As filed with the Securities and Exchange Commission on March 26, 1998
Registration No. 333-________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
THISTLE GROUP HOLDINGS, CO.
---------------------------
(Exact name of registrant as specified in charter)
Pennsylvania 6035 Applied For
------------ ---- -----------
(State or other jurisdiction (Primary SIC No.) (I.R.S. Employer
of incorporation or Identification No.)
organization)
6060 Ridge Avenue, Philadelphia, Pennsylvania 19128
(215) 483-2800
-------------------------------------
(Address, including zip code, and telephone number, including area code,
of principal executive offices)
Mr. John F. McGill, Jr.
President and Chief Executive Officer
Thistle Group Holdings, Co.
6060 Ridge Avenue, Philadelphia, Pennsylvania 19128
(215) 483-2800
-------------------------------------
(Name, address and telephone number of agent for service)
Please send copies of all communications to:
Samuel J. Malizia, Esq.
Gregory A. Gehlmann, Esq.
Ruel B. Pile, Esq.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
1301 K Street, N.W., Suite 700 East, Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED
SALE TO THE PUBLIC: As soon as practicable after
this registration statement becomes effective.
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended (the "Securities Act"), check the following
box [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration 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(d) under the Securities Act, check the following box and list the Securities
Act registration number of the earlier effective registration statement for the
same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to
Rule 434, please check the following box.[ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------
Title of Each Amount Proposed Maximum Proposed Maximum Amount of
Class of Securities to be Offering Price Aggregate Offering Registration Fee
To Be Registered Registered Per Share Price
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Common Stock, $0.10 par 11,902,500 $10.00 $119,025,000 35,112.38
- --------------------------------------------------------------------------------------------------
</TABLE>
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act or until the registration statement shall become effective on
such date as the Commission, acting pursuant to said Section 8(a), may
determine.
<PAGE>
PROSPECTUS THISTLE GROUP HOLDINGS, CO.
(Proposed Holding Company for Roxborough-Manayunk Federal Savings Bank)
11,902,500 Shares of Common Stock
Thistle Group Holdings, Co. (the "Company"), a Pennsylvania
corporation, is offering up to 10,350,000 shares (which may be increased to
11,902,500 shares under certain circumstances described below) of its common
stock, par value $.10 per share (the "Common Stock"), in connection with (i) the
Exchange (as hereinafter defined) described herein to be effected in connection
with the Conversion (as hereinafter defined) of FJF Financial, M.H.C. (the
"Mutual Holding Company") and the Reorganization (as hereinafter defined) in
which Thistle Group Holdings, Inc. (the "Mid-Tier Holding Company") and the
Mutual Holding Company will be merged into Roxborough-Manayunk Federal Savings
Bank (the "Bank") with the result that the Company will become the holding
company of the Bank and (ii) the Offerings described herein.
FOR INFORMATION ON HOW TO SUBSCRIBE, CALL THE STOCK CENTER
AT 215-__________, OR 1-888-__________ (Toll-Free).
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 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.
<TABLE>
<CAPTION>
=============================================================================================================================
Estimated
Underwriting
Commissions and Estimated
Other Fees and Net Cash
Subscription Price(1) Expenses(2) Proceeds(3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum Per Share........................... $10.00 $.17 $9.83
- -----------------------------------------------------------------------------------------------------------------------------
Midpoint Per Share.......................... $10.00 $.16 $9.84
- -----------------------------------------------------------------------------------------------------------------------------
Maximum Per Share........................... $10.00 $.15 $9.85
- -----------------------------------------------------------------------------------------------------------------------------
Maximum Per Share, as adjusted(4)........... $10.00 $.15 $9.85
- -----------------------------------------------------------------------------------------------------------------------------
Minimum Total............................... $66,779,270 $1,163,000 $65,616,270
- -----------------------------------------------------------------------------------------------------------------------------
Midpoint Total.............................. $78,563,700 $1,299,000 $77,264,700
- -----------------------------------------------------------------------------------------------------------------------------
Maximum Total............................... $90,348,340 $1,435,000 $88,913,340
- -----------------------------------------------------------------------------------------------------------------------------
Maximum Total, as adjusted(4)............... $103,900,480 $1,590,000 $102,310,480
=============================================================================================================================
</TABLE>
(1) Based on (i) the independent appraisal prepared by FinPro, Inc.
("FinPro") dated March __, 1998, which states that the estimated pro
forma market value of the Common Stock ranged from $76.5 million to
$103.5 million (subject to adjustment to $119.0 million, and (ii) the
Adjusted Majority Ownership Percentage (as defined herein), pursuant to
which 87.29% of the to-be outstanding shares of Common Stock will be
offered as Conversion Stock in the Offering. See "THE CONVERSION AND
REORGANIZATION -- Shares Exchange Ratio," and "--Stock Pricing and
Number of Shares to be Issued."
SANDLER O'NEILL & PARTNERS, L.P.
<PAGE>
(2) Consists of the estimated costs of the Conversion, including estimated
fixed expenses of $395,000 and market fees to be paid to Sandler
O'Neill & Partners, L.P. Actual expenses may vary from these estimates.
See "PRO FORMA DATA" for the assumptions used in arriving at these
estimates.
(3) Includes proceeds from the sale of shares of Common Stock in the
Offering to the Bank's employee stock ownership plan and trust (the
"ESOP"). The ESOP intends to purchase 8.0% of the shares sold in the
Offering. Funds to purchase such shares will be loaned to the ESOP by
the Company. See "THE CONVERSION AND REORGANIZATION--Plan of
Distribution and Selling Commissions" and "MANAGEMENT OF THE
BANK--Benefit Plans."
(4) As adjusted to give effect to the sale of up to an additional 15% of
the shares that may be offered without a resolicitation of subscribers
or any right of cancellation. See "THE CONVERSION--Stock Pricing and
Number of Shares to be Issued."
The Offerings. In addition to the Exchange, nontransferable
subscription rights to subscribe for up to 9,034,834 shares (which may be
increased to 10,390,048 shares under certain circumstances described below) of
Common Stock (the "Conversion Stock") have been granted to certain members of
the Bank as of specified record dates and to the ESOP (the "Subscription
Offering"), subject to the limitations described herein. Commencing concurrently
with the Subscription Offering, and subject to the prior rights of holders of
subscription rights, the right of the Bank, the Mutual Holding Company, the
Mid-Tier Holding Company and the Company (the "Primary Parties") to reject such
orders in whole or in part, and the other limitations described herein, the
Company is offering the shares of Conversion Stock not subscribed for in the
Subscription Offering, if any, for sale to stockholders of the Mid-Tier Holding
Company as of December 31, 1997, other than the Mutual Holding Company (the
"Public Stockholders") in the "Public Stockholder Offering". After satisfying
those with subscription rights and the Public Stockholders, the Company is
offering shares of Conversion Stock in a community offering (the "Community
Offering") to certain members of the general public to whom a copy of this
Prospectus and an Order Form and certification form ("Order Form") is delivered
by or on behalf of the Company, with preference given to natural persons
residing in the Pennsylvania counties of Philadelphia and Delaware ("Local
Community"). (The Subscription Offering, Public Stockholder Offering and the
Community Offering are referred to collectively as the "Offerings"). The Primary
Parties have engaged Sandler O'Neill & Partners, L.P. ("Sandler" or the "Agent")
to consult with and advise them in the Conversion and Reorganization and Sandler
has agreed to use its best efforts to solicit subscriptions and purchase orders
for shares of Conversion Stock in the Offerings. See "THE CONVERSION AND
REORGANIZATION -- Marketing Arrangements."
The Subscription Offering will terminate at Noon, Philadelphia Time, on
__________ ____ 1998 (the "Expiration Date"), unless extended by the Primary
Parties, with approval of the OTS, if necessary. The Community Offering is
expected to terminate at the same time as the Subscription Offering. The
Community Offering must be completed within 45 days after the close of the
Subscription Offering, or ________ ____, 1998, unless extended by the Primary
Parties with the approval of the OTS, if necessary. The latest possible
extension date under the rules of the OTS is 24 months from the date of the
approval of the Plan of Conversion and Reorganization. Orders submitted are
irrevocable until the completion of the Conversion and Reorganization; provided
that, if the Conversion and Reorganization are not completed within the 45 day
period referred to above, unless such period has been extended with the consent
of the OTS, if necessary, all subscribers will have their funds returned
promptly with interest, and all withdrawal authorizations will be canceled. See
"THE CONVERSION AND REORGANIZATION -- The Offerings" and " -- Subscription
Offering."
The Exchange. Pursuant to a Plan of Conversion and Reorganization (the
"Plan" or "Plan of Conversion and Reorganization") adopted by the Primary
Parties, the Mutual Holding Company will be converted to an interim federal
stock association and immediately merged into the Bank upon
<PAGE>
consummation of a series of transactions described herein (collectively, with
the Offerings, the "Conversion and Reorganization"). As a result of the
Conversion and Reorganization, each of the 1,415,000 shares of common stock of
the Mid-Tier Holding Company ("Mid-Tier Common Stock") held by the Mutual
Holding Company immediately prior to the Conversion and Reorganization -- will
be canceled and each of the 206,000 shares of Mid-Tier Common Stock held by
stockholders other than the Mutual Holding Company (the "Public Mid-Tier Shares"
held by the Public Stockholders), will receive Common Stock in an Exchange (the
"Exchange Shares") pursuant to a ratio (the "Exchange Ratio") that will result
in the Public Stockholders owning in the aggregate approximately the same
percentage of the outstanding Common Stock immediately following the Conversion
and Reorganization. See "THE CONVERSION AND REORGANIZATION -- The Exchange
Ratio."
Restrictions on Transfer of Subscription Rights and Shares. No person
may transfer or enter into any agreement or understanding to transfer the legal
or beneficial ownership of the subscription rights issued under the Plan or the
shares of Common Stock to be issued upon their exercise. Each person exercising
subscription rights will be required to certify that a purchase of Common Stock
is solely for the purchaser's own account and that there is no agreement or
understanding regarding the sale or transfer of such shares. See "THE CONVERSION
AND REORGANIZATION -- Restrictions on Transfer of Subscription Rights and
Shares." The Primary Parties 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.
Purchase Limitations. The Plan sets forth various purchase limitations
which are applicable in the Offerings. The minimum purchase is 25 shares. With
the exception of the ESOP, the maximum number of shares of Conversion Stock
which may be purchased by any person (or persons through a single account) shall
not exceed, when combined with Exchange Shares, $300,000 (or 30,000 shares). The
Plan also provides that the maximum number of shares of Conversion Stock which
may be subscribed for or purchased in all categories in the Conversion by any
person together with any associate or group of persons acting in concert shall
not exceed such number of shares of Conversion Stock as shall equal, when
combined with Exchange Shares, $904,000 (or 90,400 shares) except for the Tax
Qualified Employee Benefit Plans which in the aggregate may subscribe for 10% of
the Conversion Stock. Directors and officers may not purchase in the aggregate
more than 29% of the total number of shares of Conversion Stock sold in the
Offerings, including any shares which may be issued in the event of an increase
in the maximum of the Offering Price Range to reflect changes in market,
financial, or economic conditions after the commencement of the Subscription
Offering and prior to the completion of the Offerings. Notwithstanding anything
to the contrary unless otherwise required by the OTS, Public Stockholders will
not have to sell Mid-Tier Common Stock or be limited in receiving Exchange
Shares even if their ownership of Common Stock when converted into Exchange
Shares would exceed an applicable limitation.
Required Approvals. The consummation of the Conversion and
Reorganization is subject to the receipt of various regulatory approvals and the
approval of the members of the Mutual Holding Company and the stockholders of
the Mid-Tier Holding Company in the manner set forth herein. See "THE CONVERSION
AND REORGANIZATION - -- Required Approvals."
Market for Common Stock. The Public Mid-Tier Shares are not currently
quoted on any stock exchange. After the Conversion and Reorganization, shares of
the Common Stock will trade on the Nasdaq National Market under the symbol
("__________"). See "MARKET FOR COMMON STOCK."
<PAGE>
This Prospectus contains forward-looking statements which reflect the
Primary Parties' views regarding future events and financial performance. Actual
results could differ materially from those projected in the forward-looking
statements as a result of risks and uncertainties including, but not limited to,
those found in the "RISK FACTORS" section. The words "believe," "expect," and
"anticipate" and similar expressions identify forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking
statements which speak only as of their dates. The Primary Parties undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events or otherwise unless such update is
deemed material to the Public Stockholders. The Risk Factors discussion begins
on page ____ of the Prospectus.
<PAGE>
SUMMARY
This summary is qualified in its entirety by the more detailed
information regarding the Company, the Mid-Tier Holding Company, the Bank, and
the Mutual Holding Company, and the Consolidated Financial Statements of the
Mid-Tier Holding Company and the Notes thereto, appearing elsewhere in this
Prospectus.
The Company
Thistle Group Holdings, Co. is a newly created Pennsylvania
corporation, organized in May of 1998. It was organized at the direction of the
Board of Directors of the Bank to acquire and hold all of the Bank Common Stock
and to facilitate the Conversion and Reorganization. The Company has not engaged
in any significant business to date. The Company has applied to the OTS for
authority to acquire 100% of the Bank Common Stock and become a savings and loan
holding company. That application has been approved by the OTS subject to
certain conditions. After the Conversion and Reorganization, the Company will be
100% publicly owned and serve as a holding company of the Bank. The Common Stock
will be registered with the Securities and Exchange Commission (the "SEC") under
Section 12(g) of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act").
The Mid-Tier Holding Company
Thistle Group Holdings, Inc. is a Pennsylvania corporation organized in
May of 1997. It is currently the mid-tier holding company (the "Mid-Tier Holding
Company") for the Bank. At present, 87.29% of the Mid-Tier Common Stock is held
by the Mutual Holding Company. The other 12.71% of the Mid-Tier Common Stock is
held by the Public Stockholders. The Mid-Tier Holding Company has no other
material business or activities other than acting as the holding company of
Roxborough- Manayunk Federal Savings Bank and holding certain equity securities.
Pursuant to the Conversion and Reorganization, the Mid-Tier Holding Company
will, after a series of transactions, merge with the Bank, with the Bank as the
survivor, and the Mid-Tier Holding Company will cease to exist and its
successor, the Company, will be 100% publicly owned. The Company will own 100%
of the Bank.
As of December 31, 1997, the Mid-Tier Holding Company had $276.7
million of total assets, $248.2 million of total liabilities (including $230.6
million of deposits) and $28.5 million of stockholders' equity.
Roxborough-Manayunk Federal Savings Bank
Roxborough-Manayunk Federal Savings Bank is a federally chartered stock
savings bank that was organized on December 31, 1992, as a subsidiary of the
Mutual Holding Company. In connection with the organization of the Mutual
Holding Company (the "MHC Reorganization"), Roxborough-Manayunk Federal Savings
& Loan Association transferred substantially all of its assets and liabilities
to the Bank in exchange for 1,415,000 shares of common stock (the "Bank Common
Stock") and converted its charter to that of a federal mutual holding company
known as FJF Financial, M.H.C. As part of the MHC Reorganization, the Bank sold
an additional 200,000 shares of Bank Common Stock to certain members of the
general public.
(i)
<PAGE>
On December 31, 1997, pursuant to a reorganization, all Bank Common
Stock was exchanged on a one-for-one basis for Mid-Tier Common Stock. This
resulted in the Bank becoming the 100% owned subsidiary of the Mid-Tier Holding
Company.
Upon completion of the Conversion and Reorganization, the Bank will
change its name to Roxborough-Manayunk Bank.
FJF Financial, M.H.C.
FJF Financial, M.H.C. is a federally chartered mutual holding company
chartered on December 31, 1992, in connection with the MHC Reorganization. The
Mutual Holding Company's primary asset is 1,415,000 shares of Mid-Tier Common
Stock, which represents 87.29% of the shares of Mid-Tier Common Stock
outstanding as of December 31, 1997. As part of the Conversion and
Reorganization, the Mutual Holding Company will convert from mutual form to a
federal interim stock savings institution and, after a series of transactions,
merge into the Bank with the Bank being the surviving entity. A special
liquidation account for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders of the Bank will also be established by the Bank. The
Bank will then be acquired by the Company and become a wholly owned subsidiary
of the Company. See "THE CONVERSION AND REORGANIZATION -- Liquidation Rights"
and " -- Effect on Liquidation Rights."
Purposes of the Conversion and Reorganization
In their decision to pursue the Conversion and Reorganization, the
Primary Parties considered various regulatory uncertainties associated with the
mutual holding company structure including the ability to waive dividends in the
future as well as the general uncertainty regarding a possible elimination of
the federal savings association charter including the potential loss of unitary
thrift holding company powers. See "RISK FACTORS -- Proposed Federal
Legislation." In addition, the Primary Parties considered the various advantages
of a fully converted stock holding company form of organization including: (1)
the larger capital base of a fully converted stock holding company; (2) the
enhancement of the Mid-Tier Holding Company's future access to the capital
markets; (3) the increase in the number of outstanding shares of publicly traded
stock (which will increase the liquidity of the Common Stock); (4) a stock
holding company's ability to repurchase shares of its common stock without
increasing the Mutual Holding Company's percentage interest in the Mid-Tier
Holding Company; and (5) recent consolidations in the Pennsylvania market and
the greater ability to acquire other financial institutions or branches of other
financial institutions. For additional information see "THE CONVERSION AND
REORGANIZATION -- Purposes of the Conversion and Reorganization."
Description of the Conversion and Reorganization
On February 18, 1998, the Board of Directors of the Mid-Tier Holding
Company, the Bank and the Mutual Holding Company adopted the Plan which has
subsequently been amended and adopted by the Company. Pursuant to the Plan, (i)
the Mid-Tier Holding Company will convert first into a federal stock holding
company and then into an interim federal stock savings bank. Following its
conversion into an interim federal stock savings bank, it will merge into the
Bank with the Bank as the survivor; (ii) the Mutual Holding Company will convert
to an interim federal stock savings institution and merge with and into the
Bank, pursuant to which the Mutual Holding Company will cease to exist and the
1,415,000 shares or 87.29% of the outstanding Mid-Tier Common Stock held by the
Mutual Holding Company will be canceled. The Bank will then be acquired by a
newly created Pennsylvania chartered holding company
(ii)
<PAGE>
(i.e., the Company), and become a wholly owned subsidiary of the Company. The
outstanding Public Mid-Tier Shares, which amounted to 206,000 shares or 12.71%
of the outstanding Mid-Tier Common Stock at December 31, 1997, will, subject to
any dissenters' rights, be converted into the Exchange Shares pursuant to the
Exchange Ratio, which will result in the holders of such shares owning in the
aggregate approximately 12.71% of the Common Stock to be outstanding upon the
completion of the Conversion and Reorganization. See "THE CONVERSION AND
REORGANIZATION -- The Exchange Ratio."
The following diagrams outline (i) the current organization structure
of the Mutual Holding Company, the Mid-Tier Holding Company, and the Bank and
(ii) the organizational structure of the Company and the Bank following the
Conversion and Reorganization.
Current organizational structure:
------------------------------- -------------------------------
| | | |
| Mutual Holding Company | | Minority Stockholders |
| | | |
------------------------------- -------------------------------
| |
| 87.29% 12.71% |
| |
------------------------------------------
| Mid-Tier |
| Holding Company |
------------------------------------------
|
| 100%
|
------------------------------------------
| |
| Bank |
| |
------------------------------------------
Organizational structure following the Conversion and Reorganization:
------------------------------------------
| Public Stockholders |
------------------------------------------
100%
------------------------------------------
| Company |
------------------------------------------
100%
------------------------------------------
| Bank |
------------------------------------------
Specifically, the Conversion and Reorganization will be completed as
follows: (i) The Mutual Holding Company will convert into an interim federal
stock savings bank to be known as Interim Bank #1. The Mid-Tier Holding Company
will then adopt a federal charter and immediately thereafter an
(iii)
<PAGE>
interim federal stock charter to be known as Interim Bank #2; (ii) Interim Bank
#2 will then merge into the Bank ("Merger #1"), with the Bank as the surviving
entity; (iii) immediately following Merger #1, Interim Bank #1, formerly the
Mutual Holding Company, will merge with and into the Bank with the Bank as the
surviving entity ("Merger #2"). The shares of Mid-Tier Common Stock previously
held by the Mutual Holding Company (now Interim Bank #1) will be canceled.
Eligible members of the Mutual Holding Company as of certain specified dates
will be granted interests in a liquidation account to be established by the
Bank. The amount in the liquidation account is the amount of dividends waived by
the Mutual Holding Company plus 100% of retained earnings as of June 30, 1992,
or 87.29% of the Mid-Tier Holding Company's total stockholders' equity as
reflected in its latest statement of financial condition; (iv) the Company will
form an interim corporation ("Interim FSB"), a new, wholly owned first-tier
subsidiary with an interim federal stock charter; (vi) immediately following
Merger #2, Interim FSB will merge with and into the Bank, with the Bank as the
surviving entity ("Merger #3"). As a result of Merger #3, Bank stock deemed held
by Public Stockholders will be converted into the Common Stock based upon the
Exchange Ratio which is designed to ensure that the same Public Stockholders
will own, subject to certain adjustments described in "THE CONVERSION AND
REORGANIZATION -- The Exchange Ratio," approximately the same percentage of the
Company stock as the percentage of the Mid- Tier Holding Company stock owned by
them immediately prior to the Conversion and Reorganization before giving effect
to (a) cash paid in lieu of fractional shares and (b) any shares of the Company
stock purchased by Public Stockholders in the Offering and subject to an
adjustment as a result of a change in OTS policy; (vii) simultaneously with the
consummation of Merger #3, the Company will sell additional shares of Conversion
Stock, with priority subscription rights granted to certain members of the
Mutual Holding Company; and to tax qualified employee benefit plans pursuant to
the Plan of Conversion and Reorganization adopted by the Primary Parties.
Pursuant to OTS regulations, consummation of the Conversion and
Reorganization is conditioned upon the approval of the Plan by the OTS, as well
as (1) the approval of the holders of at least a majority of the total number of
votes eligible to be cast by the members of the Mutual Holding Company (which
consist of qualifying depositors and borrowers of the Bank) ("Members") as of
the close of business on __________ ____, 1998 (the "Voting Record Date"), at a
special meeting of Members called for the purpose of submitting the Plan for
approval (the "Members' Meeting"), and (2) the approval of the holders of at
least two-thirds of the shares of the outstanding Mid-Tier Common Stock held by
the Mutual Holding Company and the Public Stockholders (collectively, the
"Stockholders"), as of the Voting Record Date, at a special meeting of
stockholders called for the purpose of considering the Plan (the "Stockholders'
Meeting"). In addition, the Primary Parties have conditioned the consummation of
the Conversion and Reorganization on the approval of the Plan by at least a
majority of the votes cast, in person or by proxy, by the Public Stockholders at
the Stockholders' Meeting. The Conversion and Reorganization is also contingent
on obtaining various approvals from the OTS. The Mutual Holding Company intends
to vote its shares of Mid-Tier Common Stock, which amounts to 87.29% of the
outstanding shares, in favor of the Plan at the Stockholders' Meeting. In
addition, as of December 31, 1997, directors and executive officers of the Bank
as a group (ten persons) beneficially owned 96,500 shares (excluding options to
purchase 40,000 shares) or 46.84% of the outstanding Mid-Tier Common Stock held
by persons other than the Mutual Holding Company, which shares can also be
expected to be voted in favor of the Plan at the Stockholders' Meeting.
The Offerings
Pursuant to the Plan and in connection with the Conversion and
Reorganization, the Company is offering up to 9,034,834 shares (subject to
adjustment of up to 10,390,048 shares) of Conversion Stock
(iv)
<PAGE>
in the Offerings. Conversion Stock is first being offered in the Subscription
Offering, with nontransferable subscription rights being granted, in the
following order of priority: (i) First Priority, to depositors of the Bank with
account balances of $50.00 or more as of the close of business on December 31,
1996, ("Eligible Account Holders"); (ii) Second Priority, to the ESOP; (iii)
Third Priority, to depositors of the Bank with account balances of $50.00 or
more as of the close of business on March 31, 1998 ("Supplemental Eligible
Account Holders"); and (iv) Fourth Priority, depositors of the Bank as of the
Voting Record Date (other than Eligible Account Holders and Supplemental
Eligible Account Holders) and certain borrowers as of December 31, 1992
("Members"). Subscription rights will expire if not exercised by Noon,
Philadelphia Time, on __________ ____ 1998, unless extended.
Subject to the prior rights of holders of subscription rights,
Conversion Stock not subscribed for in the Subscription Offering is being
offered first to Public Stockholders and then in a Community Offering to certain
members of the general public to whom a copy of this Prospectus and order form
is delivered, with preference given to natural persons residing in the Bank's
Local Community. The Primary Parties reserve the absolute right to reject or
accept any orders in the Community Offering, in whole or in part, either at the
time of receipt of an order or as soon as practicable following the Expiration
Date. The closing of all shares sold in the Offerings will occur simultaneously,
and all shares of Conversion Stock will be sold at a uniform price of $10.00 per
share.
Procedure for Purchasing Shares in the Offerings.
To help ensure that each purchaser receives a Prospectus at least 48
hours before the Expiration Date in accordance with Rule 15c2-8 of the Exchange
Act, no Prospectus will be mailed any later than five days prior to such date or
hand delivered any later than two days prior to such date. Execution of the
order form will confirm receipt or delivery of the Prospectus in accordance with
Rule 15c2-8. Order forms will only be distributed with a Prospectus.
To purchase shares in the Offerings, an executed original order form
with a certification form and the required payment for each share subscribed
for, or with appropriate authorization for withdrawal from a deposit account at
the Bank (which may be given by completing the appropriate blanks on the order
form), must be received by the Bank at any of its offices by 12 Noon,
Philadelphia Time, on the Expiration Date. Order forms which are not received by
such time or are executed defectively or are received without full payment (or
appropriate withdrawal instructions) are not required to be accepted. The Bank
is not required to accept orders submitted on facsimilied order forms. The
Primary Parties have the right to waive or permit the correction of incomplete
or improperly executed forms, but do not represent that they will do so. The
waiver of an irregularity on an order form, the allowance by the Primary Parties
of a correction of an incomplete or improperly executed order form, or the
acceptance of an order after 12 Noon on the Expiration Date in no way obligates
the Primary Parties to waive an irregularity, allow a correction, or accept an
order with respect to any other order form. The interpretation by the Primary
Parties of the acceptability of an order form will be final. Once received, an
executed order form may not be modified, amended or rescinded without the
consent of the Primary Parties, unless the Offerings have not been completed
within 45 days after the end of the Subscription, Public Stockholders, and
Community Offerings, unless such period has been extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priority, depositors as of the close of business on the Eligibility
Record Date (December 31, 1996) or the Supplemental Eligibility Record Date
(March 31, 1998) and Voting Record Date (__________, 1998) must list on the
order form all accounts
(v)
<PAGE>
in which they have an ownership interest at the applicable eligibility date,
giving all names in each account and the account numbers. Members qualifying for
a stock purchase priority who add individuals with a lower, or no, stock
purchase priority as subscribers on an order form will have their stock purchase
priority reduced or eliminated based on the lower priority.
Payment for subscriptions and orders may be made (i) in cash if
delivered in person at any office of the Bank, (ii) by check or money order, or
(iii) by authorization of withdrawal from certificate of deposit accounts or
IRAs maintained with the Bank. The Primary Parties may in their sole discretion
elect not to accept payment for shares of Conversion Stock by wired funds and
there shall be no liability for failure to accept such payment. Funds will be
deposited in a segregated account at the Bank and interest will be paid on funds
made by cash, check or money order at the Bank's passbook rate of interest from
the date payment is received until completion or termination of the Conversion
and Reorganization. If payment is made by authorization of withdrawal from
certificate of deposit accounts, the funds authorized to be withdrawn from a
Bank deposit account may continue to accrue interest at the contractual rates
until completion or termination of the Conversion and Reorganization, but a hold
will be placed on such funds, thereby making them unavailable to the depositor
until completion or termination of the Conversion and Reorganization.
If a subscriber authorizes the Bank to withdraw the aggregate amount of
the purchase price from a deposit account, the Bank will do so as of the
effective date of the Conversion and Reorganization. The Bank may waive any
applicable penalties for early withdrawal from certificate of deposit accounts.
If the remaining balance in a certificate of deposit account is reduced below
the applicable minimum balance requirement at the time that the funds actually
are transferred under the authorization, the certificate of deposit will be
canceled at the time of the withdrawal, without penalty, and the remaining
balance will earn interest at the passbook rate.
The ESOP will not be required to pay for the shares subscribed for at
the time it subscribes, but rather may pay for such shares of Conversion Stock
subscribed for upon consummation of the Offerings, provided that there is in
force from the time of its subscription until such time, a loan commitment from
the Company to lend to the ESOP, at such time, for the aggregate purchase price
of the shares for which it subscribed.
A depositor interested in using his IRA funds to purchase Conversion
Stock must do so through a self-directed IRA. The Bank will allow a depositor to
make a trustee-to-trustee transfer of the IRA funds to an unaffiliated
institution offering a self-directed IRA program with the agreement that such
funds will be used to purchase the Conversion Stock in the Offerings. There will
be no early withdrawal or IRS penalties for such transfers. The new trustee
would hold the Conversion Stock in a self-directed account in the same manner as
the Bank now holds the depositor's IRA funds. An annual administrative fee may
be payable to the new trustee. Depositors interested in using funds in a Bank
IRA to purchase Conversion Stock should contact the Stock Information Center as
soon as possible so that the necessary forms may be forwarded for execution
prior to the Expiration Date.
The Primary Parties have retained Sandler as consultant and advisor in
connection with the Offerings and to assist in soliciting subscriptions in the
Offerings on a best efforts basis. See "THE CONVERSION AND REORGANIZATION -- The
Offerings" " -- Subscription Offering," "-- Community Offering," and " --
Marketing Arrangements."
(vi)
<PAGE>
Purchase Limitations
The Plan sets forth various purchase limitations which are applicable
in the Offerings. The minimum purchase is 25 shares. With the exception of the
ESOP, the maximum number of shares of Conversion Stock which may be purchased by
any person (or persons through a single account) shall not exceed, when combined
with Exchange Shares, $300,000 (or 30,000 shares). Further, the Plan provides
that, except for the Tax Qualified Employee Stock Benefit Plans, the maximum
number of shares of Conversion Stock which may be purchased in all categories in
the Conversion and Reorganization by any person (or persons through a single
account), together with any associate or group of persons acting in concert,
when combined with Exchange Shares equals $904,000 (or 90,400 shares). Directors
and officers may not purchase in the aggregate, when combined with Exchange
Shares, more than 29% of the total number of shares of Conversion Stock sold in
the Offerings, including any shares which may be issued in the event of an
increase in the maximum of the Offering Price Range to reflect changes in
market, financial, or economic conditions after the Commencement of the
Subscription Offering and prior to the completion of the Offerings.
Notwithstanding anything to the contrary, except as otherwise required by the
OTS, Public Stockholders will not have to sell Common Stock or be limited in
receiving Exchange Shares even if their ownership of Common Stock, when
converted pursuant to the Exchange Ratio (as defined herein), would exceed the
above limitation.
Stock Pricing and Number of Shares to be Issued in the Conversion and
Reorganization
The Plan of Conversion and Reorganization requires that the aggregate
purchase price of the Conversion Stock be based on the appraisal of the pro
forma market value of the Mid-Tier Holding Company and the Bank on a
consolidated basis, as determined on the basis of an independent valuation. The
Primary Parties have retained FinPro to prepare such independent valuation (the
"Independent Valuation"). The Independent Valuation was prepared based on the
assumption that the aggregate amount of Conversion Stock sold in the Offerings
would be equal to the estimated pro forma market value of the Mid-Tier Holding
Company and the Bank, on a consolidated basis, multiplied by the percentage of
the outstanding shares of Mid-Tier Common Stock held by the Mutual Holding
Company as of the date of the appraisal, subject to certain adjustments
described in "THE CONVERSION AND REORGANIZATION -- The Exchange Ratio." The
Independent Valuation states that as of March 16, 1998, the estimated pro forma
market value of the Company ranged from a minimum of $76.5 million to a maximum
of $103.5 million with a midpoint of $90.0 million. Based on the percentage of
the outstanding shares of Mid-Tier Common Stock held by the Mutual Holding
Company as of the date of the appraisal, and the adjustments described herein,
the estimated pro forma market value of the Mutual Holding Company was
multiplied by 87.29% to determine the dollar amount of Conversion Stock to be
offered in the Offerings, which ranges from a minimum of $66,779,270 (i.e.,
6,677,927 shares of Conversion Stock) to a maximum of $90,348,340 (i.e.,
9,034,834 shares of Conversion Stock), with a midpoint of $78,563,700 (i.e.,
785,637 shares of Conversion Stock). The range of the aggregate dollar amount
and number of shares of Conversion Stock offered in the Offerings is referred to
herein as the "Offering Price Range."
The full text of the Appraisal describes the procedures followed, the
assumptions made, limitations on the review undertaken and matters considered,
which included the lack of a trading market for Mid-Tier Common Stock, but was
not dependent thereon. The Appraisal has been filed as an exhibit to the
Registration Statement and Application for Conversion of which this Prospectus
is a part, and is available in the manner set forth under "ADDITIONAL
INFORMATION." The Appraisal is not intended
(vii)
<PAGE>
and should not be construed as a recommendation of any kind as to the
advisability of purchasing such stock.
Depending upon market or financial conditions following the
commencement of the Subscription Offering, the total number of shares of
Conversion Stock to be sold in the Offerings may be increased by up to 15%, to
10,390,048 shares, without a resolicitation of subscribers. In the event market
or financial conditions change so as to cause the aggregate purchase price of
the shares to be below the minimum of the Offering Price Range (i.e.
$66,779,270) or more than 15% above the maximum of such range (i.e.
$103,900,480) purchasers will be resolicited (i.e., permitted to continue their
orders, in which case they will need to affirmatively reconfirm their
subscriptions prior to the expiration of the resolicitation offering or their
subscription funds will be promptly refunded with interest at the Bank's
passbook rate of interest, or be permitted to modify or rescind their
subscriptions). Based upon current market and financial conditions and recent
practices and policies of the OTS, in the event the Company receives orders for
Conversion Stock in excess of $90,348,340 (the maximum of the Offering Price
Range) and up to $103,900,480 (the maximum of the Offering Price Range, as
adjusted by 15%) the Company may be required by the OTS to accept all such
orders. No assurances, however, can be made that the Company will receive orders
for Conversion Stock in excess of the maximum of the Offering Price Range or
that, if such orders are received that all such orders will be accepted.
The Exchange Ratio
OTS regulations and policy provide that in a conversion of a mutual
holding company to stock form, stockholders other than the mutual holding
company will be entitled to exchange their shares of subsidiary savings bank (or
mid-tier holding company) common stock for common stock of the converted holding
company, provided that the bank and the mutual holding company demonstrate to
the satisfaction of the OTS that the basis for the exchange is fair and
reasonable. The Boards of Directors of the Primary Parties have determined that
each Public Mid-Tier Share will on the effective date be automatically converted
into and become the right to receive a number of Exchange Shares determined
pursuant an exchange ratio (the "Exchange Ratio") which was established as the
ratio that ensures that after the Conversion and Reorganization, subject to
certain adjustments described in "THE CONVERSION AND REORGANIZATION -- The
Exchange Ratio," the percentage of the to-be outstanding shares of Common Stock
issued to Public Stockholders in exchange for their Public Mid-Tier Holding
Company shares will be approximately equal to the percentage of the outstanding
shares of Mid-Tier Common Stock held by Public Stockholders immediately prior to
the Conversion and Reorganization, with any fractional shares being paid in
cash. The total number of shares held by Public Stockholders after the
Conversion and Reorganization would also be affected by any purchases by such
persons in the Offerings.
Based on the Independent Valuation, the percentage of the outstanding
shares of Mid-Tier Common Stock held by Mutual Holding Company as of the date of
the Independent Valuation, and adjustments described herein, the following table
sets forth, based upon the minimum, midpoint, maximum and 15% above the maximum
of the Estimated Valuation Range, the following: (i) the total number of shares
of Conversion Stock and Exchange Shares to be issued in the Conversion and
Reorganization, (ii) the percentage of the total Common Stock represented by the
Conversion Stock and the Exchange Shares, and (iii) the Exchange Ratio. The
table assumes there is no cash paid in lieu of issuing fractional Exchange
Shares.
(viii)
<PAGE>
<TABLE>
<CAPTION>
Subscription Shares Exchange Shares Total Shares
to be Issued to be Issued of Common
Stock to be Exchange
Amount Percent Amount Percent Outstanding Ratio
------ ------- ------ ------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Minimum................... 6,677,927 87.29% 972,073 12.71% 7,650,000 4.7188
Midpoint.................. 7,856,370 87.29% 1,143,630 12.71% 9,000,000 5.5516
Maximum................... 9,034,834 87.29% 1,315,166 12.71% 10,350,000 6.3843
Adjusted maximum.......... 10,390,048 87.29% 1,512,452 12.71% 11,902,500 7.3420
</TABLE>
Options to purchase Public Mid-Tier Shares will also be converted into
and become options to purchase Common Stock. As of the date of this Prospectus
there were outstanding options to purchase 40,000 shares of Mid-Tier Common
Stock at an average exercise price of $10.75 per share. The number of shares of
Common Stock to be received upon exercise of such options will be determined
pursuant to the Exchange Ratio. The aggregate exercise price, duration, and
vesting schedule of such options will not be affected. If such options are
exercised prior to the effective date of the Conversion and Reorganization, then
there will be an increase in the number of shares of Common Stock issued to
Public Stockholders in the Share Exchange, and an increase in the Exchange
Ratio. The Mid-Tier Holding Company has no plans to grant additional stock
options prior to the Effective Date.
Delivery and Exchange of Certificates
Upon consummation of the Conversion and Reorganization, holders of
Public Mid-Tier Shares in certificate form (other than the Mutual Holding
Company) will receive a transmittal letter with instruction on delivery of
certificates for exchange. See "THE CONVERSION AND REORGANIZATION -- Delivery
and Exchange of Certificates." Upon surrender of such certificates to an agent
appointed by the Company (the "Exchange Agent") the Public Stockholder will be
entitled to receive in exchange therefore a certificate or certificates
representing the number of full shares of Common Stock to which he or she is
entitled based on the Exchange Ratio. The Exchange Agent will provide each
stockholder of record a letter of transmittal with instructions for the exchange
of shares. Holders of Mid-Tier Common Stock should not forward shares to the
Bank or Exchange Agent until they have received instructions from the Exchange
Agent.
Comparison Of Stockholder Rights.
Pursuant to the Plan, the Company will become the stock holding company
for the Bank. The Mid-Tier Holding Company will cease to exist. Therefore, the
Articles of Incorporation and Bylaws of the Company and Pennsylvania corporate
law will govern stockholder rights after the Conversion and Reorganization. Both
the Company and the Mid-Tier Holding Company are Pennsylvania corporations. The
Articles of Incorporation of the Company are substantially similar to that of
the Mid-Tier Holding Company. Differences in the Articles of Incorporation are
related primarily to issues related to the Reorganization. See "COMPARISON OF
STOCKHOLDERS' RIGHTS."
(ix)
<PAGE>
Benefits of Conversion and Reorganization to Directors and Officers
The Company does not intend to enter into any new employment
agreements. John F. McGill, Sr., Chairman of the Board, John F. McGill, Jr.,
President and Chief Executive Officer, and Jerry Naessens, Chief Financial
Officer, all have three-year employment agreements with the Bank. See
"MANAGEMENT OF THE BANK - -- Employment Agreements." The Company currently
intends to adopt certain stock benefit plans for the benefit of directors and
employees of the Company and the Bank. The proposed benefit plans are as
follows: (i) a Stock Option Plan (the "Stock Option Plan"), pursuant to which a
number of authorized but unissued shares of Common Stock equal to 10% of the
Conversion Stock to be sold in the Offerings (903,348 shares at the maximum of
the Offering Price Range) may be reserved for issuance pursuant to stock options
and stock appreciation rights to directors, officers and employees; and (ii) a
Management Recognition and Retention Plan (the "Recognition Plan" or "RSP"),
which may purchase a number of shares of Common Stock, with funds contributed by
the Company, either from the Company or in the open market, equal to an amount
which will equal 4.0% of the total Conversion stock issued in the Conversion and
Reorganization (361,393 shares at the maximum of the Offering Price Range) for
distribution to directors, officers and employees. These shares will be issued
at no cost to the recipients. Recipients will, however, be required to pay both
federal and applicable state taxes on the value of Common Stock received
pursuant to the Recognition Plan. The Company has not determined when it will
implement the Stock Option Plan and the Recognition Plan. If, however, it is
implemented prior to one year following the consummation of the Conversion and
Reorganization, the Company will submit such plans to stockholders for approval
at an annual or special meeting held at least six months following the
consummation of the Conversion and Reorganization. In such event, OTS
regulations permit individual members of management to receive up to 25% of the
shares reserved pursuant to any stock option or non-tax qualified stock benefit
plan, and directors who are not employees to receive up to 5% of such stock (or
stock options) reserved individually and up to 30% in the aggregate under any
such plan. See "MANAGEMENT OF THE BANK -- Benefit Plans."
In the event that the Recognition Plan purchases shares of Common Stock
in the open market with funds contributed by the Company, the cost of such
shares initially will be deducted from the stockholders' equity of the Company,
but the number of outstanding shares of Common Stock will not increase and
stockholders accordingly will not experience dilution of their ownership
interest. In the event that the Recognition Plan purchases shares of Common
Stock from the Company with funds contributed by the Company, total
stockholders' equity would neither increase or decrease, but under such
circumstances stockholders would experience dilution of their ownership
interests (by approximately __________% at the maximum of the Offering Price
Range) and per share stockholders' equity and per share net earnings would
decrease as a result of an increase in the number of outstanding shares of
Common Stock. In either case, the Company will incur operating expense and
increases in stockholders' equity as the shares held by the Recognition Plan are
granted and issued in accordance with the terms thereof. For a presentation of
the effects of anticipated purchases of Common Stock by the Recognition Plan,
see "PRO FORMA DATA."
In addition, the ESOP intends to purchase up to 8.0% of the Conversion
Stock issued in the Conversion and Reorganization (e.g., 722,788 shares or $7.2
million of Conversion Stock at the maximum of the Offering Price Range) with a
loan from the Company. See "USE OF PROCEEDS." In the event that there are
insufficient shares available to fill the ESOP's order due to an
oversubscription by Eligible Account Holders, the offering range will be
increased above the maximum and the ESOP shall have a priority right to purchase
any shares exceeding the maximum of the Offering Valuation Range, up to an
aggregate of 8% of the Conversion Stock. See "MANAGEMENT OF THE BANK -- Employee
(x)
<PAGE>
Stock Ownership Plan" and "RISK FACTORS -- Possible Dilutive Effective of
Issuance of Additional Shares."
The foregoing plans are in addition to a stock option plan and a
directors' stock option plan; which were adopted by the Bank in 1992. After the
creation of the Mid-Tier Holding Company as the Mid-Tier Holding Company of the
Bank, these plans remained as benefit plans of the Bank. The stock options and
restricted stock awards made pursuant to these plans are currently for Mid-Tier
Common Stock. These plans will continue in existence after the Conversion and
Reorganization as plans of the Company. See "MANAGEMENT OF THE BANK -- Benefit
Plans" and "THE CONVERSION AND REORGANIZATION -- Effects of the Conversion and
Reorganization," " -- Effect on Existing Option Plans."
Use of Proceeds
Net proceeds from the sale of the Conversion Stock are estimated to be
between $65.6 million and $88.9 million, depending on the number of shares sold
and the expenses of the Conversion and Reorganization. See "PRO FORMA DATA." The
Company plans to contribute to the Bank 50% of the net proceeds from the
Offerings and retain the remainder of the net proceeds. The Company intends to
use a portion of the net proceeds retained by it to make a loan directly to the
ESOP to enable the ESOP to purchase 8.0% of the Conversion Stock to be issued in
the Conversion and Reorganization. The amount of the loan is expected to be
between $5.3 million and $7.2 million at the minimum and maximum of the Offering
Price Range, respectively. It is anticipated that the loan to the ESOP will have
a term of not less than 15 years and a fixed rate of interest at the prime rate
as of the date of the loan. See "MANAGEMENT OF THE BANK -- Benefit Plans" and "
- -- Employee Stock Ownership Plan." The remaining net proceeds will initially be
lent by the Company to the Bank and be used by the Bank to invest primarily in
short-term interest-bearing deposits and short and intermediate term marketable
securities. The funds retained by the Company may be used to support the future
expansion of operations or diversification into other banking-related businesses
and for other business or investment purposes, including the acquisition of
other financial institutions and/or branch offices, although there are no
current plans, arrangements, understandings or agreements regarding such
expansion, diversification or acquisitions. In addition, subject to applicable
limitations, such funds also may be used in the future to repurchase shares of
Common Stock, although the Company currently has no intention of effecting any
such transactions following consummation of the Conversion and Reorganization.
See "THE CONVERSION AND REORGANIZATION -- Certain Restrictions on Purchases or
Transfers of Shares after the Conversion and Reorganization." Funds contributed
to the Bank from the Company will be used for general business purposes. The
proceeds will be used to support the Bank's lending and investment activities
and thereby enhance the Bank's capabilities to serve the borrowing and other
financial needs of the communities it serves. The Bank plans to initially use
the proceeds to invest primarily in short-term interest-bearing deposits and
short and intermediate term marketable securities. See "USE OF PROCEEDS."
Dividend Policy
Since the completion of the first full quarter after the MHC
Reorganization (i.e. March 31, 1993), until the adoption of the Plan, the
Mid-Tier Holding Company or the Bank has paid a regular quarterly cash dividend.
For the fiscal year ending December 31, 1997, that dividend was $0.20 per
quarter, and $0.80 per year. Following the consummation of the Conversion and
Reorganization, the Board of Directors of the Company will consider whether to
pay cash dividends on the Common Stock. However,
(xi)
<PAGE>
no assurance can be given as to the amount of a dividend or that a dividend will
be paid or if paid that the dividend will not be reduced or eliminated in future
periods. Pending the completion of the Conversion and Reorganization, the
Mid-Tier Holding Company intends to continue paying its regular quarterly cash
dividend. For a period of one year following the completion of the Conversion
and Reorganization, the Company will not pay any dividends that would be treated
for tax purposes as a return of capital nor take any actions or propose such
dividends. See "DIVIDEND POLICY."
Dissenters' Rights and Rights of Appraisal
Pursuant to Pennsylvania Business Corporation Law, Public Stockholders
will have dissenters' rights or rights of appraisal in connection with the
Conversion and Reorganization.
Prospectus Delivery and Procedure for Purchasing Shares
To ensure that each purchaser receives a prospectus at least 48 hours
prior to the Expiration Date in accordance with Rule 15c2-8 under the Exchange
Act, no prospectus will be mailed any later than five days prior to such date or
hand delivered any later than two days prior to such date. Execution of the
order form will confirm receipt or delivery in accordance with Rule 15c2-8.
Order forms will be distributed only with a prospectus. The Primary Parties will
accept for processing orders submitted on original order forms with an executed
certification. In their discretion, the Primary Parties may accept photocopies
or facsimile copies of order forms or the form of certification. Payment by
cash, check, money order, bank draft or debit authorization to an existing
account at the bank must accompany the order form. In their discretion, the
Primary Parties may accept wire transfers. See "THE CONVERSION AND
REORGANIZATION."
