or review in any court of law or in
equity or by any other tribunal, arbitration system or otherwise. Judgment upon
any award granted by such an arbitrator may be enforced in any court having
jurisdiction thereof.
12. NASD MATTERS
Ryan, Beck has an obligation to file certain documents and to make certain
representations to the National Association of Security Dealers ("NASD") in
connection with the Conversion. The Institution agrees to cooperate with Ryan,
Beck and provide such information as may be necessary for Ryan, Beck to comply
with all NASD requirements applicable to it in connection with its participation
as contemplated herein in the Conversion. Ryan, Beck is and will remain through
completion of the Conversion a member in a good standing of the NASD and will
comply with all applicable NASD requirements.
13. OBLIGATIONS
(a) Except as set forth below, this engagement letter is merely a statement of
intent. While Ryan, Beck and the Institution agree in principle to the
contents hereof and propose to proceed promptly and in good faith to work
out the arrangements with respect to the Conversion, any legal obligations
between Ryan, Beck and the Institution shall be only: (i) those set forth
herein in paragraphs 2, 3 and 4 regarding services and payments; (ii) those
set forth in paragraph 7 regarding reimbursement for certain expenses;
(iii) those set forth in paragraph 10 regarding indemnification; and (iv)
as set forth in a duly negotiated and executed Definitive Agreement.
(b) The obligation of Ryan, Beck to enter into the Definitive Agreement shall
be subject to there being, in Ryan, Beck's opinion, which shall have been
formed in good faith after reasonable determination and consideration of
all relevant factors: (i) no material adverse change in the condition or
operation of the Institution; (ii) satisfactory disclosure of all relevant
information in the disclosure documents and a determination that the sale
of stock is reasonable given such disclosures; (iii) no market conditions
which might render the sale of the shares by the Institution hereby
contemplated inadvisable; and (iv) agreement that the price established by
the independent appraiser is reasonable in the then prevailing market
conditions.
Please acknowledge your agreement to the foregoing by signing in the place
provided below and returning one copy of this letter to our office together with
the retainer payment in the amount of $25,000. We look forward to working with
you.
RYAN, BECK & CO., INC.
BY: /s/ Ben A. Plotkin
------------------------------------
Ben A. Plotkin
President and Chief Executive Officer
Accepted and Agreed to This 10th Day of February, 1998
AXIA FEDERAL SAVINGS BANK
BY: /s/ John R. Bowen
------------------------------------
John R. Bowen
Chairman, President & CEO
AXIA FEDERAL SAVINGS BANK
PLAN OF REORGANIZATION
FROM MUTUAL SAVINGS ASSOCIATION
TO MUTUAL HOLDING COMPANY
AND STOCK ISSUANCE PLAN
<PAGE>
TABLE OF CONTENTS
Page
----
1. Introduction........................................................ 1
2. Definitions......................................................... 1
3. The Reorganization.................................................. 6
4. Conditions to Implementation of the Reorganization.................. 8
5. Special Meeting of Members.......................................... 9
6. Rights of Members of the MHC........................................ 9
7. Conversion of MHC to Stock Form..................................... 9
8. Timing of the Reorganization and Sale of Capital Stock.............. 10
9. Number of Shares to be Offered...................................... 11
10. Independent Valuation and Purchase Price of Shares.................. 11
11. Method of Offering Shares and Rights to Purchase Stock.............. 12
12. Additional Limitations on Purchases of Common Stock................. 15
13. Payment for Stock................................................... 17
14. Manner of Exercising Subscription Rights Through Order Forms........ 17
15. Undelivered, Defective or Late Order Form; Insufficient Payment..... 18
16. Completion of the Stock Offering.................................... 19
17. Market for Common Stock............................................. 19
18. Stock Purchases by Management Persons After the Offering............ 19
19. Resales of Stock by Management Persons.............................. 19
20. Stock Certificates.................................................. 19
21. Restriction on Financing Stock Purchases............................ 20
22. Stock Benefit Plans................................................. 20
23. Post-Reorganization Filing and Market Making........................ 20
24. Payment of Dividends and Repurchase of Stock........................ 21
25. Reorganization and Stock Offering Expenses.......................... 21
26. Employment and Other Severance Agreements........................... 21
27. Interpretation...................................................... 21
28. Amendment or Termination of the Plan................................ 21
Exhibits
Exhibit A Charter and Bylaws of the Bank
Exhibit B Charter and Bylaws of the Holding Company
Exhibit C Charter and Bylaws of the Mutual Holding Company
<PAGE>
1. Introduction
The Board of Directors of Axia Federal Savings Bank (the "Bank") has
adopted this Plan of Reorganization from Mutual Savings Association to Mutual
Holding Company and Stock Issuance Plan (the "Plan") pursuant to which the Bank
proposes to reorganize from a federally-chartered mutual savings association
into the mutual holding company structure (the "Reorganization") under the laws
of the United States of America and the regulations of the Office of Thrift
Supervision ("OTS"). The mutual holding company (the "MHC") will be a
mutually-owned federal corporation, and all of the current ownership and voting
rights of the Members of the Bank will be transferred to the MHC. As part of the
Reorganization and the Plan, the Bank will convert to a federal stock savings
bank (the "Stock Bank") and will establish a stock holding company (the "Holding
Company") which will be a majority-owned subsidiary of the MHC at all times so
long as the MHC remains in existence. Concurrently with the Reorganization, the
Holding Company intends to offer for sale up to 49.9% of its Common Stock in the
Stock Offering. The Common Stock will be offered on a priority basis to
depositors and Tax-Qualified Employee Plans of the Bank, with any remaining
shares offered to the public in a Direct Community Offering.
The primary purpose of the Reorganization is to establish a holding company
and to convert the Bank to the stock form of ownership, which will enable the
Bank to compete and expand more effectively in the financial services
marketplace. The Reorganization will permit the Holding Company to issue Capital
Stock, which is a source of capital not available to mutual savings
associations. Since the Holding Company will not be offering all of its Common
Stock for sale to depositors and the public in the Stock Offering, the
Reorganization will result in less capital raised in comparison to a standard
mutual-to-stock conversion. The Reorganization, however, will also offer the
Bank the opportunity to raise additional capital since a majority of the Holding
Company's common stock will be available for sale in the future. It will also
provide the Bank with greater flexibility to structure and finance the expansion
of its operations, including the potential acquisition of other financial
institutions. Lastly, the Reorganization will enable the Bank to better manage
its capital by providing broader investment opportunities through the holding
company structure, and by enabling the Bank to distribute capital to
stockholders of the Holding Company in the form of dividends and stock
repurchases. Although the Reorganization and Stock Offering will create a stock
savings bank and stock holding company, only a minority of the Common Stock will
be offered for sale in the Stock Offering. As a result, the Bank's mutual form
of ownership and its ability to remain an independent savings bank and to
provide community-oriented financial services will be preserved through the
mutual holding company structure. The Reorganization is subject to the approval
of the OTS, and must be adopted by the affirmative vote of a majority of the
total votes eligible to be cast by Members.
2. Definitions
As used in this Plan, the terms set forth below have the following
meanings:
Acting in Concert: The term "acting in concert" shall have the
definition given in 12 C.F.R. ss.574.2(c). The determination of whether a
group is acting in concert shall be made solely by the Board of Directors
of the Bank or officers delegated by such Board and may be based on any
evidence upon which the Board or such delegatee chooses to rely.
Actual Subscription Price: The price per share, determined as provided
in this Plan, at which the Common Stock will be sold in the Subscription
Offering.
Affiliate: Any Person that controls, is controlled by, or is under
common control with another person.
1
<PAGE>
Associate: The term "Associate," when used to indicate a relationship
with any Person, means: (i) any corporation or organization (other than the
Bank, the Holding Company, the MHC or a majority-owned subsidiary of any
thereof) 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
trustee or in a similar fiduciary capacity; (iii) any relative or spouse of
such Person or any relative of such spouse, who has the same home as such
Person or who is a director or officer of the Bank, the MHC, the Stock
Holding Company or any subsidiary of the MHC or the Holding Company or any
affiliate thereof; and (iv) any person acting in concert with any of the
persons or entities specified in clauses (i) through (iii) above; provided,
however, that any Tax-Qualified or Non-Tax-Qualified Employee Plan shall
not be deemed to be an associate of any director or officer of the MHC, the
Holding Company or the Bank, to the extent provided in Sections 11-13
hereof. When used to refer to a Person other than an officer or director of
the Bank, the Bank in its sole discretion may determine the Persons that
are Associates of other Persons.
Bank: Axia Federal Savings Bank in its pre-Reorganization form.
Capital Stock: Any and all authorized stock of the Bank or the Holding
Company.
Common Stock: Common stock issuable by the Holding Company in
connection with the Reorganization, including securities convertible into
Common Stock, pursuant to its stock charter.
Community: Union County and Middlesex County.
Deposit Account(s): Any withdrawable deposit(s) offered by the Bank,
including NOW account deposits, certificates of deposit, demand deposits
and IRA accounts and Keogh plans for which the Bank acts as custodian or
trustee.
Direct Community Offering: The offering to certain members of the
general public of any unsubscribed shares in the Subscription Offering
which may be effected pursuant to Section 11 of this Plan. The Direct
Community Offering may include a Syndicated Community Offering or public
offering.
Effective Date: The date upon which all necessary approvals have been
obtained to consummate the Reorganization, and the transfer of assets and
liabilities of the Bank to the Bank in its stock form is completed.
Eligible Account Holder: Any person holding a Qualifying Deposit on
the Eligibility Record Date.
Eligibility Record Date: September 30, 1996, the date for determining
who qualifies as an Eligible Account Holder.
ESOP: The Bank's employee stock ownership plan.
Exchange Act: The Securities Exchange Act of 1934, as amended.
FDIC: The Federal Deposit Insurance Corporation.
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HOLA: The Home Owners' Loan Act, as amended.
Holding Company: Axia Bancorp, the federal corporation which will be
majority-owned by the MHC and which will own 100% of the common stock of
the Bank.
Holding Company Application: The Holding Company Application on Form
H(e)-1 to be submitted by the Bank to the OTS to have the Holding Company
acquire the common stock of the Bank.
Independent Appraiser: The appraiser retained by the Bank to prepare
an appraisal of the pro forma market value of the Bank and the Holding
Company.
Management Person: Any Officer or director of the Bank or any
Affiliate of the Bank, and any person acting in concert with any such
Officer or director.
Marketing Agent: The broker-dealer responsible for organizing and
managing the Stock Offering and sale of the Common Stock.
Market Maker: A dealer (i.e., any person who engages directly or
indirectly as agent, broker, or principal in the business of offering,
buying, selling or otherwise dealing or trading in securities issued by
another person) who, with respect to a particular security, (1) regularly
publishes bona fide competitive bid and offer quotations on request, and
(2) is ready, willing and able to effect transactions in reasonable
quantities at the dealer's quoted prices with other brokers or dealers.
Members: Any person or entity who qualifies as a member of the Bank
pursuant to its charter and bylaws.
MHC: Axia Bancorp, MHC, the mutual holding company resulting from the
Reorganization.
Minority Stock Offering: One or more offerings of less than 50% in the
aggregate of the outstanding Common Stock of the Holding Company to persons
other than the MHC.
Minority Stockholder: Any owner of the Holding Company's Common Stock,
other than the MHC.
Non-Voting Stock: Any Capital Stock other than Voting Stock.
Notice: The Notice of Mutual Holding Company Reorganization to be
submitted by the Bank to the OTS to notify the OTS of the Reorganization
and the Stock Offering.
Officer: An executive officer of the Holding Company or the Bank,
including the Chief Executive Officer, President, Senior Vice Presidents in
charge of principal business functions, Secretary, Treasurer and any other
person performing similar functions.
Other Member: Any person who is a Member of the Bank at the close of
business on the Voting Record Date who is not an Eligible Account Holder or
Supplemental Eligible Account Holder, or Tax-Qualified Employee Plan.
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OTS: The Office of Thrift Supervision, and any successor thereto.
Parent: A company that controls another company, either directly or
indirectly through one or more subsidiaries.
Person: An individual, corporation, partnership, association,
joint-stock company, trust (including Individual Retirement Accounts and
KEOGH Accounts), unincorporated organization, government entity or
political subdivision thereof or any other entity.
Plan: This Plan of Reorganization from Mutual Savings Association to
Mutual Holding Company and Stock Issuance Plan.
Qualifying Deposit: The aggregate balance of each Deposit Account of
an Eligible Account Holder as of the close of business on the Eligibility
Record Date or of a Supplemental Eligible Account Holder as of the close of
business on the Supplemental Eligibility Record Date, as the case may be,
provided such aggregate balance is not less than $50.
Regulations: The regulations of the OTS regarding mutual holding
companies.
Reorganization: The reorganization of the Bank into the mutual holding
company structure including the organization of the MHC, the Holding
Company and the Bank in stock form pursuant to this Plan.
Residence: The terms "residence," "reside," "resided" or "residing" as
used herein with respect to any person shall mean any person who occupied a
dwelling within the Bank's Community, has an intent to remain with the
Community for a period of time, and manifests the genuineness of that
intent by establishing an ongoing physical presence within the Community
together with an indication that such presence within the Community is
something other than merely transitory in nature. To the extent the Person
is a corporation or other business entity, the principal place of business
or headquarters shall be in the Community. To the extent a person is a
personal benefit plan, the circumstances of the beneficiary shall apply
with respect to this definition. In the case of all other benefit plans,
the circumstances of the trustee shall be examined for purposes of this
definition. The Bank may utilize deposit or loan records or such other
evidence provided to it to make a determination as to whether a person is a
resident. In all cases, however, such a determination shall be in the sole
discretion of the Bank.
SAIF: The Savings Association Insurance Fund, which is a division of
the FDIC.
SEC: The Securities and Exchange Commission.
Special Meeting: The Special Meeting of Members called for the purpose
of voting on the Plan.
Stock Bank: The federally chartered stock savings bank resulting from
the Reorganization in accordance with the Plan.
Stock Offering: The offering of Common Stock of the Holding Company to
persons other than the MHC, in a Subscription Offering and, to the extent
shares remain available, in a Direct Community Offering.
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Subscription Offering: The offering of Common Stock of the Holding
Company for subscription and purchase pursuant to Section 11 of this Plan.
Subsidiary: A company that is controlled by another company, either
directly or indirectly through one or more subsidiaries.
Supplemental Eligible Account Holder: Any Person holding a Qualifying
Deposit on the Supplemental Eligibility Record Date, who is not an Eligible
Account Holder, a Tax-Qualified Employee Plan or an Officer or director of
the Bank.
Supplemental Eligibility Record Date: The last day of the calendar
quarter preceding approval of the Plan by the OTS.
Syndicated Community Offering: The offering of Common Stock following
or contemporaneously with the Direct Community Offering through a syndicate
of broker-dealers.
Tax-Qualified Employee Plan: Any defined benefit plan or defined
contribution plan (including any employee stock ownership plan, stock bonus
plan, profit-sharing plan, or other plan) of the Bank, the Holding Company,
the MHC or any of their affiliates, which, with its related trusts, meets
the requirements to be qualified under Section 401 of the Internal Revenue
Code. The term Non-Tax-Qualified Employee Stock Benefit Plan means any
defined benefit plan or defined contribution plan which is not so
qualified.
Voting Members: Those Members of the Bank as of the Voting Record
Date.
Voting Record Date: The date established by the Bank for determining
which Members are entitled to vote on the Plan.
Voting Stock:
(1) Voting Stock means common stock or preferred stock, or
similar interests if the shares by statute, charter or in any manner,
entitle the holder:
(i) To vote for or to select directors of the Bank or the
Holding Company; and
(ii) To vote on or to direct the conduct of the operations
or other significant policies of the Bank or the Holding Company.
(2) Notwithstanding anything in paragraph (1) above, preferred
stock is not "Voting Stock" if:
(i) Voting rights associated with the preferred stock are
limited solely to the type customarily provided by statute with
regard to matters that would significantly and adversely affect
the rights or preferences of the preferred stock, such as the
issuance of additional amounts or classes of senior securities,
the modification of the terms of the preferred stock, the
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dissolution of the Bank, or the payment of dividends by the Bank
when preferred dividends are in arrears;
(ii) The preferred stock represents an essentially passive
investment or financing device and does not otherwise provide the
holder with control over the issuer; and
(iii) The preferred stock does not at the time entitle the
holder, by statute, charter, or otherwise, to select or to vote
for the selection of directors of the Bank or the Holding
Company.
(3) Notwithstanding anything in paragraphs (1) and (2) above,
"Voting Stock" shall be deemed to include preferred stock and other
securities that, upon transfer or otherwise, are convertible into
Voting Stock or exercisable to acquire Voting Stock where the holder
of the stock, convertible security or right to acquire Voting Stock
has the preponderant economic risk in the underlying Voting Stock.
Securities immediately convertible into Voting Stock at the option of
the holder without payment of additional consideration shall be deemed
to constitute the Voting Stock into which they are convertible; other
convertible securities and rights to acquire Voting Stock shall not be
deemed to vest the holder with the preponderant economic risk in the
underlying Voting Stock if the holder has paid less than 50% of the
consideration required to directly acquire the Voting Stock and has no
other economic interest in the underlying Voting Stock.
3. The Reorganization
A. Organization of the Holding Companies and the Bank
As part of the Reorganization the Bank will convert to a federal stock
savings bank, and will establish the Holding Company and the MHC as federal
corporations. The Reorganization will be effected as follows, or in any manner
approved by the OTS that is consistent with the purposes of this Plan and
applicable laws and regulations.
As part of the Reorganization: (i) the Bank will organize an interim stock
savings bank as a wholly-owned subsidiary ("Interim One"); (ii) Interim One will
organize an interim stock savings bank as a wholly-owned subsidiary ("Interim
Two"); (iii) Interim One will organize the Holding Company as a wholly-owned
subsidiary; (iv) the Bank will exchange its charter for a federal stock savings
bank charter to become the Stock Bank and Interim One will exchange its charter
for a federal mutual holding company charter to become the MHC; (v)
simultaneously with step (iv), Interim Two will merge with and into the Stock
Bank with the Stock Bank as the resulting institution; (vi) all of the initially
issued stock of the Stock Bank will be transferred to the MHC in exchange for
membership interests in the MHC; and (vii) the MHC will contribute the capital
stock of the Stock Bank to the Holding Company, and the Stock Bank will become a
wholly-owned subsidiary of the Holding Company. Contemporaneously with the
Reorganization, the Holding Company will offer for sale in the Stock Offering
shares of Common Stock representing the pro forma market value of the Holding
Company and the Bank. Upon consummation of the Reorganization, the legal
existence of the Bank will not terminate, but the Stock Bank will be a
continuation of the Bank, and all property of the Bank, including its right,
title, and interest in and to all property of whatsoever kind and nature,
interest and asset of every conceivable value or benefit then existing or
pertaining to the Bank, or which would inure to the Bank immediately by
operation of law and without the necessity of any conveyance or transfer and
without any further act or deed, will vest in the Stock Bank. The Stock Bank
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will have, hold, and enjoy the same in its right and fully and to the same
extent as the same was possessed, held, and enjoyed by the Bank. The Stock Bank
will continue to have, succeed to, and be responsible for all the rights,
liabilities and obligations of the Bank and will maintain its headquarters and
operations at the Bank's present locations.
Upon consummation of the Reorganization, substantially all of the assets
and liabilities (including the savings accounts, demand accounts, tax and loan
accounts, United States Treasury general accounts, or United States Treasury
Time Deposit Accounts, as defined in the OTS regulations) of the Bank shall be
become the assets and liabilities of the Stock Bank, which will thereupon become
an operating savings bank subsidiary of the Holding Company and of the MHC. The
Bank will apply to the OTS to have the Holding Company receive or retain (as the
case may be) up to 50% of the net proceeds of the Stock Offering, or such other
amount as may be determined by the Board of Directors. The Stock Bank may
distribute additional capital to the Holding Company following the
Reorganization, subject to the OTS regulations governing capital distributions.
B. Effect on Deposit Accounts and Borrowings
Each deposit account in the Bank on the Effective Date will remain a
deposit account in the Stock Bank in the same amount and upon the same terms and
conditions, and will continue to be federally insured up to the legal maximum by
the FDIC in the same manner as the deposit account existed in the Bank
immediately prior to the Reorganization. Upon consummation of the
Reorganization, all loans and other borrowings from the Bank shall retain the
same status with the Stock Bank after the Reorganization as they had with the
Bank immediately prior to the Reorganization.
C. The Bank
Upon completion of the Reorganization the Stock Bank will be authorized to
exercise any and all powers, rights and privileges of, and will be subject to
all limitations applicable to, capital stock savings banks under federal law. A
copy of the proposed Charter and Bylaws of the Stock Bank is attached hereto as
Exhibit A and made a part of this Plan. The Reorganization will not result in
any reduction of the amount of retained earnings (other than the assets of the
Bank retained by or distributed to the Holding Company or the MHC), undivided
profits, and general loss reserves that the Bank had prior to the
Reorganization. Such retained earnings and general loss reserves will be
accounted for by the MHC, the Holding Company and the Stock Bank on a
consolidated basis in accordance with generally accepted accounting principles.
The initial members of the Board of Directors of the Stock Bank will be the
members of the existing Board of Directors of the Bank. The Stock Bank will be
wholly-owned by the Holding Company. The Holding Company will be wholly-owned by
its stockholders who will consist of the MHC and the persons who purchase Common
Stock in the Stock Offering and any subsequent Minority Stock Offering. Upon the
Effective Date of the Reorganization, the voting and membership rights of
Members will be transferred to the MHC, subject to the conditions specified
below.
D. The Holding Company
The Holding Company will be authorized to exercise any and all powers,
rights and privileges, and will be subject to all limitations applicable to
savings and loan holding companies and mutual holding companies under federal
law and regulations. The initial members of the Board of Directors of the
Holding
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Company will be the existing Board of Directors of the Bank. Thereafter, the
voting stockholders of the Holding Company will elect approximately one-third of
the Holding Company's directors annually. A copy of the proposed Charter and
Bylaws of the Holding Company is attached as Exhibit B and are made part of this
Plan.
The Holding Company will have the power to issue shares of Capital Stock to
persons other than the MHC. However, so long as the MHC is in existence, the MHC
will be required to own at least a majority of the Voting Stock of the Holding
Company. The Holding Company may issue any amount of Non-Voting Stock to persons
other than the MHC. The Holding Company will be authorized to undertake one or
more Minority Stock Offerings of less than 50% in the aggregate of the total
outstanding Common Stock of the Holding Company, and the Holding Company intends
to offer for sale up to 49.9% of its Common Stock in the Stock Offering.
E. The Mutual Holding Company
As a mutual corporation, the MHC will have no stockholders. The members of
the MHC will have exclusive voting authority as to all matters requiring a vote
of members under the Charter of the MHC. Persons who have membership rights with
respect to the Bank under its existing Charter immediately prior to the
Reorganization shall continue to have such rights solely with respect to the MHC
after the Reorganization so long as such persons remain depositors or borrowers,
as the case may be, of the Bank after the Reorganization. In addition, all
persons who become depositors of the Stock Bank following the Reorganization
will have membership rights with respect to the MHC. The rights and powers of
the MHC will be defined by the MHC's Charter and Bylaws (a copy of which is
attached to this Plan as Exhibit C and made a part hereof) and by the statutory
and regulatory provisions applicable to savings and loan holding companies and
mutual holding companies. In particular, the MHC shall be subject to the
limitations and restrictions imposed on savings and loan holding companies by
Section 10(o)(5) of the HOLA.
The initial members of the Board of Directors of the MHC will be the
existing Board of Directors of the Bank. Thereafter, approximately one-third of
the directors of the MHC will be elected annually by the members of the MHC who
will consist of the former Members of the Bank and all persons who become
depositors of the Bank after the Reorganization.
4. Conditions to Implementation of the Reorganization
Consummation of the Reorganization is expressly conditioned upon the
following:
A. Approval of the Plan by a majority of the Board of Directors of the
Bank.
B. The filing of a Reorganization Notice, including the Plan, with the
OTS and either:
(i) The OTS has given written notice of its intent not to disapprove
the Reorganization; or
(ii) Sixty days have passed since the OTS received the Reorganization
Notice and deemed it sufficient under ss. 516.2(c) of the OTS
regulations, and the OTS has not given written notice that the
Reorganization is disapproved or extended for an additional 30
days the period during which disapproval may be issued.
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C. The filing of a holding company application with and approval by the
OTS pursuant to the HOLA for the Holding Company and MHC to become
savings and loan holding companies by owning or acquiring 100% of the
common stock of the Stock Bank and the Holding Company, respectively,
to be issued in connection with the Reorganization.
D. Submission of the Plan to the Members for approval pursuant to a Proxy
Statement and form of proxy cleared in advance by the OTS, and such
Plan is approved by a majority of the total votes of the Voting
Members eligible to be cast at a meeting held at the call of the
directors in accordance with the procedures prescribed by the Bank's
Charter and Bylaws.
E. All necessary approvals have been obtained from the OTS in connection
with the adoption of the charter and bylaws of the MHC, the Holding
Company and the Stock Bank, the conversion of the Bank to a stock
charter, and any transfer of assets and liabilities of the Bank to the
Stock Bank pursuant to the Plan; and all conditions specified or
otherwise imposed by the OTS in connection with the issuance of a
notice of intent not to disapprove the Notice have been satisfied.
5. Special Meeting of Members
Subsequent to the approval of the Plan by the OTS, the Special Meeting
shall be scheduled in accordance with the Bank's Bylaws. Promptly after receipt
of approval and at least 20 days but not more than 45 days prior to the Special
Meeting, the Bank shall distribute proxy solicitation materials to all Voting
Members. The proxy solicitation materials shall include a proxy statement, and
other documents authorized for use by the regulatory authorities. A copy of the
Plan will be made available to Voting Members upon request. Pursuant to the
Regulations, an affirmative vote of not less than a majority of the total
outstanding votes of the Voting Members is required for approval of the Plan.
Voting may be in person or by proxy. The OTS shall be notified promptly of the
actions of the Voting Members.
6. Rights of Members of the MHC
Following the Reorganization, all persons who had membership rights with
respect to the Bank as of the date of the Reorganization will continue to have
such rights solely with respect to the MHC. All existing proxies granted by
members of the Bank to the Board of Directors of the Bank shall automatically
become proxies granted to the Board of Directors of the MHC. In addition, all
persons who become depositors of the Stock Bank subsequent to the Reorganization
also will have membership rights with respect to the MHC. In each case, no
person who ceases to be the holder of a deposit account with the Stock Bank
after the Reorganization shall have any membership or rights with respect to the
MHC. Borrowers of the Stock Bank who were borrower members of the Bank at the
time of Reorganization will have the same membership rights in the MHC as they
had in the Bank immediately prior to the Reorganization for so long as their
pre-Reorganization borrowings remain outstanding. Borrowers will not receive
membership rights in connection with any new borrowings made after the
Reorganization.
7. Conversion of MHC to Stock Form
Following the completion of the Reorganization, the MHC may elect to
convert to stock form in accordance with applicable law (a "Conversion
Transaction"). There can be no assurance when, if ever, a Conversion Transaction
will occur. If the Conversion Transaction does not occur, the MHC will always
own a majority of the Common Stock of the Holding Company.
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In a Conversion Transaction, the MHC would merge with and into the Stock
Bank or the Holding Company, with the Stock Bank or the Holding Company as the
resulting entity, and the depositors of the Stock Bank would receive the right
to subscribe for a number of shares of common stock of the Holding Company, as
determined by the formula set forth in the following paragraphs. The additional
shares of Common stock of the Holding Company issued in the Conversion
Transaction would be sold at their aggregate pro forma market value as
determined by an Independent Appraisal.
In any Conversion Transaction, Minority Stockholders, if any, will be
entitled without additional consideration to maintain the same percentage
ownership interest in the Holding Company after the Conversion Transaction as
their percentage ownership interest in the Holding Company immediately prior to
the Conversion Transaction (i.e., the "Minority Ownership Interest"), subject
only to the following adjustments (if required by federal or state law,
regulation, or regulatory policy) to reflect: (i) the cumulative effect of the
aggregate amount of dividends waived by the MHC; and (ii) the market value of
assets of the MHC (other than common stock of the Holding Company).
The adjustment referred to in clause (i) of the preceding paragraph above
would require that the Minority Ownership Interest be adjusted by multiplying
the Minority Ownership Interest by the following fraction:
(Holding Company stockholders' equity immediately prior to Conversion
Transaction) - (aggregate amount of dividends waived by MHC) Holding
Company stockholders' equity immediately prior to Conversion
Transaction
The adjustment referred to in clause (ii) above would further adjust the
Minority Ownership Interest by multiplying it by the following fraction:
(pro forma market value of Holding Company) - (market value of assets
of MHC other than Holding Company common stock) pro forma market value
of Holding Company
At the sole discretion of the Board of Directors of the MHC and the Holding
Company, a Conversion Transaction may be effected in any other manner necessary
to qualify the Conversion Transaction as a tax-free reorganization under
applicable federal and state tax laws, provided such Conversion Transaction does
not diminish the rights and ownership interest of Minority Stockholders as set
forth in the preceding paragraphs. If a Conversion Transaction does not occur,
the MHC will always own a majority of the voting stock of the Holding Company.
Management of the Bank has no current intention to conduct a Conversion
Transaction.
A Conversion Transaction would require the approval of applicable federal
regulators, and would be presented to a vote of the members of the MHC. Federal
regulatory policy requires that in any Conversion Transaction the members of the
MHC will be accorded the same stock purchase priorities as if the MHC were a
mutual savings bank converting to stock form.
8. Timing of the Reorganization and Sale of Capital Stock
The Bank intends to consummate the Reorganization as soon as feasible
following the receipt of all approvals referred to in Section 4 of the Plan.
Subject to the approval of the OTS, the Holding Company intends to commence the
Stock Offering concurrently with the proxy solicitation of Members. The Holding
Company may close the Stock Offering before the Special Meeting, provided that
the offer and sale of the Common Stock shall be conditioned upon approval of the
Plan by the Members at the Special Meeting. The Bank's proxy solicitation
materials may permit certain Members to return to the
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Bank by a reasonable date certain a postage paid card or other written
communication requesting receipt of the prospectus if the prospectus is not
mailed concurrently with the proxy solicitation materials. The Stock Offering
shall be conducted in compliance with the securities offering regulations of the
SEC. The Bank will not finance or loan funds to any person to purchase Common
Stock.
9. Number of Shares to be Offered
The total number of shares (or range thereof) of Common Stock to be issued
and offered for sale pursuant to the Plan shall be determined initially by the
Board of Directors of the Bank and the Holding Company in conjunction with the
determination of the Independent Appraiser. The number of shares to be offered
may be adjusted prior to completion of the Stock Offering. The total number of
shares of Common Stock that may be issued to persons other than the MHC at the
close of the Stock Offering must be less than 50% of the issued and outstanding
shares of Common Stock of the Holding Company.
10. Independent Valuation and Purchase Price of Shares
All shares of Common Stock sold in the Stock Offering shall be sold at a
uniform price per share. The purchase price and number of shares to be
outstanding shall be determined by the Board of Directors of the Holding Company
on the basis of the estimated pro forma market value of the Holding Company and
the Bank. The aggregate purchase price for the Common Stock will not be
inconsistent with such market value of the Holding Company and the Bank. The pro
forma market value of the Holding Company and the Bank will be determined for
such purposes by the Independent Appraiser.
Prior to the commencement of the Stock Offering, an estimated valuation
range will be established, which range may vary within 15% above to 15% below
the midpoint of such range, and up to 15% greater than the maximum of such
range, as determined by the Board of Directors at the time of the Stock Offering
and consistent with OTS regulations. The Holding Company intends to issue up to
49.9% of its common in the Stock Offering. The number of shares of Common Stock
to be issued and the ownership interest of the MHC may be increased or decreased
by the Holding Company, taking into consideration any change in the independent
valuation and other factors, at the discretion of the Board of Directors of the
Bank and the Holding Company.
Based upon the independent valuation as updated prior to the commencement
of the Stock Offering, the Board of Directors may establish the minimum and
maximum ownership percentage applicable to the Stock Offering, or may fix the
ownership percentage of the Minority Stockholders. In the event the ownership
percentage of the Minority Stockholders is not fixed in the Stock Offering, the
minority ownership percentage (the "Minority Ownership Percentage") will be
determined as follows: (a) the product of (x) the total number of shares of
Common Stock issued by the Holding Company and (y) the purchase price per share
divided by (b) the estimated aggregate pro forma market value of the Bank and
the Holding Company immediately after the Stock Offering as determined by the
Independent Appraiser, expressed in terms of a specific aggregate dollar amount
rather than as a range, upon the closing of the Stock Offering or sale of all
the Common Stock.
Notwithstanding the foregoing, no sale of Common Stock may be consummated
unless, prior to such consummation, the Independent Appraiser confirms to the
Holding Company, the Bank and to the OTS that, to the best knowledge of the
Independent Appraiser, nothing of a material nature has occurred which, taking
into account all relevant factors, would cause the Independent Appraiser to
conclude that the aggregate value of the Common Stock at the Purchase Price is
incompatible with its estimate of the
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aggregate consolidated pro forma market value of the Holding Company and the
Bank. If such confirmation is not received, the Holding Company may cancel the
Stock Offering, extend the Stock Offering and establish a new price range and/or
estimated price range, extend, reopen or hold a new Stock Offering or take such
other action as the OTS may permit.
The estimated market value of the Holding Company and the Bank shall be
determined for such purpose by an Independent Appraiser on the basis of such
appropriate factors as are not inconsistent with OTS regulations. The Common
Stock to be issued in the Stock Offering shall be fully paid and nonassessable.
The aggregate amount of outstanding Common Stock that may be owned or
controlled by persons other than the MHC parent at the close of the Stock
Offering shall be less than 50% of the Holding Company's total outstanding
Common Stock.
If there is a Direct Community Offering or Syndicated Community Offering of
shares of Common Stock not subscribed for in the Subscription Offering, the
price per share at which the Common Stock is sold in such Direct Community
Offering or Syndicated Community Offering shall be equal to the purchase price
per share at which the Common Stock is sold to persons in the Subscription
Offering. Shares sold in the Direct Community Offering or Syndicated Community
Offering will be subject to the same limitations as shares sold in the
Subscription Offering.
11. Method of Offering Shares and Rights to Purchase Stock
In descending order of priority, the opportunity to purchase Common Stock
shall be given in the Subscription Offering to: (1) Eligible Account Holders;
(2) Tax-Qualified Employee Plans; (3) Supplemental Eligible Account Holders; (4)
Other Members; and (5) directors, officers and employees of the Bank pursuant to
priorities established by the Board of Directors. Any shares of Common Stock
that are not subscribed for in the Subscription Offering may at the discretion
of the Bank and the Holding Company be offered for sale in a Direct Community
Offering or a Syndicated Community Offering. The minimum purchase by any Person
shall be 25 shares. The Holding Company may use its discretion in determining
whether prospective purchasers are "residents," "associates," or "acting in
concert" as defined in the Plan, and in interpreting any and all other
provisions of the Plan. All such determinations are in the sole discretion of
the Holding Company, and may be based on whatever evidence the Holding Company
chooses to use in making any such determination.
In addition to the priorities set forth below, the Board of Directors may
establish other priorities for the purchase of Common Stock, subject to the
approval of the OTS. The priorities for the purchase of shares in the Stock
Offering are as follows:
A. Subscription Offering
Priority 1: Eligible Account Holders. Each Eligible Account Holder shall be
given the opportunity to purchase up to the greater of $100,000 of Common Stock
offered in the Stock Offering or 15 times the product (rounded down to the next
whole number) obtained by multiplying the total number of shares of Common Stock
offered in the Stock Offering by a fraction of which the numerator is the amount
of the Eligible Account Holder's Qualifying Deposit and the denominator is the
total amount of Qualifying Deposits of all Eligible Account Holders; provided
that the Holding Company may, in its sole discretion and without further notice
to or solicitation of subscribers or other prospective purchasers,
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increase such maximum purchase limitation to 5% of the maximum number of shares
offered in the Stock Offering, subject to the overall purchase limitation set
forth in Section 12. If there are insufficient shares available to satisfy all
subscriptions of Eligible Account Holders, shares will be allocated to Eligible
Account Holders so as to permit each such subscribing Eligible Account Holder to
purchase a number of shares sufficient to make his total allocation equal to the
lesser of 100 shares or the number of shares subscribed for. Thereafter,
unallocated shares will be allocated pro rata to remaining subscribing Eligible
Account Holders whose subscriptions remain unfilled in the same proportion that
each such subscriber's Qualifying Deposit bears to the total amount of
Qualifying Deposits of all subscribing Eligible Account Holders whose
subscriptions remain unfilled. To ensure proper allocation of stock, each
Eligible Account Holder must list on his subscription order form all accounts in
which he had an ownership interest as of the Eligibility Record Date.
Priority 2: Tax-Qualified Employee Plans. The Tax-Qualified Employee Plans
shall be given the opportunity to purchase in the aggregate up to 10% of the
Common Stock issued in the Stock Offering. In the event of an oversubscription
in the Stock Offering, subscriptions for shares by the Tax-Qualified Employee
Plans may be satisfied, in whole or in part, out of authorized but unissued
shares of the Holding Company subject to the maximum purchase limitations
applicable to such plans and set forth in Section 12, or may be satisfied, in
whole or in part, through open market purchases by the Tax-Qualified Employee
Plans subsequent to the closing of the Stock Offering. In the event that the
number of shares offered is increased as a result of an increase in the
Independent Valuation, the ESOP will have a priority right to fill its
subscription in whole or in part prior to all other subscriptions.
Priority 3: Supplemental Eligible Account Holders. To the extent there are
sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders, and the Tax-Qualified Employee Plans, each Supplemental
Eligible Account Holder shall have the opportunity to purchase up to the greater
of $100,000 of Common Stock offered in the Stock Offering or 15 times the
product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Common Stock offered in the Stock Offering 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, provided that
the Bank may, in its sole discretion and without further notice to or
solicitation of subscribers or other prospective purchasers, increase such
maximum purchase limitation to 5% of the maximum number of shares offered in the
Stock Offering subject to the overall purchase limitations set forth in Section
12. In the event Supplemental Eligible Account Holders subscribe for a number of
shares which, when added to the shares subscribed for by Eligible Account
Holders, and the Tax-Qualified Employee Plans, the shares of Common Stock will
be allocated among subscribing Supplemental Eligible Account Holders so as to
permit each subscribing Supplemental Eligible Account Holder to purchase a
number of shares sufficient to make his total allocation equal to the lesser of
100 shares or the number of shares subscribed for. Thereafter, unallocated
shares will be allocated to each subscribing Supplemental Eligible Account
Holder whose subscription remains unfilled in the same proportion that such
subscriber's Qualifying Deposits on the Supplemental Eligibility Record Date
bear to the total amount of Qualifying Deposits of all subscribing Supplemental
Eligible Account Holders whose subscriptions remain unfilled.
Priority 4: Other Members. To the extent that there are sufficient shares
remaining after satisfaction of subscriptions by Eligible Account Holders, the
Tax-Qualified Employee Plans and Supplemental Eligible Account Holders, each
Other Member shall have the opportunity to purchase up to $100,000 of Common
Stock offered in the Stock Offering, provided that the Bank may, in its sole
discretion and without further notice to or solicitation of subscribers or other
prospective purchasers,
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increase such maximum purchase limitation to 5% of the maximum number of shares
offered in the Stock Offering, subject to the overall purchase limitations set
forth in Section 12. In the event Other Members subscribe for a number of shares
which, when added to the shares subscribed for by the Eligible Account Holders,
Tax-Qualified Employee Plans and Supplemental Eligible Account Holders is in
excess of the total number of shares offered in the Stock Offering, the
subscriptions of such Other Members will be allocated among subscribing Other
Members on a pro rata basis based on the size of such Other Members' orders.
Priority 5: Directors, Officers and Employees. To the extent that shares
remain available for purchase after satisfaction of all subscriptions of the
Eligible Account Holders, Tax-Qualified Employee Plans, Supplemental Eligible
Account Holders, and Other Members, employees, officers and directors of the
Bank shall have the opportunity to purchase up to $100,000 of the Common Stock
offered in the Stock Offering; provided that the Bank may, in its sole
discretion, and without further notice to or solicitation of subscribers or
other prospective purchasers, increase such maximum purchase limitation to 5% of
the maximum number of shares offered in the Stock Offering, subject to the
overall purchase limitations set forth in Section 12. In the event that
directors, officers and employees subscribe for a number of shares, which, when
added to the shares subscribed for by Eligible Account Holders, Tax-Qualified
Employee Plans, Supplemental Eligible Account Holders, and Other Members is in
excess of the total shares offered in the Stock Offering, the subscriptions of
such Persons will be allocated among directors, officers and employees on a pro
rata basis based on the size of each Person's orders.
B. Direct Community Offering
Any shares of Common Stock not subscribed for in the Subscription Offering
may be offered for sale in a Direct Community Offering. This will involve an
offering of all unsubscribed shares directly to the general public with a
preference to those natural persons residing in the counties in which the Bank
maintains its offices. The Direct Community Offering, if any, shall be for a
period of not more than 45 days unless extended by the Holding Company and the
Bank, and shall commence concurrently with, during or promptly after the
Subscription Offering. The Holding Company and the Bank may use an investment
banking firm or firms on a best efforts basis to sell the unsubscribed shares in
the Subscription and Direct Community Offering. The Holding Company and the Bank
may pay a commission or other fee to such investment banking firm or firms as to
the shares sold by such firm or firms in the Subscription and Direct Community
Offering and may also reimburse such firm or firms for expenses incurred in
connection with the sale. The Direct Community Offering may include a syndicated
community offering managed by such investment banking firm or firms. The Common
Stock will be offered and sold in the Direct Community Offering, in accordance
with OTS regulations, so as to achieve the widest distribution of the Common
Stock. No person, by himself or herself, or with an Associate or group of
Persons acting in concert, may subscribe for or purchase more than $100,000 of
Common Stock offered in the Direct Community Offering. Further, the Bank may
limit total subscriptions under this Section 11(B) so as to assure that the
number of shares available for the public offering may be up to a specified
percentage of the number of shares of Common Stock. Finally, the Bank may
reserve shares offered in the Direct Community Offering for sales to
institutional investors.
In the event of an oversubscription for shares in the Direct Community
Offering, shares may be allocated (to the extent shares remain available) first
to cover any reservation of shares for a public offering or institutional
orders, next to cover orders of natural persons residing in the counties in
which the Bank maintains its offices, then to cover the orders of any other
person subscribing for shares in the Direct Community Offering so that each such
person may receive 1,000 shares, and thereafter, on a pro rata basis to such
persons based on the amount of their respective subscriptions.
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The Bank and the Holding Company, in their sole discretion, may reject
subscriptions, in whole or in part, received from any Person under this Section
11(B).