(xii)
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables set forth selected consolidated historical
financial and other data of the Mid-Tier Holding Company (including its
subsidiaries) 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 Mid-Tier Holding Company contained
elsewhere herein.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- ------------- -------------- -------------- ----------------
(In Thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Total Amount of:
Assets........................................ $276,650 $294,332 $288,199 $273,571 $277,304
Loans receivable, net ........................ 96,280 98,626 100,271 95,524 98,622
Loans held for sale (1)....................... 1,155 2,147 1,613 1,199 -
Mortgage-backed securities:
Available for sale (1)...................... 111,486 93,410 98,315 98,476 108,532
Investment securities:
Held to maturity............................ 34,529 46,464 44,024 49,325 29,137
Available for sale (1)...................... 3,698 2,631 1,566 755 750
Deposits...................................... 230,558 256,546 250,179 241,230 244,306
FHLB advances................................. 7,884 7,884 7,884 7,884 7,884
Stockholders' equity.......................... 28,470 24,581 25,148 20,477 21,217
Book value per share (2)...................... 17.56 15.16 15.51 12.68 13.14
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- -------------- ------------- ----------- ---------------
(In Thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Interest income................................. $20,582 $20,264 $19,790 $18,096 $18,067
Interest expense................................ 11,002 11,069 10,646 8,791 9,087
------ ------ ------ ------ ------
Net interest income........................... 9,580 9,195 9,144 9,305 8,980
Provision for loan losses....................... 120 139 135 60 94
------- ------- ------- ------- -------
Net interest income after
provision for loan losses.................... 9,460 9,056 9,009 9,245 8,886
Non-interest income............................. 2,808 583 544 475 1,230
Non-interest expense............................ 6,824 9,890(3) 7,234 6,625 6,406
Income (loss) before income taxes and
change in accounting method................... 5,444 (251) 2,319 3,095 3,710
Income tax expense.............................. 2,090 112 887 1,190 1,189
------ ------ ------ ------ ------
Income (loss) before change in accounting
method........................................ 3,354 (363) 1,432 1,905 2,521
------ ------ ------ ------ ------
Cumulative effect on prior years of change
in accounting method for income tax........... - - - - 407(4)
------- ------ ------ ------ -------
Net income (loss)............................... $ 3,354 $ (363) $ 1,432 $ 1,905 $ 2,928
====== ======= ====== ====== ======
Basic earnings (loss) per share................. $ 2.07 $ (.22) $ .88 $ 1.18 $ 1.81
====== ======= ====== ======= =======
Cash dividends per share........................ $ .80 $ .80 $ .80 $ .80 $ .70
====== ====== ====== ======= =======
</TABLE>
(xiii)
<PAGE>
SELECTED OPERATING RATIOS AND OTHER DATA
<TABLE>
<CAPTION>
At or For the Year Ended December 31, (5)
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
------------- -------------- -------------- ------------ --------
<S> <C> <C> <C> <C> <C>
Performance Ratios:
Return on average assets (net income (loss))
divided by average total assets)........................ 1.18% (.13)%(3) .51% .69% 1.11%
Return on average equity (net income (loss))
divided by average equity).............................. 12.41 (1.45)(3) 5.98 9.02 14.99
Net interest margin (6)................................... 3.50 3.29 3.37 3.84 3.34
Interest rate spread (6).................................. 3.14 2.99 3.06 3.65 3.16
Asset Quality Ratios:
Non-performing loans to total loans (7)................... .74 3.04 2.35 1.40 2.29
Non-performing assets to total assets (7)................. .30 1.08 .82 .49 .88
Allowance for loan losses as a percent of non-performing
loans at end of period ................................... 109.36 21.24 17.43 33.36 19.96
Allowance for loan losses as a percent
of total average loans at end of period................. .77 .63 .46 .43 .53
Net charge-offs (recoveries) as a percent of average loans (.08) .02 .09 .10 .03
Other Data:
Number of:
Real estate loans outstanding........................... 2,218 2,338 2,547 2,263 2,444
Deposit accounts........................................ 30,832 36,038 35,718 34,495 34,265
Full service offices.................................... 6 8 8 8 8
</TABLE>
(1) Loans classified as held for sale are carried at the lower of aggregate
cost or fair value while investment securities and mortgage-backed
securities classified as available for sale are carried at fair value.
(2) Book value per share represents stockholders' equity divided by the number
of shares of Bank Common Stock issued and outstanding.
(3) Includes a special assessment of $1,533,000 to recapitalize the SAIF and a
$1,181,000 write- down of lease receivables.
(4) Represents the adoption of Statement of Financial Accounting Standards
("SFAS") No. 109.
(5) With the exception of end of period ratios, all ratios are based on average
monthly balances during the indicated periods.
(6) Interest rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities (which do not include non-interest-bearing accounts), and net
interest margin represents net interest income as a percent of average
interest-earnings assets.
(7) Non-performing loans consist of non-accrual loans and accruing loans 90
days or more overdue; and non-performing assets consist of non-performing
loans and real estate owned, in each case net of related reserves.
(xiv)
<PAGE>
RISK FACTORS
The following factors, in addition to those discussed elsewhere in this
Prospectus, should be considered by investors before deciding whether to
purchase the Common Stock offered hereby.
Vulnerability to Changes in Interest Rates
The Bank's profitability, like that of many financial institutions, is
dependent to a large extent upon its net interest income, which is the
difference between its interest income on interest-earning assets, such as loans
and investments, and its interest expense on interest-bearing liabilities, such
as deposits. When interest-bearing liabilities mature or reprice more quickly
than interest-earning assets in a given period, a significant increase in market
rates of interest could adversely affect net interest income. Similarly, when
interest-earning assets mature or reprice more quickly than interest-bearing
liabilities, falling interest rates could result in a decrease in net interest
income. See "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS -- Interest Rate Risk Management Activities."
Intent to Remain Independent; Unsuitability as a Short-term Investment
The Bank and its predecessors have operated as independent
community-oriented savings associations since 1939. Following the Conversion and
Reorganization, it is the Company's intent to continue to operate as an
independent financial institution. Accordingly, the Common Stock may not be a
suitable investment for individuals anticipating a rapid sale of the Company to
a third party. SEE "BUSINESS OF THE BANK."
Also due to the Company's intention to remain independent, certain
provisions in the Company's Articles of Incorporation and Bylaws may assist the
Company in maintaining its status as an independent publicly owned corporation.
These provisions, as well as the Pennsylvania General Corporation law and
certain federal banking regulations, may have certain anti-takeover effects.
These provisions include: restriction on the acquisition of the Company's equity
securities and limitations on voting rights, the classification of the terms of
the members of the Board of Directors, certain provisions relating to meetings
of stockholders, prohibition of cumulative voting by stockholders in the
election of directors, the issuance of preferred stock and additional shares of
Common Stock without stockholder approval, and supermajority provisions for the
approval of certain business combinations. See "RESTRICTIONS ON ACQUISITION OF
THE COMPANY." As a result, stockholders who might wish to participate in a
change of control transaction may not have the opportunity to do so.
Price of Common Stock Following the Conversion and Reorganization
Since the MHC Reorganization and public stock issuance on December 31,
1992, the book value of the Mid-Tier Holding Company's Common Stock and its
predecessor the Bank's common stock has increased in value. The Bank Shares
(which were exchanged for the Mid-Tier Holding Company shares) were initially
sold to the public at $10 per share. On December 31, 1997, the book value of the
Public Mid-Tier Shares was $17.56. There can be no assurance that the Conversion
Stock will appreciate in value as have the Public Mid-Tier Shares. Additionally,
there can be no assurance that the Common Stock will appreciate after the
Conversion and Reorganization. The Boards of Directors of the Primary Parties
have set an offering price for the Conversion Stock of $10 a share. However, the
pricing of this stock should in no way be seen as an indication or assurance
that the Conversion Stock or the Common
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Stock will appreciate after the Conversion and Reorganization in the same manner
as the Public Mid-Tier Shares which were also initially sold at $10 per share as
shares of the Bank.
Competition
The Bank is headquartered in the City of Philadelphia, and has six
branch offices located within Philadelphia and Delaware counties in the
Philadelphia metropolitan area. The Bank operates in a highly competitive market
and experiences strong competition in its local market area in both originating
loans and attracting deposits.
Most of the Bank's mortgages are secured by properties located within
its primary market area, with the predominance of its lending in one to four
family residential mortgages. The Commonwealth of Pennsylvania has a substantial
number of financial institutions, many of which have a state-wide or regional
presence, and in some cases, a national presence. All of these institutions are
competitors of the Bank, to varying degrees. The Bank's competition for loans
comes principally from commercial banks, savings bank, savings and loan
associations, credit unions, mortgage banking companies and insurance companies.
Its most direct competition for deposits has historically come from commercial
banks, savings banks, savings and loan associations and credit unions, many of
which are significantly larger than the Bank and, therefore, have greater
financial and marketing resources than the Bank. The Bank also faces additional
competition for deposits from short-term money market funds, other corporate and
government securities funds and from other financial institutions such as
brokerage firms and insurance companies. In order to deal with the various
competitive factors, the Bank recognizes its need to monitor competition and
modify its products and services as necessary and possible, taking into
consideration the financial impact of such actions.
As a result of the level of competition in its market, the Company's
growth and profitability in the future may be adversely affected. See "BUSINESS
- - -- Market Area" and " -- Competition."
Geographical Concentration of Loans; Non-Mortgage Loans
At December 31, 1997, substantially all of the Bank's real estate
mortgage loans were secured by properties located in the Bank's primary market
area. While the Bank currently believes that its loans are adequately secured or
reserved for, in the event that real estate prices in the Bank's market area
substantially weaken or economic conditions in its market area deteriorate,
reducing the value of properties securing the Bank's loans, some borrowers may
default and the value of the real estate collateral may be insufficient to fully
secure the loans. In either event, the Bank may experience increased levels of
delinquencies and related losses having an adverse impact on net income and
liquidity. Additionally, certain of the real estate securing loans
(approximately 17% of the loan portfolio) are multi-family and commercial real
estate properties. As such, these loans have a higher level of risk than loans
secured by residential properties. The Bank has a large multi-family loan, which
has occasionally experienced delinquencies. See "BUSINESS OF THE BANK -- Lending
Activitites -- Multi-Family and Commercial Real Estate Loans."
Certain Anti-Takeover Provisions
General. Certain provisions of the Company's Articles of Incorporation
and Bylaws, including a provision limiting voting rights of beneficial owners of
more than 10% of the Common Stock, and the Bank's stock charter and bylaws, as
well as certain Pennsylvania laws and regulations, will assist the
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Company in maintaining its status as an independent publicly owned corporation
and may have certain anti-takeover effects.
Articles of Incorporation and Bylaws of the Company. The Company's
Articles of Incorporation and Bylaws provide for, among other things, a limit on
voting and, in certain cases, acquiring, more than 10% of the Common Stock
described above, staggered terms for members of its Board of Directors, prohibit
cumulative voting for directors, limits on the calling of special meetings of
stockholders and director nominations, a prohibition on action by consent, a
fair price or super majority stockholder approval requirement for certain
business combinations and certain stockholder proposal notice requirements.
These provisions are similar to those currently in the Articles of Incorporation
and Bylaws of the Mid-Tier Holding Company.
Federal Stock Charter of the Bank. Provisions in the Bank's federal
stock charter that have an anti-takeover effect could also be applicable to
changes in control of the Company as the sole stockholder of the Bank. The
Bank's federal stock charter includes a provision applicable for five years
which prohibits the acquisition or offer to acquire directly or indirectly the
beneficial ownership of more than 10% of the Bank's securities by any person or
entity other than the Company. Any person violating this restriction may not
vote the Bank's securities in excess of 10%.
These provisions in the Company's and the Bank's governing instruments
may discourage potential proxy contests and other takeover attempts by making
the Company less attractive to a potential acquiror, particularly those takeover
attempts which have not been negotiated with the Board of Directors of the
Company and/or the Bank, as the case may be. These provisions may also have the
effect of discouraging a future takeover attempt which would not be approved by
the Company's Board, but pursuant to which stockholders may receive a
substantial premium for their shares over then current market prices. As a
result, stockholders who might desire to participate in such a transaction may
not have any opportunity to do so. In addition, certain of these provisions that
limit the ability of persons (including management or others) owning more than
10% of the shares to vote their shares will be enforced by the Board of
Directors of the Company or the Bank, as the case may be, to limit the voting
rights of 10% or greater stockholders and thus could have the effect in a proxy
contest or other solicitation to defeat a proposal that is desired by the
holders of a majority of the shares of Common Stock.
Federal Law and Regulations. Federal law also requires OTS approval
prior to the acquisition of "control" (as defined in OTS regulations) of an
insured institution, including a holding company thereof. In the event any
person or group of persons acquires shares in violation of these limitations,
such person or group may be restricted from voting his or their shares in excess
of 10% of the outstanding Common Stock. Such laws and regulations may also limit
a person's ability without regulatory approval to solicit proxies enabling him
to elect one third or more of the Company's Board of Directors or exert a
controlling influence on the operations of the Bank or the Company.
In addition, certain of these provisions may limit the ability of
persons (including management or others) owning more than 10% of the shares to
vote their shares (by proxy or otherwise) for proposals that they believe to be
in the best interests of stockholders. See "MANAGEMENT OF THE BANK -- Benefit
Plans," and " -- Description of Capital Stock."
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Voting Power of Directors and Executive Officers
Directors and executive officers of the Company expect to beneficially
own approximately 755,295 shares or 7.63% of the shares of Common Stock
outstanding (on a fully diluted basis) upon consummation of the Conversion and
Reorganization based upon the midpoint of the Offering Price Range. See
"BENEFICIAL OWNERSHIP OF COMMON STOCK."
In addition, the Company may acquire Common Stock on behalf of the
Recognition Plan in an amount which will equal 4.0% of the Conversion Stock
issued in the Offering (361,393 shares based on the maximum of the Offering
Price Range). Under the terms of the Recognition Plan, individuals to whom
shares of Common Stock are awarded will be able to vote the Common Stock
immediately after it is awarded. The Company also may reserve for future
issuance pursuant to the Stock Option Plan (which will be subject to stockholder
approval if implemented prior to one year following the Conversion and
Reorganization), a number of authorized shares of Common Stock equal to an
aggregate of 10.0% of the Conversion Stock issued in the Offerings (903,483
shares, based on the maximum of the Offering Price Range). These options are in
addition to the options for 40,000 shares of Mid-Tier Common Stock which were
previously granted to directors and executive officers and remain unexercised
under the option plans adopted by the Bank in connection with the MHC
Reorganization. In addition, the ESOP intends to purchase up to 8% of the shares
of Common Stock to be issued by the Company in the Conversion and
Reorganization. See "MANAGEMENT OF THE BANK -- Benefits -- Stock Option Plans,"
"-- Management Stock Bonus Plans" and "-- Proposed Future Stock Benefit Plans."
Management's potential voting power could, together with additional
stockholder support, preclude or make more difficult takeover attempts which do
not have the support of the Company's Board of Directors and may tend to
perpetuate existing management.
Return on Equity
As a result of the Bank's high capital levels and the additional
capital that will be raised by the Company in the Conversion and Reorganization,
the Company's ability to leverage the net proceeds from the Conversion and
Reorganization may be limited in the near future. Accordingly, return on equity
is initially expected to be lower than it has been in recent years.
Stock Benefit Plan Compensation Expense
An employer must record compensation expense in an amount equal to the
fair value of shares committed to be released to employees from an employee
stock ownership plan and restricted stock plan. Assuming shares of Common Stock
appreciate in value over time, compensation expenses relating to the ESOP to be
established in connection with the Conversion and Reorganization and Recognition
Plan to be established after the Conversion will increase. It is impossible to
determine at this time the extent of such impact on future net income. See "PRO
FORMA DATA."
Potential Elimination Of Thrift Charter
The Bank is subject to extensive regulation, supervision and
examination by the Office of Thrift Supervision ("OTS") and the Federal Deposit
Insurance Corporation ("FDIC"). A bill, H.R. 10, has been reported by the U.S.
House of Representatives, Committee on Banking and Financial Services, that
would consolidate the OTS with the Office of the Comptroller of the Currency
("OCC") and eliminate
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the federal thrift charter under which the Bank currently operates. If this
legislation becomes law, the Bank will be forced to become a state chartered
bank or a national commercial bank. If the Bank becomes a commercial bank, its
investment authority and the ability of the Company to engage in diversified
activities would be more limited and could affect the Bank's profitability. See
"REGULATION." [to be updated]
Possible Dilutive Effect of Issuance of Additional Shares
Various possible and planned issuances of Common Stock could dilute the
interests of prospective stockholders of the Company or existing stockholders of
the Company following consummation of the Conversion and Reorganization, as
noted below.
The number of shares to be sold in the Conversion and Reorganization
may be increased as a result of an increase in the Offering Price Range of up to
15% to reflect changes in market and financial conditions following the
commencement of the Offerings. In the event that the Offering Price Range is so
increased, it is expected that the Company will issue up to 10,390,048 shares of
Conversion Stock at the Purchase Price for an aggregate price of up to
$103,900,480. An increase in the number of shares will decrease net earnings per
share and stockholders' equity per share on a pro forma basis and will increase
the Company's consolidated stockholders' equity and net earnings. See
"CAPITALIZATION" and "PRO FORMA DATA."
The ESOP intends to purchase an amount of Common Stock equal to up to
8.0% of the Conversion Stock issued in the Conversion and Reorganization. In the
event that there are insufficient shares available to fill the ESOP's order due
to an oversubscription by Eligible Account Holders and the total number of
shares of Conversion Stock issued in the Conversion and Reorganization is
increased by up to 15%, the additional shares will first be allocated to fill
the ESOP's subscription and thereafter in accordance with the terms of the Plan
of Conversion. See "MANAGEMENT OF THE BANK -- Benefit Plans," " -- Employee
Stock Ownership Plan," and "THE CONVERSION AND REORGANIZATION -- The Offerings"
" -- Subscription Offering," and " -- Priority 2: ESOP."
If the Recognition Plan is implemented, the Recognition Plan may
acquire an amount of Common Stock which will equal 4.0% of the shares of
Conversion Stock issued in the Conversion and Reorganization (361,393 shares,
based on the maximum of the Offering Price Range). Such shares of Common Stock
may be acquired in the open market with funds provided by the Company, if
permissible, or from authorized but unissued shares of Common Stock. In the
event that additional shares of Common Stock are issued to the Recognition Plan,
stockholders would experience dilution of their ownership interests and per
share stockholders' equity and per share net earnings would decrease as a result
of an increase in the number of outstanding shares of Common Stock. See "PRO
FORMA DATA" and "MANAGEMENT OF THE BANK -- -- Recognition Plan."
If the Company's Stock Option Plan is implemented, the Company may
reserve for future issuance pursuant to such plan a number of authorized shares
of Common Stock equal to an aggregate of 10% of the Conversion Stock issued in
the Offerings (903,483 shares, based on the maximum of the Offering Price
Range). See "PRO FORMA DATA" and "MANAGEMENT OF THE BANK -- Benefit Plans," and
" -- Stock Option Plan."
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In 1992 and 1994 the Bank adopted, and continues to maintain, stock
option plans (the "Option Plans") and restricted stock plans ("Restricted Stock
Plans"). Upon consummation of the Conversion and Reorganization, these plans
will remain plans of the Bank. See "MANAGEMENT OF THE BANK -- Other Stock
Benefit Plans."
The OTS has required that the purchase limitations contained in the
Plan of Conversion and Reorganization include Exchange Shares to be issued to
Public Stockholders for their Public Mid-Tier Shares. As a result, certain
holders of Public Mid-Tier Shares may be limited in their ability to purchase
Conversion Stock in the Offerings. For example, a Public Stockholder which
acquires Exchange Shares in an amount equal to $300,000 or a Public Stockholder
and his Associates or a group acting in concert which acquires Exchange Shares
in an amount equal to $904,000 of Conversion Stock, will not be able to purchase
any shares of Conversion Stock in the Offerings, although such a stockholder
will be able to purchase shares of Common Stock in the market during the
Offerings and thereafter. No stockholder, except as otherwise required by the
OTS, will be required to sell shares if, as a result of receiving Exchange
Shares, his ownership percentage would exceed a purchase limitation. See "THE
CONVERSION AND REORGANIZATION -- Limitations on Conversion Stock Purchases and
Ownership."
Year 2000 Compliance
As the year 2000 approaches, an issue has emerged regarding how
existing application software programs and operating systems can accommodate
this date value. Many existing application software products were designed to
accommodate only two-digits. For example, "96" is stored on the system and
represents 1996. The Mid-Tier Holding Company and the Bank have been identifying
potential problems associated with the "Year 2000" issue and have implemented a
plan designed to manage data involving the transition with data from 1999 to
2000 without functional or data abnormality and without inaccurate results
related to such data. In addition, the Bank recognizes that its ability to be
Year 2000 compliant is dependent upon the cooperation of its vendors. The Bank
is requiring its computer systems and software vendors to represent that the
products provided are or will be Year 2000 compliant and has planned a program
of testing for compliance. The Bank is obtaining representations from its
primary third party vendors that they will have resolved any Year 2000 problems
and anticipates that its vendors also will have resolved any Year 2000 problems.
There can be no assurances, however, that the Bank's plan or the performance by
the Bank's vendors will be effective to remedy all potential problems. To the
extent the Mid-Tier Holding Company's systems are not fully Year 2000 compliant,
there can be no assurance that potential systems interruptions or the cost
necessary to update software would not have a materially adverse effect on the
Company's business, financial condition, results of operations, cash flows, and
business prospects. Further, any Year 2000 failure on the part of the Bank's
customers could result in additional expense or loss to the Bank. The Company
and the Bank expect to be in year 2000 compliance by the end of 1998.
Risk of Delay
The Subscription and Community Offering will expire at Noon,
Philadelphia Time, on __________ ____ 1998, unless extended by the Primary
Parties. However, unless waived by the Primary Parties, all orders will be
irrevocable unless the Conversion and Reorganization is not completed by
________ ____ 1998. In the event the Conversion and Reorganization is not
completed by ________ ____, 1998, subscribers will have the right to modify or
rescind their subscriptions and to have their subscription funds returned with
interest.
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Dissenters' Rights
Pursuant to Pennsylvania Business Corporation Law, Public Stockholders
will have dissenters' rights or rights of appraisal in connection with the
Conversion and Reorganization.
THISTLE GROUP HOLDINGS, CO.
Thistle Group Holdings, Co. ("the Company") was organized in March of
1998 at the direction of the Board of Directors of the Bank for the purpose of
holding all of the capital stock of the Bank in order to facilitate the
Conversion and Reorganization. The Mutual Holding Company and the Mid-Tier
Holding Company are presently subject to regulation by the OTS. After the
Conversion and Reorganization, the Company will be subject to OTS regulations.
The Company has applied to the OTS for authority to acquire 100% of the Bank
Common Stock and become the savings and loan holding company of the Bank. This
application has been approved subject to certain conditions. The Conversion and
Reorganization is contingent upon various approvals from the OTS. See
"REGULATION -- Company Regulation." Upon consummation of the Conversion and
Reorganization, the Company will have no significant assets other than all of
the outstanding shares of Bank Common Stock, an outstanding loan to the ESOP, a
portion of the net proceeds of the Offering retained by the Company and various
investments previously held by the Mutual Holding Company and the Mid-Tier
Holding Company. The Company will have no significant liabilities. See "USE OF
PROCEEDS." Initially, the management of the Company and the Bank will be
substantially similar. The Company will neither own nor lease any property but
will instead use the premises, equipment and furniture of the Bank. At present
time the Company does not intend to employ any persons other than executive
officers who are also executive officers of the Bank. The Company will utilize
the support staff of the Bank from time to time. Additional employees will be
hired as appropriate to the extent that the Company expands or changes its
future business activities.
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. Although
there are no current arrangements, understandings or agreements regarding such
opportunities or transactions, the Company will be in a position after the
Conversion and 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 to be retained by the Company from
the Conversion and Reorganization and earnings thereon as well as dividends from
the Bank. See "USE OF PROCEEDS" and "DIVIDEND POLICY."
After the completion of the Conversion and Reorganization, the Company
is expected to conduct business initially as a unitary thrift holding company.
See "BUSINESS OF THISTLE GROUP HOLDINGS, CO." The Company's executive office is
located at the home office of the Bank at 6060 Ridge Avenue, Philadelphia,
Pennsylvania 19128 and its telephone number is (215) 483-2800.
THISTLE GROUP HOLDINGS, INC.
Thistle Group Holdings, Inc. (i.e., the "Mid-Tier Holding Company") was
organized in March 1997 at the direction of the Board of Directors of the Bank
for the purpose of holding all of the capital stock of the Bank. The Mid-Tier
Holding Company acquired all of the outstanding stock of the Bank in
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a one-for-one stock exchange consummated on September 30, 1997. The Mid-Tier
Holding Company has received the approval of the OTS to become, and is
currently, a thrift holding company, and as such is subject to regulation by the
OTS. After the Conversion and Reorganization the Mid-Tier Holding Company will
cease to exist and the Company will become the holding company for the Bank.
The Mid-Tier Holding Company's executive office is located at the home
office of the Bank at 6060 Ridge Avenue, Pennsylvania 19128, and its telephone
number is (215) 483-2800.
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS BANK
General
Roxborough-Manayunk is a federally-chartered stock savings association,
which was originally chartered as a mutual savings association through the
combination of 11 building and loan associations as Roxborough-Manayunk Federal
Savings and Loan Association (the "Association") on May 3, 1939, at which time
the Association's accounts were insured by the Federal Savings and Loan
Insurance Corporation ("FSLIC") and currently the Savings Association Insurance
Fund ("SAIF"). In 1939, the Association became a member of the FHLB System. On
December 31, 1992, the Association reorganized from a mutual savings association
into a mutual holding company named FJF Financial, M.H.C. and chartered a new
stock savings bank named Roxborough-Manayunk Federal Savings Bank. Effective as
of the close of business September 30, 1997, the Bank completed the formation of
a middle- tier stock holding company (i.e., Thistle Group Holdings, Inc.)
whereby the Bank became a wholly-owned subsidiary of the Mid-Tier Holding
Company, which in turn is over 80% owned by the Mutual Holding Company. The Bank
serves the Pennsylvania counties of Philadelphia and Delaware through a network
of six offices, providing a full range of retail banking services, with emphasis
on the origination of one-to-four family residential mortgages.
The Bank is primarily engaged in attracting deposits from the general
public through its offices and using those and other available sources of funds
to originate loans secured by one to four-family residences. One- to four-family
residential loans amounted to $71.4 million, or 72.4%, of the Bank's total loan
portfolio at December 31, 1997. In addition, the Bank originates consumer loans,
such as home equity loans, and multi-family and nonresidential real estate
loans. Such loans generally provide for higher interest rates and shorter terms
than single-family residential real estate loans. At December 31, 1997, the
Bank's net consumer loans amounted to $8.2 million or 8.3% of the Mid-Tier
Holding Company's total assets. To a lesser extent, the Bank originates loans
secured by existing multi-family residential and nonresidential real estate,
which amounted to $6.3 million or 6.4%, and $10.3 million or 10.4%,
respectively, of the total loan portfolio at December 31, 1997. At December 31,
1997, the Bank also held $26,327,000 of U.S. Government and federal agency
obligations and $111,486,000 of mortgage-backed securities which are insured by
federal agencies.
Regulation
The Bank is subject to examination and comprehensive regulation by the
OTS, which is the Bank's chartering authority and primary regulator, and by the
Federal Deposit Insurance Corporation ("FDIC"), which, as administrator of the
SAIF, insures the Bank's deposits up to applicable limits. The Bank also is
subject to certain reserve requirements established by the Board of Governors of
the Federal Reserve System ("Federal Reserve Board") and is a member of the
Federal Home Loan Bank ("FHLB")
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of Pittsburgh, which is one of the 12 regional banks comprising the FHLB System.
See "REGULATION."
Office
The Bank's principal executive office is located at 6060 Ridge Avenue,
Philadelphia, Pennsylvania 19128 and its telephone number is (215) 483-2800.
FJF FINANCIAL, M.H.C.
The Mutual Holding Company is a federally chartered mutual holding
company which was chartered on December 31, 1992, in connection with the MHC
Reorganization. The Mutual Holding Company's primary asset is 1,415,000 shares
of Mid-Tier Common Stock, which represent 87.29% of the shares of Mid-Tier
Common Stock outstanding as of December 31, 1997. Prior to the Conversion and
Reorganization, each depositor in the Bank has both a deposit account in the
institution and a pro rata ownership interest in the net worth of the Mutual
Holding Company based upon the value in his account, which interest may only be
realized in the event of a liquidation of the Mutual Holding Company. As part of
the Conversion and Reorganization, the Mutual Holding Company will convert from
mutual form to a federal interim stock savings institution and simultaneously
merge with and into the Bank, with the Bank being the surviving entity.
USE OF PROCEEDS
Net proceeds from the sale of the Conversion Stock are estimated to be
between $65.6 million and $89.0 million ($102.4 million assuming an increase in
the Offering Price Range by 15%). See "Pro Forma Data" as to the assumptions
used to arrive at such amounts.
The Company plans to contribute to the Bank 50% of the net proceeds
from the Offerings and retain the remainder of the net proceeds. The Company
anticipates that after the loan to the ESOP and after contributing 50% of the
funds raised in the Conversion and Reorganization to the Bank, it will have
approximately $38.6 million (based upon the sale of 9,034,834 shares of Common
Stock) which it intends to loan to the Bank. The Bank will invest these funds,
initially in short interest-bearing deposits and short and intermediate term
securities. The Company intends to use a portion of the net proceeds to make a
loan directly to the ESOP to enable the ESOP to purchase 8.0% of the Conversion
Stock. Based upon the issuance of 6,677,927 shares and 9,034,834 shares of
Conversion Stock at the minimum and maximum of the Offering Price Range,
respectively, the loan to the ESOP would be $5.3 million and $7.2 million,
respectively. It is anticipated that the loan to the ESOP will have a term of
not less than 15 years and a fixed rate of interest at the prime rate as of the
date of the loan. See "MANAGEMENT OF THE BANK -- Employee Stock Ownership Plan."
The net proceeds retained by the Company also may be used to support the future
expansion of operations or diversification into other banking-related businesses
and for other business or investment purposes, including the acquisition of
other financial institutions and/or branch offices, although there are no
current plans, arrangements, understandings or agreements regarding such
expansion, diversification or acquisitions. The Bank does, however, continually
evaluate additional branching opportunities that will complement existing
operations or support expansion into growth markets. No assurance can be given,
however, that such expansion will occur during 1998. In addition, subject to
applicable regulatory limitations, the net proceeds also may be used to
repurchase shares of Common Stock. See "THE CONVERSION AND REORGANIZATION --
Certain Restrictions on Purchase or Transfer of Shares after the Conversion and
Reorganization." The
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portion of the net proceeds contributed to the Bank will be used for general
corporate purposes, primarily investment in residential real estate loans and
will be initially used to invest primarily in short-term interest-bearing
deposits and marketable securities.
In addition, a portion of the proceeds may be used to fund open market
purchases of Common Stock for the Recognition Plan if such plan is approved by
stockholders. The estimated cost of such plans is dependent upon the price paid
for the shares in the open market. If Common Stock equal to 4% at the maximum of
the Offering Range, or 361,393 shares, was purchased for the Recognition Plan at
$10 per share, the cost would be $3.6 million. See "MANAGEMENT OF
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS BANK -- Recognition Plan."
DIVIDEND POLICY
Upon completion of the Conversion and Reorganization, the Board of
Directors of the Company will have the authority to declare dividends on the
Common Stock, subject to statutory and regulatory requirements. Following
consummation of the Conversion and Reorganization, the Board of Directors of the
Company will consider the payment of cash dividends on the Common Stock.
Declarations of dividends by the Board of Directors will depend upon a number of
factors, including the amount of the net proceeds from the Offerings 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, results of operations, cash flows, 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. The Company
intends to continue to pay regular quarterly dividends through either the date
of consummation of the Conversion and Reorganization (on a pro rata basis) or
the end of the fiscal quarter during which the consummation of the Conversion
and Reorganization occurs.
Dividends from the Company after the Conversion and Reorganization will
depend, in part, upon receipt of dividends from the Bank, because the Company
initially will have no source of income other than dividends from the Bank,
earnings from the investment of proceeds from the sale of Conversion Stock
retained by the Company, and interest on the ESOP loan. A regulation of the OTS
imposes limitations on "capital distributions" by savings institutions,
including cash dividends, payments by a savings institution to repurchase or
otherwise acquire its stock, payments to stockholders of another savings
institution in a cash-out merger and other distributions charged against
capital. The regulation establishes a three-tiered system, with the greatest
flexibility being afforded to well-capitalized or Tier 1 savings institutions
and the least flexibility being afforded to under-capitalized or Tier 3 savings
institutions. As of December 31, 1997, the Bank was a Tier 1 savings institution
and is expected to continue to so qualify immediately following the consummation
of the Conversion and Reorganization. However, for a period of one year
following the completion of the Conversion and Reorganization, the Bank will not
pay any dividends that would be treated for tax purposes as a return of capital
nor take any actions to pursue or propose such dividends.
Any payment of dividends by the Bank to the Company which would be
deemed to be a distribution from the Bank's pre-1988 bad debt reserves for
federal income tax purposes would require a payment of taxes at the then-current
tax rate by the Bank on the amount of earnings deemed to be removed from the
reserves for such distribution. The Bank has no current intention of making any
distribution that would create such a federal tax liability either before or
after the Conversion and Reorganization. See "REGULATION --Federal and State
Taxation."
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Unlike the Bank, the Company is not subject to the aforementioned
regulatory restrictions on the payment of dividends to its stockholders,
although the source of such dividends will be, in part, dependent upon dividends
from the Bank in addition to the net proceeds retained by the Company and
earnings thereon. The Company is subject, however, to the requirements of
Pennsylvania law.
MARKET FOR COMMON STOCK
There is no established market for the Mid-Tier Common Stock. The
Company Common Stock, which will be received after the Conversion and
Reorganization in the form of Exchange Shares, will be more liquid after the
Conversion and Reorganization than the Mid-Tier Common Stock because there will
be significantly more outstanding shares owned by the public. However, there can
be no assurance that an active and liquid trading market for the Common Stock
will be maintained.
The Company has received conditional approval to have its Common Stock
listed on the Nasdaq National Market under the symbol "__________". There are
various requirements for qualification and continued quotation of the Common
Stock on the Nasdaq National Market including a minimum number of market makers
for the Common Stock. The Company will seek to encourage and assist market
makers to make a market in its Common Stock, and, based upon the number of
market makers for the Public Mid-Tier Shares, believes that enough market makers
will make a market in the Common Stock in order to continue listing the Common
Stock on the Nasdaq National Market. Making a market involves maintaining bid
and ask quotations and being able, as principal, to effect transactions in
reasonable quantities at those quoted prices, subject to various securities laws
and other regulatory requirements.
Sandler has advised the Company that it will assist the Company in
obtaining additional market makers, if necessary, but there can be no assurance
that additional market makers will be identified. Making a market involves
maintaining bid and ask quotations and being able, as principal, to effect
transactions in reasonable quantities at those quoted prices, subject to various
securities laws and other regulatory requirements. 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.
In the event that institutional investors buy a relatively large proportion of
the Offering, the number of active buyers and sellers of the Common Stock at any
particular time may be limited. There can be no assurance that persons
purchasing Common Stock will be able to sell their shares at or above the
Subscription Price. Therefore, purchasers of 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 after the Conversion and
may have an adverse effect on the price of the Common Stock.
At December 31, 1997, there were 1,621,000 shares of Mid-Tier Common
Stock outstanding, including 206,000 Public Mid-Tier Shares, which were held of
record by approximately 32 stockholders (including the ESOP). There is no liquid
market for Public Mid-Tier Shares. Public Mid-Tier Shares will automatically,
without further action by such holders thereof, be converted into and become a
right to receive a number of shares of Common Stock that is determined pursuant
to the Exchange Ratio. See "The Conversion and Reorganization -- The Exchange
Ratio."
-11-
<PAGE>
CAPITALIZATION
The following table presents, as of December 31, 1997, the unaudited
historical capitalization of the Mid-Tier Holding Company and its consolidated
subsidiaries, including the Bank, and the pro forma consolidated capitalization
of the Company after giving effect to the Conversion and Reorganization, and
other assumptions set forth below and under "Pro Forma Data."
<TABLE>
<CAPTION>
Company Pro Forma Based Upon Sale at $10.00 Per share
---------------------------------------------------------------------
Shares Shares Shares Shares
(Minimum (Midpoint (Maximum 15% above Max
Bank of Estimated of Estimated of Estimated of Estimated
Historical Price Range) Price Range) Price Range) Price Range)
---------- ------------ ------------ ------------ ------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits................................... $230,558 $230,558 $230,558 $230,558 $230,558
Total Deposits and Borrowed funds.......... $238,442 $238,442 $238,442 $238,442 $238,442
======= ======= ======= ======= =======
Stockholders' equity:
Preferred................................ -- -- -- -- --
Common................................... 162 67 79 90 104
APIC..................................... 18,455 65,549 77,187 88,824 102,206
Retained Earnings........................ 8,463 8,463 8,463 8,463 8,463
Less:
Expense of foundation.................... -- -- -- -- --
Plus:
Tax effect of foundation................. -- -- -- -- --
Net unrealized g/(1) on AFS, net......... 1,390 1,390 1,390 1,390 1,390
Less:
Common Stock acquired by ESOP............ -- 5,342 6,285 7,228 8,312
Common Stock acquired by MRP............. -- 2,671 3,143 3,614 4,156
------- ------ ------ ------- -------
Total Stockholders' equity................. $28,470 $67,456 $77,691 $87,925 $99,695
====== ====== ====== ====== ======
</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 Price Range of up to 15%
to reflect changes in market and financial conditions following the
commencement of the Offering Price or to fill the order of the ESOP.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Conversion Stock in the Offerings. Such withdrawals would reduce pro
forma deposits by the amount of such withdrawals.
(3) Assumes that (i) the 206,000 Public Mid-Tier Shares outstanding at
December 31, 1997 are exchanged for 4.7188, 5.5516, 6.3843, and 7.3420
shares at the minimum midpoint maximum and 15% above the maximum of the
Offering Price Range, respectively; and (ii) that no cash in lieu of
fractional Exchange Shares will be issued by the Company. No effect has
been given to the issuance of additional shares of Common Stock
pursuant to existing and proposed stock option plans as opposed to
purchases in the open market. See "PRO FORMA DATA."
(4) The Mid-Tier Holding Company has 10,000,000 shares of common stock
authorized with a par value of $0.10 per share. The Company has
40,000,000 shares of Common Stock authorized with a par value of $0.10
per share.
-12-
<PAGE>
(5) The Mid-Tier Holding Company has 2,000,000 shares of Preferred Stock
authorized with no par value, none of which is outstanding. The Company has
2,000,000 shares of Preferred Stock authorized, no par value per share,
none of which are currently outstanding or will be outstanding after the
completion of the Conversion and Reorganization.
(6) The pro forma retained earnings include $3,053,000 of assets of the Mutual
Holding Company. The retained earnings of the Mid-Tier Holding Company will
be substantially restricted after the Conversion and Reorganization by
virtue of the liquidation account to be established by the Bank in
connection with the Conversion and Reorganization. See "THE CONVERSION AND
REORGANIZATION -- Liquidation Rights." In addition, certain distributions
of the Bank's retained earnings may be treated as being from its pre-1988
accumulated bad debt reserve for tax purposes which would cause the Bank to
have additional taxable income and financial statement expense. See
"REGULATION -- Federal and State Taxation."
(7) Assumes that 8% and 4% of the shares sold in the Offering will be purchased
by the ESOP and the Recognition Plan, respectively. No shares will be
purchased by the Recognition Plan in the Conversion and Reorganization. It
is assumed on a pro forma basis that the Recognition Plan will be adopted
by the Board of Directors, approved by the stockholders at a special or
annual meeting no earlier than six months after completion of the
Conversion and Reorganization and reviewed by the OTS. It is assumed that
the Recognition Plan will purchase Common Stock in the open market in order
to give an indication of its effects on capitalization. The pro forma
presentation does not show the impact of: (i) results of operations after
the Conversion and Reorganization; (ii) changes in market prices of shares
of the Common Stock after the Conversion and Reorganization; or (iii) a
smaller than 4% purchase by the Recognition Plan. Assumes that the funds
used to acquire the ESOP shares will be borrowed from the Company for a 15
year term. For an estimate of impact of the ESOP on earnings, see "PRO
FORMA DATA." The Bank intends to make contributions to the ESOP sufficient
to service and ultimately retire its debt. The amount to be acquired by the
ESOP and the Recognition Plan is reflected as a reduction in stockholder
equity. The issuance of authorized but unissued shares for the Recognition
Plan in an amount equal to 4% of the amount of Conversion Stock in the
Offering will have the effect of diluting existing stockholders' interests
by __________%. There can be no assurance that approval of the Recognition
Plan will be obtained. See "MANAGEMENT OF THE BANK -- Potential Stock
Benefit Plans."
-13-
<PAGE>
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
The following table presents the historical regulatory capital of the
Bank at December 31, 1997, and the pro forma regulatory capital of the Bank as
of that date, after giving effect to the Conversion and the Reorganization,
based upon the minimum, midpoint, maximum and 15% above the maximum of the
Offering Range, respectively. For a discussion of the assumptions underlying the
pro forma capital calculations presented below, see "USE OF PROCEEDS,"
"CAPITALIZATION" and "PRO FORMA DATA." The definitions of the terms used in the
table are those provided in the capital regulations issued by the OTS. For a
discussion of the capital standards applicable to the Bank, see "REGULATION -
Savings Institution Regulation - Regulatory Capital Requirements."
<TABLE>
<CAPTION>
Pro Forma as of December 31, 1997
------------------------------------------------------------------------
$119,025,000
Historical, as of $76,500,000 $90,000,000 $103,500,000 Maximum
December 31, 1997 Minimum Midpoint Maximum as adjusted
----------------- ------------------ ----------------- ---------------- -----------------
Percent Percent Percent Percent Percent
Amount of Assets Amount of Assets Amount of Assets Amount of Assets Amount of Assets
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital........................ $28,470 10.44% $53,265 17.91% $57,675 19.10% $62,085 20.27% $67,157 21.57%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Tangible Capital(1)(2).............. $25,828 9.51% $50,623 17.08 $55,033 18.30 $59,443 19.48 $64,515 20.79
Tangible Capital Requirement........ 4,074 1.50 4,446 1.50 4,512 1.50 4,578 1.50 4,654 1.50
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Excess.............................. $21,754 8.01% $46,177 15.58% $50,521 16.80% $54,865 17.98% $59,861 19.29%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Core Capital(1)(2)(3)............... $25,828 9.51% $50,623 17.08% $55,033 18.30% $59,443 19.48% $64,515 20.79%
Core Capital Requirement............ 8,148 3.00 8,892 3.00 9,024 3.00 9,156 3.00 9,309 3.00
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Excess.............................. $17,680 6.51% $41,731 14.08% $46,009 15.30% $50,287 16.48% $55,206 17.79%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Total Risk-Based Capital(1)(2)(4)(5) $26,611 28.62% $51,406 50.71% $55,816 54.26% $60,226 57.71% $65,298 61.55%
Risk-Based Capital Requirement...... 7,438 8.00 8,110 8.00 8,229 8.00 8,349 8.00 8,487 8.00
------ ----- ----- ----- ----- ----- ----- ----- ----- -----
Excess.............................. $19,173 20.62% $43,296 42.71% $47,587 46.26% $51,877 49.71% $56,811 53.55%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
- -----------------
(1) Net unrealized gains or losses on securities classified as available for
sale are excluded from regulatory capital when computing core and
risk-based capital. The net unrealized gain on securities classified as
available for sale amounted to $2,058,000 as of December 31, 1997.
(2) Tangible capital is computed as a percentage of adjusted total assets of
$271,600,000 prior to the consummation of the Offerings and $296,395,000,
$300,805,000, $305,215,000 and $310,287,000 following the issuance of
7,650,000, 9,000,000, 10,350,000 and 11,902,500 shares of Common Stock in
the Conversion and Reorganization, respectively. Core capital is computed
as a percentage of adjusted total assets of $271,600,000 prior to the
consummation of the Offerings and $296,395,000, $300,805,000, $305,215,000
and $310,287,000 following the issuance of 7,650,000, 9,000,000, 10,350,000
and 11,920,500 shares of Common Stock in the Conversion and Reorganization,
respectively. Risk-based capital is computed as a percentage of adjusted
risk-weighted assets of $92,980,000 prior to the consummation of the
Offerings and $101,371,000, $102,869,000, $104,367,000 and $106,090,000
following the issuance of 7,650,000, 9,000,000, 10,350,000 and 11,920,500
shares of Common Stock in the Conversion and Reorganization, respectively.
(3) Does not reflect proposed amendments to regulatory capital requirements or,
in the case of the core capital requirement, the 4.0% requirement to be met
in order for an institution to be "adequately capitalized" under applicable
laws and regulations. See "REGULATION - Savings Institution Regulation -
Regulatory Capital Requirements."
(4) The pro forma risked-based capital ratios (i) reflect the receipt by the
Bank of the assets held by the Mutual Holding Company and of 50% of the
estimated net proceeds from the Offerings, and a reduction due to the
Restricted Stock Plan purchase and the ESOP purchase, (ii) assume no
repayment of FHLB advances, and (iii) assume the investment of the net
remaining proceeds received by the Bank in assets that have a 20%
risk-weighting, as if such net proceeds had been received and so applied at
December 31, 1997.
(5) Risk-weighted assets on a pro forma basis are calculated based on the
percentage of risk-weighted assets to leveraged assets at December 31,
1997. Includes the $__________ million of general allowance for loan losses
that was included in risk-based capital as of December 31, 1997.
-14-
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Conversion Stock cannot be
determined until the Conversion and Reorganization is completed. However, net
proceeds are currently estimated to be between $65.6 million and $89.0 million
(or $102.4 million in the event the Offering Price Range is increased by 15%)
based upon the following assumptions: (i) no fees will be paid to Sandler on
shares purchased by (x) the ESOP or by (y) officers, directors and associates
thereof; (ii) Sandler will receive a fee equal to 1.25% of the aggregate
Purchase Price for sales in the Subscription and Community Offering (excluding
the sale of shares by the ESOP and to officers, directors or employees or
members of their immediate families); and (iii) total expenses, excluding the
marketing fees to be paid to Sandler, will be approximately $395,000. Actual
expenses may vary from those estimated.
Pro forma net earnings have been calculated for the year ended December
31, 1997 as if the Conversion Stock to be issued in the Offerings had been sold
(and the Exchange Shares issued) at the beginning of the respective periods and
the net proceeds had been invested at the one year Treasury Bill Rate which was
5.55% as of December 31, 1997. The Treasury Bill Rate was required to be
utilized in the Business Plan and more nearly reflects the actual and
anticipated yields available on invested funds. The effect of withdrawals from
deposit accounts for the purchase of Conversion Stock has not been reflected. An
effective combined federal and state tax rate of 42.0% has been assumed for the
periods, resulting in an after-tax yield of 3.22% for the year ended December
31, 1997. Historical and pro forma per share amounts have been calculated by
dividing historical and pro forma amounts by the indicated number of shares of
Common Stock, as adjusted to give effect to the shares purchased by the ESOP and
Recognition Plan. See Notes 1 and 2 to the tables below. No effect has been
given in the pro forma stockholders' equity calculations for the assumed
earnings on the net proceeds. As discussed under "USE OF PROCEEDS," the Company
intends to retain 50% of the net proceeds from the Offerings. The Company
intends to make a loan to fund the purchase by the ESOP an amount of Conversion
Stock equal to up to 8% of the Common Stock sold in the Conversion and
Reorganization.
At the consummation of the Conversion and Reorganization, 972,073,
1,143,630, 1,315,166, and 1,512,452 of Common Stock, at the minimum, midpoint,
maximum and 15% above the maximum, respectively, will be issued to Public
Stockholders pursuant to the Exchange. See "THE CONVERSION AND REORGANIZATION --
The Exchange Ratio."
No effect has been given in the tables to the issuance of additional
shares of Common Stock pursuant to existing and proposed stock option plans as
opposed to purchases in the open market. See "MANAGEMENT OF THE BANK -- Benefit
Plans." The tables below give effect to the Recognition Plan, which is expected
to be adopted by the Company following the Conversion and Reorganization and
presented (together with the Stock Option Plan) to stockholders for approval at
an annual or special meeting of stockholders to be held at least six months
following the consummation of the Conversion and Reorganization. If the
Recognition Plan is approved by stockholders, the Recognition Plan intends to
acquire an amount of Common Stock equal to 4.0% of the shares of Conversion
Stock issued in the Offerings, either through open market purchases or from
authorized but unissued shares of Common Stock. No effect has been given to (i)
the Company's results of operations after the Conversion and Reorganization, or
(ii) the market price of the Common Stock after the Conversion and
Reorganization.
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 being indicative of
future results of operations. Pro forma stockholders' equity represents the
difference between the stated amount of pro forma 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 different than amounts that
would be available for distribution to stockholders in the event of liquidation.
-15-
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1997
-----------------------------------------------------------------
Maximum,
Minimum Midpoint Maximum as adjusted
6,677,927 7,856,370 9,034,834 10,390,048
Shares at Shares at Shares at Shares at
$10.00 $10.00 $10.00 $10.00
Per Share Per Share Per Share Per Share(1)
--------- --------- --------- ------------
(Dollars in Thousands)
<S> <C> <C> <C> <C>
Gross proceeds ...................................... $ 66,779 $ 78,564 $ 90,348 $ 103,900
Less expenses ....................................... 1,163 1,298 1,434 1,590
------------ ------------ ------------ ------------
Estimated net proceeds ............................ 65,616 77,266 88,914 102,310
Less: Common Stock purchased by ESOP(2) .......... (5,342) (6,285) (7,228) (8,312)
Less: Common Stock purchased by RSP(3) ........... (2,671) (3,143) (3,614) (4,156)
------------ ------------ ------------ ------------
Estimated net proceeds, as adjusted ............. $ 57,603 $ 67,838 $ 78,072 $ 89,842
============ ============ ============ ============
Consolidated net income
Historical(4) ..................................... $ 3,354 $ 3,354 $ 3,354 $ 3,354
Pro forma income on net proceeds .................. 1,855 2,184 2,514 2,893
Pro forma ESOP adjustment(2) ...................... (207) (243) (279) (321)
Pro forma RSP adjustment(3) ....................... (310) (365) (419) (482)
------------ ------------ ------------ ------------
Pro forma net income ............................ $ 4,692 $ 4,930 $ 5,170 $ 5,444
============ ============ ============ ============
Per share net income (reflects SOP 93-6)(5)(6)(7):
Historical ........................................ $ 0.47 $ 0.40 $ 0.35 $ 0.30
Pro forma income on net proceeds .................. 0.26 0.26 0.26 0.26
Pro forma ESOP adjustment(2) ...................... (0.03) (0.03) (0.03) (0.03)
Pro forma RSP adjustment(3) ....................... (0.04) (0.04) (0.04) (0.04)
------------ ------------ ------------ ------------
Pro forma net income per share(5) ............... $ 0.66 $ 0.59 $ 0.54 $ 0.49
============ ============ ============ ============
Purchase Price as a multiple of pro forma earnings(4) 15.15x 16.95X 18.52x 20.41x
============ ============ ============ ============
Number of shares used in earnings per share
calculations ...................................... 7,419,000 8,727,000 10,036,000 11,542,000
============ ============ ============ ============
Stockholders' equity(8):
Historical ........................................ $ 28,470 $ 28,470 $ 28,470 $ 28,470
Estimated net proceeds ............................ 65,616 77,266 88,914 102,310
Add: Assets consolidated from MHC ................ 90 90 90 90
Less: Common Stock acquired by ESOP(2) ........... (5,342) (6,285) (7,228) (8,312)
Less: Common Stock acquired by RSP(3) ............ (2,671) (3,143) (3,614) (4,156)
------------ ------------ ------------ ------------
Pro forma stockholders' equity .................. $ 86,163 $ 96,398 $ 106,632 $ 118,402
============ ============ ============ ============
Book value per share(5)(6)(7):
Historical combined ............................... $ 3.72 $ 3.16 $ 2.75 $ 2.39
Estimated net proceeds ............................ 8.58 8.59 8.59 8.60
Add: Assets consolidated from MHC ................ 0.01 0.01 0.01 0.01
Less: Common Stock acquired by ESOP(2) ........... (0.70) (0.70) (0.70) (0.70)
Less: Common Stock acquired by RSP(3) ............ (0.35) (0.35) (0.35) (0.35)
------------ ------------ ------------ ------------
Pro forma stockholders' equity per share(4) ..... $ 11.26 $ 10.71 $ 10.30 $ 9.95
============ ============ ============ ============
Purchase Price as a percent of pro forma equity ..... 88.81% 93.37% 97.09% 100.50%
============ ============ ============ ============
Number of shares used in book value per share
calculations ...................................... 7,650,000 9,000,000 10,350,000 11,902,500
Pro forma equity as a percent of pro forma assets ... % % % %
</TABLE>
(footnotes on following page)
-16-
<PAGE>
- --------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to a 15% increase in the Offering Range to reflect changes
in market and financial conditions following the commencement of the
Offerings.
(2) Assumes that 8% of shares of Conversion Stock offered in the Offerings will
be purchased by the ESOP. For purposes of this table, the funds used to
acquire such shares are assumed to have been borrowed by the ESOP from the
net proceeds of the Offerings retained by the Company. The Bank intends to
make annual contributions to the ESOP in an amount at least equal to the
principal of the debt and interest due. The ESOP debt is payable over 15
years. Statement of Position ("SOP") 93-6 requires that an employer record
compensation expense in an amount equal to the fair value of the shares
committed to be released to employees. The pro forma adjustments assume
that the ESOP shares are allocated in fifteen equal annual installments and
the fair value of the Company's stock remains at the Purchase Price and the
effective tax rates are assumed to be __________%. The unallocated ESOP
shares are reflected as a reduction of stockholders' equity. No
reinvestment is assumed on proceeds contributed to fund the ESOP. The pro
forma net income further assumes (i) that 36,000, 42,000, 48,000 and 54,000
shares were committed to be released during the fiscal year ended December
31, 1997, in each case at the minimum, midpoint, maximum, and 15% above
maximum, respectively, and (ii) in accordance with SOP 93-6, only the ESOP
shares committed to be released during the respective periods were
considered outstanding for purposes of net income per share calculations.
See "MANAGEMENT OF THE BANK -Benefits - Employee Stock Ownership Plan."
(3) Subject to the approval of the Company's stockholders, the Recognition Plan
intends to purchase an aggregate number of shares of Common Stock equal to
4% of the shares of Conversion Stock to be sold in the Offerings. The
shares may be acquired directly from the Company, or through open market
purchases. The funds to be used by the Recognition Plan to purchase the
shares will be provided by the Bank or the Company. See "MANAGEMENT OF THE
COMPANY - Proposed Future Stock Benefit Plans - Management Recognition
Plan." Assumes that the Recognition Plan acquires the shares through open
market purchases at the Purchase Price with funds contributed by the Bank,
and that 20% of the amount contributed to the Recognition Plan is amortized
as an expense during the fiscal year ended December 31, 1997. If the
Recognition Plan purchases authorized but unissued shares instead of making
open market purchases, (i) the voting interests of then existing
stockholders would be diluted by approximately 3.74%, (ii) the pro forma
net income per share for the fiscal year ended December 31, 1997 would be
$0.64, $0.58, $0.53 and $0.48 and pro forma stockholders' equity at
December 31, 1997 would be $10.88, $10.35, $9.96 and $9.61 in each case at
the minimum, midpoint, maximum, and 15% above maximum of the Offering
Range, respectively.
(4) Historical net income includes $__________. Absent such $__________,
adjusted earnings per share would be $20.83, $22.73, $24.39 and $27.03, at
the minimum, midpoint, maximum, and maximum, as adjusted, respectively.
(5) Per share figures include Exchange Shares that will be exchanged for Public
Mid-Tier Shares. Net income per share computations are determined by taking
the number of shares of Common Stock assumed to be issued in the Conversion
and Reorganization and, in accordance with SOP 93-6, subtracting the ESOP
shares that have not been committed for release during the respective
period. See Note 2 above. The number of Exchange Shares to be issued were
then added to such amounts. The number of shares of Conversion Stock
actually sold and the corresponding number of Exchange Shares may be more
or less than the assumed amounts.
(6) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the 1998 Option Plan, which is expected to be adopted by
the Company following the Offerings and presented to stockholders for
approval at the Company's 1998 Annual Meeting. An amount equal to 10% of
the Conversion Stock sold in the Offerings will be reserved for future
issuance upon the exercise of options to be granted under the 1998 Option
Plan, if approved by stockholders. The issuance of authorized but
previously unissued shares of Common Stock pursuant to the exercise of
options under such plan would dilute existing stockholders' interests.
Assuming stockholder approval of the 1998 Option Plan, that all
-17-
<PAGE>
the options were exercised at the end of the period at an exercise price
equal to the Purchase Price per share shown for each column, and that the
Recognition Plan purchases shares in the open market at such purchase price
per share, (i) pro forma net income per share for the year ended December
31, 1997 would be $0.60, $0.54, $0.49 and $0.45 and pro forma stockholders'
equity per share at December 31, 1997 would be $11.16, $10.65, $10.28 and
$9.95, in each case at the minimum, midpoint, maximum and 15% above maximum
of the Offering Range, respectively.
(7) Per share figures include Exchange Shares that will be exchanged for Public
Mid-Tier Shares. Book value per share calculations are based upon the sum
of (i) the number of shares of Conversion Stock assumed to be sold in the
Offering, and (ii) Exchange Shares equal to the minimum, midpoint, maximum
and 15% above maximum of the Offering Range, respectively. The Exchange
Shares reflect an Exchange Ratio of 4.7188, 5.5516, 6.3843, and 7.3420,
respectively, at the minimum, midpoint, maximum, and 15% above maximum of
the Offering Range, respectively. The number of Conversion Stock actually
sold and the corresponding number of Exchange Shares may be more or less
than the assumed amounts.
(8) The retained earnings of Mid-Tier will be substantially restricted after
the Conversion and Reorganization. See "DIVIDEND POLICY," "THE CONVERSION
AND REORGANIZATION - Effects of the Conversion and Reorganization - Effect
on Liquidation Rights" and "REGULATION - Savings Institution Regulation -
Dividend and Other Capital Distribution Limitations." Direct costs beyond
estimated offering expenses related to the sale of Common Stock, if the
Offerings are completed, will be recorded as a reduction in proceeds and
applied to paid in capital. If the Conversion and Reorganization is not
consummated, such costs will be charged to expenses. At December 31, 1997,
no such costs had been incurred or accrued. The Common Stock of the Company
is being offered in the Conversion and Reorganization.
-18-
<PAGE>
THISTLE GROUP HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME:
Interest on loans $ 8,763,057 $ 8,602,904 $ 8,689,150
Interest on mortgage-backed securities 6,491,208 6,554,426 5,891,955
Interest and dividends on investments 5,328,034 5,106,685 5,209,146
------------ ------------ ------------
Total interest income 20,582,299 20,264,015 19,790,251
------------ ------------ ------------
INTEREST EXPENSE:
Interest on deposits 10,538,158 10,599,955 10,172,631
Other 464,284 469,178 472,932
------------ ------------ ------------
Total interest expense 11,002,442 11,069,133 10,645,563
------------ ------------ ------------
NET INTEREST INCOME 9,579,857 9,194,882 9,144,688
PROVISION FOR LOAN LOSSES 120,000 139,194 135,000
------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 9,459,857 9,055,688 9,009,688
------------ ------------ ------------
OTHER INCOME:
Gain on sales of loans 8,992 61,922
Gain on sale of deposit liabilities 2,234,268
Loss on sale of mortgage-backed securities (30,994)
Rental income 173,776 163,822 157,031
Other 391,216 419,527 356,426
------------ ------------ ------------
Total other income 2,808,252 583,349 544,385
------------ ------------ ------------
OTHER EXPENSES:
Salaries 2,718,471 2,620,365 2,576,090
Amortization of goodwill 32,544 114,547 200,461
Office occupancy 477,232 500,515 500,448
Depreciation 240,037 265,582 332,957
Telephone and postage 163,666 171,269 170,977
Pension and profit-sharing 905,145 533,898 549,697
Federal insurance premium 158,195 572,161 554,827
SAIF special assessment 1,533,127
Stationery, printing and supplies 111,996 128,070 110,155
Payroll taxes 190,507 194,422 197,174
Other employee benefits 203,601 228,570 241,470
Directors' fees 125,200 130,800 120,700
Furniture, fixture and equipment expense 215,401 215,474 204,835
Director, officer and employee expenses 172,355 157,204 159,668
Professional services 321,765 351,371 233,619
Advertising 118,265 186,013 150,064
Writedown of trustee receivable 1,180,628
Other 669,736 806,263 931,737
------------ ------------ ------------
Total other expenses 6,824,116 9,890,279 7,234,879
------------ ------------ ------------
INCOME (LOSS) BEFORE INCOME TAXES 5,443,993 (251,242) 2,319,194
------------ ------------ ------------
INCOME TAXES:
Current 2,083,482 36,234 736,907
Deferred 6,518 75,766 149,993
------------ ------------ ------------
Total income taxes 2,090,000 112,000 886,900
------------ ------------ ------------
NET INCOME (LOSS) $ 3,353,993 $ (363,242) $ 1,432,294
============ ============ ============
BASIC EARNINGS (LOSS) PER SHARE $ 2.07 $ (0.22) $ 0.88
============ ============ ============
Diluted Earnings (Loss) Per Share $ 2.04 $ (0.22) $ 0.88
============ ============ ============
</TABLE>
-19-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
General
The Mid-Tier Holding Company's net income is primarily dependent on its
net interest income, which is the difference between interest income earned on
its loans, mortgage-backed securities and investment portfolios, and its cost of
funds consisting of interest paid on deposits and borrowings. The Mid-Tier
Holding Company's net income also is affected by its provision for loan losses,
as well as the amount of non-interest income, including gains on sales, loan
fees and service charges, and non-interest expense, such as salaries and
employee benefits, deposit insurance premiums, occupancy and equipment costs and
income taxes. Earnings of the Mid-Tier Holding Company also are affected
significantly by general economic and competitive conditions, particularly
changes in market interest rates, government policies and actions of regulatory
authorities. The discussion herein includes the Mid-Tier Holding Company and the
Bank on a consolidated basis. Unless the context requires otherwise, any
reference to the Bank, includes the Mid-Tier Holding Company on a consolidated
basis.
Business Strategy
The Bank's current business strategy is to operate as a well
capitalized, profitable and independent community savings bank dedicated to
financing home ownership and providing quality service to customers. The Bank
has sought to implement this strategy in recent years by: (1) closely monitoring
the needs of customers and providing quality customer service; (2) emphasizing
the origination of residential mortgage loans, and home equity loans and
offering other personal and family financial services; (3) reducing interest
rate risk exposure; (4) controlling operating expenses; (5) improving asset
quality; and (6) maintaining capital in excess of regulatory requirements and
controlling growth.
Upon completion of the Conversion, the Mid-Tier Holding Company will
focus on operating as a well capitalized, profitable and independent community
bank with increased products and services provided to its customers. To
implement this strategy, the Mid-Tier Holding Company will (i) use its unitary
thrift holding company structure to enhance the Bank's traditional savings
association business by building a focused portfolio of investments including
equity investments in non-bank financial services firms that complement
traditional banking activity, and demonstrate the ability to generate
non-interest sensitive forms of revenue; (ii) utilize available capital market
opportunities, such as stock repurchases, to enhance stockholder value; (iii)
expand the Bank's delivery network by implementing a branching strategy focused
on growth markets; (iv) implement a wholesale leverage strategy to enhance
earnings per share and growth by matching wholesale funding opportunities with
fixed and possibly variable rate assets that assist in the mitigation of balance
sheet interest rate sensitivity; (v) utilize stock benefit programs and other
incentive to seek experienced personnel to support asset and liability growth;
and (vi) enhance the Bank's infrastructure through technology investments to
accommodate growth in both existing and new customer segments.
Changes in Financial Condition
The Bank's assets decreased by $17,681,000 or 6.0% during the fiscal
year ended December 31, 1997, due primarily to a net decrease of cash, cash
equivalents and investments, as interest-bearing deposits and investments were
used to fund the sale to a local financial institution of $37,237,000 in
deposits and two branch buildings to a locally headquartered financial
institution in May of 1997 ("Branch
-20-
<PAGE>
Sale"). The Bank's 1996 business plan included the sale of two branches which
were outside of its core growth markets.
Investments (including those available for sale) decreased $10,868,000
or 22.1% from $49,096,000 at December 31, 1996 to $38,228,000 at December 31,
1997 due to such funds being used to fund the sale of deposits. Mortgage-backed
securities (including those available for sale) increased $18,077,000 or 19.4%
as excess liquidity was invested in mortgage-backed securities due to decreased
loan originations. Loans receivable, including loans available for sale,
decreased $3,338,000 or 3.3% from $100,773,000 to $97,435,000 due to prepayments
exceeding decreased originations.
The Bank's liabilities similarly decreased by $21,571,000 or 8.0%
during the fiscal year ended December 31, 1997, due to a decrease in deposits of
$25,988,000 from $256,547,000 to $230,558,000 primarily from the sale to a local
financial institution of $37,237,000 in deposits as previously discussed. As a
result of the Branch Sale, the Bank recognized a gain on the liabilities sold.
Accrued income taxes increased from $86,900 to $2,096,000 due to earnings
present in 1997 compared to a loss in 1996.
The Bank's total stockholders' equity increased by $3,889,000, or 15.8%
due mainly to earnings in 1997 and a $655,000 increase in unrealized gains on
securities available for sale, offset partially by dividends paid of $165,000 .
The Bank's assets increased by $4,847,000 or 1.68% during the fiscal
year ended December 31, 1996, due primarily to a net increase of cash due the
prepayment of mortgage-backed securities during fiscal 1997 as the Bank
accumulated liquid assets in anticipation of the Branch Sale as previously
discussed.
The Bank's liabilities increased by $5,414,000 or 2.0% during the
fiscal year ended December 31, 1996, due to a $6,363,000 or 2.5% increase in
interest-bearing deposits due to management's decision to aggressively seek
certificates of deposits to accumulate funds needed for the Branch Sale.
The Bank's stockholders' equity decreased by $567,000, or 2.3% due
mainly to dividends paid of $165,000 and a $363,000 loss experienced by the Bank
in the fiscal year ended December 31, 1996.
Results of Operations
General. The earnings of the Bank depend primarily on its level of net
interest income, which is the difference between interest earned on the Bank's
interest-earning assets and the interest paid on interest-bearing liabilities.
Net interest income is a function of 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, as well as a function of
the average balance of interest-earning assets as compared to interest-bearing
liabilities. The Bank reported net income of $1,432,000 and $3,354,000 for the
fiscal years ended December 31, 1995 and 1997, respectively, and a net operating
loss of $363,000 for the fiscal year ended December 31, 1996.
-21-
<PAGE>
Balance Sheet. The following table sets forth certain information relating to
the Company's average balance sheet and reflects the average yield on assets and
average cost of liabilities for the periods indicated and the average yields
earned and rates paid. Such yields and costs are derived by dividing income or
expense by the average balance of assets or liabilities, respectively, for the
periods presented. Average balances are derived from month-end balances.
Management does not believe that the use of month-end balances instead of daily
average balances has caused any material differences in the information
presented.
<TABLE>
<CAPTION>
At
December 31, Year Ended December 31,
------------ ---------------------------------------------------------------------------------
1997 1997 1996 1995
----------- ------------------------- -------------------------- --------------------------
Average Average Average
Yield/ Average Yield/ Average Yield/ Average Yield/
Cost Balance Interest Cost Balance Interest Cost Balance Interest Cost
------ ------- -------- ------- ------- -------- --------- ------- -------- -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1).................... 8.24% $101,472 $ 8,763 8.64% $101,726 $ 8,603 8.46% $ 99,194 $ 8,689 8.76%
Mortgage-backed securities............. 7.01 93,427 6,491 6.95 93,925 6,554 6.98 86,653 5,892 6.80
Cash and investment securities(2)...... 6.31 72,813 4,977 6.84 77,272 4,728 6.12 80,694 4,864 6.03
Other interest-earning assets.......... 6.81 6,317 351 5.56 6,761 379 5.61 4,964 345 6.95
------- ------ ------- ------- ------- -------
Total interest-earning assets......... 7.34 274,029 $20,582 7.51 279,684 $20,264 7.25 271,505 $19,790 7.29
------- ====== ------- ====== ------- ======
Non-interest-earning assets............. 10,013 9,529 8,369
------- ------- -------
Total assets.......................... $284,042 $289,213 $279,874
======= ======= =======
Interest-bearing liabilities:
Regular savings accounts............... 3.27 $ 35,448 $ 1,133 3.20 $ 39,487 $ 1,233 3.12 $39,460 $ 1,261 3.20
Senior club savings.................... 4.06 65,868 2,673 4.06 71,117 2,886 4.06 68,953 2,797 4.06
Certificate accounts................... 5.41 116,523 6,223 5.34 112,756 5,886 5.22 106,731 5,327 4.99
Other deposit accounts................. 2.03 24,550 509 2.08 26,792 595 2.22 26,991 788 2.92
------- ------- ------- ------- ------- -------
Total deposits....................... 4.39 242,389 10,538 4.35 250,152 10,600 4.24 242,135 10,173 4.20
------- ------ ------- ------ ------- ------
FHLB borrowings........................ 5.53 7,884 436 5.53 7,884 436 5.53 7,884 436 5.53
Other liabilities (escrow)............. 1.86 1,730 28 1.62 1,772 33 1.86 1,920 37 1.93
------- -------- ------- ------ ------- -------
Total interest-bearing liabilities.... 4.41 252,003 $11,002 4.37 259,808 11,069 4.26 251,939 $10,646 4.23
------- ====== ------- ------ ------- ======
Non-interest bearing liabilities........ 5,020 4,412 4,002
------- ------- -------
Total liabilities...................... 257,023 264,220 255,941
------- ------- -------
Retained earnings....................... 27,019 24,993 23,933
------- ------- -------
Total liabilities and
retained earnings.................... $284,042 $289,213 $279,874
======= ======= =======
Net interest income..................... $ 9,580 $ 9,195 $ 9,144
====== ====== ======
Interest rate spread(3)................. 2.93% 3.14% 2.99% 3.06%
===== ====== ====== ======
Net yield on interest-
earning assets(4)..................... 4.66% 4.38% 4.49%
====== ====== ======
Ratio of average interest-
earning assets to average
interest-bearing liabilities.......... 108.74% 107.65% 107.77%
====== ====== ======
</TABLE>
- ---------------------------------
(1) Average balances include non-accrual loans.
(2) Includes interest-bearing deposits in other financial institutions.
(3) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(4) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
-22-
<PAGE>
Rate/Volume Analysis. The table below sets forth certain information
regarding changes in interest income and interest expense of the Company 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 average volume multiplied by old rate); (ii)
changes in rates (changes in rate multiplied by old average volume); (iii)
changes in rate-volume (changes in rate multiplied by the change in average
volume).
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995
---------------------------------- -----------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
---------------------------------- -----------------------------------
Rate/ Rate/
Volume Rate Volume Net Volume Rate Volume Net
------ ---- ------ --- ------ ---- ------ ---
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income:
Loans receivable .................... $ (21) $ 181 $-- $ 160 $ 222 $(300) $ (8) $ (86)
Mortgage-backed securities .......... (35) (28) -- (63) 494 155 13 662
Cash and investment securities ...... (273) 554 (32) 249 (206) 73 (3) (136)
Other interest earning assets ....... (25) (3) -- (28) 125 (67) (24) 34
----- ----- ----- ----- ----- ----- ----- -----
Total interest-earning assets ...... $(354) $ 704 $ (32) $ 318 $ 635 $(139) $ (22) $ 474
===== ===== ===== ===== ===== ===== ===== =====
Interest expense:
Savings accounts .................... $(329) $ 276 $ (9) $ (62) $ 337 $ 87 $ 3 $ 427
Other liabilities ................... (2) (3) -- (5) (7) 3 -- (4)
----- ----- ----- ----- ----- ----- ----- -----
Total interest-bearing liabilities $(331) $ 273 $ (9) $ (67) $ 330 $ 90 $ 3 $ 423
===== ===== ===== ===== ===== ===== ===== =====
Net change in interest income ........ $ (23) $ 431 $ (23) $ 385 $ 305 $(229) $ (25) $ 51
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
- ---------------------
Note:The rate/volume variances should be allocated on a consistent basis between
rate and variance and the basis of allocation disclosed in a note to this table.
Comparison of Operating Results for Years Ended December 31, 1997 and December
31, 1996.
General. Net income for the year ended December 31, 1997 increased
$3,717,000 from a loss of $363,000 in 1996 to a profit of $3,354,000 for the
year ended December 31, 1997. The increase was primarily due to a gain from the
sale of two branch offices and the absence in 1997 of a one-time SAIF special
assessment of $1,533,000 and the write-off of trustee receivables caused by the
bankruptcy of Bennett Funding. See "- Comparison of Operating Results for Years
Ended December 31, 1996 and December 31, 1995 - Other Expenses." Furthermore,
net interest income increased $385,000 or 4.2% as the Bank's interest rate
spread improved during 1997 and other income increased $2,225,000 or 381.4% due
to a gain on the sale of deposit liabilities. These increases were offset
somewhat by an increase in total income taxed due to the Bank returning to
profitability in 1997.
Net Interest Income. Net interest income increased $385,000 or 4.2%
from $9,195,000 for the year ended December 31, 1996 to $9,580,000 during the
year ended December 31, 1997 as interest income increased and interest expense
decreased, and the Bank's interest rate spread improved 15 basis points (100
basis points equalling 1%) due primarily to increased yields on loans and
investment securities. The Bank's net interest rate spread increased from 2.99%
to 3.14%.
-23-
<PAGE>
Interest Income. Interest income increased from $20,264,000 for 1996 to
$20,582,000 for 1997, or 1.6% primarily due to an increase in income from loans
and interest and dividend on investments. Interest on loans increased $160,000
due to increased yields as the Bank emphasized equity loans. The interest on
cash and investment securities increased $221,000 during 1997 due to a 72 basis
point increase in the yield. The average balance and yield on mortgage-backed
securities remained relatively stable.
Interest Expense. Interest expense decreased $67,000 or .06% due
primarily to a decease in the average balance of deposits due to the sale of
$37,237,000 of deposits in May, 1997 which was partially offset by an increase
of the cost of funds from certificates of deposit due to management's decision
to seek funds for the Branch Sale. See "- Changes in Financial Condition."
Provision for Losses on Loans. The provision for losses on loans
decreased $19,000 from $139,000 for the year ended December 31, 1996 to $120,000
for the year ended December 31, 1997. Provisions for losses included charges to
reduce the recorded balances of mortgage loans receivable and the collateral
real estate to their estimated net realizable value or fair value, as
applicable. Such provisions are based on management's estimate of net realizable
value or fair value of the collateral, as applicable, considering the current
and currently anticipated further operating or sales conditions, thereby causing
these estimates to be particularly susceptible to changes that could result in a
material adjustment to results of operations in the near term. Recovery of the
carrying value of such loans and real estate is dependent to a great extent on
economic, operating and other conditions that may be beyond the Bank's control.
Other Income. Other income increased from $583,000 for 1996 to
$2,808,000 for the year ended December 31, 1997 primarily as a result of the
$2,234,000 gain on the sale of deposit liabilities in May, 1997. See "- Changes
in Financial Condition."
Other Expenses. Other expenses decreased by $3,066,000 or 31.0% from
$9,890,000 in 1996 to $6,824,000 for the year ended December 31, 1997. This
decrease was primarily caused by the absence in 1997 of a one-time special SAIF
assessment and a write down of $1,181,000 of a trustee receivable. See "-
Comparison of Operating Results for Years Ended December 31, 1995 and December
31, 1996 - Other Expenses." Other decreases in 1997 included a $414,000 or 72.4%
decrease in federal insurance premiums due to the resolution of the SAIF, a
$82,000 or 71.6% decrease in the amortization of goodwill as goodwill obtained
in the acquisition of Aetna Federal in 1982 was completely written off in 1997,
and a $137,000 or 1.3% decrease in other operating expenses due to write off of
expenses of $350,000 related to the inability to consummate a conversion and
merger with Progress Financial Corp. Offsetting these decreases were increases
of $371,000 or 69.5% in pension and profit sharing expense due to increased
profit sharing on increased earnings compared to 1996, and $98,000 or 3.7% in
salaries due to normal salary increases offset by a decrease in the number of
employees due to the sale of the two branch offices from the Branch Sale in May
1998.
Upon completion of the Conversion, the Mid-Tier Holding Company expects
an increase in other expenses due to being a public company and the cost of
stock benefit plans, if adopted.
Income Tax Expense. Income tax expense increased significantly from
$112,000 in 1996 to $2,090,000 in 1997 due to the Mid-Tier Holding Company's
return to profitability.
-24-
<PAGE>
Comparison of Operating Results for Years Ended December 31, 1996 and
December 31, 1995.
General. Net income for the year ended December 31, 1996 decreased
$1,795,000 or 125.3% to a loss of $363,000 from a profit of $1,432,000 for the
year ended December 31, 1995. The decrease was primarily due to the SAIF special
assessment of $1,533,000 and the write-off of commercial leases caused by the
bankruptcy of Bennett Funding. See "BUSINESS OF THE BANK - Lending Activities -
Loans Secured by Commercial Equipment Leases."
Net Interest Income. Net interest income increased $50,000 or .5% from
$9,145,000 for the year ended December 31, 1995 to $9,195,000 during the year
ended December 31, 1996 as the average balances and yield/costs of
interest-earning assets and interest-bearing liabilities increased at a
relatively similar pace. The Bank experienced a slight decrease in the net
interest rate spread from 3.06% to 2.99% due to the Bank's aggressive marketing
of certificates of deposit during the period.
Interest Income. Interest income increased from $19,790,000 for 1995 to
$20,264,000 for 1996, or 2.4% primarily due to an increase in income from an
increase in the average balance of mortgage-backed securities. Interest on loans
and interest and dividends on investments remained relatively stable, decreasing
$86,000 or .9% and $102,000 or 2.0%, respectively, due primarily to a slight
increase in the average balance of loans receivable and the yield on cash and
investment securities.
Interest Expense. Interest expense increased $424,000 or 4.0% due
primarily to an increase in the average balance of deposits, in particular
certificates of deposit due to management's effort to accumulate funds for the
Branch Sale. The average balance of certificates of deposit increased $6,025,000
or 5.6% as the Bank emphasized certificate of deposit products during 1996.
Provision for Losses on Loans. The provision for losses on loans
increased $4,000 from $135,000 for the year ended December 31, 1995 to $139,000
for the year ended December 31, 1996. See also "- Comparison of Operating
Results for Years Ended December 31, 1996 and December 31, 1997 - Provision for
Loan Losses."
Other Income. Other income increased from $544,000 for 1995 to $583,000
for the year ended December 31, 1996 primarily as a result of an increase in fee
income as well as an absence of any losses on the sale of mortgage-backed
securities present in 1995, offset somewhat by no gains on the sale of loans in
1996 as the Bank did not sell any loans during such period.
Other Expenses. Other expenses increased by $2,655,000 or 37% from
$7,235,000 in 1995 to $9,890,000 for the year ended December 31, 1996. This
increase was primarily the result of a $1,533,000 special assessment required to
recapitalize the SAIF. On September 30, 1996, pursuant to legislation, all
SAIF-insured institutions were charged a one-time assessment of 65.7 basis
points per $100 of insurable deposits as of March 31, 1995. The legislation also
provides that the Bank, in addition to the payment of normal deposit insurance
premium as a member of the SAIF, pay an annual amount equal to approximately 6.4
basis points of outstanding SAIF deposits toward the retirement of the Financial
Corporation Bonds ("Fico Bonds") issued in the 1980's to assist in the recovery
of the savings and loan industry. Members of the Bank Insurance Fund ("BIF"), by
contrast, will pay, in addition to their normal deposit insurance premium,
approximately 1.3 basis points toward the retirement of the Fico Bonds.
Beginning no later than January 1, 2000, the rate paid to retire the Fico Bond
will be equal for members of the BIF and the SAIF. The legislation also provided
for the merging of the BIF and the
-25-
<PAGE>
SAIF by January 1, 1999 provided there are no financial institutions still
chartered as savings associations at that time. Should the insurance funds be
merged before January 1, 2000, the rate paid by all members of this new fund to
retire the Fico Bond would be equal.
In addition, the Bank wrote down trustee receivables by $1,181,000. See
"Business of the Bank - Lending Activities - Loans Secured by Commercial
Equipment Leases." Furthermore, the Bank experienced increased advertising costs
of $36,000 or 24.0% due to home equity loan advertising; and increased
professional service fees of $118,000 due to legal fees in challenging
previously paid state taxes. Such increases were partially offset by decreased
amortization of goodwill from the acquisition of Aetna Federal in 1982 and
decreased depreciation due to the Bank's data processing system becoming fully
depreciated.
Income Tax Expense. Income tax expense decreased significantly from
$887,000 in 1995 to $112,000 in 1996 due to the loss recognized in 1996.
Year 2000. A great deal of information has been disseminated about the
global computer year 2000. Many computer programs that can only distinguish the
final two digits of the year entered (a common programming practice in earlier
years) are expected to read entries for the year 2000 as the year 1900 and
compute payment, interest or delinquency based on the wrong date or are expected
to be unable to compute payment, interest or delinquency. Rapid and accurate
data processing is essential to the operation of the Bank. Data processing is
also essential to most other financial institutions and many other companies.
See also "RISK FACTORS - Year 2000 Compliance" and "BUSINESS OF THE BANK -
Properties and Equipment."
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits and proceeds from
principal and interest payments on loans, mortgage-backed securities and other
investments. While maturities and scheduled amortization of loans and
mortgage-backed securities are a predictable source of funds, deposit flows and
mortgage prepayments are greatly influenced by general interest rates, economic
conditions, competition and the consolidation of the financial institution
industry.
The primary investment activity of the Bank is the origination and
purchase of mortgage loans, mortgage-backed securities and other investments.
During the years ended December 31, 1995, 1996, and 1997, the Bank originated
mortgage loans in the amounts of $11.5 million, $17.8 million, and $19.9 million
respectively. The Bank also purchases loans and mortgage-backed securities to
reduce liquidity not otherwise required for local loan demand. Purchases of
mortgage loans and mortgage-backed securities totaled $33.0 million, $17.8
million and $35.1 million, respectively, in those same periods. Other investment
activities include investment in short term certificates of deposit of other
financial institutions, FHLB of Pittsburgh stock, consumer loans and the U.S.
government and federal agency obligations.
The Bank has other sources of liquidity if a need for additional funds
arises. Although the Bank has historically not utilized borrowings as a source
of funds, the Bank had outstanding advances from the FHLB of Pittsburgh in 1995,
1996 and 1997. In addition, other sources of liquidity can be found in the
Bank's balance sheet, such as investment securities maturing within one year and
unencumbered mortgage-backed securities that are readily marketable.
-26-
<PAGE>
The Bank is required to maintain minimum levels of liquid assets as
defined by OTS regulations. The requirement, which may be varied at the
direction of the OTS depending upon economic conditions and deposit flows, is
based upon a percentage of deposits and short-term borrowings. The required
minimum ratio is currently 4.0%. The Bank's liquidity ratios was 18.87% at
December 31, 1997.
The Bank's most liquid assets are cash and cash equivalents, which
include investments in highly liquid short-term investments. The level of these
assets are dependent on the Bank's operating, financing and investing activities
during any given period. At December 31, 1997, cash and cash equivalents
totalled $20,157,000.
The Bank anticipates that it will have sufficient funds available to
meet its current commitments. As of December 31, 1997, the Bank had $761,000 in
commitments to fund loans. Certificates of deposit which were scheduled to
mature in one year or less as of December 31, 1997 totaled $89,887,000.
Management believes that a significant portion of such deposits will remain with
the Bank.
The Bank had core, tangible and risk-based capital ratios of 9.5%, 9.5%
and 28.6%, respectively, at December 31, 1997, which significantly exceeded the
OTS's respective minimum requirements of 3.00%, 1.50% and 8.00%. The Bank was
classified as a "well capitalized" institution on December 31, 1997. See
"Historical and Pro Forma Capital Compliance."
Interest Rate Risk Management Activities
General. The goal of the Bank's asset/liability policy is to manage
interest rate risk so as to maximize net interest income over time in changing
interest rate environments. Management monitors the Bank's net interest spreads
(the difference between yields received on assets and rates paid on liabilities)
and, although constrained by market conditions, economic conditions, and prudent
underwriting standards, it offers deposit rates and loan rates in an attempt to
maximize net interest income. Management also attempts to fund the Bank's assets
with liabilities of a comparable duration to minimize the impact of changing
interest rates on the Bank's net interest income. Since the relative spread
between financial assets and liabilities is constantly changing, the Bank's
current net interest income may not be an indication of future net interest
income.
The Bank has sought to manage its interest rate risk by maintaining a
high degree of liquid assets and short-term securities, coupled with the
purchase of mortgage-backed securities secured by adjustable rate mortgage
loans.
The Bank is also managing interest rate risk by the origination of
multi-family residential loans with a balloon payment after five to seven years.
In general, these loans have higher yields, shorter maturities and greater
interest rate sensitivity than traditional one- to four-family residential real
estate loans.
The Bank constantly monitors its deposits in an effort to decrease
their interest rate sensitivity. Rates of interest paid on deposits at the Bank
are priced competitively in order to meet the Bank's asset/liability management
objectives and spread requirements. As of December 31, 1997, the Bank's savings
accounts, checking accounts and money market deposit accounts totaled
$119,508,000 or 51.8% of its total deposits. The Bank believes, based on
historical experience, that a substantial portion of such accounts represent
non-interest rate sensitive core deposits.
-27-
<PAGE>
Quantitative Interest Rate Sensitivity Analysis. The value of the
Bank's loan portfolio will change as interest rates change. Rising interest
rates will decrease the Bank's net portfolio value, while falling interest rates
increase the value of that portfolio.
The following table sets forth, quantitatively, as of December 31,
1997, (the most recent available) OTS estimate of the projected changes in net
portfolio value ("NPV") in the event of 100, 200, 300, and 400 basis points
("bp") instantaneous and permanent increases and decreases in market interest
rates. Dollar amounts are expressed in thousands.
<TABLE>
<CAPTION>
BP Change Estimated Net Portfolio Value NPV as % of PV of Assets
----------------------------------------------------- ------------------------------
in Rates $ Amount $ Change % Change NPV Ratio BP Change
-------- -------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
+400 bp $13,521 $-22,349 -62% 5.41% -758 bp
+300 19,126 -16,743 -47 7.45 -553 bp
+200 25,004 -10,865 -30 9.49 -349 bp
+100 30,793 -5,077 -14 11.40 -159 bp
NC 35,870 12.98
-100 40,663 4,794 +13 14.42 +143 bp
-200 46,863 10,994 +31 16.20 +321 bp
-300 54,166 18,296 +51 18.19 +521 bp
-400 63,402 27,532 +77 20.58 +759 bp
</TABLE>
<TABLE>
<CAPTION>
12/31/97 12/31/96
-------- --------
* * * RISK MEASURES: 200 BP RATE SHOCK * * *
<S> <C> <C>
Pre-Shock NPV Ratio: NPV as % of PV of Assets ...................................... 12.98% 12.50%
Exposure Measure: Post-Shock NPV Ratio ............................................. 9.49% 9.78%
Sensitivity Measure: Change in NPV Ratio ........................................... -349 bp -273 bp
</TABLE>
Computations of prospective effects of hypothetical interest rate
changes are calculated by the OTS from data provided by the Bank and are based
on numerous assumptions, including relative levels of market interest rates,
loan repayments and deposit runoffs, and should not be relied upon as indicative
of actual results. Further, the computations do not contemplate any actions the
Bank may undertake in response to changes in interest rates.
Management cannot predict future interest rates or their effect on the
Bank's NPV in the future. Certain shortcomings are inherent in the method of
analysis presented in the computation of NPV. For example, although certain
assets and liabilities may have similar maturities or periods to repricing, they
may react in differing degrees to changes in market interest rates.
Additionally, certain assets, such as adjustable rate loans, which represent the
bank's primary loan product, have features which restrict changes in interest
rates during the initial term and over the remaining life of the asset. In
addition, the proportion of adjustable rate loans in the Bank's portfolio could
decrease in future periods due to refinancing activity if market interest rates
remain or decrease in future periods due to refinancing activity. Further, in
the event of a change in interest rates, prepayment and early withdrawal levels
could deviate significantly from those assumed in the table. Finally, the
ability of many borrowers to service their adjustable-rate debt may decrease in
the event of an interest rate increase.
-28-
<PAGE>
The Bank's Board of Directors is responsible for reviewing and
approving the asset and liability policies. The Board meets quarterly to review
interest rate risk and trends, as well as liquidity and capital ratios and
requirements. The Bank's management is responsible for administering the
policies and determinations of the Board of Directors with respect to the Bank's
asset and liability goals and strategies. Management expects that the Bank's
asset and liability policies and strategies will continue as described above so
long as competitive and regulatory conditions in the financial institution
industry and market interest rates continue as they have in recent years.
Recent Accounting Pronouncements
FASB Statement on Reporting Comprehensive Income. In June 1997, the
Financial Accounting Standards Board ("FASB") issued Statement of Financial
Accounting Standards ("SFAS") No. 130. SFAS No. 130 will require the Mid-Tier
Holding Company to classify items of other comprehensive income by their nature
in the financial statements and display the accumulated balance of other
comprehensive income separately from retained earnings and additional paid-in
capital in the equity section of the statement of changes in stockholders'
equity. SFAS No. 130 is effective for fiscal years beginning after December 15,
1997.
FASB Statement on Earnings Per Share. In March 1997, FASB issued SFAS
No. 128. The Statement establishes standards for computing and presenting
earnings per share and applies to entities with publicly held common stock or
potential common stock. This Statement simplifies the standards for computing
earnings per share previously found in Accounting Principles Board ("APB")
Opinion No. 15, Earnings per Share ("EPS"), and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities with complex
capital structures and requires a reconciliation of the numerator and the
denominator of the basic EPS computation to the numerator and denominator of the
diluted EPS computation. Basic EPS excludes dilution and is computed by dividing
income available to common stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS reflects the potential dilution
that could occur if securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the issuance of common
stock that then shared in the earnings of the entity. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB Opinion No. 15. This statement
supersedes Opinion 15 and AICPA Accounting Interpretation 1-102 of Opinion 15.
This statement is effective for financial statements issued for periods ending
after December 15, 1997, including interim periods. SFAS No. 128 has been
adopted by Mid-Tier Holding Company.
FASB Statement on Disclosure of Information about Capital Structure. In
February 1997, the FASB issued SFAS No. 129. The Statement incorporates the
disclosure requirements of APB Opinion No. 15, Earnings per Share, and makes
them applicable to all public and nonpublic entities that have issued securities
addressed by the Statement. APB Opinion No. 15 requires disclosure of
descriptive information about securities that is not necessarily related to the
computation of earnings per share. This statement continues the previous
requirements to disclose certain information about an entity's capital structure
found in APB Opinions No. 10, Omnibus Opinion- 1966, and No. 15, Earnings per
Share, and FASB Statement No. 47, Disclosure of Long-Term Obligations, for
entities that were subject to the requirements of those standards. This
Statement eliminates the exemption of nonpublic entities from certain disclosure
requirements of Opinion 15 as provided by FASB Statement No. 21, Suspension of
the Reporting of Earnings per Share and Segment Information by Nonpublic
Enterprises. It supersedes specific disclosure requirements of Opinions 10 and
15 and Statement 47 and consolidates them in this
-29-
<PAGE>
Statement for ease of retrieval and for greater visibility to nonpublic
entities. The Statement is effective for financial statements for periods ending
after December 15, 1997. SFAS No. 129 has been adopted by Mid-Tier Holding
Company.
FASB Statement on Accounting for Stock-Based Compensation. In October
1995, the FASB issued SFAS No. 123. SFAS No. 123 defines a "fair value based
method" of accounting for an employee stock option whereby compensation cost is
measured at the grant date based on the value of the award and is recognized
over the service period. FASB has encouraged all entities to adopt the fair
value based method, however, it will allow entities to continue the use of the
"intrinsic value based method" prescribed by APB Opinion No. 25. Under the
intrinsic value based method, compensation cost is the excess of the market
price of the stock at the grant date over the amount an employee must pay to
acquire the stock. However, most stock option plans have no intrinsic value at
the grant date and, as such, no compensation cost is recognized under APB
Opinion No. 25. Entities electing to continue use of the accounting treatment of
APB Opinion No. 25 must make certain pro forma disclosures as if the fair value
based method had been applied. The accounting requirements of SFAS No. 123 are
effective for transactions entered into in fiscal years beginning after December
15, 1995. Pro forma disclosures must include the effects of all awards granted
in fiscal years beginning after December 15, 1994. The Mid- Tier Holding Company
expects to use the "intrinsic value based method" as prescribed by APB Opinion
No. 25.
FASB Statement on Reporting Comprehensive Income. In June 1997, the
FASB issued SFAS No. 130, Reporting Comprehensive Income, which requires an
entity to present, as a component of comprehensive income, the amounts from
transactions and other events which currently are excluded from the statement of
income and are recorded directly to stockholders' equity. SFAS No. 130 is
applicable for years beginning after December 15, 1997. Management has not
completed an analysis of the impact, if any, the adoption of this statement will
have on the Company's consolidated financial condition or results of operations.
FASB Statement on Segments of an Enterprise and Related Information.
Also in June 1997, the FASB issued SFAS No. 131, Disclosures About Segments of
an Enterprise and Related Information. SFAS No. 131 requires an entity to
disclose financial information in a manner consistent to internally used
information and requires more detailed disclosures of operating and reporting
segments that are currently in practice. SFAS No. 131 is applicable for years
beginning after December 15, 1997. Management has not completed an analysis of
the impact, if any, the adoption of this statement will have on the Company's
consolidated financial condition or results of operations.
FASB Statement on Employers' Disclosure About Pensions and Other
Postretirement Benefits. In February 1998, the FASB issued SFAS No. 132,
Employers' Disclosure About Pensions and Other Postretirement Benefits. SFAS No.
132 revises employers' disclosures about pension and other postretirement
benefit plans. It does not change the measurement or recognition of those plans.
SFAS No. 132 is applicable for years beginning after December 15, 1997.
Management has not completed an analysis of the impact, if any, the adoption of
this statement will have on the Company's consolidated financial condition or
results of operations.
Impact of Inflation and Changing Prices
The financial statements of the Mid-Tier Holding Company and notes
thereto, presented elsewhere herein, have been prepared in accordance with
generally accepted accounting principles, which require
-30-
<PAGE>
the measurement of financial position and operating results in terms of
historical dollars without considering the change in the relative purchasing
power of money over time and due to inflation. The impact of inflation is
reflected in the increased cost of the Mid-Tier Holding Company's operations.