C. Syndicated Community Offering
Any shares of Common Stock not sold in the Subscription Offering or in the
Direct Community Offering, if any, may be offered for sale to the general public
by a selling group of broker-dealers in a Syndicated Community Offering, subject
to terms, conditions and procedures, including the timing of the offering, as
may be determined by the Bank and the Holding Company in a manner that is
intended to achieve the widest distribution of the Common Stock subject to the
rights of the Holding Company to accept or reject in whole or in part all order
in the Syndicated Community Offering. It is expected that the Syndicated
Community Offering would commence as soon as practicable after termination of
the Subscription Offering and the Direct Community Offering, if any. The
Syndicated Community Offering shall be completed within 45 days after the
termination of the Subscription Offering, unless such period is extended as
provided herein. The Syndicated Community Offering price and the underwriting
discount in the Syndicated Community Offering shall be determined by an
underwriting agreement between the Holding Company, the Bank and the
underwriters. Such underwriting agreement shall be filed with the OTS and the
SEC.
If for any reason a Syndicated Community Offering of unsubscribed shares of
Common Stock cannot be effected and any shares remain unsold after the
Subscription Offering and the Direct Community Offering, if any, the Boards of
Directors of the Holding Company and the Bank will seek to make other
arrangements for the sale of the remaining shares. Such other arrangements will
be subject to the approval of the OTS and to compliance with applicable
securities laws.
12. Additional Limitations on Purchases of Common Stock
Purchases of Common Stock in the Stock Offering will be subject to the
following purchase limitations:
A. The aggregate amount of outstanding Common Stock of the Holding
Company owned or controlled by persons other than MHC at the close of
the Stock Offering shall be less than 50% of the Holding Company's
total outstanding Common Stock.
B. No Person, Associate thereof, or group of persons acting in concert,
may purchase more than $200,000 of Common Stock offered in the Stock
Offering to persons other than the MHC, except that: (i) the Holding
Company may, in its sole discretion and without further notice to or
solicitation of subscribers or other prospective purchasers, increase
such maximum purchase limitation to 5% of the number of shares offered
in the Stock Offering; (ii) Tax-Qualified Employee Plans may purchase
up to 10% of the shares offered in the Stock Offering; and (iii) for
purposes of this subsection 12(B) shares to be held by any
Tax-Qualified Employee Plan and attributable to a person shall not be
aggregated with other shares purchased directly by or otherwise
attributable to such person.
C. The aggregate amount of Common Stock acquired in the Stock Offering by
all Management Persons and their Associates, exclusive of any stock
acquired by such persons in the secondary market, shall not exceed 30%
of the outstanding shares of Common Stock of the Holding Company held
by persons other than the MHC at the close
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of the Stock Offering. In calculating the number of shares held by
Management Persons and their Associates under this paragraph or under
the provisions of paragraph D of this section, shares held by any
Tax-Qualified Employee Benefit Plans of the Bank that are attributable
to such persons shall not be counted.
D. The aggregate amount of Common Stock acquired in the Stock Offering by
all Management Persons and their Associates, exclusive of any Common
Stock acquired by such plans or persons in the secondary market, shall
not exceed 30% of the stockholders' equity of the Holding Company
other than the MHC at the close of the Stock Offering.
E. The Boards of Directors of the Bank and the Holding Company may, in
their section, increase the maximum purchase limitation set forth in
paragraph 12(B) hereof to up to 9.9%, provided that orders for Common
Stock in excess of 5% of the number of shares of Common Stock offered
in the Stock Offering shall not in the aggregate exceed 10% of the
total shares of Common Stock offered in the Stock Offering (except
that this limitation shall not apply to purchases by Tax-Qualified
Employee Plans). If such 5% limitation is increased, subscribers for
the maximum amount will be, and certain other large subscribers in the
sole discretion of the Holding Company and the Bank may be, given the
opportunity to increase their subscriptions up to the then applicable
limit. Requests to purchase additional shares of Common Stock under
this provision will be determined by the Board of Directors of the
Holding Company, in its sole discretion.
F. Notwithstanding any other provision of this Plan, no person shall be
entitled to purchase any Common Stock to the extent such purchase
would be illegal under any federal law or state law or regulation or
would violate regulations or policies of the National Association of
Securities Dealers, Inc., particularly those regarding free riding and
withholding. The Holding Company and/or its agents may ask for an
acceptable legal opinion from any purchaser as to the legality of such
purchase and may refuse to honor any purchase order if such opinion is
not timely furnished.
G. The Board of Directors of the Holding Company has the right in its
sole discretion to reject any order submitted by a person whose
representations the Board of Directors believes to be false or who it
otherwise believes, either alone or acting in concert with others, is
violating, circumventing, or intends to violate, evade or circumvent
the terms and conditions of this Plan.
Prior to the consummation of the Stock Offering, no person shall offer to
transfer, or enter into any agreement or understanding to transfer the legal or
beneficial ownership of any subscription rights or shares of Common Stock,
except pursuant to this Plan. Each person purchasing Common Stock shall be
deemed to confirm that such purchase does not conflict with the above purchase
limitations contained in this Plan.
EACH PERSON PURCHASING COMMON STOCK IN THE STOCK OFFERING WILL BE DEEMED TO
CONFIRM THAT SUCH PURCHASE DOES NOT CONFLICT WITH THE PURCHASE LIMITATIONS IN
THIS PLAN. ALL QUESTIONS CONCERNING WHETHER ANY PERSONS ARE ASSOCIATES OR A
GROUP ACTING IN CONCERT OR WHETHER ANY PURCHASE CONFLICTS WITH THE PURCHASE
LIMITATIONS IN THIS PLAN OR OTHERWISE VIOLATES ANY PROVISION OF THIS PLAN SHALL
BE DETERMINED BY THE BANK IN ITS SOLE DISCRETION.
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SUCH DETERMINATION SHALL BE CONCLUSIVE, FINAL AND BINDING ON ALL PERSONS AND THE
BANK MAY TAKE ANY REMEDIAL ACTION, INCLUDING WITHOUT LIMITATION REJECTING THE
PURCHASE OR REFERRING THE MATTER TO THE OTS FOR ACTION, AS IN ITS SOLE
DISCRETION THE BANK MAY DEEM APPROPRIATE.
13. Payment for Stock
All payments for Common Stock subscribed for or ordered in the Stock
Offering must be delivered in full to the Bank, together with a properly
completed and executed order form, or purchase order in the case of the
Syndicated Community Offering, on or prior to the expiration date specified on
the order form or purchase order, as the case may be, unless such date is
extended by the Bank; provided, that if the Employee Plans subscribe for shares
during the Subscription Offering, such plans will not be required to pay for the
shares at the time they subscribe but rather may pay for such shares of Common
Stock subscribed for by such plans at the Actual Subscription Price upon
consummation of the Stock Offering, provided that, in the case of the ESOP there
is in force from the time of its subscription until the consummation of the
Stock Offering, a loan commitment to lend to the ESOP, at such time, the
aggregated Actual Subscription Price of the shares for which it subscribed. The
Holding Company or the Bank may make scheduled discretionary contributions to an
Employee Plan provided such contributions from the Bank, if any, do not cause
the Bank to fail to meet its regulatory capital requirement.
Payment for Common Stock shall be made either by check or money order, or
if a purchaser has a Deposit Account in the Bank, such purchaser may pay for the
shares subscribed for by authorizing the Bank to make a withdrawal from the
purchaser's passbook, money market or certificate account at the Bank in an
amount equal to the purchase price of such shares. Such authorized withdrawal,
whether from a savings passbook or certificate account, shall be without penalty
as to premature withdrawal. If the authorized withdrawal is from a certificate
account, and the remaining balance does not meet the applicable minimum balance
requirements, the certificate shall be canceled at the time of withdrawal,
without penalty, and the remaining balance will earn interest at the passbook
rate. Funds for which a withdrawal is authorized will remain in the purchaser's
Deposit Account but may not be used by the purchaser until the Common Stock has
been sold or the 45-day period (or such longer period as may be approved by the
Commissioner) following the Stock Offering has expired, whichever occurs first.
Thereafter, the withdrawal will be given effect only to the extent necessary to
satisfy the subscription (to the extent it can be filled) at the purchase price
per share. Interest will continue to be earned on any amounts authorized for
withdrawal until such withdrawal is given effect. Interest will be paid by the
Bank at a rate established by the Bank on payment for Common Stock received in
cash or by check. Such interest will be paid from the date payment is received
by the Bank until consummation or termination of the Stock Offering. If for any
reason the Stock Offering is not consummated, all payments made by subscribers
in the Stock Offering will be refunded to them with interest. In case of amounts
authorized for withdrawal from Deposit Accounts, refunds will be made by
canceling the authorization for withdrawal.
14. Manner of Exercising Subscription Rights Through Order Forms
As soon as practicable after the prospectus prepared by the Holding Company
and the Bank has been declared effective by the OTS and the SEC, copies of the
prospectus and order forms will be distributed to all Eligible Account Holders,
Supplemental Eligible Account Holders, the Employee Plans and employees,
officers and directors at their last known addresses appearing on the records of
the Bank for the purpose of subscribing for shares of Common Stock in the
Subscription Offering and will be made available for use by those persons
entitled to purchase in the Direct Community Offering.
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Each order form will be preceded or accompanied by the prospectus
describing the Holding Company, the Bank, the Common Stock and the Subscription
and Direct Community Offerings. Each order form will contain, among other
things, the following:
A. A specified date by which all order forms must be received by the
Bank, which date shall be not less than 20, nor more than 45 days,
following the date on which the order forms are mailed by the Bank,
and which date will constitute the termination of the Subscription
Offering;
B. The purchase price per share for shares of Common Stock to be sold in
the Subscription and Direct Community Offerings;
C. A description of the minimum and maximum number of shares of Common
Stock that may be subscribed for pursuant to the exercise of
Subscription Rights or otherwise purchased in the Direct Community
Offering;
D. Instructions as to how the recipient of the order form is to indicate
thereon the number of shares of Common Stock for which such Person
elects to subscribe and the available alternative methods of payment
therefor;
E. An acknowledgment that the recipient of the order form has received a
final copy of the prospectus prior to execution of the order form;
F. A statement indicating the consequences of failing to properly
complete and return the order form, including a statement to the
effect that all subscription rights are nontransferable, will be void
at the end of the Subscription Offering, and can only be exercised by
delivering to the Bank within the subscription period such properly
completed and executed order form, together with cash (if delivered in
person), check or money order in the full amount of the purchase price
as specified in the order form for the shares of Common Stock for
which the recipient elects to subscribe in the Subscription Offering
(or by authorizing on the order form that the Bank withdraw said
amount from the subscriber's Deposit Account at the Bank); and
G. A statement to the effect that the executed order form, once received
by the Bank, may not be modified or amended by the subscriber without
the consent of the Bank.
Notwithstanding the above, the Bank and the Holding Company reserve the
right in their sole discretion to accept or reject orders received on
photocopied or facsimilied order forms.
15. Undelivered, Defective or Late Order Form; Insufficient Payment
In the event order forms (a) are not delivered and are returned to the Bank
by the United States Postal Service or the Bank is unable to locate the
addressee, (b) are not received back by the Bank or are received by the Bank
after the expiration date specified thereon, (c) are defectively filled out or
executed, (d) are not accompanied by the full required payment for the shares of
Common Stock subscribed for (including cases in which Deposit Accounts from
which withdrawals are authorized are insufficient to cover the amount of the
required payment), or (e) are not mailed pursuant to a "no mail" order placed in
effect by the account holder, the subscription rights of the Person to whom such
rights have been granted will
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lapse as though such Person failed to return the contemplated order form within
the time period specified thereon; provided, that the Bank may, but will not be
required to, waive any immaterial irregularity on any order form or require the
submission of corrected order forms or the remittance of full payment for
subscribed shares by such date as the Bank may specify. The interpretation by
the Bank of terms and conditions of this Plan and of the order forms will be
final, subject to the authority of the OTS.
16. Completion of the Stock Offering
The Stock Offering will be terminated if not completed within 90 days from
the date of approval by the OTS, unless an extension is approved by the OTS.
17. Market for Common Stock
If at the close of the Stock Offering the Holding Company has more than 100
shareholders of any class of stock, the Holding Company shall use its best
efforts to:
(i) encourage and assist a market maker to establish and maintain a market
for that class of stock; and
(ii) list that class of stock on a national or regional securities
exchange, or on the Nasdaq system.
18. Stock Purchases by Management Persons After the Offering
For a period of three years after the proposed Stock Offering, no
Management Person or his or her Associates may purchase, without the prior
written approval of the OTS, any Common Stock of the Holding Company, except
from a broker-dealer registered with the SEC, except that the foregoing shall
not apply to:
A. Negotiated transactions involving more than 1% of the outstanding
stock in the class of stock; or
B. Purchases of stock made by and held by any Tax-Qualified or Non-Tax
Qualified Employee Plan of the Stock Bank or the Holding Company even
if such stock is attributable to Management Persons or their
Associates.
19. Resales of Stock by Management Persons
Common Stock purchased by Management Persons and their Associates in the
Stock Offering may not be resold for a period of at least one year following the
date of purchase, except in the case of death of the Management Person or
Associate.
20. Stock Certificates
Each stock certificate shall bear a legend giving appropriate notice of the
restrictions set forth in Section 19 above. Appropriate instructions shall be
issued to the Holding Company's transfer agent with respect to applicable
restrictions on transfers of such stock. Any shares of stock issued as a stock
dividend,
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stock split or otherwise with respect to such restricted stock, shall be subject
to the same restrictions as apply to the restricted stock.
21. Restriction on Financing Stock Purchases
The Holding Company will not offer or sell any of the Common Stock proposed
to be issued to any person whose purchase would be financed by funds loaned to
the person by the Holding Company, the Bank or any of their Affiliates.
22. Stock Benefit Plans
The Board of Directors of the Bank and/or the Holding Company intend to
adopt one or more stock benefit plans for its employees, officers and directors,
including an ESOP, stock award plans and stock option plans, which will be
authorized to purchase Common Stock and grant options for Common Stock. However,
only the Tax-Qualified Employee Plans will be permitted to purchase Common Stock
in the Stock Offering subject to the purchase priorities set forth in this Plan.
The Board of Directors of the Bank intends to establish the ESOP and authorize
the ESOP and any other Tax-Qualified Employee Plans to purchase in the aggregate
up to 10% of the Common Stock issued in the Stock Offering. The Stock Bank or
the Holding Company may make scheduled discretionary contributions to one or
more Tax-Qualified Employee Plans to purchase Common Stock issued in the Stock
Offering or to purchase issued and outstanding shares of Common Stock or
authorized but unissued shares of Common Stock subsequent to the completion of
the Stock Offering, provided such contributions do not cause the Stock Bank to
fail to meet any of its regulatory capital requirements. This Plan specifically
authorizes the grant and issuance by the Holding Company of (i) awards of Common
Stock after the Stock Offering pursuant to one or more stock recognition and
award plans (the "Recognition Plans") in an amount equal to up to 4% of the
number of shares of Common Stock issued in the Stock Offering (and in an amount
equal to up to 5% of the Common Stock issued in the Stock Offering if the
Recognition Plans are adopted more than one year after the completion of the
Stock Offering), (ii) options to purchase a number of shares of the Holding
Company's Common Stock in an amount equal to up to 10% of the number of shares
of Common Stock issued in the Stock Offering and shares of Common Stock issuable
upon exercise of such options, and (iii) Common Stock to one or more Tax
Qualified Employee Plans, including the ESOP, at the closing of the Stock
Offering or at any time thereafter, in an amount equal to up to 8% of the number
of shares of Common Stock issued in the Stock Offering if the Recognition Plans
award Common Stock sooner than one year after the completion of the Stock
Offering, and up to 10% of the number of shares of Common Stock issued in the
Stock Offering if the Recognition Plans are adopted more than one year after the
completion of the Stock Offering. Shares awarded to the Tax Qualified Employee
Plans or pursuant to the Recognition Plans, and shares issued upon exercise of
options may be authorized but unissued shares of the Holding Company's Common
Stock, or shares of Common Stock purchased by the Holding Company or such plans
on the open market. Any awards of Common Stock under the Recognition Plans and
the stock option plans will be subject to prior stockholder approval.
23. Post-Reorganization Filing and Market Making
It is likely that there will be a limited market for the Common Stock sold
in the Stock Offering, and purchasers must be prepared to hold the Common Stock
for an indefinite period of time. If the Holding Company has more than 35
stockholders of any class of stock, the Holding Company shall register its
Common Stock with the SEC pursuant to the Exchange Act, and shall undertake not
to deregister such Common Stock for a period of three years thereafter.
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24. Payment of Dividends and Repurchase of Stock
The Holding Company may not declare or pay a cash dividend on its Common
Stock if the effect thereof would cause the regulatory capital of the Bank to be
reduced below the amount required under ss. 567.2 of the OTS rules and
regulations. Otherwise, the Holding Company may declare dividends or make other
capital distributions in accordance with applicable laws and regulations.
Following completion of the Stock Offering, the Holding Company may repurchase
its Common Stock subject to ss. 563b.3(g) of the OTS rules and regulations, as
long as such repurchases do not cause the regulatory capital of the Bank to be
reduced below the amount required under 12 C.F.R. ss. 567.2. The MHC may from
time to time purchase Common Stock of the Holding Company. Subject to the
approval of the OTS, the MHC may waive its right to receive dividends declared
by the Holding Company.
25. Reorganization and Stock Offering Expenses
The Regulations require that the expenses of any Stock Offering must be
reasonable. The Bank will use its best efforts to assure that the expenses
incurred by the Bank and the Holding Company in effecting the Reorganization and
the Stock Offering will be reasonable.
26. Employment and Other Severance Agreements
Following or contemporaneously with the Reorganization, the Bank and/or the
Holding Company may enter into employment and/or severance arrangements with one
or more executive officers of the Bank and/or the Holding Company. It is
anticipated that any employment contracts entered into by the Bank and/or the
Holding Company will be for terms not exceeding three years and that such
contracts will provide for annual renewals of the term of the contracts, subject
to approval by the Board of Directors. The Bank and/or the Holding Company also
may enter into severance arrangements with one or more executive officers which
provide for the payment of severance compensation in the event of a change in
control of the Bank and/or the Holding Company. The terms of such employment and
severance arrangements have not been determined as of this time, but will be
described in any prospectus circulated in connection with the Stock Offering and
will be subject to and comply with all regulations of the OTS.
27. Interpretation
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the Bank
shall be final, subject to the authority of the OTS.
28. Amendment or Termination of the Plan
If necessary or desirable, the terms of the Plan may be substantially
amended by a majority vote of the Bank's Board of Directors as a result of
comments from regulatory authorities or otherwise, at any time prior to
submission of the Plan and proxy materials to the Members. At any time after
submission of the Plan and proxy materials to the Members, the terms of the Plan
that relate to the Reorganization may be amended by a majority vote of the Board
of Directors only with the concurrence of the OTS. Terms of the Plan relating to
the Stock Offering including, without limitation, Sections 8 through 20, may be
amended by a majority vote of the Bank's Board of Directors as a result of
comments from regulatory authorities or otherwise at any time prior to the
approval of the Plan by the OTS and at any time thereafter with the concurrence
of the OTS. The Plan may be terminated by a majority vote of the Board of
Directors at any time prior to the earlier of approval of the Plan by the OTS
and the date of the Special Meeting, and
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may be terminated by a majority vote of the Board of Directors at any time
thereafter with the concurrence of the OTS. In its discretion, the Board of
Directors may modify or terminate the Plan upon the order of the regulatory
authorities without a resolicitation of proxies or another meeting of the
Members; however, any material amendment of the terms of the Plan that relate to
the Reorganization which occur after the Special Meeting shall require a
resolicitation of Members.
The Plan shall be terminated if the Reorganization is not completed within
24 months from the date upon which the Members of the Bank approve the Plan, and
may not be extended by the Bank or the OTS.
Dated: October 15, 1997.
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LIBERTY BANK
FEDERAL STOCK CHARTER
Section 1. Corporate Title. The full corporate title of the savings
association is Liberty Bank (the "Association").
Section 2. Office. The home office shall be located in the City of Avenel,
County of Middlesex, State of New Jersey.
Section 3. Duration. The duration of the Association is perpetual.
Section 4. Purpose and Powers. The purpose of the Association is to pursue
any or all of the lawful objectives of a Federal savings association chartered
under 10(o) of the Home Owners' Loan Act, 12 U.S.C. 1467(o) and to exercise all
of the express, implied, and incidental powers conferred thereby and by all acts
amendatory thereof and supplemental thereto, subject to the Constitution and
laws of the United States as they are now in effect, or as they may hereafter be
amended, and subject to all lawful and applicable rules, regulations, and orders
of the Office of Thrift Supervision (the "Office").
Section 5. Capital Stock. The total number of shares of all classes of the
capital stock which the Association has authority to issue is 30,000,000 of
which 20,000,000 shares shall be common stock, par value $.10 per share, and of
which 10,000,000 shares shall be serial preferred stock. The shares may be
issued from time to time as authorized by the board of directors without the
approval of its stockholders except as otherwise provided in this Section 5 or
to the extent that such approval is required by governing law, rule, or
regulation. The consideration for the issuance of the shares shall be paid in
full before their issuance and shall not be less than the par value. Neither
promissory notes nor future services shall constitute payment or part payment
for the issuance of shares of the Association. The consideration for the shares
shall be cash, tangible or intangible property (to the extent direct investment
in such property would be permitted to the Association), labor or services
actually performed for the Association, or any combination of the foregoing. In
the absence of actual fraud in the transaction, the value of such property,
labor, or services, as determined by the board of directors of the Association,
shall be conclusive. Upon payment of such consideration, such shares shall be
deemed to be fully paid and nonassessable. In the case of a stock dividend, that
part of the surplus of the Association which is transferred to stated capital
upon the issuance of shares as a share dividend shall be deemed to be the
consideration for their issuance.
Except for shares issuable in connection with the conversion of the
Association from the mutual to the stock form of capitalization, no shares of
capital stock (including shares issuable upon conversion, exchange, or exercise
of other securities) shall be issued, directly or indirectly, to officers,
directors, or controlling persons of the Association other than as part of a
general public offering or as qualifying shares to a director, unless their
issuance or the plan under which they would be issued has been approved by a
majority of the total votes eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share, except as
to the cumulation of votes for the election of directors. Provided, that this
restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of preferred stock,
voting as a class or series, to elect some members of the board of
directors, less than a
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majority thereof, in the event of default in the payment of dividends
on any class or series of preferred stock;
(ii) To any provision which would require the holders of preferred stock,
voting as a class or series, to approve the merger or consolidation of
the Association with another corporation or the sale, lease, or
conveyance (other than by mortgage or pledge) of properties or
business in exchange for securities of a corporation other than the
Association if the preferred stock is exchanged for securities of such
other corporation: Provided, that no provision may require such
approval for transactions undertaken with the assistance or pursuant
to the direction of the Office, the Federal Deposit Insurance
Corporation, or the Resolution Trust Corporation;
(iii) To any amendment which would adversely change the specific terms of
any class or series of capital stock as set forth in this Section 5
(or in any supplementary sections hereto), including any amendment
which would create or enlarge any class or series ranking prior
thereto in rights and preferences. An amendment which increases the
number of authorized shares of any class or series of capital stock,
or substitutes the surviving Association in a merger or consolidation
for the Association, shall not be considered to be such an adverse
change.
A description of the different classes and series of the Association's
capital stock and a statement of the designations, and the relative rights,
preferences and limitations of the shares of each class of and series of capital
stock are as follows:
A. Common Stock. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of common stock shall exclusively
possess all voting power. Each holder of shares of common stock shall be
entitled to one vote for each share held by such holder.
Whenever there shall have been paid, or declared and set aside for payment,
to the holders of the outstanding shares of any class of stock having preference
over the common stock as to payment of dividends, the full amount of dividends
and of sinking fund, retirement fund or other retirement payments, if any, to
which such holders are respectively entitled in preference to the common stock,
then dividends may be paid on the common stock and on any class or series of
stock entitled to participate therewith as to dividends out of any assets
legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
Association, the holders of the common stock (and the holders of any class or
series of stock entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash or in kind, the
assets of the Association available for distribution remaining after: (i)
payment or provision for payment of the Association's debts and liabilities;
(ii) distributions or provision for distributions in settlement of its
liquidation account; and (iii) distributions or provisions for distributions to
holders of any class or series of stock having preference over the common stock
in the liquidation, dissolution, or winding up of the Association. Each share of
common stock shall have the same rights as and be identical in all respects with
all the other shares of common stock.
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B. Preferred Stock. The Association may provide in supplementary sections
to its charter for one or more classes of preferred stock, which shall be
separately identified. The shares of any class may be divided into and issued in
series, with each series separately designated so as to distinguish the shares
thereof from the shares of all other series and classes. The terms of each
series shall be set forth in a supplementary section to the charter. All shares
of the same class shall be identical, except as to the following relative rights
and preferences, as to which there may be variations between different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the shares
of such series, whether dividends shall be cumulative and, if so, from
which date(s), the payment date(s) for dividends, and the
participating or other special rights, if any, with respect to
dividends;
(c) The voting powers, full or limited, if any, of shares of such series;
(d) Whether the shares of such series shall be redeemable and, if so, the
price(s) at which, and the terms and conditions of which, such shares
may be redeemed;
(e) The amount(s) payable upon the shares of such series in the event of
voluntary or involuntary liquidation, dissolution, or winding up of
the Association;
(f) Whether the shares of such series shall be entitled to the benefit of
a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund
and the manner of its application, including the price(s) at which
such shares may be redeemed or purchased through the application of
such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock of the
Association and, if so, the conversion price(s) or the rate(s) of
exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and conditions
of such conversion or exchange;
(h) The price or other consideration for which the shares of such series
shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial
preferred stock and whether such shares may be reissued as shares of
the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The board of directors shall have authority to divide, by the adoption of
supplementary charter sections, any authorized class of preferred stock into
series and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
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Prior to the issuance of any preferred shares of a series established by a
supplementary charter section adopted by the board of directors, the Association
shall file with the Secretary to the Office a dated copy of that supplementary
section of this charter establishing and designating the series and fixing and
determining the relative rights and preferences thereof.
Section 6. Preemptive Rights. Holders of the capital stock of the
Association shall not be entitled to preemptive rights with respect to any
shares of the Association which may be issued.
Section 7. Directors. The Association shall be under the direction of a
board of directors. The authorized number of directors, as stated in the
Association's bylaws, shall not be fewer than five nor more than fifteen except
when a greater number is approved by the Director of the Office.
Section 8. Certain Provisions Applicable for Five Years. Notwithstanding
anything contained in the Association's charter or bylaws to the contrary, for a
period of five years from the effective date of this Charter, the following
provisions shall apply:
A. Beneficial Ownership Limitation. No person, other than Axia Bancorp and
Axia Bancorp, MHC, the mutual holding company of the Association, shall directly
or indirectly offer to acquire or acquire the beneficial ownership of more than
10 percent of the common stock of the Association. This limitation shall not
apply to a transaction in which the Association forms a stock holding company
without change in the respective beneficial ownership interests of its
stockholders other than pursuant to the exercise of any dissenter and appraisal
rights, the purchase of shares by underwriters in connection with a public
offering, or the purchase of shares by a tax-qualified employee stock benefit
plan which is exempt from the approval requirements under 574.3(c)(l)(vi) of the
Office's regulations.
In the event shares are acquired in violation of this Section 8, all shares
beneficially owned by any person in excess of 10% shall be considered excess
shares and shall not be counted as shares entitled to vote and shall not be
voted by any person or counted as voting shares in connection with any matters
submitted to the stockholders for a vote.
For purposes of this Section 8, the following definitions apply:
(1) The term "person" includes an individual, a group acting in concert, a
corporation, a partnership, an association, a joint stock company, a trust, an
unincorporated organization or similar company, a syndicate or any other group
formed for the purpose of acquiring, holding or disposing of the common stock of
the Association.
(2) The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value.
(3) The term "acquire" includes every type of acquisition, whether effected
by purchase, exchange, operation of law or otherwise.
(4) The term "acting in concert" means (a) knowing participation in a joint
activity or conscious parallel action towards a common goal whether or not
pursuant to an express agreement, or (b) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangements,
whether written or otherwise.
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B. Call for Special Meetings. Special meetings of stockholders relating to
changes in control of the Association or amendments to its charter shall be
called only upon direction of the board of directors.
Section 9. Amendment of Charter. Except as provided in Section 5, no
amendment, addition, alteration, change, or repeal of this charter shall be
made, unless such is first proposed by the board of directors of the
Association, approved by the shareholders of a majority of the votes eligible to
be cast at a legal meeting, unless a higher vote is otherwise required, and
approved or preapproved by the Office.
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Dated: This day of __________, 1998.
Attest: ___________________________ By: ______________________________________
Leslie C. Whelan, Secretary John R. Bowen, Chairman, President and
Liberty Bank Chief Executive Officer
Liberty Bank
Declared effective this day of , 1998.
Office of Thrift Supervision
Attest: ___________________________ By: ______________________________________
Executive Secretary Director
Office of Thrift Supervision
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LIBERTY BANK
BYLAWS
ARTICLE I - Home Office
The home office of Liberty Bank (the "Association") shall be located at
1410 St. Georges Avenue in the City of Avenel, in the County of Midllesex, in
the State of New Jersey.
ARTICLE II - Shareholders
Section 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the Association or at such
other place in the State in which the principal place of business of the
Association is located as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the Association
for the election of directors and for the transaction of any other business of
the Association shall be held annually within 150 days after the end of the
Association's fiscal year, on the _____ __________ in _____, if not a legal
holiday, and if a legal holiday, then on the next day following which is not a
legal holiday, at 2:00 p.m., or at such other date and time within such 150-day
period as the board of directors may determine.
Section 3. Special Meetings. Subject to the limitations set forth in
Section 8 of the Association's Charter, special meetings of the shareholders for
any purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision (the "Office"), may be called at any time by the
chairman of the board, the president, or a majority of the board of directors,
and shall be called by the chairman of the board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the Association entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the Association addressed to the
chairman of the board, the president, or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with rules established by the Board of Directors and
made available for inspection by stockholders at the annual or special meeting
unless otherwise prescribed by the Office or these bylaws. The board of
directors shall designate, when present, either the chairman of the board or
president to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, date, and
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 10 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, or the secretary, or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder at the address as it appears on the stock transfer
books or records of the Association as of the record date prescribed in Section
6 of this Article II with postage prepaid. When any shareholders meeting, either
annual or special, is adjourned for 30 days or more, notice of the adjourned
meeting shall be given as in the case of an original meeting. It shall not be
necessary to give any notice of the time and place of any meeting adjourned for
less than 30 days or of the business to be transacted at the meeting, other than
an announcement at the meeting at which such adjournment is taken.
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Section 6. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more than
60 days and, in case of a meeting of shareholders, not fewer than 10 days prior
to the date on which the particular action, requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment.
Section 7. Voting List. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the Association shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the Association and
shall be subject to inspection by any shareholder at any time during usual
business hours for a period of 20 days prior to such meeting. Such list also
shall be produced and kept open at the time and place of the meeting and shall
be subject to inspection by any shareholder during the entire time of the
meeting. The original stock transfer book shall constitute prima facie evidence
of the shareholders entitled to examine such list or transfer books or to vote
at any meeting of shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the board of directors may
elect to follow the procedures described in ss. 552.6(d) of the Office's
regulations as now or hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the Association
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum.
Section 9. Proxies. At all meetings of shareholders, a shareholder may vote
by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid more
than eleven months from the date of its execution except for a proxy coupled
with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When
ownership stands in the name of two or more persons, at any meeting of the
shareholders of the Association, any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled in the
absence of written directions to the Association to the contrary. In the event
an attempt is made to cast conflicting votes, in person or by proxy, by the
several persons in whose names shares of stock stand, the vote or votes to which
those persons are entitled shall be cast as directed by a majority of those
holding such and present in person or by proxy at such meeting, but no votes
shall be cast for such stock if a majority cannot agree.
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Section 11. Voting of Shares of Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. Shares standing in the name of a receiver
may be voted by such receiver, and shares held by or under the control of a
receiver may be voted by such receiver without the transfer into his name if
authority to do so is contained in an appropriate order of the court or other
public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Association nor shares
held by another corporation, if a majority of the shares entitled to vote for
the election of directors of such other corporation are held by the Association,
shall be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting.
Section 12. Cumulative Voting. Stockholders may not cumulate their votes
for election of directors.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any person other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may or at the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies; receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the rights to vote; counting and tabulating
all votes or consents; determining the result; and such acts as may be proper to
conduct the election or vote with fairness to all shareholders.
Section 14. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Association. No nominations for
directors except those made by the nominating committee shall be voted upon at
the annual meeting unless other nominations by shareholders are made in writing
and delivered to the secretary of the
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Association at least five days prior to the date of the annual meeting. Upon
delivery, such nominations shall be posted in a conspicuous place in each office
of the Association. Ballots bearing the names of all persons nominated by the
nominating committee and by shareholders shall be provided for use at the annual
meeting. However, if the nominating committee shall fail or refuse to act at
least 20 days prior to the annual meeting, nominations for directors may be made
at the annual meeting by any shareholder entitled to vote and shall be voted
upon.
Section 15. New Business. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the
Association at least five days prior to the date of the annual meeting, and all
business so stated, proposed, and filed shall be considered at the annual
meeting; but no other proposal shall be acted upon at the annual meeting. Any
shareholder may make any other proposal at the annual meeting and the same may
be discussed and considered, but unless stated in writing and filed with the
secretary at least five days before the meeting, such proposal shall be laid
over for action at an adjourned, special or annual meeting of the shareholders
taking place 30 days or more thereafter. This provision shall not prevent the
consideration and approval or disapproval at the annual meeting of reports of
officers, directors, and committees; but in connection with such reports, no new
business shall be acted upon at such annual meeting unless stated and filed as
herein provided.
Section 16. Informal Action by Shareholders. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action to be taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III - Board of Directors
Section 1. General Powers. The business and affairs of the Association
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the board or
the president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of nine
members and shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected and qualified. One class shall be elected
annually by ballot.
Section 3. Regular Meetings. A regular meeting of the board of directors
shall be held without notice other than this bylaw immediately after, and at the
same place as, the annual meeting of shareholders. The board of directors may
provide, by resolution, the time and place, within the Association's normal
lending territory, for the holding of additional regular meetings without notice
other than such resolution.
Section 4. Special Meetings. Special meetings of the board of directors may
be called by or at the request of the chairman of the board, the president, or
one-third of the directors. The persons authorized to call special meetings of
the board of directors may fix any place, within the Association's normal
lending territory, as the place for holding any special meeting of the board of
directors called by such persons.
Members of the board of directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear
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each other. Such participation shall constitute presence in person but shall not
constitute attendance for the purpose of compensation pursuant to Section 11 of
this Article.
Section 5. Notice. Written notice of any special meeting shall be given to
each director at least two days prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if sent by mail or when delivered to the telegraph company if sent by
telegram. Any director may waive notice of any meeting by a writing filed with
the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice of waiver of notice of such meeting.
Section 6. Quorum. A majority of the number of directors fixed by Section 2
of this Article III shall constitute a quorum for the transaction of business at
any meeting of the board of directors; but if less than such majority is present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time. Notice of any adjourned meeting shall be given in the same manner
as prescribed by Section 5 of this Article III.
Section 7. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
Section 8. Action Without a Meeting. Any action required or permitted to be
taken by the board of directors at a meeting may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the directors.
Section 9. Resignation. Any director may resign at any time by sending a
written notice of such resignation to the home office of the Association
addressed to the chairman of the board or the president. Unless otherwise
specified, such resignation shall take effect upon receipt by the chairman of
the board or the president. More than three consecutive absences from regular
meetings of the board of directors, unless excused by resolution of the board of
directors, shall automatically constitute a resignation, effective when such
resignation is accepted by the board of directors.
Section 10. Vacancies. Any vacancy occurring on the board of directors may
be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by election by the board of directors for a
term of office continuing only until the next election of directors by the
shareholders.
Section 11. Compensation. Directors, as such, may receive a stated salary
for their services. By resolution of the board of directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the board of directors. Members
of either standing or special committees may be allowed such compensation for
actual attendance at committee meetings as the board of directors may determine.
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Section 12. Presumption of Assent. A director of the Association who is
present at a meeting of the board of directors at which action on any
Association matter is taken shall be presumed to have assented to the action
taken unless his dissent or abstention shall be entered in the minutes of the
meeting or unless he shall file a written dissent to such action with the person
acting as the secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the secretary of the Association
within five days after the date a copy of the minutes of the meeting is
received. Such right to dissent shall not apply to a director who voted in favor
of such action.
Section 13. Removal of Directors. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. If less than the entire board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of the
shares of any class are entitled to elect one or more directors by the
provisions of the charter or supplemental sections thereto, the provisions of
this section shall apply, in respect to the removal of a director or directors
so elected, to the vote of the holders of the outstanding shares of that class
and not to the vote of the outstanding shares as a whole.
ARTICLE IV - Executive And Other Committees
Section 1. Appointment. The board of directors, by resolution adopted by a
majority of the full board, may designate the chief executive officer and two or
more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of directors
is not in session, shall have and may exercise all of the authority of the board
of directors except to the extent, if any, that such authority shall be limited
by the resolution appointing the executive committee; and except also that the
executive committee shall not have the authority of the board of directors with
reference to: the declaration of dividends; the amendment of the charter or
bylaws of the Association; recommending to the shareholders a plan of merger,
consolidation, or conversion; the sale, lease, or other disposition of all or
substantially all of the property and assets of the Association otherwise than
in the usual and regular course of its business; a voluntary dissolution of the
Association; a revocation of any of the foregoing; or the approval of a
transaction in which any member of the executive committee, directly or
indirectly, has any material beneficial interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this Article
IV, each member of the executive committee shall hold office until the next
regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one days notice stating the
place, date, and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member
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thereof who attends in person. The notice of a meeting of the executive
committee need not state the business proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted to be
taken by the executive committee at a meeting may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by all
of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be filled
by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive committee
may be removed at any time with or without cause by resolution adopted by a
majority of the full board of directors. Any member of the executive committee
may resign from the executive committee at any time by giving written notice to
the president or secretary of the Association. Unless otherwise specified, such
resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by resolution
establish an audit, loan, or other committee composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
Association and may prescribe the duties, constitution, and procedures thereof.
ARTICLE V - Officers
Section 1. Positions. The officers of the Association shall be a president,
one or more vice presidents, a secretary, and a treasurer, each of whom shall be
elected by the board of directors. The board of directors also may designate the
chairman of the board as an officer. The president shall be the chief executive
officer, unless the board of directors designates the chairman of the board as
chief executive officer. The president shall be a director of the Association.
The offices of the secretary and treasurer may be held by the same person and a
vice president also may be either the secretary or the treasurer. The board of
directors may designate one or more vice presidents as executive vice president
or senior vice president. The board of directors also may elect or authorize the
appointment of such other officers as the business of the Association may
require. The officers shall have such authority and perform such duties as the
board of directors may from time to time authorize or determine. In the absence
of action by the board of directors, the officers shall have such powers and
duties as generally pertain to their respective offices.
Section 2. Election and Term of Office. The officers of the Association
shall be elected annually at the first meeting of the board of directors held
after each annual meeting of the shareholders. If the election of officers is
not held at such meeting, such election shall be held as soon thereafter as
possible.
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Each officer shall hold office until a successor has been duly elected and
qualified or until the officers death, resignation, or removal in the manner
hereinafter provided. Election or appointment of an officer, employee, or agent
shall not of itself create contractual rights. The board of directors may
authorize the Association to enter into an employment contract with any officer
in accordance with regulations of the Office; but no such contract shall impair
the right of the board of directors to remove any officer at any time in
accordance with Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the board of directors
whenever in its judgment the best interests of the Association will be served
thereby, but such removal, other than for cause, shall be without prejudice to
any contractual rights of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be fixed
from time to time by the board of directors.
ARTICLE VI - Contracts, Loans, Checks, and Deposits
Section 1. Contracts. To the extent permitted by regulations of the Office,
and except as otherwise prescribed by these bylaws with respect to certificates
for shares, the board of directors may authorize any officer, employee or agent
of the Association to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the Association. Such authority may
be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the Association
and no evidence of indebtedness shall be issued in its name unless authorized by
the board of directors. Such authority may be general or confined to specific
instances.
Section 3. Checks, Drafts, etc. All checks, drafts, or other orders for the
payment of money, notes, or other evidences of indebtedness issued in the name
of the Association shall be signed by one or more officers, employees, or agents
of the Association in such manner as shall from time to time be determined by
the board of directors.
Section 4. Deposits. All funds of the Association not otherwise employed
shall be deposited from time to time to the credit of the Association in any
duly authorized depositories as the board of directors may select.
ARTICLE VII - Certificates for Shares and Their Transfer
Section 1. Certificates for Shares. Certificates representing shares of
capital stock of the Association shall be in such form as shall be determined by
the board of directors and approved by the Office. Such certificates shall be
signed by the chief executive officer or by any other officer of the Association
authorized by the board of directors, attested by the secretary or an assistant
secretary, and sealed with the corporate seal or a facsimile thereof. The
signature of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar
other than the Association itself or one of its employees. Each certificate for
shares of capital stock shall be consecutively
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numbered or otherwise identified. The name and address of the person to whom the
shares are issued, with the number of shares and date of issue, shall be entered
on the stock transfer books of the Association. All certificates surrendered to
the Association for transfer shall be cancelled and no new certificate shall be
issued until the former certificate for a like number of shares has been
surrendered and cancelled, except that in the case of a lost or destroyed
certificate, a new certificate may be issued upon such terms and indemnity to
the Association as the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of the
Association shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his legal
representative, who shall furnish proper evidence of such authority, or by his
attorney authorized by a duly executed power of attorney and filed with the
Association. Such transfer shall be made only on surrender for cancellation of
the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the Association shall be deemed by the Association
to be the owner for all purposes.
ARTICLE VIII - Fiscal Year; Annual Audit
The fiscal year of the Association shall end on the last day of December of
each year. The Association shall be subject to an annual audit as of the end of
its fiscal year by independent public accountants appointed by and responsible
to the board of directors. The appointment of such accountants shall be subject
to annual ratification by the shareholders.
ARTICLE IX - Dividends
Subject to the terms of the Association's charter and the regulations and
orders of the Office, the board of directors may, from time to time, declare,
and the Association may pay, dividends on its outstanding shares of capital
stock.
ARTICLE X - Corporate Seal
The board of directors shall provide an Association seal which shall be two
concentric circles between which shall be the name of the Association. The year
of incorporation or an emblem may appear in the center.
ARTICLE XI - Amendments
These bylaws may be amended in a manner consistent with regulations of the
Office and shall be effective after: (i) approval of the amendment by a majority
vote of the authorized board of directors, or by a majority vote of the votes
cast by the shareholders of the Association at any legal meeting, and (ii)
receipt of any applicable regulatory approval. When an association fails to meet
its quorum requirements, solely due to vacancies on the board, then the
affirmative vote of a majority of the sitting board will be required to amend
the bylaws.
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AXIA BANCORP, INC.
STOCK HOLDING COMPANY CHARTER
Section 1. Corporate Title. The full corporate title of the MHC subsidiary
holding company is Axia Bancorp (the "Company").
Section 2. Domicile. The domicile of the Company shall be located in the
City of Avenel, in the State of New Jersey.
Section 3. Duration. The duration of the Company is perpetual.
Section 4. Purpose and Powers. The purpose of the Company is to pursue any
or all of the lawful objectives of a federal mutual holding company chartered
under Section 10(o) of the Home Owners' Loan Act, 12 U.S.C. 1467a(o), and to
exercise all of the express, implied, and incidental powers conferred thereby
and by all acts amendatory thereof and supplemental thereto, subject to the
Constitution and laws of the United States as they are now in effect, or as they
may hereafter be amended, and subject to all lawful and applicable rules,
regulations, and orders of the Office of Thrift Supervision (the "Office").
Section 5. Capital Stock. The total number of shares of all classes of the
capital stock which the Company has authority to issue is 30,000,000 of which
20,000,000 shares shall be common stock, par value $0.10 per share, and of which
10,000,000 shares shall be serial preferred stock. The shares may be issued from
time to time as authorized by the board of directors without the approval of its
shareholders, except as otherwise provided in this Section 5 or to the extent
that such approval is required by governing law, rule, or regulation. The
consideration for the issuance of the shares shall be paid in full before their
issuance and shall not be less than the par value. Neither promissory notes nor
future services shall constitute payment or part payment for the issuance of
shares of the Company. The consideration for the shares shall be cash, tangible
or intangible property (to the extent direct investment in such property would
be permitted to the Company), labor, or services actually performed for the
Company, or any combination of the foregoing. In the absence of actual fraud in
the transaction, the value of such property, labor, or services, as determined
by the board of directors of the Company, shall be conclusive. Upon payment of
such consideration, such shares shall be deemed to be fully paid and
nonassessable. In the case of a stock dividend, that part of the retained
earnings of the Company that is transferred to common stock or paid in capital
accounts upon the issuance of shares as a stock dividend shall be deemed to be
the consideration for their issuance.
Except for shares issued in the initial organization of the Company, no
shares of capital stock (including shares issuable upon conversion, exchange, or
exercise of other securities) shall be issued, directly or indirectly, to
officers, directors, or controlling persons (except for shares issued to the
parent mutual holding company) of the Company other than as part of a general
public offering or as qualifying shares to a director, unless their issuance or
the plan under which they would be issued has been approved by a majority of the
total votes eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote
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per share, and there shall be no cumulation of votes for the election of
directors. Provided, that this restriction on voting separately by class or
series shall not apply:
(i) To any provision which would authorize the holders of preferred stock,
voting as a class or series, to elect some members of the board of
directors, less than a majority thereof, in the event of default in
the payment of dividends on any class or series of preferred stock;
(ii) To any provision which would require the holders of preferred stock,
voting as a class or series, to approve the merger or consolidation of
the Company with another corporation or the sale, lease, or conveyance
(other than by mortgage or pledge) of properties or business in
exchange for securities of a corporation other than the Company if the
preferred stock is exchanged for securities of such other corporation:
Provided, that no provision may require such approval for transactions
undertaken with the assistance or pursuant to the direction of the
Office, the Federal Deposit Insurance Corporation, or the Resolution
Trust Corporation;
(iii) To any amendment which would adversely change the specific terms of
any class or series of capital stock as set forth in this Section 5
(or in any supplementary sections hereto), including any amendment
which would create or enlarge any class or series ranking prior
thereto in rights and preferences. An amendment which increases the
number of authorized shares of any class or series of capital stock,
or substitutes the surviving Company in a merger or consolidation for
the Company, shall not be considered to be such an adverse change.
A description of the different classes and series of the Company's capital
stock and a statement of the designations, and the relative rights, preferences
and limitations of the shares of each class of and series of capital stock are
as follows:
A. Common Stock. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of common stock shall
exclusively possess all voting power. Each holder of shares of common stock
shall be entitled to one vote for each share held by such holder.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock
having preference over the common stock as to payment of dividends, the
full amount of dividends and of sinking fund, retirement fund or other
retirement payments, if any, to which such holders are respectively
entitled in preference to the common stock, then dividends may be paid on
the common stock and on any class or series of stock entitled to
participate therewith as to dividends out of any assets legally available
for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
Company, the holders of the common stock (and the holders of any class or
series of stock entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash or in kind,
the assets of the Company available for distribution remaining after: (i)
payment or provision for payment of the Company's debts and liabilities;
(ii) distributions or provision for distributions in settlement of its
liquidation account; and (iii) distributions or provisions for
distributions to holders of any class or series of stock having preference
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over the common stock in the liquidation, dissolution, or winding up of the
Company. Each share of common stock shall have the same rights as and be
identical in all respects with all the other shares of common stock.
B. Preferred Stock. The Company may provide in supplementary sections
to its charter for one or more classes of preferred stock, which shall be
separately identified. The shares of any class may be divided into and
issued in series, with each series separately designated so as to
distinguish the shares thereof from the shares of all other series and
classes. The terms of each series shall be set forth in a supplementary
section to the charter. All shares of the same class shall be identical,
except as to the following relative rights and preferences, as to which
there may be variations between different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and,
if so, from which date(s), the payment date(s) for dividends, and
the participating or other special rights, if any, with respect
to dividends;
(c) The voting powers, full or limited, if any, of shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price(s) at which, and the terms and conditions of which,
such shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the event
of voluntary or involuntary liquidation, dissolution, or winding
up of the Company;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled, the
amount of such fund and the manner of its application, including
the price(s) at which such shares may be redeemed or purchased
through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock
of the Company and, if so, the conversion price(s) or the rate(s)
of exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial
preferred stock and whether such shares may be reissued as shares
of the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
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The board of directors shall have authority to divide, by the adoption of
supplementary charter sections, any authorized class of preferred stock into
series and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established by a
supplementary charter section adopted by the board of directors, the Company
shall file with the Secretary to the Office a dated copy of that supplementary
section of this charter establishing and designating the series and fixing and
determining the relative rights and preferences thereof.
Section 6. Preemptive Rights. Holders of the capital stock of the Company
shall not be entitled to preemptive rights with respect to any shares of the
Company which may be issued.
Section 7. Directors. The Company shall be under the direction of a board
of directors. The authorized number of directors, as stated in the Company's
bylaws, shall not be fewer than five nor more than fifteen except when a greater
or lesser number is approved by the Director of the Office, or his or her
delegate.
Section 8. Certain Provisions Applicable for Five Years. Notwithstanding
anything contained in the Company's charter or bylaws to the contrary, for a
period of five years from the date of the organization of the Bank in capital
stock form, the following provisions shall apply:
A. Beneficial Ownership Limitation. No person other than the parent
mutual holding company shall directly or indirectly offer to acquire or
acquire the beneficial ownership of more than 10% of any class of any
equity security of the Company. This limitation shall not apply to the
purchase of shares by underwriters in connection with a public offering, or
the purchase of shares by a tax-qualified employee stock benefit plan which
is exempt from the approval requirements under 574.3(c)(l)(vii) of the
Office's regulations.
In the event shares are acquired in violation of this Section 8, all
shares beneficially owned by any person in excess of 10% shall be
considered "excess shares" and shall not be counted as shares entitled to
vote and shall not be voted by any person or counted as voting shares in
connection with any matters submitted to the shareholders for a vote.
For purposes of this Section 8, the following definitions apply:
(1) The term "person" includes an individual, a group acting in
concert; a corporation, a partnership, a savings bank, a savings and
loan association, a joint stock company, a trust, an unincorporated
organization or similar company, a syndicate or any other group formed
for the purpose of acquiring, holding or disposing of the equity
securities of the Company.
(2) The term "offer" includes every offer to buy or otherwise
acquire, solicitation of an offer to sell, tender offer for, or
request or invitation for tenders of, a security or interest in a
security for value.
(3) The term "acquire" includes every type of acquisition,
whether effected by purchase, exchange, operation of law or otherwise.
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(4) The term "acting in concert" means (a) knowing participation
in a joint activity or conscious parallel action towards a common goal
whether or not pursuant to an express agreement, or (b) a combination
or pooling of voting or other interests in the securities of an issuer
for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangements, whether written or
otherwise.
B. Call for Special Meetings. Special meetings of shareholders
relating to changes in control of the Company or amendments to its charter
shall be called only upon direction of the Board of Directors.
Section 9. Amendment of Charter. Except as provided in Section 5, no
amendment, addition, alteration, change or repeal of this charter shall be made,
unless such is proposed by the board of directors of the Company, approved by
the shareholders by a majority of the votes eligible to be cast at a legal
meeting, unless a higher vote is otherwise required, and approved or preapproved
by the Office.
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AXIA BANCORP, INC.
Attest: _____________________________________________
Leslie C. Whelan
Corporate Secretary
By: _____________________________________________
John R. Bowen
President and Chief Executive Officer
Attest: _____________________________________________
Secretary of the Office of Thrift Supervision
By: _____________________________________________
Director of the Office of Thrift Supervision
Effective Date: ______________________________________
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AXIA BANCORP, INC.
BYLAWS
ARTICLE I - Home Office
The home office of Axia Federal Bancorp (the "Company") shall be at 1410
St. Georges Avenue, Avenel, in the County of Middlesex, in the State of New
Jersey.
ARTICLE II - Shareholders
Section 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the Company or at such other
convenient place as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the Company for
the election of directors and for the transaction of any other business of the
Company shall be held annually within 150 days after the end of the Company's
fiscal year on the _____ ________ in ___ if not a legal holiday, and if a legal
holiday, then on the next day following which is not a legal holiday, at
__________, or at such other date and time within such 150-day period as the
board of directors may determine.
Section 3. Special Meetings. Special meetings of the shareholders for any
purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision (the "Office"), may be called at any time by the
chairman of the board, the president, or a majority of the board of directors,
and shall be called by the chairman of the board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the Company entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the Company addressed to the
chairman of the board, the president, or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the Office or these bylaws or the
Board of Directors adopts another written procedure for the conduct of meetings.
The Board of Directors shall designate, when present, either the chairman of the
board or president to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day, and
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 20 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, or the secretary, or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder at the address as it appears on the stock transfer
books or records of the Company as of the record date prescribed in Section 6 of
this Article II with postage prepaid. When any shareholders meeting, either
annual or special, is adjourned for 30 days or more, notice of the adjourned
meeting shall be given as in the case of an original meeting. It shall not be
necessary to give any notice of the time and place of any meeting adjourned for
less than 30 days or of the business to be transacted at the meeting, other than
an announcement at the meeting at which such adjournment is taken.
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Section 6. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more than
60 days and, in case of a meeting of shareholders, not fewer than 10 days prior
to the date on which the particular action, requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment.
Section 7. Voting List. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the Company shall make a complete list of the shareholders of record
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the Company and shall
be subject to inspection by any shareholder of record or the shareholder's agent
at any time during usual business hours for a period of 20 days prior to such
meeting. Such list also shall be produced and kept open at the time and place of
the meeting and shall be subject to inspection by any shareholder of record or
the shareholder's agent during the entire time of the meeting. The original
stock transfer book shall constitute prima facie evidence of the shareholders
entitled to examine such list or transfer books or to vote at any meeting of
shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the board of directors may
elect to follow the procedures described in ss. 552.6(d) of the Office's
regulations as now or hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the Company
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum. If a quorum is present the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on the subject matter shall be the act of the shareholders,
unless the vote of a greater number of shareholders voting together or voting by
classes is required by law or the charter. Directors, however, are elected by a
plurality of the votes cast at an election of directors.
Section 9. Proxies. At all meetings of shareholders, a shareholder may vote
by proxy executed in writing by the shareholder or by his or her duly authorized
attorney in fact. Proxies may be given telephonically or electronically as long
as the holder uses a procedure for verifying the identity of the shareholder.
Proxies solicited on behalf of the management shall be voted as directed by the
shareholder or, in the absence of such direction, as determined by a majority of
the board of directors. No proxy shall be valid more than eleven months from the
date of its execution except for a proxy coupled with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When
ownership stands in the name of two or more persons, in the absence of written
directions to the Company to the contrary,
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at any meeting of the shareholders of the Company any one ore more of such
shareholders may cast, in person or by proxy, all votes to which such ownership
is entitled. In the event an attempt is made to cast conflicting votes, in
person or by proxy, by the several persons in whose names shares of stock stand,
the vote or votes to which those persons are entitled shall be cast as directed
by a majority of those holding such and present in person or by proxy at such
meeting, but no votes shall be cast for such stock if a majority cannot agree.
Section 11. Voting of Shares of Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his name. Shares held
in trust in an IRA or Keogh Account, however, may be voted by the Company if no
other instructions are received. Shares standing in the name of a receiver may
be voted by such receiver, and shares held by or under the control of a receiver
may be voted by such receiver without the transfer into his or her name if
authority to do so is contained in an appropriate order of the court or other
public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Company nor shares
held by another corporation, if a majority of the shares entitled to vote for
the election of directors of such other corporation are held by the Company,
shall be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting.
Section 12. Cumulative Voting. Stockholders may not cumulate their votes
for election of directors.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any person other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares represented at the meeting, the existence of a
quorum, and the authenticity, validity and effect of proxies; receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection
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with the rights to vote; counting and tabulating all votes or consents;
determining the result; and such acts as may be proper to conduct the election
or vote with fairness to all shareholders.
Section 14. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Company. No nominations for directors
except those made by the nominating committee shall be voted upon at the annual
meeting unless other nominations by shareholders are made in writing and
delivered to the secretary of the Company at least five days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Company. Ballots bearing the names of
all persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. However, if the nominating committee
shall fail or refuse to act at least 20 days prior to the annual meeting,
nominations for directors may be made at the annual meeting by any shareholder
entitled to vote and shall be voted upon.
Section 15. New Business. Any new business to be taken up at the annual
meeting shall be stated in writing and filed with the secretary of the Company
at least five days prior to the date of the annual meeting, and all business so
stated, proposed, and filed shall be considered at the annual meeting; but no
other proposal shall be acted upon at the annual meeting. Any shareholder may
make any other proposal at the annual meeting and the same may be discussed and
considered, but unless stated in writing and filed with the secretary at least
five days before the meeting, such proposal shall be laid over for action at an
adjourned, special or annual meeting of the shareholders taking place 30 days or
more thereafter. This provision shall not prevent the consideration and approval
or disapproval at the annual meeting of reports of officers, directors, and
committees; but in connection with such reports, no new business shall be acted
upon at such annual meeting unless stated and filed as herein provided.
Section 16. Informal Action by Shareholders. Any action required to be
taken at a meeting of the shareholders, or any other action which may be taken
at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action to be taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III - Board of Directors
Section 1. General Powers. The business and affairs of the Company shall be
under the direction of its board of directors. The board of directors shall
annually elect a chairman of the board and a president from among its members
and shall designate, when present, either the chairman of the board or the
president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of nine
members and shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected and qualified. One class shall be elected
by ballot annually.
Section 3. Regular Meetings. A regular meeting of the board of directors
shall be held without notice other than this bylaw following the annual meeting
of shareholders. The board of directors may
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provide, by resolution, the time and place for the holding of additional regular
meetings without notice other than such resolution. Directors may participate in
a meeting by means of a conference telephone or similar communications device
through which all persons participating can hear each other at the same time.
Participation by such means shall constitute presence in person for all
purposes.
Section 4. Qualification. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the Company
unless the company is a wholly-owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the board of directors may
be called by or at the request of the chairman of the board, the president, or
one-third of the directors. The persons authorized to call special meetings of
the board of directors may fix any place, within the Company's normal market
area, as the place for holding any special meeting of the board of directors
called by such persons.
Members of the board of directors may participate in special meetings by
means of conference telephone or similar communications equipment by which all
persons participating in the meeting can hear each other. Such participation
shall constitute presence in person for all purposes.
Section 6. Notice. Written notice of any special meeting shall be given to
each director at least 24 hours prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if sent by mail, when delivered to the telegraph company if sent by
telegram or when the Company receives notice of delivery if electronically
transmitted. Any director may waive notice of any meeting by a writing filed
with the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice of waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by Section 2
of this Article III shall constitute a quorum for the transaction of business at
any meeting of the board of directors; but if less than such majority is present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time. Notice of any adjourned meeting shall be given in the same manner
as prescribed by Section 5 of this Article III.
Section 8. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
Section 9. Action Without a Meeting. Any action required or permitted to be
taken by the board of directors at a meeting may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the directors.
Section 10. Resignation. Any director may resign at any time by sending a
written notice of such resignation to the home office of the Company addressed
to the chairman of the board or the president.
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Unless otherwise specified, such resignation shall take effect upon receipt by
the chairman of the board or the president. More than three consecutive absences
from regular meetings of the board of directors, unless excused by resolution of
the board of directors, shall automatically constitute a resignation, effective
when such resignation is accepted by the board of directors.
Section 11. Vacancies. Any vacancy occurring on the board of directors may
be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by election by the board of directors for a
term of office continuing only until the next election of directors by the
shareholders.
Section 12. Compensation. Directors, as such, may receive a stated salary
for their services. By resolution of the board of directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the board of directors. Members
of either standing or special committees may be allowed such compensation for
actual attendance at committee meetings as the board of directors may determine.
Section 13. Presumption of Assent. A director of the Company who is present
at a meeting of the board of directors at which action on any Company matter is
taken shall be presumed to have assented to the action taken unless his or her
dissent or abstention shall be entered in the minutes of the meeting or unless
he or she shall file a written dissent to such action with the person acting as
the secretary of the meeting before the adjournment thereof or shall forward
such dissent by registered mail to the secretary of the Company within five days
after the date a copy of the minutes of the meeting is received. Such right to
dissent shall not apply to a director who voted in favor of such action.
Section 14. Removal of Directors. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. Whenever the holders of the shares of any class are entitled to elect
one or more directors by the provisions of the charter or supplemental sections
thereto, the provisions of this section shall apply, in respect to the removal
of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class and not to the vote of the outstanding shares
as a whole.
ARTICLE IV - Executive And Other Committees
Section 1. Appointment. The board of directors, by resolution adopted by a
majority of the full board, may designate the chief executive officer and two or
more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of directors
is not in session, shall have and may exercise all of the authority of the board
of directors except to the extent, if any, that such authority shall be limited
by the resolution appointing the executive committee; and except also that the
executive committee shall not have the authority of the board of directors with
reference to: the declaration of dividends; the amendment of the charter or
bylaws of the Company or recommending to the shareholders a plan of merger,
consolidation, or conversion; the sale, lease, or other disposition of all or
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substantially all of the property and assets of the Company otherwise than in
the usual and regular course of its business; a voluntary dissolution of the
Company; a revocation of any of the foregoing; or the approval of a transaction
in which any member of the executive committee, directly or indirectly, has any
material beneficial interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this Article
IV, each member of the executive committee shall hold office until the next
regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one days notice stating the
place, date, and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted to be
taken by the executive committee at a meeting may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by all
of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be filled
by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive committee
may be removed at any time with or without cause by resolution adopted by a
majority of the full board of directors. Any member of the executive committee
may resign from the executive committee at any time by giving written notice to
the president or secretary of the Company. Unless otherwise specified, such
resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by resolution
establish an audit, loan, or other committee composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
Company and may prescribe the duties, constitution, and procedures thereof.
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ARTICLE V - Officers
Section 1. Positions. The officers of the Company shall be a president, one
or more vice presidents, a secretary, and a treasurer, each of whom shall be
elected by the board of directors. The board of directors also may designate the
chairman of the board as an officer. [The president shall be the chief executive
officer, unless the board of directors designates the chairman of the board as
chief executive officer. The president shall be a director of the Company. The
offices of the secretary and treasurer may be held by the same person and a vice
president also may be either the secretary or the treasurer. The board of
directors may designate one or more vice presidents as executive vice president
or senior vice president.] The board of directors also may elect or authorize
the appointment of such other officers as the business of the Company may
require. The officers shall have such authority and perform such duties as the
board of directors may from time to time authorize or determine. In the absence
of action by the board of directors, the officers shall have such powers and
duties as generally pertain to their respective offices.
Section 2. Election and Term of Office. The officers of the Company shall
be elected annually at the first meeting of the board of directors held after
each annual meeting of the shareholders. If the election of officers is not held
at such meeting, such election shall be held as soon thereafter as possible.
Each officer shall hold office until a successor has been duly elected and
qualified or until the officers death, resignation, or removal in the manner
hereinafter provided. Election or appointment of an officer, employee, or agent
shall not of itself create contractual rights. The board of directors may
authorize the Company to enter into an employment contract with any officer in
accordance with regulations of the Office; but no such contract shall impair the
right of the board of directors to remove any officer at any time in accordance
with Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the board of directors
whenever in its judgment the best interests of the Company will be served
thereby, but such removal, other than for cause, shall be without prejudice to
any contractual rights of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be fixed
from time to time by the board of directors.
ARTICLE VI - Contracts, Loans, Checks, and Deposits
Section 1. Contracts. To the extent permitted by regulations of the Office,
and except as otherwise prescribed by these bylaws with respect to certificates
for shares, the board of directors may authorize any officer, employee or agent
of the Company to enter into any contract or execute and deliver any instrument
in the name of and on behalf of the Company. Such authority may be general or
confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the Company and
no evidence of indebtedness shall be issued in its name unless authorized by the
board of directors. Such authority may be general or confined to specific
instances.
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Section 3. Checks, Drafts, etc. All checks, drafts, or other orders for the
payment of money, notes, or other evidences of indebtedness issued in the name
of the Company shall be signed by one or more officers, employees, or agents of
the Company in such manner as shall from time to time be determined by the board
of directors.
Section 4. Deposits. All funds of the Company not otherwise employed shall
be deposited from time to time to the credit of the association in any duly
authorized depositors as the board of directors may select.
ARTICLE VII - Certificates for Shares and Their Transfer
Section 1. Certificates for Shares. Certificates representing shares of
capital stock of the Company shall be in such form as shall be determined by the
board of directors and approved by the Office. Such certificates shall be signed
by the chief executive officer or by any other officer of the Company authorized
by the board of directors, attested by the secretary or an assistant secretary,
and sealed with the corporate seal or a facsimile thereof. The signature of such
officers upon a certificate may be facsimiles if the certificate is manually
signed on behalf of a transfer agent or a registrar other than the Company
itself or one of its employees. Each certificate for shares of capital stock
shall be consecutively numbered or otherwise identified. The name and address of
the person to whom the shares are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the Company. All
certificates surrendered to the Company for transfer shall be cancelled and no
new certificate shall be issued until the former certificate for a like number
of shares has been surrendered and cancelled, except that in the case of a lost
or destroyed certificate, a new certificate may be issued upon such terms and
indemnity to the Company as the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of the
Company shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the Company. Such transfer shall be made only on surrender for cancellation of
the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the Company shall be deemed by the Company to be the
owner for all purposes.
ARTICLE VIII - Fiscal Year; Annual Audit
The fiscal year of the Company shall end on the last day of December of
each year. The Company shall be subject to an annual audit as of the end of its
fiscal year by independent public accountants appointed by and responsible to
the board of directors.
ARTICLE IX - Dividends
Subject only to the terms of the Company's charter and the regulations and
orders of the Office, the board of directors may, from time to time, declare,
and the Company may pay, dividends on its outstanding shares of capital stock.
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ARTICLE X - Corporate Seal
The board of directors shall provide a Company seal which shall be two
concentric circles between which shall be the name of the Company. The year of
incorporation or an emblem may appear in the center.
ARTICLE XI - Amendments
These bylaws may be amended in a manner consistent with regulations of the
Office and shall be effective after: (i) approval of the amendment by a majority
vote of the authorized board of directors, or by a majority vote of the votes
cast by the shareholders of the Company at any legal meeting; and (ii) receipt
of any applicable regulatory approval. When the Company fails to meet its quorum
requirements, solely due to vacancies on the board, then the affirmative vote of
a majority of the sitting board will be required to amend the bylaws.
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AXIA BANCORP, MHC
MUTUAL HOLDING COMPANY CHARTER
Section 1. Corporate Title. The name of the mutual holding company hereby
chartered is Axia Bancorp, MHC (the "Mutual Company").
Section 2. Duration. The duration of the Mutual Company is perpetual.
Section 3. Purpose and Powers. The purpose of the Mutual Company is to
pursue any or all of the lawful objectives of a federal mutual savings bank
holding company chartered under section 10(o) of the Home Owners' Loan Act, 12
U.S.C. 1467a(o), and to exercise all of the express, implied, and incidental
powers conferred thereby and all acts amendatory thereof and supplemental
thereto, subject to the Constitution and the laws of the United States as they
are now in effect, or as they may hereafter be amended, and subject to all
lawful and applicable rules, regulations, and orders of the Office of Thrift
Supervision ("OTS").
Section 4. Capital. The Mutual Company shall have no capital stock.
Section 5. Members. All holders of savings, demand, or other authorized
accounts of Axia Federal Savings Bank (the "Association") are members of the
Mutual Company. With respect to all questions requiring action by the members of
the Mutual Company, each holder of an account in the Association shall be
permitted to cast one vote for each $100, or fraction thereof, of the withdrawal
value of the member's account. In addition, borrowers from the Association as of
the date of this charter shall be entitled to one vote for the period of time
during which such borrowings are in existence. No member, however, shall cast
more than 1,000 votes. Voting may be by proxy, subject to the rules and
regulations of the OTS. Any number of members present and voting, represented in
person or by proxy, at a regular or special meeting of the members shall
constitute a quorum. A majority of all votes cast at any meeting of the members
shall determine any question, subject to the rules and regulations of the OTS.
All accounts shall be nonassessable.
Section 6. Directors. The Mutual Company shall be under the direction of a
board of directors. The authorized number of directors shall not be fewer than
five nor more than 15, as fixed in the Mutual Company's bylaws, except that the
number of directors may be increased to a number greater than 15 with the prior
approval of the Director of the OTS or his or her delegate. Each director of the
Mutual Company shall be a member of the Mutual Company. Members of the Mutual
Company shall elect the directors, provided that, in the event of a vacancy on
the board, the board of directors may fill such vacancy, if the members of the
Mutual Company fail to do so, by electing a director to serve until the next
annual meeting of members. Directors shall be elected for periods of three years
and until their successors are elected and qualified, except that provision
shall be made for the election of approximately one-third of the board each
year.
Section 7. Capital, Surplus, and Distribution of Earnings. The Mutual
Company shall distribute net earnings to account holders of the Association on
such basis and in accordance with such terms and conditions as may from time to
time be authorized by the Director of the OTS, provided that the Mutual Company
may establish minimum account balance requirements for account holders to be
eligible for distributions of earnings.
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All holders of accounts of the Association shall be entitled to equal
distribution of the assets of the Mutual Company, pro rata to the value of their
accounts in the Association, in the event of a voluntary or involuntary
liquidation, dissolution, or winding up of the Mutual Company.
Section 8. Amendment. Adoption of any preapproved charter amendment shall
be effective after such preapproved amendment has been approved by the members
at a legal meeting. Any other amendment, addition, alteration, change or repeal
of this charter must be submitted to and preliminarily approved by the OTS prior
to submission to and approval by the members at a legal meeting. Any amendment,
addition, alteration, change, or repeal so acted upon and approved shall be
effective upon filing with the OTS in accordance with regulatory procedures.
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AXIA BANCORP, MHC
Attest: ____________________________ By: _____________________________________
Leslie C. Whelan John R. Bowen
Corporate Secretary President and Chief Executive Officer
OFFICE OF THRIFT SUPERVISION
Attest: ____________________________ By: _____________________________________
Secretary of the Assistant Director for Supervisory
Office of Thrift Supervision Operations
Office of Thrift Supervision
Date: ____________________________
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AXIA BANCORP, MHC
BYLAWS
Section 1. Annual Meeting of Members. The annual meeting of the members of
Axia Federal, MHC (the "Mutual Company") for the election of directors and for
the transaction of any other business of the Mutual Company shall be held, as
designated by the board of directors, at a location within the state of New
Jersey that constitutes the principal place of business of the Mutual Company at
____ __.m. on the _____________ of __________ of each calendar year, if not a
legal holiday, or if a legal holiday, then on the next succeeding day not a
legal holiday. The annual meeting may be held at such other times on such day or
at such other place in the state as the board of directors may determine. At
each annual meeting, the officers shall make a full report of the financial
condition of the Mutual Company and of its progress for the preceding year and
shall outline a program for the succeeding year.
Section 2. Special Meetings of Members. Special meetings of the members of
the Mutual Company may be called at any time by the president or the board of
directors and shall be called by the president, a vice president, or the
secretary upon the written request of members of record, holding in the
aggregate at least one-tenth of the capital of the Mutual Company. Such written
request shall state the purpose of the meeting and shall be delivered at the
principal place of business of the Mutual Company addressed to the president.
Annual and special meetings shall be conducted in accordance with rules
established by the Board of Directors and made available for inspection by
members at the annual or special meeting.
Section 3. Notice of Meeting of Members.
(a) Notice of each annual meeting shall be either published once a
week for the two successive calendar weeks (in each instance on any day of
the week) immediately prior to the week in which such annual meeting shall
convene, in a newspaper printed in the English language and of general
circulation in the city or county in which the principal place of business
of the Mutual Company is located, or mailed postage prepaid at least 15
days and not more than 45 days prior to the date on which such annual
meeting shall convene, to each of its members of record at the last address
appearing on the books of the Mutual Company. Such notice shall state the
name of the Mutual Company, the place of the annual meeting, the date and
time when it shall convene, and the matters to be considered. A similar
notice shall be posted in a conspicuous place in each of the offices of the
Mutual Company during the 14 days immediately preceding the date on which
such annual meeting shall convene. If any member, in person or by
authorized attorney, shall waive in writing notice of any annual meeting of
members, notice thereof need not be given to such member.
(b) Notice of each special meeting shall be either published once a
week for the two consecutive calendar weeks (in each instance on any day of
the week) immediately prior to the week in which such special meeting shall
convene, in a newspaper printed in the English language and of general
circulation in the city or county in which the principal place of business
of the Mutual Company is located, or mailed postage prepaid at least 15
days and not more than 45 days prior to the date on which such special
meeting shall convene to each of its members of record at the member's last
address appearing on the books of the Mutual Company. Such notice shall
state the name of the Mutual Company, the purpose(s) for which the meeting
is called, the place of the special meeting and the date and time when it
shall convene. A similar notice shall be posted in a conspicuous place in
each of the offices of the Mutual Company during the 14 days immediately
preceding the date on which such special meeting shall convene.
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If any member, in person or by authorized attorney, shall waive in writing
notice of any special meeting of members, notice thereof need not be given to
such member.
Section 4. Fixing of Record Date. For the purpose of determining members
entitled to notice of or to vote at any meeting of members or any adjournment
thereof, or in order to make a determination of members for any other proper
purpose, the board of directors shall fix in advance a record date for any such
determination of members. Such date shall be not more than 60 days nor fewer
than 10 days prior to the date on which the action, requiring such determination
of members, is to be taken. The member entitled to participate in any such
action shall be the member of record on the books of the Mutual Company on such
record date. The number of votes which each member shall be entitled to cast at
any meeting of the members shall be determined from the books of the Mutual
Company as of such record date. Any member of such record date who ceases to be
a member prior to such meeting shall not be entitled to vote at that meeting.
Section 5. Voting by Proxy. Voting at any annual or special meeting of the
members may be by proxy pursuant to the rules and regulations of the Office,
provided, that no proxies shall be voted at any meeting unless such proxies
shall have been placed on file with the secretary of the Mutual Company, for
verification, prior to the convening of such meeting. All proxies with a term
greater than eleven months or solicited at the expense of the Mutual Company
must run to the board of directors as a whole, or to a committee appointed by a
majority of such board.
Section 6. Communication Between Members. Communication between members
shall be subject to any applicable rules or regulations of the Office.
Section 7. Number of Directors. The number of directors of the Mutual
Company shall be nine.
Section 8. Meetings of the Board. The board of directors shall meet
regularly without notice at the principal place of business of the Mutual
Company at least once each month at an hour and date fixed by resolution of the
board, provided that the place of meeting may be changed by the directors.
Special meetings of the board may be held at any place specified in a notice of
such meeting and shall be called by the secretary upon the written request of
the chairman or of three directors. All special meetings shall be held upon at
least three days' written notice to each director unless notice is waived in
writing before or after such meeting. Such notice shall state the place, date,
time and purposes of such meeting. A majority of the authorized directors shall
constitute a quorum for the transaction of business. The act of a majority of
the directors present at any meeting at which there is a quorum shall be the act
of the board. Action may be taken without a meeting if unanimous written consent
is obtained for such action. The meetings shall be under the direction of a
chairman, appointed annually by the board, or in the absence of the chairman,
the meetings shall be under the direction of the president.
Section 9. Officers, Employees and Agents. At the meeting of the board of
directors of the Mutual Company next following the annual meeting of the members
of the Mutual Company, the board shall annually elect a president, one or more
vice presidents, a secretary, and a treasurer; provided, that the offices of
president and secretary may not be held by the same person and a vice president
may also be the treasurer. The board may appoint such additional officers,
employees, and agents as it may from time to time determine. The term of office
of all officers shall be one year or until their respective successors are
elected and qualified; but any officer may be removed at any time by the board.
In the
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absence of designation from time to time of powers and duties by the board, the
officers shall have such powers and duties as generally pertain to their
respective offices.
Any indemnification by the Mutual Company of the Mutual Company's personnel
is subject to any applicable rules or regulations of the Office.
Section 10. Resignation or Removal of Directors. Any director may resign at
any time by sending a written notice of such resignation to the office of the
Mutual Company delivered to the secretary. Unless otherwise specified therein
such resignation shall take effect upon receipt by the secretary. More than
three consecutive absences from regular meetings of the board, unless excused by
resolution of the board, shall automatically constitute a resignation, effective
when such resignation is accepted by the board.
At a meeting of members called expressly for that purpose, directors or the
entire board may be removed, only with cause, by a vote of the holders of a
majority of the shares then entitled to vote at an election of directors.
Section 11. Powers of the Board. The board of directors shall have the
power:
(a) By resolution, to appoint from among its members an executive
committee, which committee shall have and may exercise the powers of the
board between the meetings of the board, but no such committee shall have
the authority of the board to amend the charter or bylaws, adopt a plan of
merger, consolidation, dissolution, or provide for the disposition of all
or substantially all the property and assets of the Mutual Company. Such
committee shall not operate to relieve the board, or any member thereof, of
any responsibility imposed by law;
(b) To appoint and remove by resolution the members of such other
committees as may be deemed necessary and prescribe the duties thereof;
(c) To fix the compensation of directors, officers, and employees, and
to remove any officer or employee at any time with or without cause; and
(d) To exercise any and all of the powers of the Mutual Company not
expressly reserved by the charter to the members.
Section 12. Execution of Instruments, Generally. All documents and
instruments or writings of any nature shall be signed, executed, verified,
acknowledged, and delivered by such officers, agents, or employees of the Mutual
Company or any one of them and in such manner as from time to time may be
determined by resolution of the board. All notes, drafts, acceptances, checks,
endorsements, and all evidences of indebtedness of the Mutual Company whatsoever
shall be signed by such officer or officers or such agent or agents of the
Mutual Company and in such manner as the board may from time to time determine.
Endorsements for deposit to the credit of the Mutual Company in any of its duly
authorized depositories shall be made in such manner as the board may from time
to time determine. Proxies to vote with respect to shares or accounts of other
associations or stock of other corporations owned by, or standing in the name
of, the Mutual Company may be executed and delivered from time to time on behalf
of the Mutual Company by the president or a vice president and the secretary or
an assistant secretary of the Mutual Company or by any other persons so
authorized by the board.
3
<PAGE>
Section 13. Nominating Committee. The chairman, at least 30 days prior to
the date of each annual meeting, shall appoint a nominating committee of three
persons who are members of the Mutual Company. Such committee shall make
nominations for directors in writing and deliver to the secretary such written
nominations at least 15 days prior to the date of the annual meeting, which
nominations shall then be posted in a prominent place in the principal place of
business for the 15-day period prior to the date of the annual meeting. Provided
such committee is appointed and makes such nominations, no nominations for
directors except those made by the nominating committee shall be voted upon at
the annual meeting unless other nominations by members are made in writing and
delivered to the secretary of the Mutual Company at least 10 days prior to the
date of the annual meeting, which nominations shall then be posted in a
prominent place in the principal place of business for the 10-day period prior
to the date of the annual meeting. Ballots bearing the names of all persons
nominated by the nominating committee and by other members prior to the annual
meeting shall be provided for use by the members at the annual meeting. If at
any time the chairman shall fail to appoint such nominating committee, or the
nominating committee shall fail or refuse to act at least 15 days prior to the
annual meeting, nominations for directors may be made at the annual meeting by
any member and shall be voted upon.
Section 14. New Business. Any new business to be taken up at the annual
meeting, including any proposal to increase or decrease the number of directors
of the Mutual Company, shall be stated in writing and filed with the secretary
of the Mutual Company at least 30 days before the date of the annual meeting,
and all business so stated, proposed, and filed shall be considered at the
annual meeting; but no other proposal shall be acted upon at the annual meeting.
Any member may make any other proposal at the annual meeting and the same may be
discussed and considered; but unless stated in writing and filed with the
secretary 30 days before the meeting, such proposal shall be laid over for
action at an adjourned, special, or regular meeting of the members taking place
at least 30 days thereafter. This provision shall not prevent the consideration
and approval or disapproval at the annual meeting of the reports of officers and
committees, but in connection with such reports no new business shall be acted
upon at such annual meeting unless stated and filed as herein provided.
Section 15. Seal. The seal shall be two concentric circles between which
shall be the name of the Mutual Company. The year of incorporation, the word
"incorporated," or an emblem may appear in the center.
Section 16. Amendment. Adoption of any bylaw amendment, as long as
consistent with applicable law, rules and regulations, and which adequately
addresses the subject and purpose of the stated bylaw section, shall be
effective upon filing with the Office in accordance with the regulatory
procedures after such amendment has been approved by a two-thirds affirmative
vote of the authorized board, or by a vote of the members of the Mutual Company.
4
<PAGE>
B. Call for special meetings. Special meetings of stockholders relating
to changes in control of the Association or amendments to its charter shall be
called only upon direction of the board of directors.
Section 9. Amendment of Charter. Except as provided in Section 5, no
amendment, addition, alteration, change, or repeal of this charter shall be
made, unless such is first proposed by the board of directors of the
Association, approved by the shareholders of a majority of the votes eligible to
be cast at a legal meeting, unless a higher vote is otherwise required, and
approved or preapproved by the Office.
5
No.
Shares
CHARTERED UNDER THE LAWS OF THE UNITED STATES OF AMERICA
Axia Bancorp, Inc.
FULLY PAID AND NON-ASSESSABLE
PAR VALUE $1.00 EACH
THE SHARES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO
RESTRICTIONS, SEE REVERSE SIDE
THIS CERTIFIES that ____________________________________________ is the owner of
SHARES OF COMMON STOCK OF
Axia Bancorp, Inc.
a Federal corporation
The shares evidenced by this certificate are transferable only on the books
of Axia Bancorp, Inc. by the holder hereof, in person or by attorney, upon
surrender of this certificate properly endorsed. The capital stock evidenced
hereby is not an account of an insurable type and is not insured by the Federal
Deposit Insurance Corporation or any other Federal or state governmental agency.
IN WITNESS WHEREOF, Axia Bancorp, Inc. has caused this certificate to be
executed, by the facsimile signatures of its duly authorized officers and has
caused a facsimile of its seal to be hereunto affixed.
By __________________________ [SEAL] By ___________________________
LESLIE C. WHELAN, JOHN R. BOWEN,
CORPORATE SECRETARY PRESIDENT AND
CHIEF EXECUTIVE OFFICER
<PAGE>
The Board of Directors of Axia Bancorp, Inc. (the "Company") is authorized
by resolution or resolutions, from time to time adopted, to provide for the
issuance of more than one class of stock, including preferred stock in series,
and to fix and state the voting powers, designations, preferences, limitations
and restrictions thereof. The Company will furnish to any shareholder upon
request and without charge a full description of each class of stock and any
series thereof.
The shares represented by this Certificate may not be cumulatively voted on
any matter.
The shares of common stock evidenced by this certificate are subject to a
limitation contained in the Stock Holding Company Charter of the Company to the
effect that, for a period of five years from the date of the reorganization from
mutual to stock form of Axia Federal Savings Bank, no person other than Axia
Bancorp, MHC, the parent mutual holding company of the Company, shall directly
or indirectly offer to acquire or acquire the beneficial ownership of more than
10% of any class of any equity security of the Company unless such offer to
acquire or acquisition is approved by a majority of the Board of Directors. This
limitation shall not apply to the purchase of shares by underwriters in
connection with a public offering or certain purchases of shares by a
tax-qualified employee stock benefit plan or a subsidiary of the Company and any
trustee of such a plan or arrangement. In the event shares are acquired in
violation of this provision, all shares beneficially owned by any person in
excess of 10% shall be considered "excess shares" and shall not be counted as
shares entitled to vote and shall not be voted by any person or counted as
voting shares in connection with any matters submitted to stockholders for a
vote.
Special meetings of the Company's stockholders relating to a change in
control of the Company or to an amendment of the Charter of the Company may be
called only by the Company's Board of Directors. Special meetings of the
stockholders for any other purpose or purposes shall be called upon the written
request of the holders of not less than 10% of all the outstanding capital stock
of the Company entitled to vote at the meeting.
The following abbreviations when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
TEN COM - as tenants in common
UNIF GIFT MIN ACT - Custodian (Cust)
TEN ENT - as tenants by the entireties
Under Uniform Gifts to Minors Act
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common(State)
Additional abbreviations may also be used though not in the above list
<PAGE>
PLEASE INSERT SOCIAL SECURITY NUMBER OR OTHER IDENTIFYING NUMBER
- --------------------------------------------------------------------------------
(please print or typewrite name and address
including postal zip code of assignee)
- --------------------------------------------------------------------------------
Shares of
- --------------------------------------------------------------------------------
the Common Stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
- --------------------------------------------------------------------------------
Attorney to transfer the said shares on the books of the within named
corporation with full power of substitution in the premises.
Dated, _____________________________
In the presence of _____________________ Signature: _____________________
NOTE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME OF THE
STOCKHOLDER(S) AS WRITTEN UPON THE FACE OF THE CERTIFICATE, IN EVERY PARTICULAR,
WITHOUT ALTERATION OR ENLARGEMENT, OR ANY CHANGE WHATSOEVER.