Unlike most industrial companies, nearly all the assets and liabilities
of the Mid-Tier Holding Company are monetary. As a result, interest rates have a
greater impact on the Mid-Tier Holding Company's performance than do the effects
of general levels of inflation. Interest rates do not necessary move in the same
direction or to the same extent as the price of goods and services.
BUSINESS OF THE BANK
General
Roxborough-Manayunk is a federally-chartered stock savings association,
which was originally chartered as a mutual savings association through the
combination of 11 building and loan associations as Roxborough- Manayunk Federal
Savings and Loan Association (the "Association") on May 3, 1939, at which time
the Association's accounts were insured by the Federal Savings and Loan
Insurance Corporation ("FSLIC") and currently the SAIF. In 1939, the Association
became a member of the FHLB System. On December 31, 1992, the Association
reorganized from a mutual savings association into a mutual holding company
named FJF Financial, M.H.C. and chartered a new stock savings bank named
Roxborough-Manayunk Federal Savings Bank. On October 1, 1997, the Bank formed a
middle-tier stock holding company (Thistle Group) whereby the Bank became a
wholly-owned subsidiary of the Mid-Tier Holding Company, which in turn is over
80% owned by the Mutual Holding Company. The Bank's main office is located at
6060 Ridge Avenue, Philadelphia, Pennsylvania 19128, and the telephone number at
that office is (215) 483-2800. The Bank serves the Pennsylvania counties of
Philadelphia and Delaware through a network of six offices, providing a full
range of retail banking services, with emphasis on one-to-four family
residential mortgages. At December 31, 1997, the Mid-Tier Holding Company had
total assets, deposits, and stockholders' equity of approximately $276.7
million, $230.6 million, and $28.5 million, respectively.
The principal business of the Bank is the acceptance of savings
deposits from the general public and the origination and purchase of mortgage
loans for the purpose of constructing, financing or refinancing one- to
four-family residences and other improved residential and commercial real
estate. The Bank's income is derived largely from interest and fees in
connection with its lending activities. Its principal expenses are interest paid
on savings deposits and borrowings and operating expenses.
Geographic Lending Area
Although authorized to make real estate loans throughout the United
States, the Bank's lending area generally includes Philadelphia, Bucks,
Delaware, Chester, and Montgomery Counties, which comprise the Philadelphia
metropolitan area. The Bank's primary lending area consists of the far northwest
sections of Philadelphia, South Philadelphia, and Montgomery County,
Pennsylvania.
The Pennsylvania real estate market was generally depressed in the
late-1980s. The market has shown improvement in the 1990s, but whether the
recovery will continue is dependent upon general economic conditions, not just
in Pennsylvania, but in the United States as a whole.
-31-
<PAGE>
Lending Activities
General. Historically, the principal lending activity of Roxborough-
Manayunk has been the origination of mortgage loans for the purpose of
constructing, financing or refinancing one- to four-family residential
properties.
Loan Portfolio Composition. The Bank's loan portfolio composition
consists primarily of conventional fixed-rate and adjustable- rate first
mortgage loans secured by one- to four-family residences and, to a much lesser
extent, multi-family residences and commercial real estate. As of December 31,
1997, the Bank's total net portfolio of loans, excluding loans classified as
held for sale (the "loan portfolio"), was $98.7 million, of which $71.4 million,
or 72.4%, was secured by one-to-four family residential dwellings. At that same
date, $10.3 million or 10.4% of the loan portfolio was secured by commercial
real estate and $6.3 million or 6.4% was secured by multi-family real estate.
Analysis of Loan Portfolio. Set forth below is selected data relating
to the composition of the Bank's loan portfolio by type of loan and type of
security on the dates indicated.
-32-
<PAGE>
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------ ------------------- ----------------------- --------------------- ------------------
$ % $ % $ % $ % $ %
--- --- --- --- --- --- --- --- --- --
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:(1)
Construction..........$ 1,693 1.72% $ 964 .96% $ 495 .48% $ 910 .93% $ 558 .55%
1-4 Family............ 71,397 72.36 73,871 73.30 72,675 71.20 74,124 75.88 80,886 80.09
Multi-family
and commercial...... 16,647 16.87 17,615 17.54 20,200 19.79 14,603 14.95 13,900 13.76
Home equity........... 8,133 8.24 7,011 6.96 5,004 4.90 4,300 4.40 2,277 2.25
Home equity line
of credit........... 73 .07 - -
Loans secured by
commercial
equipment leases...... - - - - 3,341 3.27 3,179 3.25 2,829 2.80
Commercial loans........ 329 .33 770 .76 - - - - - -
Consumer loans:
Line of credit........ 96 .10 92 .09 - - - - - -
Secured demand note... 60 .06 - - - - - - - -
Share loans........... 243 .25 384 .38 347 0.34 537 0.55 509 .50
Home improvement...... 4 - 8 .01 15 .01 24 .03 31 .03
------ ----- ------- ------ ------- ------ ------ ------ ------- ------
Total loans.............$98,675 100.00% $100,715 100.00% $102,077 100.00% $97,677 100.00% $100,990 100.00%
====== ====== ======== ====== ======= ====== ======= ====== ======= ======
Less:
Premiums and
(discounts).........$ 54 $ 76 $ 26 $ (61) $ (210)
Deferred fees......... (1,233) (1,299) (1,221) (1,254) $ (1,381)
Loans in process...... (433) (289) (156) (422) (327)
Allowance for
loan losses......... (783) (577) (455) (417) (450)
------ ------- ------- ----- -------
Total loans, net......$96,280 $ 98,626 $100,271 $95,523 $ 98,622
====== ======= ======= ====== =======
</TABLE>
- -----------------
(1) Does not include $1,155, $2,147, $1,613, and $1,198 of mortgage loans
classified as held for sale at December 31, 1997, 1996, 1995, and 1994,
respectively. There were no mortgage loans classified as held for sale at
December 31, 1993. See "--Loans Available for Sale".
-33-
<PAGE>
One- to Four-Family Mortgage Loans. The Bank offers first mortgage
loans secured by one- to four-family residences in Roxborough- Manayunk's
primary lending area. Typically, such residences are single- family homes that
serve as the primary residence of the owner. Roxborough- Manayunk offers
fixed-rate mortgage loans with terms of up to 30 years. Interest rates charged
on fixed-rate loans are competitively priced based on the local competitive
market. Loan origination fees on these loans are generally 3% of the loan
amount; however, this amount may vary. As of December 31, 1997, $71.4 million or
72.4% of the loan portfolio consisted of one- to four-family residential loans,
of which approximately 95.1% were fixed-rate loans. See also "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF RESULTS OF OPERATION -- Interest Rate Risk Management
Activities."
The adjustable-rate mortgage loans originated by the Bank generally
adjust every year based upon selected published indices. The Bank had limited
success in originating adjustable-rate mortgage loans during recent periods of
prevailing low market interest rates. Adjustable- rate mortgage loans generally
have a 2% cap on any change in rate per year, with an overall limit of 6% on any
increase over the life of the loan. Mortgage loans originated and held by
Roxborough- Manayunk in its portfolio generally include due-on sale clauses
which provide the Bank with the contractual right to deem the loan immediately
due and payable in the event that the borrower transfers ownership of the
property without the Bank's consent.
Adjustable-rate mortgage loans buffer the risks associated with changes
in interest rates, but involve other risks because as interest rates increase,
the underlying payments by the borrower increase, thus increasing the potential
for default. At the same time, the marketability of the underlying collateral
may be adversely affected by higher interest rates. The Bank's adjustable-rate
loan underwriting policy recognizes these inherent risks and the Bank reviews a
credit application accordingly. These risks have not had an adverse effect on
the Bank to date.
Home Equity Loans and Home Equity Lines of Credit. The Bank originates
home equity loans secured by single-family residences. At December 31, 1997,
home equity loans totaled $8.2 million or 8.3% of total loans. These loans are
originated as fixed-rate loans with terms from 3 to 10 years. The Bank began
offering home equity loans in early 1992. These loans are made on
owner-occupied, single-family residences or vacation homes. The loans are
generally subject to an 80% combined loan-to-value limitation, including any
other outstanding mortgages or liens. Home equity loans are generally originated
for retention in the Bank's loan portfolio.
Multi-Family and Commercial Real Estate Loans. The Bank originates to a
limited extent multi-family mortgage loans secured primarily by apartment
buildings located in its primary lending area. These loans are generally
fixed-rate loans with maturities up to 15 years, or amortized over 25 years with
a balloon payment after 5 to 7 years. The Bank also originates adjustable-rate
multi-family loans which adjust with The Wall Street Journal prime rate annually
and have maturities of 5 to 10 years. These loans typically amortize over 20 to
25 years. As of December 31, 1997, $6.3 million, or 6.4%, of the Bank's loan
portfolio consisted of multi-family residential loans. These loans are generally
made in amounts up to 75% of the appraised value of the mortgaged property. In
making such loans, the Bank evaluates the mortgage primarily on the net
operating income generated by the real estate to support the debt service. The
Bank also considers the financial resources and income level of the borrower,
the borrower's experience in owning or managing similar property, the
marketability of the property and the Bank's lending experience, if any, with
the borrower. An origination fee of 1 1/2% to 3% is usually charged on such
loans. The typical multi-family property in the Bank's multi-family lending
portfolio has between 5 and 25 dwelling units with an average loan balance of
approximately $500,000. The largest
-34-
<PAGE>
multi-family loan as of December 31, 1997 had an outstanding balance of $1.8
million and was secured by 45 dwelling units.
The Bank also originates commercial real estate loans secured by
property located within its primary market area. The Bank's commercial real
estate loans are permanent loans secured by improved property such as office
buildings, retail stores, industrial facilities and other non-residential
buildings. Essentially all originated commercial real estate loans are within
the Bank's market area. As of December 31, 1997, the Bank had 90 loans secured
by commercial real estate, totalling $10.3 million or 10.4% of the Bank's total
loan portfolio, with an average principal balance of $115,000. None of the 90
loans had principal balances outstanding of over $1.4 million as of December 31,
1997. The largest commercial real estate loan was secured by a shopping center
with an outstanding balance of $1,402,000 on December 31, 1997. This loan
represents approximately 8.42% of the Bank's $16,647,000 multifamily and
commercial real estate loans at December 31, 1997. Commercial real estate loans
are generally originated in amounts ranging from 70% to 75% of the appraised
value of the mortgaged property, although sometimes commercial real estate loans
are made with an 80% loan to value ratio. The Bank makes both adjustable and
fixed-rate commercial real estate loans. The adjustable-rate loans have terms of
up to 15 years, or are amortized over 25 years with a balloon payment after 5
and 7 years, if negotiated by management. The rate of interest on the
adjustable-rate loans is often tied to the Wall Street Journal stated prime
rate.
Construction Loans. At December 31, 1997, construction loans totaled
$1.7 million. The Bank's construction loan portfolio consists of substantially
residential construction loans with initial terms of generally 12 to 18 months.
Land acquisition and development loans are also made on a very limited basis.
The construction loans made by the Bank have adjustable rates tied to the Wall
Street Journal stated prime rate, adjusting monthly. Generally, such loans are
repaid or converted to permanent loans when the property is completed or sold.
The permanent loan can be an adjustable or fixed-rate loan at a rate equal to
the prevailing rates offered by the Bank 30 days prior to the date of closing.
Loans Secured by Commercial Equipment Leases. The Mid-Tier Holding
Company previously invested in loans secured by commercial equipment leases.
During 1996, the borrower declared bankruptcy. On December 27, 1996, the Company
entered into an agreement with the trustee for the bankruptcy court whereby the
Bank will receive approximately 65% of the cash receipts from the collateral
principal in exchange for all rights to the collateral. In connection with this
agreement, the Company charged-off $1.2 million of the outstanding balance due
from the trustee at December 31, 1996. The receivable balance of approximately
$361,000 and $1,771,000, resulting from the agreement with the trustees, is a
component of prepaid expenses and other assets in the consolidated statement of
financial condition at December 31, 1997 and 1996, respectively. The receivable
is to be repaid by the trustee from subsequent cash collections.
Consumer Loans. OTS regulations permit the Bank to make secured and
unsecured consumer loans up to 35% of the Bank's assets. Consumer loans
originated by the Bank are loans secured by savings deposits or fully marketable
securities pledged as collateral. Consumer loans, excluding home improvement
loans, amounted to $399,000 or less than 1% of the Bank's loan portfolio as of
December 31, 1997.
Loan Underwriting Risks. While commercial real estate, construction,
commercial business, and consumer loans provide benefits to the Bank's
asset/liability management program and reduce exposure to interest rate changes,
such loans may entail significant additional credit and interest rate risks
compared to residential mortgage lending. Commercial real estate and
construction mortgage loans may
-35-
<PAGE>
involve large loan balances to single borrowers or groups of related borrowers.
In addition, the ability to make payments on loans secured by income producing
properties is typically dependent on the successful operation of the properties
and thus may be subject to a greater extent to adverse conditions in the real
estate market or in the general economy. Construction loans may involve
additional risks attributable to the fact that loan funds are advanced upon the
security of the project under construction. Moreover, because of the
uncertainties inherent in estimating construction costs, delays arising from
labor problems, material shortages, and other unpredictable contingencies, it is
relatively difficult to evaluate accurately the total loan funds required to
complete a project, and related loan-to-value ratios. Because of these factors,
the analysis of prospective construction loan projects requires an expertise
that is different in significant respects from the expertise required for
residential mortgage lending.
Loan Origination and Other Fees. In addition to interest earned on
loans, the Bank recognizes service charges which consist primarily of loan
application fees, processing fees, and late charges. The Bank recognized service
charges of $245,000 for the year ended December 31, 1997.
Loans-to-One Borrower. Loans-to-one borrower, or group of related
borrowers, by the Bank are limited by regulation to an amount equal to 15% of
unimpaired capital and retained earnings on an unsecured basis and an additional
amount equal to 10% of unimpaired capital and retained earnings if the loan is
secured by readily marketable collateral (generally, financial instruments, not
real estate). The Bank's maximum loan-to-one borrower limit was approximately
$4.3 million as of December 31, 1997. The net proceeds of the Offerings to be
contributed to the Bank will raise the lending limit of the Bank so that it may
originate larger loans.
As of December 31, 1997, the Bank's five largest lending relationships
ranged from $1.8 million to $802,000. The largest loan is to a developer of
low-income housing units in West Philadelphia. Funds for this loan were obtained
from the FHLB Pittsburgh's Community Investment Program - See "-- Borrowings."
The remaining four loans are secured by commercial, multi-family and a primary
single family residence are also located in the Bank's primary market area. All
five loans were current at December 31, 1997.
Loan Maturity Schedules. The following table sets forth the maturity of
the Bank's loan portfolio at December 31, 1997. The table does not include
prepayments or scheduled principal repayments. Prepayments and scheduled
principal repayments on loans totalled $22,489,000, $16,320,000 and $13,984,000
for the fiscal years ended December 31, 1997, 1996 and 1995, respectively. All
mortgage loans are shown as maturing based on contractual maturities.
-36-
<PAGE>
<TABLE>
<CAPTION>
Multi-Family
and
1-4 Family and Commercial
Home Equity Real Estate Construction Consumer Commercial Total
----------- ----------- ------------ -------- ---------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Non-performing................ $ 716 $ - $ - $ - $ - $ 716
Amounts Due:
Within 3 months............... $ 52 $ 681 $1,693 351 $ - $ 2,777
3 months to 1 Year............ 44 2 - 48 - 94
After 1 year:
1 to 3 years................ 1,040 517 - 4 - 1,561
3 to 5 years................ 3,371 281 - - 176 3,828
5 to 10 years............... 18,936 4,541 - - 153 23,630
10 to 20 years.............. 32,888 4,576 - - - 37,464
Over 20 years............... 22,556 6,049 - - - 28,605
------ ------ ------ --- ---- ------
Total due after one year...... 78,791 15,964 - 4 329 95,088
------ ------ ------ --- ---- ------
Total amount due.............. $79,603 $16,647 $1,693 $403 $ 329 $98,675
====== ====== ===== === ==== ======
</TABLE>
The following table sets forth the dollar amount of all loans due after
December 31, 1998, which have pre-determined interest rates and which have
floating or adjustable interest rates.
<TABLE>
<CAPTION>
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In Thousands)
<S> <C> <C> <C>
One-to four-family and home equity........................ $75,018 $3,773 $78,791
Multi-family and commercial real estate................... 13,719 2,245 15,964
Construction.............................................. -- -- --
Consumer.................................................. 4 -- --
Commercial................................................ -- 329 329
-------- ------ ------
Total................................................... $88,741 $6,347 $95,088
====== ===== ======
</TABLE>
Loan Solicitation and Processing. The Bank's primary source of mortgage
loan applications is referrals from existing or past customers. The Bank also
solicits loan applications from real estate brokers, contractors, and call-ins
and walk-ins to its offices. The Bank advertises in local newspapers and
occasionally on cable television for first mortgage and home equity loans.
Upon receipt of any loan application from a prospective borrower, a
credit report and verifications are ordered to confirm specific information
relating to the loan applicant's employment, income and credit standing. An
appraisal of the real estate intended to secure the proposed loan is undertaken
by an independent fee appraiser. In connection with the loan approval process,
the Bank's loan officers analyze the loan applications and the property
involved. All residential, home equity, multi-family, construction and
commercial real estate loans are processed at the Bank's lending office by the
Bank's loan origination department. The executive committee of the Board of
Directors approves all loans, with the exception of home equity and consumer
loans. A committee of three officers, including any of the following: Chairman
of the Board, President, Chief Financial Officer, and Senior Loan
-37-
<PAGE>
Officer, approve all home equity loans up to $100,000. All loans purchased by
the Bank are reviewed by senior lending officers. Loan applicants are promptly
notified of the decision of Roxborough- Manayunk by a letter setting forth the
terms and conditions of the decision. If approved, these terms and conditions
include the amount of the loan, interest rate basis, amortization term, a brief
description of real estate to be mortgaged to the Bank, and the notice of
requirement of insurance coverage to be maintained to protect Roxborough-
Manayunk's interest. The Bank requires title, fire, and casualty insurance on
all properties securing loans, which insurance must be maintained during the
entire term of the loan. In certain instances where the Bank is making a small
second mortgage, and the Bank holds the performing first mortgage, it may not
require a title policy, but only certain informal assurances that there are no
liens superior to the second mortgage.
Loan Purchases. In the past, the Bank purchased loans from a number of
financial institutions located in Pennsylvania and Delaware. Generally, such
loans were fix-rate loans secured by single family residential loans located in
Central and Eastern Pennsylvania and Delaware. At December 31, 1997, $13.97
million of such loans were outstanding. In each transaction, the seller retained
the loan servicing.
The Bank purchased such loans to increase its residential loan portfolio.
In 1994, the Bank agreed to act as a correspondent with a bank in
Souderton, Pennsylvania. The bank will originate fixed-rate residential loans
based on terms, conditions, fees, and rates posted by the Bank. All underwriting
conforms to the Bank's underwriting guidelines. The Bank receives from the bank
a completed application to underwrite and determine whether to issue a loan
commitment. At December 31, 1997, the Bank had a balance of $2.3 million of such
loans outstanding. The Bank still maintains this relationship but only to a
limited extent.
In loan purchase transactions, the Bank typically receives a due
diligence package that provides loan level detail on a comparative basis against
the FHLMC underwriting guidelines. All loans must be documented, including an
original appraisal that substantiates the value of the subject property at the
time the loan was originated.
The Bank obtains from the seller a duplicate copy of each original loan
file which generally includes an executed loan application, financial
statements, credit report, and original title policy and mortgage note. In the
event that a loan package has substantial seasoning and low original
loan-to-value ratios, or the market is well beyond the Bank's primary lending
area, a fee appraiser may not be employed to underwrite the appraisal reports in
the loan files. The Bank attempts to physically review and document each loan
file in a purchase transaction. Occasionally, it is reasonable to employ a
random sampling of loan files purchased.
The Bank originates residential first mortgage loans that conform to
the FHLMC and FNMA guidelines. It is the Bank's intent to retain servicing for
loans originated for sale or subsequently packaged as participations. Primary
markets for loans sold will be FNMA and other secondary market investors.
Loans Available For Sale. The Bank holds as available for sale certain
one-to four-family residential loans that have an annual yield determined by
Management to be at rates not compatible with its asset management strategy.
These loans conform to FHLMC and FNMA guidelines and are readily salable in the
secondary market.
Origination, Purchase and Sale of Loans. The following table sets forth
total loans originated, purchased and repaid during the periods indicated. No
loans were sold during the periods shown.
-38-
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Total gross loans receivable at
beginning of period ........ $ 100,775 $ 102,077 $ 97,677 $ 100,990 $ 81,163
========= ========= ========= ========= =========
Loans originated:
Construction loans .......... $ 1,570 $ 1,055 $ 430 $ 660 $ 1,511
1 to 4 family and home equity 14,795 13,546 7,064 11,378 10,884
Multi-family and commercial
real estate ............... 2,211 810 1,962 2,015 5,473
Consumer .................... 372 368 190 327 387
Commercial .................. 707 770 -- -- --
--------- --------- --------- --------- ---------
Total loans originated ........ $ 19,655 $ 16,549 $ 9,646 $ 14,380 $ 18,255
========= ========= ========= ========= =========
Loans purchased:
1 to 4 family ............... $ 1,088 $ 2,360 $ 4,363 $ 1,860 $ 23,451
Multi-family and commercial
real estate ............... -- -- 2,897 -- --
Commercial equipment leases . -- -- 1,629 1,600 1,651
--------- --------- --------- --------- ---------
Total loans purchased ......... 1,088 2,360 8,889 3,460 25,102
--------- --------- --------- --------- ---------
Total loans sold .............. 383 -- -- -- --
--------- --------- --------- --------- ---------
Loan principal repayments ..... 22,489 16,320 13,984 20,005 22,742
--------- --------- --------- --------- ---------
Other (debits less credits) ... (29) (3,891) (151) (1,148) (788)
--------- --------- --------- --------- ---------
Net loan activity ............. $ (2,100) $ (1,302) $ 4,400 $ (3,313) $ 19,827
========= ========= ========= ========= =========
Total gross loans receivable at
end of period ............... $ 98,675 $ 100,775 $ 102,077 $ 97,677 $ 100,990
========= ========= ========= ========= =========
</TABLE>
Loan Commitments. The Bank generally grants commitments to fund
fixed-rate single-family mortgage loans for periods of up to 90 days at a
specified term and interest rate. The Bank also makes loan commitments for
non-conforming or commercial real estate loans for up to 90 days, which
generally carry additional requirements for funding. The total amount of the
Bank's commitments to originate loans as of December 31, 1997 was $761,000. See
Note 5 of the Notes to Consolidated Financial Statements of the Bank.
Loan Servicing and Servicing Fees. The Bank has retained servicing on
loans it has sold to FHLMC and FNMA. The Bank also services all of its own
loans. As of December 31, 1997, 1996 and 1995, the Bank serviced loans for
others totalling $3.7 million, $3.5 million and $4.4 million, respectively. Loan
servicing fees have not constituted a material source of income.
Asset Quality
Non-Performing Assets and Asset Classification. The Bank's collection
procedures provide that when a loan is 30 days or more delinquent, the borrower
is contacted by mail and telephone and payment is requested. If the delinquency
continues, subsequent efforts will be made to contact the delinquent borrower.
In certain instances, the Bank may modify the loan or grant a limited moratorium
on loan payments to enable the borrower to reorganize his financial affairs. If
the loan continues in a delinquent status for 60 days, the Bank will initiate
foreclosure proceedings. Any property acquired as the result
-39-
<PAGE>
of foreclosure or by deed in lieu of foreclosure is classified as REO until such
time as it is sold or otherwise disposed of by the Bank. For the year ended
December 31, 1997, the Bank had transferred loans totalling $250,000 to REO.
When REO is acquired, it is recorded at the lower of the unpaid principal
balance of the related loan or its fair market value. Any write-down of the
property is charged to the allowance for losses.
Loans are reviewed on a regular basis and are placed on a non-accrual
status when, in the opinion of management, the collection of additional interest
is doubtful. The Bank continues to accrue for residential mortgage loans 90 days
or more past due, however a reserve is set up for such loans. Consumer loans
generally are charged off when the loan becomes 90 days or more delinquent.
Commercial business and real estate loans are placed on non-accrual status when
the loan is 90 days or more past due. Interest accrued and unpaid at the time a
loan is placed on non-accrual status is charged against interest income.
Subsequent payments are either applied to the outstanding principal balance or
recorded as interest income, depending on the assessment of the ultimate
collectibility of the loan.
At December 31, 1997, the Bank had approximately $718,000 of loans that
were 60-89 days delinquent, all of which were secured by residential properties.
The following table sets forth information with respect to the Bank's
non-performing assets for the periods indicated. At the dates indicated, the
Bank had no accruing loans past due 90 days or more and no restructured loans
within the meaning of SFAS No. 15.
<TABLE>
<CAPTION>
At December 31,
---------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------- -------------- -------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Loans accounted for on a non-accrual basis... $ - $ - $ - $ - $ -
Accruing loans which are contractually past
due 90 days or more:
1-4 family and home equity................. $716 $1,357 $1,441 $1,244 $1,998
Construction loans......................... - 109 133 - -
Multi-family and commercial real estate.... - 1,533 565 - 234
Consumer................................... - - - 7 22
---- ------ ------ ------ -----
Total........................................ $716 $2,999 $2,139 $1,251 $2,254
=== ===== ===== ===== =====
Real estate owned............................ $116 $ 186 $ 227 $ 88 $ 189
=== ====== ====== ===== =====
Total non-performing assets.................. $832 $3,185 $2,366 $1,339 $2,443
=== ===== ===== ===== =====
Total non-accrual and accrual loans to
net loans.................................. .74% 3.04% 2.35% 1.40% 2.29%
==== ==== ==== ==== ====
Total non-performing assets to total assets.. .30% 1.08% .82% .49% .88%
==== ==== ==== ==== ====
</TABLE>
Non-performing assets decreased $2,353,000 or 73.9% due to foreclosure
and subsequent liquidation of non-performing assets in addition to normal
collections.
Management of the Bank regularly reviews the loan portfolio in order to
identify potential problem loans and classifies any potential problem loan as a
special mention, substandard, doubtful or loss asset according to the OTS
classification of asset regulations.
OTS regulations provide for savings institutions to classify their
loans and other assets as substandard, doubtful, or loss assets. Assets
classified as substandard are those inadequately protected by the current net
worth and paying capacity of the obligor or the pledged collateral. They are
-40-
<PAGE>
characterized by the distinct possibility that the institution will sustain some
loss if the deficiencies are not corrected. Assets classified as doubtful have
all the weaknesses of those classified as substandard with the additional
characteristic that the weaknesses make collection or liquidation in full highly
questionable and improbable. Assets classified as "loss" are considered
uncollectible and of such little value that their continuance as assets without
the establishment of a specific reserve is not warranted. Assets that do not
currently expose a savings institution to a sufficient degree of risk to warrant
classification but do possess credit deficiencies or potential weaknesses
deserving management's close attention are designated "special mention." Special
mention assets have a potential weakness or pose an unwarranted financial risk
that, if not corrected, could weaken the asset and increase risk in the future.
Assets designated as substandard or doubtful are recorded at fair value. At
December 31, 1997, the Bank had $2.6 million of classified assets of which $2.6
million were classified as substandard and $13,000 were classified as loss.
Furthermore, at December 31, 1997 $718,000 of assets were designated special
mention.
Allowance for Losses on Loans and REO. The Bank's management evaluates
the need to establish reserves against losses on loans and other assets each
year based on estimated losses on specific loans and on any real estate held for
sale or investment when a finding is made that a loss is estimable and probable.
Such evaluation includes a review of all loans for which full collectibility may
not be reasonably assured and considers, among other matters, the estimated
market value of the underlying collateral of problem loans, prior loss
experience, economic conditions and overall portfolio quality. These provisions
for losses are charged against earnings in the year they are established. The
Bank's provisions for losses on loans for the years ended December 31, 1997,
1996 and 1995 were $120,000, $139,000 and $135,000, respectively. At December
31, 1997, the Bank had an allowance for loan losses of $783,000, which
represented .85% of total mortgage loans. The Bank had $13,000 in allowances for
losses on REO at that date, which represents 11.0% of net real estate owned.
While the Bank believes it has established its existing allowance for
loan losses in accordance with GAAP and the Interagency Policy Statement on the
Allowance for Loan and Lease Losses issued by the OTS, in conjunction with the
OCC, FDIC and FRB (see "Business of the Company - Lending Activities - Asset
Quality - Allowance for Loan Losses"), there can be no assurance that the
applicable regulators, in reviewing the Bank's loan portfolio, will not request
the Bank to significantly increase its allowance for loan losses, or that
changes in the real estate market or local or national economy will not cause
the Bank to significantly increase its allowance for loans losses, thereby
negatively affecting the Bank's financial condition and earnings.
In making loans, the Bank recognizes that credit 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 and, in the case of a secured loan, the quality of the security for the
loan.
During the years ended December 31, 1997, 1996 and 1995, the Bank
charged-off (recovered) $(85,526), $16,895 and $96,629, respectively, of loans
receivable and $33,506, $23,675 and $0, respectively, of REO in connection with
assets classified by the Bank as loss. It is the Bank's policy to review its
loan portfolio, in accordance with regulatory classification procedures, on a
quarterly basis. Additionally, the Bank maintains a program of reviewing loan
applications prior to making the loan and immediately after loans are made in an
effort to maintain loan quality. See Notes 5 and 6 of Notes to Consolidated
Financial Statements of the Bank.
-41-
<PAGE>
The following table sets forth information with respect to the
Company's allowance for loan losses at the dates indicated:
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------
1997 1996 1995 1994 1993
---------- --------- --------- --------- ---------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Total loans outstanding, net(1) ........ $ 96,280 $ 98,626 $ 100,271 $ 95,523 $ 98,622
========= ========= ========= ========= =========
Average loans outstanding, net(1) ...... $ 101,472 $ 101,726 $ 99,194 $ 97,302 $ 85,293
========= ========= ========= ========= =========
Allowance balances (at beginning of
period) .............................. $ 577 $ 455 $ 417 $ 450 $ 385
Provision:
1-4 family ........................... 37 -- 24 49 76
Multi-family and commercial
real estate ........................ 83 139 27 9 14
Consumer ............................. -- -- 84 2 4
Net Charge-offs (recoveries):
1-4 family ........................... (86) 17 97 83 29
Multi-family and commercial
real estate ........................ -- -- -- -- --
Consumer ............................. -- -- -- 10 --
--------- --------- --------- --------- ---------
Allowance balance (at end of period) ... $ 783 $ 577 $ 455 $ 417 $ 450
========= ========= ========= ========= =========
Allowance for loan losses as a percent
of total loans outstanding ........... .85% .59% .45% .44% .46%
Net loans charged off (recovery) as
a percent of average loans outstanding (.08)% .02% .09% .10% .03%
</TABLE>
- ---------------------
(1) Does not include loans available for sale.
-42-
<PAGE>
The following table sets forth certain information regarding
the allocation of the allowance for loan losses by type.
<TABLE>
<CAPTION>
At December 31,
-------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------------- ----------------- ----------------- ------------------- ------------------
Percent of Percent of Percent of Percent of Percent of
Loans to Loans to Loans to Loans to Loans to
Total Total Total Total Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
------ ------- ------ ------- ------ ------- ------ ------- ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1-4 family and home equity(1)... $234 82.39% $197 81.22% $275 79.86% $262 84.47% $300 85.71%
Multi-family and commercial
real estate................... 549 16.87 380 17.54 106 19.79 55 14.95 79 13.76
Consumer loans.................. - 0.41 - 0.48 - 0.35 - 0.58 - 0.53
Commercial loans(2)............. - 0.33 - 0.76 74 - 100 - 71 -
--- ------ --- ------ --- ------ --- ------ --- ------
Total allowance............... $783 100.00% $577 100.00% $455 100.00% $417 100.00% $450 100.00%
=== ====== === ====== === ====== === ====== === ======
</TABLE>
- ---------------------
(1) Includes residential construction loans.
(2) Includes loans secured by commercial equipment leases at December 31, 1995,
1994 and 1993.
-43-
<PAGE>
The following table sets forth certain information regarding the Bank's
allowance for REO losses for the periods indicated.
At December 31,
---------------------------------
1997 1996 1995
---- ---- ----
(Dollars in Thousands)
Total real estate owned, net......... $116 $186 $227
=== === ===
Allowance balance - beginning........ $ 46 $24 $ 2
=== == ===
Provision............................ 130 132 38
Charge-offs.......................... 163 110 16
--- --- ---
Allowance balance - ending........... $ 13 $ 46 $ 24
=== === ===
Investment Activities
General. The investment policy of the Bank, which is established by
senior management and approved by the Board of Directors, is based upon its
asset and liability management goals and is designed primarily to provide a
portfolio of high quality, diversified investments while seeking to optimize net
interest income within acceptable limits of safety and liquidity. The current
investment goal is to invest available funds in instruments that meet specific
requirements of the Bank's asset and liability management goals. The investment
activities of the Bank consist primarily of investments in fixed and
adjustable-rate mortgage-backed securities and U.S. Government agency bonds. At
December 31, 1997, the Bank had a mortgage-backed securities portfolio with a
market value of $111.5 million, all of which was held for sale. At December 31,
1997, the Bank had an investment securities portfolio of approximately $37.8
million consisting of U.S. Government treasury, agency securities, and municipal
and equity securities. The market value of such securities at December 31, 1997
was $38.9 million. See Notes 3 and 4 to the Notes to the Consolidated Financial
Statements of the Bank.
Mortgage-Backed Securities. The Bank also purchases mortgage-backed
securities guaranteed by GNMA and FNMA and issued by the FHLMC which are secured
by fixed-rate and adjustable-rate mortgages. GNMA mortgage-backed securities are
pass-through certificates issued and backed by the GNMA and are secured by
interests in pools of mortgages which are fully insured by the Federal Housing
Administration ("FHA") or partially guaranteed by the Department of Veterans'
Affairs ("VA"). The FNMA mortgage-backed securities consist of pass-through
certificates and real estate mortgage investment conduits ("REMICs"). FHLMC
mortgage-backed securities consist of both REMICs and pass-through certificates
issued and guaranteed by the FHLMC and secured by interests in pools of
conventional mortgages originated by savings institutions. As of December 31,
1997, the Bank's mortgage-backed securities amounted to $111.5 million, or 40%
of total assets, all of which are currently classified as available for sale.
-44-
<PAGE>
REMICs held by the Bank at December 31, 1997 consisted of floating-rate
tranche, with the exception of one fixed-rate security in the amount of $2.6
million. The interest rate of all of the Bank's floating-rate securities adjusts
monthly and provides the institution with net interest margin protection in an
increasing market interest rate environment. The securities are backed by
mortgages on one- to four-family residential real estate and have contractual
maturities up to 30 years. At December 31, 1997, none of these securities are
deemed to be "High Risk" according to Federal Financial Institutions Examination
Council ("FFIEC") guidelines which have been adopted by the OTS. The securities
are primarily companion tranche to "PACs" and "TACs". PACs and TACs (Planned and
Targeted Amortization Classes) are designed to provide a specific principal and
interest cash-flow. Principal payments that are received in excess of the amount
needed for the PACs and TACs is allocated to the companion tranche. When the
PACs and TACs are repaid in full, all principal is then used to pay the
companion tranche.
Investment Securities. Income from investment securities provides a
significant source of income for the Bank. The Bank maintains a portfolio of
investment securities such as U.S. government and agency securities,
non-governmental securities, including interest-bearing deposits, in addition to
the Bank's mortgage-backed securities portfolio. The Bank is required by federal
regulation to maintain a minimum percentage of its liquidity base in the form of
qualifying long and short-term liquid assets. Currently, the liquidity
requirement is 4%. In addition, longer-term corporate, agency and government
debt securities may be held subject to similar creditworthiness, ratings and
maturity criteria. As of December 31, 1997, the Bank's, liquidity ratio was
18.9%. The balance of short-term security investments in excess of regulatory
requirements reflects management's response to the significantly increasing
percentage of savings deposits with short maturities. It is the intention of
management to maintain shorter maturities in the Bank's investment portfolio in
order to better match the interest rate sensitivities of its assets and
liabilities. However, during periods of rapidly declining interest rates, the
yield on such investments also declines at a faster rate than does the yield on
long-term investments.
Investment decisions are made within policy guidelines established by
the Board of Directors and the Asset/Liability Committee. As of December 31,
1997, the Bank's investment portfolio (including investment securities
classified as available for sale) (the "investment portfolio") totalled $168.7
million.
At December 31, 1997, the Mid-Tier Holding Company had various
investments in capital bank notes and equity securities. Those investments are
held as available for sale and are included in the table.
The following table sets forth the fair value or amortized cost (as
applicable) of the Bank's investment portfolio, short-term investments, and FHLB
stock at the dates indicated. The amounts for securities held to maturity are
listed at amortized cost; amounts for securities available for sale are listed
at approximate market value.
Investment Portfolio. The following table sets forth the carrying value
(market value or amortized cost, as applicable) of the Company's investment
securities portfolio, short-term investments, FHLB stock, and mortgage-backed
securities at the dates indicated. At December 31, 1997, the market value of the
Company's investment securities portfolio and mortgage-backed securities
portfolio were $38,852,000 and $111,486,000, respectively.
-45-
<PAGE>
<TABLE>
<CAPTION>
At December 31,
--------------------------------------
1997 1996 1995
------------------ ------------------ -----------
(In Thousands)
<S> <C> <C> <C>
Investment Securities:
U.S. Treasury Securities................. $ 5,043 $ 5,055 $ 5,066
FHLB bonds............................... 17,284 22,000 20,711
Other agencies(1)........................ 4,168 19,160 17,996
Municipal bonds.......................... 8,034 - -
Mutual funds(2).......................... 1,222 1,147 557
FHLMC preferred stock(2)................. - 985 1,009
Capital trust securities(2)(3)........... 1,060 - -
Subordinated debt(3)..................... 250 250 250
------ ------ ------
Total investment securities............ 37,061 48,597 45,589
------ ------ ------
Interest-bearing deposits................. 15,312 36,067 30,717
Federal funds sold........................ 2,000 2,000 2,000
FHLB of Pittsburgh stock.................. 1,701 1,691 1,686
Mortgage-backed securities(2)............. 111,486 93,410 98,315
Equity investments(2)(3) 1,166 499 -
-------- -------- --------
Total Investments...................... $168,726 $182,264 $178,307
======= ======= =======
</TABLE>
- -------------------------
(1) Consists of FNMA, FHLMC, SLMA debentures and certificates of deposit.
(2) Classified as available for sale and carried at approximate fair value. All
other investment securities are classified as held to maturity.
(3) Investments held by the Mid-Tier Holding Company.
-46-
<PAGE>
Investment Portfolio Maturities. The following table sets forth certain
information regarding the carrying values, weighted average yields and
maturities of the Company's investment securities portfolio at December 31,
1997.
<TABLE>
<CAPTION>
As of December 31, 1997
--------------------------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investment Securities
------------------- ----------------- ----------------- ------------------- ----------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
------- ------- ------- ------- ------- ------- ------- ------- ------- ------- ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury Securities.... $ - -% $ - -% $ 5,043 7.50% $ - -% $ 5,043 7.50% $ 5,419
FHLB bonds and notes........ 3,000 3.17 3,000 6.02 - - 11,284 8.00 17,284 6.82 17,291
Other agencies(1)........... 168 5.50 - - 4,000 8.00 - - 4,168 7.90 4,228
Municipal bonds............. - - - - - - 8,034 5.13 8,034 5.13 8,215
Subordinated debt .......... - - - - 250 8.25 - - 250 8.25 250
Capital securities.......... - - - - - - 1,025 9.70 1,025 9.70 1,060
Mutual funds................ 1,222 5.86 - - - - - - 1,222 5.86 1,222
Mortgage-backed securities:
GNMA pass-through......... - - - - 562 9.51 31,275 7.43 31,837 7.47 32,477
FNMA pass-through......... - - 3,254 6.25 21,219 6.68 - - 24,473 6.62 24,733
FHLMC pass-through........ 298 9.00 6,214 6.99 6,403 8.92 30,841 6.87 43,756 7.20 44,648
FNMA REMICs............... - - - - - - 2,531 5.00 2,531 5.00 2,478
FHLMC REMICs.............. - - 4,257 5.56 - - 2,993 6.23 7,250 5.84 7,150
----- ---- ------ ---- ------- ---- ------ ---- ------- ---- -------
Total..................... $4,688 4.32% $16,725 6.31% $37,477 7.31% $87,983 6.43% $146,873 6.57% $149,171
===== ==== ====== ==== ====== ==== ====== ==== ======= ==== =======
</TABLE>
- ---------------------
(1) Consists of FNMA, FHLMC, and SLMA debentures and certificates of deposit.
-47-
<PAGE>
Unrealized holding gains and losses for trading securities are included
in earnings. Unrealized gains and losses for available-for-sale securities are
excluded from earnings and reported net of income tax effect as a separate
component of stockholders' equity until realized. Investments classified as held
to maturity are accounted for at amortized cost.
Sources of Funds
General. Deposits are the major source of the Bank's funds for lending
and other investment purposes. In addition to deposits, the Bank derives funds
from loan and mortgage-backed securities principal repayments, and proceeds from
the sale of loans, mortgage-backed securities and investment securities. Loan
and mortgage-backed securities principal repayments are a relatively stable
source of funds, while deposit inflows are significantly influenced by general
interest rates and money market conditions. Borrowings may be used on a
short-term basis to compensate for reductions in the availability of funds from
other sources. They also may be used on a longer-term basis for general business
purposes.
Deposits. The Bank offers a wide variety of deposit accounts, although
a majority of such deposits are in fixed-term, market-rate certificate accounts.
Deposit account terms vary, primarily as to the required minimum balance amount,
the amount of time that the funds must remain on deposit and the applicable
interest rate.
Fixed-term certificates have been a major source of new deposits for
the Bank and, as of December 31, 1997, such certificates represented $111.1
million or 48.2% of the Bank's deposit accounts. As of December 31, 1997, $9.1
million or 4.0% of the Bank's deposit portfolio consisted of one- to six-month
fixed-term, market-rate certificates, and $38.7 million or 16.8% consisted of 13
to 60-month fixed-term, market-rate certificates. Savings accounts are a primary
source of deposit funds for the Bank and, as of December 31, 1997, represented
$96.2 million, or 41.7% of the deposit portfolio.
The Bank also offers standardized individual retirement accounts
("IRAs"), as well as qualified defined master plans for self- employed
individuals. IRAs are marketed in the form of all of the available savings
deposits and certificates.
The Bank had no brokered certificates of deposit as of December 31,
1997.
The Bank pays interest rates on its certificate accounts which are
competitive in its market. Interest rates on deposits are reviewed weekly by
management based on a combination of factors, including the need for funds and
local competition.
Deposits in the Bank as of December 31, 1997 were represented by
various types of savings programs described below.
Deposit Portfolio. Deposits in the Bank as of December 31, 1997, were
represented by various types of savings programs described below.
-48-
<PAGE>
<TABLE>
<CAPTION>
Minimum Balance as of Percentage of
Category Term Interest Rate(1) Balance Amount December 31, 1997 Total Deposits
- -------- ---- ---------------- ------------- ----------------- --------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Regular Savings None 3.25% $ 10 $ 32,780 14.2%
Senior Club Savings None 4.00 500 62,950 27.3
Christmas and Vacation
Clubs None 2.00 10 428 .2
NOW Accounts None 1.48 10 14,078 6.1
Super NOW None 1.48 1,000 872 .4
Money Market Accounts None 3.64 1,000 7,687 3.3
Non-interest Deposits None - 300 712 .3
Certificates of Deposit:
Fixed Term, Fixed Rate 1-3 Months 3.64 500 582 .3
Fixed Term, Fixed Rate 4-6 Months 3.88 500 8,519 3.7
Fixed Term, Fixed Rate 7-12 Months 5.55 500 63,269 27.4
Fixed Term, Fixed Rate 13-24 Months 5.08 500 8,027 3.5
Fixed Term, Fixed Rate 25-36 Months 5.32 500 14,290 6.2
Fixed Term, Fixed Rate 60 Months 5.79 1,000 16,364 7.1
------- -----
Total deposits $230,558 100.0%
=====
Accrued interest on deposits 30
-------
Total $230,588
=======
</TABLE>
- -------------------------
(1) Interest rate offerings as of December 31, 1997.
Time Deposits by Rate. The following table sets forth the time deposits
in the Company classified by interest rate as of the dates indicated.
<TABLE>
<CAPTION>
As of December 31,
------------------------------------------------
1997 1996 1995
------------ ------------ -----------
(In Thousands)
Weighted average rate:
<S> <C> <C> <C>
3.00-3.99%................................ $ 9,102 $ 14,497 $ 8,732
4.00-4.99%................................ 4,858 19,199 20,152
5.00-5.99%................................ 91,505 65,362 65,206
6.00-6.99%................................ 5,586 19,440 19,595
Accrued interest on certificate
accounts.................................. 10 16 23
------ ------ -------
Total................................... $111,061 $118,514 $113,708
======= ======= =======
</TABLE>
-49-
<PAGE>
Time Deposits Maturity Schedule. The following table sets forth the
amount and maturities of time deposits at December 31, 1997.
<TABLE>
<CAPTION>
Amount Due
-------------------------------------------------------------------------------------------------------
After
December 31, December 31, December 31, December 31,
Interest Rate 1998 1999 2000 2000 Total
- ------------- ----------------- ------------------- ------------------- -------------------- ----------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
2.99% or less........... $ - $ - $ - $ - $ -
3.00-3.99%.............. 9,092 - - - 9,092
4.00-4.99%.............. 4,754 90 - - 4,844
5.00-5.99%.............. 75,659 8,562 3,876 3,448 91,545
6.00-6.99%.............. 383 4,028 1,159 - 5,570
Accrued Interest on
Certificate Accounts.... 10 - - -- 10
------- ------- ------- ------- -------
Total $89,898 $12,680 $5,035 $3,448 $111,061
====== ====== ===== ===== =======
</TABLE>
Jumbo Certificates of Deposit. The following table indicates the amount
of the Bank's certificates of deposit of $100,000 or more by time remaining
until maturity as of December 31, 1997.
Certificates
Maturity Period of Deposits
- --------------- -----------
(In Thousands)
Within three months......................... $ 3,767
Three through six months.................... 512
Six through twelve months................... 4,811
Over twelve months.......................... 1,597
------
$10,687
=======
-50-
<PAGE>
Savings Deposit Activity. The following table sets forth the savings
activities of the Bank for the periods indicated:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------- ----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits.................................. $337,164 $336,937 $305,790 $309,093 $294,955
Withdrawals............................... 335,365 340,105 305,593 318,822 286,765
Net increase (decrease)
before interest credited................ 1,805 (3,168) 197 (9,729) 8,190
Deposits sold............................. (37,238) - - - -
Interest credited......................... 9,449 9,532 8,750 6,654 7,154
------- ------- ------- ------- -------
Net increase (decrease) in
savings deposits........................ $(25,988) $ 6,364 $ 8,947 $ (3,075) $ 15,344
======= ======= ======= ======= =======
</TABLE>
Borrowings
Deposits are the primary source of funds of the Bank's lending and
investment activities and for its general business purposes. The Bank may obtain
advances from the FHLB of Pittsburgh to supplement its supply of lendable funds.