[LETTERHEAD OF LUSE LEHMAN GORMAN POMERENK & SCHICK]
(202) 274-2000
March 16, 1998
The Board of Directors
Axia Federal Savings Bank
1410 St. Georges Avenue
Avenel, New Jersey 07001
Re: Axia Bancorp, Inc.
Common Stock Par Value $1.00 Per Share
Gentlemen:
You have requested the opinion of this firm as to certain matters in
connection with the offer and sale (the "Offering") of Axia Bancorp, Inc. (the
"Company") Common Stock, par value $1.00 per share ("Common Stock"). We have
reviewed the Company's proposed Stock Holding Company Charter, Registration
Statement on Form SB-2 ("Form SB-2"), as well as applicable statutes and
regulations governing the Company and the offer and sale of the Common Stock.
We are of the opinion that upon the declaration of effectiveness of the
Form SB-2 and the incorporation of the Company as a federal corporation, the
Common Stock, when sold, will be legally issued, fully paid and non-assessable.
This Opinion has been prepared for the use of the Company in connection
with its registration statement on Form SB-2, and we hereby consent to the
filing of this Opinion as an exhibit to such registration statement and to our
firm being referenced under the caption "Legal Matters."
Very truly yours,
/s/ Luse Lehman Gorman Pomerenk & Schick
----------------------------------------
Luse Lehman Gorman Pomerenk & Schick
A Professional Corporation
Board of Directors
Axia Federal Savings Bank
February , 1998
Page 1
[FORM OF FEDERAL TAX OPINION]
February , 1998
Board of Directors
Axia Federal Savings Bank
1410 St. George Avenue
Avenel, New Jersey 07001
Re: Mutual Holding Company Formation and Stock Issuance
Ladies and Gentlemen:
We have been requested as special counsel to Axia Federal Savings Bank to
express our opinion concerning certain Federal income tax consequences relating
to the proposed conversion of the Bank from a federally chartered mutual savings
and loan association (the "Bank") to a federally chartered stock bank ("Stock
Bank") and the formation of Axia Bancorp, MHC, a federal mutual holding company
("Mutual Holding Company") which will acquire the outstanding stock of Stock
Bank and subsequently contribute Stock Bank's stock to Axia Bancorp, Inc.
("Stock Holding Company").
In connection therewith, we have examined the Plan of Reorganization (as
defined below) and certain other documents of or relating to the Reorganization
(as defined below), some of which are described or referred to in the Plan of
Reorganization and which we deemed necessary to examine in order to issue the
opinions set forth below. Unless otherwise defined, all terms used herein have
the meanings given to such terms in the Plan of Reorganization.
In our examination, we have assumed the authenticity of original documents,
the accuracy of copies and the genuineness of signatures. We have further
assumed the absence of adverse facts not apparent from the face of the
instruments and documents we examined.
In issuing our opinions, we have assumed that the Plan of Reorganization
has been duly and validly authorized and has been approved and adopted by the
board of directors of the Bank at a meeting duly called and held; that the Bank
will comply with the terms and conditions of the Plan of Reorganization, and
that the various representations and warranties which are provided to us are
accurate, complete, true and correct. Accordingly, we express no opinion
concerning the effect, if any, of variations from the foregoing. We specifically
express no opinion concerning tax matters relating to the Plan of Reorganization
under state and local tax laws and under Federal income tax laws except on the
basis of the documents and assumptions described above.
<PAGE>
Board of Directors
Axia Federal Savings Bank
February , 1998
Page 2
For purposes of this opinion, we are relying on the representations
provided to us by the Bank, which are incorporated herein by reference.
In issuing the opinions set forth below, we have referred solely to
existing provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), existing and proposed Treasury Regulations thereunder, current
administrative rulings, notices and procedures and court decisions. Such laws,
regulations, administrative rulings, notices and procedures and court decisions
are subject to change at any time. Any such change could affect the continuing
validity of the opinions set forth below. This opinion is as of the date hereof,
and we disclaim any obligation to advise you of any change in any matter
considered herein after the date hereof.
In rendering our opinions, we have assumed that the persons and entities
identified in the Plan of Reorganization will at all times comply with the
requirements of Code sections 368 and 351, the other applicable state and
Federal laws and the representations of the Bank. In addition, we have assumed
that the activities of the persons and entities identified in the Plan of
Reorganization will be conducted strictly in accordance with the Plan of
Reorganization. Any variations may affect the opinions we are rendering.
We emphasize that the outcome of litigation cannot be predicted with
certainty and, although we have attempted in good faith to opine as to the
probable outcome of the merits of each tax issue with respect to which an
opinion was requested, there can be no assurance that our conclusions are
correct or that they would be adopted by the IRS or a court.
SUMMARY OF OPINIONS
Based on the facts, representations and assumptions set forth herein, we
are of the opinion that:
With Respect to the Exchange of the Bank's Charter for a Stock Charter
("Bank Conversion"):
1. Bank's exchange of its charter for a federal stock savings
bank charter is a mere change in identity and form and therefore
qualifies as a reorganization within the meaning of Section
368(a)(1)(F) of the Internal Revenue Code ("Code").
<PAGE>
Board of Directors
Axia Federal Savings Bank
February , 1998
Page 3
2. No gain or loss will be recognized by Bank upon the transfer
of its assets to Stock Bank solely in exchange for shares of Stock
Bank stock and the assumption by Stock Bank of the liabilities of
Bank. (Code Sections 361(a) and 357(a)).
3. No gain or loss will be recognized by Stock Bank upon the
receipt of the assets of Bank in exchange for shares of Stock Bank
common stock. (Code Section 1032(a)).
4. Stock Bank's holding period in the assets received from Bank
will include the period during which such assets were held by the
Bank. (Code Section 1223(2)).
5. Stock Bank's basis in the assets of Bank will be the same as
the basis of such assets in the hands of Bank immediately prior to the
proposed transaction. (Code Section 362(b)).
6. Bank members will recognize no gain or loss upon the
constructive receipt of Stock Bank common stock solely in exchange for
their membership interests in Bank. (Code Section 354(a)(1)).
7. The basis of the Stock Bank common stock to be constructively
received by the Bank's members will be the same as their basis in
their membership interests in the Bank surrendered in exchange
therefor. (Code Section 358(a)(1)).
8. The holding period of the Stock Bank common stock
constructively received by the members of the Bank will include the
period during which the Bank members held their membership interests,
provided that the membership interests were held as capital assets on
the date of the exchange. (Code Section 1223(1)).
9. The Stock bank will succeed to and take into account the
Bank's earnings and profits or deficit in earnings and profits, as of
the date of the proposed transaction. (Code Section 381).
<PAGE>
Board of Directors
Axia Federal Savings Bank
February , 1998
Page 4
With respect to the transfer of Stock Bank stock to Mutual
Holding Company for membership interests (the "351 Transaction"):
10. The exchange of stock by the Stock Bank stockholders in
exchange for membership interests in the Mutual Holding Company will
constitute a tax-free exchange of property solely for voting "stock"
pursuant to Section 351 of the Internal Revenue Code.
11. Stock Bank's stockholders will recognize no gain or loss upon
the transfer of the Stock Bank stock they constructively received in
the Bank conversion to the Mutual Holding Company solely in exchange
for membership interests in the Mutual Holding Company. (Code Section
351).
12. Stock Bank stockholder's basis in the Mutual Holding Company
membership interests received in the transaction will be the same as
the basis of the property transferred in exchange therefor, reduced by
the sum of the liabilities assumed by Mutual Holding Company or to
which assets transferred are taken subject. (Code Section 358(a)(1)).
13. Stock Bank stockholder's holding period for the membership
interests in Mutual Holding Company received in the transaction will
include the period during which the property exchanged was held by
Stock Bank stockholders, provided that such property was a capital
asset on the date of the exchange. (Code Section 1223(1)).
14. Mutual Holding Company will recognize no gain or loss upon
the receipt of property from Stock Bank stockholders in exchange for
membership interests in the Mutual Holding Company. (Code Section
1032(a)).
15. Mutual Holding Company's basis in the property received from
Stock Bank stockholders will be the same as the basis of such property
in the hands of Stock Bank stockholders immediately prior to the
transaction. (Code Section 362(a)).
16. Mutual Holding Company's holding period for the property
received from Stock Bank's stockholders will include the period during
which such property was held by Stock Bank stockholders. (Code Section
1223(2)).
17. Stock Bank depositors will recognize no gain or loss solely
by reason of the transaction.
<PAGE>
Board of Directors
Axia Federal Savings Bank
February , 1998
Page 5
With respect to the transfers to the Stock Holding Company in
exchange for Common Stock in the Stock Holding Company
18. The Mutual Holding Company and the persons who purchased
Common Stock of the Stock Holding Company in the Subscription and
Community Offering ("Minority Stockholders") will recognize no gain or
loss upon the transfer of Stock Bank stock and cash, respectively, to
the Stock Holding Company in exchange for stock in the Stock Holding
Company. Code Sections 351(a) and 357(a).
19. Stock Holding Company will recognize no gain or loss on its
receipt of Stock Bank stock and cash in exchange for Stock Holding
Company Stock. (Code Section 1032(a)).
20. The basis of the Stock Holding Company Common Stock to the
Minority Stockholders will be the actual purchase price thereof, and a
shareholders holding period for Common Stock acquired through the
exercise of subscription rights will begin on the date the rights are
exercised.
PROPOSED TRANSACTION
On October 15, 1997, the board of directors of the Bank adopted that
certain Plan of Reorganization From A Mutual Savings Association to A Mutual
Holding Company and Stock Issuance Plan (the "Plan of Reorganization"). For what
are represented to be valid business purposes, the Bank's board of directors has
decided to convert to a mutual holding company structure pursuant to statutes.
The following steps are proposed:
(i) The Bank will organize an interim stock savings bank (Interim One)
as its wholly-owned subsidiary;
(ii) Interim One will organize a federal mid-tier holding company as
its wholly-owned subsidiary (Stock Holding Company); and
(iii) Interim One will also organize another interim federal stock
savings bank as its wholly-owned subsidiary (Interim Two).
<PAGE>
Board of Directors
Axia Federal Savings Bank
February , 1998
Page 6
The following transactions will occur simultaneously:
(iv) The Bank will exchange its charter for a federal stock savings
bank charter and become a stock savings bank that will constructively issue
its common stock to members of the Bank;
(v) Interim One will cancel its outstanding stock and exchange its
charter for a federal mutual holding company charter and thereby become the
Mutual Holding Company;
(vi) Interim Two will merge with and into the Bank with the Bank as
the surviving entity, the former members of the Bank who constructively
hold stock in the Bank will exchange their stock in the Bank for membership
interests in the Mutual Holding Company; and
(vii) The Mutual Holding Company will contribute the Bank's stock to
the Stock Holding Company, a wholly-owned subsidiary of the Mutual Holding
Company for additional shares of Bank Stock.
(viii) Contemporaneously, with the contribution set forth in "(vii)"
the Stock Holding Company will offer to sell up to 49.9% of its Common
Stock in the Subscription Offering and, if applicable, the Direct Community
Offering.
These transactions are referred to herein collectively as the
"Reorganization."
Those persons who, as of the date of the Bank Conversion (the "Effective
Date"), hold depository rights with respect to the Bank will thereafter have
such rights solely with respect to the Stock Bank. Each deposit account with the
Bank at the time of the exchange will become a deposit account in the Stock Bank
in the same amount and upon the same terms and conditions. Following the
completion of the Reorganization, all depositors and borrowers who had
membership rights with respect to the Bank immediately prior to the
Reorganization will continue to have such rights solely with respect to the
Mutual Holding Company so long as they continue to hold deposit accounts or
borrowings with the Stock Bank. All new depositors of the Stock Bank after the
completion of the Reorganization will have ownership rights solely with respect
to the Mutual Holding Company so long as they continue to hold deposit accounts
with the Stock Bank.
The shares of Interim Two common stock owned by the Mutual Holding Company
prior to the Reorganization shall be converted into and become shares of common
stock of the Stock
<PAGE>
Board of Directors
Axia Federal Savings Bank
February , 1998
Page 7
Bank on the Effective Date. The shares of Stock Bank common stock constructively
received by the Stock Bank stockholders (formerly the members holding
liquidation rights of the Bank) will be transferred to the Mutual Holding
Company by such persons in exchange for liquidation rights in the Mutual Holding
Company.
The Stock Holding Company will have the power to issue shares of capital
stock (including common and preferred stock) to persons other than the Mutual
Holding Company. So long as the Mutual Holding Company is in existence, however,
it must own a majority of the voting stock of Stock Holding Company. Stock
Holding Company may issue any amount of non-voting stock to persons other than
Mutual Holding Company. No such non-voting stock will be issued as of the date
of the Reorganization.
* * *
The opinions set forth above represent our conclusions as to the
application of existing Federal income tax law to the facts of the instant
transaction, and we can give no assurance that changes in such law, or in the
interpretation thereof, will not affect the opinions expressed by us. Moreover,
there can be no assurance that contrary positions may not be taken by the IRS,
or that a court considering the issues would not hold contrary to such opinions.
All of the opinions set forth above are qualified to the extent that the
validity of any provision of any agreement may be subject to or affected by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting the rights of creditors generally. We do not express any opinion as to
the availability of any equitable or specific remedy upon any breach of any of
the covenants, warranties or other provisions contained in any agreement. We
have not examined, and we express no opinion with respect to the applicability
of, or liability under, any Federal, state or local law, ordinance, or
regulation governing or pertaining to environmental matters, hazardous wastes,
toxic substances, asbestos, or the like.
It is expressly understood that the opinions set forth above represent our
conclusions based upon the documents reviewed by us and the facts presented to
us. Any material amendments to such documents or changes in any significant fact
would affect the opinions expressed herein.
<PAGE>
Board of Directors
Axia Federal Savings Bank
February , 1998
Page 8
We have not been asked to, and we do not, render any opinion with respect
to any matters other than those expressly set forth above.
We hereby consent to the filing of the opinion as an exhibit to the Bank's
combined Form MHC-1/MHC-2 Notice of Mutual Holding Company Reorganization and
Application for Approval of a Minority Stock Issuance by a Subsidiary of Mutual
Holding Company as filed with the OTS and to the Stock Holding Company's
Registration Statement on Form SB-2 as filed with the SEC. We also consent to
the references to our firm in the Prospectus contained in the Forms MHC-1/MHC-2
and SB-2 under the captions "The Reorganization and Offering - Tax Effects of
the Reorganization" and "Legal and Tax Opinions," and to the summarization of
our opinion in such Prospectus.
Very truly yours,
------------------------------------
LUSE LEHMAN GORMAN POMERENK & SCHICK
A Professional Corporation
[FINPRO LETTERHEAD]
March 16, 1998
Board of Directors
Axia Federal Savings Bank
1410 St. Georges Avenue
Avenel, New Jersey 07001
Dear Board Members:
All capitalized terms not otherwise defined in this letter have the meanings
given such terms in the Plan of Reorganization from Mutual Savings Association
to Mutual Holding Company and Stock Issuance Plan (the "Plan") adopted by the
Board of Directors of Axia Federal Savings Bank (the "Bank"), whereby the Bank
will reorganize into the Mutual Holding Company form of organization by
converting from a federally chartered mutual savings association to a federally
chartered stock savings bank and issuing in excess of 50% of the Bank's
outstanding capital stock to Axia Bancorp, Inc. (the "Company") so long as the
Company remains in the mutual form.
We understand that in accordance with the Plan, Subscription Rights to purchase
shares of the Common Stock are to be issued to (i) Eligible Account Holders;
(ii) the ESOP; (iii) Supplemental Eligible Account Holders; (iv) Other Members;
and (v) Directors, Officers and Employees, collectively referred to as the
"Recipients". Based solely on our observation that the Subscription Rights will
be available to such Recipients without cost, will be legally non-transferable
and of short duration, and will afford the Recipients the right only to purchase
shares of Common Stock at the same price as will be paid by members of the
general public in the Selected Community Offering, but without undertaking any
independent investigation of state or federal law or the position of the
Internal Revenue Service with respect to this issue, we are of the belief that:
(1) the Subscription Rights will have no ascertainable market value; and
(2) the price at which the Subscription Rights are exercisable will not be
more or less than the pro forma market value of the shares upon
issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates, and other external forces (such
as natural disasters or significant world events) may occur from time to time,
often with great unpredictability and may materially impact the value of thrift
stocks as a whole or the Company's value alone. Accordingly, no assurance can be
given that persons who subscribe to shares of Conversion Stock in the conversion
will thereafter be able to buy or sell such shares at the same price paid in the
Subscription Offering.
Very Truly Yours,
FinPro, Inc.
/s/ Donald J. Musso
Donald J. Musso
President
LIBERTY BANK
EMPLOYMENT AGREEMENT
This Agreement is made effective as of the ____ day of _____________, 1998
by and between Liberty Bank (the "Bank"), a federally-chartered stock savings
bank, with its principal administrative office at 1410 St. Georges Avenue,
Avenel, New Jersey 07001 and _________________ (the "Executive"). Any reference
to "Company" herein shall mean Axia Bancorp, Inc., a federally-chartered
corporation, or any successor thereto.
WHEREAS, the Bank wishes to assure itself of the continued services of
Executive for the period provided in this Agreement; and
WHEREAS, Executive is willing to continue 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, Executive agrees to serve as
__________________________ of the Bank and the Company. During said period,
Executive also agrees to serve, if elected, as an officer and director of any
subsidiary or affiliate of the Bank. Failure to reelect Executive as
________________________ without the consent of the Executive during the term of
this Agreement shall constitute a breach of this Agreement.
2. TERMS AND DUTIES
(a) The period of Executive's employment under this Agreement shall begin
as of the date first above written and shall continue for a period of thirty-six
(36) full calendar months thereafter. Commencing on the first anniversary date
of this Agreement, and continuing at each anniversary date thereafter, the
Agreement shall renew for an additional year such that the remaining term shall
be three (3) years unless written notice is provided to Executive at least ten
(10) days and not more than thirty (30) days prior to any such anniversary date,
that his employment shall cease at the end of thirty-six (36) months following
such anniversary date. Prior to each notice period for non-renewal, the
disinterested members of the Board of Directors of the Bank ("Board") will
conduct a comprehensive performance evaluation and review of the Executive for
purposes of determining whether to extend the Agreement, and the results thereof
shall be included in the minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, Executive shall faithfully perform his duties hereunder
including activities and services related to the organization, operation and
management of the Bank.
1
<PAGE>
3. COMPENSATION AND REIMBURSEMENT
(a) The compensation specified under this Agreement shall constitute the
salary and benefits paid for the duties described in Section 2(b). The Bank
shall pay Executive as compensation a salary of not less than $_______ per year
("Base Salary"). Such Base Salary shall be payable monthly. During the period of
this Agreement, Executive's Base Salary shall be reviewed at least annually; the
first such review will be made no later than ____________. Such review shall be
conducted by a Committee designated by the Board, and the Board may increase,
but not decrease, Executive's Base Salary (any increase in Base Salary shall
become the "Base Salary" for purposes of this Agreement). In addition to the
Base Salary provided in this Section 3(a), the Bank shall provide Executive at
no cost to Executive with all such other benefits as are provided uniformly to
permanent full-time employees of the Bank.
(b) The Bank will provide Executive with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
Executive was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the Bank will not, without
Executive's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect Executive's rights or benefits
thereunder. Without limiting the generality of the foregoing provisions of this
Subsection (b), Executive will be entitled to participate in or receive benefits
under any employee benefit plans including but not limited to, retirement plans,
supplemental retirement plans, pension plans, profit-sharing plans,
health-and-accident plans, medical coverage or any other employee benefit plan
or arrangement made available by the Bank in the future to its senior executives
and key management employees, subject to and on a basis consistent with the
terms, conditions and overall administration of such plans and arrangements.
Executive will be entitled to incentive compensation and bonuses as provided in
any plan of the Bank in which Executive is eligible to participate (and he shall
be entitled to a pro rata distribution under any incentive compensation or bonus
plan as to any year in which a termination of employment occurs, other than
termination for Cause). Nothing paid to the Executive under any such plan or
arrangement will be deemed to be in lieu of other compensation to which the
Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the Bank shall pay or reimburse Executive for all reasonable travel
and other reasonable expenses incurred by Executive performing his obligations
under this Agreement and may provide such additional compensation in such form
and such amounts as the Board may from time to time determine.
(d) Compensation and reimbursement to be paid pursuant to paragraphs (a),
(b) and (c) of this Section 3 shall be paid by the Bank and the Company,
respectively, on a pro rata basis, based upon the amount of service the
Executive devotes to the Bank and Company, respectively.
2
<PAGE>
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION
The provisions of this Section shall in all respects be subject to the
terms and conditions stated in Sections 7 and 14.
(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, an "Event of
Termination" shall mean and include any one or more of the following:
(i) the termination by the Bank or the Company of Executive's
full-time employment hereunder for any reason other than (A) Disability or
Retirement, as defined in Section 5 below, or (B) Termination for Cause as
defined in Section 6 hereof; or
(ii) Executive's resignation from the Bank's employ, upon any
(A) failure to elect or reelect or to appoint or reappoint
Executive as _____________,
(B) material change in Executive's function, duties, or
responsibilities, which change would cause Executive's position to
become one of lesser responsibility, importance, or scope from the
position and attributes thereof described in Section 1, above,
(C) liquidation or dissolution of the Bank or Company other than
liquidations or dissolutions that are caused by reorganizations that
do not affect the status of Executive, or
(D) breach of this Agreement by the Bank.
Upon the occurrence of any event described in clauses (ii) (A), (B), (C) or (D)
above, Executive shall have the right to elect to terminate his employment under
this Agreement by resignation upon sixty (60) days prior written notice given
within a reasonable period of time not to exceed four calendar months after the
initial event giving rise to said right to elect. Notwithstanding the preceding
sentence, in the event of a continuing breach of this Agreement by the Bank, the
Executive, after giving due notice within the prescribed time frame of an
initial event specified above, shall not waive any of his rights solely under
this Agreement and this Section 4 by virtue of the fact that Executive has
submitted his resignation but has remained in the employment of the Bank and is
engaged in good faith discussions to resolve any occurrence of an event
described in clauses (A), (B), (C) or (D) above.
(iii) Executive's voluntary resignation from the Bank's employ on the
effective date of, or at any time following, a Change in Control during the
term of this Agreement. For these purposes,
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<PAGE>
a Change in Control of the Bank or the Company shall mean a change in
control of a nature that: (i) would be required to be reported in response
to Item 1(a) of the current report on Form 8-K, as in effect on the date
hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934 (the "Exchange Act"); or (ii) results in a Change in Control of the
Bank or the Company within the meaning of the Home Owners Loan Act, as
amended, and applicable rules and regulations promulgated thereunder, as in
effect at the time of the Change in Control (collectively, the "HOLA"); or
(iii) without limitation such a Change in Control shall be deemed to have
occurred at such time as (a) any "person" (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under the Exchange Act), directly or indirectly,
of securities of the Company representing 25% or more of the combined
voting power of Company's outstanding securities except for any securities
purchased by the Bank's employee stock ownership plan or trust; or (b)
individuals who constitute the Board on the date hereof (the "Incumbent
Board") cease for any reason to constitute at least a majority thereof,
provided 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 the same Nominating Committee
serving under an Incumbent Board, shall be, for purposes of this clause
(b), considered as though he were a member of the Incumbent Board; or (c) a
plan of reorganization, merger, consolidation, sale of all or substantially
all the assets of the Bank or the Company or similar transaction in which
the Bank or Company is not the surviving institution occurs; or (d) a proxy
statement soliciting proxies from stockholders of the Company, by someone
other than the current management of the Company, seeking stockholder
approval of a plan of reorganization, merger or consolidation of the
Company or similar transaction with one or more corporations or financial
institutions, and as a result such proxy solicitation a plan of
reorganization, merger consolidation or similar transaction involving the
Company is approved by the requisite vote of the Company's stockholders; or
(e) a tender offer is made for 25% or more of the voting securities of the
Company and the shareholders owning beneficially or of record 25% or more
of the outstanding securities of the Company have tendered or offered to
sell their shares pursuant to such tender offer and such tendered shares
have been accepted by the tender offeror.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 7, the Bank shall pay Executive, or, in the
event of his subsequent death, his beneficiary or beneficiaries, or his estate,
as the case may be, as severance pay or liquidated damages, or both, a sum equal
to three (3) times the sum of (i) Base Salary and (ii) the highest rate of bonus
awarded to the Executive during the prior three years. At the election of the
Executive, which election is to be made on an annual basis during the month of
January, and which election is irrevocable for the year in which made and upon
the occurrence of an Event of Termination, any payments shall be made in a lump
sum or paid monthly during the remaining term of this Agreement following the
Executive's termination. In the event that no election is made, payment to the
Executive will be made on a monthly basis during the remaining term of this
Agreement. Such payments shall not be reduced in the event the Executive obtains
other employment following termination of employment.
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(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 for Executive prior to his
termination. Such coverage shall continue for 36 months from the Date of
Termination.
(d) Notwithstanding the preceding paragraphs of this Section 4, in the
event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive under said paragraphs (the "Termination Benefits")
would be deemed to include an "excess parachute payment" under
Section 280G of the Code or any successor thereto, and
(ii) if such Termination Benefits were reduced to an amount (the
"Non-Triggering Amount"), the value of which is one dollar
($1.00) less than an amount equal to the total amount of payments
permissible under Section 280G of the Code or any successor
thereto,
then the Termination Benefits to be paid to Executive shall be so reduced so as
to be a Non-Triggering Amount.
5. TERMINATION UPON RETIREMENT, DISABILITY OR DEATH
Termination by the Bank of the Executive based on "Retirement" shall mean
termination in accordance with the Bank's retirement policy or in accordance
with any retirement arrangement established with Executive's consent with
respect to him. Upon termination of Executive upon Retirement, Executive shall
be entitled to all benefits under any retirement plan of the Bank and other
plans to which Executive is a party. For purposes of this Agreement,
"Retirement" shall be defined as termination upon attainment of age 65, or such
later age as consented to by the Board.
In the event Executive is unable to perform his duties under this Agreement
on a full-time basis for a period of six (6) consecutive months by reason of
illness or other physical or mental disability, the Employer may terminate this
Agreement, provided that the Employer shall continue to be obligated to pay the
Executive his Base Salary for the remaining term of the Agreement, or one year,
whichever is the longer period of time, and provided further that any amounts
actually paid to Executive pursuant to any disability insurance or other similar
such program which the Employer has provided or may provide on behalf of its
employees or pursuant to any workman's or social security disability program
shall reduce the compensation to be paid to the Executive pursuant to this
paragraph.
In the event of Executive's death during the term of the Agreement, his
estate, legal representatives or named beneficiaries (as directed by Executive
in writing) shall be paid Executive's Base Salary as defined in Paragraph 3(a)
at the rate in effect at the time Executive's death for a period of one (1) year
from the date of the Executive's death, and the Employers will continue to
5
<PAGE>
provide medical, dental, family and other benefits normally provided for an
Executive's family for one (1) year after the Executive's death.
6. TERMINATION FOR CAUSE
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, or regulation (other than traffic violations
or similar offenses) or final cease-and-desist order, or material breach of any
provision of this Agreement. In determining incompetence, the acts or omissions
shall be measured against standards generally prevailing in the savings
institutions industry. For purposes of this para graph, no act or failure to act
on the part of Executive shall be considered "willful" unless done, or omitted
to be done, by the Executive not in good faith and without reasonable belief
that the Execu tive's action or omission was in the best interest of the Bank.
Notwithstanding the foregoing, Executive shall not be deemed to have been
Terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to Executive and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. Any stock options granted to Executive
under any stock option plan of the Bank, the Company or any subsidiary or
affiliate thereof, shall become null and void effective upon Executive's receipt
of Notice of Termination for Cause pursuant to Section 7 hereof, and shall not
be exercisable by Executive at any time subsequent to such Termination for
Cause.
7. NOTICE
(a) Any purported termination by the Bank or by Executive shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of Executive's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if Executive's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, 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,
6
<PAGE>
except upon the 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 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 Bank will continue to pay Executive his full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to, Base Salary) and continue Executive 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, provided such dispute is resolved
within the term of this Agreement. If such dispute is not resolved within the
term of the Agreement, the Bank shall not be obligated, upon final resolution of
such dispute, to pay Executive compensation and other payments accruing beyond
the term of the Agreement. Amounts paid under this Section shall be offset
against or reduce any other amounts due under this Agreement.
8. POST-TERMINATION OBLIGATIONS
(a) All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with paragraph (b) of this Section 8 during
the term of this Agreement and for one (1) full year after the expiration or
termination hereof.
(b) 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.
9. NON-COMPETITION
(a) Upon any termination of Executive's employment hereunder, other than a
termination, (whether voluntary or involuntary) in connection with a Change in
Control, as a result of which the Association is paying Executive benefits under
Section 4 of this Agreement, Executive agrees not to compete with the Bank
and/or the Company for a period of one (1) year following such termination
within twenty-five (25) miles of any existing branch of the Bank or any bank
subsidiary of the Company, or within twenty-five (25) miles of any office for
which the Bank, the Company or a bank subsidiary of the Company has filed an
application for regulatory approval, determined as of the effective date of such
termination, except as agreed to pursuant to a resolution duly adopted by the
Board. Executive agrees that during such period and within said cities, towns
and counties, Executive shall not work for or advise, consult or otherwise serve
with, directly or indirectly, any entity whose business materially competes with
the depository, lending or other business activities of the Bank and/or the
Company. The parties hereto, recognizing that irreparable injury will result to
the Bank and/or the Company, its business and property in the event of
Executive's breach of this Subsection 9(a) agree that in the event of any such
breach by Executive, the Bank and/or the Company will be entitled, in addition
to any other remedies and damages available, to an injunction
7
<PAGE>
to restrain the violation hereof by Executive, Executive's partners, agents,
servants, employers, employees and all persons acting for or with Executive.
Executive represents and admits that Executive's experience and capabilities are
such that Executive can obtain employment in a business engaged in other lines
and/or of a different nature than the Bank and/or the Company, and that the
enforcement of a remedy by way of injunction will not prevent Executive from
earning a livelihood. Nothing herein will be construed as prohibiting the Bank
and/or the Company from pursuing any other remedies available to the Bank and/or
the Company for such breach or threatened breach, including the recovery of
damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the 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. 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 (except
for such disclosure as may be required to be provided to any federal banking
agency with jurisdiction over the Bank or Executive). Notwithstanding the
foregoing, Executive may disclose any knowledge of banking, financial and/or
economic principles, concepts or ideas which are not solely and exclusively
derived from the business plans and activities of the Bank, and Executive may
disclose any information regarding the Bank or the Company which is otherwise
publicly available. In the event of a breach or threatened breach by the
Executive of the provisions of this Section 9, the Bank will be entitled to an
injunction restraining Executive from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
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
Executive.
10. SOURCE OF PAYMENTS
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Bank. The Company, however, guarantees
payment and provision of all amounts and benefits due hereunder to Executive
and, if such amounts and benefits due from the Bank are not timely paid or
provided by the Bank, such amounts and benefits shall be paid or provided by the
Company.
11. 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 Executive, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to the Executive
of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
8
<PAGE>
12. REQUIRED PROVISIONS
(a) The Bank may terminate the Executive's employment at any time.
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 2(c) 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) (12 USC ss.1818(e)(3)) or 8(g) (12 USC ss.1818(g)) of the
Federal Deposit Insurance Act, as amended by the Financial Institutions Reform,
Recovery and Enforcement Act of 1989, 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) (12 USC ss.1818(e)) or 8(g) (12 USC ss.1818(g)) of the Federal
Deposit Insurance Act, as amended by the Financial Institutions Reform, Recovery
and Enforcement Act of 1989, 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) (12 USC
ss.1813(x)(1)) of the Federal Deposit Insurance Act, as amended by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, 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 Bank, (i) by the Federal Deposit Insurance
Corporation ("FDIC"), 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) (12 USC ss.1823(c)) of the Federal Deposit Insurance Act, as amended by
the Financial Institutions Reform, Recovery and Enforcement Act of 1989; or (ii)
when the Bank is determined by the FDIC 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.
13. NO ATTACHMENT
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Bank and their respective successors and assigns.
9
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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 New Jersey but
only to the extent not superseded by federal law.
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 employee within fifty
(50) miles from the location of the Bank, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
Executive shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
19. PAYMENT OF LEGAL FEES
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Bank, provided that
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the dispute or interpretation has been settled by Executive and the Bank or
resolved in the Executive's favor.
20. INDEMNIFICATION
The Bank shall provide Executive (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, and shall indemnify Executive (and
his heirs, executors and administrators) to the fullest extent permitted under
federal 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 (such settlements must be approved by the
Board of Directors of the Bank). If such action, suit or proceeding is brought
against Executive in his capacity as an officer or director of the Bank,
however, such indemnification shall not extend to matters as to which Executive
is finally adjudged to be liable for willful misconduct in the performance of
his duties.
21. 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 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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SIGNATURES
IN WITNESS WHEREOF, the Bank and the Company have caused this Agreement to
be executed and their seals to be affixed hereunto by their duly authorized
officers, and Executives have signed this Agreement, on the day and date first
above written.
ATTEST: ______________________________ LIBERTY BANK
By: ______________________________
ATTEST: ______________________________ AXIA BANCORP, INC.
By: ______________________________
WITNESS: ______________________________ EXECUTIVE: _________________________
By: ______________________________
12
LIBERTY BANK
EMPLOYEE STOCK OWNERSHIP PLAN
(adopted effective ___________, 1998)
<PAGE>
LIBERTY BANK
EMPLOYEE STOCK OWNERSHIP PLAN
This Employee Stock Ownership Plan, executed on the ____ day of
_____________, 1998, by LibertyBank, a federal stock savings bank (the "Bank"),
W I T N E S S E T H T H A T
WHEREAS, the board of directors of the Bank has resolved to adopt an
employee stock ownership plan for eligible employees in accordance with the
terms and conditions presented to the directors;
NOW, THEREFORE, the Bank hereby adopts the following Plan setting forth the
terms and conditions pertaining to contributions by the Employer and the payment
of benefits to Participants and Beneficiaries.
IN WITNESS WHEREOF, the Bank has adopted this Plan and caused this
instrument to be executed by its duly authorized officers as of the above date.
ATTEST:
______________________________ By: ______________________________
Secretary President
<PAGE>
C 0 N T E N T S
Page No.
--------
Section 1. Plan Identity............................................... -1-
1.1 Name........................................................... -1-
1.2 Purpose........................................................ -1-
1.3 Effective Date................................................. -1-
1.4 Fiscal Period.................................................. -1-
1.5 Single Plan for All Employers.................................. -1-
1.6 Interpretation of Provisions................................... -1-
Section 2. Definitions................................................. -1-
Section 3. Eligibility for Participation............................... -7-
3.1 Initial Eligibility............................................ -7-
3.2 Definition of Eligibility Year................................. -7-
3.3 Terminated Employees........................................... -7-
3.4 Certain Employees Ineligible................................... -7-
3.5 Participation and Reparticipation.............................. -7-
3.6 Omission of Eligible Employee.................................. -7-
3.7 Inclusion of Ineligible Employee............................... -7-
Section 4. Contributions and Credits................................... -8-
4.1 Discretionary Contributions.................................... -8-
4.2 Contributions for Stock Obligations............................ -8-
4.3 Definitions Related to Contributions........................... -8-
4.4 Conditions as to Contributions................................. -9-
4.5 Transfers...................................................... -9-
Section 5. Limitations on Contributions and Allocations................ -9-
5.1 Limitation on Annual Additions................................. -9-
5.2 Coordinated Limitation With Other Plans........................ -11-
5.3 Effect of Limitations.......................................... -11-
5.4 Limitations as to Certain Participants......................... -11-
Section 6. Trust Fund and Its Investment............................... -12-
6.1 Creation of Trust Fund......................................... -12-
6.2 Stock Fund and Investment Fund................................. -12-
6.3 Acquisition of Stock........................................... -12-
6.4 Participants' Option to Diversify.............................. -13-
Section 7. Voting Rights and Dividends on Stock........................ -14-
7.1 Voting and Tendering of Stock.................................. -14-
7.2 Dividends on Stock............................................. -15-
(i)
<PAGE>
Page No.
--------
Section 8. Adjustments to Accounts..................................... -15-
8.1 Adjustments for Transactions................................... -15-
8.2 Valuation of Investment Fund................................... -15-
8.3 Adjustments for Investment Experience.......................... -15-
Section 9. Vesting of Participants' Interests.......................... -16-
9.1 Deferred Vesting in Accounts................................... -16-
9.2 Computation of Vesting Years................................... -16-
9.3 Full Vesting Upon Certain Events............................... -17-
9.4 Full Vesting Upon Plan Termination............................. -17-
9.5 Forfeiture, Repayment, and Restoral............................ -18-
9.6 Accounting for Forfeitures..................................... -18-
9.7 Vesting and Nonforfeitability.................................. -18-
Section 10. Payment of Benefits......................................... -18-
10.1 Benefits for Participants...................................... -18-
10.2 Time for Distribution.......................................... -18-
10.3 Marital Status................................................. -19-
10.4 Delay in Benefit Determination................................. -20-
10.5 Accounting for Benefit Payments................................ -20-
10.6 Options to Receive and Sell Stock.............................. -20-
10.7 Restrictions on Disposition of Stock........................... -21-
10.8 Continuing Loan Provisions; Creations of Protections and Rights -21-
10.9 Direct Rollover of Eligible Distribution....................... -21-
10.10 In Service Distribution of Roll-over Account................... -22-
10.11 Waiver of 30 Day Period After Notice of Distribution........... -22-
Section 11. Rules Governing Benefit Claims and Review of Appeals........ -22-
11.1 Claim for Benefits............................................. -22-
11.2 Notification by Committee...................................... -22-
11.3 Claims Review Procedure........................................ -23-
Section 12. The Committee and Its Functions............................. -23-
12.1 Authority of Committee......................................... -23-
12.2 Identity of Committee.......................................... -23-
12.3 Duties of Committee............................................ -23-
12.4 Valuation of Stock............................................. -24-
12.5 Compliance with ERISA.......................................... -24-
12.6 Action by Committee............................................ -24-
12.7 Execution of Documents......................................... -24-
12.8 Adoption of Rules.............................................. -24-
12.9 Responsibilities to Participants............................... -24-
12.10 Alternative Payees in Event of Incapacity...................... -24-
12.11 Indemnification by Employers................................... -25-
12.12 Nonparticipation by Interested Member.......................... -25-
(ii)
<PAGE>
Page No.
--------
Section 13. Adoption, Amendment, or Termination of the Plan............. -25-
13.1 Adoption of Plan by Other Employers............................ -25-
13.2 Adoption of Plan by Successor.................................. -25-
13.3 Plan Adoption Subject to Qualification......................... -25-
13.4 Right to Amend or Terminate.................................... -26-
Section 14. Miscellaneous Provisions.................................... -26-
14.1 Plan Creates No Employment Rights.............................. -26-
14.2 Nonassignability of Benefits................................... -26-
14.3 Limit of Employer Liability.................................... -26-
14.4 Treatment of Expenses.......................................... -26-
14.5 Number and Gender.............................................. -27-
14.6 Nondiversion of Assets......................................... -27-
14.7 Separability of Provisions..................................... -27-
14.8 Service of Process............................................. -27-
14.9 Governing State Law............................................ -27-
14.10 Employer Contributions Conditioned on Deductibility............ -27-
14.11 Unclaimed Accounts............................................. -27-
14.12 Qualified Domestic Relations Order............................. -27-
Section 15. Top-Heavy Provisions........................................ -28-
15.1 Top-Heavy Plan................................................. -28-
15.2 Super Top-Heavy Plan........................................... -29-
15.3 Definitions.................................................... -29-
15.4 Top-Heavy Rules of Application................................. -30-
15.5 Top-Heavy Ratio................................................ -31-
15.6 Minimum Contributions.......................................... -31-
15.7 Minimum Vesting................................................ -32-
15.8 Top-Heavy Provisions Control in Top-Heavy Plan................. -32-
(iii)
<PAGE>
LIBERTY BANK
EMPLOYEE STOCK OWNERSHIP PLAN
Section 1. Plan Identity.
1.1 Name. The name of this Plan is "Liberty Bank Employee Stock Ownership
Plan."
1.2 Purpose. The purpose of this Plan is to describe the terms and
conditions under which contributions made pursuant to the Plan will be credited
and paid to the Participants and their Beneficiaries.
1.3 Effective Date. The Effective Date of this Plan is ___________________,
1998.
1.4 Fiscal Period. This Plan shall be operated on the basis of a January 1
to December 31 fiscal year for the purpose of keeping the Plan's books and
records and distributing or filing any reports or returns required by law.
1.5 Single Plan for All Employers. This Plan shall be treated as a single
plan with respect to all participating Employers for the purpose of crediting
contributions and forfeitures and distributing benefits, determining whether
there has been any termination of Service, and applying the limitations set
forth in Section 5.
1.6 Interpretation of Provisions. The Employers intend this Plan and the
Trust to be a qualified stock bonus plan under Section 401(a) of the Code and an
employee stock ownership plan within the meaning of Section 407(d)(6) of ERISA
and Section 4975(e)(7) of the Code. The Plan is intended to have its assets
invested primarily in qualifying employer securities of one or more Employers
within the meaning of Section 407(d)(3) of ERISA, and to satisfy any requirement
under ERISA or the Code applicable to such a plan.
Accordingly, the Plan and Trust Agreement shall be interpreted and applied
in a manner consistent with this intent and shall be administered at all times
and in all respects in a nondiscriminatory manner.
Section 2. Definitions.
The following capitalized words and phrases shall have the meanings
specified when used in this Plan and in the Trust Agreement, unless the context
clearly indicates otherwise:
"Account" means a Participant's interest in the assets accumulated under
this Plan as expressed in terms of a separate account balance which is
periodically adjusted to reflect his Employer's contributions, the Plan's
investment experience, and distributions and forfeitures.
"Active Participant" means any Employee who has satisfied the eligibility
requirements of Section 3 and who qualifies as an Active Participant for a
particular Plan Year under Section 4.3.
"Bank" means Liberty Bank and any entity which succeeds to the business of
Liberty Bank and adopts this Plan as its own pursuant to Section 14.2.
"Beneficiary" means the person or persons who are designated by a
Participant to receive benefits payable under the Plan on the Participant's
death. In the absence of any designation or if all the designated
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<PAGE>
Beneficiaries shall die before the Participant dies or shall die before all
benefits have been paid, the Participant's Beneficiary shall be his surviving
Spouse, if any, or his estate if he is not survived by a Spouse. The Committee
may rely upon the advice of the Participant's executor or administrator as to
the identity of the Participant's Spouse.
"Break in Service" means any Plan Year in which an Employee has 500 or
fewer Hours of Service. Solely for this purpose, an Employee shall be considered
employed for his normal hours of paid employment during a Recognized Absence
(said Employee shall not be credited with more than 501 Hours of Service to
avoid a Break in Service), unless he does not resume his Service at the end of
the Recognized Absence. Further, if an Employee is absent for any period
beginning on or after January 1, 1985, (i) by reason of the Employee's
pregnancy, (ii) by reason of the birth of the Employee's child, (iii) by reason
of the placement of a child with the Employee in connection with the Employee's
adoption of the child, or (iv) for purposes of caring for such child for a
period beginning immediately after such birth or placement, the Employee shall
be credited with the Hours of Service which would normally have been credited
but for such absence, up to a maximum of 501 Hours of Service.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee responsible for the administration of this
Plan in accordance with Section 12.
"Company" means Axia Bancorp, Inc., the stock holding company of the Bank.
"Disability" means only a disability which renders the Participant totally
unable, as a result of bodily or mental disease or injury, to perform any duties
for an Employer for which he is reasonably fitted, which disability is expected
to be permanent or of long and indefinite duration. However, this term shall not
include any disability directly or indirectly resulting from or related to
habitual drunkenness or addiction to narcotics, a criminal act or attempt,
service in the armed forces of any country, an act of war, declared or
undeclared, any injury or disease occurring while compensation to the
Participant is suspended, or any injury which is intentionally self-inflicted.
Further, this term shall apply only if (i) the Participant is sufficiently
disabled to qualify for the payment of disability benefits under the federal
Social Security Act or Veterans Disability Act, or (ii) the Participant's
disability is certified by a physician selected by the Committee. Unless the
Participant is sufficiently disabled to qualify for disability benefits under
the federal Social Security Act or Veterans Disability Act, the Committee may
require the Participant to be appropriately examined from time to time by one or
more physicians chosen by the Committee, and no Participant who refuses to be
examined shall be treated as having a Disability. In any event, the Committee's
good faith decision as to whether a Participant's Service has been terminated by
Disability shall be final and conclusive.
"Early Retirement" means retirement on or after a Participant's attainment
of age 55 and the completion of ten years of Service for an Employer. If the
Participant separates from Service before satisfying the age requirement, but
has satisfied the Service requirement, the Participant will be entitled to elect
early retirement upon satisfaction of the age requirement.
"Employee" means any individual who is or has been employed or
self-employed by an Employer. "Employee" also means an individual employed by a
leasing organization who, pursuant to an agreement between an Employer and the
leasing organization, has performed services for the Employer and any
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<PAGE>
related persons (within the meaning of Section 414(n)(6) of the Code) on a
substantially full-time basis for more than one year, if such services are
performed under the primary direction or control of the Employer. However, such
a "leased employee" shall not be considered an Employee if (i) he participates
in a money purchase pension plan sponsored by the leasing organization which
provides for immediate participation, immediate full vesting, and an annual
contribution of at least 10 percent of the Employee's 415 Compensation, and (ii)
leased employees do not constitute more than 20 percent of the Employer's total
work force (including leased employees, but excluding Highly Paid Employees and
any other employees who have not performed services for the Employer on a
substantially full-time basis for at least one year).
"Employer" means the Bank or any affiliate within the purview of section
414(b), (c) or (m) and 415(h) of the Code, any other corporation, partnership,
or proprietorship which adopts this Plan with the Bank's consent pursuant to
Section 13.1, and any entity which succeeds to the business of any Employer and
adopts the Plan pursuant to Section 13.2.
"Entry Date" means the Effective Date of the Plan and each January 1 and
July 1 of each Plan Year after the Effective Date.
"ERISA" means the Employee Retirement Income Security Act of 1974 (P.L.
93-406, as amended).
"415 Compensation"
(a) shall mean wages, as defined in Code Section 3401(a) for purposes
of income tax withholding at the source.
(b) For Plan Years beginning after December 31, 1997, any elective
deferral as defined in Code Section 402(g)(3) (any Employer contributions
made on behalf of a Participant to the extent not includible in gross
income and any Employer contributions to purchase an annuity contract under
Code Section 403(b) under a salary reduction agreement) and any amount
which is contributed or deferred by the Employer at the election of the
Participant and which is not includible in gross income of the Participant
by reason of Code Section 125 (Cafeteria Plan) shall also be included in
the definition of 415 Compensation.
(c) 415 Compensation in excess of $160,000 (as indexed) shall be
disregarded for all Participants. For purposes of this sub-section, the
$160,000 limit shall be referred to as the "applicable limit" for the Plan
Year in question. The $160,000 limit shall be adjusted for increases in the
cost of living in accordance with Section 401(a)(17)(B) of the Code,
effective for the Plan Year which begins within the applicable calendar
year. For purposes of the applicable limit, 415 Compensation shall be
prorated over short Plan Years.
"Highly Paid Employee" for any Plan Year means an Employee who, during
either of that or the immediately preceding Plan Year was at any time a five
percent owner of the Employer (as defined in Code Section 416(i)(1)) or had 415
Compensation exceeding $80,000 and was among the most highly compensated
one-fifth of all Employees. For this purpose:
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<PAGE>
(a) "415 Compensation" shall include any amount which is excludable
from the Employee's gross income for tax purposes pursuant to Sections 125,
402(a)(8), 402(h)(1)(B), or 403(b) of the Code.
(b) The number of Employees in "the most highly compensated one-fifth
of all Employees" shall be determined by taking into account all
individuals working for all related Employer entities described in the
definition of "Service", but excluding any individual who has not completed
six months of Service, who normally works fewer than 17-1/2 hours per week
or in fewer than six months per year, who has not reached age 21, whose
employment is covered by a collective bargaining agreement, or who is a
nonresident alien who receives no earned income from United States sources.
"Hours of Service" means hours to be credited to an Employee under the
following rules:
(a) Each hour for which an Employee is paid or is entitled to be paid
for services to an Employer is an Hour of Service.
(b) Each hour for which an Employee is directly or indirectly paid or
is entitled to be paid for a period of vacation, holidays, illness,
disability, lay-off, jury duty, temporary military duty, or leave of
absence is an Hour of Service. However, except as otherwise specifically
provided, no more than 501 Hours of Service shall be credited for any
single continuous period which an Employee performs no duties. No more than
501 Hours of Service will be credited under this paragraph for any single
continuous period (whether or not such period occurs in a single
computation period). Further, no Hours of Service shall be credited on
account of payments made solely under a plan maintained to comply with
worker's compensation, unemployment compensation, or disability insurance
laws, or to reimburse an Employee for medical expenses.
(c) Each hour for which back pay (ignoring any mitigation of damages)
is either awarded or agreed to by an Employer is an Hour of Service.
However, no more than 501 Hours of Service shall be credited for any single
continuous period during which an Employee would not have performed any
duties. The same Hours of Service will not be credited both under paragraph
(a) or (b) as the case may be, and under this paragraph (c). These hours
will be credited to the employee for the computation period or periods to
which the award or agreement pertains rather than the computation period in
which the award agreement or payment is made.
(d) Hours of Service shall be credited in any one period only under
one of the foregoing paragraphs (a), (b) and (c); an Employee may not get
double credit for the same period.
(e) If an Employer finds it impractical to count the actual Hours of
Service for any class or group of non-hourly Employees, each Employee in
that class or group shall be credited with 45 Hours of Service for each
weekly pay period in which he has at least one Hour of Service. However, an
Employee shall be credited only for his normal working hours during a paid
absence.
(f) Hours of Service to be credited on account of a payment to an
Employee (including back pay) shall be recorded in the period of Service
for which the payment was made. If the period overlaps two or more Plan
Years, the Hours of Service credit shall be allocated in proportion to the
respective portions of the period included in the several Plan Years.
However, in the case of periods of 31 days or less, the Administrator may
apply a uniform policy of crediting the Hours of Service to either the
first Plan Year or the second.
-4-
<PAGE>
(g) In all respects an Employee's Hours of Service shall be counted as
required by Section 2530.200b-2(b) and (c) of the Department of Labor's
regulations under Title I of ERISA.
"Investment Fund" means that portion of the Trust Fund consisting of assets
other than Stock. Notwithstanding the above, assets from the Investment Fund may
be used to purchase Stock in the open market or otherwise, or used to pay on the
Stock Obligation, and shares so purchased will be allocated to a Participant's
Stock Fund.
"Normal Retirement" means retirement on or after the later of a
Participant's 65th birthday or fifth year of Service.
"Normal Retirement Date" means the later of the date on which a Participant
attains age 65 or completes five years of Service.
"Participant" means any Employee who is participating in the Plan, or
who has previously participated in the Plan and still has a balance credited to
his Account.
"Plan Year" means the twelve month period commencing January 1 and ending
December 31, 199_ and each period of 12 consecutive months beginning on January
1 of each succeeding year.
"Recognized Absence" means a period for which --
(a) an Employer grants an Employee a leave of absence for a limited
period, but only if an Employer grants such leave on a nondiscriminatory
basis; or
(b) an Employee is temporarily laid off by an Employer because of a
change in business conditions; or
(c) an Employee is on active military duty, but only to the extent
that his employment rights are protected by the Military Selective Service
Act of 1967 (38 U.S.C. Sec. 2021).
"Roll Over Account" means the separate account established to hold a
Participant's roll-over contributions and direct transfers.
"Service" means an Employee's period(s) of employment or self-employment
with an Employer, excluding for initial eligibility purposes any period in which
the individual was a nonresident alien and did not receive from an Employer any
earned income which constituted income from sources within the United States. An
Employee's Service shall include any service which constitutes service with a
predecessor employer within the meaning of Section 414(a) of the Code. An
Employee's Service shall also include any service with an entity which is not an
Employer, but only either (i) for a period after 1975 in which the other entity
is a member of a controlled group of corporations or is under common control
with other trades and businesses within the meaning of Section 414(b) or 414(c)
of the Code, and a member of the controlled group or one of the trades and
businesses is an Employer, (ii) for a period after 1979 in which the other
entity is a member of an affiliated service group within the meaning of Section
414(m) of the Code, and a member of the affiliated service group is an Employer,
or (iii) all employers aggregated with the Employer under Section 414(o) of the
Code (but not until the Proposed Regulations under Section 414(o) become
effective).
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<PAGE>
"Spouse" means the individual, if any, to whom a Participant is lawfully
married on the date benefit payments to the Participant are to begin, or on the
date of the Participant's death, if earlier. A former spouse shall be treated as
the Spouse or surviving Spouse to the extent provided under a qualified domestic
relations order as described in section 414(p) of the Code.
"Stock" means shares of the Company's voting common stock or preferred
stock meeting the requirements of Section 409(e)(3) of the Code issued by an
Employer which is a member of the same controlled group of corporations within
the meaning of Code Section 414(b).
"Stock Fund" means that portion of the Trust Fund consisting of Stock.
"Stock Obligation" means an indebtedness arising from any extension of
credit to the Plan or the Trust which satisfies the requirements set forth in
Section 6.3 and which was obtained for any or all of the following purposes:
(i) to acquire qualifying employer securities as defined in Treasury
Regulations ss. 54.4975-12
(ii) to repay such Stock Obligation; or
(iii) to repay a prior exempt loan.
"Trust" or "Trust Fund" means the trust fund created under this Plan.
"Trust Agreement" means the agreement between the Bank and the Trustee
concerning the Trust Fund. If any assets of the Trust Fund are held in a
co-mingled trust fund with assets of other qualified retirement plans, "Trust
Agreement" shall be deemed to include the trust agreement governing that
co-mingled trust fund. With respect to the allocation of investment
responsibility for the assets of the Trust Fund, the provisions of Article II of
the Trust Agreement are incorporated herein by reference.
"Trustee" means one or more corporate persons or individuals selected from
time to time by the Bank to serve as trustee or co-trustees of the Trust Fund.
"Unallocated Stock Fund" means that portion of the Stock Fund consisting of
the Plan's holding of Stock which have been acquired in exchange for one or more
Stock obligations and which have not yet been allocated to the Participant's
Accounts in accordance with Section 4.2
"Valuation Date" means the last day of the Plan Year and each other date as
of which the Committee shall determine the investment experience of the
Investment Fund and adjust the Participants' Accounts accordingly.
"Valuation Period" means the period following a Valuation Date and ending
with the next Valuation Date.
"Vesting Year" means a unit of Service credited to a Participant pursuant
to Section 9.2 for purposes of determining his vested interest in his Account.
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<PAGE>
Section 3. Eligibility for Participation.
3.1 Initial Eligibility. An Employee shall enter the Plan as of the Entry
Date coincident with or next following the later of the following dates:
(a) the last day of the Employee's first Eligibility Year, and
(b) the Employee's 21st birthday. However, if an Employee is not in
active Service with an Employer on the date he would otherwise first enter
the Plan, his entry shall be deferred until the next day he is in Service.
3.2 Definition of Eligibility Year. An "Eligibility Year" means an
applicable eligibility period (as defined below) in which the Employee has
completed 1,000 Hours of Service for the Employer. For this purpose:
(a) an Employee's first "eligibility period" is the 12-consecutive
month period beginning on the first day on which he has an Hour of Service,
and
(b) his subsequent eligibility periods will be 12-consecutive month
periods beginning on each January 1 after that first day of Service.
3.3 Terminated Employees. No Employee shall have any interest or rights
under this Plan if he is never in active Service with an Employer on or after
the Effective Date.
3.4 Certain Employees Ineligible. No Employee shall participate in the Plan
while his Service is covered by a collective bargaining agreement between an
Employer and the Employee's collective bargaining representative if (i)
retirement benefits have been the subject of good faith bargaining between the
Employer and the representative and (ii) the collective bargaining agreement
does not provide for the Employee's participation in the Plan.
3.5 Participation and Reparticipation. Subject to the satisfaction of the
foregoing requirements, an Employee shall participate in the Plan during each
period of his Service from the date on which he first becomes eligible until his
termination. For this purpose, an Employee who returns before five (5)
consecutive Breaks in Service who previously satisfied the initial eligibility
requirements or who returns after 5 consecutive one year Breaks in Service with
a vested Account balance in the Plan shall re-enter the Plan as of the date of
his return to Service with an Employer.
3.6 Omission of Eligible Employee. If, in any Plan Year, any Employee who
should be included as a Participant in the Plan is erroneously omitted and
discovery of such omission is not made until after a contribution by his
Employer for the year has been made, the Employer shall make a subsequent
contribution with respect to the omitted Employee in the amount which the said
Employer would have contributed shall be made regardless of whether or not it is
deductible in whole or in part in any taxable year under applicable provisions
of the Code.
3.7 Inclusion of Ineligible Employee. If, in any Plan Year, any person who
should not have been included as a Participant in the Plan is erroneously
included and discovery of such incorrect inclusion is not made until after a
contribution for the year has been made, the Employer shall not be entitled to
recover the contribution made with respect to the ineligible person regardless
of whether or not a deduction
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<PAGE>
is allowable with respect to the ineligible person shall constitute a forfeiture
for the Plan Year in which the discovery is made.
Section 4. Contributions and Credits.
4.1 Discretionary Contributions. The Employer shall from time to time
contribute, with respect to a Plan Year, such amounts as it may determine from
time to time. The Employer shall have no obligation to contribute any amount
under this Plan except as so determined in its sole discretion. The Employer's
contributions and available forfeitures for a Plan Year shall be credited as of
the last day of the year to the Accounts of the Active Participants in
proportion to their amounts of Cash Compensation.
4.2 Contributions for Stock Obligations. If the Trustee, upon instructions
from the Committee, incurs any Stock Obligation upon the purchase of Stock, the
Employer may contribute for each Plan Year an amount sufficient to cover all
payments of principal and interest as they come due under the terms of the Stock
Obligation. If there is more than one Stock Obligation, the Employer shall
designate the one to which any contribution is to be applied. Investment
earnings realized on Employer contributions and any dividends paid by the
Employer on Stock held in the Unallocated Stock Account, shall be applied to the
Stock Obligation related to that Stock, subject to Section 7.2.
In each Plan Year in which Employer contributions, earnings on
contributions, or dividends on unallocated Stock are used as payments under a
Stock Obligation, a certain number of shares of the Stock acquired with that
Stock Obligation which is then held in the Unallocated Stock Fund shall be
released for allocation among the Participants. The number of shares released
shall bear the same ratio to the total number of those shares then held in the
Unallocated Stock Fund (prior to the release) as (i) the principal and interest
payments made on the Stock Obligation in the current Plan Year bears to (ii) the
sum of (i) above, and the remaining principal and interest payments required (or
projected to be required on the basis of the interest rate in effect at the end
of the Plan Year) to satisfy the Stock Obligation.
At the direction of the Committee, the current and projected payments of
interest under a Stock Obligation may be ignored in calculating the number of
shares to be released in each year if (i) the Stock Obligation provides for
annual payments of principal and interest at a cumulative rate that is not less
rapid at any time than level annual payments of such amounts for 10 years, (ii)
the interest included in any payment is ignored only to the extent that it would
be determined to be interest under standard loan amortization tables, and (iii)
the term of the Stock Obligation, by reason of renewal, extension, or
refinancing, has not exceeded 10 years from the original acquisition of the
Stock.
For these purposes, each Stock Obligation, the Stock purchased with it, and
any dividends on such Stock, shall be considered separately. The Stock released
from the Unallocated Stock Fund in any Plan Year shall be credited as of the
last day of the year to the Accounts of the Active Participants in proportion to
their amounts of Cash Compensation.
4.3 Definitions Related to Contributions. For the purposes of this Plan,
the following terms have the meanings specified:
"Active Participant" means a Participant who has satisfied the
eligibility requirements under Section 3 and who has at least 1000 Hours of
Service during the current Plan Year. However, a Participant shall not
qualify as an Active Participant unless (i) he is in active Service with an
Employer as of the last day of the Plan Year, or (ii) he is on a Recognized
Absence as of that date, or (iii) his Service terminated during the Plan
Year by reason of Disability, death, Early or Normal Retirement.
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<PAGE>
"Cash Compensation" means a Participant's 415 Compensation as defined
in Section 2 of the Plan and shall also include amounts contributed under a
salary reduction agreement pursuant to Section 401(k) or Section 125 of the
Code.
In the event a Plan Year is a period of less than 12 months for any
reason, then Cash Compensation for the short period shall not exceed the
pro rata portion of this limit created by multiplying a fraction which is
the number of months in the short period divided by twelve times the annual
compensation limit.
4.4 Conditions as to Contributions. Employers' contributions shall in all
events be subject to the limitations set forth in Section 5. Contributions may
be made in the form of cash, or securities and other property to the extent
permissible under ERISA, including Stock, and shall be held by the Trustee in
accordance with the Trust Agreement. In addition to the provisions of Section
13.3 for the return of an Employer's contributions in connection with a failure
of the Plan to qualify initially under the Code, any amount contributed by an
Employer due to a good faith mistake of fact, or based upon a good faith but
erroneous determination of its deductibility under Section 404 of the Code,
shall be returned to the Employer within one year after the date on which the
contribution was originally made, or within one year after its nondeductibility
has been finally determined. However, the amount to be returned shall be reduced
to take account of any adverse investment experience within the Trust Fund in
order that the balance credited to each Participant's Account is not less that
it would have been if the contribution had never been made.
4.5 Transfers. This Plan shall accept direct and indirect transfers,
including roll-over contributions from other tax-qualified plans, provided,
however, that this Plan shall not accept any direct or indirect transfers from
any other retirement plan that is tax-qualified under Section 401(a) of the Code
and which is subject to the survivor annuity requirements of section 401(a)(11)
and section 417 of the Code.
Section 5. Limitations on Contributions and Allocations.
5.1 Limitation on Annual Additions. Notwithstanding anything herein to the
contrary, allocation of Employer contributions for any Plan Year shall be
subject to the following:
5.1-1 If allocation of Employer contributions in accordance with
Section 4.1 will result in an allocation of more than one-third the total
contributions for a Plan Year to the Accounts of Highly Paid Employees,
then allocation of such amount shall be adjusted so that such excess will
not occur.
5.1-2 After adjustment, if any, required by the preceding paragraph,
the annual additions during any Plan Year to any Participant's Account
under this and any other defined contribution plans maintained by the
Employer or an affiliate (within the purview of Section 414(b), (c) and (m)
and Section 415(h) of the Code, which affiliate shall be deemed the
Employer for this purpose) shall not exceed the lesser of $30,000 (or such
other dollar amount which results from cost-of-living adjustments under
Section 415(d) of the Code) or "25 percent of the Participant's 415
Compensation for such limitation year." In the event that annual additions
exceed the aforesaid limitations, they shall be reduced in the following
priority:
(i) If the Participant is covered by the Plan at the end of the
Plan Year, any excess amount at the end of the Plan Year that cannot
be allocated to the Participant's Account shall be
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<PAGE>
used to reduce the Employer contribution for such Participant in the
next limitation year and any succeeding limitation years if necessary.
(ii) If the Participant is not covered by the Plan at the end of
the Plan Year, the excess amount will be held unallocated in a
suspense account. The suspense account will be applied to reduce
future Employer contributions for all remaining Participants in the
next limitation year and each succeeding limitation year if necessary.
(iii) If a suspense account is in existence at any time during a
limitation year, it will not participate in any allocation of
investment gains and losses. All amounts held in suspense accounts
must be allocated to Participant's Accounts before any contributions
may be made to the Plan for the limitation year.
(iv) If a suspense account exists at the time of Plan
termination, amounts held in the suspense account that cannot be
allocated shall revert to the Employer.
5.1-3 For purposes of this Section 5.1 and the following Section 5.2,
the "annual addition" to a Participant's accounts means the sum of (i)
Employer contributions, (ii) Employee contributions, if any, and (iii)
forfeitures. Annual additions to a defined contribution plan also include
amounts allocated, after March 31, 1984, to an individual medical account,
as defined in Section 415(l)(2) of the Internal Revenue Code, which is part
of a pension or annuity plan maintained by the Employer, amounts derived
from contributions paid or accrued after December 31, 1985, in taxable
years ending after such date, which are attributable to post-retirement
medical benefits allocated to the separate account of a Key Employee under
a welfare benefit fund, as defined in Section 419A(d) of the Internal
Revenue Code, maintained by the Employer. For these purposes, annual
additions to a defined contribution plan shall not include the allocation
of the excess amounts remaining in the Unallocated Stock Fund subsequent to
a sale of stock from such fund in accordance with a transaction described
in Section 8.1 of the Plan. The $30,000 limitations referred to shall, for
each limitation year ending after 1988, be automatically adjusted to the
new dollar limitations determined by the Commissioner of Internal Revenue
for the calendar year beginning in that limitation year.
5.1-4 Notwithstanding the foregoing, if no more than one-third of the
Employer contributions to the Plan for a year which are deductible under
Section 404(a)(9) of the Code are allocated to Highly Paid Employees
(within the meaning of Section 414(q) of the Internal Revenue Code), the
limitations imposed herein shall not apply to:
(i) forfeitures of Employer securities (within the meaning of
Section 409 of the Code) under the Plan if such securities were
acquired with the proceeds of a loan described in Section 404(a)(9)(A)
of the Code), or
(ii) Employer contributions to the Plan which are deductible
under Section 404(a)(9)(B) and charged against a Participant's
Account.
5.1-5 If the Employer contributes amounts, on behalf of Employees
covered by this Plan, to other "defined contribution plans" as defined in
Section 3(34) of ERISA, the limitation on annual additions provided in this
Section shall be applied to annual additions in the aggregate to this Plan
and to such other plans. Reduction of annual additions, where required,
shall be accomplished first by reductions under such other plan pursuant to
the directions of the named fiduciary for
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administration of such other plans or under priorities, if any, established
under the terms of such other plans and then by allocating any remaining
excess for this Plan in the manner and priority set out above with respect
to this Plan.
5.1-6 A limitation year shall mean each 12 consecutive month period
beginning each January 1.
5.2 Coordinated Limitation With Other Plans. Aside from the limitation
prescribed by Section 5.1 with respect to the annual addition to a Participant's
Accounts for any single limitation year, if a Participant has ever participated
in one or more defined benefit plans maintained by an Employer or an affiliate,
then the accrued benefit shall be limited so that the sum of his defined plan
fraction and his defined contribution plan fraction does not exceed one. For
this purpose:
5.2-1 A Participant's defined contribution plan fraction with respect
to a Plan Year shall be a fraction, (i) the numerator of which is the sum
of the annual additions to his Accounts through the current year, and (ii)
the denominator of which is the sum of the lesser of the following amounts
-A- and -B- determined for the current limitation year and each prior
limitation year of Service with an Employer: -A- is 1.25 times the dollar
limit in effect for the year under Section 415(c)(1)(A) of the Code, or 1.0
times such dollar limitation if the Plan is top-heavy, and -B- is 35
percent of the Participant's 415 Compensation for such year. Further, if
the Participant participated in any related defined contribution plan in
any years beginning before 1976, any excess of the sum of the actual annual
additions to the Participant's Accounts for those years over the maximum
annual additions which could have been made in accordance with Section 5.1
shall be ignored, and voluntary contributions by the Participant during
those years shall be taken into account as to each such year only to the
extent that his average annual voluntary contribution in those years
exceeded 10 percent of his average annual 415 Compensation in those years.
5.2-2 A Participant's defined benefit plan fraction with respect to a
limitation year shall be a fraction, (i) the numerator of which is his
projected annual benefit payable at normal retirement under the Employers'
defined benefit plans, and (ii) the denominator of which is the lesser of
(a) 1.25 times $90,000, or 1.0 times such dollar limitation if the Plan is
top-heavy, and (b) 1.4 times the Participant's average 415 Compensation
during his highest-paid three consecutive limitation years.
5.3 Effect of Limitations. The Committee shall take whatever action may be
necessary from time to time to assure compliance with the limitations set forth
in Section 5.1 and 5.2. Specifically, the Committee shall see that each Employer
restrict its contributions for any Plan Year to an amount which, taking into
account the amount of available forfeitures, may be completely allocated to the
Participants consistent with those limitations. Where the limitations would
otherwise be exceeded by any Participant, further allocations to the Participant
shall be curtailed to the extent necessary to satisfy the limitations. Where an
excessive amount is contributed on account of a mistake as to one or more
Participants' compensation, or there is an amount of forfeitures which may not
be credited in the Plan Year in which it becomes available, the amount shall be
corrected in accordance with Section 5.1-2 of the Plan.
5.4 Limitations as to Certain Participants. Aside from the limitations set
forth in Section 5.1 and 5.2, if the Plan acquires any Stock in a transaction as
to which a selling shareholder or the estate of a deceased shareholder is
claiming the benefit of Section 1042 of the Code, the Committee shall see that
none of such Stock, and no other assets in lieu of such Stock, are allocated to
the Accounts of certain Participants in order to comply with Section 409(n) of
the Code.
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This restriction shall apply at all times to a Participant who owns (taking
into account the attribution rules under Section 318(a) of the Code, without
regard to the exception for employee plan trusts in Section 318(a)(2)(B)(i) more
than 25 percent of any class of stock of a corporation which issued the Stock
acquired by the Plan, or another corporation within the same controlled group,
as defined in Section 409(l)(4) of the Code (any such class of stock hereafter
called a "Related Class"). For this purpose, a Participant who owns more than 25
percent of any Related Class at any time within the one year preceding the
Plan's purchase of the Stock shall be subject to the restriction as to all
allocations of the Stock, but any other Participant shall be subject to the
restriction only as to allocations which occur at a time when he owns more than
25 percent of any Related Class.
Further, this restriction shall apply to the selling shareholder claiming
the benefit of Section 1042 and any other Participant who is related to such a
shareholder within the meaning of Section 267(b) of the Code, during the period
beginning on the date of sale and ending on the later of (1) the date that is
ten years after the date of sale, or (2) the date of the Plan allocation
attributable to the final payment of acquisition indebtedness incurred in
connection with the sale.
This restriction shall not apply to any Participant who is a lineal
descendant of a selling shareholder if the aggregate amounts allocated under the
Plan for the benefit of all such descendants do not exceed five percent of the
Stock acquired from the shareholder.
Section 6. Trust Fund and Its Investment.
6.1 Creation of Trust Fund. All amounts received under the Plan from
Employers and investments shall be held as the Trust Fund pursuant to the terms
of this Plan and of the Trust Agreement between the Bank and the Trustee. The
benefits described in this Plan shall be payable only from the assets of the
Trust Fund, and none of the Bank, any other Employer, its board of directors or
trustees, its stockholders, its officers, its employees, the Committee, and the
Trustee shall be liable for payment of any benefit under this Plan except from
the Trust Fund.
6.2 Stock Fund and Investment Fund. The Trust Fund held by the Trustee
shall be divided into the Stock Fund, consisting entirely of Stock, and the
Investment Fund, consisting of all assets of the Trust other than Stock. The
Trustee shall have no investment responsibility for the Stock Fund, but shall
accept any Employer contributions made in the form of Stock, and shall acquire,
sell, exchange, distribute, and otherwise deal with and dispose of Stock in
accordance with the instructions of the Committee. The Trustee shall have full
responsibility for the investment of the Investment Fund, except to the extent
such responsibility may be delegated from time to time to one or more investment
managers pursuant to Section 2.2 of the Trust Agreement, or to the extent the
Committee directs the Trustee to purchase Stock with the assets in the
Investment Fund.
6.3 Acquisition of Stock. From time to time the Committee may, in its sole
discretion, direct the Trustee to acquire Stock from the issuing Employer or
from shareholders, including shareholders who are or have been Employees,
Participants, or fiduciaries with respect to the Plan. The Trustee shall pay for
such Stock no more than its fair market value, which shall be determined
conclusively by the Committee pursuant to Section 12.4. The Committee may direct
the Trustee to finance the acquisition of Stock by incurring or assuming
indebtedness to the seller or another party which indebtedness shall be called a
"Stock Obligation". The term "Stock Obligation" shall refer to a loan made to
the Plan by a disqualified person within the meaning of Section 4975(e)(2) of
the Code, or a loan to the Plan which is guaranteed by a disqualified person. A
Stock Obligation includes a direct loan of cash, a purchase-money transaction,
and an assumption of an obligation of a tax-qualified employee stock ownership
plan under
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Section 4975(e)(7) of the Code ("ESOP"). For these purposes, the term
"guarantee" shall include an unsecured guarantee and the use of assets of a
disqualified person as collateral for a loan, even though the use of assets may
not be a guarantee under applicable state law. An amendment of a Stock
Obligation in order to qualify as an "exempt loan" is not a refinancing of the
Stock Obligation or the making of another Stock Obligation. The term "exempt
loan" refers to a loan that satisfies the provisions of this paragraph. A
"non-exempt loan" fails to satisfy this paragraph. Any Stock Obligation shall be
subject to the following conditions and limitations:
6.3-1 A Stock Obligation shall be for a specific term, shall not be
payable on demand except in the event of default, and shall bear a
reasonable rate of interest.
6.3-2 A Stock Obligation may, but need not, be secured by a collateral
pledge of either the Stock acquired in exchange for the Stock Obligation,
or the Stock previously pledged in connection with a prior Stock Obligation
which is being repaid with the proceeds of the current Stock Obligation. No
other assets of the Plan and Trust may be used as collateral for a Stock
Obligation, and no creditor under a Stock Obligation shall have any right
or recourse to any Plan and Trust assets other than Stock remaining subject
to a collateral pledge.
6.3-3 Any pledge of Stock to secure a Stock Obligation must provide
for the release of pledged Stock in connection with payments on the Stock
obligations in the ratio prescribed in Section 4.2.
6.3-4 Repayments of principal and interest on any Stock Obligation
shall be made by the Trustee only from Employer cash contributions
designated for such payments, from earnings on such contributions, and from
cash dividends received on Stock, in the last case, however, subject to the
further requirements of Section 7.2.
6.3-5 In the event of default of a Stock Obligation, the value of Plan
assets transferred in satisfaction of the Stock Obligation must not exceed
the amount of the default. If the lender is a disqualified person within
the meaning of Section 4975 of the Code, a Stock Obligation must provide
for a transfer of Plan assets upon default only upon and to the extent of
the failure of the Plan to meet the payment schedule of said Stock
Obligation. For purposes of this paragraph, the making of a guarantee does
not make a person a lender.
6.4 Participants' Option to Diversify. The Committee shall provide for a
procedure under which each Participant may, during the qualified election
period, elect to "diversify" a portion of the Employer Stock allocated to his
Account, as provided in Section 401(a)(28)(B) of the Code. An election to
diversity must be made on the prescribed form and filed with the Committee
within the period specified herein. For each of the first five (5) Plan years in
the qualified election period, the Participant may elect to diversify an amount
which does not exceed 25% of the number of shares allocated to his Account since
the inception of the Plan, less all shares with respect to which an election
under this Section has already been made. For the last year of the qualified
election period, the Participant may elect to have up to 50 percent of the value
of his Account committed to other investments, less all shares with respect to
which an election under this Section has already been made. The term "qualified
election period" shall mean the six (6) Plan Year period beginning with the
first Plan Year in which a Participant has both attained age 55 and completed 10
years of participation in the Plan. A Participant's election to diversify his
Account may be made within each year of the qualified election period and shall
continue for the 90-day period immediately following the last day of each year
in the qualified election period. Once a Participant makes such election, the
Plan must complete diversification in accordance with such election within 90
days after
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the end of the period during which the election could be made for the Plan Year.
In the discretion of the Committee, the Plan may satisfy the diversification
requirement by any of the following methods:
6.4-1 The Plan may distribute all or part of the amount subject to the
diversification election.
6.4-2 The Plan may offer the Participant at least three other distinct
investment options, if available under the Plan. The other investment
options shall satisfy the requirements of Regulations under Section 404(c)
of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
6.4-3 The Plan may transfer the portion of the Participant's Account
subject to the diversification election to another qualified defined
contribution plan of the Employer that offers at least three investment
options satisfying the requirements of the Regulations under Section 404(c)
of ERISA.
Section 7. Voting Rights and Dividends on Stock.
7.1 Voting and Tendering of Stock. The Trustee generally shall vote all
shares of Stock held under the Plan in accordance with the written instructions
of the Committee. However, if any Employer has registration-type class of
securities within the meaning of Section 409(e)(4) of the Code, or if a matter
submitted to the holders of the Stock involves a merger, consolidation,
recapitalization, reclassification, liquidation, dissolution, or sale of
substantially all assets of an entity, then (i) the shares of Stock which have
been allocated to Participants' Accounts shall be voted by the Trustee in
accordance with the Participants' written instructions, and (ii) the Trustee
shall vote any unallocated Stock and allocated Stock for which it has received
no voting instructions in the same proportions as it votes the allocated Stock
for which it has received instructions from Participants; provided, however,
that if an exempt loan, as defined in Section 4975(d) of the Code, is
outstanding and the Plan is in default on such exempt loan, as default is
defined in the loan documents, then to the extent that such loan documents
require the lender to exercise voting rights with respect to the unallocated
shares, the loan documents will prevail. In the event no shares of Stock have
been allocated to Participants' Accounts at the time Stock is to be voted and
any exempt loan which may be outstanding is not in default, each Participant
shall be deemed to have one share of Stock allocated to his or her Account for
the sole purpose of providing the Trustee with voting instructions.
Notwithstanding any provision hereunder to the contrary, all unallocated
shares of Stock must be voted by the Trustee in a manner determined by the
Trustee to be for the exclusive benefit of the Participants and Beneficiaries.
Whenever such voting rights are to be exercised, the Employers shall provide the
Trustee, in a timely manner, with the same notices and other materials as are
provided to other holders of the Stock, which the Trustee shall distribute to
the Participants. The Participants shall be provided with adequate opportunity
to deliver their instructions to the Trustee regarding the voting of Stock
allocated to their Accounts. The instructions of the Participants' with respect
to the voting of allocated shares hereunder shall be confidential.
7.1-1 In the event of a tender offer, Stock shall be tendered by the
Trustee in the same manner as set forth above with respect to the voting of
Stock. Notwithstanding any provision hereunder to the contrary, Stock must
be tendered by the Trustee in a manner determined by the Trustee to be for
the exclusive benefit of the Participants and Beneficiaries.
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7.2 Dividends on Stock. Dividends on Stock which are received by the
Trustee in the form of additional Stock shall be retained in the Stock Fund, and
shall be allocated among the Participant's Accounts and the Unallocated Stock
Fund in accordance with their holdings of the Stock on which the dividends have
been paid. Dividends on Stock credited to Participants' Accounts which are
received by the Trustee in the form of cash shall, at the direction of the
Employer paying the dividends, either (i) be credited to the Accounts in
accordance with Section 8.3 and invested as part of the Investment Fund, (ii) be
distributed immediately to the Participants in proportion with the Participants'
Stock Fund Account balance (iii) be distributed to the Participants within 90
days of the close of the Plan Year in which paid in proportion with the
Participants' Stock Fund Account balance or (iv) be used to make payments on the
Stock Obligation. If dividends on Stock allocated to a Participant's Account are
used to repay the Stock Obligation, Stock with a fair market value equal to the
dividends so used must be allocated to such Participant's Account in lieu of the
dividends. Dividends on Stock held in the Unallocated Stock Fund which are
received by the Trustee in the form of cash shall be allocated to Participants'
Investment Fund Accounts (pro rata based on the Participant's Account balance in
relation to all Participants' Account balances) and shall be applied as soon as
practicable to payments of principal and interest under the Stock Obligation
incurred with the purchase of the Stock.
Section 8. Adjustments to Accounts.
8.1 Adjustments for Transactions. An Employer contribution pursuant to
Section 4.1 shall be credited to the Participants' Accounts as of the last day
of the Plan Year for which it is contributed, in accordance with Section 4.1.
Stock released from the Unallocated Stock Fund upon the Trust's repayment of a
Stock Obligation pursuant to Section 4.2 shall be credited to the Participants'
Accounts as of the last day of the Plan Year in which the repayment occurred,
pro rata based on the cash applied from such Participant's Account relative to
the cash applied from all Participants' Accounts. Any excess amounts remaining
from the use of proceeds of a sale of Stock from the Unallocated Stock Fund to
repay a Stock Obligation shall be allocated as earnings of the Plan as of the
last day of the Plan Year in which the repayment occurred among the
Participants' Accounts in proportion to the opening balance in each Account. Any
benefit which is paid to a Participant or Beneficiary pursuant to Section 10
shall be charged to the Participant's Account as of the first day of the
Valuation Period in which it is paid. Any forfeiture or restoral shall be
charged or credited to the Participant's Account as of the first day of the
Valuation Period in which the forfeiture or restoral occurs pursuant to Section
9.6.
8.2 Valuation of Investment Fund. As of each Valuation Date, the Trustee
shall prepare a balance sheet of the Investment Fund, recording each asset
(including any contribution receivable from an Employer) and liability at its
fair market value. Any liability with respect to short positions or options and
any item of accrued income or expense and unrealized appreciation or
depreciation shall be included; provided, however, that such an item may be
estimated or excluded if it is not readily ascertainable unless estimating or
excluding it would result in a material distortion. The Committee shall then
determine the net gain or loss of the Investment Fund since the preceding
Valuation Date, which shall mean the entire income of the Investment Fund,
including realized and unrealized capital gains and losses, net of any expenses
to be charged to the general Investment Fund and excluding any contributions by
the Employer. The determination of gain or loss shall be consistent with the
balance sheets of the Investment Fund for the current and preceding Valuation
Dates.
8.3 Adjustments for Investment Experience. Any net gain or loss of the
Investment Fund during a Valuation Period, as determined pursuant to Section
8.2, shall be allocated as of the last day of the Valuation Period among the
Participants' Accounts in proportion to the opening balance in each Account, as
adjusted for benefit payments and forfeitures during the Valuation Period,
without regard to
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whatever Stock may be credited to an Account. Any cash dividends received on
Stock credited to Participant's Accounts shall be allocated as of the last day
of the Valuation Period among the Participants' Accounts based on the opening
balance in each Participant's Stock Fund Account.
Section 9. Vesting of Participants' Interests.
9.1 Deferred Vesting in Accounts. A Participant's vested interest in his
Account shall be based on his Vesting Years in accordance with the following
Table, subject to the balance of this Section 9:
Vesting Percentage of
Years Interest Vested
------- ---------------
Fewer than 5 .............................. 0%
5 or more ................................. 100%
9.2 Computation of Vesting Years. For purposes of this Plan, a "Vesting
Year" means generally a calendar year in which an Employee has at least 1,000
Hours of Service, beginning with the first Plan Year in which the Employee has
completed an Hour of Service with the Employer, including Service with other
employers as provided in the definition of "Service". Notwithstanding the above,
an Employee who was employed with Liberty Bank, a federally-chartered mutual
savings association (the "Mutual Bank") which is the predecessor to the Bank,
shall receive credit for vesting purposes for each calendar year of continuous
employment with the Mutual Bank in which such Employee completed 1,000 Hours of
Service (such years shall also be referred to as "Vesting Years"). However, a
Participant's Vesting Years shall be computed subject to the following
conditions and qualifications:
9.2-1 A Participant's Vesting Years shall not include any Service
prior to the date on which an Employee attains age 18.
9.2-2 A Participant's vested interest in his Account accumulated
before five (5) consecutive Breaks in Service shall be determined without
regard to any Service after such five consecutive Breaks in Service.
Further, if a Participant has five (5) consecutive Breaks in Service before
his interest in his Account has become vested to some extent, pre-Break
years of Service shall not be required to be taken into account for
purposes of determining his post-Break vested percentage.
9.2-3 In the case of a Participant who has 5 or more consecutive
1-year Breaks in Service, the Participant's pre-break Service will count in
vesting of the Employer-derived postbreak accrued benefit only if either:
(i) such Participant has any nonforfeitable interest in the
accrued benefit attributable to Employer contributions at the time of
separation from Service, or
(ii) upon returning to Service the number of consecutive 1-year
Breaks in Service is less than the number of years of Service.
9.2-4 Unless otherwise specifically excluded, a Participant's Vesting
Years shall include any period of active military duty to the extent
required by the Military Selective Service Act of 1967 (38 U.S.C. Section
2021).
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9.2-5 If any amendment changes the vesting schedule, including an
automatic change to or from a top-heavy vesting schedule, any Participant
with three (3) or more Vesting Years may, by filing a written request with
the Employer, elect to have his vested percentage computed under the
vesting schedule in effect prior to the amendment. The election period must
begin not later than the later of sixty (60) days after the amendment is
adopted, the amendment becomes effective, or the Participant is issued
written notice of the amendment by the Employer or the Committee.
9.3 Full Vesting Upon Certain Events.
9.3-1 Notwithstanding Section 9.1, a Participant's interest in his
Account shall fully vest on the Participant's Normal Retirement Date. The
Participant's interest shall also fully vest in the event that his Service
is terminated by Early Retirement, Disability or by death.