Advances from the FHLB of Pittsburgh are typically secured by a pledge of the
Bank's stock in the FHLB of Pittsburgh and a portion of the Bank's first
mortgage loans and certain other assets. The Bank, if the need arises, may also
access the Federal Reserve Bank discount window to supplement its supply of
lendable funds and to meet deposit withdrawal requirements. At December 31,
1997, the Bank had $7.9 million in advances outstanding from the FHLB of
Pittsburgh at fixed rates of interest, all of which were matched to a specific
investment at a positive interest rate spread. Most of these advances provide
for a prepayment penalty. At December 31, 1997, the Bank had no other
borrowings. See Note 9 of the Notes to Consolidated Financial Statements of the
Mid-Tier Holding Company.
The following table sets forth certain information as to FHLB advances
at the dates indicated. Included in the table below is a $1,884,000 Community
Investment Program loan ("CIP") from the FHLB Pittsburgh used to finance the
Bank's low income housing project to a developer/manager of Section 8 housing.
<TABLE>
<CAPTION>
As of and For the
Year Ended December 31,
----------------------------------------------
1997 1996 1995
---- ---- ----
(Dollars In Thousands)
<S> <C> <C> <C>
FHLB advances............................. $7,884 $7,884 $7,884
Weighted average interest rate of
FHLB advances........................... 5.53% 5.53% 5.53%
Maximum amount of advances at
any month end............................ $7,884 $7,884 $7,884
Average amount of advances................ $7,884 $7,884 $7,884
Weighted average interest rate
of average amount of advances........... 5.53% 5.53% 5.53%
</TABLE>
-51-
<PAGE>
Subsidiaries and Joint Venture Activity
The Bank is permitted to invest up to 2% of its assets in the capital
stock of, or secured or unsecured loans to, subsidiary corporations, with an
additional investment of 1% of assets when such additional investment is
utilized primarily for community development purposes. Under such limitations,
as of December 31, 1997, the Bank was authorized to invest up to approximately
$5.5 million in the stock of, or loans to, service corporations (based upon the
2% limitation). As of December 31, 1997, the net book value of the Bank's
investment in stock, unsecured loans, and conforming loans in its service
corporations was $136,000.
The Bank has two wholly owned subsidiary corporations, Montgomery
Service Corporation ("MSC") and Ridge Service Corporation ("RSC"). MSC engages
in the management of real estate. RSC is presently inactive.
Personnel
As of December 31, 1997, the Bank had 61 full-time employees and 17
part-time employees. The employees are not represented by a collective
bargaining unit. The Bank believes its relationship with its employees to be
satisfactory.
Competition
The Bank faces strong competition in its attraction of savings
deposits, which are its primary source of funds for lending, and in the
origination of real estate loans. The Bank's competition for savings deposits
and loans historically has come from other thrift institutions and commercial
banks located in the Bank's market area. The Bank also competes with mortgage
banking companies for real estate loans, and faces competition for investor
funds from short- term money market securities and corporate and government
securities.
The Bank's market area generally includes Philadelphia, Bucks,
Delaware, Chester and Montgomery Counties, which comprise the Philadelphia
metropolitan area. The Bank's primary lending area consists of the Roxborough,
Manayunk, Overbrook and Andorra neighborhoods located in the far northwest
sections of Philadelphia and South Philadelphia. The Bank has no significant
loan concentrations in any one part of its primary lending area.
The Bank competes for loans by charging competitive interest rates and
loan fees, remaining efficient and providing a wide range of services to its
customers. The Bank offers all consumer banking services such as checking
accounts, certificates of deposit, retirement accounts, consumer and mortgage
loans and ancillary services such as safe deposit boxes, convenient offices and
drive-up facilities, automated teller machines and overdraft protection. These
services help the Bank compete for deposits, in addition to offering competitive
rates on deposits.
Recent legislative and regulatory measures have significantly expanded
the range of services which savings institutions can offer the public, such as
demand deposits, trust services,and consumer and commercial lending. These
changes, combined with increasingly sophisticated depositors, have dramatically
increased competition for savings dollars among savings institutions and other
types of investment entities, as well as with commercial banks in regard to
loans, checking accounts and other types of financial services. In addition,
large conglomerates and investment banking firms have entered
-52-
<PAGE>
the market for financial services. The competition between commercial banks and
savings institutions is also increased by allowing banks to acquire healthy
savings institutions, imposing similar capital requirements on banks and savings
institutions and placing certain investment and other regulatory restrictions on
savings institutions which are similar to those imposed on banks. Thus, in the
future, the Bank, like other savings institutions, will face increased
competition to provide savings and lending services and, in order to remain
competitive, will have to be innovative and knowledgeable about its market, as
well as to continue to exert effective controls over its costs.
Properties and Equipment
The Bank's executive offices are located at 6060 Ridge Avenue in
Philadelphia, Pennsylvania. The Bank conducts its business through six offices,
all of which are located in the Philadelphia, Pennsylvania area.
The following table sets forth the location of each of the Bank's
offices, the year the office was first acquired and the net book value of each
office. The Bank owns five of its six office locations.
<TABLE>
<CAPTION>
Year
Owned Facility Net Book
or Opened or Value as of
Office Location Leased Acquired December 31, 1997
- ----------------------------------------- ---------------- ------------------ ----------------------
(In Thousands)
<S> <C> <C> <C>
Main Office Owned 1958 $391
6060 Ridge Avenue
Philadelphia, PA 19128
7568 Ridge Avenue Owned 1962 16
Philadelphia, PA 19128
8345 Ridge Avenue Owned 1974 115
Philadelphia, PA 19128
4370 Main Street Leased 1993 63(1)
Philadelphia, PA 19127
Church Lane & Chester Avenue Owned 1982 134
Yeadon, PA 19050
6503-15 Haverford Avenue Owned 1982 277
Philadelphia, PA 19151 ---
$996
====
</TABLE>
- -------------------------
(1) Includes leasehold improvements. The lease expires on December 31,
1999, with an option to renew to 2004.
-53-
<PAGE>
The Bank performs its own data processing through its data processing
department located in its main office and utilizes several hardware platforms
and a combination of internally developed and purchased software systems. The
net book value of this data processing equipment as of December 31, 1997 was
$14,500. As of December 31, 1997, the net book value of land, buildings,
furniture, and equipment owned by the Bank, less accumulated depreciation
totalled $1.5 million. See Note 7 of Notes to Consolidated Financial Statements
of the Mid-Tier Holding Company.
Based on a recognized need to upgrade the date processing system, to be
more competitive in the marketplace and to address the year 2000 problem, the
Bank signed an agreement with Open Solutions Incorporated, Glastonbury,
Connecticut, to purchase their information processing system. This system is a
PC-based client service system which, management believes, will serve the Bank
well into the next century. It is estimated the total cost of this system will
be approximately $1.2 million with an annual cost of approximately $344,000
including depreciation, software cost and maintenance.
Legal Proceedings
The Bank from time to time is a party to legal proceedings in the
ordinary course of business such as enforcing security interests in loans. In
the opinion of management, the Bank is not engaged in any other legal
proceedings of a material nature at the present time.
REGULATION
Set forth below is a brief description of certain laws which relate to
the Bank, the Mid-Tier Holding Company and the Company. The description is not
complete and is qualified in its entirety by references to applicable laws and
regulation.
Holding Company Regulation
General. The Company will be required to register and file reports with
the OTS and will be subject to regulation and examination by the OTS. In
addition, the OTS will have enforcement authority over the Company and any
non-savings institution subsidiaries. This will permit the OTS to restrict or
prohibit activities that it determines to be a serious risk to the Bank. This
regulation is intended primarily for the protection of depositors and not for
the benefit of stockholders.
QTL Test. Since the Company will only own one savings institution, it
will be able to diversify its operations into activities not related to banking,
but only so long as the Bank satisfies the QTL test. If the Company controls
more than one savings institution, it would lose the ability to diversify its
operations into nonbanking related activities, unless such other savings
institutions each also qualify as a QTL or were acquired in a supervised
acquisition. See "-- Savings Institution Regulation -- Qualified Thrift Lender
Test. "
Restrictions on Acquisitions. The Company must obtain approval from the
OTS before acquiring control of any other SAIF-insured savings institution. No
person may acquire control of a federally insured savings institution without
providing at least 60 days written notice to the OTS and giving the OTS an
opportunity to disapprove the proposed acquisition.
-54-
<PAGE>
Savings Institution Regulation
General. As a federally chartered, SAIF-insured savings institution,
the Bank is subject to extensive regulation by the OTS and the FDIC. Its lending
activities and other investments must comply with various federal and state
statutory and regulatory requirements. The Bank is also subject to certain
reserve requirements promulgated by the Board of Governors of the Federal
Reserve System ("Federal Reserve").
The OTS, in conjunction with the FDIC, regularly examines the Bank and
prepares reports for the consideration of the Bank's board of directors on any
deficiencies that the OTS finds in the Bank's operations. The Bank's
relationship with its depositors and borrowers is also regulated to a great
extent by federal and state law, especially in such matters as the ownership of
savings accounts and the form and content of the Bank's mortgage documents.
The Bank must file reports with the OTS and the FDIC concerning its
activities and financial condition, in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with or
acquisitions of other financial institutions. 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 SAIF and depositors.
The regulatory structure also gives the regulatory authorities extensive
discretion in connection with their supervisory and enforcement activities and
examination policies, including policies with respect to the classification of
assets and the establishment of adequate loan loss reserves for regulatory
purposes. Any change in regulations, whether by the OTS, the FDIC or any other
government agency, could have a material adverse impact on the operations of the
Bank, the Mid-Tier Holding Company and/or the Mutual Holding Company.
Insurance of Deposit Accounts. The FDIC is authorized to establish
separate annual assessment rates for deposit insurance for members of the BIF
and the SAIF. The FDIC may increase assessment rates for either fund if
necessary to restore the fund's ratio of reserves to insured deposits to its
target level within a reasonable time and may decrease such assessment rates if
such target level has been met. The FDIC has established a risk-based assessment
system for both SAIF and BIF members. Under this system, assessments are set
within a range, based on the risk the institution poses to its deposit insurance
fund. This risk level is determined based on the institution's capital level and
the FDIC's level of supervisory concern about the institution.
Because a significant portion of the assessments paid into the SAIF by
savings institutions were used to pay the cost of prior savings institution
failures, the reserves of the SAIF were below the level required by law. The BIF
had, however, met its required reserve level during the third calendar quarter
of 1995. As a result, deposit insurance premiums for deposits insured by the BIF
were substantially less than premiums for deposits such as the Bank which are
insured by the SAIF. Legislation to capitalize the SAIF and to eliminate the
significant premium disparity between the BIF and the SAIF became effective
September 30, 1996. The recapitalization plan provided for a special assessment
equal to $.657 per $100 of SAIF deposits held at March 31, 1995, in order to
increase SAIF reserves to the level required by law. Certain BIF institutions
holding SAIF-insured deposits were required to pay a lower special assessment.
Based on the Bank's deposits at March 31, 1995, the Bank paid a pre-tax special
assessment of $1,533,000.
The recapitalization plan also provides that the cost of prior failures
which were funded through the issuance of Fico Bonds (bonds issued to fund the
cost of savings institution failures in prior years)
-55-
<PAGE>
will be shared by members of both the SAIF and the BIF. This increased BIF
assessments for healthy banks to approximately $.013 per $100 of deposits in
1997. SAIF assessments for healthy savings institutions in 1997 were
approximately $.064 per $100 in deposits and may be reduced, but not below the
level set for healthy BIF institutions.
The FDIC has lowered the rates on assessments paid to the SAIF and
widened the spread of those rates. The FDIC's action established a base
assessment schedule for the SAIF with rates ranging from 4 to 31 basis points,
and an adjusted assessment schedule that reduces these rates by 4 basis points.
As a result, the effective SAIF rates range from 0 to 27 to basis points as of
October 1, 1996. In addition, the FDIC's final rule prescribed a special interim
schedule of rates ranging from 18 to 27 basis points for SAIF-member savings
institutions for the last quarter of calendar 1996, to reflect the assessments
paid to the Financing Corp. (Fico Bonds). Finally, the FDIC's action established
a procedure for making limited adjustments to the base assessment rates by
rulemaking without notice and comment, for both the SAIF and the BIF.
The recapitalization plan also provides for the merger of the SAIF and
BIF effective January 1, 1999, assuming there are no savings institutions under
federal law. Under separate proposed legislation, Congress is considering the
elimination of the federal thrift charter and elimination of the separate
federal regulation of thrifts. As a result, the Bank might have to convert to a
different financial institution charter and be regulated under federal law as a
bank, including being subject to the more restrictive activity limitations
imposed on national banks. It is not possible to predict the impact of the
Conversion to, or regulation as, a bank until the legislation requiring such
change is enacted.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) core capital equal to at least 3% of total
adjusted assets, and (3) risk-based capital equal to 8% of total risk-weighted
assets. The Bank's capital ratios are set forth under "HISTORICAL AND PRO FORMA
CAPITAL COMPLIANCE."
Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), less certain mortgage servicing rights and
less certain investments. Core capital is defined as common stockholders' equity
(including retained earnings), noncumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits of mutual savings associations and
qualifying supervisory goodwill, less nonqualifying intangible assets, certain
mortgage servicing rights and certain investments.
The risk-based capital standard for savings institutions requires the
maintenance of total risk-based capital (which is defined as core capital plus
supplementary capital) of 8% of risk-weighted assets. The components of
supplementary capital include, among other items, cumulative perpetual preferred
stock, perpetual subordinated debt, mandatory convertible subordinated debt,
intermediate-term preferred stock, and the portion of the allowance for loan
losses not designated for specific loan losses. The portion of the allowance for
loan and lease losses includable in supplementary capital is limited to a
maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is
limited to 100% of core capital. A savings association must calculate its
risk-weighted assets by multiplying each asset and off-balance sheet item by
various risk factors as determined by the OTS, which range from 0% for cash to
100% for delinquent loans, property acquired through foreclosure, commercial
loans, and other assets.
-56-
<PAGE>
The risk-based capital standards of the OTS generally require savings
institutions with more than a "normal" level of interest rate risk to maintain
additional total capital. An institution's interest rate risk will be measured
in terms of the sensitivity of its "net portfolio value" to changes in interest
rates. Net portfolio value is defined, generally, as the present value of
expected cash inflows from existing assets and off-balance sheet contracts less
the present value of expected cash outflows from existing liabilities. A savings
institution will be considered to have a "normal" level of interest rate risk
exposure if the decline in its net portfolio value after an immediate 200 basis
point increase or decrease in market interest rates (whichever results in the
greater decline) is less than two percent of the current estimated economic
value of its assets. An institution with a greater than normal interest rate
risk will be required to deduct from total capital, for purposes of calculating
its risk-based capital requirement, an amount (the "interest rate risk
component") equal to one-half the difference between the institution's measured
interest rate risk and the normal level of interest rate risk, multiplied by the
economic value of its total assets.
The OTS calculates the sensitivity of an institution's net portfolio
value with data submitted by the institution and the interest rate risk
measurement model adopted by the OTS. The amount of the interest rate risk
component, if any, to be deducted from an institution's total capital will be
based on the institution's Thrift Financial Report filed two quarters earlier.
Savings institutions with less than $300 million in assets and a risk-based
capital ratio above 12% are generally exempt from filing the interest rate risk
schedule with their Thrift Financial Reports. However, the OTS may require any
exempt institution that it determines may have a high level of interest rate
risk exposure to file such schedule on a quarterly basis and may be subject to
an additional capital requirement based upon its level of interest rate risk as
compared to its peers. Although the rule is not yet in effect, due to the Bank's
net size and risk-based capital level, we are exempt from the interest rate risk
component.
Dividend and Other Capital Distribution Limitations. OTS regulations
require us to give the OTS 30 days advance notice of any proposed declaration of
dividends to the Bank, and the OTS has the authority under its supervisory
powers to prohibit the payment of dividends by us to the Bank. In addition, we
may not declare or pay a cash dividend on the Bank's capital stock if the effect
would be to reduce the Bank's regulatory capital below the amount required for
the liquidation account to be established at the time of the conversion. See
"THE CONVERSION AND REORGANIZATION -- Effects of Conversion and Reorganization
- -- Effect on Liquidation Account."
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 based primarily on an institution's
capital level. An institution that exceeds all fully phased-in capital
requirements before and after a proposed capital distribution ("Tier 1
institution") and has not been advised by the OTS that it is in need of more
than the normal supervision can, 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 income 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 income over the most recent four quarter period.
Any additional capital distributions require prior regulatory notice. As of
December 31, 1997, the Bank qualified as a Tier 1 institution.
In the event the Bank's capital falls below the Bank's fully phased-in
requirement or the OTS notifies the Bank that it is in need of more than normal
supervision, the Bank would become a Tier 2 or Tier 3 institution and as a
result, the Bank's ability to make capital distributions could be restricted.
Tier
-57-
<PAGE>
institutions, which are institutions that before and after the proposed
distribution meet their current minimum capital requirements, may only make
capital distributions of up to 75 % of net income over the most recent four
quarter period. Tier 3 institutions, which are institutions that do not meet
current minimum capital requirements and propose to make any capital
distribution, and Tier 2 institutions that propose to make a capital
distribution in excess of the noted safe harbor level, must obtain OTS approval
prior to making such distribution. 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. The OTS has proposed rules relaxing
certain approval and notice requirements for well-capitalized institutions.
A savings institution is prohibited from making a capital distribution
if, after making the distribution, the savings institution would be
undercapitalized (i.e., not meet any one of its minimum regulatory capital
requirements). Further, a savings institution cannot distribute regulatory
capital that is needed for its liquidation account.
Qualified Thrift Lender Test. Savings institutions must meet a
qualified thrift lender ("QTL") test. If the Bank maintains an appropriate level
of qualified thrift investments ("QTIs") (primarily residential mortgages and
related investments, including certain mortgage-related securities) and
otherwise qualify as a QTL, the Bank will continue to enjoy full borrowing
privileges from the FHLB of Pittsburgh. The required percentage of QTIs is 65%
of portfolio assets (defined as all assets minus intangible assets, property
used by the institution in conducting its business and liquid assets equal to
10% of total assets). Certain assets are subject to a percentage limitation of
20% of portfolio assets. In addition, savings institutions may include shares of
stock of the FHLBs, FNMA, and FHLMC as QTIs. Compliance with the QTL test is
determined on a monthly basis in nine out of every 12 months. As of December 31,
1997, the Bank was in compliance with the Bank's QTL requirement with
approximately 83.18% of its assets invested in QTIs.
Transactions With Affiliates. Generally, restrictions on transactions
with affiliates require that transactions between a savings institution or its
subsidiaries and its affiliates be on terms as favorable to the savings
institution as comparable transactions with non-affiliates. In addition, certain
of these transactions are restricted to an aggregate percentage of the savings
institution's capital. Collateral in specified amounts must usually be provided
by affiliates in order to receive loans from the savings institution. Within
certain limits, affiliates are permitted to receive more favorable loan terms
than non-affiliates. The Bank's affiliates include the Mutual Holding Company,
the Mid-Tier Holding Company and the Company and any company which would be
under common control with the Bank. In addition, a savings institution may not
extend credit to any affiliate engaged in activities not permissible for a bank
holding company or acquire the securities of any affiliate that is not a
subsidiary. The OTS has the discretion to treat subsidiaries of savings
institution as affiliates on a case-by-case basis.
Liquidity Requirements. All savings institutions are required to
maintain an average daily balance of liquid assets equal to a certain percentage
of the sum of its average daily balance of net withdrawable deposit accounts and
borrowings payable in one year or less. The liquidity requirement may vary from
time to time (between 4% and 10%) depending upon economic conditions and savings
flows of all savings institutions. At December 31, 1997, the Bank's liquidity
ratio was 18.87%. Monetary penalties may be imposed upon institutions for
violations of liquidity requirements.
Federal Home Loan Savings Bank System. The Bank is a member of the FHLB
of Pittsburgh, which is one of 12 regional FHLBs. Each FHLB serves as a reserve
or central bank for its members
-58-
<PAGE>
within its assigned region. It is funded primarily from funds deposited by
savings institutions and proceeds derived from the sale of consolidated
obligations of the FHLB System. It makes loans to members (i.e., advances) in
accordance with policies and procedures established by the board of directors of
the FHLB.
As a member, the Bank is required to purchase and maintain stock in the
FHLB of Pittsburgh in an amount equal to at least 1% of the Bank's aggregate
unpaid residential mortgage loans, home purchase contracts or similar
obligations at the beginning of each year. At December 31, 1997, the Bank had
$1,702,000 in FHLB stock, at cost, which was in compliance with this
requirement. The FHLB imposes various limitations on advances such as limiting
the amount of certain types of real estate related collateral to 30% of a
member's capital and limiting total advances to a member.
The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future.
Federal Reserve. The Federal Reserve requires all depository
institutions to maintain noninterest bearing reserves at specified levels
against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve may be used to
satisfy the liquidity requirements that are imposed by the OTS. At December 31,
1997, the Bank's reserve met the minimum level required by the Federal Reserve.
Savings institutions have authority to borrow from the Federal Reserve
System "discount window," but Federal Reserve System policy generally requires
savings institutions to exhaust all other sources before borrowing from the
Federal Reserve System. The Bank had no borrowings from the Federal Reserve
System at December 31, 1997.
TAXATION
Federal Taxation
The Mid-Tier Holding Company is subject to the provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), in the same general
manner as other corporations. In August 1996, the Code was revised to equalize
the taxation of thrifts and banks. Thrifts, such as us, no longer have a choice
between the percentage of taxable income method and the experience method in
determining additions to bad debt reserves. Thrifts with $500 million of assets
or less may still use the experience method, which is generally available to
small banks. Larger thrifts must use the specific charge off method regarding
bad debts. Any reserve amounts added to the Bank's bad debt reserve after 1987
will be recaptured into the Bank's taxable income over a six year period
beginning in 1996. A thrift may delay recapturing into income its post-1987 bad
debt reserves for an additional two years if it meets a residential lending
test. This recapture will not have a material impact on the Bank.
Under the experience method, the bad debt deduction may be based on (i)
a six-year moving average of actual losses on qualifying and non-qualifying
loans, or (ii) a fill-up to the institution's base year reserve amount, which is
the tax bad debt reserve determined as of December 31, 1987.
-59-
<PAGE>
The percentage of specially computed taxable income that was used to
compute a savings institution's bad debt reserve deduction under the percentage
of taxable income method (the "percentage bad debt deduction") was 8%. The
percentage of taxable income bad debt deduction thus computed was reduced by the
amount permitted as a deduction for non-qualifying loans under the experience
method. In the past the availability of the percentage of taxable income method
permitted qualifying savings institutions to be taxed at a lower effective
federal income tax rate than that applicable to corporations generally
(approximately 31.3% assuming the maximum percentage bad debt deduction).
If a savings institution's qualifying assets (generally, loans secured
by residential real estate or deposits, educational loans, cash and certain
government obligations) constitute less than 60% of its total assets, the
institution may not deduct any addition to a bad debt reserve and generally must
include existing reserves in income over a four year period, which is
immediately accruable for financial reporting purposes. As of September 30,
1997, at least 60% of the Bank's assets were qualifying assets as defined in the
Code. No assurance can be given that the Bank will meet the 60% test for
subsequent taxable years.
Earnings appropriated to the Bank's bad debt reserve and claimed as a
tax deduction including the Bank's supplemental reserves for losses will not be
available for the payment of cash dividends or for distribution to stockholders
(including distributions made on dissolution or liquidation), unless the Bank
includes the amount in income. Distributable amounts may be reduced by any
amount deemed necessary to pay the resulting federal income tax. As of December
31, 1997, the Bank had $5.4 million of accumulated earnings, representing the
Bank's base year tax reserve, for which federal income taxes have not been
provided. If such amount is used for any purpose other than bad debt losses,
including a dividend distribution or a distribution in liquidation, it will be
subject to federal income tax at the then current rate.
Generally, for taxable years beginning after 1986, the Code also
requires most corporations, including savings institutions, to utilize the
accrual method of accounting for tax purposes. Further, for taxable years ending
after 1986, the Code disallows 100% of a savings institution's interest expense
deemed allocated to certain tax-exempt obligations acquired after August 7,
1986. Interest expense allocable to (i) tax-exempt obligations acquired after
August 7, 1986 which are not subject to this rule, and (ii) tax-exempt
obligations issued after 1982 but before August 8, 1986, are subject to the rule
which applied prior to the Code disallowing the deductibility of 20% of the
interest expense.
The Code imposes an alternative minimum tax ("AMT") on a corporation's
alternative minimum taxable income ("AMTI") at a rate of 20%. AMTI is increased
by certain preference items, including the excess of the tax bad debt reserve
deduction using the percentage of taxable income method over the deduction that
would have been allowable under the experience method. Only 90% of AMTI can be
offset by net operating loss carryovers of which we currently have none. AMTI is
also adjusted by determining the tax treatment of certain items in a manner that
negates the deferral of income resulting from the regular tax treatment of those
items. Thus, the Mid-Tier Holding Company's AMTI is increased by an amount equal
to 75 % of the amount by which the Mid-Tier Holding Company's adjusted current
earnings exceeds the Bank's AMTI (determined without regard to this adjustment
and prior to reduction for net operating losses). In addition, for taxable years
beginning after December 31, 1986 and before January 1, 1996, an environmental
tax of 0.12% of the excess of AMTI (with certain modifications) over $2 million
is imposed on corporations, including the Mid-Tier Holding Company, whether or
not an AMT is paid.
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<PAGE>
The Mid-Tier Holding Company (and the Company) may exclude from its
income 100% of dividends received from us as a member of the same affiliated
group of corporations. A 70% dividends received deduction generally applies with
respect to dividends received from corporations that are not members of such
affiliated group, except that an 80% dividends received deduction applies if the
Mid- Tier Holding Company owns more than 20% of the stock of a corporation
paying a dividend. The above exclusion amounts, with the exception of the
affiliated group figure, were reduced in years in which the Mid-Tier Holding
Company availed itself of the percentage of taxable income bad debt deduction
method.
The federal income tax returns of the Mid-Tier Holding Company have not
been audited by the IRS since its formation in 1997. The Bank's federal income
tax returns have been audited through 1993.
State Taxation
The Company is subject to the Pennsylvania Corporate Net Income Tax and
Capital Stock and Franchise Tax. The Corporate Net Income Tax rate is currently
11.50% and is imposed on the Company's unconsolidated taxable income for federal
purposes with certain adjustments. In general, the Capital Stock Tax is a
property tax imposed at the rate of 1.3% of a corporation's capital stock value,
which is determined in accordance with a fixed formula based upon average net
income and net worth.
The state tax returns of the Bank and the Mid-Tier Holding Company have
not been audited by the Commonwealth of Pennsylvania during the past ten years.
MANAGEMENT OF THE COMPANY AND THE MID-TIER HOLDING COMPANY
The Boards of Directors of the Company and the Mid-Tier Holding Company
are composed of seven members each, divided into three classes and are elected
by the stockholders of the Mid-Tier Holding Company and the Company,
respectively, for staggered three-year terms, or until their successors are
elected and qualified. One class of directors, consisting of directors John F.
McGill, Jr. and Joseph P. Healy have terms of office expiring in 1999; a second
class, consisting of directors Francis E. McGill, III and Add B. Anderson, Jr.
have terms of office expiring in 2000; and a third class, consisting of
directors John F. McGill, Sr., Jerry Naessens and Michael G. Crofton have a term
of office expiring in 2001. Their names and biographical information are set
forth under "MANAGEMENT OF THE BANK--Directors."
The following individuals hold positions as executive officers of the
Company and the Mid-Tier Holding Company, or its subsidiary, the Bank, as set
forth below their names.
Name Position
- ---- --------
John F. McGill Chairman of the Board
John F. McGill, Jr. Director, President and Chief Executive Officer
Jerry Naessens Director, Secretary and Chief Financial Officer
The executive officers of the Mid-Tier Holding Company and the Company
are elected annually and hold office until their respective successors have been
elected and qualified or until death, resignation or removal by the Board of
Directors.
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<PAGE>
Since the formation of the Mid-Tier Holding Company and the Company,
none of the executive officers, directors or other personnel has received
remuneration from the Mid-Tier Holding Company or the Company. Information
concerning the principal occupations, employment and compensation of the
directors and officers of the Mid-Tier Holding Company and the Company during
the past five years is set forth under "MANAGEMENT OF THE BANK."
MANAGEMENT OF THE BANK
Directors
The Bank's Board of Directors is composed of eight members. Directors
of the Bank are generally elected to serve for a three-year period or until
their respective successors shall have been elected and shall qualify. The
following table sets forth certain information regarding the composition of the
Bank's Board of Directors as of December 31, 1997, including the terms of office
of Board members.
<TABLE>
<CAPTION>
Year First
Elected Term to
Name Age(1) Position Director(2) Expire
- ---- ------ -------- ----------- ------
<S> <C> <C> <C> <C>
John F. McGill(4) 60 Chairman of the Board and Chief 1967 2001
Executive Officer
Robert E. Domanski, M.D. 53 Director 1991 2001
Pietro M. Jacovini, Jr. 82 Director 1982 2001
John F. McGill, Jr.(3)(4) 36 President and Director 1991 1999
Joseph P. Healy 71 Director 1989 1999
William A. Lamb, Sr. 61 Director 1993 1999
Francis E. McGill, III(3) 38 Director 1991 2000
Add B. Anderson, Jr. 71 Director 1973 2000
</TABLE>
- ---------------------
(1) At December 31, 1997.
(2) Represents year first elected to either the Board of Directors of the
Company, the Mid-Tier Holding Company or the Bank, or a predecessor savings
institution. The Mid-Tier Holding Company was organized March, 1997. the
Company was organized March, 1998.
(3) John F. McGill, Jr. is the son of John F. McGill and cousin of Francis E.
McGill, III.
(4) Effective November 20, 1997, John F. McGill, Jr. was appointed President
and Chief Executive Officer. Prior to that date, John F. McGill was
Chairman of the Board, President and Chief Executive Officer.
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<PAGE>
Executive Officers Who Are Not Directors
The following tables sets forth information regarding the executive
officers of the Bank who are not also directors.
Name Age Positions Held in the Bank
- ---- --- --------------------------
Jerry Naessens 62 Chief Financial Officer, Treasurer, Secretary
Ronald D. Masciantinio 58 Vice President, Compliance
Christopher P. McGill 29 Vice President, Lending
Elizabeth Milavsky 47 Vice President, Operations
Frank Zangari 45 Vice President, Internal Audit
Dolores M. Lush 56 Vice President, Support Services
The principal occupation during the past five years of each director of
the Bank and Company and each executive officer of the Bank is set forth below.
All directors have held their present positions for five years unless otherwise
stated.
John F. McGill, Sr. has been Chief Executive Officer of the Bank since
1980. He was President and Chief Executive Officer of the Bank from 1980 to
November 20, 1997, and Chairman of the Board since 1989, and has been a director
of the Bank for over 30 years. He has served in various officer capacities with
the Bank since 1972. Mr. McGill is also a 25% partner in Francis E. McGill,
Realtor, a real estate and insurance firm. He is a member of the Board of
Roxborough Memorial Hospital.
John F. McGill, Jr. has been President of the Bank since November 20,
1996. Prior to such positions, he was Executive Vice President in charge of
operations, lending and portfolio management of the Bank since March 1991. He
has served the Bank in various officer positions since 1984 and has been a
director since 1991. Mr. McGill serves on the finance committee of the Basilica
of the National Shrine in Washington, D.C.
Pietro M. Jacovini, Jr. has been a board member of the Bank since 1982.
He serves as a board member of St. Agnes Medical Center and is Vice President
and a board member of the Philadelphia Fire Museum.
Francis E. McGill, III is the sole proprietor of the law firm of McGill
and McGill, Philadelphia, Pennsylvania, and has practiced with the firm since
1988. He is a member of the Board of Trustees of Roxborough Memorial Hospital.
Add B. Anderson, Jr. is 100% owner of KeyBis Corporation (formerly
Eastern Continuous Forms, Inc.), a manufacturer of business forms in Blue Bell,
Pennsylvania. He serves as a member of the Board of Trustees of Roxborough
Memorial Hospital and is Chairman of the Roxborough Memorial Health Foundation.
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<PAGE>
Joseph P. Healy serves as Chairman of the Board of Trustees of
Roxborough Memorial Hospital. He was a partner in Deloitte and Touche from 1965
to 1989, and prior to that time was employed by Deloitte and Touche in various
positions, including staff accountant and manager, commencing in 1948.
Robert E. Domanski, M.D. has been a partner and Director of Radiology
of Northwest Radiology Associates, Ltd., Philadelphia, Pennsylvania, since 1985.
He is a member of the 21st Ward Medical Society.
William A. Lamb, Sr. was President/CEO of Lamb Brothers Office
Products, Philadelphia, Pennsylvania for 33 years. In 1992, Lamb Brothers became
part of Philadelphia Stationers where Mr. Lamb assumed the title of Executive
Vice President, a title he currently holds with Staples, Inc.
Jerry A Naessens has been employed by Roxborough-Manayunk as Treasurer
and Chief Financial Office since 1991. Mr. Naessens was a partner in Deloitte
and Touche from 1980 to 1991. Mr. Naessens is not a member of the Board of
Directors of the Bank. He is a member of the Boards of Directors of the Company
and the Mid-Tier Holding Company.
Michael G. Crofton is Vice President and Senior Portfolio Manager of
Rittenhouse Financial Services, Inc., a an investment advisory firm located in
Radnor, Pennsylvania. Mr. Crofton is not a member of the Board of Directors of
the Bank. He is a member of the Boards of Directors of the Company and the
Mid-Tier Holding Company.
Meetings and Committees of the Board of Directors
The business of Boards of Directors of the Bank and the Mid-Tier
Holding Company are conducted through meetings of the Board of Directors and the
committees of the Board of the Bank. During the year ended December 31, 1997,
the Board of Directors of the Mid-Tier Holding Company held three regular
meetings and two special meetings and the Board of Directors of the Bank had 12
regular and one special meeting. During the year ended December 31, 1997, no
director attended fewer than 75% of the total meetings of the Board of Directors
of the Mid-Tier Holding Company and the Bank and committees on which such
director served.
The Executive Committee of the Board of Directors of the Bank consists
of members John F. McGill, John F. McGill, Jr., Joseph P. Healy and Francis E.
McGill, III and four other directors who rotate quarterly. The Committee
meetings as necessary in between meetings of the full Board of directors. All
actions of the Executive Committee must be ratified by the full Board of
Directors. The Executive Committee met 12 times during the year ended December
31, 1997.
The Compensation Committee of the Bank consists of Directors John F.
McGill, Joseph P. Healy and Robert E. Domanski. The committee meets annually to
review the performance of the Bank officers and employees, and to determine
compensation programs and adjustments. The Compensation Committee met one time
during fiscal 1997 to consider compensation.
The Audit Committee of the Bank consists of Directors Healy (Chairman),
Jacovini, Domanski, Lamb, F.E. McGill, III, and Anderson. In its capacity as the
Audit Committee, the Board is responsible for developing the Bank audit program
and monitoring it. This committee meets with the Bank outside auditors to
discuss the results of the annual audit and any related matters. The Chairman of
the Audit
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<PAGE>
Committee also receives and reviews all the reports and findings and other
information presented to him by the Bank's internal auditors. The Audit
Committee met one time in 1997.
The Bank's Nominating Committee consists of John F. McGill, Joseph P.
Healy and John F. McGill, Jr. The Nominating Committee met once during 1997.
Executive Compensation
Summary Compensation Table. The following table sets forth for the year
ended December 31, 1997, certain information as to the compensation received by
the Chief Executive Officer and each executive officer of the Mid-Tier Holding
Company listed above who received total cash compensation in excess of $100,000.
All Compensation is paid by the Bank.
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation(3)
--------------------- ----------------------------
Securities
Restricted Underlying All Other
Name and Fiscal Stock Options/ Compensation
Principal Position Year Salary(1) Bonus Awards($) SARs(#)(2) ($)(4)
- ------------------ ---- --------- ----- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
John F. McGill 1997 270,000 65,000 -- 15,000 168,111
Chairman
John F. McGill, Jr. 1997 200,000 35,000 -- 11,000 26,046
President and Chief
Executive Officer
Jerry A. Naessens 1997 175,000 8,750 -- 8,000 68,481
Treasurer and Chief
Financial Officer
</TABLE>
- ---------------
(1) Includes salary and director's fees.
(2) Includes awards of stock options under the 1992 and 1994 Stock Option
Plans.
(3) Does not include potential stock benefit plans to be adopted after
completion of the Conversion and Reorganization. See "-- Proposed Future
Stock Benefit Plans."
(4) Includes allocations of shares of Mid-Tier Common Stock under the Bank's
ESOP, valued at $2,046 as of December 31, 1996, to each of the three named
executive officers. The amounts shown also include a $24,000 contribution
by the Bank to its profit sharing plan on behalf of each of the three named
executive officers, and accruals of $142,065, $0, and $42,435 under the
Bank's supplemental retirement plans for John F. McGill, John F. McGill,
Jr., and Jerry A. Naessens, respectively.
Board Fees. Non-officer members of Board of Directors of the Bank
received fees of 1,000 per month during the 1997 fiscal year plus $1,200
retainer. Members of the Board's Budget, Audit and Advisory Committees were paid
no fees for each meeting attended during fiscal 1997. The Bank paid a total of
$125,200 in directors' fees for the fiscal year ended December 31, 1997. The
Company does not pay any additional compensation for membership on the Board of
Directors. The Executive Committee was paid $1,000, in the aggregate, per
meeting, and met 12 times during 1997.
Francis E. McGill, III is the sole proprietor of McGill and McGill, a
law firm in Philadelphia, Pennsylvania, which during the year ended December 31,
1997 received approximately $119,000 in fees from the Bank for legal services.
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<PAGE>
The Bank has followed the policy of offering residential mortgage loans
for the financing of personal residences, share loans, and consumer loans to its
officers, directors and employees. The loans are made in the ordinary course of
business and also made on substantially the same terms and conditions, including
interest rate and collateral, as those of comparable transactions prevailing at
the time with other persons, and do not include more than the normal risk of
collectibility or present other unfavorable features.
Benefits Plans
The Mid-Tier Holding Company has no full time employees, relying upon
employees of the Bank for the limited services required by the Mid-Tier Holding
Company. All compensation paid to directors, officers and employees is paid by
the Bank. The Bank currently provides benefits to its officers, directors and
employees, as described below.
Insurance. Full-time employees and part-time employees who work at
least 1,000 hours per year are provided, with no contribution or expense to
them, with group plan insurance that covers hospitalization, major medical,
dental and long term disability, accidental death and life insurance. This
insurance is available generally and on the same basis to all employees. Long
term disability is available after completion of a minimum of one year of
service, while the other benefits are available immediately. Part-time employees
who work less than 1,000 hours per year have no benefits.
Pension Plan. The Bank sponsors a defined benefit pension plan (the
"Pension Plan"). All full-time employees and part-time employees of the Bank who
work 1,000 hours are eligible to participate after one year of service and
attainment of age 21. A qualifying employee becomes fully vested in the Pension
Plan upon completion of five years service or when the normal retirement age of
65 is attained. The Pension Plan is intended to comply with the Employee
Retirement Income Security Act of 1974, as amended ("ERISA").
Benefits are payable in the form of various annuity alternatives,
including a joint and survivor option, or in a lump-sum amount. The following
table shows the estimated annual benefits payable under the Pension Plan based
on the respective employee's years of benefit service and applicable average
annual salary, as calculated under the Pension Plan. Effective January 1, 1997,
the maximum level of compensation subject to pension plan benefits is $160,000
per year, as adjusted. Benefits under the Pension Plan are subject to offset for
Social Security benefits.
<TABLE>
<CAPTION>
Years of Benefit Service
-------------------------------------------------------------------------------------
15 20 25 30 35
---- ---- ---- ---- ---
<S> <C> <C> <C> <C> <C>
$ 60,000........ $ 8,352 $11,136 $13,920 $16,704 $19,488
80,000........ 11,952 15,936 19,920 23,904 27,888
100,000........ 15,552 20,736 25,920 31,104 36,288
125,000........ 20,052 26,736 33,420 40,104 46,788
150,000........ 24,552 32,736 40,920 49,104 57,288
</TABLE>
The Pension Plan provides for monthly payments to each participating
employee at normal retirement age. The annual allowance payable under the
Pension Plan is equal to 1.2% of Final Average Compensation ("FAC") times years
of service, but not in excess of 48%, less 1.25% of the Primary Social Security
Benefit times years of service, but not in excess of 50%. A participant who is
vested in the Pension Plan may elect an early retirement at age 55 with 20 years
of service, and may elect to
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<PAGE>
receive a reduced monthly benefit. The Pension Plan also provides for payments
in the event of disability or death. At December 31, 1997, John McGill, John
McGill, Jr. and Jerry Naessens had 25, 13 and 6 years of credited service under
the Pension Plan. Total Company pension expense for 1995, 1996 and 1997 amounted
to $69,263, $131,360 and $143,394, respectively.
Supplemental Retirement Agreements. In November, 1993, the Bank entered
into non-tax qualified retirement and death benefit agreements with John F.
McGill, then President and Chief Executive Officer and Jerry Naessens,
Treasurer. The agreements were subsequently amended in June 1996. In recognition
of the services provided by these officers to the Bank, the retirement
agreements provide that Messrs. McGill and Naessens (or their spouses) shall
receive at age 67 monthly retirement benefits of $12,500 and $4,167,
respectively. If either officer becomes permanently and totally disabled prior
to age 67, the employee will receive the monthly supplemental retirement
benefits upon reaching age 67. The retirement agreements provide that the
officer's spouse shall receive a pro-rated monthly death benefit if the officer
dies while employed by the Bank prior to age 67, based on the officer's age at
the time of death. This pro-rated benefit for Mr. McGill ranges from $4,166 to
$11,875, for ages 55 to 64, and for Mr. Naessens ranges from $1,375 to $3,625,
for ages 58 to 64. The retirement agreements provide that the Bank may purchase
a policy or policies of life insurance on the life of these officers, for which
the Bank will be the beneficiary. Such policies need not be designated for the
payment of benefits pursuant to the retirement agreements.
Employment Agreements. Effective January 1, 1995, the Bank entered into
separate employment agreements with John F. McGill, Sr., Chairman of the Board,
then President and Chief Executive Officer of the Bank, and Jerry A. Naessens,
Treasurer of the Bank. The Bank and Mid-Tier Holding Company entered into an
employment agreement with John F. McGill, Jr., President and Chief Executive
Officer effective January 1, 1998. The employment agreements are for terms of
three years. The agreements may be terminable by the Bank for "just cause" as
defined in the employment agreements. If the Bank terminates the employees
without just cause, such employee will be entitled to a continuation of his
salary from the date of termination through the remaining term of the employment
agreement. Each employment agreement contains a provision stating that in the
event of the termination of employment in connection with, or within one year
after, any change in control of the Bank, the Mid- Tier Holding Company, or the
Company (upon completion of the Conversion and Reorganization, the employee will
be paid a lump sum amount equal to 2.99 times the employee's most recent base
salary. If such payments were to be made under the employment agreements, as of
January 1, 1998, such payments would equal approximately $750,000, $675,000 and
$600,000, respectively to John F. McGill, John F. McGill, Jr. and Jerry
Naessens. The aggregate payments that would be made pursuant to the employment
agreements would be an expense to the Bank, thereby reducing net income and the
Bank's capital by that amount. The employment agreements may be renewed annually
by the Board of Directors upon a determination of satisfactory performance
within the Board's sole discretion. If any of the employees shall become
disabled during the term of their respective employment agreements, the employee
shall nevertheless continue to receive payment of his base salary for a period
of 12 months but such period shall not exceed the remaining term of the
employment agreement, and 80% of such base salary for the remaining term of the
employee's employment agreement. Disability payments under the employment
agreements shall be reduced by any other benefit payments made under other
disability programs in effect for Bank employees. Implementation of the
Conversion and Reorganization will not constitute a change in control under the
employment agreements.
Profit Sharing Plan. The Bank sponsors a tax-qualified defined
contribution profit sharing plan, ("Profit Sharing Plan"), for the benefit of
its employees. Employees became eligible to participate under
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<PAGE>
the Plan after age 21 and completing six months of service. Benefits under the
plan are determined based upon annual discretionary contributions to the plan.
Such benefits are allocated to participant accounts as a percentage of base
compensation of such participant to the base compensation of all participants.
At the end of each year, the Board of Directors determines whether to make a
contribution and the amount of the contribution to the Plan, based upon a number
of factors, such as the Bank's retained earnings, profits, regulatory capital
and employee performance. Such discretionary contributions shall not exceed 7.5%
of the Bank's Gross Income before taxes, or 15% of employee base pay, whichever
is less. No employee contributions are permitted under the plan. Plan
Participants are not permitted to direct contributions under the Plan.
Benefits are payable upon termination of employment, retirement, death,
disability or Plan termination. Normal retirement age under the Plan is age 65
or, if later, the fifth anniversary of the first day of the Plan year during
which you entered the Plan. It is intended that the Plan operate in compliance
with the provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") and the requirements of Section 401(a) of the Internal Revenue
Code of 1986, as amended (the "Code"). Benefits under the Profit Sharing Plan
become 100% vested and non-forfeitable following five years of service.
The contributions to the Profit Sharing Plan on behalf of John F.
McGill, John F. McGill, Jr., and Jerry Naessens were $24,000 each for the fiscal
year ended December 31, 1997. Total contributions to the Plan for all employees
for the fiscal year ended December 31, 1997 were $315,670.
Employee Stock Ownership Plan. The Bank sponsors an employee stock
ownership plan (the "ESOP") for the exclusive benefit of participating
employees, which was implemented upon the completion of the Reorganization.
Participating employees are employees who have completed one year of service
with the Bank or its subsidiaries.
The ESOP is fully funded. Benefits may be paid either in shares of the
Common Stock or in cash. The ESOP borrowed funds from an unrelated third party
lender, in an amount sufficient to purchase 14,000 shares of the Common Stock.
This loan was secured by the shares purchased and earnings of ESOP assets. This
loan was paid in full at December 31, 1997.
Contributions to the ESOP and shares released from the suspense account
are allocated among participants on the basis of total compensation as reported
on Form W-2, excluding bonuses. All participants must be employed at least 1,000
hours in a plan year and be employed on the last day of the plan year in order
to receive an allocation. Participants who are not actively employed at the last
day of the Plan year due to retirement, total and permanent disability, or death
shall share in the allocation of contributions and forfeitures for that Plan
year only if otherwise eligible. Participant benefits become 20% vested after
three years of service, increasing by 20% annually thereafter until benefits are
100% vested after seven years. Vesting will be accelerated upon retirement,
death, disability or termination of the ESOP. Forfeitures will be reallocated to
participants on the same basis as other contributions in the plan year. Benefits
may be payable in the form of a lump sum upon retirement, death, disability or
separation from service.
The Board of Directors has appointed a committee (the "ESOP Committee")
to administer the ESOP and trustees (the "ESOP Trustees"). Directors John
McGill, John McGill, Jr. and Joseph P. Healy serve as the members of the ESOP
Committee and as the initial ESOP Trustees. The Board of Directors or the ESOP
Committee may instruct the ESOP Trustees regarding investments of funds
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<PAGE>
contributed to the ESOP. The ESOP Trustees must vote all allocated shares held
in the ESOP in accordance with the instructions of the participating employees.
Unallocated shares and allocated shares for which no timely direction is
received will be voted by the ESOP Trustees as directed by the Board of
Directors or the ESOP Committee. As part of the Offering, the ESOP plans to
borrow funds from the Company and use the funds to purchase up to 8% 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 contributions to the ESOP over a period of at least fifteen years. The
interest rate for the loan will be the prime rate. Shares purchased by the ESOP
will be held in a suspense account for allocation among participants as the loan
is repaid.