9.3-2 The Participant's interest in his Account shall also fully vest
in the event of a "Change in Control" of the Bank, or the Company. For
these purposes, "Change in Control" shall mean a change in control of a
nature that: (i) would be required to be reported in response to Item 1(a)
of the current report on Form 8-K, as in effect on the date hereof,
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 (the
"Exchange Act"); or (ii) results in a Change in Control of the Bank or the
Company within the meaning of the Home Owners Loan Act, as amended
("HOLA"), and applicable rules and regulations promulgated thereunder, as
in effect at the time of the Change in Control; or (iii) without limitation
such a Change in Control shall be deemed to have occurred at such time as
(a) any "person" (as the term is used in Sections 13(d) and 14(d) of the
Exchange Act) is or becomes the "beneficial owner"(as defined in Rule 13d-3
under the Exchange Act), directly or indirectly, of securities of the
Company representing 25% or more of the combined voting power of Company's
outstanding securities except for any securities purchased by the Bank's
employee stock ownership plan or trust; or (b) individuals who constitute
the Board on the date hereof (the "Incumbent Board") cease for any reason
to constitute at least a majority thereof, provided 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 the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (b), considered as
though he were a member of the Incumbent Board; or (c) a plan of
reorganization, merger, consolidation, sale of all or substantially all the
assets of the Bank or the Company or similar transaction in which the Bank
or Company is not the surviving institution occurs; or (d) a proxy
statement soliciting proxies from stockholders of the Company, by someone
other than the current management of the Company, seeking stockholder
approval of a plan of reorganization, merger or consolidation of the
Company or similar transaction with one or more corporations as a result of
which the outstanding shares of the class of securities then subject to the
Plan are to be exchanged for or converted into cash or property or
securities not issued by the Company; or (e) a tender offer is made for 25%
or more of the voting securities of the Company and the shareholders owning
beneficially or of record 25% or more of the outstanding securities of the
Company have tendered or offered to sell their shares pursuant to such
tender offer and such tendered shares have been accepted by the tender
offeror.
9.4 Full Vesting Upon Plan Termination. Notwithstanding Section 9.1, a
Participant's interest in his Account shall fully vest if he is in active
Service upon termination of this Plan or upon the permanent and complete
discontinuance of contributions by his Employer. In the event of a partial
termination, the interest of each affected Participant who is in Service shall
fully vest with respect to that part of the Plan which is terminated.
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9.5 Forfeiture, Repayment, and Restoral. If a Participant's Service
terminates before his interest in his Account is fully vested, that portion
which has not vested shall be forfeited if he either (i) receives a distribution
of his entire vested interest pursuant to Section 10.1, or (ii) incurs five (5)
consecutive one year Breaks In Service. If a Participant's Service terminates
prior to having any portion of his Account become vested, such Participant shall
be deemed to have a received a distribution of his vested interest as of the
Valuation Date next following his termination of Service.
If a Participant who has received his entire vested interest returns to
Service before he has five (5) consecutive Breaks in Service, he may repay to
the Trustee an amount equal to the distribution. The Participant may repay such
amount at any time within five years after he has returned to Service. The
amount shall be credited to his Account at the time it is repaid; an additional
amount equal to that portion of his Account which was previously forfeited shall
be restored to his Account at the same time from other Employees' forfeitures
and, if such forfeitures are insufficient, from a special contribution by his
Employer for that year. A Participant who was deemed to have received a
distribution of his vested interest in the Plan shall have his Account restored
as of the first day on which he performs an Hour of Service after his return.
9.6 Accounting for Forfeitures. If a portion of a Participant's Account is
forfeited, Stock allocated to said Participant's Account shall be forfeited only
after other assets are forfeited. If interests in more than one class of Stock
have been allocated to a Participant's account, the Participant must be treated
as forfeiting the same proportion of each class of Stock. A forfeiture shall be
charged to the Participant's Account as of the first day of the first Valuation
Period in which the forfeiture becomes certain pursuant to Section 9.5. Except
as otherwise provided in that Section, a forfeiture shall be added to the
contributions of the terminated Participant's Employer which are to be credited
to other Participants pursuant to Section 4.1 as of the last day of the Plan
Year in which the forfeiture becomes certain.
9.7 Vesting and Nonforfeitability. A Participant's interest in his Account
which has become vested shall be nonforfeitable for any reason.
Section 10. Payment of Benefits.
10.1 Benefits for Participants. For a Participant whose Service ends for
any reason, distribution will be made to or for the benefit of the Participant
or, in the case of the Participant's death, his Beneficiary, by payment in a
lump sum, in accordance with Section 10.2.
Notwithstanding the foregoing, if the balance credited to his Account
exceeds $5,000, his benefits shall not be paid before the latest of his 65th
birthday or the tenth anniversary of the year in which he commenced
participation in the Plan unless he elects an early payment date in a written
election filed with the Committee. A Participant may modify such an election at
any time, provided any new benefit payment date is at least 30 days after a
modified election is delivered to the Committee, subject to the provisions of
Section 10.11 hereof.
10.2 Time for Distribution.
10.2.1 Distribution of the balance of a Participant's Account
generally shall commence as soon as practicable after the last day of the
Plan Year next following his termination of Service for any reason, but no
later than one year after the close of the Plan Year:
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(i) in which the Participant separates from Service by reason of
Normal Retirement, Disability, or death; or
(ii) which is the fifth Plan Year following the year in which the
Participant resigns or is dismissed, unless he is reemployed before
such date.
10.2.2 Unless the Participant elects otherwise, the distribution of
the balance of a Participant's Account shall commence not later than the
60th day after the latest of the close of the Plan Year in which -
(i) the Participant attains the age of 65;
(ii) occurs the tenth anniversary of the year in which the
Participant commenced participation in the Plan; or
(iii) the Participant terminates his Service with the Employer.
10.2.3 Notwithstanding anything to the contrary, (1) with respect to a
5-percent owner (as defined in Code Section 416), distribution of a
Participant's Account shall commence (whether or not he remains in the
employ of the Employer) not later than the April 1 of the calendar year
next following the calendar year in which the Participant attains age
70-1/2, and (2) with respect to all other Participants, payment of a
Participant's benefit will commence not later than April 1 of the calendar
year following the calendar year in which the Participant attains age
70-1/2, or, if later, the year in which the Participant retires. A
Participant's benefit from that portion of his Account committed to the
Investment Fund shall be calculated on the basis of the most recent
Valuation Date before the date of payment.
10.2.4 Distribution of a Participant's Account balance after his death
shall comply with the following requirements:
(i) If a Participant dies before his distributions have
commenced, distribution of his Account to his Beneficiary shall
commence not later than one year after the end of the Plan Year in
which the Participant died, however, if the Participant's Beneficiary
is his surviving Spouse, distributions may commence on the date on
which the Participant would have attained age 70-1/2.
(ii) If a married Participant dies before his benefit payments
begin, then unless he has specifically elected otherwise the Committee
shall cause the balance in his Account to be paid to his Spouse. No
election by a married Participant of a different Beneficiary shall be
valid unless the election is accompanied by the Spouse's written
consent, which (i) must acknowledge the effect of the election, (ii)
must explicitly provide either that the designated Beneficiary may not
subsequently be changed by the Participant without the Spouse's
further consent, or that it may be changed without such consent, and
(iii) must be witnessed by the Committee, its representative, or a
notary public. (This requirement shall not apply if the Participant
establishes to the Committee's satisfaction that the Spouse may not be
located.)
10.3 Marital Status. The Committee shall from time to time take whatever
steps it deems appropriate to keep informed of each Participant's marital
status. Each Employer shall provide the
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Committee with the most reliable information in the Employer's possession
regarding its Participants' marital status, and the Committee may, in its
discretion, require a notarized affidavit from any Participant as to his marital
status. The Committee, the Plan, the Trustee, and the Employers shall be fully
protected and discharged from any liability to the extent of any benefit
payments made as a result of the Committee's good faith and reasonable reliance
upon information obtained from a Participant and his Employer as to his marital
status.
10.4 Delay in Benefit Determination. If the Committee is unable to
determine the benefits payable to a Participant or Beneficiary on or before the
latest date prescribed for payment pursuant to Section 10.1 or 10.2, the
benefits shall in any event be paid within 60 days after they can first be
determined, with whatever makeup payments may be appropriate in view of the
delay.
10.5 Accounting for Benefit Payments. Any benefit payment shall be charged
to the Participant's Account as of the first day of the Valuation Period in
which the payment is made.
10.6 Options to Receive and Sell Stock. Unless ownership of virtually all
Stock is restricted to active Employees and qualified retirement plans for the
benefit of Employees pursuant to the certificates of incorporation or by-laws of
the Employers issuing Stock, a terminated Participant or the Beneficiary of a
deceased Participant may instruct the Committee to distribute the Participant's
entire vested interest in his Account in the form of Stock. In that event, the
Committee shall apply the Participant's vested interest in the Investment Fund
to purchase sufficient Stock from the Stock Fund or from any owner of Stock to
make the required distribution. Alternatively, a terminated Participant or the
Beneficiary of a deceased Participant may instruct the Committee to distribute
the Participant's entire vested interest in his Account in cash. In all other
cases, the Participant's vested interest in the Stock Fund shall be distributed
in shares of Stock, and his vested interest in the Investment Fund shall be
distributed in cash.
Any Participant who receives Stock pursuant to Section 10.1, and any person
who has received Stock from the Plan or from such a Participant by reason of the
Participant's death or incompetency, by reason of divorce or separation from the
Participant, or by reason of a rollover contribution described in Section
402(a)(5) of the Code, shall have the right to require the Employer which issued
the Stock to purchase the Stock for its current fair market value (hereinafter
referred to as the "put right"). The put right shall be exercisable by written
notice to the Committee during the first 60 days after the Stock is distributed
by the Plan, and, if not exercised in that period, during the first 60 days in
the following Plan Year after the Committee has communicated to the Participant
its determination as to the Stock's current fair market value. However, the put
right shall not apply to the extent that the Stock, at the time the put right
would otherwise be exercisable, may be sold on an established market in
accordance with federal and state securities laws and regulations. Similarly,
the put option shall not apply with respect to the portion of a Participant's
Account which the Employee elected to have reinvested under Code Section
401(a)(28)(B). If the put right is exercised, the Trustee may, if so directed by
the Committee in its sole discretion, assume the Employer's rights and
obligations with respect to purchasing the Stock. Notwithstanding anything
herein to the contrary, in the case of a plan established by a Bank (as defined
in Code Section 581), the put option shall not apply if prohibited by a federal
or state law and Participants are entitled to elect their benefits be
distributed in cash.
The Employer or the Trustee, as the case may be, may elect to pay for the
Stock in equal periodic installments, not less frequently than annually, over a
period not longer than five years from the day after the put right is exercised,
with adequate security and interest at a reasonable rate on the unpaid balance,
all such terms to be set forth in a promissory note delivered to the seller with
normal terms as to acceleration upon any uncured default.
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Nothing contained herein shall be deemed to obligate any Employer to
register any Stock under any federal or state securities law or to create or
maintain a public market to facilitate the transfer or disposition of any Stock.
The put right described herein may only be exercised by a person described in
the second preceding paragraph, and may not be transferred with any Stock to any
other person. As to all Stock purchased by the Plan in exchange for any Stock
Obligation, the put right shall be nonterminable. The put right for Stock
acquired through a Stock Obligation shall continue with respect to such Stock
after the Stock Obligation is repaid or the Plan ceases to be an employee stock
ownership plan.
10.7 Restrictions on Disposition of Stock. Except in the case of Stock
which is traded on an established market, a Participant who receives Stock
pursuant to Section 10.1, and any person who has received Stock from the Plan or
from such a Participant by reason of the Participant's death or incompetency, by
reason of divorce or separation from the Participant, or by reason of a rollover
contribution described in Section 402(a)(5) of the Code, shall, prior to any
sale or other transfer of the Stock to any other person, first offer the Stock
to the issuing Employer and to the Plan at the greater of (i) its current fair
market value, or (ii) the purchase price offered in good faith by an independent
third party purchaser. This restriction shall apply to any transfer, whether
voluntary, involuntary, or by operation of law, and whether for consideration or
gratuitous. Either the Employer or the Trustee may accept the offer within 14
days after it is delivered. Any Stock distributed by the Plan shall bear a
conspicuous legend describing the right of first refusal under this Section
10.7, as well as any other restrictions upon the transfer of the Stock imposed
by federal and state securities laws and regulations.
10.8 Continuing Loan Provisions; Creations of Protections and Rights.
Except as otherwise provided in Sections 10.6 and 10.7 and this Section, no
shares of Employer Stock held or distributed by the Trustee may be subject to a
put, call or other option, or buy-sell arrangement. The provisions of this
Section shall continue to by applicable to such Stock even if the Plan ceases to
be an employee stock ownership plan under Section 4975(e)(7) of the Code.
10.9 Direct Rollover of Eligible Distribution. A Participant or distributee
may elect, at the time and in the manner prescribed by the Trustee or the
Committee, to have any portion of an eligible rollover distribution paid
directly to an eligible retirement plan specified by the Participant or
distributee in a direct rollover.
10.9-1 An "eligible rollover" is any distribution that does not
include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or
life expectancy) of the distributee or the joint lives (or joint life
expectancies) of the Participant and the Participant's Beneficiary, or for
a specified period of ten years or more; any distribution to the extent
such distribution is required under Code Section 401(a)(9); and the portion
of any distribution that is not included in gross income (determined
without regard to the exclusion for net unrealized appreciation with
respect to employer securities).
10.9-2 An "eligible retirement plan" is an individual retirement
account described in Code Section 401(a), an individual retirement annuity
described in Code Section 408(b), an annuity plan described in Code Section
403(a), or a qualified trust described in Code Section 401(a), that accepts
the distributee's eligible rollover distribution. However, in the case of
an eligible rollover distribution to the surviving Spouse, an eligible
retirement plan is an individual retirement account or individual
retirement annuity.
10.9-3 A "direct rollover" is a payment by the Plan to the eligible
retirement plan specified by the distributee.
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10.9-4 The term "distributee" shall refer to a deceased Participant's
Spouse or a Participant's former Spouse who is the alternate payee under a
qualified domestic relations order, as defined in Code Section 414(p).
10.10 In Service Distribution of Roll-over Account. Upon the written
election of a Participant delivered to the Committee, all or any portion of the
amounts held in the Participant's Roll-over Account, shall be distributed to the
Participant at any time within 30 days or as soon thereafter as is reasonably
practicable.
10.11 Waiver of 30 Day Period After Notice of Distribution. If a
distribution is one to which Sections 401(a)(11) and 417 of the Code do not
apply, such distribution may commence less than 30 days after the notice
required under Section 1.411(a)-11(c) of the Income Tax Regulations is given,
provided that:
(i) the Trustee or Administrative Committee, as applicable, clearly
informs the Participant that the Participant has a right to a period of at
least 30 days after receiving the notice to consider the decision of
whether or not to elect a distribution (and, if applicable, a particular
option), and
(ii) the Participant, after receiving the notice, affirmatively elects
a distribution.
Section 11. Rules Governing Benefit Claims and Review of Appeals.
11.1 Claim for Benefits. Any Participant or Beneficiary who qualifies for
the payment of benefits shall file a claim for his benefits with the Committee
on a form provided by the Committee. The claim, including any election of an
alternative benefit form, shall be filed at least 30 days before the date on
which the benefits are to begin. If a Participant or Beneficiary fails to file a
claim by the day before the date on which benefits become payable, he shall be
presumed to have filed a claim for payment for the Participant's benefits in the
standard form prescribed by Sections 10.1 or 10.2
11.2 Notification by Committee. Within 90 days after receiving a claim for
benefits (or within 180 days, if special circumstances require an extension of
time and written notice of the extension is given to the Participant or
Beneficiary within 90 days after receiving the claim for benefits), the
Committee shall notify the Participant or Beneficiary whether the claim has been
approved or denied. If the Committee denies a claim in any respect, the
Committee shall set forth in a written notice to the Participant or Beneficiary:
(i) each specific reason for the denial;
(ii) specific references to the pertinent Plan provisions on which the
denial is based;
(iii) a description of any additional material or information which
could be submitted by the Participant or Beneficiary to support his claim,
with an explanation of the relevance of such information; and
(iv) an explanation of the claims review procedures set forth in
Section 11.3.
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11.3 Claims Review Procedure. Within 60 days after a Participant or
Beneficiary receives notice from the Committee that his claim for benefits has
been denied in any respect, he may file with the Committee a written notice of
appeal setting forth his reasons for disputing the Committee's determination. In
connection with his appeal the Participant or Beneficiary or his representative
may inspect or purchase copies of pertinent documents and records to the extent
not inconsistent with other Participants' and Beneficiaries' rights of privacy.
Within 60 days after receiving a notice of appeal from a prior determination (or
within 120 days, if special circumstances require an extension of time and
written notice of the extension is given to the Participant or Beneficiary and
his representative within 60 days after receiving the notice of appeal), the
Committee shall furnish to the Participant or Beneficiary and his
representative, if any, a written statement of the Committee's final decision
with respect to his claim, including the reasons for such decision and the
particular Plan provisions upon which it is based.
Section 12. The Committee and Its Functions.
12.1 Authority of Committee. The Committee shall be the "plan
administrator" within the meaning of ERISA and shall have exclusive
responsibility and authority to control and manage the operation and
administration of the Plan, including the interpretation and application of its
provisions, except to the extent such responsibility and authority are otherwise
specifically (i) allocated to the Bank, the Employers, or the Trustee under the
Plan and Trust Agreement, (ii) delegated in writing to other persons by the
Bank, the Employers, the Committee, or the Trustee, or (iii) allocated to other
parties by operation of law. The Committee shall have exclusive responsibility
regarding decisions concerning the payment of benefits under the Plan. The
Committee shall have no investment responsibility with respect to the Investment
Fund except to the extent, if any, specifically provided in the Trust Agreement.
In the discharge of its duties, the Committee may employ accountants, actuaries,
legal counsel, and other agents (who also may be employed by an Employer or the
Trustee in the same or some other capacity) and may pay their reasonable
expenses and compensation.
12.2 Identity of Committee. The Committee shall consists of three or more
individuals selected by the Bank. Any individual, including a director, trustee,
shareholder, officer, or Employee of an Employer, shall be eligible to serve as
a member of the Committee. The Bank shall have the power to remove any
individual serving on the Committee at any time without cause upon 10 days
written notice, and any individual may resign from the Committee at any time
upon 10 days written notice to the Bank. The Bank shall notify the Trustee of
any change in membership of the Committee.
12.3 Duties of Committee. The Committee shall keep whatever records may be
necessary to implement the Plan and shall furnish whatever reports may be
required from time to time by the Bank. The Committee shall furnish to the
Trustee whatever information may be necessary to properly administer the Trust.
The Committee shall see to the filing with the appropriate government agencies
of all reports and returns required of the Plan Committee under ERISA and other
laws.
Further, the Committee shall have exclusive responsibility and authority
with respect to the Plan's holdings of Stock and shall direct the Trustee in all
respects regarding the purchase, retention, sale, exchange, and pledge of Stock
and the creation and satisfaction of Stock Obligations. The Committee shall at
all times act consistently with the Bank's long-term intention that the Plan, as
an employee stock ownership plan, be invested primarily in Stock. Subject to the
direction of the Board as to the application of Employer contributions to Stock
Obligations, and subject to the provisions of Sections 6.4 and 10.6 as to
Participants' rights under certain circumstances to have their Accounts invested
in Stock or in assets other than Stock, the Committee shall determine in its
sole discretion the extent to which assets of the Trust shall be used to repay
Stock Obligations, to purchase Stock, or to invest in other assets to be
selected by
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the Trustee or an investment manager. No provision of the Plan relating to the
allocation or vesting of any interests in the Stock Fund or the Investment Fund
shall restrict the Committee from changing any holdings of the Trust, whether
the changes involve an increase or a decrease in the Stock or other assets
credited to Participants' Accounts. In determining the proper extent of the
Trust's investment in Stock, the Committee shall be authorized to employ
investment counsel, legal counsel, appraisers, and other agents to pay their
reasonable expenses and compensation.
12.4 Valuation of Stock. If the valuation of any Stock is not established
by reported trading on a generally recognized public market, the Committee shall
have the exclusive authority and responsibility to determine its value for all
purposes under the Plan. Such value shall be determined as of each Valuation
Date, and on any other date as of which the Plan purchases or sells such Stock.
The Committee shall use generally accepted methods of valuing stock of similar
corporations for purposes of arm's length business and investment transactions,
and in this connection the Committee shall obtain, and shall be protected in
relying upon, the valuation of such Stock as determined by an independent
appraiser experienced in preparing valuations of similar businesses.
12.5 Compliance with ERISA. The Committee shall perform all acts necessary
to comply with ERISA. Each individual member or employee of the Committee shall
discharge his duties in good faith and in accordance with the applicable
requirements of ERISA.
12.6 Action by Committee. All actions of the Committee shall be governed by
the affirmative vote of a number of members which is a majority of the total
number of members currently appointed, including vacancies. The members of the
Committee may meet informally and may take any action without meeting as a
group.
12.7 Execution of Documents. Any instrument executed by the Committee shall
be signed by any member or employee of the Committee.
12.8 Adoption of Rules. The Committee shall adopt such rules and
regulations of uniform applicability as it deems necessary or appropriate for
the proper administration and interpretation of the Plan.
12.9 Responsibilities to Participants. The Committee shall determine which
Employees qualify to enter the Plan. The Committee shall furnish to each
eligible Employee whatever summary plan descriptions, summary annual reports,
and other notices and information may be required under ERISA. The Committee
also shall determine when a Participant or his Beneficiary qualifies for the
payment of benefits under the Plan. The Committee shall furnish to each such
Participant or Beneficiary whatever information is required under ERISA (or is
otherwise appropriate) to enable the Participant or Beneficiary to make whatever
elections may be available pursuant to Sections 6 and 10, and the Committee
shall provide for the payment of benefits in the proper form and amount from the
assets of the Trust Fund. The Committee may decide in its sole discretion to
permit modifications of elections and to defer or accelerate benefits to the
extent consistent with applicable law and the best interests of the individuals
concerned.
12.10 Alternative Payees in Event of Incapacity. If the Committee finds at
any time that an individual qualifying for benefits under this Plan is a minor
or is incompetent, the Committee may direct the benefits to be paid, in the case
of a minor, to his parents, his legal guardian, or a custodian for him under the
Uniform Gifts to Minors Act, or, in the case of an incompetent, to his spouse,
or his legal guardian, the payments to be used for the individual's benefit. The
Committee and the Trustee shall not be obligated to inquire as to the actual use
of the funds by the person receiving them under this Section
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12.10, and any such payment shall completely discharge the obligations of
the Plan, the Trustee, the Committee, and the Employers to the extent of the
payment.
12.11 Indemnification by Employers. Except as separately agreed in writing,
the Committee, and any member or employee of the Committee, shall be indemnified
and held harmless by the Employer, jointly and severally, to the fullest extent
permitted by law against any and all costs, damages, expenses, and liabilities
reasonably incurred by or imposed upon it or him in connection with any claim
made against it or him or in which it or he may be involved by reason of its or
his being, or having been, the Committee, or a member or employee of the
Committee, to the extent such amounts are not paid by insurance.
12.12 Nonparticipation by Interested Member. Any member of the Committee
who also is a Participant in the Plan shall take no part in any determination
specifically relating to his own participation or benefits, unless his
abstention would leave the Committee incapable of acting on the matter.
Section 13. Adoption, Amendment, or Termination of the Plan.
13.1 Adoption of Plan by Other Employers. With the consent of the Bank, any
entity may become a participating Employer under the Plan by (i) taking such
action as shall be necessary to adopt the Plan, (ii) becoming a party to the
Trust Agreement establishing the Trust Fund, and (iii) executing and delivering
such instruments and taking such other action as may be necessary or desirable
to put the Plan into effect with respect to the entity's Employees.
13.2 Adoption of Plan by Successor. In the event that any Employer shall be
reorganized by way of merger, consolidation, transfer of assets or otherwise, so
that an entity other than an Employer shall succeed to all or substantially all
of the Employer's business, the successor entity may be substituted for the
Employer under the Plan by adopting the Plan and becoming a party to the Trust
Agreement. Contributions by the Employer shall be automatically suspended from
the effective date of any such reorganization until the date upon which the
substitution of the successor entity for the Employer under the Plan becomes
effective. If, within 90 days following the effective date of any such
reorganization, the successor entity shall not have elected to become a party to
the Plan, or if the Employer shall adopt a plan of complete liquidation other
than in connection with a reorganization, the Plan shall be automatically
terminated with respect to Employees of the Employer as of the close of business
on the 90th day following the effective date of the reorganization, or as of the
close of business on the date of adoption of a plan of complete liquidation, as
the case may be.
13.3 Plan Adoption Subject to Qualification. Notwithstanding any other
provision of the Plan, the adoption of the Plan and the execution of the Trust
Agreement are conditioned upon their being determined initially by the Internal
Revenue Service to meet the qualification requirements of Section 401(a) of the
Code, so that the Employers may deduct currently for federal income tax purposes
their contributions to the Trust and so that the Participants may exclude the
contributions from their gross income and recognize income only when they
receive benefits. In the event that this Plan is held by the Internal Revenue
Service not to qualify initially under Section 401(a), the Plan may be amended
retroactively to the earliest date permitted by U.S. Treasury Regulations in
order to secure qualification under Section 401(a). If this Plan is held by the
Internal Revenue Service not to qualify initially under Section 401(a) either as
originally adopted or as amended, each Employer's contributions to the Trust
under this Plan (including any earnings thereon) shall be returned to it and
this Plan shall be terminated. In the event that this Plan is amended after its
initial qualification and the Plan as amended is held by the Internal Revenue
Service not to qualify under Section 401(a), the amendment may be modified
retroactively to the
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earliest date permitted by U.S. Treasury Regulations in order to secure approval
of the amendment under Section 401(a).
13.4 Right to Amend or Terminate. The Bank intends to continue this Plan as
a permanent program. However, each participating Employer separately reserves
the right to suspend, supersede, or terminate the Plan at any time and for any
reason, as it applies to that Employer's Employees, and the Bank reserves the
right to amend, suspend, supersede, merge, consolidate, or terminate the Plan at
any time and for any reason, as it applies to the Employees of each Employer. No
amendment, suspension, supersession, merger, consolidation, or termination of
the Plan shall (i) reduce any Participant's or Beneficiary's proportionate
interest in the Trust Fund, (ii) reduce or restrict, either directly or
indirectly, the benefit provided any Participant prior to the amendment, or
(iii) divert any portion of the Trust Fund to purposes other than the exclusive
benefit of the Participants and their Beneficiaries prior to the satisfaction of
all liabilities under the Plan. Moreover, there shall not be any transfer of
assets to a successor plan or merger or consolidation with another plan unless,
in the event of the termination of the successor plan or the surviving plan
immediately following such transfer, merger, or consolidation, each participant
or beneficiary would be entitled to a benefit equal to or greater than the
benefit he would have been entitled to if the plan in which he was previously a
participant or beneficiary had terminated immediately prior to such transfer,
merger, or consolidation. Following a termination of this Plan by the Bank, the
Trustee shall continue to administer the Trust and pay benefits in accordance
with the Plan as amended from time to time and the Committee's instructions.
Section 14. Miscellaneous Provisions.
14.1 Plan Creates No Employment Rights. Nothing in this Plan shall be
interpreted as giving any Employee the right to be retained as an Employee by an
Employer, or as limiting or affecting the rights of an Employer to control its
Employees or to terminate the Service of any Employee at any time and for any
reason, subject to any applicable employment or collective bargaining
agreements.
14.2 Nonassignability of Benefits. No assignment, pledge, or other
anticipation of benefits from the Plan will be permitted or recognized by the
Employer, the Committee, or the Trustee. Moreover, benefits from the Plan shall
not be subject to attachment, garnishment, or other legal process for debts or
liabilities of any Participant or Beneficiary, to the extent permitted by law.
This prohibition on assignment or alienation shall apply to any judgment,
decree, or order (including approval of a property settlement agreement) which
relates to the provision of child support, alimony, or property rights to a
present or former spouse, child or other dependent of a Participant pursuant to
a State domestic relations or community property law, unless the judgment,
decree, or order is determined by the Committee to be a qualified domestic
relations order within the meaning of Section 414(p) of the Code, as more fully
set forth in Section 14.12 hereof.
14.3 Limit of Employer Liability. The liability of the Employer with
respect to Participants under this Plan shall be limited to making contributions
to the Trust from time to time, in accordance with Section 4.
14.4 Treatment of Expenses. All expenses incurred by the Committee and the
Trustee in connection with administering this Plan and Trust Fund shall be paid
by the Trustee from the Trust Fund to the extent the expenses have not been paid
or assumed by the Employer or by the Trustee.
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14.5 Number and Gender. Any use of the singular shall be interpreted to
include the plural, and the plural the singular. Any use of the masculine,
feminine, or neuter shall be interpreted to include the masculine, feminine, or
neuter, as the context shall require.
14.6 Nondiversion of Assets. Except as provided in Sections 5.3 and 13.3,
under no circumstances shall any portion of the Trust Fund be diverted to or
used for any purpose other than the exclusive benefit of the Participants and
their Beneficiaries prior to the satisfaction of all liabilities under the Plan.
14.7 Separability of Provisions. If any provision of this Plan is held to
be invalid or unenforceable, the other provisions of the Plan shall not be
affected but shall be applied as if the invalid or unenforceable provision had
not been included in the Plan.
14.8 Service of Process. The agent for the service of process upon the Plan
shall be the president of the Bank, or such other person as may be designated
from time to time by the Bank.
14.9 Governing State Law. This Plan shall be interpreted in accordance with
the laws of the State of New Jersey to the extent those laws are applicable
under the provisions of ERISA.
14.10 Employer Contributions Conditioned on Deductibility. Employer
Contributions to the Plan are conditioned on deductibility under Code Section
404. In the event that the Internal Revenue Service shall determine that all or
any portion of an Employer Contribution is not deductible under that Section,
the nondeductible portion shall be returned to the Employer within one year of
the disallowance of the deduction.
14.11 Unclaimed Accounts. Neither the Employer nor the Trustees shall be
under any obligation to search for, or ascertain the whereabouts of, any
Participant or Beneficiary. The Employer or the Trustees, by certified or
registered mail addressed to his last known address of record with the Employer,
shall notify any Participant or Beneficiary that he is entitled to a
distribution under this Plan, and the notice shall quote the provisions of this
Section. If the Participant or Beneficiary fails to claim his benefits or make
his whereabouts known in writing to the Employer or the Trustees within seven
(7) calendar years after the date of notification, the benefits of the
Participant or Beneficiary under the Plan will be disposed of as follows:
(a) If the whereabouts of the Participant is unknown but the
whereabouts of the Participant's Beneficiary is known to the Trustees,
distribution will be made to the Beneficiary.
(b) If the whereabouts of the Participant and his Beneficiary are
unknown to the Trustees, the Plan will forfeit the benefit, provided that
the benefit is subject to a claim for reinstatement if the Participant or
Beneficiary make a claim for the forfeited benefit.
Any payment made pursuant to the power herein conferred upon the Trustees
shall operate as a complete discharge of all obligations of the Trustees, to the
extent of the distributions so made.
14.12 Qualified Domestic Relations Order. Section 14.2 shall not apply to a
"qualified domestic relations order" defined in Code Section 414(p), and such
other domestic relations orders permitted to be so treated by Administrator
under the provisions of the Retirement Equity Act of 1984. Further, to the
extent provided under a "qualified domestic relations order", a former Spouse of
a Participant shall be treated as the Spouse or surviving Spouse for all
purposes under the Plan.
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In the case of any domestic relations order received by the Plan:
(a) The Employer or the Plan Committee shall promptly notify the
Participant and any other alternate payee of the receipt of such order and
the Plan's procedures for determining the qualified status of domestic
relations orders, and
(b) Within a reasonable period after receipt of such order, the
Employer or the Plan Committee shall determine whether such order is a
qualified domestic relations order and notify the Participant and each
alternate payee of such determination. The Employer or the Plan Committee
shall establish reasonable procedures to determine the qualified status of
domestic relations orders and to administer distributions under such
qualified orders.
During any period in which the issue of whether a domestic relations order
is a qualified domestic relations order is being determined (by the Employer or
Plan Committee, by a court of competent jurisdiction, or otherwise), the
Employer or the Plan Committee shall segregate in a separate account in the Plan
or in an escrow account the amounts which would have been payable to the
alternate payee during such period if the order had been determined to be a
qualified domestic relations order. If within eighteen (18) months the order (or
modification thereof) is determined to be a qualified domestic relations order,
the Employer or the Plan Committee shall pay the segregated amounts (plus any
interest thereon) to the person or persons entitled thereto. If within eighteen
(18) months it is determined that the order is not a qualified domestic
relations order, or the issue as to whether such order is a qualified domestic
relations order is not resolved, then the Employer or the Plan Committee shall
pay the segregated amounts (plus any interest thereon) to the person or persons
who would have been entitled to such amounts if there had been no order. Any
determination that an order is a qualified domestic relations order which is
made after the close of the eighteen (18) month period shall be applied
prospectively only. The term "alternate payee" means any Spouse, former Spouse,
child or other dependent of a Participant who is recognized by a domestic
relations order as having a right to receive all, or a portion of, the benefit
payable under a Plan with respect to such Participant.
Section 15. Top-Heavy Provisions.
15.1 Top-Heavy Plan. For any Plan Year beginning after December 31, 1983,
this Plan is top-heavy if any of the following conditions exist:
(a) If the top-heavy ratio for this Plan exceeds sixty percent (60%)
and this Plan is not part of any required aggregation group or permissive
aggregation group;
(b) If this Plan is a part of a required aggregation group (but is not
part of a permissive aggregation group) and the aggregate top-heavy ratio
for the group of Plans exceeds sixty percent (60%); or
(c) If this Plan is a part of a required aggregation group and part of
a permissive aggregation group and the aggregate top-heavy ratio for the
permissive aggregation group exceeds sixty percent (60%).
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15.2 Super Top-Heavy Plan For any Plan Year beginning after December 31,
1983, this Plan will be a super top-heavy Plan if any of the following
conditions exist:
(a) If the top-heavy ratio for this Plan exceeds ninety percent (90%)
and this Plan is not part of any required aggregation group or permissive
aggregation group.
(b) If this Plan is a part of a required aggregation group (but is not
part of a permissive aggregation group) and the aggregate top-heavy ratio
for the group of Plans exceeds ninety percent (90%), or
(c) If this Plan is a part of a required aggregation group and part of
a permissive aggregation group and the aggregate top-heavy ratio for the
permissive aggregation group exceeds ninety percent (90%).
15.3 Definitions.
In making this determination, the Committee shall use the following
definitions and principles:
15.3-1 The "Determination Date", with respect to the first Plan Year
of any plan, means the last day of that Plan Year, and with respect to each
subsequent Plan Year, means the last day of the preceding Plan Year. If any
other plan has a Determination Date which differs from this Plan's
Determination Date, the top-heaviness of this Plan shall be determined on
the basis of the other plan's Determination Date falling within the same
calendar years as this Plan's Determination Date.
15.3-2 A "Key Employee", with respect to a Plan Year, means an
Employee who at any time during the five years ending on the top-heavy
Determination Date for the Plan Year has received compensation from an
Employer and has been (i) an officer of the Employer having 415
Compensation greater than 50 percent of the limit then in effect under
Section 415(b)(1)(A) of the Code, (ii) one of the 10 Employees owning the
largest interests in the Employer having 415 Compensation greater than the
limit then in effect under Section 415(c)(1)(A), (iii) an owner of more
than five percent of the outstanding equity interest or the outstanding
voting interest in any Employer, or (iv) an owner of more than one percent
of the outstanding equity interest or the outstanding voting interest in an
Employer whose annual compensation exceeds $150,000. For purposes of
determining whether an Employee is a Key Employee, annual compensation
means compensation as defined in Section 415(c)(3) of the Code, but
including amounts contributed by the Employee pursuant to a salary
reduction agreement which are excludable from the Employee's gross income
under Section 125, Section 402(e)(3), Section 402(H)(1)(B) or Section
403(b) of the Code. The Beneficiary of a Key Employee shall also be
considered a Key Employee.
15.3-3 A "Non-key Employee" means an Employee who at any time during
the five years ending on the top-heavy Determination Date for the Plan Year
has received compensation from an Employer and who has never been a Key
Employee, and the Beneficiary of any such Employee.
15.3-4 A "required aggregation group" includes (a) each qualified Plan
of the Employer in which at least one Key Employee participates in the Plan
Year containing the Determination Date and any of the four (4) preceding
Plan Years, and (b) any other qualified Plan of the Employer which enables
a Plan described in (a) to meet the requirements of Code Sections 401(a)(4)
and 410. For purposes of the preceding sentence, a qualified Plan of the
Employer includes a terminated Plan maintained by the Employer within the
five (5) year period ending on the Determination Date. In the case of a
required aggregation group, each Plan in the group will be considered a
top-heavy Plan if the required aggregation group is a top-heavy group. No
Plan
-29-
<PAGE>
in the required aggregation group will be considered a top-heavy Plan if
the required aggregation group is not a top-heavy group. All Employers
aggregated under Code Sections 414(b), (c) or (m) or (o) (but only after
the Code Section 414(o) regulations become effective) are considered a
single Employer.
15.3-5 A "permissive aggregation group" includes the required
aggregation group of Plans plus any other qualified Plan(s) of the Employer
that are not required to be aggregated but which, when considered as a
group with the required aggregation group, satisfy the requirements of Code
Sections 401(a)(4) and 410 and are comparable to the Plans in the required
aggregation group. No Plan in the permissive aggregation group will be
considered a top-heavy Plan if the permissive aggregation group is not a
top-heavy group. Only a Plan that is part of the required aggregation group
will be considered a top-heavy Plan if the permissive aggregation group is
top-heavy.
15.4 Top-Heavy Rules of Application.
For purposes of determining the value of Account balances and the present
value of accrued benefits the following provisions shall apply:
15.4-1 The value of Account balances and the present value of accrued
benefits will be determined as of the most recent Valuation Date that falls
within or ends with the twelve (12) month period ending on the
Determination Date.
15.4-2 For purposes of testing whether this Plan is top-heavy, the
present value of an individual's accrued benefits and an individual's
Account balances is counted only once each year.
15.4-3 The Account balances and accrued benefits of a Participant who
is not presently a Key Employee but who was a Key Employee in a Plan Year
beginning on or after January 1, 1984 will be disregarded.
15.4-4 Employer contributions attributable to a salary reduction or
similar arrangement will be taken into account.
15.4-5 When aggregating Plans, the value of Account balances and
accrued benefits will be calculated with reference to the Determination
Dates that fall within the same calendar year.
15.4-6 The present value of the accrued benefits or the amount of the
Account balances of an Employee shall be increased by the aggregate
distributions made to such Employee from a Plan of the Employer. No
distribution, however, made from the Plan to an individual (other than the
beneficiary of a deceased Employee who was an Employee within the five (5)
year period ending on the Determination Date) who has not been an Employee
at any time during the five (5) year period ending on the Determination
Date shall be taken into account in determining whether the Plan is
top-heavy. Also, any amounts recontributed by an Employee upon becoming a
Participant in the Plan shall no longer be counted as a distribution under
this paragraph.
15.4-7 The present value of the accrued benefits or the amount of the
Account balances of an Employee shall be increased by the aggregate
distributions made to such Employee from a terminated Plan of the Employer,
provided that such Plan (if not terminated) would have been required to be
included in the aggregation group.
-30-
<PAGE>
15.4-8 Accrued benefits and Account balances of an individual shall
not be taken into account for purposes of determining the top-heavy ratios
if the individual has performed no services for the Employer during the
five (5) year period ending on the applicable Determination Date.
Compensation for purposes of this subparagraph shall not include any
payments made to an individual by the Employer pursuant to a qualified or
non-qualified deferred compensation plan.
15.4-9 The present value of the accrued benefits or the amount of the
Account balances of any Employee participating in this Plan shall not
include any rollover contributions or other transfers voluntarily initiated
by the Employee except as described below. If a rollover was received by
this Plan after December 31, 1983, the rollover or transfer voluntarily
initiated by the Employee was received prior to January 1, 1984, then the
rollover or transfer shall be considered as part of the accrued benefit by
the Plan receiving such rollover or transfer. If this Plan transfers or
rolls over funds to another Plan in a transaction voluntarily initiated by
the Employee after December 31, 1983, then this Plan shall count the
distribution for purposes of determining Account balances or the present
value of accrued benefits. A transfer incident to a merger or consolidation
of two or more Plans of the Employer (including Plans of related Employers
treated as a single Employer under Code Section 414), or a transfer or
rollover between Plans of the Employer, shall not be considered as
voluntarily initiated by the Employee.
15.5 Top-Heavy Ratio.
If the Employer maintains one (1) or more defined contribution plans
(including any simplified Employee pension plan) and the Employer has never
maintained any defined benefit plans which have covered or could cover a
Participant in this Plan, the top-heavy ratio is a fraction, the numerator of
which is the sum of the Account balances of all Key Employees as of the
Determination Date, and the denominator of which is the sum of the Account
balances of all Employees as of the Determination Date. Both the numerator and
denominator of the top-heavy ratio shall be increased to reflect any
contribution which is due but unpaid as of the Determination Date.
If the Employer maintains one (1) or more defined contribution plans
(including any simplified Employee pension plan) and the Employer maintains or
has maintained one (1) or more defined benefit plans which have covered or could
cover a Participant in this Plan, the top-heavy ratio is a fraction, the
numerator of which is the sum of Account balances under the defined contribution
plans for all Key Employees and the present value of accrued benefits under the
defined benefit plans for all Key Employees, and the denominator of which is the
sum of the Account balances under the defined contribution plans for all
Employees and the present value of accrued benefits under the defined benefit
plans for all Employees.
15.6 Minimum Contributions. For any Top-Heavy Year, each Employer shall
make a special contribution on behalf of each Participant to the extent that the
total allocations to his Account pursuant to Section 4 is less than the lesser
of:
(i) three percent of his 415 Compensation for that year, or
(ii) the highest ratio of such allocation to 415 Compensation received
by any Key Employee for that year. For purposes of the special contribution
of this Section 15.2, a Key Employee's 415 Compensation shall include
amounts the Key Employee elected to defer under a qualified 401(k)
arrangement. Such a special contribution shall be made on behalf of each
Participant who is employed by an Employer on the last day of the Plan
Year, regardless of the number of his Hours of Service, and shall be
allocated to his Account.
-31-
<PAGE>
For any Plan Year when (1) the Plan is top-heavy and (2) a Non-key Employee
is a Participant in both this Plan and a defined benefit plan included in the
plan aggregation group which is top heavy, the sum of the Employer contributions
and forfeitures allocated to the Account of each such Non-key Employee shall be
equal to at least five percent (5%) of such Non-key Employee's 415 Compensation
for that year.
15.7 Minimum Vesting. If a Participant's vested interest in his Account is
to be determined in a Top-Heavy Year, it shall be based on the following
"top-heavy table":
Vesting Percentage of
Years Interest Vested
------- ---------------
Fewer than 3 .............................. 0%
3 or more ................................. 100%
15.8 Top-Heavy Provisions Control in Top-Heavy Plan. In the event this Plan
becomes top-heavy and a conflict arises between the top-heavy provisions herein
set forth and the remaining provisions set forth in this Plan, the top-heavy
provisions shall control.
-32-
SUBSIDIARIES OF THE REGISTRANT
The following is a list of the subsidiaries of Axia Bancorp, Inc. following the
Reorganization:
Name State of Incorporation
---- ----------------------
Liberty Bank Federal
\
Axia Financial Corporation New Jersey
Axia Financial Services New Jersey
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Axia Federal Savings Bank
We consent to the use of our report dated January 23, 1998 included in the
Notice of Mutual Holding Company Reorganization on Form MHC-1, the Application
for Approval of a Minority Stock Issuance by a Savings Bank Subsidiary of a
Mutual Holding Company on Form MHC-2 and the Form SB-2 Registration Statement,
and any amendments thereto relating to the statements of financial condition of
Axia Federal Savings Bank as of December 31, 1997 and 1996, and the related
statements of income, retained earnings, and cash flows for each of the years in
the two-year period ended December 31, 1997. We further consent to the reference
to our firm under the headings of "Experts" and "Legal Opinions" in the
prospectus included therein.
/s/ Radics & Co., LLC
Pine Brook, New Jersey
March 16, 1998
[FINPRO LETTERHEAD]
March 16, 1998
Board of Directors
Axia Federal Savings Bank
1410 St. Georges Avenue
Avenel, New Jersey 07001
Dear Board Members:
We hereby consent to the use of our firm's name, FinPro, Inc. ("FinPro") in the
Form SB-2 Registration Statement, and amendments thereto, of Axia Bancorp, Inc.
so filed with the Securities and Exchange Commission, the combined Notice of
Mutual Holding Company Reorganization and Application for Approval of a Minority
Stock Issuance by a Subsidiary of a Mutual Holding Company on "Form MHC-1/MHC-2"
filed by Axia Federal Savings Bank, and any amendments thereto, and the
Conversion Valuation Appraisal Report ("Report") regarding the valuation of the
Association provided by FinPro, and our opinion regarding subscription rights
filed as exhibits to the form SB-2 and the forms MHC-1/MHC-2. We also consent to
the use of our firm's name and the inclusion of, summary of and references to
our Report and Opinion in the Prospectus included in the form SB-2 and the forms
MHC-1/MHC-2, and any amendments thereto.
Very Truly Yours,
/s/ Donald J. Musso
Donald J. Musso
Liberty Corner, New Jersey
March 16, 1998
[FINPRO LETTERHEAD]
November 21, 1997
Mr. John R. Bowen
Chairman of the Board/President and CEO
Axia Federal Savings Bank
1410 St. Georges Avenue
Avenel, NJ 07001
Dear Mr. Bowen:
FinPro, Inc. ("FinPro") is pleased to submit this proposal to assist Axia
Federal Savings Bank ("the Bank"), its mid-tier stock holding Company (the
"Company") which will own 100% of the Common Stock of the Bank, and its mutual
holding company (the "MHC") formed to hold the majority of the stock of the
Company in compiling a business plan and in performing an appraisal on the Bank
and the Company in connection with its conversion to the mutual holding company
form of organization (the "Conversion") and concurrent minority stock offering
(the "Stock Offering"). It is FinPro's understanding that the Bank intends to
use December 31, 1997 financials for this purpose. FinPro has performed similar
plans and appraisals for:
Standard Conversions Mutual Holding Companies
Little Falls Savings Bank Pulaski Savings Bank
South Bergen Savings Bank First Carnegie Deposit
Wayne Savings Bank Roebling Savings Bank
Rosyln Savings Bank
Dollar Savings Bank Step Two Conversions
Landmark Community Bank Westwood Savings Bank
First Security Federal Savings Bank First Savings of New Jersey
Ninth Ward Savings Bank (in process) Peoples Bancorp, Inc. (in process)
Elgin Financial Center (in process) First Savings Bank, MHC (in process)
The Warwick Savings Bank (in process)
Quitman Federal Savings Bank (in process)
Stanton Federal Savings (in process)
The Little Falls appraisal was unique in that it was the first appraisal done
with a concurrent acquisition included in the pro-forma analysis. The Westwood
Savings appraisal was unique in that it was the first New Jersey State Chartered
thrift to undertake a second step conversion and to involve the Federal Reserve
in the appraisal process. The Roslyn Savings Bank appraisal included a
foundation. The Pulaski, Carnegie and Roebling appraisals were for the
formulation of MHC's. We recognize that the subject appraisal and business plan
will involve the organization of a two-tier mutual holding company with a
mid-tier federal stock corporation that owns 100% of the Common Stock of the
Bank.
FinPro would welcome the opportunity to meet with you to show you our work
product. We urge you to compare it with any others offered.
<PAGE>
Section 1: Services to be Rendered
As part of the Strategic Plan compilation, the following major tasks will be
included:
o assist the Bank in the potential acquisition of a Summit branch(s);
o compile a historical trend analysis utilizing the past five year ends of
Regulatory Reports;
o perform detailed peer analysis;
o assess competitive situation;
o analyze the Bank markets and customers from a demographic standpoint;
o conduct branch market tour and identify competitive positioning, branching
opportunities and market threats;
o assess the regulatory, social, political and economic environment;
o document the internal situation assessment;
o analyze the current ALM position;
o analyze the CRA position;
o identify and document strengths and weaknesses;
o document the Bank's mission statement;
o document the objectives and goals;
o document strategies;
o compile five year projections of performance;
o prepare assessment of strategic alternatives;
o conduct one or two planning retreats with the Board and Management to
review strategies;
o map the Bank's general ledger to FinPro's planning model and to the
Regulatory Reports;
o assess the Bank from a capital markets perspective including comparison to
national, regional, state and similar size organizations;
o prepare a written business plan in form and substance satisfactory to all
applicable regulatory authorities for purposes of submission and
dissemination in connection with the application for conversion and related
proxy, offering circular and other documents concerning the mutual-to-stock
conversion of the Bank;
o prepare and deliver an opinion, in form and substance acceptable to legal
and tax counsel of the Bank, to the effect that the subscription rights
granted to eligible account holders, the applicable stock benefit plans and
others in connection with the conversion of the Bank from a mutual-to-stock
form, have no value.
<PAGE>
Appraisal
As part of the conversion appraisal services, the following major tasks will be
included:
o conduct financial due diligence, including on-site interviews of senior
management and reviews of financial and other records;
o gather an understanding of the banks financial condition, profitability,
risk characteristics, operations and external factors that might influence
or impact the bank;
o prepare a written detailed valuation report of the Bank and the Company
that is consistent with applicable regulatory guidelines and standard
valuation practices.
The valuation report will:
o include an in-depth analysis of the operating results and financial
condition of the Bank;
o assess the interest rate risk, credit risk and liquidity risk;
o describe the business strategies of the Bank and the Company, the market
area, competition and potential for the future;
o include a detailed peer analysis of publicly traded savings institutions
for use in determining appropriate valuation adjustments based upon
multiple factors;
o include a midpoint proforma valuation along with a range of value around
the midpoint value;
o comply, in form and substance to all applicable requirements of regulatory
authorities for purposes of its use to establish the estimated pro-forma
market value of the common stock of the Company following the conversion.
The valuation report may be periodically updated throughout the conversion
process and will be updated at the time of the closing of the stock offering.
FinPro will perform such other services as are necessary or required in
connection with the regulatory review of the appraisal and will respond to the
regulatory comments, if any, regarding the valuation appraisal and any
subsequent updates.
<PAGE>
Section 2: Information Requirements of the Bank
To accomplish the tasks set forth in Section 1 of this proposal, the following
information and work effort is expected of the Bank:
o provide FinPro with all financial and other information, whether or not
publicly available, necessary to familiarize FinPro with the business and
operations of the Bank;
o allow FinPro the opportunity, from time to time, to discuss the operation
of the Bank business with bank personnel;
o promptly advise FinPro of any material or contemplated material
transactions which may have an effect on the day-to-day operations of the
Bank;
o provide FinPro with all support schedules required to compile Regulatory,
Board and Management reports;
o provide FinPro with offering circular, prospectus and all other materials
relevant to the appraisal function for the conversion;
o have system download capability;
o promptly review all work products of FinPro and provide necessary sign-offs
on each work product so that FinPro can move on to the next phase;
o provide FinPro with office space to perform its daily tasks. The office
space requirements consists of a table with at least two chairs along with
access to electrical outlets for FinPro's computers;
Section 3: Project Deliverables
The following is a list of deliverables that will result from FinPro's effort:
1. Mapping of the Bank's general ledger as of December 31, 1997 to FinPro's
five year cash flow projection model.
2. Pro Forma Market Valuation of the Company and the Bank
3. Business Plan
Section 4: Term of the Agreement and Staffing
It is anticipated that it will take approximately four weeks of elapsed time to
complete the tasks outlined in this proposal. During this time, FinPro will be
on-site at the Bank's facilities on a regular basis, during normal business
hours.
FinPro will assign Donald J. Musso and Kenneth Emerson to this engagement.
Although some back office analytics may be performed by other FinPro staff,
Donald Musso will be the firms point man on this engagement and will be active
in all aspects of this engagement.
<PAGE>
Section 5: Fees and Expenses
Based on FinPro's understanding of the Bank's situation, FinPro's fees for
providing the services outlined in this proposal will be:
o $11,000 for the business plan component.
o $13,500 for the appraisal.
Any work done in compiling tables and schedules will be billed on an hourly per
diem basis.
This fee is payable according to the following schedule:
o prior to starting, a retainer of $5,000; plus
o upon the submission of the business plan to the regulators, a
non-refundable fee of $6,000; plus
o upon submission of the appraisal to the regulators, a non-refundable fee of
$7,000; plus
o upon completion of the offering, a non-refundable fee equal to the
remainder, unless only the plan is selected in which case the remainder
would be due upon regulatory approval of the business plan.
In addition to any fees that may be payable to FinPro hereunder, the Bank hereby
agrees to reimburse FinPro for all of FinPro's travel and other out-of-pocket
expenses incurred in connection with FinPro's engagement up to a limit of
$1,500, excluding color copies which will be billed on an actual $.89 per page
basis. Such out-of-pocket expenses will consist of travel to and from the Bank's
facilities from FinPro's offices, normal delivery charges such as Federal
Express, and costs associated with the actual Plan document such as black and
white copying. The out-of-pocket expenses will not include expenses such as food
or lodging as FinPro is local. It is FinPro policy to provide you with an
itemized accounting of the out-of-pocket expenditures so that you can control
them.
In the event that the Bank shall, for any reason, discontinue the proposed
conversion prior to delivery of the completed documents set forth above, the
Bank agrees to compensate FinPro according to FinPro's standard billing rates
for consulting services based on accumulated time and expenses, not to exceed
the respective fee caps noted above. FinPro's standard hourly rates are as
follows:
o Managing Director Level $250
o Staff Consultant Level $125
<PAGE>
If during the course of the proposed transaction, unforeseen events occur so as
to materially change the nature or the work content of the services described in
this contract, the terms of said contract shall be subject to renegotiations by
the Bank and FinPro. Such unforeseen events shall include, but not be limited
to, major changes in the conversion regulations, appraisal guidelines or
processing procedures as they relate to conversion appraisals, major changes in
management or procedures, operating policies or philosophies, and excessive
delays or suspension of processing of conversion applications by the regulators
such that completion of the conversion transaction requires the preparation by
FinPro of a new or updated appraisal.
FinPro agrees to execute a suitable confidentiality agreement with the Bank. The
Bank acknowledges that all opinions, valuations and advice (written or oral)
given by FinPro to the Bank in connection with FinPro's engagement are intended
solely for the benefit and use of the Bank (and it's directors, management, and
attorneys) in connection with the matters contemplated hereby and the Bank
agrees that no such opinion, valuation, or advice shall be used for any other
purpose, except with respect to the opinion and valuation which may be used for
the proper corporate purposes of the client, or reproduced, or disseminated,
quoted or referred to at any time, in any manner or for any purpose, nor shall
any public references to FinPro be made by the Bank (or such persons), without
the prior written consent of FinPro, which consent shall not be unreasonably
withheld.
Section 6: Representations and Warranties
FinPro, the Bank and the Company agree to the following:
1.) The Bank agrees to make available or to supply to FinPro the information set
forth in Section 2 of this agreement.
2.) The Bank hereby represents and warrants to FinPro that any information
provided to FinPro does not and will not, to the best of the Bank's knowledge,
at the times it is provided to FinPro, contain any untrue statement of a
material fact or fail to state a material fact necessary to make the statements
therein not false or misleading in light of the circumstances under which they
were made.
3.) (a) The Bank agrees that it will indemnify and hold harmless FinPro, its
directors, officers, agents and employees of FinPro or its successors who act
for or on behalf of FinPro in connection with the services called for under this
agreement ( hereinafter referred to as "The Agreement"), from and against any
and all losses, claims, damages and liabilities (including, but not limited to,
all losses and expenses in connection with claims under the federal securities
laws) arising out of or in any way related to the services provided by FinPro
under this agreement, except to the extent arising out of or attributable to the
negligence or willful misconduct of FinPro, its directors, officers, agents or
employees.
<PAGE>
(b) FinPro shall give written notice to the Bank of such claim for
indemnification or facts within thirty days of the assertion of any claim or
discovery of material facts upon which FinPro intends to base a claim for
indemnification hereunder. In the event the Bank elects, within seven days of
the receipt of the original notice thereof, to contest such claim by written
notice to FinPro, FinPro will be entitled to be paid any amounts payable by the
Bank hereunder, together with interest on such costs from the date incurred at
the rate of ten percent (10%) per annum within five days after the final
determination of such contest either by written acknowledgment of the Bank or a
final judgment of a court of competent jurisdiction. If the Bank does not so
elect, FinPro shall be paid promptly and in any event within thirty days after
receipt by the bank of the notice of the claim.
(c) The Bank shall pay for or reimburse the reasonable expenses,
including attorneys' fees, incurred by FinPro in connection with the contest of
any claim subject to indemnification hereunder in advance of the final
determination of any proceeding within thirty days of the receipt of such
request if FinPro furnishes the Bank:
1. a written statement of FinPro's good faith belief that it is
entitled to indemnification hereunder; and
2. a written undertaking by FinPro to repay the advance if its
ultimately is determined in a final adjudication of such
proceeding that it or he is not entitled to such indemnification.
(d) In the event that the Bank elects to contest the claim, (I) FinPro
will cooperate in Good Faith with the contest, (ii) FinPro will provide the Bank
with an irrevocable power-of-attorney permitting the Bank to pursue the claim in
the name of FinPro, and (iii) FinPro will be prohibited from settling or
compromising the claim without written consent of the Bank.
(e) In the event the Bank does not pay any indemnified loss or make
advance reimbursements of expenses in accordance with the terms of this
agreement, FinPro shall have all remedies available at law or in equity to
enforce such obligation.
It is understood that, in connection with FinPro's above mentioned engagement,
FinPro may also be engaged to act for the Bank in one or more additional
capacities, and that the terms of the original engagement may be embodied in one
or more separate agreements. The provisions of paragraph 3 herein shall apply to
the original engagement, any such additional engagement, any modification of the
original engagement or such additional engagement and shall remain in full force
and effect following the completion or termination of FinPro's engagement(s).
This agreement constitutes the entire understanding of the Bank and FinPro
concerning the subject matter addressed herein, and such contract shall be
governed and construed in accordance with the laws of the State of New Jersey.
This agreement may not be modified, supplemented or amended except by written
agreement executed by both parties.
The Bank and FinPro are not affiliated, and neither the Bank nor FinPro has an
economic interest in, or is held in common with, the other and has not derived a
significant portion of its gross revenues, receipts or net income for any period
from transactions with the other.
<PAGE>
Please confirm that the foregoing is in accordance with your understanding and
agreement with FinPro by signing and returning to FinPro the duplicate of the
letter enclosed herewith.
Sincerely:
FinPro, Inc.
By:
/s/ Donald J. Musso /s/ John R. Bowen
- ------------------------------------ ---------------------------------------
Donald J. Musso John R. Bowen
Managing Director Chairman of the Board/President and CEO
12/5/97 12/5/97
- ------------------------------------ ---------------------------------------
Date Date
AXIA FEDERAL SAVINGS BANK
1410 St. Georges Avenue
Avenel, New Jersey 07001
(732) 499-7200
NOTICE OF SPECIAL MEETING OF MEMBERS
Notice is hereby given that a Special Meeting of Members (the "Special
Meeting") of Axia Federal Savings Bank (the "Bank"), will be held at the main
office of the Bank, located at 1410 St. Georges Avenue, Avenel, New Jersey, on
__________, June ___, 1998 at ______ p.m., local time. The purpose of this
Special Meeting is to consider and vote upon:
The approval of a Plan of Reorganization from Mutual Savings Association to
Mutual Holding Company and Stock Issuance Plan (the "Plan of
Reorganization") pursuant to which the Bank will be reorganized into the
mutual holding company structure. As part of the Plan, the Bank will
convert to a federally-chartered stock savings bank which will be
wholly-owned by Axia Bancorp, Inc., a newly-formed federal corporation (the
"Company"). Pursuant to the Plan of Reorganization, the Stock Company will
issue 53% of its to-be outstanding shares of common stock to Liberty
Financial Services, MHC, a federal mutual holding company that will be
formed pursuant to the Plan of Reorganization, and offer for sale to
certain depositors 47% of its to-be outstanding shares of common stock; and
such other business as may properly come before this Special Meeting or any
adjournment thereof. Management is not aware of any such other business.
The members who shall be entitled to notice of and to vote at the Special
Meeting and any adjournment thereof are depositors at the close of business on
June ___, 1998 and borrowers of the Bank as of the close of business December
10, 1986 who remain borrowers as of June ___, 1998. In the event there are
insufficient votes for approval of the Plan of Reorganization at the time of the
Special Meeting, the Special Meeting may be adjourned from time to time in order
to permit further solicitation of proxies.
BY ORDER OF THE BOARD OF DIRECTORS
John R. Bowen
President and Chief Executive Officer
Avenel, New Jersey
May ___, 1998
YOUR BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
FOR APPROVAL OF THE PLAN OF CONVERSION BY COMPLETING THE
ENCLOSED PROXY CARD AND RETURNING IT IN THE
ENCLOSED POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE.
YOUR VOTE IS VERY IMPORTANT
<PAGE>
AXIA FEDERAL SAVINGS BANK
PROXY STATEMENT
SPECIAL MEETING OF MEMBERS TO BE HELD ON JUNE ___, 1998
PURPOSE OF MEETING
This Proxy Statement is being furnished to you in connection with the
solicitation on behalf of the Board of Directors of Axia Federal Savings Bank
(the "Bank") of the proxies to be voted at the Special Meeting of Members (the
"Special Meeting") of the Bank to be held at the main office of the Bank,
located at 1410 St. Georges Avenue, Avenel, New Jersey, on June ___, 1998 at
____ p.m. local time and at any adjournments thereof. The Special Meeting is
being held for the purpose of considering and voting upon a Plan of
Reorganization from Mutual Savings Association to Mutual Holding Company and
Stock Issuance Plan (the "Plan of Reorganization") under which the Bank would
reorganize into the mutual holding company structure (the "Reorganization"). In
the Reorganization, the Bank would be converted from its present mutual form of
organization into a federally chartered savings bank organized in stock form and
all the common stock of the stock savings bank would be sold concurrently to
Liberty Financial Services, Inc. (the "Company"), a federal corporation. The
Company would issue 53% of its Common Stock (the "Common Stock") to Liberty
Financial Services, MHC, a to-be formed federal mutual holding company (the
"Mutual Company") and offer and sell 47% of its to-be outstanding shares of
Common Stock in a subscription offering and, possibly, a community offering.
References to the Bank include the Bank when organized in stock form, as
indicated by the context.
A description of the Reorganization and Offering is described in detail in
the section of the Prospectus entitle "The Reorganization and Offering," which
is incorporated herein by reference.
THE SUBSCRIPTION OFFERING HAS COMMENCED AS OF THE DATE OF MAILING OF THIS
PROXY STATEMENT. A PROSPECTUS EXPLAINING THE TERMS OF THE OFFERING, INCLUDING
HOW TO ORDER AND PAY FOR SHARES AND DESCRIBING THE BUSINESS OF THE BANK, THE
COMPANY AND THE MUTUAL COMPANY, ACCOMPANIES THIS PROXY STATEMENT AND SHOULD BE
READ BY ALL PERSONS WHO WISH TO CONSIDER SUBSCRIBING FOR COMMON STOCK. THE
OFFERING EXPIRES AT NOON, LOCAL TIME ON JUNE ___, 1998 UNLESS EXTENDED BY THE
BANK AND THE HOLDING COMPANY.
SUMMARY OF PROPOSED REORGANIZATION
This summary does not purport to be complete and is qualified in its
entirety by the more detailed information contained in the remainder of this
Proxy Statement and the accompanying Prospectus.
Under its present mutual form of organization, the Bank has no
stockholders. Its deposit account holders and certain of its borrowers are
members of the Bank and have voting rights in that capacity. In the unlikely
event of liquidation, the Bank's deposit account holders would have the sole
right to receive any assets of the Bank remaining after payment of its
liabilities (including the claims of all deposit account holders to the
withdrawal value of their deposits). Under the Plan of Reorganization to be
voted on at the Special Meeting, the Bank would reorganize into the mutual
holding company structure (the "Reorganization"). In the Reorganization, the
Bank would be converted into a federally chartered savings bank organized in
stock form and all of the Bank's common stock would be sold concurrently to the
Company. The Company will issue 53% of its to-be outstanding shares of Common
Stock (the "Common Stock") to Liberty Financial Services, MHC, a to-be formed
federal mutual holding company (the "Mutual Company") and offer and sell 47% of
its to-be outstanding shares of Common Stock in a subscription offering (1) to
depositors with an account balance of $50 or more as of September 30, 1997
("Eligible Account Holders"), (2) tax-qualified employee stock benefit plans of
the Bank ("Tax-Qualified Employee Plans"), (3) depositors of the Bank with an
account balance of $50 or more as of March 31, 1998 ("Supplemental Eligible
Account Holders"), (4) depositors of the Bank as of June ___, 1998, other then
Eligible or Supplemental Eligible Account Holders, and borrowers as of December
10, 1986 who remain borrowers as of June ___, 1997 ("Other Members") and (5)
directors, officers and employees of the Bank (the "Subscription Offering").
Notwithstanding the foregoing, to the extent orders for shares exceed the
maximum of the appraisal range, Tax-Qualified Employee Plans shall be afforded a
first priority
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<PAGE>
to purchase shares sold above the maximum of the appraisal range. It is
anticipated that Tax-Qualified Employee Plans will purchase 8% of the Common
Stock sold in the Stock Conversion.
At anytime following commencement of the Subscription Offering, to the
extent the Common Stock is not all sold to the persons in the foregoing
categories, the Company may offer Common Stock to members of the general public
to whom a prospectus (the "Prospectus") has been delivered, with first
preference to natural persons residing in the New Jersey Counties of Union and
Middlesex (the "Community Offering"). The Subscription Offering and the
Community Offering are referred to collectively as the "Offering." All
depositors who have membership and liquidation rights with respect to the Bank
immediately prior to the completion of the Reorganization will continue to have
such rights solely with respect to the Mutual Company as long as they maintain
deposit accounts in the Bank after the completion of the Reorganization.
THE CONVERSION WILL NOT AFFECT THE BALANCE, INTEREST RATE OR FEDERAL
INSURANCE PROTECTION OF ANY SAVINGS DEPOSIT, AND NO PERSON WILL BE OBLIGATED TO
PURCHASE ANY STOCK IN THE STOCK CONVERSION.
Business Purposes for Net Offering proceeds are expected to increase the
Reorganization and Offering capital of the Bank, which will support the
expansion of its financial services to the public.
The conversion to stock form and the use of a
holding company structure are also expected to
enhance its ability to expand through possible
mergers and acquisitions (although no such
transactions are contemplated at this time) and to
diversify into other financial services and will
facilitate its future access of the Company and
the Bank to the capital markets. The
Reorganization shall be deemed to occur and shall
be effective upon completion of all actions
necessary or appropriate under applicable federal
statutes and regulations and the policies of the
Office of Thrift Supervision ("OTS") to complete
the Reorganization, including without limitation
the approval of the Reorganization by the members
of the Bank.
Subscription and Community As part of the Reorganization, Common Stock is
Offering being offered for sale in the Subscription
Offering, in the priorities summarized below, to
the Bank's (1) Eligible Account Holders, (2)
Tax-Qualified Employee Plans, (3) Supplemental
Eligible Account Holders (4) Other Members, and
(5) employees, officers and directors. In
addition, should a Community Offering be
conducted, members of the general public may
purchase Common Stock to the extent shares are
available after satisfaction of subscriptions in
the Subscription Offering, with a preference first
to natural persons residing in the New Jersey
Counties of Union and Middlesex.
Subscription Rights of Each Eligible Account Holder has been given
Eligible Account Holders non-transferable rights to subscribe for an amount
of shares equal to the greater of (i) $100,000 of
the Common Stock sold in the Offering; (ii)
one-tenth of one percent of the total offering of
shares of Common Stock in the Offering, to the
extent such shares are available; or (iii) 15
times the product (rounded down to the whole next
number) obtained by multiplying the total number
of shares to be issued by a fraction of which the
numerator is the amount of qualifying deposits of
such subscriber and the denominator is the total
qualifying deposits of all account holders in this
category on the qualifying date.
Subscription Rights of The Bank's Tax-Qualified Employee Plans have been
Tax-Qualified Employee Plans given non-transferable rights to subscribe,
individually and in the aggregate, for up to 10%
of the total number of shares sold in the Offering
after satisfaction of subscriptions of Eligible
Account Holders. Notwithstanding the foregoing, to
the extent orders for shares exceed the maximum of
the appraisal range, Tax-Qualified Employee Plans
shall be afforded a first priority to purchase
shares sold above the maximum of the appraisal
range. It is anticipated that Tax-Qualified
Employee Plans will purchase 8% of the Common
Stock sold in the Offering.
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<PAGE>
Subscription Rights of After satisfaction of subscriptions of Eligible
Supplemental Eligible Account Account Holders and Tax-Qualified Employee Plans,
Holders each Supplemental Eligible Account Holder (other
than directors and officers of the Bank and their
associates) has been given non-transferable rights
to subscribe for an amount of shares equal to the
greater of (i) $100,000 of the Common Stock sold
in the Offering; (ii) one-tenth of one percent of
the total offering of shares of Common Stock in
the Offering, to the extent such shares are
available; or (iii) 15 times the product (rounded
down to the whole next number) obtained by
multiplying the total number of shares to be
issued by a fraction of which the numerator is the
amount of qualifying deposits of such subscriber
and the denominator is the total qualifying
deposits of all account holders in this category
on the qualifying date. The subscription rights of
each Supplemental Eligible Account Holder shall be
reduced to the extent of such person's
subscription rights as an Eligible Account Holder.
Subscription Rights of Other Each Other Member has been given non-transferable
Members rights to subscribe for an amount of shares equal
to the greater of (i) $100,000 of the Common Stock
sold in the Offering; or (ii) one-tenth of one
percent of the total number of shares offered in
the Offering after satisfaction of the
subscriptions of the Bank's Eligible Account
Holders, Tax-Qualified Employee Plans and
Supplemental Eligible Account Holders.
Subscription Rights of Bank Each individual employee, officer and director of
Personnel the Bank has been given the right to subscribe for
an amount of shares equal to $100,000 of the
Common Stock sold in the Offering after
satisfaction of the subscriptions of Eligible
Account Holders, Tax-Qualified Employee Plans,
Supplemental Eligible Account Holders and Other
Members. Total shares subscribed for by the
employees, officers and directors in this category
may not exceed 25% of the total shares sold in the
Offering.
Purchase Limitations No person or entity, together with associates, and
persons acting in concert, may purchase more than
$200,000 of the Common Stock offered in the
Offering. The Boards of Directors of the Company
and the Bank may, in their sole discretion,
increase the maximum purchase limitation up to
9.99% of the shares sold, provided that orders for
shares exceeding 5% shall not exceed in the
aggregate, 10% of the shares offered in the
Subscription Offering. Should the Bank increase
the maximum purchase limitation above 5% of the
Common Stock offered, persons who previously
subscribed for the maximum number of shares will
be given the opportunity to subscribe for
additional shares. The aggregate purchases of
directors and executive officers and their
associates may not exceed 31% of the total number
of shares offered in the Offering. These purchase
limitations do not apply to the Bank's
Tax-Qualified Employee Plans.
Expiration Date of All subscriptions for Common Stock must be
Subscription and Community received by Noon, local time on June ___, 1998.
Offerings
How to Subscribe for Shares For information on how to subscribe for Common
Stock being offered in the Offering, please read
the Prospectus and the Stock Order Form and
instructions accompanying this Proxy Statement.
Subscriptions will not become effective until the
Plan of Reorganization has been approved by the
Bank's members and all of the Common Stock offered
in the Offering has been subscribed for or sold in
the Offering or through such other means as may be
approved by the OTS.
Price of Common Stock All sales of Common Stock in the Offering will be
made at the same price per share which is
currently expected to be $10.00 per share on the
basis of an independent appraisal of the pro forma
market value of the Bank and the Company upon
Reorganization. See "The Reorganization and
Offering--Procedure for Purchasing Shares" in the
Prospectus.
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<PAGE>
Tax Consequences The Bank has received an opinion from its special
counsel, Luse Lehman Gorman Pomerenk & Schick,
P.C., stating that the Reorganization is a
nontaxable reorganization under Section
368(a)(1)(F) of the Internal Revenue Code of 1986,
as amended (the "Code"). The Bank also has
received an opinion from Radics & Co., LLC stating
that the Offering will not be a taxable
transaction for New Jersey income tax purposes.
Required Vote Approval of the Plan of Reorganization will
require the affirmative vote of a majority of all
votes eligible to be cast at the Special Meeting.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE BANK RECOMMENDS THAT YOU VOTE TO APPROVE THE
PLAN OF CONVERSION.
The Bank is currently organized in mutual rather than stock form, meaning
that it has no stockholders and no authority under its federal mutual charter to
issue capital stock. The Bank's Board of Directors has adopted the Plan of
Reorganization providing for the Reorganization. The sale of Common Stock of the
Company, which will be formed to become the holding company of the Bank, will
substantially increase the Bank's net worth. The Company will exchange a portion
of the net proceeds from the sale of the Common Stock for the common stock of
the Bank to be issued upon Reorganization. The Company expects to retain the
balance of the net proceeds (up to 50%), as its initial capitalization of which
the Company intends to lend funds to the Employee Stock Ownership Plan, a
tax-qualified employee stock benefit plan of the Bank, to fund its purchase of
Common Stock. This increased capital will support the expansion of the Bank's
financial services to the public. The Board of Directors of the Bank also
believes that the conversion to stock form and the use of a holding company
structure will enhance the Bank's ability to expand through possible mergers and
acquisitions (although no such transactions are contemplated at this time) and
will facilitate its future access to the capital markets.
The Board of Directors of the Bank believes that the Reorganization will
further benefit the Bank by enabling it to attract and retain key personnel
through prudent use of stock-related incentive compensation and benefit plans.
See "Management of the Bank--Benefit Plans" in the accompanying Prospectus.
Voting in favor of the Plan of Reorganization will not obligate any person
to purchase any Common Stock.
THE OTS HAS APPROVED THE PLAN OF REORGANIZATION SUBJECT TO THE APPROVAL OF
THE BANK'S MEMBERS AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS. HOWEVER,
SUCH APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF
REORGANIZATION BY THE OTS.
INFORMATION RELATING TO VOTING AT THE SPECIAL MEETING
The Board of Directors of the Bank has fixed June ___, 1998 as the voting
record date ("Voting Record Date") for the determination of members entitled to
notice of the Special Meeting. All Bank depositors are members of the Bank under
its current charter. All Bank members of record as of the close of business on
the Voting Record Date will be entitled to vote at the Special Meeting or any
adjournment thereof.
Each depositor (including IRA account beneficiaries) will be entitled at
the Special Meeting to cast one vote for each $100, or fraction thereof, of the
aggregate withdrawal value of all of such depositor's accounts in the Bank as of
the Voting Record Date, up to a maximum of 1000 votes. Each borrower of the
savings bank as of December 10, 1986 shall be able to cast one vote as a
borrower member as long as such borrower's borrowings as of December 10, 1986
remain outstanding as of the Voting Record Date. Joint accounts shall be
entitled to no more than 1000 votes, and any owner may cast all the votes unless
notified in writing. In general, accounts held in different ownership capacities
will be treated as separate memberships for purposes of applying the 1000 vote
limitation. For example, if two persons hold a $100,000 account in their joint
names and each of the persons also holds a separate account for $100,000 in his
own name, each person would be entitled to 1000 votes for each separate account
and they would together be entitled to cast 1000 votes on the basis of the joint
account. Where no proxies are received from IRA
4
<PAGE>
beneficiaries, after due notification, the Bank, as trustee of these accounts,
is entitled to vote these accounts in favor of the Plan. of Reorganization.
Approval of the Plan of Reorganization requires the affirmative vote of a
majority of the total outstanding votes of the Bank's members eligible to be
cast at the Special Meeting. As of June __, 1998, the Bank had _____ members who
were entitled to cast a total of ______ votes at the Special Meeting. Bank
members may vote at the Special Meeting or any adjournment thereof in person or
by proxy. Any member giving a proxy will have the right to revoke the proxy at
any time before it is voted by giving written notice to the Secretary of the
Bank, provided that such written notice is received by the Secretary prior to
the Special Meeting or any adjournment thereof, or upon request if the member is
present and chooses to vote in person. All properly executed proxies received by
the Board of Directors of the Bank will be voted in accordance with the
instructions indicated thereon by the members giving such proxies. If no
instructions are given, such proxies will be voted in favor of the Plan of
Reorganization. If any other matters are properly presented at the Special
Meeting and may properly be voted on, the proxies solicited hereby will be voted
on such matters in accordance with the best judgment of the proxy holders named
thereon. Management is not aware of any other business to be presented at the
Special Meeting.
If a proxy is not executed and is returned or the member does not vote in
person, the Bank is prohibited by OTS regulations from using a previously
executed proxy to vote for the Reorganization. As a result, failure to vote may
have the same effect as a vote against the Plan of Reorganization.
To the extent necessary to permit approval of the Plan of Reorganization,
proxies may be solicited by officers, directors or regular employees of the
Bank, in person, by telephone or through other forms of communication and, if
necessary, the Special Meeting may be adjourned to a later date. Such persons
will be reimbursed by the Bank for their expenses incurred in connection with
such solicitation. The Bank will bear all costs of this solicitation. The
proxies solicited hereby will be used only at the Special Meeting and at any
adjournment thereof.
PRINCIPAL EFFECTS OF REORGANIZATION
Depositors. The Reorganization will not change the amount, interest rate,
withdrawal rights or federal insurance protection of deposit accounts, or affect
deposit accounts in any way other than with respect to voting and liquidation
rights as discussed below.
Borrowers. The rights and obligations of borrowers under their loan
agreements with the Bank will remain unchanged by the Reorganization. The
principal amount, interest rate and maturity date of loans will remain as they
were contractually fixed prior to the Reorganization.
Voting Rights of Depositors. Currently in the Bank's mutual form, members
have voting rights and may vote for the election of directors. Following the
Reorganization, members will cease to have voting rights in the Bank, but will
have voting rights in the Mutual Company. All voting rights in the Bank will be
vested in the Company as the Bank's sole shareholder. Voting rights in the
Company will be vested exclusively in its shareholders, with one vote for each
share of Common Stock. The Mutual Company will at all times own a majority of
the Common Stock.
The Bank. Under federal law, the stock savings bank resulting from the
Offering will be deemed to be a continuation of the mutual savings bank rather
than a new entity and will continue to have all of the rights, privileges,
properties, assets and liabilities of the Bank prior to the Reorganization. The
Reorganization will enable the Bank to issue capital stock, but will not change
the general objectives, purposes or types of business currently conducted by the
Bank, and no assets of the Bank will be distributed in order to effect the
Reorganization, other than to pay the expenses incident thereto. After the
Reorganization, the Bank will remain subject to examination and regulation by
the OTS and will continue to be a member of the Federal Home Loan Bank System.
The Reorganization will not cause any change in the executive officers or
directors of the Bank.
Tax Consequences. The Bank intends to proceed with the Reorganization on
the basis of an opinion from Luse Lehman Gorman Pomerenk & Schick, P.C.,
Washington, D.C., as to certain tax matters that are material to the
Reorganization. The opinion is based, among other things, on certain
representations made by the Bank. See the
5
<PAGE>
section of the Prospectus entitled "The Reorganization and Offering--Federal and
State Tax Consequences of the Reorganization" which is incorporated herein by
reference.
With respect to New Jersey taxation, the Bank has received an opinion from
Radics & Co., LLC to the effect that, assuming the Reorganization does not
result in any federal taxable income, gain or loss to the Bank in its mutual or
stock form, the Company, the account holders, borrowers, officers, directors and
employees and Tax-Qualified Employee Plans of the Bank, the Offering should not
result in any New Jersey income tax liability to such entities or persons.
Approval, Interpretation, Amendment and Termination
Under the Plan of Reorganization, the letter from the OTS giving approval
thereto, and applicable regulations, consummation of the Reorganization is
subject to the satisfaction of the following conditions: (a) approval of the
Plan of Reorganization by members of the Bank casting at least a majority of the
votes eligible to be cast at the Special Meeting; (b) sale of all of the Common
Stock to be offered in the Offering; and (c) receipt of favorable rulings or
opinions of counsel as to the federal and New Jersey tax consequences of the
Reorganization.
The Plan of Reorganization may be substantively amended by the Boards of
Directors of the Bank and the Company with the concurrence of the OTS. If the
Plan of Reorganization is amended, proxies which have been received prior to
such amendment will not be resolicited unless otherwise required by the OTS.
Also, as required by the federal regulations, the Plan of Reorganization
provides that the transactions contemplated thereby may be terminated by the
Board of Directors of the Bank alone at any time prior to the Special Meeting
and may be terminated by the Board of Directors of the Bank at any time
thereafter with the concurrence of the OTS, notwithstanding approval of the Plan
of Reorganization by the members of the Bank at the Special Meeting. All
interpretations by the Bank and the Company of the Plan of Reorganization and of
the Stock Order Forms and related materials for the Offering will be final,
except as regards or affects the OTS.
Judicial Review
Section 5(i)(2)(B) of the Home Owners' Loan Act, as amended, 12 U.S.C.
ss.1464(i)(2)(B) and Section 563b.8(u) of the Rules and Regulations promulgated
thereunder (12 C.F.R. Section 563b.8(u)) provide: (i) that persons aggrieved by
a final action of the OTS which approves, with or without conditions, or
disapproves a plan of conversion, may obtain review of such final action only by
filing a written petition in the United States Court of Appeals for the circuit
in which the principal office or residence of such person is located, or in the
United States Court of Appeals for the District of Columbia, requesting that the
final action of the OTS be modified, terminated or set aside, and (ii) that such
petition must be filed within 30 days after publication of notice of such final
action in the Federal Register, or 30 days after the date of mailing of the
notice and proxy statement for the meeting of the converting institution's
members at which the conversion is to be voted on, whichever is later. The
notice of the Special Meeting of the Bank's members to vote on the Plan of
Reorganization described herein is included at the beginning of this Proxy
Statement. The statute and regulation referred to above should be consulted for
further information.
ADDITIONAL INFORMATION
The information contained in the accompanying Prospectus, including a more
detailed description of the Plan of Reorganization, financial statements of the
Bank and a description of the capitalization and business of the Bank and the
Company, including the Bank's directors and executive officers and their
compensation, the anticipated use of the net proceeds from the sale of the
Common Stock and a description of the Common Stock, is intended to help you
evaluate the Reorganization and is incorporated herein by this reference.
YOUR VOTE IS VERY IMPORTANT TO US. PLEASE TAKE A MOMENT NOW TO COMPLETE AND
RETURN YOUR PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED. YOU MAY STILL
ATTEND THE SPECIAL MEETING AND VOTE IN PERSON EVEN THOUGH YOU HAVE VOTED
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<PAGE>
YOUR PROXY. FAILURE TO SUBMIT A PROXY WILL HAVE THE SAME EFFECT AS VOTING
AGAINST THE CONVERSION.
If you have any questions, please call our Stock Information Center at
(732) 499-____.
IMPORTANT: YOU MAY BE ENTITLED TO VOTE IN MORE THAN ONE CAPACITY. PLEASE
SIGN, DATE AND PROMPTLY RETURN EACH PROXY CARD YOU RECEIVE.
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
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<PAGE>
REVOCABLE PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
AXIA FEDERAL SAVINGS BANK
FOR A SPECIAL MEETING OF MEMBERS
TO BE HELD ON JUNE ___, 1998
The undersigned member of Axia Federal Savings Bank (the "Bank"), hereby
appoints the full Board of Directors, with full powers of substitution, as
attorneys-in-fact and agents for and in the name of the undersigned, to vote
such votes as the undersigned may be entitled to vote at the Special Meeting of
Members of the Bank, to be held at the main office of the Bank, located at 1410
St. Georges Avenue, Avenel, New Jersey on June ___, 1998, at _____ p.m., local
time, and at any and all adjournments thereof. They are authorized to cast all
votes to which the undersigned is entitled as follows:
FOR [ ] AGAINST [ ]
1. The approval of a Plan of Reorganization from Mutual Savings
Association to Mutual Holding Company and Stock Issuance Plan (the
"Plan of Reorganization") pursuant to which the Bank will be
reorganized into the mutual holding company structure. As part of the
Plan, the Bank will convert to a federally-chartered stock savings
association which will be wholly-owned by Axia Bancorp, Inc., a
newly-formed federal corporation (the "Company"). Pursuant to the Plan
of Reorganization, the Company will issue 53% of its to be outstanding
shares of common stock to Liberty Financial Services, MHC, a federal
mutual holding company that will be formed pursuant to the Plan of
Reorganization, and offer for sale to certain depositors 47% of its to
be outstanding shares of common stock; and
Such other business as may properly come before the Special Meeting of
any adjournment thereof.
NOTE: The Board of Directors is not aware of any other matter that may come
before the Special Meeting of Members.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR THE PROPOSITIONS STATED. IF ANY OTHER BUSINESS IS
PRESENTED AT THE MEETING, THIS PROXY WILL BE VOTED BY THE BOARD OF DIRECTORS IN
THEIR BEST JUDGMENT. AT THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO
OTHER BUSINESS TO BE PRESENTED AT THE MEETING.
<PAGE>
Votes will be cast in accordance with the Proxy. Should the undersigned be
present and elect to vote at the Special Meeting or at any adjournment thereof
and after notification to the Secretary of the Bank at said Meeting of the
member's decision to terminate this Proxy, then the power of said
attorney-in-fact or agents shall be deemed terminated and of no further force
and effect.
The undersigned acknowledges receipt of a Notice of Special Meeting of
Members and a Proxy Statement dated May ___, 1998, prior to the execution of
this Proxy.