Stock Option Plans. In connection with the Reorganization, the Bank's
Board of Directors adopted the Roxborough-Manayunk Federal Savings Bank 1992
Stock Option Plan (the "1992 Option Plan") on October 28, 1992, subject to
approval by the Bank's stockholders. Pursuant to the 1992 Option Plan, 20,000
shares (a number of shares equal to 10% of the common stock of the Bank issued
in the Bank's stock offering) were reserved for issuance by the Bank upon
exercise of stock options. The purpose of the 1992 Option Plan is to provide
additional incentive to certain officers, directors and key employees by
facilitating their purchase of a stock interest in the Bank. The 1992 Option
Plan provides for a term of ten years, after which no awards may be made, unless
earlier terminated by the Board of Directors pursuant to the 1992 Option Plan.
Options which may be granted under the Plan include Incentive Stock Options
within the meaning of Section 422 of the Internal Revenue Code of 1986 ("Code")
or Non-Incentive Stock Options (collectively referred to as "Stock Options").
The 1992 Option Plan is administered by a committee of at least three
directors designated by the Board of Directors (the "1992 Option Committee").
Such members of the 1992 Option Committee shall be deemed "disinterested" within
the meaning of Rule 16b-3 pursuant to the Securities Exchange Act of 1934 (the
"1934 Act"). Directors J. P. Healy, A. B. Anderson, and F. E. McGill, III, serve
as members of the Option Committee. The Option Committee selects the employees
to whom options are to be granted and the number of shares to be granted, based
upon the employee's position at the Bank, years of service and performance.
An initial grant of options under the Option Plan took place upon
completion of the Reorganization of the Bank to the mutual holding company form
of ownership, and the option exercise price was the purchase price of the common
stock of the Bank in the offering (i.e., $10.00 per share of Common Stock).
Options to purchase approximately 10,000, 6,000 and 20,000 shares of the Bank
Common Stock were granted to John F. McGill, John F. McGill, Jr., and all
officers as a group (3 persons), respectively, as of December 31, 1992. Such
options were incentive stock options and became exercisable at the rate of
one-third annually following one year after grant. The Plan was ratified by the
Bank's stockholders at the first Annual Meeting of Stockholders on April 14,
1993. No options were granted or exercised during the fiscal year ended December
31, 1997 under the 1992 Stock Option Plan.
The Board of Directors of the Bank adopted the 1994 Stock Option Plan,
which was ratified by The Bank's stockholders on April 19, 1995. Pursuant to the
1994 Stock Option Plan, 20,000 shares of the Bank's common stock were reserved
for issuance. As of December 31, 1995, all 20,000 options had been granted.
Option granted under the 1994 Option Plan were 100% exercisable as of the date
of grant at purchase prices equal to the fair market value on the date of grant
(i.e., $11.50) and remain exercisable for ten years. Options to purchase 5,000,
5,000, 4,000 and 6,000 shares of the Bank's common stock were granted to John F.
McGill, John F. McGill, Jr., Jerry A. Naessens and all non-employee directors as
a group (six persons), respectively.
-69-
<PAGE>
The 1994 Stock Option Plan, which became effective on the date it was
adopted by the Board of Directors, provides for a term of ten years unless
terminated earlier by the Board of Directors. No awards may be made after such
ten year period. No stock options were granted or exercised during the years
ended December 31, 1996 and 1997.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of
Underlying Unexercised in-the-
Unexercised Money
Options/SARs at Options/SARs at
Shares December 31, 1997 December 31,1997
Acquired on Value (#) Exercisable/ ($) Exercisable/
Name Exercise (#) Realized($) Unexercisable Unexercisable (1)
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John F. McGill -0- -0- 15,000/0 $270,300/$0
Chairman
John F. McGill, Jr. -0- -0- 11,000/0 196,220/0
President and CEO
Jerry A. Naessens -0- -0- 8,000/0 142,160/0
Treasurer and Chief
Financial Officer,
Secretary
</TABLE>
- -------------------
(1) Based on an appraisal of the Bank's illiquid stock undertaken for purposes
of the Bank's ESOP ($28.52 per share).
Management Stock Bonus Plans. In connection with the Reorganization,
the Bank adopted a Management Stock Bonus Plan and Trust Agreement (the "1992
MSBP"), the objective of which is to enable the Bank to retain personnel of
experience and ability in key positions of responsibility. All employees of the
Bank are eligible to receive benefits under the 1992 MSBP. Benefits may be
granted in the sole discretion of a committee (the "1992 MSBP Committee")
appointed by the Board of Directors of the Bank. The 1992 MSBP is managed by
trustees (the "1992 MSBP Trustees") who are directors of the Bank and who have
the responsibility to invest all funds contributed by the Bank to the trust
created for the 1992 MSBP (the "1992 MSBP Trust"). The 1992 MSBP was ratified by
the Bank's stockholders at the first Annual Meeting of Stockholders on April 14,
1993.
The Bank contributed sufficient funds to the 1992 MSBP Trust so that
the 1992 MSBP Trust could purchase 3% of the Bank's common stock offered in the
stock offering (i.e., 6,000 shares). In recognition of their prior and expected
services to the Bank and for the profitable operation of the Bank, Messrs. John
F. McGill, John F. McGill, Jr., and all executive officers as a group (three
persons) were awarded 50%, 30%, and 100%, respectively, of the shares purchased
by the 1992 MSBP. The shares granted were in the form of restricted stock
payable over a five-year period at the rate of 20% of such shares per year
following the date of grant of the award. All such restricted shares are fully
vested.
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<PAGE>
The Bank adopted the 1994 Management Stock Bonus Plan (the "1994 MSBP")
as of November 19, 1994. The Bank contributed sufficient funds to enable the
1994 MSBP to purchase 6,000 shares of the Bank's common stock all of which have
been awarded. The Bank's stockholders ratified the 1994 MSBP on April 19, 1995
at its 1995 annual meeting of stockholders. Awards of 1,500, 1,500, 1,200 and
1,800 shares of Common Stock were granted to John F. McGill, John F. McGill,
Jr., Jerry A. Naessens and all non-employee directors as a group (six persons),
respectively. All awards are fully vested.
Proposed Future Stock Benefit Plans
Stock Option Plan. The boards of directors intend to adopt a stock
option plan (the Option Plan) following the Conversion and Reorganization,
subject to approval by the Company's stockholders, at a stockholders meeting to
be held no sooner than six months after the conversion. The Option Plan would be
in compliance with the OTS regulations in effect. See "-- Restrictions on Stock
Benefit Plans." If the Option Plan is implemented within one year after the
conversion, in accordance with OTS regulations, a number of shares equal to 10%
of the aggregate shares of common stock to be issued in the offering (i.e.,
785,637 shares based upon the sale of 7,856,370 shares at the midpoint) would be
reserved for issuance by the Company upon exercise of stock options to be
granted to our officers, directors and employees from time to time under the
Option Plan. The purpose of the Option Plan would be to provide additional
performance and retention incentives to certain officers, directors and
employees by facilitating their purchase of a stock interest in the Company.
Under the OTS regulations, the Option Plan, would provide for a term of 10
years, after which no awards could be made, unless earlier terminated by the
board of directors pursuant to the Option Plan and the options would vest over a
five year period (i.e., 20% per year), beginning one year after the date of
grant of the option. Options would be granted based upon several factors,
including seniority, job duties and responsibilities, job performance, our
financial performance and a comparison of awards given by other savings
institutions converting from mutual to stock form.
The Company would receive no monetary consideration for the granting of
stock options under the Option Plan. It would receive the option price for each
share issued to optionees upon the exercise of such options. Shares issued as a
result of the exercise of options will be either authorized but unissued shares
or shares purchased in the open market by the Company. However, no purchases in
the open market will be made that would violate applicable regulations
restricting purchases by the Company. The exercise of options and payment for
the shares received would contribute to the equity of the Company.
If the Option Plan is implemented more than one year after the
Conversion, the Option Plan will comply with OTS regulations and policies that
are applicable at such time.
Recognition Plan. The board of directors intends to adopt the
Recognition Plan following the conversion, the objective of which is to enable
us to retain personnel and directors of experience and ability in key positions
of responsibility. The Company expects to hold a stockholders' meeting no sooner
than six months after the conversion in order for stockholders to vote to
approve the Recognition Plan. If the Recognition Plan is implemented within one
year after the conversion, in accordance with applicable OTS regulations, the
shares granted under the Recognition Plan will be in the form of restricted
stock vesting over a five year period (i.e., 20% per year) beginning one year
after the date of grant of the award. Compensation expense in the amount of the
fair market value of the common stock granted will be recognized pro rata over
the years during which the shares are payable. Until they have vested, such
shares may not be sold, pledged or otherwise disposed of and are required to be
held in
-71-
<PAGE>
escrow. Any shares not so allocated would be voted by the Recognition Plan
Trustees. The Recognition Plan will be implemented in accordance with applicable
OTS regulations. See "-- Restrictions on Stock Benefit Plans." Awards would be
granted based upon a number of factors, including seniority, job duties and
responsibilities, job performance, our performance and a comparison of awards
given by other institutions converting from mutual to stock form. The
Recognition Plan would be managed by a committee of non-employee directors (the
"Recognition Plan Trustees"). The Recognition Plan Trustees would have the
responsibility to invest all funds contributed by us to the trust created for
the Recognition Plan (the "Recognition Plan Trust").
We expect to contribute sufficient funds to the Recognition Plan so
that the Recognition Plan Trust can purchase, in the aggregate, up to 4% of the
amount of common stock that is sold in the conversion. The shares purchased by
the Recognition Plan would be authorized but unissued shares or would be
purchased in the open market. In the event the market price of the common stock
is greater than $10.00 per share, our contribution of funds will be increased.
Likewise, in the event the market price is lower than $10.00 per share, our
contribution will be decreased. In recognition of their prior and expected
services to us and the Company, as the case may be, the officers, other
employees and directors responsible for implementation of the policies adopted
by the board of directors and our profitable operation will, without cost to
them, be awarded stock under the Recognition Plan. Based upon the sale of
7,856,370 shares of common stock in the offering at the midpoint, the
Recognition Plan Trust is expected to purchase up to 314,254 shares of common
stock.
If the Recognition Plan is implemented more than one year after the
Conversion, the Recognition Plan will comply with such OTS regulations and
policies that are applicable at such time.
Restrictions on Stock Benefit Plans. OTS regulations provide that in
the event stock option or management and/or employee stock benefit plans are
implemented within one year from the date of Conversion, such plans must comply
with the following restrictions: (1) the plans must be fully disclosed in the
prospectus, (2) for stock option plans, the total number of shares for which
options may be granted may not exceed 10% of the shares issued in the
Conversion, (3) for restricted stock plans, the shares may not exceed 3% of the
shares issued in the Conversion (4% for institutions with 10% or greater
tangible capital), (4) the aggregate amount of stock purchased by the ESOP in
the Conversion may not exceed 10% (8% for well-capitalized institutions
utilizing a 4% restricted stock plan), (5) no individual employee may receive
more than 25 % of the available awards under the option plan or the restricted
stock plans, (6) directors who are not employees may not receive more than 5 %
individually or 30% in the aggregate of the awards under any plan, (7) all plans
must be approved by a majority of the total votes eligible to be cast at any
duly called meeting of stockholders held no earlier than six months following
the Conversion, (8) for stock option plans, the exercise price must be at least
equal to the market price of the stock at the time of grant, (9) for restricted
stock plans, no stock issued in a Conversion may be used to fund the plan, (10)
neither stock option awards nor restricted stock awards may vest earlier than
20% as of one year after the date of stockholder approval and 20% per year
thereafter, and vesting may be accelerated only in the case of disability or
death (or if not inconsistent with applicable OTS regulations in effect at such
time, in the event of a change in control), (11) the proxy material must clearly
state that the OTS in no way endorses or approves of the plans, and (12) prior
to implementing the plans, all plans must be submitted to the Regional Director
of the OTS within five days after stockholder approval with a certification that
the plans approved by the stockholders are the same plans that were filed with
and disclosed in the proxy materials relating to the meeting at which
stockholder approval was received.
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<PAGE>
Certain Related Transactions
Transactions with the Bank and the Mid-Tier Holding Company. John F.
McGill, Chairman of the Board of the Company is a 25% partner in Francis E.
McGill, Realtor, a real estate and insurance firm in Philadelphia, Pennsylvania.
During the fiscal year ended December 31, 1997, Francis E. McGill, Realtor
received fees totaling approximately $74,000 from buyers or sellers of real
estate where the Company financed the purchase of the real estate. These fees
included insurance commissions, real estate brokerage commissions and
conveyancing fees. The Company pays premiums on insurance policies obtained
through Francis E. McGill, Realtor, for insurance coverage for its own
operations, including coverage for workmen's compensation, errors and omissions,
blanket bond, safe deposit box, automobile liability, fire insurance on Mid-Tier
Holding Company properties. Total premiums for the fiscal year ended December
31, 1997 were approximately $193,000. During the fiscal year ended December 31,
1997, the Mid-Tier Holding Company also paid servicing commissions to the office
of Francis E. McGill, Realtor, for rental collections made through that firm on
properties owned by the Bank. The total servicing commissions paid for the year
were approximately $9,000.
Indebtedness of Management. The Bank grants loans to its officers,
directors and employees. These loans are made in the ordinary course of business
and upon the same terms, including collateral, as those prevailing at the time
for comparable transactions and do not involve more than the normal risk of
collectibility or present any other unfavorable features. Loans to officers and
directors of the Bank and their affiliates amounted to $815,174 or 2.86% of the
Bank's total equity at December 31, 1997. Assuming the Conversion had occurred
at December 31, 1997 with the issuance of 7,860,140 shares, these loans would
have totalled approximately __% of pro forma consolidated stockholders' equity.
BENEFICIAL OWNERSHIP OF MID-TIER COMMON STOCK
The following table sets forth information as of December 31, l997,
with respect to ownership of the Mid-Tier Holding Company's Common Stock by: (i)
the Mutual Holding Company; (ii) the Bank's Employee Stock Ownership Plan; (iii)
the executive officers and directors of the Bank; and (iv) all the directors and
executive officers of the Bank as a group. The Boards of Directors of the Mutual
Holding Company, Bancorp and the Mid-Tier Holding Company, as well as both the
companies' executive officers, are identical to those of the Bank. Except as
those listed below, the Bank has no knowledge of any person (including any
"group" as that term is used in Section 13(d)(3) of the Securities Exchange Act
of 1934, as amended) who owns beneficially more than 5% of the Common Stock.
-73-
<PAGE>
<TABLE>
<CAPTION>
Shares of Common Percent of Class Percent of
Stock Beneficially Owned Outstanding to Persons Total Class
Name at December 31, 1997 Other than MHC(1) Outstanding(2)
- ---- ------------------------------ ---------------------------- -----------------
<S> <C> <C> <C>
John F. McGill 38,500(3) 15.65 2.32
Jerry Naessens 21,400(3)(4) 8.70 1.29
Michael G. Crofton 4,000(4) 1.63 .24
John F. McGill, Jr. 25,800(3) 10.49 1.55
Joseph P. Healy 2,300(3) .93 .14
Francis E. McGill, III 4,800(3) 1.95 .29
Add B. Anderson, Jr. 15,800(3) 6.42 .95
Pietro M. Jacovini, Jr. 11,300(3) 4.59 .68
William A. Lamb, Sr. 6,300(3) 2.56 .38
Robert E. Domanski, M.D. 6,300(3) 2.56 .38
Directors and executive
officers as a group
(10 persons) 136,500 55.49 8.22
FJF Financial, M.H.C. 1,415,000 -- 85.19
ESOP 14,000 5.69 .84
</TABLE>
- ---------------------
(1) 206,000 shares of Common Stock were held by persons other than the MHC.
(2) The total amount of shares of Common Stock issued by the Savings Bank is
1,621,000, which includes 1,415,000 issued to the MHC and 246,000 shares
held by persons other than the MHC.
(3) Includes stock options awarded under the 1992 and 1994 Stock Option Plans
which are presently exercisable.
(4) Messrs. Naessens and Crofton are not members of the Board of Directors of
the Bank. Such individuals are members of the Boards of Directors of the
Company and the Mid-Tier Holding Company.
PROPOSED SUBSCRIPTIONS BY DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth, for each of the Mid-Tier Holding
Company's and the Bank's directors and executive officers, and for all of the
directors and executive officers as a group, (1) the number of Exchange Shares
to be held upon consummation of the Conversion and Reorganization, based upon
their beneficial ownership of Mid-Tier Common Stock as of February 28, 1998, and
(2) the total amount of Common Stock to be held upon consummation of the
Conversion and Reorganization, in each case assuming that 7,856,370 shares of
Conversion Stock are sold, which is the midpoint of the Offering Price Range.
The purchase limit of 300,000 includes shares received as Exchange Shares.
Accordingly, pursuant to the policies and regulations of the OTS, none of the
Directors or senior management will be permitted to purchase stock in the
Conversion and Reorganization if the maximum number of shares of Conversion
Stock are sold. See "THE CONVERSION AND REORGANIZATION -- Purchase Limitations."
-74-
<PAGE>
<TABLE>
<CAPTION>
Number Proposed Purchases of Total Common Stock
of Exchange Conversion Stock(1) To Be Held
Shares To Be Number Number Percentage
Held(2)(3)(4) Amount of Shares of Shares of Total
------------- ------ --------- --------- --------
<S> <C>
John F. McGill 213,736
Jerry Naessens 118,804
Michael G. Crofton 22,206
John F. McGill, Jr. 143,231
Joseph P. Healy 12,768
Francis E. McGill, III 26,647
Add B. Anderson, Jr. 87,715
Pietro M. Jacovini, Jr. 62,733
William A. Lamb, Sr. 34,975
Robert E. Domanski, M.D. 34,975
</TABLE>
- ----------------------
*Less than 1%
(1) Includes proposed subscriptions, if any, by associates. Does not include
subscriptions by the ESOP. Intended purchases by the ESOP are expected to
be 8% of the shares issued in the Offering.
(2) Includes shares underlying options that may be exercised within 60 days of
the date as of which ownership is being determined, and vested and unvested
shares of restricted stock. See "BENEFICIAL OWNERSHIP OF MID-TIER COMMON
STOCK."
(3) Does not include stock options and awards that may be granted under the
1998 Stock Option Plan and 1998 Recognition Plan if such plans are approved
by stockholders at an annual meeting or special meeting of stockholders at
least six months following the Conversion. See "MANAGEMENT OF THE
BANK--POTENTIAL STOCK BENEFITS PLANS."
(4) Individuals that are to receive in excess of 30,000 Exchange Shares are
precluded from purchasing Common Stock in the Offerings.
THE CONVERSION AND REORGANIZATION
The Boards of Directors of the Primary Parties have approved the Plan
of Conversion and Reorganization, as has the OTS, subject to approval by the
members of the Mutual Holding Company and the stockholders of the 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
The Boards of Directors of the Mutual Holding Company, the Mid-Tier
Holding Company and the Bank adopted the Plan as of February 18, 1998. The Plan,
which has been subsequently amended, has been approved by the OTS, subject to,
among other things, approval of the Plan by the Members of the Mutual Holding
Company and the Public Stockholders of the Mid-Tier Holding Company. The
Members' Meeting and the Stockholders' Meeting have been called for this purpose
on _____________, 1998.
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<PAGE>
The following is a brief summary of pertinent aspects of the Plan and
the Conversion and Reorganization. The summary is qualified in its entirety by
reference to the provisions of the Plan, which is available for inspection at
each branch office of the Bank and at certain offices of the OTS. The Plan also
is filed as an exhibit to the Registration Statement of which this Prospectus is
a part, copies of which may be obtained from the SEC. See "ADDITIONAL
INFORMATION."
Purposes of the Conversion and Reorganization
The Mutual Holding Company, as a federally chartered mutual holding
company, does not have stockholders and has no authority to issue capital stock.
As a result of the Conversion and Reorganization, the Company will be structured
in the form used by holding companies of commercial banks, many business
entities and a growing number of savings institutions. An important distinction
between the mutual holding company form of organization and the fully public
form is that, by federal law, a mutual holding company must always own over 50%
of the common stock of its savings institution subsidiary. Only a minority of
the subsidiary's outstanding stock can be sold to investors. If the Bank had
undertaken a full conversion to public ownership in 1992, a much greater amount
of Bank Common Stock would have been offered, resulting in more stock offering
proceeds than management believes could have been effectively deployed at that
time. High levels of capital might, in the opinion of management, have exceeded
the available opportunities in the Bank's market area in 1992. Management
determined therefore that the amount of capital raised in the MHC Reorganization
was consistent with its capabilities and loan demand in its market at that time.
The Mid-Tier Holding Company is a Pennsylvania corporation and is the
current holding company for the Bank owning 100% of the Bank's Common Stock. The
Mid-Tier Holding Company's shares are owned by the Mutual Holding Company
(87.29%) and the Public Stockholders (12.71%). Following the Conversion and
Reorganization, the Mid-Tier Holding Company and the Mutual Holding Company will
cease to exist and the Company will own 100% of the Bank's Common Stock.
Through the Conversion and Reorganization, the Company will become the
stock holding company of the Bank, which will complete the transition to full
public ownership. The stock holding company form of organization will provide
the Company with the ability to diversify the Company's and the Bank's business
activities through acquisition of or mergers with both stock savings
institutions and commercial banks, as well as other companies. There has been
significant consolidation in Pennsylvania where the Bank conducts its
operations, and although there are no current arrangements, understanding or
agreements regarding any such opportunities, the Company will be in a position
(subject to regulatory limitations and the Company's financial position) to take
advantage of any such opportunities that may arise because of the increase in
its capital after the Conversion and Reorganization.
The Conversion and Reorganization will be important to the future
growth and performance of the Company and the Bank by providing a larger capital
base to support the operations of the Bank and the Company and by enhancing
their future access to capital markets, ability to diversify into other
financial services related activities, and ability to provide services to the
public. The Conversion and Reorganization will result in increased funds being
available for lending purposes, greater resources for expansion of services, and
better opportunities for attracting and retaining qualified personnel. Although
the Mid-Tier Holding Company currently has the ability to raise additional
capital through the sale of additional shares of Mid-Tier Common Stock, that
ability is limited by the mutual holding company structure which, among other
things, requires that the Mutual Holding Company always hold a majority of the
outstanding shares of Mid-Tier Common Stock.
-76-
<PAGE>
The Conversion and Reorganization also will result in an increase in
the number of outstanding shares of Common Stock following the Conversion and
Reorganization, as compared to the number of outstanding shares of Public
Mid-Tier Shares prior to the Conversion and Reorganization, which will increase
the likelihood of the development of an active and liquid trading market for the
Common Stock.
See "MARKET FOR COMMON STOCK."
In light of the foregoing, the Boards of Directors of the Primary
Parties believe that the Conversion and Reorganization is in the best interests
of such companies and their respective stockholders and members.
Description of the Conversion and Reorganization
On February 18, 1998, the Boards of Directors of the Mid-Tier Holding
Company, the Bank and the Mutual Holding Company adopted the Plan. It was
subsequently amended and adopted by the Company. Pursuant to the Plan, the
Mid-Tier Holding Company will become a federal holding company, then convert to
an interim federal stock savings bank and merge with and into the Bank with the
Bank as the survivor. Next, the Mutual Holding Company will convert to an
interim Federal stock savings bank and merge with and into the Bank, pursuant to
which the Mutual Holding Company will cease to exist and the shares of Mid-Tier
Common Stock held by the Mutual Holding Company will be canceled. As a result of
the merger of the Mutual Holding Company with and into the Bank, the Public
Mid-Tier Shares be converted into and become shares of Common Stock. See "--The
Exchange Ratio."
Pursuant to OTS regulations, consummation of the Conversion and
Reorganization (including the offering of Conversion Stock in the Offerings, as
described below) is conditioned upon the approval of the Plan by (1) the OTS,
(2) at least a majority of the total number of votes eligible to be cast by
Members of the Mutual Holding Company at the Members' Meeting, and (3) at least
two thirds of the shares of the outstanding Mid-Tier Common Stock at the
Stockholders' Meeting. In addition, the Primary Parties have conditioned the
consummation of the Conversion and Reorganization on the approval of the Plan by
at least a majority of the votes cast, in person or by proxy, by the Public
Stockholders at the Stockholders' Meeting.
Effects of the Conversion and Reorganization
General. Prior to the Conversion and Reorganization, each depositor in
the Bank has both a deposit account in the Bank and a pro rata ownership
interest in the net worth of the Mutual Holding Company based upon the balance
in his account, which interest may only be realized in the event of a
liquidation of the Mutual Holding Company. However, this ownership interest is
tied to the depositor's account and has no tangible market value separate from
such deposit account. A depositor who reduces or closes his account receives a
portion or all of the balance in the account but nothing for his ownership
interest in the net worth of the Mutual Holding Company, which is lost to the
extent that the balance in the account is reduced.
Consequently, the depositors of the Bank normally have no way to
realize the value of their ownership interest in the Mutual Holding Company,
which has realizable value only in the unlikely event that the Mutual Holding
Company is liquidated. In such event, the depositors of record at that time, as
owners, would share pro rata in any residual surplus and reserves of the Mutual
Holding Company after other claims are paid.
-77-
<PAGE>
Upon consummation of the Conversion and Reorganization and the
Offerings, additional permanent nonwithdrawable capital stock will be created
which will represent the ownership of the consolidated net worth of the Company.
The Common Stock of the Company is separate and apart from deposit accounts and
cannot be and is not insured by the FDIC or any other governmental agency.
Certificates are issued to evidence ownership of the permanent stock. The stock
certificates are transferable, and therefore, the stock may be sold or traded if
a purchaser is available with no effect on any account the seller may hold in
the Bank.
Continuity. While the Conversion and 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 Conversion and Reorganization,
the Bank will continue to provide services for depositors and borrowers under
current policies by its present management and staff.
The directors and officers of the Bank at the time of the Conversion
and Reorganization will continue to serve as directors and officers of the Bank
after the Conversion and Reorganization. The directors and executive officers of
the Company consist of individuals currently serving as directors and executive
officers of the Mid-Tier Holding Company, and they generally will retain their
positions in the Company after the Conversion and Reorganization.
Effect on Deposit Accounts. Under the Plan, each depositor in the Bank
at the time of the Conversion and Reorganization will automatically continue as
a depositor after the Conversion and Reorganization, and each such deposit
account will remain the same with respect to deposit balance, interest rate and
other terms, except to the extent that funds in the account are withdrawn to
purchase Conversion Stock to be issued in the Offerings. Each such account will
continue to be insured by the FDIC to the same extent as before the Conversion
and Reorganization. Depositors will continue to hold their existing
certificates, passbooks and other evidences of their accounts.
Effects on Loans. No loan outstanding from the Bank will be affected by
the Conversion and Reorganization, and the amount, interest rate, maturity and
security for each loan will remain as they were contractually fixed prior to the
Conversion and Reorganization.
Effect on Voting Rights of Members. At present, all depositors and
certain borrowers of the Bank are members of, and have voting rights in, the
Mutual Holding Company as to all matters requiring membership action. Upon
completion of the Conversion and Reorganization and merger of the Mid-Tier
Holding Company and the Mutual Holding Company into the Bank and the acquisition
of the Bank by the Company, depositors will cease to be members and will no
longer be entitled to vote at meetings of the Mutual Holding Company. The
reorganization which created the Mid-Tier Holding Company vested all voting
rights in the Mid-Tier Holding Company as the sole stockholder of the Bank. With
the merger of the Mutual Holding Company and the Mid-Tier Holding Company into
the Bank and the acquisition of the Company of all of the Bank's shares,
exclusive voting rights with respect to the Company will be vested in the
holders of Common Stock.
Tax Effects. Consummation of the Conversion and Reorganization is
conditioned on prior receipt by the Primary Parties of rulings or opinions with
regard to federal and Pennsylvania income taxation which indicate that the
adoption and implementation of the Plan of Conversion and Reorganization set
forth herein will not be taxable for federal or Pennsylvania income tax purposes
to the
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<PAGE>
Primary Parties or the Bank's Eligible Account Holders, Supplemental Eligible
Account Holders or Other Members, except as discussed below. See " -- Tax
Aspects" below and "RISK FACTORS."
Effect on Liquidation Rights. If the Mutual Holding Company were to
liquidate, all claims of the Mutual Holding Company's creditors would be paid
first. Thereafter, if there were any assets remaining, members of the Mutual
Holding Company would receive such remaining assets, pro rata, based upon the
deposit balances in their deposit accounts at the Bank immediately prior to
liquidation. In the unlikely event that the Bank were to liquidate after the
Conversion and Reorganization, all claims of creditors (including those of
depositors, to the extent of the deposit balances) also would be paid first,
followed by distribution of the "liquidation account" to certain depositors (see
" -- Liquidation Rights" below), with any assets remaining thereafter
distributed to the Company as the holder of the Bank's capital stock. Pursuant
to the rules and regulations of the OTS, a merger, consolidation, sale of bulk
assets or similar combination or transaction with another insured savings
institution would not be considered a liquidation for this purpose and, in such
a transaction, the liquidation account would be required to be assumed by the
surviving institution.
Effect on Existing Option Plans. Under the Mid-Tier Reorganization, the
Option Plans and the Restricted Stock Plans remained benefit plans of the Bank
with shares of Mid-Tier Common Stock. After the Conversion and Reorganization,
they would become benefit plans of the Company. As of December 31, 1997, 100% of
the options and restricted stock available for grant under these plans had been
granted and were fully vested but options for 40,000 shares had not yet been
exercised.
The Offerings
Subscription Offering. In accordance with the Plan of Conversion and
Reorganization, rights to subscribe for the purchase of Conversion Stock have
been granted under the Plan of Conversion and Reorganization to the following
persons in the following order of descending priority: (i) First Priority, to
depositors of the Bank with account balances of $50.00 or more as of the close
of business on __________ ____, 199____, ("Eligible Account Holders"); (ii)
Second Priority, to the ESOP; (iii) Third Priority, to depositors of the Bank
with account balances of $50.00 or more as of the close of business on March 31,
1998 ("Supplemental Eligible Account Holders"); and (iv) Fourth Priority,
Depositors of the Bank as of the Voting Record Date (other than Eligible Account
Holders and Supplemental Eligible Account Holders) and certain borrowers ("Other
Members"). All subscriptions received will be subject to the availability of
Conversion Stock after satisfaction of all subscriptions of all persons having
prior rights in the Subscription Offering and to the maximum and minimum
purchase limitations set forth in the Plan of Conversion and Reorganization and
as described below under "--Limitations on Conversion Stock Purchases and
Ownership." All purchase amounts described below except Priority 2 are purchase
amounts combined with Exchange Shares received by stockholders.
Priority 1: Eligible Account Holders (First Priority). Each Eligible
Account Holder will receive, without payment therefor, first priority,
nontransferable subscription rights to subscribe for in the Subscription
Offering up to the greater of (i) the maximum purchase limitation established
for the Offerings, (ii) one-tenth of 1% of the total offering of shares of
Conversion Stock in the Subscription Offering, or (iii) 15 times the product
(rounded down to the next whole number) obtained by multiplying the total number
of shares of Conversion Stock offered in the Subscription Offering by a
fraction, of which the numerator is the amount of the Qualifying Deposits of the
Eligible Account Holder and the denominator is the total amount of all
Qualifying Deposits of all Eligible Account Holders, subject to the
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overall purchase limitations and the overall ownership limitation. See "--
Limitations on Conversion Stock Purchases and Ownership."
If there are not sufficient shares available to satisfy all
subscriptions of Eligible Account Holders, shares first may 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 the number
of shares subscribed for or 100 shares. Thereafter, unallocated shares may be
allocated to subscribing Eligible Account Holders whose subscriptions remain
unfilled in the proportion that the amounts of their respective eligible
deposits bear to the total amount of eligible deposits of all subscribing
Eligible Account Holders whose subscriptions remain unfilled, provided that no
fractional shares shall be issued. The subscription rights of Eligible Account
Holders who are also directors or officers of the Mutual Holding Company, the
Company or the Bank and their associates will be subordinated to the
subscription rights of other Eligible Account Holders to the extent attributable
to increased deposits in the year preceding __________ ____, 199____.
Priority 2: ESOP (Second Priority). The ESOP will receive, without
payment therefore, second priority, nontransferable subscription rights to
purchase, in the aggregate, up to 10% of the Conversion Stock within the
Offering Price Range, including any increase in the number of shares of
Conversion Stock after the date hereof as a result of an increase of up to 15%
in the maximum of the Offering Price Range. The ESOP currently intends to
purchase 8% of the shares of Conversion Stock, or 723,132 shares based on the
midpoint of the Offering Price Range. Subscriptions by the ESOP will not be
aggregated with shares of Conversion Stock purchased directly by or which are
otherwise attributable to any other participants in the Offerings, including
subscriptions of any of the Bank's directors, officers, employees or associates
thereof. See "MANAGEMENT OF THE BANK -- Employee Stock Ownership Plan."
Priority 3: Supplemental Eligible Account Holders (Third Priority).
Each Supplemental Eligible Account Holder will receive, without payment
therefor, third priority, nontransferable subscription rights to subscribe for
in the Subscription Offering up to the greater of (i) the maximum purchase
limitation established for the Offerings, (ii) one-tenth of 1% of the total
offering of shares of Conversion Stock in the Subscription Offering, or (iii) 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion Stock offered in the
Subscription Offering by a fraction, of which the numerator is the amount of the
Qualifying Deposits of the Supplemental Eligible Account Holder and the
denominator is the total amount of all Qualifying Deposits of all Supplemental
Eligible Account Holders, subject to the overall purchase limitation, the
overall ownership limitations, and the availability of shares of Conversion
Stock for purchase after taking into account the shares of Conversion Stock
purchased by Eligible Account Holders and the ESOP. See " -- Limitations on
Conversion Stock Purchases and Ownership."
If there are not sufficient shares available to satisfy all
subscriptions of Supplemental Eligible Account Holders, 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 the number of shares subscribed for or 100 shares. Thereafter,
unallocated shares will be allocated to subscribing Supplemental Eligible
Account Holders whose subscriptions remain unfilled in the proportion that the
amounts of their respective eligible deposits bear to the total amount of
eligible deposits of all such subscribing Supplemental Eligible Account Holders
whose subscriptions remain unfilled, provided that no fractional shares shall be
issued.
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Priority 4: Other Members (Fourth Priority). To the extent that there
are sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders, the ESOP and Supplemental Eligible Account Holders, each Other
Member will receive, without payment therefor, fourth priority, nontransferable
subscription rights to subscribe for Conversion Stock in the Subscription
Offering up to the greater of (i) the maximum purchase limitation established
for the Offerings or (ii) one-tenth of 1% of the total offering of shares of
Conversion Stock in the Subscription Offering, in each case subject to the
overall purchase limitation, the overall ownership limitation, and the
availability of shares of Conversion Stock for purchase after taking into
account the shares of Conversion Stock purchased by Eligible Account Holders,
the ESOP, and Supplemental Eligible Account Holders. See " -- Limitations on
Conversion Stock Purchases and Ownership."
If sufficient shares are not available to satisfy all subscriptions of
Other Members, available shares will first be allocated to the remaining
subscribing Other Members so as to permit each subscribing Other Member to
purchase a number of shares sufficient to make his allocation equal to the
lesser of the number of shares subscribed for or 100 shares. Thereafter, any
remaining shares will be allocated among subscribing Other Members on a pro rata
basis in the proportion that each such Other Member's subscription bears to the
total subscriptions of all subscribing Other Members, provided that no
fractional shares shall be issued.
Expiration Date for the Subscription Offering. The Subscription
Offering will expire at 12:00 Noon, Philadelphia Time, on __________ ____ 1998,
unless extended for up to 45 days or such additional periods by the Primary
Parties with the approval of the OTS. Such extensions may not be extended beyond
__________ ____ 2000. Subscription rights that have not been exercised prior to
the Expiration Date will become void.
The Primary Parties will not execute orders until at least the minimum
number of shares of Conversion Stock (6,677,927 shares) have been subscribed for
or otherwise sold. If all shares have not been subscribed for or sold within 45
days after the Expiration Date, unless such period is extended with the consent
of the OTS, all funds delivered to the Company and the Bank pursuant to the
Subscription Offering will be returned promptly to the subscribers with interest
and all withdrawal authorizations will be canceled. If an extension beyond the
45-day period following the Expiration Date is granted, the Primary Parties will
notify subscribers of the extension of time and of any rights of subscribers to
modify or rescind their subscriptions.
Public Stockholders Offering. To the extent that there are sufficient
shares remaining after satisfaction of subscriptions by Eligible Account
Holders, the ESOP, Supplemental Eligible Account Holders and Other Members, each
Public Stockholder as of the Stockholder Voting Record Date, December 31, 1997
("Public Stockholders"), may submit orders for Conversion Stock in the Offerings
up to the maximum purchase limitation established for the Community Offering,
subject to the overall purchase and ownership limitations and the availability
of shares of Conversion Stock for purchase after taking into account the shares
of Conversion Stock purchased by Eligible Account Holders, the ESOP and
Supplemental Eligible Account Holders. See " -- Limitations on Conversion Stock
Purchases and Ownership."
In the event the Public Stockholders as of the Stockholder Voting
Record Date submit orders for a number of shares which, when added to the shares
subscribed for by Eligible Account Holders, the ESOP, Supplemental Eligible
Account Holders, Other Members and directors, officers and employees of the
Mutual Holding Company and the Bank, is in excess of the total number of shares
of Conversion
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Stock offered in the Offerings, available shares will be allocated among Public
Stockholders as of the Stockholder Voting Record Date whose orders are accepted
on a pro rata basis in the same proportion as each Eligible Public Stockholder's
order bears to the total orders of all Public Stockholders, provided that no
fractional shares shall be issued.
The opportunity to submit orders for shares of Conversion Stock in the
Public Stockholders Offering category is subject to the right of the Primary
Parties, in their sole discretion, to accept or reject any such orders in whole
or in part for any reason either at the time of receipt of an order or as soon
as practicable following the completion of the Public Stockholders Offering. It
should be noted that Public Stockholders do not have subscription rights with
respect to the Conversion and Reorganization.
Community Offering. To the extent that shares remain available for
purchase after satisfaction of all subscriptions by Eligible Account Holders,
the ESOP, Supplemental Eligible Account Holders, and Other Members and orders of
Public Stockholders, the Primary Parties have determined to offer shares
pursuant to the Plan to certain members of the general public, with preference
given to the natural persons residing in the Local Community. Individually, such
persons may purchase, when combined with Exchange Shares, $300,000 of Conversion
Stock, subject to overall purchase and ownership limitations. See " --
Limitations on Conversion Stock Purchases and Ownership." This amount may be
increased at the sole discretion of the Primary Parties. The opportunity to
submit orders for shares of Conversion Stock in the Community Offering category
is subject to the right of the Primary Parties, in their sole discretion, to
accept or reject any such orders in whole or in part for any reason either at
the time of receipt of an order or as soon as practicable following the
completion of the Community Offering. All purchases in the Community Offering
will be combined with Exchange Shares for purposes of complying with the
purchase limitations in the Plan of Conversion and Reorganization.
If there are not sufficient shares available to fill the orders of the
Subscribers in the Community Offering, available shares of stock will be
allocated first to each such Subscriber whose order is accepted by the Primary
Parties, in an amount equal to the lesser of 100 shares or the number of shares
ordered by each such Subscriber, if possible. Thereafter, unallocated shares
will be allocated among the Subscribers whose orders remain unsatisfied in the
same proportion that the unfilled order of each bears to the total unfilled
orders of all such Subscribers whose order remains unsatisfied. If the orders of
such Subscribers are filled, and there are shares remaining, shares will be
allocated to other members of the general public who submit orders in the
Community Offering applying the same allocation described above for such
Subscribers.
Limitations on Conversion Stock Purchases and Ownership
The Plan includes the following limitations on the number of shares of
Conversion Stock that may be purchased:
(1) No less than 25 shares of Conversion Stock may be purchased, to
the extent such shares are available;
(2) The number of shares of Conversion Stock which may be purchased by
any person (or persons through a single account) in the Subscription Offering
shall not exceed such number of shares of Conversion Stock that, when combined
with Exchange Shares, shall equal 300,000 (or 30,000 shares), except for the
ESOP, which in the aggregate may subscribe for up to 10% of the Conversion
Stock.
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(3) The number of shares of Conversion Stock which may be purchased by
any person, in the Subscription Offering, Public Stockholders Offering or the
Community Offering combined shall not exceed such number of shares of Conversion
Stock that shall, when combined with Exchange Shares, equal $300,000 (or 30,000
shares).
(4) Except for Tax-Qualified Employee Stock Benefit Plans, the maximum
amount of Conversion Stock that may be purchased in all categories in the
Conversion and Reorganization by any person together with any associate or group
of persons acting in concert, shall not exceed such number of shares of
Conversion Stock as shall equal when combined with Exchange Shares, $904,000 (or
90,400 shares).
(5) No more than 29% of the total number of shares sold in the
Offerings, when combined with Exchange Shares, may be purchased by directors and
officers of the Primary Parties and the Bank and their associates in the
aggregate, excluding purchases by the ESOP.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the Members of
the Mutual Holding Company or the Stockholders of the Mid-Tier Holding Company
or the Company, the purchase limitations in (2), (3) and (4) above may be
decreased, or increased, up to a maximum of 5% of the total shares of Conversion
Stock to be issued in the Conversion and Reorganization, at the sole discretion
of the Primary Parties. If such amounts are increased, subscribers for the
maximum amount will be, and certain other large subscribers in the sole
discretion of the Primary Parties may be, given the opportunity to increase
their subscriptions up to the then applicable limit.
In the event of an increase in the total number of shares of Conversion
Stock offered in the Conversion and Reorganization due to an increase in the
maximum of the Offering Price Range of up to 15% (the "Adjusted Maximum"), the
new total number of shares will be allocated in the following order of priority
in accordance with the Plan: (i) to fill the ESOP's order of up to a total of
8.0% of the Adjusted Maximum number of shares (the Board of Directors has
determined to purchase 8%); (ii) in the event that there is an oversubscription
by Eligible Account holders to fill their unfulfilled subscriptions; (iii) in
the event that there is an oversubscription by Supplemental Eligible Account
Holders to fill their unfulfilled subscriptions; (iv) in the event that there is
an oversubscription by Other Members to fill their unfulfilled subscriptions;
(v) in the event that there is an oversubscription by Public Stockholders, to
fill their unfulfilled subscriptions; and (vi) to fill unfulfilled subscriptions
in the Community Offerings.
The term "associate," when used to indicate a relationship with any
person, is defined to mean (i) a corporation or organization (other than the
Mutual Holding Company, the Mid-Tier Holding Company or the Company, a
majority-owned subsidiary of the Mid-Tier Holding Company or the Company or the
Bank) of which such person is a director, officer or partner or is, directly or
indirectly, the beneficial owner of 10% or more of any class of equity
securities, (ii) any trust or other estate in which such person has a
substantial beneficial interest or as to which such person serves as trustee or
in a similar fiduciary capacity, provided, however, that such term shall not
include any tax qualified employee stock benefit plan of the Company or the Bank
in which such person has a substantial beneficial interest or serves as a
trustee or in a similar fiduciary capacity, and (iii) any relative or spouse of
such person, or any relative of such spouse, who has the same home as such
person or who is a director or officer of the Mutual Holding Company, the
Mid-Tier Holding Company, the Company or the Bank or any of the subsidiaries of
the foregoing.
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The term "resident" as used herein means any person who, on the date
designated for that category of subscriber in the Plan, maintained a bona fide
residence within the Local Community and has manifested or intent to remain
within the Local Community for a period of time. The designated dates for
Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members are __________ ____, 199____, March 31, 1998, and __________ ____, 1998,
respectively. To the extent the person is a corporation or other business
entity, the principal place of business or headquarters shall be within the
Local Community. To the extent the 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 Primary Parties may utilize
deposit or loan records of the Bank or such other evidence provided to it to
make a determination as to whether a person is a bona fide resident of the Local
Community. Subscribers in the Community Offering who are natural persons also
will have a purchase preference if they are residents of the Local Community. In
all cases, however, such determination shall be in the sole discretion of the
Bank and shall be determined on a case-by-case basis without regard to prior
determinations.
Stock Pricing and Number of Shares to be Issued
The Plan of Conversion and Reorganization requires that the aggregate
purchase price of the Conversion Stock must be based on the appraised pro forma
market value of the Mutual Holding Company, the Mid-Tier Holding Company, the
Company and the Bank on a consolidated basis, as determined on the basis of an
independent valuation. The Primary Parties have retained FinPro, Inc. to make
such a valuation. For its services in making such an appraisal and any expenses
incurred in connection therewith, FinPro, Inc. will receive a maximum of $30,000
plus out of pocket expenses. The Primary Parties have agreed to indemnify
FinPro, Inc. 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, Inc.'s liability results
from its negligence or bad faith.
The Independent Valuation has been prepared by FinPro, Inc. in reliance
upon the information contained in this Prospectus, including the financial
statements. FinPro, Inc. also considered the following factors, among others:
the present and projected operating results and financial condition of the
Primary Parties and the economic and demographic conditions in the Bank's
existing market area: certain historical, financial and other information
relating to the Mid-Tier Holding Company, the Company and the Bank; a
comparative evaluation of the operating and financial statistics of the Mid-Tier
Holding Company with those of other similarly situated publicly traded companies
located in Pennsylvania and other regions of the United States; the aggregate
size of the offering of the Conversion Stock; the impact of the Conversion and
Reorganization on the Bank's net worth and earnings potential; the proposed
dividend policy of the Company and the Bank; and the trading market for the
Mid-Tier Holding Company's Common Stock and securities of comparable companies
and general conditions in the market for such securities.
The Independent Valuation was prepared based on the assumption that the
aggregate amount of Conversion Stock sold in the Offerings would be equal to the
estimated pro forma market value of the Mid-Tier Holding Company and the Bank,
on a consolidated basis, multiplied by the percentage of the outstanding shares
of Mid-Tier Common Stock held by the Mutual Holding Company as of the date of
the appraisal, subject to an adjustment, pursuant to a change in OTS policy,
described below in "-- The Exchange Ratio." The Independent Valuation states
that as of March __, 1998, the estimated pro forma market value ranged from a
minimum of $76.5 million to a maximum of $10.35 million with a midpoint of $9.0
million. Based on the approximately 87.62% of the outstanding shares of Mid-Tier
Common
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Stock held by the Mutual Holding Company as of the date of the appraisal and the
adjustment described in "-- The Exchange Ratio," the estimated pro forma market
value of the Company was multiplied by approximately 87.33% to determine the
dollar amount of Conversion Stock to be offered in the Offerings, which ranges
from a minimum of $66,779,270 to a maximum of $90,348,340 with a midpoint of
$78,563,700 (the "Offering Price Range").
The Boards of Directors of the Primary Parties reviewed FinPro, Inc.'s
appraisal report, including the methodology and the assumptions used by FinPro,
Inc., and determined that the Estimated Valuation Range was reasonable and
adequate. However, the Boards of Directors of the Primary Parties are relying
upon the expertise, experience and independence of FinPro, Inc., and are not
qualified to determine the appropriateness of the assumptions or the
methodology.
FinPro, Inc.'s valuation is not intended, and must not be construed, as
a recommendation of any kind as to the advisability of purchasing such shares.
FinPro, Inc. did not independently verify the financial statements and other
information provided by the Primary Parties, nor did FinPro, Inc. value
independently the assets or liabilities of the Mutual Holding Company, the
Mid-Tier Holding Company or the Bank. The valuation considers the Primary
Parties as going concerns and should not be considered as indication of the
liquidation value of the Mid-Tier Holding Company, the Company, the Bank and the
Mutual Holding Company. Moreover, because such valuation is necessarily based
upon the 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 Conversion Stock or receiving Exchange Shares in the Conversion and
Reorganization will thereafter be able to sell such shares at prices at or above
the purchase price per share in the Offerings.
No sale of shares of Conversion Stock or issuance of Exchange Shares
may be consummated unless, prior to such consummation, FinPro, Inc. confirms
that nothing of a material nature has occurred which, taking into account all
relevant factors, would cause it to conclude that the aggregate Purchase Price
is materially incompatible with the estimate of the pro forma market value the
Company, and the Bank on a consolidated basis. If such is not the case, a new
Estimated Valuation Range may be set, a new Exchange Ratio may be determined
based upon the new Estimated Valuation Range, a new Subscription, Public
Stockholders, Community Offerings may be held or such other action may be taken
as the Primary Parties shall determine and the OTS may permit or require.
Depending upon market or financial conditions following the
commencement of the Subscription Offering, the total number of shares of
Conversion Stock to be sold in the Offerings may be increased by up to 15%, to
10,390,048 shares, without a resolicitation of subscribers. In the event market
or financial conditions change so as to cause the aggregate purchase price of
the shares to be below the minimum of the Offering Price Range (i.e.
$66,779,270) or more than 15% above the maximum of such range (i.e.
$103,900,480), purchasers will be resolicited (i.e., permitted to continue their
orders, in which case they will need to affirmatively reconfirm their
subscriptions prior to the expiration of the resolicitation offering or their
subscription funds will be promptly refunded with interest at the Bank's
passbook rate of interest, or be permitted to modify or rescind their
subscriptions). Based upon current market and financial conditions and recent
practices and policies of the OTS, in the event the Company receives orders for
Conversion Stock in excess of $90,348,340 (the maximum of the Offering Price
Range) and up to $103,900,480 (the maximum of the Offering Price Range, as
adjusted by 15%) the Company may be required by the OTS to accept all such
orders. No assurances, however, can be made that the Company will receive orders
for Conversion Stock in excess of the maximum of the Offering Price Range or
that, if such orders are received that all such orders will be accepted.
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An increase in the number of shares of Conversion Stock, as a result of
an increase in the Independent Valuation, would decrease a subscriber's
ownership interest and the Company's pro forma net income and stockholders'
equity on a per share basis while increasing pro forma net income and
stockholders' equity on an aggregate basis. See "RISK FACTORS -- Possible
Dilutive Effect of Issuance of Additional Shares" and "PRO FORMA DATA."
The Appraisal (including the appraisal report of FinPro, Inc. as of
March ____, 1998) has been filed as an exhibit to this Registration Statement
and Application for Conversion of which this Prospectus is a part and is
available for inspection in the manner set forth under "Additional Information."
The Exchange Ratio
OTS regulations and policy provide that in a conversion of a mutual
holding company to stock form, stockholders other than the mutual holding
company will be entitled to exchange their shares of subsidiary savings bank (or
mid-tier holding company) common stock for common stock of the converted holding
company, provided that the bank and the mutual holding company demonstrate to
the satisfaction of the OTS that the basis for the exchange is fair and
reasonable. The Boards of Directors of the Primary Parties have determined that
each Public Mid-Tier Share will on the effective date be automatically converted
into and become the right to receive a number of Exchange Shares determined
pursuant to the Exchange Ratio, which was established in order to ensure that
after the Conversion and Reorganization, The percentage of the to-be outstanding
shares of Common Stock issued to Public Stockholders in exchange for their
Public Mid-Tier Shares will be equal to the percentage of the outstanding shares
of Mid-Tier Common Stock held by Public Stockholders immediately prior to the
Conversion and Reorganization. The total number of shares held by Public
Stockholders after the Conversion and Reorganization would also be affected by
any purchases by such persons in the Offering.
The following table sets forth, based upon the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Valuation Range, the
following: (i) the total number of shares of Conversion Stock and Exchange
Shares to be issued in the Conversion and Reorganization, (ii) the percentage of
the total Common Stock represented by the Conversion Stock and the Exchange
Shares, and (iii) the Exchange Ratio. The table assumes that there is no cash
paid in lieu of issuing fractional Exchange Shares.
<TABLE>
<CAPTION>
Subscription Shares Exchange Shares
to be Issued to be Issued Total Shares
--------------------------- ---------------------------- of Common
Stock to be Exchange
Amount Percent Amount Percent Outstanding Ratio
------ ------- ------ ------- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
Minimum................... 6,677,927 87.29% 972,073 12.71% 7,650,000 4.7188
Midpoint.................. 7,856,370 87.29% 1,143,630 12.71% 9,000,000 5.5516
Maximum................... 9,034,834 87.29% 1,315,166 12.71% 10,350,000 6.3843
Adjusted maximum.......... 10,390,048 87.29% 1,512,452 12.71% 11,902,500 7.3420
</TABLE>
Options to purchase Public Mid-Tier Shares will also be converted into
and become options to purchase Common Stock. As of the date of this Prospectus
there were outstanding options to purchase 40,000 shares of Mid-Tier Common
Stock at an average exercise price of $10.75 per share. The number
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of shares of Common Stock to be received upon exercise of such options will be
determined pursuant to the Exchange Ratio. The aggregate exercise price,
duration, and vesting schedule of such options will not be affected. If such
options are exercised prior to the effective date of the Conversion and
Reorganization, then there will be an increase in the number of shares of Common
Stock issued to Public Stockholders in the Share Exchange, and a decrease in the
Exchange Ratio. the Mid-Tier Holding Company has no plans to grant additional
stock options prior to the Effective Date.
Persons in Nonqualified States or Foreign Countries
The Primary Parties will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons entitled to
subscribe for the Common Stock pursuant to the Plan reside. However, no person
will be offered or allowed to purchase any Common Stock under the Plan if such
person resides 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 subscribe for shares under the Plan reside in such state
or foreign country; (ii) the granting of subscription rights or offering or
selling shares of Common Stock to such persons would require the Bank, the
Mid-Tier Holding Company, the Company or their 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. No payments will be made in lieu of the granting
of subscription rights to any such person.
Marketing Arrangements
The Bank and the Company have engaged Sandler O'Neill as a consultant
and financial advisor in connection with the Offerings, and Sandler O'Neill and
Partners, L.P. ("Sandler O'Neill") has agreed to use its best efforts to assist
the Bank and the Company in the solicitation of subscriptions for shares of
Common Stock in the Offerings. Sandler O'Neill will receive a fee equal to 1.25%
of the aggregate Purchase Price of all shares sold in the Offerings, excluding
in each case shares purchased by directors, officers and employees of the Bank
or the Company and any immediate family member thereof, and the ESOP for which
Sandler O'Neill will not receive a fee. In the event that a selected dealers'
agreement is entered into in connection with a Syndicated Community Offering,
the Company and Bank will pay a fee (to be negotiated at such time under the
agreement) to such selected dealers, any sponsoring dealers' fees, and a
management fee to Sandler O'Neill of 1.25% for shares sold by a NASD member firm
pursuant to a selected dealers' agreement shall not exceed 1.25% of the
aggregate Purchase Price and provided, further, however, that the aggregate fees
payable to Sandler O'Neill and the selected dealers. Fees to Sandler O'Neill and
to any other broker-dealer may be deemed to be underwriters. Sandler O'Neill
will also be reimbursed for its reasonable out-of-pocket expenses (excluding
legal fees, which are estimated to be $40,000). The Company and the Bank have
agreed to indemnify Sandler O'Neill for reasonable costs and expenses in
connection with certain claims or liabilities, including certain liabilities
under the Securities Act. Sandler O'Neill has received advances towards its
marketing and financial advisory service fees totaling $25,000. Total marketing
fees to Sandler O'Neill are expected to be $____ million and $____ million at
the minimum and the maximum of the Offerings, respectively. See "Pro Forma Data"
for the assumptions used to arrive at these estimates.
Sandler O'Neill will also perform proxy solicitation services,
conversion agent services and records management services for the Bank in the
conversion and will receive a fee for these services $25,000, plus reimbursement
of reasonable out-of-pocket expenses.
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Sandler O'Neill has not prepared any report or opinion consisting
recommendations or advice to the Bank or the Company. In addition, Sandler
O'Neill has expressed no opinion as to the prices at which Common Stock to be
issued in the Offerings may trade. Furthermore, Sandler O'Neill has not verified
the accuracy or completeness of the information contained in the Prospectus.
Directors and executive officers of the Primary Parties may participate
in the solicitation of offers to purchase Conversion Stock. Other employees of
the Bank may participate in the Offerings in ministerial capacities or providing
clerical work in effecting a sales transaction. Such other employees have been
instructed not to solicit offers to purchase Conversion Stock or provide advice
regarding the purchase of Conversion Stock. Questions of prospective purchasers
will be directed to executive officers or registered representatives. The
Company will rely on Rule 3a4-1 under the Exchange Act, and sales of Conversion
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 Conversion
Stock. No officer, director or employee of the Primary Parties will be
compensated in connection with such person's solicitations or other
participation in the Offerings or the Exchange by the payment of commissions or
other remuneration based either directly or indirectly on transactions in the
Conversion Stock and Exchange Shares, respectively.
Procedure for Purchasing Shares in the Offerings.
To help ensure that each purchaser receives a Prospectus at least 48
hours before the Expiration Date in accordance with Rule 15c2-8 of the Exchange
Act, no Prospectus will be mailed any later than five days prior to such date or
hand delivered any later than two days prior to such date. Execution of the
order form will confirm receipt or delivery of the Prospectus in accordance with
Rule 15c2-8. Order forms will only be distributed with a Prospectus.
To purchase shares in the Offerings, an executed order form with the
required payment for each share subscribed for, or with appropriate
authorization for withdrawal from a deposit account at the Bank (which may be
given by completing the appropriate blanks on the order form), must be received
by the Bank at any of its offices by 12 Noon, Philadelphia Time, on the
Expiration Date. Order forms which are not received by such time or are executed
defectively or are received without full payment (or appropriate withdrawal
instructions) are not required to be accepted. The Bank is not required to
accept orders submitted on facsimilied order forms. The Primary Parties have the
right to waive or permit the correction of incomplete or improperly executed
forms, but do not represent that they will do so. The waiver of an irregularity
on an order form, the allowance by the Primary Parties of a correction of an
incomplete or improperly executed order form, or the acceptance of an order
after 12 Noon on the Expiration date in no way obligates the Primary Parties to
waive an irregularity, allow a correction, or accept an order with respect to
any other order form. The interpretation by the Primary Parties of the
acceptability of an order form will be final. Once received, an executed order
form may not be modified, amended or rescinded without the consent of the
Primary Parties, unless the Offerings have not been completed within 45 days
after the end of the Subscription, Public Stockholders, and Community Offerings,
unless such period has been extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priority, depositors as of the close of business on the Eligibility
Record Date (December 12, 1996) or the Supplemental Eligibility Record Date
(March 31, 1998) must list on the order form all accounts in which they have an
ownership interest at the applicable eligibility date, giving all names in each
account and the account numbers.
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Payment for subscriptions and orders may be made (i) in cash if
delivered in person at any office of the Bank, (ii) by check or money order, or
(iii) by authorization of withdrawal from certificate of deposit accounts or
IRAs maintained with the Bank. The Primary Parties, in their sole discretion,
may elect not to accept payment for shares of Conversion Stock by wired funds
and there shall be no liability for failure to accept such payment. Funds will
be deposited in a segregated account at the Bank and interest will be paid on
funds made by cash, check or money order at the Bank's passbook rate of interest
from the date payment is received until completion or termination of the
Conversion and Reorganization. If payment is made by authorization of withdrawal
from certificate accounts, the funds authorized to be withdrawn from a Bank
deposit account may continue to accrue interest at the contractual rates until
completion or termination of the Conversion and Reorganization, but a hold will
be placed on such funds, thereby making them unavailable to the depositor until
completion or termination of the Conversion and Reorganization.
If a subscriber authorizes the Bank to withdraw the aggregate amount of
the purchase price from a deposit account, the Bank will do so as of the
effective date of the Conversion and Reorganization. The Bank may waive any
applicable penalties for early withdrawal from certificate accounts. If the
remaining balance in a certificate account is reduced below the applicable
minimum balance requirement at the time that the funds actually are transferred
under the authorization, the certificate will be canceled at the time of the
withdrawal, without penalty, and the remaining balance will earn interest at the
passbook rate.
The ESOP will not be required to pay for the shares subscribed for at
the time it subscribes, but rather may pay for such shares of Conversion Stock
subscribed for upon consummation of the Offerings, provided that there is in
force from the time of its subscription until such time, a loan commitment from
an unrelated financial institution or the Company to lend to the ESOP, at such
time, the aggregate purchase price of the shares for which it subscribed.
A depositor interested in using his or her IRA funds to purchase
Conversion 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 Conversion Stock in
the Offerings. There will be no early withdrawal or IRS penalties for such
transfers. The new trustee would hold the Conversion Stock in a self-directed
account in the same manner as the Bank now holds the depositor's IRA funds. An
annual administrative fee may be payable to the new trustee. Depositors
interested in using funds in a Bank IRA to purchase Conversion Stock should
contact the Stock Information Center as soon as possible so that the necessary
forms may be forwarded for execution prior to the Expiration Date.
Restrictions on Transfer of Subscription Rights and Shares
Pursuant to the rules and regulations of the OTS, no person with
subscription rights may transfer or enter into any agreement or understanding to
transfer the legal or beneficial ownership of the subscription rights issued
under the Plan or the shares of Conversion Stock to be issued upon their
exercise. Such rights may be exercised only by the person to whom they are
granted and only for such person's account. Each person exercising such
subscription rights will be required to certify that such person is purchasing
shares solely for such person's own account and that such person has no
agreement or understanding regarding the sale or transfer of such shares.
Federal 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 Conversion Stock prior to the completion of the
Conversion and Reorganization.
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The Primary Parties 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.
Liquidation Rights
In the unlikely event of a complete liquidation of the Mutual Holding
Company in its present mutual form, each depositor of the Bank would receive his
pro rata share of any assets of the Mutual Holding Company remaining after
payment of claims of all creditors. Each depositor's pro rata share of such
remaining assets would be in the same proportion as the value of his deposit
account was to the total value of all deposit accounts in the Bank at the time
of liquidation. After the Conversion and Reorganization, each depositor, in the
event of a complete liquidation of the Bank, would have a claim as a creditor of
the same general priority as the claims of all other general creditors of the
Bank. However, except as described below, this claim would be solely in the
amount of the balance in the deposit account plus accrued interest. A depositor
would not have an interest in the value of assets of the Bank, or the Company,
above that amount.
The Plan provides for the establishment by the Bank, upon the
completion of the Conversion and Reorganization, of a special "liquidation
account" for the benefit of Eligible Account Holders and Supplemental Eligible
Account Holders in an amount equal to [the amount of any dividends waived by the
Mutual Holding Company plus] the greater of 100% of the Bank's retained earnings
of $__________ million at September 30, 1992, the date of the latest balance
sheet contained in the final offering circular utilized in the Bank's initial
public offering in the MHC Reorganization, or (2) 87.29% of the Bank's total
stockholders' equity as reflected in its latest balance sheet contained in the
final Prospectus utilized in the Offerings. Upon consummation of the Conversion
and Reorganization, the Bank will amend its Federal stock charter to provide a
special liquidation account. As of the date of this Prospectus, the initial
balance of the liquidation account would be $__________ million. Each Eligible
Account Holder and Supplemental Eligible Account Holder, if such person were to
continue to maintain such person's deposit account at the Bank, would be
entitled, upon a complete liquidation of the Bank after the Conversion and
Reorganization, to an interest in the liquidation account prior to any payment
to the Company as the sole stockholder of the Bank. Each Eligible Account Holder
and Supplemental Eligible Account Holder would have an initial interest in such
liquidation account for each deposit account, including passbook accounts,
transaction accounts such as checking accounts, money market deposit accounts
and certificates of deposit, held in the Bank at the close of business on
__________ ____, 199___ or March 31, 1998, as the case may be. Each Eligible
Account Holder and Supplemental Eligible Account Holder will have a pro rata
interest in the total liquidation account for each of such person's deposit
accounts based on the proportion that the balance of each such deposit account
on the __________ ____, 199____ eligibility record date (or the March 31, 1998
Supplemental Eligibility Record Date, as the case may be) bore to the balance of
all deposit accounts in the Bank on such date.
If, however, on any December 31 annual closing date of the Bank,
commencing December 31, 199____ for Eligible Account Holders and on December 31,
1998 for Supplemental Eligible Account Holders, the amount in any deposit
account is less than the amount in such deposit account on December 31, 199____,
or March 31, 1998, as the case may be, or any other annual closing date, then
the interest in the liquidation account relating to such deposit account would
be reduced by the proportion of any such reduction, and such interest will cease
to exist if such deposit account is closed. In addition, no interest in the
liquidation account would ever be increased despite any subsequent increase in
the related deposit account. Any assets remaining after the above liquidation
rights of Eligible Account Holders and
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Supplemental Eligible Account Holders are satisfied would be distributed to the
Company as the sole stockholder of the Bank.
Tax Aspects
Consummation of the Conversion and Reorganization is expressly
conditioned upon prior receipt of either a ruling from the IRS or an opinion of
counsel with respect to federal tax effects of the transaction, and either a
ruling or an opinion with respect to Pennsylvania tax laws, to the effect that
consummation of the transactions contemplated hereby will not result in a
taxable reorganization under the provisions of the applicable codes or otherwise
result in any material adverse tax consequences to the Mutual Holding Company,
the Bank, the Company or to account holders receiving subscription rights,
except to the extent, if any, that subscription rights are deemed to have fair
market value on the date such rights are issued. This condition may not be
waived by the Primary Parties.
Malizia, Spidi, Sloane & Fisch, P.C., Washington, D.C. ("Counsel"), has
issued an opinion to the Company and the Bank to the effect outlined below. The
opinions of counsel are subject to certain assumptions stated therein. The
assumptions include: (i) that the Plan of Conversion and Reorganization has been
duly and validly adopted; (ii) the Primary Parties will comply with the Plan of
Conversion and Reorganization; (iii) various representations and warranties of
management are accurate, complete, true and correct; and (iv) that there were no
adverse facts not present on the face of instruments and documents examined.
In the opinion of Counsel
1. The transactions qualify as statutory mergers and each merger
required by the Plan qualifies as a reorganization within the meaning of Section
368(a)(1)(A) of the Code. The Mutual Holding Company, the Mid-Tier Holding
Company and the Bank will be a party to a "reorganization" as defined in Section
368(b) of the Code.
2. Interim Bank #1 (the Mutual Holding Company following its conversion
to a federal stock savings bank) and Interim Bank #2 (the Mid-Tier Holding
Company following its conversion to a federal holding company and then to a
federal stock savings bank) will recognize no gain or loss pursuant to the
Conversion and Reorganization.
3. No gain or loss will be recognized by the Bank upon the receipt of
the assets of Interim Bank #1 and Interim Bank #2 pursuant to the Conversion and
Reorganization.
4. The reorganization of the Company as the holding company of the Bank
qualifies as a reorganization within the meaning of Section 368(a)(1)(A) of the
Code by virtue of Section 368(a)(2)(E) of the Code. Therefore, the Bank, the
Company, and Interim will each be a party to a reorganization as defined in
Section 368(b) of the Code.
5. No gain or loss will be recognized by Interim upon the transfer of
its assets to the Bank pursuant to the Conversion and Reorganization.
6. No gain or loss will be recognized by the Bank upon the receipt of
the assets of Interim.
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7. No gain or loss will be recognized by the Company upon the receipt
of Bank Common Stock solely in exchange for Common Stock.
8. No gain or loss will be recognized by the Public Stockholders upon
the receipt of Common Stock.
9. The basis of the Common Stock to be received by the Public
Stockholders will be the same as the basis of the Mid-Tier Common Stock
surrendered before giving effect to any payment of cash in lieu of fractional
shares.
10. The holding period of the Common Stock to be received by the Public
Stockholders will include the holding period of the Common Stock, provided that
the Common Stock was held as a capital asset on the date of the exchange.
11. No gain or loss will be recognized by the Company upon the sale of
Common Stock to investors.
12. The Eligible Account Holders, Supplemental Eligible Account
Holders, and Other Members will recognize gain, if any, upon the issuance to
them of: (i) withdrawable savings accounts in the Bank following the Conversion
and Reorganization, (ii) Bank Liquidation Accounts, and (iii) nontransferable
subscription rights to purchase Conversion Stock, but only to the extent of the
value, if any, of the subscription rights.
13. The tax basis to the holders of Conversion Stock purchased in the
Offerings will be the amount paid therefor, and the holding period for such
shares will begin on the date of consummation of the offerings if purchased
through the exercise of subscription rights. If purchased in the Community
Offering or Public Stockholder Offering (as such terms are defined in the Plan),
the holding period for such stock will begin on the day after the date of
purchase.
Furthermore, Malizia, Spidi, Sloane & Fisch, P.C., has issued an
opinion to the Company and the Bank to the effect that the income tax
consequences of the Conversion and Reorganization are substantially the same
under Pennsylvania law as they are under the Code.
The opinion states that although case law and IRS pronouncements
indicate otherwise, it is possible that the IRS could assert that the overall
plan of the transactions contemplated by the Plan is the maintenance of the
Bank's holding company structure and the merger of the Mutual Holding Company
into the Bank. If so, the IRS could argue that the "step transaction" doctrine
should be applied and the transitory elimination of the holding company
structure in Merger #1 (the merger of Interim Bank #2 with and into the Bank
with the Bank as the surviving entity) and the re-creation of the holding
company structure in Merger #3 (the merger of Interim FSB, a subsidiary of the
Company with and into the Bank with the Bank as the surviving entity) should be
ignored for tax purposes. If the IRS were successful with such an assertion, the
transaction would be treated as a direct merger of the Mutual Holding Company
into the Bank which may not qualify as a tax free reorganization, resulting in
taxable gain to the parties to the transaction.
However, the case law and the IRS's pronouncements indicate that if two
or more transactions carried out pursuant to an overall plan have economic
significance independent of each other, the transactions generally will not be
stepped together. The IRS's most significant pronouncement regarding
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independent economic significance is Rev. Rul. 79-250. In that ruling, the IRS
will respect the transaction if each step demonstrates independent economic
significance, is not subject to attack as a sham, and was undertaken for valid
business purposes and not mere avoidance of taxes.
Counsel notes that the parties to Merger #2 (the merger of Interim Bank
#1 (formerly the Mutual Holding Company) with and into the Bank with the Bank as
the surviving entity) maintain a separate and distinct business purpose for
consummating Merger #2 (e.g., allowing for the conversion of the Mutual Holding
Company from mutual to stock form). Immediately after the consummation of Merger
#2, the Bank will no longer be controlled by the Mutual Holding Company but will
instead be controlled by its public stockholders and that the Bank's capital
will be substantially increased. The facts indicate that the merger of the
Mutual Holding Company with and into the Bank will result in a real and
substantial change in the form of ownership of the Bank that is sufficient to
conclude that Merger #2 comports with the underlying purposes and assumptions of
a reorganization under Section 368(a)(1)(A) of the Code.
In addition, Counsel believes that, because the various steps
contemplated by the Plan were necessitated by the requirements of the Office of
Thrift Supervision, each of Merger #1, Merger #2 and Merger #3 has a business
purpose and independent significance and, as a result, the step transaction
should not be applied to this transaction.
The IRS is currently also reviewing the question of whether certain
downstream mergers of a parent corporation into its subsidiary, known as
inversion transactions, where a parent and its subsidiary reverse positions,
which otherwise qualify for tax-free treatment nevertheless should be treated as
taxable transactions. Counsel does not believe that the transactions undertaken
pursuant to the Plan should be so treated. Counsel's opinions, however, are not
binding upon the IRS, and there can be no assurance that the IRS will not assert
a contradictory position.
The Bank and the Company have also received a letter from FinPro, Inc.
which addresses certain issues surrounding the value of the subscription rights.
The letters states that it is FinPro's belief, which is not binding on the IRS,
that the subscription rights do not have any value, based on the fact that such
rights are acquired by the recipients without cost, are nontransferable and of
short duration, and afford the recipients the right only to purchase the
Conversion Stock at a price equal to its estimated fair market value, which will
be the same price as the Purchase Price for the unsubscribed shares of
Conversion Stock. If the subscription rights granted to eligible subscribers are
deemed to have an ascertainable value, receipt of such rights likely would be
taxable only to those eligible subscribers who exercise the subscription rights
(either as a capital gain or ordinary income) in an amount equal to such value,
and the Primary Parties could recognize gain on such distribution. Eligible
subscribers 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.
Unlike private rulings, an opinion of Counsel or letter from FinPro,
Inc. is not binding on the IRS and the IRS could disagree with the conclusions
reached therein. In the event of such disagreement, there can be no assurance
that the IRS would not prevail in a judicial or administrative proceeding.
Management does not believe the fact that the IRS has placed this transaction
into a "no rule" area will result in the IRS treating the Conversion and the
Reorganization any differently from similar transactions already completed for
which the IRS has issued private letter rulings. If the IRS determines that the
tax effects of the transaction are to be treated differently from that presented
in the tax opinion, the Primary Parties may be subject to adverse tax
consequences as a result of the Conversion and Reorganization.
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Delivery and Exchange of Certificates
Conversion Stock. Certificates representing Conversion Stock issued in
connection with the Offerings will be mailed by the Company's transfer agent for
the Common Stock to the persons entitled thereto at the addresses of such
persons appearing on the stock order form for Conversion Stock as soon as
practicable following consummation of the Conversion and Reorganization. Any
certificates returned as undeliverable will be held by the Company until claimed
by persons legally entitled thereto or otherwise disposed of in accordance with
applicable law. Until certificates for Conversion Stock are available and
delivered to subscribers, subscribers may not be able to sell such shares.
Exchange Shares. After consummation of the Conversion and
Reorganization, each holder of a certificate or certificates evidencing issued
and outstanding shares of Mid-Tier Common Stock, or Bank Common Stock, which was
held prior to the Mid-Tier Reorganization and currently represents an equivalent
number of shares of Public Mid-Tier Shares on the transfer book of the Mid-Tier
Holding Company (other than the Mutual Holding Company), shall be entitled to
receive a certificate or certificates representing the number of full shares of
Common Stock which when multiplied by the Exchange Ratio, will represent the
same percentage ownership of Public Mid-Tier Shares as held prior to the
Conversion and Reorganization. The Transfer or Exchange Agent shall promptly
mail to each such holder of record of Public Mid-Tier Shares immediately after
the consummation of the Conversion and Reorganization, a letter of transmittal
advising the holder of the procedures by which Exchange Shares, pursuant to the
Exchange Ratio, will be delivered. The Company's stockholders need not forward
any Mid-Tier Common Stock certificates to the Bank or the Transfer Agent until
they receive a transmittal letter.
Required Approvals
Various approvals of the OTS are required in order to consummate the
Conversion and Reorganization. The OTS has approved the Plan of Conversion and
Reorganization, subject to approval by the Mutual Holding Company's Members and
the Mid-Tier Holding Company's Stockholders. In addition, consummation of the
Conversion and Reorganization is subject to OTS approval of the applications
with respect to the merger of the Mutual Holding Company (following its
conversion to an interim Federal stock savings bank) and the Mid-Tier Holding
Company (following its adoption of a Federal stock charter) into the Bank, with
the Bank being the surviving entity. Applications for these approvals, including
an application to form the Company as a holding company for the Bank, have been
filed and are currently pending. There can be no assurances that the requisite
OTS approvals will be received in a timely manner, in which event the
consummation of the Conversion and Reorganization may be delayed beyond the
expiration of the Offerings.
Pursuant to OTS regulations, the Plan of Conversion and Reorganization
also must be approved by (1) at least a majority of the total number of votes
eligible to be cast by Members of the Mutual Holding Company at the Members'
Meeting, and (2) holders of at least two-thirds of the outstanding Mid-Tier
Common Stock at the Stockholders' Meeting. In addition, the Primary Parties have
conditioned the consummation of the Conversion and Reorganization on the
approval of the Plan by at least a majority of the votes cast, in person or by
proxy, by the Public Stockholders at the Stockholders' Meeting.
Interpretation and Amendment of the Plan
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To the extent permitted by law, all interpretations of the Plan by the
Primary Parties will be final; however, such interpretations shall have no
binding effect on the OTS. The Plan provides that, if deemed necessary or
desirable by the Board of Directors, the Plan may be substantively amended by
the Board of Directors as a result of comments from the OTS or otherwise, prior
to the solicitation of proxies from the members of the Mutual Holding Company
and at any time thereafter with the concurrence of the OTS, except that in the
event that the regulations under which the Plan was adopted are liberalized
subsequent to the approval of the Plan by the OTS and the members of the Mutual
Holding Company at the special meeting of members, the Board of Directors may
amend the Plan to conform to the regulations without further approval of the OTS
or the members, to the extent permitted by law. An amendment to the Plan that
would result in a material adverse change in the terms of the Conversion and
Reorganization would require a resolicitation. In the event of a resolicitation,
subscriptions for which a confirmation or modification was not received would be
rescinded. Any amendment to the Plan regarding preferences to the Local
Community will not be deemed to be a material change.
Certain Restrictions on Purchase or Transfer of Shares After the Conversion and
Reorganization
All shares of Conversion Stock purchased in connection with the
Conversion and Reorganization by a director or an executive officer of the
Primary Parties will be subject to a restriction that the shares may not be sold
for a period of one year following the Conversion and Reorganization, except in
the event of the death of such director or executive officer or pursuant to a
merger or similar transaction approved by the OTS. Each certificate for
restricted shares will bear a legend giving notice of this restriction on
transfer, and appropriate stop-transfer instructions will be issued to the
Company's transfer agent. Any shares of Conversion Stock issued within this
one-year period 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 Company will also be subject to the insider
trading rules promulgated pursuant to the Exchange Act.
Purchases of Conversion Stock of the Company by directors, executive
officers and their associates during the three-year period following completion
of the Conversion and 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 10% of the Company's outstanding Common Stock or to the purchase of Common
Stock pursuant to any tax-qualified employee stock benefit plan, such as the
ESOP, or by any non-tax-qualified employee stock benefit plan.
Pursuant to OTS regulations, the Company will generally be prohibited
from repurchasing any shares of Common Stock within one year following
consummation of the Conversion and Reorganization. During the second and third
years following consummation of the Conversion and Reorganization, the Company
may not repurchase any shares of its Common Stock other than pursuant to (i) an
offer to all stockholders on a pro rata basis that is approved by the OTS; (ii)
the repurchase of qualifying shares of a director, if any; (iii) purchases in
the open market by a tax-qualified or non-tax-qualified employee stock benefit
plan in an amount reasonable and appropriate to fund the plan; or (iv) purchases
that are part of an open-market program not involving more than 5% of its
outstanding capital stock during a 12 month period, if the repurchases do not
cause the Bank to become undercapitalized and the Bank provides to the Regional
Director of the OTS no later than 10 days prior to the commencement of a
repurchase program written notice containing a full description of the program
to be undertaken and such program is not disapproved by the Regional Director.
However, the Regional Director has authority to permit repurchases during the
first year following consummation of the Conversion and Reorganization and to
permit repurchases in excess of 5% during the second and third years upon the
establishment of exceptional circumstances.
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COMPARISON OF STOCKHOLDERS' RIGHTS
General. The Conversion and Reorganization involve the elimination of
the Mutual Holding Company and the Mid-Tier Holding Company, and the
substitution of another newly organized company also chartered in Pennsylvania.
The resulting structure will be more conventional in nature in that the Company
will be the only entity with a direct ownership interest in the Bank. Further,
no mutual holding company will be present. The Primary Parties were unable to
maintain the Mid-Tier Holding Company as the owner of the Bank because of
certain regulations and policies of the OTS which prohibited the merger of the
Mutual Holding Company into the Mid-Tier Holding Company in a conversion and
reorganization. The Company, a Pennsylvania corporation and holding company for
the Bank, will operate under a charter similar identical to that of the Mid-Tier
Holding Company. The material differences are described below.
Authorized Capital Stock and Par Value. The Mid-Tier Holding Company's
authorized capital stock currently consists of 8,000,000 shares of common stock,
par value $.10 per share and 2,000,000 shares of preferred stock, no par value
per share. The Company's Articles of Incorporation authorizes 40,000,000 shares
of Common Stock, par value $.10 per share and 20,000,000 shares of Preferred
Stock, no par value per share.
Addition of Indemnification and Elimination of Liability Sections. OTS
regulations require the Bank to indemnify its directors, officers and employees
against legal and other expenses incurred in defending lawsuits brought or
threatened against them by reason of the performance as a director, officer, or
employee. Indemnification may be made to such person only if final judgement on
the merits is in his favor, or in case of (i) settlement, (ii) final judgment
against him, or (iii) final judgment in his favor other than on the merits, if a
majority of the disinterested directors of the determines that he was acting in
good faith within the scope of his employment or authority as he could
reasonably have perceived it under the circumstances and for a purpose he could
have reasonably believed under the circumstances was in the best interests of
the Bank or its stockholders. If a majority of the disinterested directors of
the Bank concludes that in connection with an action any person ultimately may
become entitled to indemnification, the directors may authorize payment of
reasonable costs and expenses arising from defense or settlement of such action.
The Bank is required to give the OTS at least 60 days notice of its intention to
make indemnification and no indemnification shall be made if the OTS objects to
the Bank in writing.
In approving the Mid-Tier Reorganization, the OTS required that the
Mid-Tier Holding Company be subject to the same regulatory requirements
regarding indemnification described above, to which the Bank is subject.
The Articles of Incorporation of the Company provides that any
individual who is or was a director, officer, employee or agent of the Company
in any proceeding in which the person has been made a party or is otherwise
involved as a result of his service in such capacity shall be indemnified and
held harmless to the fullest extent authorized under the Pennsylvania Business
Corporation Law.
Pennsylvania law requires mandatory indemnification for expenses
(including attorney's fees) if a representative of a company is successful on
the merits or otherwise, in either a third party or derivative action. Pursuant
to Pennsylvania, the Articles of Incorporation provides that the Company will
indemnify its directors, officers, employees, and agents against expenses
(including attorneys' fees), judgments, fines, and amounts paid in settlement
actually and reasonably incurred in connection with an action or proceeding
(other than an action by or in the right of the company) if that person to be
indemnified acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interests of the
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company, and with respect to any criminal action or proceeding, that such person
did not have reasonable cause to believe that his conduct was unlawful. The
Articles of the Company also provides for indemnification in actions or
proceedings by or in the name of the company if the person to be indemnified was
not adjudged to be liable, or despite an adjudication of liability, such person
is fairly and reasonably entitled to indemnity of certain expenses, as
determined by the same court that adjudged such person liable.
Pennsylvania law requires that indemnification payments (other than
mandatory payments) may be made only on a case-by-case basis. In addition,
payments may be advanced by a company to cover expenses upon the receipt by the
company of an undertaking by the individual to be indemnified to repay such
payments if indemnification is later determined to not be available to that
individual. A Pennsylvania company may grant additional indemnification rights
through its bylaws, or through an agreement, a vote of stockholders, or
disinterested directors and may create a fund of any nature to secure its
indemnification obligations. Pennsylvania law permits a company to obtain
insurance to pay for indemnification expenses.
The Articles of Incorporation of the Company also provides that a
director will not be personally liable to the Company for monetary damages for
any actions taken unless the director has breached or failed to perform his
fiduciary duty and the breach or failure consists of self-dealing, willful
misconduct, or recklessness. Under Pennsylvania law, the fiduciary duties of
directors are owed to the Company not to the stockholders, and a stockholder
does not have standing to sue directly for a breach of a fiduciary duty. Federal
regulations contain no provisions for the limitation of director liability.
These provisions may eliminate the potential liability of the Company's
directors for failure, through negligence or gross negligence, to satisfy their
duty of care, which requires directors to exercise informed business judgment in
discharging their duties. It may thus reduce the likelihood of derivative
litigation against directors and discourage or deter stockholders or management
from bringing a lawsuit against directors for breach of their duty of care,
event though such an action, if successful, might otherwise have been beneficial
to the Company and its stockholders. Stockholders will thus be surrendering a
cause of action based upon negligent business decisions, including those
relating to attempts to change control of the Company. The provision will not,
however, affect the right to pursue equitable remedies for breach of the duty of
care, although such remedies might not be available as a practical matter.
To the best of management's knowledge, there is currently no pending or
threatened litigation for which indemnification may be sought or any recent
litigation involving directors of the Bank that might have been affected by the
limited liability provision in the Company's Articles of Incorporation had it
been in effect at the time of the litigation.
The above-described provisions seek to ensure that the ability of the
Company's director to exercise their best business judgment in managing the
Company's affairs, subject to their continuing fiduciary duties of loyalty to
the Company and its stockholders, it not unreasonably impeded by exposure to the
potentially high personal costs or other uncertainties of litigation. The nature
of the tasks and responsibilities undertaken by directors and officers often
requires such persons to make difficult judgements of significant importance
which can expose such persons to personal liability, but from which they will
acquire no personal benefit (other than as stockholders). In recent years,
litigation against corporations and their directors and officers, often
amounting to mere "second guessing" of good-faith judgments and involving
allegations of personal wrongdoing, has become common. Such litigation often
claims damages in large amounts which bear no relationship to the amount of
compensation received by the directors or officers, particularly in the case of
directors who are not officers of the corporation, and
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the expense of defending such litigation, regardless of whether it is well
founded, can be enormous. Individual directors and officers can seldom bear
either the legal defense costs involved or the risk of a large judgement.
In order to attract and retain competent and conscientious directors
and officers in the face of these potentially serious risks, corporations have
historically provided for corporate indemnification in their bylaws and have
obtained liability insurance protecting the company and its directors and
officers against the cost of litigation and related expenses. The Bank and the
Mid-Tier Holding Company currently have insurance coverage of its directors and
officers, and management anticipates that the Company will be able to obtain
such coverage for its directors and officers. The Company's Board of Directors,
the individual members of which will benefit from the inclusion of the
indemnification and limitation of liability provisions, has a personal interest
in including these provisions in the Company's Articles of Incorporation at the
potential expense of stockholders.
Certain Anti Takeover Provisions. Certain sections of the Company's
Articles of Incorporation provide for limitations concerning voting rights and
approval of business combinations. See "RESTRICTIONS ON ACQUISITION OF THE
COMPANY -- Provisions in the Company's Articles and Bylaws -- Limitation of
Voting Rights" and "-- Procedures for Certain Business Combinations."
RESTRICTIONS ON ACQUISITIONS OF THE COMPANY
While the board of directors is not aware of any effort that might be
made to obtain control of the Company after conversion, the board of directors
believes that it is appropriate to include certain provisions as part of the
Company's articles of incorporation to protect the interests of the Company and
its stockholders from hostile takeovers ("anti-takeover"provisions) which the
board of directors might conclude are not in the best interests of us or our
stockholders. These provisions may have the effect of discouraging a future
takeover attempt which is not approved by the board of directors but which
individual stockholders may deem to be in their best interests or in which
stockholders may receive a substantial premium for their shares over the current
market prices. As a result, stockholders who might desire to participate in such
a transaction may not have an opportunity to do so. Such provisions will also
render the removal of the current board of directors or management of the
Company more difficult.
The following discussion is a general summary of the material
provisions of the articles of incorporation, bylaws, and certain other
regulatory provisions of the Company, which may be deemed to have such an
anti-takeover effect. The description of these provisions is necessarily general
and reference should be made in each case to the articles of incorporation and
bylaws of the Company which are filed as exhibits to the registration statement
of which this prospectus is a part. See "ADDITIONAL" as to how to obtain a copy
of these documents.
Provisions of the Company Articles of Incorporation and Bylaws
Limitations on Voting Rights. The articles of incorporation of the
Company provide that for a period of five years from completion of the
conversion, in no event shall any record owner of any outstanding equity
security which is beneficially owned, directly or indirectly, by a person who
beneficially owns in excess of 10% of any class of equity security outstanding
(the "Limit") be entitled or permitted to any vote in respect of the shares held
in excess of the Limit. The number of votes which may be cast by any record
owner who beneficially owned shares in excess of the Limit shall be a number
equal to the total number of votes which a single record owner of all common
stock owned by such person would be entitled to cast, multiplied by a fraction,
the numerator of which is the number of shares
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of such class or series which are both beneficially owned by such person and
owned of record by such record owner and the denominator of which is the total
number of shares of common stock beneficially owned by such person owning shares
in excess of the Limit. In addition, for a period of five years from the
completion of the Conversion and Reorganization, no person may directly or
indirectly offer to acquire or acquire the beneficial ownership of more than 10%
of any class of an equity security of the Company.
The impact of these provisions on the submission of a proxy on behalf
of a beneficial holder of more than 10% of the common stock is (1) to disregard
for voting purposes and require divestiture of the amount of stock held in
excess of 10% (if within five years of the conversion more than 10% of the
common stock is beneficially owned by a person) and (2) limit the vote on common
stock held by the beneficial owner to 10% or possibly reduce the amount that may
be voted below the 10% level (if more than 10% of the common stock is
beneficially owned by a person more than five years after the conversion).
Unless the grantor of a revocable proxy is an affiliate or an associate of such
a 10% holder or there is an arrangement, agreement or understanding with such a
10% holder, these provisions would not restrict the ability of such a 10% holder
of revocable proxies to exercise revocable proxies for which the 10% holder is
neither a beneficial nor record owner. A person is a beneficial owner of a
security if he has the power to vote or direct the voting of all or part of the
voting rights of the security, or has the power to dispose of or direct the
disposition of the security. The articles of incorporation of the Company
further provide that this provision limiting voting rights may only be amended
upon the vote of a majority of the outstanding shares of voting stock.
Election of Directors. Certain provisions of the Company's articles of
incorporation and bylaws will impede changes in majority control of the board of
directors. The Company's articles of incorporation provide that the board of
directors of the Company will be divided into three staggered classes, with
directors in each class elected for four-year terms. Thus, it would take three
annual elections to replace a majority of the Company's board. the Company's
articles of incorporation provide that the size of the board of directors may be
increased or decreased only if two-thirds of the directors then in office concur
in such action. The articles of incorporation also provide that any vacancy
occurring in the board of directors, including a vacancy created by an increase
in the number of directors, shall be filled for the remainder of the unexpired
term by a majority vote of the directors then in office. Finally, the articles
of incorporation and the bylaws impose certain notice and information
requirements in connection with the nomination by stockholders of candidates for
election to the board of directors or the proposal by stockholders of business
to be acted upon at an annual meeting of stockholders.
The articles of incorporation provide that a director may only be
removed for cause by the affirmative vote of at least a majority of the shares
of the Company entitled to vote generally in an election of directors cast at a
meeting of stockholders called for that purpose.
Restrictions on Call of Special Meetings. The articles of incorporation
of the Company provide that a special meeting of stockholders may be called only
pursuant to a resolution adopted by a majority of the board of directors.
Absence of Cumulative Voting. The Company's articles of incorporation
provide that stockholders may not cumulate their votes in the election of
directors.
Authorized Shares. The articles of incorporation authorizes the
issuance of 40,000,000 shares of common stock and 20,000,000 shares of preferred
stock. The shares of common stock and preferred stock were authorized in an
amount greater than that to be issued in the conversion to provide the Company's
board of directors with as much flexibility as possible to effect, among other
transactions,
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financings, acquisitions, stock dividends, stock splits and the exercise of
stock options. However, these additional authorized shares may also be used by
the board of directors consistent with its fiduciary duty to deter future
attempts to gain control of the Company. The board of directors also has sole
authority to determine the terms of any one or more series of Preferred Stock,
including voting rights, conversion rates, and liquidation preferences. As a
result of the ability to fix voting rights for a series of Preferred Stock, the
board has the power, to the extent consistent with its fiduciary duty, to issue
a series of Preferred Stock to persons friendly to management in order to
attempt to block a post-tender offer merger or other transaction by which a
third party seeks control, and thereby assist management to retain its position.
Procedures for Certain Business Combinations. The articles of
incorporation require the affirmative vote of at least 80% of the outstanding
shares of the Company entitled to vote in the election of directors in order for
the Company to engage in or enter into certain "Business Combinations," as
defined therein, with any Principal Stockholder (as defined below) or any
affiliates of the Principal Stockholder, unless the proposed transaction has
been approved in advance by the Company's board of directors, excluding those
who were not directors prior to the time the Principal Stockholder became the
Principal Stockholder. The term "Principal Stockholder" is defined to include
any person and the affiliates and associates of the person (other than the
Company or its subsidiary) who beneficially owns, directly or indirectly, 20% or
more of the outstanding shares of voting stock of the Company. Any amendment to
this provision requires the affirmative vote of at least 80% of the shares of
the Company entitled to vote generally in an election of directors.
Amendment to Articles of Incorporation and Bylaws. Amendments to the
Company's articles of incorporation must be approved by the Company's board of
directors and also by a majority of the outstanding shares of the Company's
voting stock, provided, however, that approval by at least 80% of the
outstanding voting stock is generally required for certain provisions (i.e.,
provisions relating to restrictions on the acquisition and voting of greater
than 10% of the common stock; number, classification, election and removal of
directors; amendment of bylaws; call of special stockholder meetings; director
liability; certain business combinations; power of indemnification; and
amendments to provisions relating to the foregoing in the articles of
incorporation).
The bylaws may be amended by a majority vote of the board of directors
or the affirmative vote of the holders of at least 80% of the outstanding shares
of the Company entitled to vote in the election of directors cast at a meeting
called for that purpose.
Benefit Plans. In addition to the provisions of the Company's articles
of incorporation and bylaws described above, certain benefit plans of ours
adopted in connection with the conversion contain provisions which also may
discourage hostile takeover attempts which the boards of directors might
conclude are not in the best interests for us or our stockholders. For a
description of the benefit plans and the provisions of such plans relating to
changes in control, see "MANAGEMENT -- Proposed Future Stock Benefit Plans."
Regulatory Restrictions. A federal regulation prohibits any person
prior to the completion of a conversion from transferring, or entering into any
agreement or understanding to transfer, the legal or beneficial ownership of the
subscription rights issued under a plan of conversion or the stock to be issued
upon their exercise. This regulation also prohibits any person prior to the
completion of a conversion from offering, or making an announcement of an offer
or intent to make an offer, to purchase such subscription rights or stock. For
three years following conversion, OTS regulations prohibit any person, without
the prior approval of the OTS, from acquiring or making an offer to acquire more
than 10% of the stock of any converted savings institution if such person is, or
after consummation of such acquisition
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<PAGE>
would be, the beneficial owner of more than 10% of such stock. In the event that
any person, directly or indirectly, violates this regulation, the securities
beneficially owned by such person in excess of 10% shall not be counted as
shares entitled to vote and shall not be voted by any person or counted as
voting shares in connection with any matter submitted to a vote of stockholders.
Federal regulations require that, prior to obtaining control of an
insured institution, a person, other than a company, must give 60 days notice to
the OTS and have received no OTS objection to such acquisition of control, and a
company must apply for and receive OTS approval of the acquisition. Control,
involves a 25% voting stock test, control in any manner of the election of a
majority of the institution's directors, or a determination by the OTS that the
acquiror has the power to direct, or directly or indirectly to exercise a
controlling influence over, the management or policies of the institution.