Date _____________________________________
Signature ________________________________
NOTE: Only one signature is required in the case of a joint account.
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PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN
THE ENCLOSED ENVELOPE.
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MARKETING MATERIALS
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FOR
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AXIA FEDERAL SAVINGS BANK
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AVENEL, NEW JERSEY
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DRAFT DATED 3/11/98
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<PAGE>
AXIA FEDERAL SAVINGS BANK
TABLE OF CONTENTS
CORRESPONDENCE
Letter to Eligible Account Holders
Letter to Closed Accounts
Letter to Potential Investors (Non-Customers)
"Blue Sky" Member Letter
Ryan, Beck "Broker Dealer" Letter
Proxygram
Stock Order Form Acknowledgment
Stock Certificate Mailing Letter
Invitation {Optional}
ADVERTISEMENTS
Lobby Poster
Tombstone Advertisement
Community Meeting Advertisement {Optional}
PRESS RELEASES
Press Release for Approval of Sale
Press Release, Offering Completed
BROCHURES
Q&A
Folder
FORMS
Stock Order Form
<PAGE>
LETTER TO ELIGIBLE ACCOUNT HOLDERS
[Axia Federal Savings Bank Letterhead]
May , 1998
Dear Depositor:
I am pleased to inform you that the directors of Axia Federal Savings Bank have
unanimously approved a Plan of Reorganization from Mutual Savings Association to
Mutual Holding Company and Stock Issuance Plan (the "Plan"). Pursuant to the
Plan, Axia Federal Savings Bank will convert to a stock savings bank and form a
federally-chartered stock holding company, Axia Bancorp, Inc. (the "Holding
Company"), which will own 100% of the outstanding common stock of the converted
Axia Federal Savings Bank.
The Plan will permit the Holding Company to issue capital stock that is a source
of capital not available to mutual savings institutions. The new mutual holding
company structure will enable Axia Federal Savings Bank to continue to be an
independent financial institution.
The Holding Company is offering between 1,178,525 and 1,833,646 shares of common
stock at $10.00 per share to certain of its customers and to members of the
public. The shares of stock sold to investors will represent a minority interest
in Axia Bancorp, Inc. The newly-formed mutual holding company, Axia Bancorp,
MHC, will own the remainder of the outstanding shares.
The Plan is subject to a favorable vote of our members. Our officers and
directors urge you to vote "FOR" the Plan. Enclosed you will find a Proxy
Statement describing the Plan, Proxy Card(s) and a reply envelope. Please vote
and sign the Proxy Card(s), then mail it in the enclosed reply envelope or bring
your card(s) into any of our offices. In order to ensure that your vote will be
counted, we must receive your proxy card(s) by 10:00 a.m., New Jersey time, on ,
1998.
We have also enclosed a Prospectus, Stock Order Form, reply envelope and
Questions & Answers Brochure. We urge you to read the Prospectus carefully
before submitting your Stock Order Form. If you are interested in purchasing
shares, you may do so during the Offering without paying a commission or fee.
Your completed Stock Order Form, along with payment or authorization to withdraw
funds from your deposit account(s) at Axia Federal Savings Bank, must be
received by us by 10:00 a.m., New Jersey time, on , 1998.
<PAGE>
LETTER TO ELIGIBLE ACCOUNT HOLDERS
Page 2
Interest will be paid on all funds received by Axia Federal Savings Bank at its
rate of interest on passbook savings accounts, or at the account contract rate
with respect to withdrawals from existing accounts. You may purchase the common
stock through a withdrawal from your savings or certificate account without the
customary early withdrawal penalty.
Please call the Stock Information Center early in the Offering period if you
intend to utilize IRA or other tax-qualified funds to purchase the common stock.
Additional processing time is required as the common stock must be purchased
through a self-directed IRA held with an outside trustee. Please note that Axia
Federal Savings Bank IRAs are not self-directed.
Please remember:
YOUR SAVINGS ACCOUNTS, CERTIFICATES OF DEPOSIT AND CHECKING ACCOUNTS AT
AXIA FEDERAL SAVINGS BANK WILL CONTINUE TO BE INSURED BY THE FEDERAL
DEPOSIT INSURANCE CORPORATION UP TO APPLICABLE LIMITS.
THERE WILL BE NO CHANGE IN THE TERMS OF YOUR ACCOUNTS OR LOANS.
CUSTOMERS WILL ENJOY THE SAME SERVICES WITH THE SAME STAFF.
YOUR VOTE IN FAVOR OF THE PLAN DOES NOT OBLIGATE YOU TO BUY COMMON STOCK.
DEPOSITORS OF AXIA FEDERAL SAVINGS BANK MAY BUY COMMON STOCK BEFORE IT IS
SOLD TO THE GENERAL PUBLIC.
If you have any questions, please call the Stock Information Center at (732)
XXX-XXXX, 9:00 a.m. to 4:00 p.m., Monday through Friday.
We hope that you will take advantage of this opportunity to join us as
stockholders of Axia Bancorp, Inc.
Sincerely,
John R. Bowen
Chairman, President and Chief Executive Officer
<PAGE>
LETTER TO ELIGIBLE ACCOUNT HOLDERS
Page 3
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
- --------------------------------------------------------------------------------
Stock Information Center
Address to be provided
(732) XXX-XXXXX
<PAGE>
LETTER TO DEPOSITORS NOT ELIGIBLE TO VOTE (CLOSED ACCOUNTS)
[Axia Federal Savings Bank Letterhead]
May , 1998
Dear Sir/Madam:
I am pleased to inform you that the directors of Axia Federal Savings Bank have
unanimously approved a Plan of Reorganization from Mutual Savings Association to
Mutual Holding Company and Stock Issuance Plan (the "Plan"). Pursuant to the
Plan, Axia Federal Savings Bank will convert to a stock savings association and
form a federally-chartered stock holding company, Axia Bancorp, Inc. (the
"Holding Company"), which will own 100% of the outstanding common stock of the
converted Axia Federal Savings Bank.
The Plan will permit the Holding Company to issue capital stock that is a source
of capital not available to mutual savings institutions. The new mutual holding
company structure will enable Axia Federal Savings Bank to continue to be an
independent financial institution.
The Holding Company is offering between 1,178,525 and 1,833,646 shares of common
stock at $10.00 per share to certain of its customers and to members of the
public. The shares of stock sold to investors will represent a minority interest
in Axia Bancorp, Inc. The newly-formed mutual holding company, Axia Bancorp Axia
Bancorp, MHC, will own the remainder of the outstanding shares of common stock.
AS A DEPOSITOR OF AXIA FEDERAL SAVINGS BANK AS OF SEPTEMBER 30, 1996 OR
MARCH 31, 1998, YOU HAVE PRIORITY TO BUY COMMON STOCK BEFORE IT IS SOLD TO
THE GENERAL PUBLIC.
We have enclosed a Prospectus, Stock Order Form, reply envelope and Questions
and Answers Brochure. If you are interested in purchasing shares, you may do so
during the Offering without paying a commission or fee. We urge you to read the
Prospectus carefully before submitting your Stock Order Form. Your completed
Stock Order Form, along with payment must be received by Axia Federal Savings
Bank by 10:00 a.m., New Jersey time, on , 1998.
Interest will be paid by Axia Federal Savings Bank at its passbook savings
account rate on all funds received until the Offering is completed.
If you have any questions, please call the Stock Information Center at (732)
XXX-XXXX, 9:00 a.m. to 4:00 p.m., Monday through Friday.
<PAGE>
LETTER TO DEPOSITORS NOT ELIGIBLE TO VOTE (CLOSED ACCOUNTS)
Page 2
We hope that you will take advantage of this opportunity to join us as
stockholders of Axia Bancorp, Inc.
Sincerely,
John R. Bowen
Chairman, President and Chief Executive Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
- --------------------------------------------------------------------------------
Stock Information Center
Address to be provided
(732) XXX-XXXX
<PAGE>
POTENTIAL INVESTOR LETTER (Non-Customers)
[Axia Federal Savings Bank Letterhead]
May , 1998
Dear Potential Investor:
I am pleased to inform you that the directors of Axia Federal Savings Bank have
unanimously approved a Plan of Reorganization from Mutual Savings Association to
Mutual Holding Company and Stock Issuance Plan (the "Plan"). Pursuant to the
Plan, Axia Federal Savings Bank will convert to a stock savings association and
form a federally-chartered stock holding company, Axia Bancorp, Inc. (the
"Holding Company"), which will own 100% of the outstanding common stock of the
converted Axia Federal Savings Bank.
The Plan will permit the Holding Company to issue capital stock that is a source
of capital not available to mutual savings institutions. The new mutual holding
company structure will enable Axia Federal Savings Bank to continue to be an
independent institution.
The Holding Company is offering between 1,178,525 and 1,833,646 shares of common
stock at $10.00 per share to certain of its customers and to members of the
public. The shares of stock sold to investors will represent a minority interest
in Axia Bancorp, Inc. The newly-formed mutual holding company, Axia Bancorp,
MHC, will own the remainder of the outstanding shares.
We have enclosed a Prospectus, Stock Order Form and Questions and Answers
Brochure. If you are interested in purchasing shares, you may do so during the
Offering without paying a commission or fee. We urge you to read the Prospectus
carefully before submitting your Stock Order Form. To order, your completed
Stock Order Form, along with payment must be received by Axia Federal Savings
Bank by 10:00 a.m., New Jersey time, on , 1998.
Interest will be paid by Axia Federal Savings Bank at its passbook savings
account rate on all funds received until the Offering is completed.
If you have any questions, please call our Stock Information Center at (732)
XXX-XXXX, 9:00 a.m. to 4:00 p.m., Monday through Friday.
We hope that you will take advantage of this opportunity to join us as
stockholders of Axia Bancorp, Inc.
<PAGE>
POTENTIAL INVESTOR LETTER (Non-Customers)
Page 2
Sincerely,
John R. Bowen
Chairman, President and Chief Executive Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
- --------------------------------------------------------------------------------
Stock Information Center
Address to be provided
(732) XXX-XXXX
<PAGE>
"BLUE SKY" MEMBER LETTER
[Axia Federal Savings Bank Letterhead]
May , 1998
Dear Member:
I am pleased to inform you that the directors of Axia Federal Savings Bank have
unanimously approved a Plan of Reorganization from Mutual Savings Association to
Mutual Holding Company and Stock Issuance Plan (the "Plan"). Pursuant to the
Plan, Axia Federal Savings Bank will convert to a stock savings association and
form a federally-chartered stock holding company, Axia Bancorp, Inc. (the
"Holding Company"), which will own 100% of the outstanding common stock of the
converted Axia Federal Savings Bank. As part of the Plan, shares of common stock
that will be sold to investors represent a minority interest in Axia Bancorp,
Inc. The newly-formed mutual holding company, Axia Bancorp, MHC, will own the
remainder of the outstanding shares.
The Plan is subject to a favorable vote of our members. Our officers and
directors urge you to vote "FOR" the Plan. Enclosed you will find a Proxy
Statement describing the Plan, Proxy Card(s) and a reply envelope. Please vote
and sign the Proxy Card(s), then mail it in the enclosed reply envelope. In
order to ensure that your vote will be counted, we must receive your proxy
card(s) by :00 .m., New Jersey time, on , 1998.
The Board of Directors of Axia Federal Savings Bank believes that the mutual
holding company formation and related stock offering are in the best interest of
its customers and the communities it serves. Please remember:
THERE WILL BE NO CHANGE IN YOUR DEPOSIT ACCOUNTS OR LOANS. YOUR DEPOSIT
ACCOUNTS AT AXIA FEDERAL SAVINGS BANK WILL CONTINUE TO BE INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION UP TO APPLICABLE LIMITS.
Although you may vote on the Plan, unfortunately, Axia Bancorp, Inc. is unable
to offer or sell its common stock to you because the small number of depositors
in your state makes registration or qualification of the common stock under your
state securities laws impractical.
<PAGE>
"BLUE SKY" MEMBER LETTER
Page 2
If you have any questions about your voting rights or the Plan, please call the
Stock Information Center at (732) XXX-XXXX, 9:00 a.m. to 4:00 p.m., Monday
through Friday.
Sincerely,
John R. Bowen
Chairman, President and Chief Executive Officer
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
- --------------------------------------------------------------------------------
Stock Information Center
Address to be provided
(732) XXX-XXXX
<PAGE>
RYAN, BECK "BROKER DEALER" LETTER
[Ryan, Beck Letterhead]
May , 1998
Dear Sir/Madam:
At the request of Axia Federal Savings Bank and Axia Bancorp, Inc., we are
enclosing materials regarding its stock offering. The materials include a
Prospectus, Stock Order Form and Questions and Answers Brochure describing the
Axia Federal Savings Bank mutual holding company reorganization and the related
offering of the Axia Bancorp, Inc. common stock. Ryan, Beck & Co., Inc. has been
retained by Axia Federal Savings Bank as its selling agent in connection with
the Offering.
We have been asked to forward these materials to you in view of certain
regulatory requirements and the securities laws of your state.
Sincerely,
[GRAPHIC OMITTED]
THIS LETTER IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
- -------------
This letter goes only in packages located in specified states.
<PAGE>
PROXYGRAM
[Axia Federal Savings Bank Letterhead]
PROXYGRAM
DEAR AXIA FEDERAL SAVINGS BANK MEMBER:
TIME IS RUNNING OUT TO VOTE ON THE PLAN OF REORGANIZATION!
YOU SHOULD HAVE RECENTLY RECEIVED A PROXY STATEMENT AND PROXY CARD(S). HOWEVER,
WE HAVE NOT YET RECEIVED YOUR PROXY VOTE.
YOUR VOTE IS IMPORTANT TO US. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE
FOR THE PLAN. PLEASE VOTE AND SIGN ALL OF THE ENCLOSED PROXY CARD(S) AND RETURN
THEM PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE OR DELIVER THEM TO ANY OF
OUR OFFICES! VOTES WILL BE CAST ON , 1998.
VOTING ON THE PLAN DOES NOT OBLIGATE YOU TO PURCHASE STOCK IN OUR COMMON STOCK
OFFERING.
IF YOU HAVE ANY QUESTIONS, OR WOULD LIKE TO RECEIVE ANOTHER COPY OF THE PROXY
STATEMENT, PLEASE CALL THE STOCK INFORMATION CENTER AT (732) XXX-XXXX, 9:00 A.M.
TO 4:00 P.M., MONDAY THROUGH FRIDAY.
Sincerely,
John R. Bowen
Chairman, President and Chief Executive Officer
THIS PROXYGRAM IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
STOCK ORDER ACKNOWLEDGMENT LETTER
[Axia Federal Savings Bank Letterhead]
[Name]
[Social Security Number]
Dear Investor:
We are pleased to confirm the receipt of your order in the amount of $______ for
the purchase of Axia Bancorp, Inc. Common Stock.
The Common Stock will be registered in the name(s) shown above. Please verify
the Social Security number and the spelling and accuracy of your name and
address. If this information is incorrect, please contact our conversion agent,
Chase/Mellon Shareholder Services at (800) 526-0801.
Please note this acknowledgment does not represent the total number of shares
that you may receive. The actual purchase will be determined by the total number
of orders received. The allocation process is described in more detail in the
Prospectus.
We appreciate your confidence in our future and look forward to having you as a
stockholder.
- ------------
Printed and mailed by conversion agent. (The contact name/phone is at conversion
agent's office.)
<PAGE>
STOCK CERTIFICATE MAILING LETTER
__________, 1998
Dear Stockholder:
On behalf of the Board of Directors of Axia Bancorp, Inc. I would like to
welcome you as a shareholder. A total of ________ shares were issued; of these,
_____ were purchased by investors at $10.00 per share. Our mutual holding
company, Axia Bancorp, MHC, owns the balance of the outstanding shares.
Your stock certificate is enclosed. Please review it to make sure the
registration and number of shares are correct. If you find an error or have
questions about your certificate, please call or write our Transfer Agent:
[NAME & ADDRESS TO BE PROVIDED]
If the original stock certificate must be forwarded for reissue, it is
recommended that it be sent to the Transfer Agent by registered mail. If you
should change your address, please notify the Transfer Agent immediately so you
will continue to receive all Axia Bancorp, Inc. stockholder communications.
If you paid for your shares by check, please find enclosed a check representing
the interest which accrued on the amount of your check between the date of
receipt and the close of the Offering. However, if we were not able to fully
fill your order, this check also represents a refund of the amount of your
subscription that we were unable to fill.
If you paid for your shares by authorizing withdrawal from an Axia Federal
Savings Bank deposit account, that withdrawal has now been made. If we were
unable to fill your entire order, and you paid for your subscription in this
manner, only the amount necessary to pay for your allotment was withdrawn from
your account(s). Accrued interest earned during the Offering remains in your
account.
The Board of Directors and management of Axia Federal Savings Bank thank you for
your participation in our Offering.
Sincerely,
John R. Bowen
Chairman, President and Chief Executive Officer
<PAGE>
INVITATION (Optional)
An Opportunity . . .
YOU ARE CORDIALLY INVITED
To a Community Investor Meeting and Reception
to learn about the formation of
Axia Bancorp, MHC
and the related Common Stock offering of
Axia Bancorp, Inc.
___________, 1998
or
___________, 1998
7:00 p.m.
LOCATIONS TO FOLLOW
Light Refreshments Served
Senior executives of Axia Federal Savings Bank will present information and
answer your questions about Axia Federal Savings Bank's Plan of Reorganization
from Mutual Savings Association to Mutual Holding Company and related Stock
Offering. You'll also be presented with information about Axia Federal Savings
Bank's business focus and results of operations.
SEATING IS LIMITED
Please call and make your reservation.
(732) XXX-XXXX
Stock Information Center
[LOGO]
THIS INVITATION IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
LOBBY POSTER
1,833,646 Shares of Common Stock
Axia Federal Savings Bank is conducting an offering of Common Stock.
If you have any questions, please call the Stock Information Center at (732)
XXX-XXXX, from 9:00 a.m. to 4:00 p.m., Monday through Friday.
[LOGO]
THIS NOTICE IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
TOMBSTONE ADVERTISEMENT (Optional)
(Post-Community Meetings)
[LOGO]
Axia Bancorp, Inc.
a Holding Company for
Axia Federal Savings Bank
UP TO _____________ SHARES
Common Stock
$10.00 Per Share
(Purchase Price)
Shares may be purchased during the Offering, without payment of additional
commissions or fees.
This Offering expires at 10:00 a.m., New Jersey time, on ________, 1998.
To receive a copy of the Prospectus, please call the Stock Information Center at
(732) XXX-XXXX, 9:00 a.m. to 4:00 p.m., Monday through Friday.
THIS ADVERTISEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
COMMUNITY MEETING ADVERTISEMENT (Optional)
Axia Federal Savings Bank is reorganizing from a mutual savings association to a
mutual holding company. As part of its reorganization, Axia Bancorp, Inc. is
offering up to shares of common stock at a subscription price of $10.00 per
share. Purchasers will not be required to pay a commission or brokerage fee.
YOU ARE INVITED
to a Community Investors Meeting and Reception
to meet senior officers and Directors of the Axia Federal Savings Bank
In addition to hearing a discussion about the benefits of the mutual holding
company structure and stock offering, you'll learn more about Axia Federal
Savings Bank's business focus and results of operations.
Community Investors Meeting
____________, 1998
or
____________, 1998
7:00 p.m.
[Location]
To receive a copy of the Prospectus, or to make a reservation to attend a
meeting, please call our Stock Information Center at (732) XXX-XXXX.
Axia Federal Savings Bank [LOGO]
THIS ADVERTISEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO
BUY COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
PRESS RELEASE
CONTACT: John R. Bowen, Chairman, President and Chief Executive Officer
TELEPHONE: (732) 499-7200
FOR IMMEDIATE RELEASE
- --------------------------------------------------------------------------------
Avenel, New Jersey. May, 1998 -- Axia Federal Savings Bank has received
conditional approval from regulatory authorities to begin an offering of common
stock in connection with its mutual holding company reorganization as a
subsidiary of Axia Bancorp, Inc. Shares of common stock of Axia Bancorp, Inc.
are being offered to certain of its customers and to the public.
Axia Bancorp, Inc. is offering up to 1,833,646 shares of voting common stock at
a purchase price of $10.00 per share, subject to adjustment. The offering will
represent 47% of the total issued and outstanding shares of Axia Bancorp, Inc.
Outstanding shares not issued in the Offering will be owned by Axia Bancorp,
MHC, the newly-formed mutual holding company.
The best-efforts offering, which is being managed by Ryan, Beck & Co., Inc. is
expected to conclude on ________, 1998.
Axia Savings' deposits are and will continue to be insured up to the applicable
limits by the FDIC.
Further information, including details of the Offering, and business and
financial information about Axia Federal Savings Bank are described in a
prospectus, which is available upon request by calling the Stock Information
Center at (732) XXX-XXXX.
THIS NOTICE IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
COMMON STOCK. THE OFFER IS MADE ONLY BY THE PROSPECTUS. THE SHARES OF COMMON
STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
PRESS RELEASE
CONTACT: John R. Bowen, Chairman, President and Chief Executive Officer
TELEPHONE: (732) 499-7200
FOR IMMEDIATE RELEASE
- --------------------------------------------------------------------------------
Avenel, New Jersey. , 1998. John R. Bowen , President & Chief Executive Officer
of Axia Federal Savings Bank ("Axia Savings") announced today the completion of
Axia Savings' reorganization and common stock offering. In connection with the
stock offering by its holding company, Axia Bancorp, Inc., Axia Savings also
formed a mutual holding company named Axia Bancorp, MHC Shares of voting common
stock of Axia Bancorp, Inc. were sold to its eligible depositors and to the
employee stock ownership plan at $10.00 per share. The ______ shares sold in the
Offering represent a 47% minority interest in Axia Bancorp, Inc. The remaining
outstanding shares of stock are owned by Axia Bancorp, MHC
Mr. Bowen expressed his appreciation to the more than individuals who have
become stockholders of Axia Bancorp, Inc. Mr. Bowen was delighted by the support
and confidence shown by Axia Savings' customers and local community.
Net proceeds of approximately $ million were realized in the Offering, which
will add to Axia Savings' capital base and will support traditional investment
and lending activities. Ryan, Beck & Co., Inc. served as financial advisor and
selling agent with regard to the transaction. Ryan, Beck & Co. makes a market in
Axia Bancorp's common stock which will start trading on , 1998 and be listed on
the Nasdaq National Market under the symbol "AXIA".
<PAGE>
FOLDER COVER
Axia Federal Savings Bank
[LOGO]
<PAGE>
BROCHURE
Cover:
Q & A
ABOUT THE FORMATION OF
AXIA BANCORP, INC.
AND THE RELATED OFFERING OF COMMON STOCK
[LOGO]
Inside Cover:
The reorganization of Axia Federal Savings Bank into a mutual holding company,
including the organization of Axia Bancorp, Inc. as a mid-tier stock holding
company, and the related stock offering by Axia Financial Bancorp, Inc. are
referred to herein as the "Transaction". References herein to Axia Savings
include Axia Federal Savings Bank in its current mutual form or
post-reorganization stock form as indicated by the context.
This pamphlet answers frequently asked questions about the Transaction and about
your opportunity to invest inAxia Bancorp, Inc. Please read the enclosed
Prospectus before making an investment decision. For a discussion of certain
risk factors that should be considered by prospective investors, please see the
"Risk Factors" section of the Prospectus.
THE TRANSACTION
Q. What is the Transaction?
A. Axia Federal Savings Bank ("Axia Savings" or the "Bank") is changing its
legal form from a federally-chartered mutual (no stockholders) savings bank
to a federally-chartered capital stock savings bank that will be a
subsidiary ofAxia Bancorp, Inc. a federally-chartered stock holding company
(the "Company"). In addition, the Bank will organize Axia Bancorp, MHC (the
"Mutual Holding Company") which will own the majority of voting common
stock of the Company. The Transaction concurrently involves the sale of 47%
of the common stock of the Company (the "Offering") which will result in
the public owning a minority interest in the Company. After consummation of
the Transaction, Axia Savings will continue to provide its customers with
traditional financial services.
<PAGE>
Q. Why is the Bank pursuing this Transaction?
A. The Board of Directors has determined that the Transaction is in the best
interests of Axia Savings and its customers for a number of reasons
including:
The Offering gives customers (including directors, officers and
employees) and community members an opportunity to have equity
ownership in the Bank and the Company. Management believes that the
Offering will provide purchasers of the common stock an opportunity to
share in Axia Savings' future capital growth and potential earnings.
There can be no assurances, however, as to Axia Savings' capital
growth or future earnings.
While Axia Savings currently exceeds all regulatory capital
requirements, raising equity capital through the Offering permits the
Bank to enlarge its capital base and will help the Bank take advantage
of future business opportunities.
The Transaction will convert the Bank to stock form which is the
corporate form of organization used by commercial banks and most
savings institutions.
Q. Will there be any changes in directors, officers or employees as a result
of the Transaction?
A. No. The directors, officers and employees of Axia Savings will not change
as a result of the Transaction. The management and employees of Axia
Savings will continue in their current capacity and its directors and
officers will serve as the initial directors and officers of the Company.
The day-to-day activities of Axia Savings will not change as a result of
the Transaction.
Q. Will the Transaction affect deposit accounts or loan accounts?
A. No. The Transaction will not affect the amount, interest rate or withdrawal
rights of deposit accounts, which will continue to be insured by the FDIC
to the maximum legal limit. Likewise, the loan accounts and rights of
borrowers will not be affected.
VOTING RIGHTS
Q. Who is eligible to vote on the Transaction?
A. Depositors of the Bank as of , 1998, the Voting Record Date, are eligible
to vote. These members have been provided with a Proxy Statement describing
the Transaction.
2
<PAGE>
Q. If I received Proxy Cards, am I required to vote on the Transaction?
A. No. However, the Board of Directors urges you to vote "FOR" the Plan and
sign all of the Proxy Card(s) and either hand-deliver to any of our offices
or use the enclosed reply envelope.
Q. Why did I get several Proxy Cards?
A. If you have more than one account, you may have received more than one
Proxy Card, depending on the ownership structure of your accounts. Please
complete, execute and submit all Proxy Cards received by you.
Q. Am I required to purchase stock if I vote in favor of the Transaction?
A. No. To become a stockholder, you must submit a Stock Order Form and
payment, as described below.
Q. May I vote in person at the Special Meeting?
A. Yes. If you attend the Special Meeting, you may revoke your existing proxy,
if any, and vote in person.
PURCHASING STOCK
Q. Who may purchase the common stock?
A. The Bank's depositors and members of the general public may subscribe for
the Company's common stock during the offering period. In the event,
however, that more orders are received than common stock available, the
common stock will be allocated on a priority basis to: (1) depositors of
the Bank with aggregate deposits of $50 or more on September 30, 1996; (2)
the Bank's Employee Stock Ownership Plan; (3) depositors of the Bank with
aggregate deposits of $50 or more on March 31, 1998; (4) depositors of the
Bank as of , 1998; and (5) members of the general public. Please note that
you are not obligated to purchase stock.
Q. How much common stock is being offered?
A. The Company is offering between 1,178,525 and 1,833,646 shares of common
stock which represents a 47% minority ownership interest of the total
common stock expected to be outstanding.
3
<PAGE>
The number of shares offered is based on an independent appraisal of the
Company and the Bank, which determined that the estimated pro forma market
value to be between $25.0 and $39.0 million as of __________, 1998. The
final appraisal value will depend upon market and financial conditions at
the time the Offering is consummated.
Q. What is the price per share?
A. The Company is offering the shares at a purchase price of $10.00 per share.
All purchasers, including the directors and officers, will pay the same
price per share. No commission will be charged for stock purchased in the
Offering.
Q. How do I purchase common stock?
A. Complete the Stock Order Form and submit it to Axia Savings with payment by
10:00 a.m. local time, on _______, 1998. You may hand-deliver the Stock
Order Form to any Axia Savings office, or you may use the enclosed Reply
Envelope. Payment may be made by check or money order or by authorization
of withdrawal from Axia Savings deposit accounts. (Note that any applicable
penalty for early withdrawal will be waived for such withdrawals.)
Q. Will I receive interest on funds I submit for stock purchases?
A. Yes. Funds received will be placed in a deposit account at Axia Savings and
interest will be paid at the Bank's passbook account rate from the date
payment is received until the Offering is completed. With respect to
authorized account withdrawals, interest will continue to accrue at the
account's contract rate until the Offering is completed.
Q. What is the minimum and maximum number of shares that I may purchase in the
Offering?
A. The minimum purchase is 25 shares ($250). The maximum individual order in
the Offering is 10,000 shares ($100,000) and no person, together with
associates of and persons acting in concert with such person, may purchase
more than 20,000 shares ($200,000).
Q. Is the common stock insured by the FDIC?
A. No. Stock cannot be insured by the FDIC or any other government agency.
Q. May I obtain a loan from Axia Savings to pay for my shares?
A. No. Regulations do not allow Axia Savings to make loans for this purpose,
but other financial institutions may be able to make such a loan.
4
<PAGE>
Q. Can I subscribe for shares using funds in my IRA at Axia Savings?
A. Applicable regulations do not allow for the purchase of common stock in an
Axia Savings IRA. To utilize such funds to purchase common stock, you need
to establish a self-directed account with an outside trustee. Please call
the Stock Information Center if you wish to utilize your Axia Savings IRA,
or any tax-qualified funds at other institutions to purchase common stock
in the offering. IRA and tax-qualified procedures require additional
processing time, so please contact us as soon as possible.
Q. When does the Offering terminate?
A. The Offering will terminate at 10:00 a.m. New Jersey time, on ______, 1998,
unless extended by the Bank.
Q. What will happen to my order if orders are received for more common stock
than is available?
A. This is referred to as an over-subscription and shares will be allocated on
a priority basis as disclosed in the Prospectus. (The order of priority is
also provided previously.) There is no guarantee than an order will be able
to be filled in its entirety. Of course, if we are not able to fill an
order (either wholly or partly), funds remitted which are not used toward
the purchase of stock will be refunded with interest. If payment for the
stock is made by authorization to withdraw the funds from an Axia Savings
account, those funds not used to purchase common stock will remain in that
account along with accrued interest.
Q. When will I receive my stock certificate?
A. Stock certificates will be mailed as soon as practicable after the Offering
is completed. Please be aware that you may not be able to sell the shares
you purchased until you have received a stock certificate.
Q. How may I purchase or sell shares in the future?
A. You may purchase or sell shares through a stockbroker. The Company
anticipates that following the offering the common stock will be listed on
the Nasdaq National Market System under the symbol "AXIA". There can be no
assurance, however, that an active and liquid market for the common stock
will develop.
QUESTIONS?
PLEASE CALL THE STOCK INFORMATION CENTER AT (732) XXX-XXXX FROM 9:00 AM TO
4:00 PM, MONDAY THROUGH FRIDAY.
This brochure is neither an offer to sell nor a solicitation of an offer to buy
common stock. The offer is made only by the Prospectus. The shares of common
stock are not savings accounts or savings deposits and are not insured by the
Federal Deposit Insurance Corporation or any other government agency.
5
AXIA BANCORP, INC.
STOCK ORDER FORM [LOGO]
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Please read and complete this Stock Order Form. Instructions are included on the
reverse side of this form.
DEADLINE FOR DELIVERY
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10:00 a.m., New Jersey time, on _________, 1998
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Please mail the completed Stock Order Form in the enclosed business reply
envelope to the address listed below or hand-deliver to any Axia Federal Savings
Bank office. Axia Bancorp, Inc. is not required to accept copies of Stock Order
Forms.
NUMBER OF SHARES
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(1) Number of Shares Price Per Share Total Amount Due
-------------------- --------------------
X $10.00 = $
-------------------- --------------------
(25 Share MInimum)
METHOD OF PAYMENT
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OFFICE USE ONLY
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-------------- ------------- -------------
Date Rec'd Batch # Order #
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(2) [ ] Enclosed is a check or money order payable to Axia Federal Savings Bank
for $__________.
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(3) [ ] I authorize Axia Federal Savings Bank to make the withdrawal(s) from the
Axia Federal Savings Bank account(s) listed below, and understand that
the amounts I authorize below will not otherwise be available to me once
this Stock Order Form is submitted:
Account Number(s) Amount(s)
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
------------------------------------------------------------------
Total Withdrawal $
----------
There is no early withdrawal penalty for the purchase of stock.
PURCHASER INFORMATION
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(4) Check the box which applies.
(a) [ ] Eligible Account Holder- Check here if you were a depositor with
at least $50 at Axia Federal Savings Bank on September 30, 1996.
List any account(s) you had at that date.
(b) [ ] Supplemental Eligible Account Holder-Check here if you were a
depositor with at least $50 at Axia Federal Savings Bank at March
31, 1998, but are not an Eligible Account Holder. List any
account(s) you had at that date.
(c) [ ] Other Member - Check here if you were a depositor of Axia Federal
Savings Bank on ________, 1998, but are not an Eligible Account
Holder or Supplemental Account Holder. List any account(s) you
had at that date.
(d) [ ] Check here if you have never been an Axia Federal Savings Bank
customer.
Account Title (Name(s) on Account) Account Number
----------------------------------------------------------------------
--------------------------------------------------------
----------------------------------------------------------------------
--------------------------------------------------------
----------------------------------------------------------------------
If additional space is needed, please use the back of this Stock Order
Form.
<PAGE>
STOCK REGISTRATION (Please Print Clearly)
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(5) _______________________________________ (6) ____________________________
(First Name) (M.I.) (Last Name) Social Security # or Tax ID#
(stock certificate will show
this number)
_______________________________________ ____________________________
(First Name) (M.I.) (Last Name) Social Security # or Tax ID#
_______________________________________ (7) ____________________________
(Street Address) (Daytime Phone Number)
_______________________________________ ____________________________
(City) (State) (Zip) (Evening Phone Number)
(8) Form of Stock Ownership (check one)
[ ] Individual [ ] Individual Retirement Account (IRA)
[ ] Joint Tenants [ ] Corporation
[ ] Tenants in Common [ ] Fiduciary (Under Agreement Dated
[ ] Uniform Transfer to Minors ________, 199__)
[ ] Uniform Gift to Minors [ ] Other _____________________________
NASD AFFILIATION (If Applicable)
- --------------------------------------------------------------------------------
[ ] Check here and initial below if you are a member of the NASD ("National
Association of Securities Dealers") or a person associated with an NASD
member or a member of the immediate family of any such person to whose
support such person contributes, directly or indirectly, or if you have an
account in which an NASD member, or person associated with an NASD member,
has a beneficial interest. I agree (i) not to sell, transfer or hypothecate
the stock for a period of 90 days following issuance; and (ii) to report
this subscription in writing to the applicable NASD member I am associated
with within one day of payment for the stock.
____ (Please initial)
ACKNOWLEDGMENT AND SIGNATURE (VERY IMPORTANT)
- --------------------------------------------------------------------------------
I(we) acknowledge receipt of the Prospectus dated _____, 1998, and I(we) have
read the terms and conditions described therein. I (we) have read the section
entitled "Risk Factors"). I(we) understand that, after receipt by Axia Federal
Savings Bank, this order may not be modified or withdrawn without the consent of
Axia Federal Savings Bank. I(we) hereby certify that the shares which are being
subscribed for are for my(our) account only, and that I(we) have no present
agreement or understanding regarding any subsequent sale or transfer of such
shares and I (we) confirm that my (our) order does not conflict with the
purchase limitation and ownership limitation provisions in the Plan of
Reorganization from Mutual Savings Association to Mutual Holding Company and
Stock Issuance Plan. I(we) acknowledge that the common stock being ordered is
not a deposit or savings account, is not insured by the FDIC and is not
guaranteed by Axia Federal Savings Bank, or any government agency. Under
penalties of perjury, I(we) certify that (1) the Social Security #(s) or Tax
ID#(s) given above is(are) correct; and (2) I(we) am(are) not subject to backup
withholding tax (You must cross out #2 above if you have been notified by the
Internal Revenue Service that you are subject to backup withholding because of
underreporting interest or dividends on your tax return).
- --------------------------------------------------------------------------------
Please sign and date this form. Only one signature is required, unless
authorizing a withdrawal from a Axia Federal Savings Bank deposit account
requiring more than one signature to withdraw funds. If signing as a custodian,
corporate officer, etc., please include your full title.
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Signature Title (if applicable) Date
- --------------------------------------------------------------------------------
Signature (if required) Title (if applicable) Date
- --------------------------------------------------------------------------------
Stock Information Center:
Axia Federal Savings Bank
Address to be provided
Avenel, NJ 07001
THIS ORDER NOT VALID UNLESS SIGNED
QUESTIONS? Call (732) ___-____
9:00 am to 4:00 pm, Monday-Friday
THE SHARES OF COMMON STOCK ARE NOT SAVINGS ACCOUNTS OR SAVINGS DEPOSITS AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, OR ANY OTHER
GOVERNMENT AGENCY.
<PAGE>
STOCK ORDER FORM INSTRUCTIONS
1 - Indicate the number of shares of Axia Bancorp, Inc. common stock that you
wish to purchase and indicate the amount due. The minimum purchase is 25 shares
or $250. No individual person may purchase more than $100,000 in the Offering.
No person, together with associates of and persons acting in concert with such
person, may purchase more than $200,000 of Common Stock in the Offering. Axia
Federal Savings Bank reserves the right to accept or reject orders placed in the
Offering.
2 - Payment for shares may be made by check or money order payable to Axia
Federal Savings Bank. Funds received in this form of payment will be cashed
immediately and deposited into a separate account established for the purposes
of this Offering. You will earn interest at Axia Federal Savings Bank's passbook
rate (currently __%) from the time funds are received until the Offering is
consummated.
3 - You may pay for your shares by withdrawal from your Axia Federal Savings
Bank deposit account(s). Indicate the account number(s) and the amount(s) to be
withdrawn. These funds will be unavailable to you from the time this Stock Order
Form is received until the Offering is consummated. The funds will continue to
earn interest at the account's contractual rate until the Offering is
consummated. Please contact the Stock Information Center early in the Offering
period, if you are intending to utilize Axia Federal Savings Bank IRA funds (or
any other IRA funds) to make your stock purchase.
4 - Check the applicable box. This information is very important because
eligibility dates are utilized to prioritize your order in the event that we
receive more stock orders than available stock. List the name(s) on the deposit
account(s) and account number(s) that you held at the applicable date. Please
see the portion of the Prospectus entitled "The Reorganization and Offering -
Subscription Offering" for a detailed explanation of how shares will be
allocated in the event the Offering is oversubscribed. Failure to complete this
section could result in a loss of all or part of your stock allocation.
Account Title (Name(s) on Account) Account Number
---------------------------------- -----------------------
---------------------------------- -----------------------
---------------------------------- -----------------------
5 - Please CLEARLY PRINT the name(s) and address in which you want the stock
certificate registered and mailed. If you are exercising subscription rights by
purchasing in the Subscription Offering as a Axia Federal Savings Bank (i)
eligible depositor as of 9/30/96 or (ii) eligible depositor as of 3/31/98, or
(iii) other member as of __________, 1998 you must register the stock in the
name of one of the account holders listed on your account as of the applicable
date. However, adding the name(s) of other persons who are not account holders,
or were account holders at a later date than yourself, will be a violation of
your subscription right and will result in a loss of your purchase priority.
NOTE: ONE STOCK CERTIFICATE WILL BE GENERATED PER ORDER FORM. IF VARIOUS
REGISTRATIONS AND SHARE AMOUNTS ARE DESIRED ON VARIOUS CERTIFICATES, A SEPARATE
STOCK ORDER FORM MUST BE COMPLETED FOR EACH CERTIFICATE DESIRED.
6 - Enter the Social Security Number or Tax ID Number of the registered
owner(s). The first number listed will be identified with the stock certificate.
7 - Be sure to include at least one phone number, in the event you must be
contacted regarding this Stock Order Form.
8 - Please check the one type of ownership applicable to your registration. An
explanation of each follows:
GUIDELINES FOR REGISTERING STOCK
For reasons of clarity and standardization, the stock transfer industry has
developed uniform stockholder registrations which we will utilize in the
issuance of your Axia Bancorp, Inc. Stock Certificate(s). If you have any
questions, please consult your legal advisor.
Stock ownership must be registered in one of the following manners:
- --------------------------------------------------------------------------------
INDIVIDUAL: Avoid the use of two initials. Include the first given name,
middle initial and last name of the stockholder. Omit words
of limitation that do not affect ownership rights such as
"special account," "single man," "personal property," etc.
If the stock is held individually upon the individual's
death, the stock will be owned by the individual's estate
and distributed as indicated by the individual's will or
otherwise in accordance with law.
- --------------------------------------------------------------------------------
JOINT: Joint ownership of stock by two or more persons shall be
inscribed on the certificate with one of the following types
of joint ownership. Names should be joined by "and"; do not
connect with "or." Omit titles such as "Mrs.," "Dr.," etc.
- --------------------------------------------------------------------------------
JOINT TENANTS-- Joint Tenancy with Right of Survivorship and not as Tenants
in Common may be specified to identify two or more owners
where ownership is intended to pass automatically to the
surviving tenant(s).
- --------------------------------------------------------------------------------
TENANTS IN COMMON--Tenants in Common may be specified to identify two or more
owners. When stock is held as tenancy 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 in this form of ownership.
- --------------------------------------------------------------------------------
UNIFORM TRANSFER Stock may be held in the name of a custodian for a minor under
the Uniform Transfers to Minors laws of the individual states. TO MINORS: There
may be only one custodian and one minor designated on a stock certificate. The
standard abbreviation of custodian is "CUST,", while the description "Uniform
Transfers to Minors Act" is abbreviated "UNIF TRAN MIN ACT." Standard U.S.
Postal Service state abbreviations should be used to describe the appropriate
state. For example, stock held by John P. Jones under the Uniform Transfers to
Minors Act will be abbreviated:
JOHN P. JONES CUST SUSAN A. JONES
UNIF TRAN MIN ACT NJ
- --------------------------------------------------------------------------------
FIDUCIARIES: Stock held in a fiduciary capacity must contain the following:
1. The name(s) of the fiduciary(ies):
o If an individual, list the first given name, middle initial and
last name. o If a corporation, list the corporate title o If an
individual and a corporation, list the corporation's title before
the individual.
2. The fiduciary capacity:
o Administrator
o Conservator
o Committee
o Executor
o Trustee
o Personal Representative
o Custodian
3. The type of document governing the fiduciary relationship. Generally,
such relationships are either under a form of living trust agreement
or pursuant to a court order. Without a document establishing a
fiduciary relationship, your stock may not be registered in a
fiduciary capacity.
4. The date of the document governing the relationship. The date of the
document need not be used in the description of a trust created by a
will.
5. Either of the following:
The name of the maker, donor or testator OR
The name of the beneficiary
Example of Fiduciary Ownership:
JOHN D. SMITH, TRUSTEE FOR TOM A. SMITH
UNDER AGREEMENT DATED 6/9/74