Acquisition of more than 10% of an institution's voting stock, if the acquiror
also is subject to any one of either "control factors," constitutes a rebuttable
determination of control under the regulations. The determination of control may
be rebutted by submission to the OTS, prior to the acquisition of stock or the
occurrence of any other circumstances giving rise to such determination, of a
statement setting forth facts and circumstances which would support a finding
that no control relationship will exist and containing certain undertakings. The
regulations provide that persons or companies which acquire beneficial ownership
exceeding 10% or more of any class of a savings association's stock after the
effective date of the regulations must file with the OTS a certification that
the holder is not in control of such institution, is not subject to a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice to or
approval of the OTS, as applicable.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
The Company is authorized to issue 40,000,000 shares of the Common
Stock, $.10 par value per share, and 20,000,000 shares of serial preferred
stock, no par value per share. The Company currently expects to issue up to
10,350,000 shares of Common Stock in the Conversion and Reorganization (based
upon the maximum of the appraisal) including shares to be provided to
stockholders in the Exchange. Therefore, after the Conversion and
Reorganization, the Company expects to have 10,350,000 shares outstanding.
Dividends. The Company can pay dividends if and when declared by its
Board of Directors. See "DIVIDEND POLICY" and "REGULATION." The holders of
Common Stock of the Company will be entitled to receive and share equally in
such dividends as may be declared by the Board of Directors of the Company out
of funds legally available therefor. If the Company issues preferred stock, the
holders thereof may have a priority over the holders of the Common Stock with
respect to dividends.
The Company does not intend to issue any shares of serial preferred
stock in the Conversion and Reorganization, nor are there any present plans to
issue such preferred stock following the Conversion and Reorganization. The
aggregate par value of the issued shares will constitute the capital account of
the Company. The balance of the purchase price will be recorded for accounting
purposes as additional paid-in capital. See "CAPITALIZATION." The capital stock
of the Company will represent nonwithdrawable capital and will not be insured by
the Company, the FDIC, or any other government agency.
Common Stock
Voting Rights. Each share of the Company Common Stock will have the
same relative rights and will be identical in all respects with every other
share of the Common Stock. The holders of the
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Common Stock will possess exclusive voting rights in the Company, except to the
extent that shares of serial preferred stock issued in the future may have
voting rights, if any. Each holder of the Common Stock will be entitled to only
one vote for each share held of record on all matters submitted to a vote of
holders of the Common Stock and will not be permitted to cumulate their votes in
the election of the Company's directors.
Upon payment of the purchase price for the Common Stock all such stock
will be duly authorized, fully paid and nonassessable.
Liquidation. In the unlikely event of the complete liquidation or
dissolution of the Company, the holders of the Common Stock will be entitled to
receive all assets of the Company available for distribution in cash or in kind,
after payment or provision for payment of (i) all debts and liabilities of the
Company (including all deposits with us and accrued interest thereon); (ii) any
accrued dividend claims; (iii) liquidation preferences of any serial preferred
stock which may be issued in the future; and (iv) any interests in the
liquidation account established upon the Conversion and Reorganization for the
benefit of Eligible Account Holders and Supplemental Eligible Account Holders
who continue to have their deposits with the Bank
Restrictions on Acquisition of the Common Stock. See "RESTRICTIONS ON
ACQUISITION OF THE COMPANY" for a discussion of the limitations on acquisition
of shares of the Common Stock.
Other Characteristics. Holders of the Common Stock will not have
preemptive rights with respect to any additional shares of the Common Stock
which may be issued. Therefore, the Board of Directors may sell shares of
capital stock of the Company without first offering such shares to existing
stockholders of the Company. The Common Stock is not subject to call for
redemption.
Issuance of Additional Shares. Except as disclosed herein, the Company
has no present plans, proposals, arrangements or understandings to issue
additional authorized shares of the Common Stock. In the future, the authorized
but unissued and unreserved shares of the Common Stock will be available for
general corporate purposes, including, but not limited to, possible issuance:
(i) as stock dividends; (ii) in connection with mergers or acquisitions; (iii)
under a cash dividend reinvestment or stock purchase plan; (iv) in a public or
private offering; or (v) under employee benefit plans. See "RISK FACTORS --
Possible Dilutive Effect of 1998 Stock Options and Effect of Purchases by the
Recognition Plan and ESOP" and "PRO FORMA DATA." Normally no stockholder
approval would be required for the issuance of these shares, except as described
herein or as otherwise required to approve a transaction in which additional
authorized shares of the Common Stock are to be issued.
For additional information, see "REGULATION -- Limitations on Dividends
and Other Capital Distributions" with respect to restrictions on the payment of
cash dividends; and "RESTRICTIONS ON ACQUISITION OF THE COMPANY" for information
regarding restrictions on acquiring Common Stock of the Company.
Serial Preferred Stock
None of the 2,000,000 authorized shares of serial preferred stock of
the Company will be issued in the Conversion and Reorganization. After the
Conversion and Reorganization is completed, the Board of Directors of the
Company will be authorized to issue serial preferred stock and to fix and state
voting powers, designations, preferences or other special rights of such shares
and the qualifications, limitations and restrictions thereof, subject to
regulatory approval but without stockholder approval. If and when issued, the
serial preferred stock is likely to rank prior to the Common Stock as to
dividend rights,
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liquidation preferences, or both, and may have full or limited voting rights.
The Board of Directors, without stockholder approval, can issue serial preferred
stock with voting and conversion rights which could adversely affect the voting
power of the holders of the Common Stock. The Board of Directors has no present
intention to issue any of the serial preferred stock.
LEGAL AND TAX MATTERS
The legality of the Common Stock will be passed upon for the Company by
Malizia, Spidi, Sloane & Fisch, P.C., Washington, D.C. Certain legal matters for
Sandler will be passed upon by Elias, Matz, Tiernan & Herrick, L.L.P.
Washington, D.C. The federal income tax consequences of the Conversion and
Reorganization have been passed upon by Malizia, Spidi, Sloane & Fisch, P.C.,
Washington, D.C. The Pennsylvania income tax consequences of the Conversion and
Reorganization have been passed upon by Malizia, Spidi, Sloane & Fisch, P.C.
EXPERTS
The consolidated financial statements of Thistle Group Holdings, Inc.
and subsidiary as of December 31, 1997 and 1996 and for each of the three years
in the period ended December 31, 1997 included in this Prospectus have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report appearing herein, and are included in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
FinPro, Inc. has consented to the publication herein of a summary of
its letters to the Mid-Tier Holding Company setting forth its opinion as to the
estimated pro forma market value of the Mutual Holding Company in the converted
form and its belief concerning the value of subscription rights and to the use
of its name and statements with respect to it appearing in this Prospectus.
REGISTRATION REQUIREMENTS
Mid-Tier Common Stock of the Mid-Tier Holding Company is not currently
registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). The Mid- Tier Holding Company is not subject to
the information, proxy solicitation, insider trading restrictions, tender offer
rules, periodic reporting and other requirements of the SEC under the Exchange
Act. After the Conversion and Reorganization the Common Stock will be so
registered and the Company will be subject to the above requirements. The
Company may not deregister the Common Stock under the Exchange Act for a period
of at least three years following the Conversion and Reorganization. The Common
Stock of the Company will be registered pursuant to Section 12(g) of the
Exchange Act and will be subject to the same information, proxy solicitation,
insider trading restrictions, tender offer rules, and period reporting
requirements of the SEC under the Exchange Act as the Company.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement under the
Securities Act of 1933, as amended, with respect to the Conversion Stock and
Exchange Shares offered hereby. As permitted by the rules and regulations of the
SEC, this Prospectus does not contain all the information set forth in the
Registration Statement. Such information can be examined without charge at the
public reference facilities of the SEC located at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and copies of such material can be obtained from the SEC
at prescribed rates. The SEC maintains a World Wide Web site on the Internet
that contains reports, proxy and information statements and other information
regarding
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registrants such as the Company that file electronically with the SEC. The
address of such site is: http://www.sec.gov. The statements contained in this
Prospectus as to the contents of any contract or other document filed as an
exhibit to the Registration Statement describe all material provisions of such
contracts or other documents. Nevertheless, such statements are, of necessity,
brief descriptions thereof and are not necessarily complete; each such statement
is qualified by reference to such contract or document.
The Mutual Holding Company has filed an Application for Conversion with
the OTS with respect to the Conversion and Reorganization. The Company has filed
an application with OTS to become a savings and loan holding company. This
Prospectus omits certain information contained in these applications. These
applications may be examined at the principal office of the OTS, 1700 G Street,
N.W., Washington, D.C. 20552, and OTS Northeast Regional Office, 10 Exchange
Place Centre, 18th Floor, Jersey City, New York 07302.
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THISTLE GROUP HOLDINGS, INC. AND SUBSIDIARY
TABLE OF CONTENTS
- -------------------------------------------------------------------------------
Page
----
INDEPENDENT AUDITORS' REPORT F-1
CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 1997 AND
1996 AND FOR EACH OF THE THREE YEARS IN THE PERIOD ENDED
DECEMBER 31, 1997:
Consolidated Statements of Financial Condition F-2
Consolidated Statements of Operations 19
Consolidated Statements of Changes in Stockholders' Equity F-3
Consolidated Statements of Cash Flows F-4
Notes to Consolidated Financial Statements F-5-20
All schedules are omitted because they are not required or applicable
or the required information is shown in the financial statements or the notes
thereto.
Financial statements of the Company have not been provided because the
Company has not conducted any operations to date.
<PAGE>
Deloitte & Twenty-Fourth Floor Telephone: (215) 246-2300
Touche LLP 1700 Market Street Facsimile: (215) 569-2441
[LOGO] Philadelphia, Pennsylvania 19103-3984
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Thistle Group Holdings, Inc. and Subsidiary:
We have audited the accompanying consolidated statements of financial condition
of Thistle Group Holdings, Inc. and subsidiary (the "Company") as of December
31, 1997 and 1996, and the related consolidated statements of operations,
changes in stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1997. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Thistle Group
Holdings, Inc. and subsidiary at December 31, 1997 and 1996, and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/Deloitte & Touche LLP
Philadelphia, Pennsylvania
February 5, 1998
- -----------------------
Deloitte Touche
Tohmatsu
International
<PAGE>
<TABLE>
<CAPTION>
THISTLE GROUP HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- -----------------------------------------------------------------------------------------
December 31,
------------------------------
ASSETS 1997 1996
<S> <C> <C>
Cash on hand and in banks $ 2,838,744 $ 2,861,515
Interest-bearing deposits 17,311,852 38,067,662
----------- -----------
Total cash and cash equivalents 20,150,596 40,929,177
Investments held to maturity (approximate fair value -
1997, $35,153,660; 1996, $46,898,138) 34,529,423 46,464,421
Investments available for sale at fair value
(amortized cost - 1997, $3,231,068; 1996, $2,631,218 3,698,205 2,631,218
Mortgage-backed securities available for sale
at fair value (amortized cost - 1997, $109,847,299;
1996, $92,296,514) 111,486,136 93,409,578
Loans receivable (net of allowance for loan losses -
1997, $782,825; 1996, $577,299) 96,280,105 98,626,173
Loans available for sale (amortized cost - 1997,
$1,154,761; 1996, $2,147,223) 1,154,761 2,147,223
Accrued interest receivable:
Loans 675,530 769,399
Mortgage-backed securities 684,637 578,785
Investments 435,053 870,292
Federal Home Loan Bank stock - at cost 1,701,700 1,691,200
Real estate acquired through foreclosure - net 116,262 186,209
Office properties and equipment - net 1,504,014 1,829,021
Excess of cost over fair value of net assets acquired
(goodwill) 32,544
Prepaid expenses and other assets 4,233,765 4,166,283
------------- -------------
TOTAL ASSETS $ 276,650,187 $ 294,331,522
============= =============
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY 1997 1996
<S> <C> <C>
Liabilities:
Deposits $ 230,558,288 $ 256,546,566
Accrued interest payable 67,200 78,276
Advances from borrowers for taxes and insurance 2,186,283 2,200,402
FHLB advances 7,884,000 7,884,000
Accounts payable and accrued expenses 4,206,179 2,394,915
Employee Stock Ownership Plan debt 32,735
Dividends payable 365,400 41,200
Accrued income taxes 2,096,000 86,914
Deferred income taxes 816,521 485,450
------------- -------------
Total liabilities 248,179,871 269,750,458
------------- -------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, no par value - 2,500,000 shares
authorized, none issued
Common stock, 1997, $.10 par; $1.00 par 1996;
8,000,000 shares authorized; 1,621,000 shares
issued and outstanding 162,100 1,621,000
Additional paid-in capital 18,455,330 16,997,430
Employee Stock Ownership Plan - (32,735)
Contribution for shares acquired by Management
Recognition Plan - (12,000)
Unrealized gain on securities available for
sale, net of tax 1,389,963 734,640
Retained earnings - partially restricted 8,462,923 5,272,729
------------- -------------
Total stockholders' equity 28,470,316 24,581,064
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 276,650,187 $ 294,331,522
============= =============
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
THISTLE GROUP HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------
Unrealized
Employee Gain (Loss) on
Additional Stock Management Securities Total
Common Paid-in Ownership Recognition Available Retained Stockholders'
Stock Capital Plan Plan for Sale Earnings Equity
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1995 $ 1,615,000 $ 16,934,430 $(90,610) $(36,000) $ (2,478,994) $ 4,533,277 $ 20,477,103
Net income 1,432,294 1,432,294
Cash dividends declared (164,800) (164,800)
Recovery of unrealized loss on
investment and mortgage-
backed securities available
for sale, net of tax 3,294,522 3,294,522
Issuance of shares in connection
with Management Recognition Plan 6,000 63,000 69,000
Principal payments made by
Employee Stock Ownership Plan 27,784 27,784
Release of Management Recognition
Plan shares 12,000 12,000
--------- ------------ -------- ------- ----------- ----------- ------------
BALANCE, DECEMBER 31, 1995 1,621,000 16,997,430 (62,826) (24,000) 815,528 5,800,771 25,147,903
Net loss (363,242) (363,242)
Cash dividends declared (164,800) (164,800)
Unrealized loss on investment
and mortgage-backed securities
available for sale, net of tax (80,888) (80,888)
Principal payments made by
Employee Stock Ownership Plan 30,091 30,091
Release of Management
Recognition Plan shares 12,000 12,000
--------- ------------ -------- ------- ----------- ----------- ------------
BALANCE, DECEMBER 31, 1996 1,621,000 16,997,430 (32,735) (12,000) 734,640 5,272,729 24,581,064
--------- ------------ -------- ------- ----------- ----------- ------------
Net income 3,353,993 3,353,993
Cash dividends declared (164,799) (164,799)
Unrealized gain on investment
and mortgage-backed securities
available for sale, net of tax 655,323 655,323
Principal payments made by
Employee Stock Ownership Plan 32,735 32,735
Release of Management
Recognition Plan shares 12,000 12,000
Thistle Group Holdings, Inc.
formation (Note 1) (1,458,900) 1,457,900 1,000
--------- ------------ -------- -------- ----------- ----------- ------------
BALANCE, DECEMBER 31, 1997 $ 162,100 $ 18,455,330 $ - $ - $ 1,389,963 $ 8,462,923 $ 28,470,316
========= ============ ======== ======== =========== =========== ============
</TABLE>
F-3
<PAGE>
<TABLE>
<CAPTION>
THISTLE GROUP HOLDINGS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ----------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
-------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 3,353,993 $ (363,242) $ 1,432,294
Adjustments to reconcile net (loss) income
to net cash provided by operating activities:
Provision for loan losses 120,000 139,194 135,000
Depreciation 240,037 265,582 332,957
Management Recognition Plan expense 12,000 12,000 12,000
Loans available for sale originated (76,500) (1,888,175) (2,666,675)
Amortization of:
Goodwill 32,544 114,547 200,461
Net premiums (discounts) on:
Loans purchased 22,371 (36,337) (123,654)
Investments (290,012) 38,137 64,699
Mortgage-backed securities (505,943) (656,038) (522,517)
Loss on sale of mortgage-backed securities 30,994
Gain on sale of investments (4,088)
Gain on sale of loans (8,992) (61,922)
Gain on sale of deposit liabilities (2,234,268)
Loss on real estate owned 50,246 121,374 68,958
Changes in assets and liabilities which provided (used) cash:
Deferred income taxes 6,518 75,766 149,993
Deferred loan fees 66,518 79,514 (33,213)
Accrued interest receivable 423,256 (10,869) (158,394)
Prepaid expenses and other assets (67,483) 48,974 (934,297)
Accrued interest payable (11,076) (15,705) 2,417
Accounts payable and accrued expenses 1,811,264 (146,887) 1,376,159
Accrued income taxes 2,009,086 (807,436) 719,968
Dividends payable 324,200 41,200
------------ ------------ ------------
Net cash (used in) provided by operating activities 5,273,671 (2,988,401) 25,228
------------ ------------ ------------
INVESTING ACTIVITIES:
Principal collected on:
Mortgage-backed securities 15,171,472 20,235,177 12,796,015
Long-term loans 22,408,973 18,252,461 8,054,172
Loans available for sale 87,318 394,590 79,095
Long-term loans originated (19,777,772) (15,910,800) (8,845,482)
Long-term loans acquired (820,605) (2,910,303) (3,459,670)
Purchases of:
Investments held to maturity (42,094,690) (37,498,648) (32,758,275)
Investments available for sale (1,260,000) (1,820,552) (810,666)
Mortgage-backed securities (32,216,314) (15,440,811) (27,833,884)
Property and equipment (119,038) (126,989) (117,055)
FHLB stock (10,500) (5,500) (71,200)
Proceeds from:
Sale of real estate owned 269,248 319,516 34,684
Sale of loans 1,054,638 687,873 1,527,832
Maturities of investments 54,000,000 36,594,104 38,000,000
Sale of mortgage-backed securities 20,676,552
Sale of investments 983,938
Sale of property and equipment 204,008
------------ ------------ ------------
Net cash provided by (used in) investing activities (2,119,324) 2,770,118 7,272,118
------------ ------------ ------------
FINANCING ACTIVITIES:
Net (decrease) increase in deposits (23,754,010) 6,367,851 8,948,181
Net decrease in advances from borrowers for taxes and insurance (14,119) (130,915) (126,162)
Proceeds from sale of stock through Management Recognition Plan 69,000
Cash dividends declared (164,799) (164,800) (164,800)
------------ ------------ ------------
Net cash (used in) provided by financing activities (23,932,928) 6,072,136 8,726,219
------------ ------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (20,778,581) 5,853,853 16,023,565
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 40,929,177 35,075,324 19,051,759
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, ENDING OF YEAR $ 20,150,596 $ 40,929,177 $ 35,075,324
============ ============ ============
SUPPLEMENTAL DISCLOSURES:
Interest paid on deposits and funds borrowed $ 11,071,000 $ 11,085,000 $ 10,600,000
Income taxes paid 80,914 919,000 954,000
Noncash transfers from loans to real estate owned 249,547 446,721 233,496
Noncash transfer from loans to other assets 1,770,942
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
THISTLE GROUP HOLDINGS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
1. NATURE OF OPERATIONS
During 1997, the stockholders of Roxborough-Manayunk Federal Savings Bank
(the "Bank") approved the Agreement and Plan of Reorganization (the
"Plan"), whereby the corporate structure of the Bank was reorganized into
a holding company form of ownership. Accordingly, the Bank became a
wholly-owned subsidiary of the newly formed holding company, Thistle Group
Holdings, Inc. (the "Company"). Prior to its reorganization, the Bank was
principally owned by FJF Financial, M.H.C. ("FJF"). As a result of the
reorganization, all of the issued and outstanding shares of common stock
of the Bank are now held by the Company, and holders of the issued and
outstanding shares of common stock of the Bank became holders of the
issued and outstanding shares of common stock of the Company. Each
outstanding share of common stock of the Bank was converted to one share
of common stock of the Company. No additional shares of common stock were
issued as a result of the reorganization. Consequently, the operations of
the Company, for all periods presented, represent the operations of its
subsidiary, the Bank, and the Bank's wholly owned subsidiaries.
The primary business of the Company is to act as a holding company for the
Bank and to invest in various marketable equity and other securities.
Roxborough-Manayunk Federal Savings Bank is a federally chartered capital
stock savings bank. The Bank has two subsidiaries, Ridge Service
Corporation, which is inactive, and Montgomery Service Corporation, which
manages a small commercial real estate property. The primary business of
the Bank is attracting customer deposits from the general public through
its six branches and investing these deposits, together with funds from
borrowings and operations, primarily in single-family residential loans
and mortgage-backed securities and to a lesser extent in secured consumer,
home improvement and commercial loans and investment securities. The
Bank's primary regulator is the Office of Thrift Supervision ("OTS").
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - The accompanying consolidated financial
statements include the accounts of the Company, the Bank and the Bank's
wholly owned subsidiaries. Intercompany accounts and transactions have
been eliminated in consolidation.
Use of Estimates in the Preparation of Financial Statements - The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of income and expenses
during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with an original maturity of three months or less to be
cash equivalents.
F-5
<PAGE>
Investment and Mortgage-Backed Securities - Debt and equity securities are
classified and accounted for as follows:
Held to Maturity - Debt securities that management has the positive
intent and ability to hold until maturity are classified as held to
maturity and are carried at their remaining unpaid principal
balance, net of unamortized premiums or unaccreted discounts.
Premiums are amortized and discounts are accreted using the interest
method over the estimated remaining term of the underlying security.
Available for Sale - Debt and equity securities that will be held
for indefinite periods of time, including securities that may be
sold in response to changes to market interest or prepayment rates,
needs for liquidity and changes in the availability of and the yield
of alternative investments are classified as available for sale.
These assets are carried at fair value. Fair value is determined
using published quotes as of the close of business. Unrealized gains
and losses are excluded from earnings and are reported net of tax as
a separate component of stockholders' equity until realized.
Realized gains and losses on the sale of investment or
mortgage-backed securities are reported in the consolidated
statement of operations and are determined using the adjusted cost
of the specific security sold.
Interest Income - Interest income on loans and investment and
mortgage-backed securities is recognized as earned. Income recognition is
generally discontinued when loans become 90 days contractually past due.
An allowance for any uncollected interest is established at that time.
Loans Available for Sale - The Company originates loans for portfolio
investment or for sale in the secondary market. During the period of
origination, loans are designated as available for sale or held for
investment. Loans available for sale are carried at the lower of cost or
fair value, determined on an aggregate basis.
Provisions for Losses - Provisions for losses include charges to reduce
the recorded balances of mortgage loans receivable to their estimated net
realizable value or fair value, as applicable. Such provisions are based
on management's estimate of net realizable value or fair value of the
collateral, as applicable, considering the current and currently
anticipated future operating or sales conditions, thereby causing these
estimates to be particularly susceptible to changes that could result in a
material adjustment to results of operations in the near term. Recovery of
the carrying value of such loans and real estate is dependent to a great
extent on economic, operating and other conditions that may be beyond the
Company's control.
The Company accounts for impaired loans in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 114, Accounting by Creditors
for Impairment of a Loan and SFAS No. 118, Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosure. The Company
values impaired loans using the fair value of the collateral. Any reserves
determined under SFAS No. 114 would be included in the allowance for loan
losses.
Real Estate Acquired Through Foreclosure - Real estate acquired through
foreclosure is carried at the lower of fair value or balance of the loan
on the property at date of acquisition less estimated selling costs. Costs
relating to the development and improvement of property are capitalized,
and those relating to holding the property are charged to expense.
Office Properties and Equipment - Office properties and equipment are
recorded at cost. Depreciation is computed using the straight-line method
over the expected useful lives of the related assets. The costs of
maintenance and repairs are expensed as incurred, and renewals and
betterments are capitalized.
F-6
<PAGE>
Excess Cost Over Fair Value of Net Assets Acquired - Goodwill was being
amortized over the remaining average life of the assets acquired
(originally fifteen years) using the interest method.
Interest Rate Risk - At December 31, 1997, the Company's assets consist
primarily of assets that earned interest at fixed interest rates. Those
assets were funded primarily with short-term liabilities that have
interest rates that vary with market rates over time.
The shorter duration of the interest-sensitive liabilities indicates that
the Company is exposed to interest rate risk because, in a rising rate
environment, liabilities will be repricing faster at higher interest
rates, thereby reducing the market value of long-term assets and net
interest income.
Loan Fees - The Company defers all loan fees, net of certain direct loan
origination costs, and recognizes income as a yield adjustment over the
life of the loan considering prepayments using the interest method.
Unearned Discounts and Premiums - Unearned discounts and premiums are
accreted over the expected average lives of the loans purchased using the
interest method.
Income Taxes - Deferred income taxes are recognized for the tax
consequences of "temporary differences" by applying enacted statutory tax
rates applicable to future years to differences between the financial
statement carrying amounts and the tax bases of existing assets and
liabilities. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
Accounting for Stock-Based Compensation - The Company accounts for
stock-based compensation in accordance with SFAS No. 123, Accounting for
Stock-Based Compensation which permits the use of the intrinsic value
method for determining compensation expense associated with grants of
stock options. The Company has not recognized any compensation expense
under this method.
Earnings Per Share - In February 1997, the Financial Accounting Standards
Board ("FASB") issued SFAS No. 128, Earnings Per Share, which is effective
for periods ending after December 15, 1997. The Company adopted this
statement which requires retroactive restatement of earnings per share for
all periods presented, effective December 31, 1997. Basic earnings per
share is computed by dividing income available to common stockholders (net
income) by the weighted-average number of common shares outstanding for
the period. Diluted earnings per share is computed using the weighted
average number of common shares outstanding and common share equivalents
that would arise from the exercise of stock options. The weighted average
shares used in the basic and diluted earnings per share computations are
as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Average common shares outstanding - basic 1,621,000 1,621,000 1,621,000
Increase in shares due to dilutive options 24,923 - -
--------- --------- ---------
Adjusted shares outstanding - diluted 1,645,923 1,621,000 1,621,000
========= ========= =========
</TABLE>
Dividends - Prior to the reorganization discussed in Note 1, during 1997,
the Bank had declared a dividend of $.60 per share. No dividends were paid
to FJF as a result of a waiver received from the Office of Thrift
Supervision (OTS). The total waived dividends are $849,000 for the year
ending December 31, 1997 and $1,132,000 for each of the years ending
December 31, 1996 and 1995. The Bank is subject to certain restrictions on
the amount of dividends that it may declare without prior regulatory
approval. Subsequent to the reorganization, a $.20 per share dividend was
paid to its
F-7
<PAGE>
shareholders, including $283,000 paid to the Company. The Company declared
a dividend of $.20 per share payable January 15, 1998 to shareholders of
record on December 31, 1997. Accounting Principles Issued and Not Adopted -
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which requires an entity to present, as a component of comprehensive
income, the amounts from transactions and other events which currently are
excluded from the statement of income and are recorded directly to
stockholders' equity. Also in June 1997, the FASB issued SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information. This
statement requires an entity to disclose financial information in a manner
consistent to internally used information and requires more detailed
disclosures of operating and reporting segments that are currently in
practice. In February 1998, the FASB issued SFAS No. 132, Employers'
Disclosure About Pensions and Other Postretirement Benefits. This statement
revises employers' disclosures about pension and other postretirement
benefit plans. It does not change the measurement or recognition of those
plans. The statements are applicable for years beginning after December 15,
1997. Management has not completed an analysis of the impact, if any, the
adoption of these statements will have on the Company's consolidated
financial condition or results of operations.
Reclassifications - Certain items in the 1995 and 1996 consolidated
financial statements have been reclassified to conform with the
presentation in the 1997 consolidated financial statements.
3. INVESTMENTS
A comparison of cost and approximate fair value of investments, by
maturity, is as follows:
<TABLE>
<CAPTION>
Held to Maturity
December 31, 1997
-----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
<S> <C> <C> <C>
U.S. Treasury securities -
3 to 5 years $ 5,043,487 $ 375,763 $ 5,419,250
FHLB Bonds:
1 year 6,000,000 $ 66,570 5,933,430
More than 10 years 15,283,545 136,753 2,936 15,417,362
Municipal bonds -
more than 10 years 8,033,969 181,227 8,215,196
Other 168,422 168,422
------------ --------- -------- ------------
Total $ 34,529,423 $ 693,743 $ 69,506 $ 35,153,660
============ ========= ======== ============
</TABLE>
<TABLE>
<CAPTION>
Available for Sale
December 31, 1997
------------------------------------
Amortized Approximate
Cost Fair Value
<S> <C> <C>
Mutual Funds $ 1,222,005 $ 1,222,005
Capital Trust securities 1,025,000 1,060,000
Equity investments 734,063 1,166,200
Other 250,000 250,000
----------- -----------
Total $ 3,231,068 $ 3,698,205
=========== ===========
</TABLE>
F-8
<PAGE>
<TABLE>
<CAPTION>
Held to Maturity
December 31, 1996
------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
U.S. Treasury securities -
5 to 10 years $ 5,054,831 $ 347,445 $ 5,402,276
FHLB Bonds:
1 to 3 years 3,000,000 $ 12,384 2,987,616
5 to 10 years 3,000,000 127,500 2,872,500
More than 10 years 16,000,000 16,061,715
61,715
Other agencies (FNMA, FHLMC
and SLMA debentures):
3 to 5 years 2,000,000 2,312 2,002,312
More than 10 years 17,000,000 168,479 6,350 17,162,129
Other 409,590 409,590
-------------- ---------- ---------- --------------
Total $ 46,464,421 $ 579,951 $ 146,234 $ 46,898,138
============== ========== ========== ==============
</TABLE>
<TABLE>
<CAPTION>
Available for Sale
December 31, 1996
------------------------------------
Amortized Approximate
Cost Fair Value
<S> <C> <C>
Federal Home Loan Mortgage Corporation $ 984,750 $ 984,750
7.9% noncumulative preferred stock
Mutual Funds 1,147,268 1,147,268
Other 499,200 499,200
------------- ------------
Total $ 2,631,218 $ 2,631,218
============= ============
</TABLE>
There were no sales of debt securities during the years ended December 31,
1997, 1996 and 1995.
4. MORTGAGE-BACKED SECURITIES AVAILABLE FOR SALE
Mortgage-backed securities available for sale are summarized as follows:
<TABLE>
<CAPTION>
December 31, 1997
-----------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
<S> <C> <C> <C> <C>
GNMA pass-through certificates $ 31,836,876 $ 658,548 $ 18,625 $ 32,476,799
FNMA pass-through certificates 24,473,771 351,223 91,948 24,733,046
FNMA real estate mortgage
investment conduits 2,530,993 52,721 2,478,272
FHLMC pass-through certificates 43,756,293 915,621 23,738 44,648,176
FHLMC real estate mortgage
investment conduits 7,249,366 99,523 7,149,843
------------ ---------- ---------- ------------
Total $109,847,299 $1,925,392 $ 286,555 $111,486,136
============ ========== ========== ============
</TABLE>
F-9
<PAGE>
<TABLE>
December 31, 1996
-------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Approximate
Cost Gains Losses Fair Value
<S> <C> <C> <C>
GNMA pass-through certificates $20,684,109 $ 448,357 $21,132,466
FNMA pass-through certificates 19,045,788 262,515 $ 80,810 19,227,493
FNMA real estate mortgage
investment conduits 3,490,887 76,905 3,413,982
FHLMC pass-through certificates 41,829,546 801,029 48,177 42,582,398
FHLMC real estate mortgage
investment conduits 7,246,184 192,945 7,053,239
----------- ---------- -------- -----------
Total $92,296,514 $1,511,901 $398,837 $93,409,578
=========== ========== ======== ===========
</TABLE>
Proceeds from the sale of mortgage-backed securities during the year ended
December 31, 1995 were $20,676,552 resulting in a loss of $30,994. There
were no sales of mortgage-backed securities during the years ended
December 31, 1997 and 1996.
5. LOANS RECEIVABLE
Loans receivable consist of the following:
<TABLE>
<CAPTION>
December 31,
--------------------------------
1997 1996
Mortgage loans:
<S> <C> <C>
1-4 Family residential $ 71,397,094 $ 73,870,894
Other dwelling units 16,646,987 17,615,571
Home equity lines of credit and improvement loans 8,209,914 7,018,517
Commercial nonmortgage loans 329,100 770,000
Construction loans 1,692,846 964,128
Loans on savings accounts 242,585 384,025
Consumer loans 156,185 92,212
------------- -------------
Total loans 98,674,711 100,715,347
Plus unamortized premiums 100,660 194,391
Less:
Net discounts on loans purchased and
loans acquired through merger (47,003) (118,363)
Loans in process (432,623) (288,570)
Deferred loan fees (1,232,815) (1,299,333)
Allowance for loan losses (782,825) (577,299)
------------- -------------
Total $ 96,280,105 $ 98,626,173
============= =============
</TABLE>
The Company originates loans to customers in its local market area,
principally Philadelphia, Pennsylvania and the four adjoining counties.
The ultimate repayment of these loans is dependent to a certain degree on
the local economy and real estate market.
F-10
<PAGE>
Originated or purchased commercial real estate loans totaled $16,646,987
and $17,675,024 at December 31, 1997 and 1996, respectively. Of the
commercial real estate loans, as of December 31, 1997 and 1996, $6,337,866
and $4,755,660 are collateralized by multi-family residential property;
$10,309,121 and $12,919,364 by business property, respectively.
At December 31, 1997, 1996 and 1995, the Company was servicing loans for
others amounting to $3,695,280, $3,522,363 and $4,433,526, respectively.
Servicing loans for others generally consists of collecting mortgage
payments, maintaining escrow accounts, disbursing payments to investors
and foreclosure processing. Loan servicing income is recorded on the
accrual basis and includes servicing fees from investors and certain
charges collected from borrowers, such as late payment fees. In connection
with these loans serviced for others, the Company held borrower's escrow
balances of approximately $234,153, $275,863 and $326,485 at December 31,
1997, 1996 and 1995, respectively.
The Company previously invested in loans secured by commercial equipment
leases. During 1996, the borrower declared bankruptcy. At December 27,
1996, the Company entered into an agreement with the trustee for the
bankruptcy court whereby the Bank will receive approximately 65% of the
cash receipts from the collateral principal in exchange for all rights to
the collateral. In connection with this agreement, the Company charged-off
$1,180,628 of the outstanding balance due from the trustee at December 31,
1996. The receivable balance of approximately $361,000 and $1,771,000,
resulting from the agreement with the trustees, is a component of prepaid
expenses and other assets in the consolidated statement of financial
condition at December 31, 1997 and 1996, respectively. The receivable is
to be repaid by the trustee from subsequent cash collections.
Following is a summary of changes in the allowance for loan losses:
Year Ended December 31,
--------------------------------------
1997 1996 1995
-------- -------- --------
Balance, beginning $577,299 $455,000 $416,629
Provision 120,000 139,194 135,000
Net recovery (charge-off) 85,526 (16,895) (96,629)
-------- -------- --------
Balance, ending $782,825 $577,299 $455,000
======== ======== ========
The provision for loan losses charged to expense is based upon past loan
and loss experience and an evaluation of probable losses in the current
loan and lease portfolio, including the evaluation of impaired loans under
SFAS Nos. 114 and 118. A loan is considered to be impaired when, based
upon current information and events, it is probable that the Company will
be unable to collect all amounts due according to the contractual terms of
the loan. An insignificant delay or shortfall in amount of payments does
not necessarily result in the loan being identified as impaired. For this
purpose, delays less than 90 days are considered to be insignificant. As
of December 31, 1997, 100% of the impaired loan balance was measured for
impairment based on the fair value of the loans' collateral. Impairment
losses are included in the provision for loan losses. SFAS Nos. 114 and
118 do not apply to large groups of smaller balance homogeneous loans that
are collectively evaluated for impairment, except for those loans
restructured
F-11
<PAGE>
under a troubled debt restructuring. Loans collectively evaluated for
impairment include consumer loans and residential real estate loans and
are not included in the data that follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1996
<S> <C> <C>
Impaired loans with no related reserve
for loans losses calculated under SFAS No. 114 $1,274,436 $1,292,178
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------
1997 1996
<S> <C> <C>
Average impaired loans $1,283,307 $1,298,291
Interest income recognized on impaired loans 109,092 97,485
</TABLE>
No cash basis interest income was recognized in 1997 or 1996 for the
impaired loans included above. Nonaccrual loans for which interest has
been fully reserved totaled approximately $716,000 and $2,999,000 at
December 31, 1997 and 1996, respectively.
The Company originates and purchases fixed and adjustable interest rate
loans and mortgage-backed securities. At December 31, 1997 fixed rate
loans and mortgage-backed securities were approximately $160,000,000, and
adjustable interest rate loans and mortgage-backed securities were
approximately $48,000,000.
As of December 31, 1997, the Company had approximately $761,000, in
outstanding loan commitments. These commitments are subject to normal
credit risk and have commitment terms of ninety days or less.
Certain directors and officers of the Company have loans with the Company.
Such loans were made in the ordinary course of business and do not
represent more than a normal risk of collection. Total loans to these
persons amounted to $1,225,906, $1,164,350 and $1,011,544, at December 31,
1997, 1996 and 1995, respectively. Current year originations to these
persons were $159,500, $335,000 and $319,950 for the years ended December
31, 1997, 1996 and 1995, respectively. Loan repayments for the years ended
December 31, 1997, 1996 and 1995 were $97,944, $182,194 and $61,381,
respectively.
6. ALLOWANCE FOR REAL ESTATE ACQUIRED THROUGH FORECLOSURE
The following summarizes the changes in the allowance for real estate
acquired through foreclosure losses:
December 31,
---------------------------
1997 1996 1995
Balance, beginning $46,265 $23,675 $ 1,847
Provision 46,265 21,828
Write-offs (33,506) (23,675)
------- ------- ------
Balance, ending $12,759 $46,265 $23,675
======= ======= =======
F-12
<PAGE>
7. OFFICE PROPERTIES AND EQUIPMENT
Office properties and equipment are summarized by major classification as
follows:
December 31,
--------------------------
1997 1996
Land $ 528,052 $ 613,159
Buildings 2,735,719 3,360,845
Furniture and equipment 2,324,748 2,406,972
Leasehold improvements 87,623 87,623
----------- -----------
Total 5,676,142 6,468,599
Accumulated depreciation and amortization (4,172,128) (4,639,578)
----------- -----------
Net $ 1,504,014 $ 1,829,021
=========== ===========
8. DEPOSITS
Deposits consist of the following major classifications:
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------
1997 1996
--------------------------- --------------------------
Weighted Weighted
Interest Interest
Amount Rate Amount Rate
<S> <C> <C> <C> <C>
NOW accounts $ 15,622,578 1.48 % $ 16,895,047 1.38%
Money Market Demand accounts 7,686,946 3.16 10,005,404 3.37
Passbook accounts 96,158,033 3.78 111,147,395 3.78
Certificate accounts 111,050,731 5.39 118,498,720 5.28
------------ ---- ------------ ----
Total $230,558,288 4.39% $256,546,566 4.30%
=========== ==== =========== ====
</TABLE>
At December 31, 1997 and 1996, the Company had deposits of $100,000 or
greater totaling approximately $23,621,000 and $19,800,000, respectively.
Deposits in excess of $100,000 are not federally insured.
In May 1997, the Bank sold approximately $37.5 million in deposits and two
branch buildings to a local financial institution. A gain of approximately
$2.2 million was realized on the sale.
While frequently renewed at maturity rather than paid out, certificate
accounts were scheduled to mature contractually within the following
periods:
December 31,
---------------------------
1997 1996
1 year or less $ 89,887,477 $ 54,251,167
1 year - 3 years 17,715,478 40,683,493
3 years - 5 years 3,447,776 23,564,060
------------ ------------
Total $111,050,731 $118,498,720
============ ============
F-13
<PAGE>
Interest expense on deposits is as follows:
Year Ended December 31,
---------------------------------------------
1997 1996 1995
NOW $ 508,567 $ 595,012 $ 787,473
Passbook 3,806,974 4,119,189 4,058,030
Certificates and MMDA 6,235,089 5,906,063 5,352,195
Early withdrawal penalties (12,472) (20,309) (25,067)
----------- ----------- -----------
Total $10,538,158 $10,599,955 $10,172,631
=========== =========== ===========
9. FHLB ADVANCES
Federal Home Loan Bank advances at December 31, 1997 and 1996 were
$7,884,000. Advances are collateralized under a blanket collateral lien
agreement. Advances at December 31, 1997 have maturity dates as follows:
1998, $6,000,000 and 2008, $1,884,000.
10. INCOME TAXES
In August 1996, the Small Business Job Protection Act (the "Act") was
signed into law. The Act repealed the percentage of taxable income method
of accounting for bad debts for thrift institutions effective for years
beginning after December 31, 1995. The Act required the Company, as of
January 1, 1996 to change its method of computing reserves for bad debts
to the experience method. The bad debt deduction allowable under this
method is available to small banks with assets less than $500 million.
Generally, this method allows the Company to deduct an annual addition to
the reserve for bad debts equal to the increase in the balance of the
Company's reserve for bad debts at the end of the year to an amount equal
to the percentage of total loans at the end of the year, computed using
the ratio of the previous six years' net charge-offs divided by the sum of
the previous six years' total outstanding loans at year end.
A thrift institution required to change its method of computing reserves
for bad debts treats such change as a change in a method of accounting
determined solely with respect to the "applicable excess reserves" of the
institution. The amount of the applicable excess reserves is taken into
account ratably over a six-taxable year period, beginning with the first
taxable year beginning after December 31, 1995. For financial reporting
purposes, the Company has not incurred any additional tax expense. At
December 31, 1997, under SFAS No. 109, deferred taxes were provided on the
difference between the book reserve at December 31, 1997 and the
applicable excess reserve in the amount equal to the Company's increase in
the tax reserve from December 31, 1987 to December 31, 1997. Retained
earnings at December 31, 1997 and 1996 includes approximately $5.4 million
of income for which no deferred income taxes will need to be provided.
Income tax expense consists of the following components:
Year Ended December 31: Federal State Total
1997 $ 1,870,200 $ 219,800 $ 2,090,000
1996 112,000 112,000
1995 741,500 145,400 886,900
The Company's provision for income taxes (benefit) differs from the
amounts determined by applying the statutory federal income tax rate to
income before income taxes for the following reasons:
F-14
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------------------------------------
1997 1996 1995
----------------------- ---------------------- --------------------
Amount Percent Amount Percent Amount Percent
<S> <C> <C> <C> <C> <C> <C>
Tax at federal tax rate ................. $ 1,776,226 34.0 % $ (85,422) (34.0)% $788,526 34.0 %
Tax-exempt income (45,337) (0.9)
Decrease resulting from amortization
of goodwill premiums and discounts
related to an acquisition - net ....... (3,956) (0.1) (9,597) (3.8) (13,405) (0.6)
State income tax expense,
net of federal income tax ............ 145,068 2.8 95,832 4.1
Other ................................... 217,999 4.2 207,019 82.4 15,947 0.7
----------- ---- --------- ----- -------- ----
Total ................................... $ 2,090,000 40.0 % $ 112,000 44.6 % $886,900 38.2 %
=========== ==== ========= ==== ======== ====
</TABLE>
Items that give rise to significant portions of the deferred tax accounts
are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1997 1996
<S> <C> <C>
Deferred tax assets:
Deferred loan fees $ 419,157 $ 441,773
Allowance for loan losses 1,817
Reserve for uncollected interest 29,597 67,070
Supplemental pension 194,515 131,781
Property 13,643 1,002
----------- -----------
658,729 641,626
----------- -----------
Deferred tax liabilities:
State taxes (568,412) (457,086)
Unrealized gain on investments and mortgage-backed securities (716,032) (378,442)
Other (190,807) (187,921)
Allowance for loan losses (103,627)
----------- -----------
(1,475,251) (1,127,076)
----------- -----------
Total $ (816,522) $ (485,450)
=========== ===========
</TABLE>
11. REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements
administered by the federal and state banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory--and possibly
additional discretionary--actions by regulators that, if undertaken, could
have a direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
table below) of tangible and core capital (as defined in the regulations)
to total adjusted assets (as defined), and of risk-based capital (as
defined) to risk-weighted
F-15
<PAGE>
assets (as defined). Management believes, as of December 31, 1997, that
the Bank meets all capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the Office of
Thrift Supervision categorized the Bank as well-capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well-capitalized, the Bank must maintain minimum tangible, core and
risk-based ratios as set forth in the table. There are no conditions or
events since that notification that management believes have changed the
Bank's category. The Bank's actual capital amounts and ratios are
presented in the table, in thousands.
<TABLE>
<CAPTION>
Well Capitalized
Required for Under Prompt
Capital Adequacy Corrective Action
Actual Purposes Provisions
------------------ ---------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
At December 31, 1997:
<S> <C> <C> <C> <C> <C> <C>
Tangible $25,828 9.5 % $ 4,074 1.5 % N/A N/A
Core (Leverage) 25,828 9.5 8,148 3.0 $13,580 5.0 %
Tier 1 risk-based 25,828 27.7 N/A N/A 16,296 6.0
Total risk-based 26,611 28.6 7,438 8.0 9,298 10.0
</TABLE>
<TABLE>
<CAPTION>
Well Capitalized
Required for Under Prompt
Capital Adequacy Corrective Action
Actual Purposes Provisions
----------------- ------------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
At December 31, 1996:
Tangible $23,314 7.9 % $ 4,383 1.5 % N/A N/A
Core (Leverage) 23,314 7.9 8,766 3.0 14,603 5.0%
Tier 1 risk-based 23,314 22.6 N/A N/A 6,170 6.0
Total risk-based 23,392 22.8 5,141 8.0 10,283 10.0
</TABLE>
Retained earnings for financial statement purposes differs from total
risk-based capital amounts by the exclusion of the allowance for loan
losses from the risk-based capital calculation.
12. PENSION AND PROFIT-SHARING PLANS
The Company has a defined benefit pension plan which covers all eligible
employees. The plan may be terminated at any time at the discretion of the
Board of Directors. Benefits under the above are based upon years of
service and the employees' average compensation during the term of
employment. The Company's policy is to fund amounts as are necessary to at
least meet the minimum funding standards of ERISA.
The following table sets forth the plan's net periodic pension cost at
December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 95,583 $ 88,388 $ 75,184
Interest cost on projected benefit obligation 102,712 89,080 79,938
Actual return on plan assets (81,150) (67,427) (55,841)
Net amortization and deferral (18,781) (23,430) (22,956)
---------- ---------- ----------
Net periodic pension cost $ 98,364 $ 86,611 $ 76,325
========== ========== ==========
</TABLE>
F-16
<PAGE>
The following table sets forth the plan's prepaid pension asset at
December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
Actuarial present value of benefit obligations:
<S> <C> <C>
Vested benefits $ 1,271,669 $ 1,059,426
Nonvested benefits 6,598 17,353
----------- -----------
Accumulated benefit obligation 1,278,267 1,076,779
Effect of future salary increases 573,908 511,728
----------- -----------
Projected benefit obligation 1,852,175 1,588,507
Plan assets at fair value 1,630,786 1,422,891
----------- -----------
Plan assets less than projected benefit obligation (221,389) (165,616)
Unrecognized:
Prior service cost 186,611 (181,500)
Net loss from past experience 185,908 460,682
Net asset at date of transition (66,679) (74,145)
----------- -----------
Prepaid pension asset $ 84,451 $ 39,421
=========== ===========
</TABLE>
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation was 6.5% for the years ended December 31,
1997 and 1996. The expected long-term rate of return on assets was 6.5%
for 1997 and 1996. Plan assets consist primarily of certificates of
deposit at the Bank.
The Company also maintains a profit-sharing plan for eligible employees.
Profit-sharing contributions are at the discretion of the Board of
Directors. The contribution was $463,131 in 1997, $124,466 in 1996 and
$199,199 in 1995. Plan assets consist primarily of a diversified stock
portfolio.
13. EMPLOYEE STOCK OWNERSHIP PLAN
The Company has established an employee stock ownership plan (the "ESOP")
for the exclusive benefit of participating employees which purchased
14,000 shares of common stock of the Bank on December 31, 1992. In order
to make the purchase, the ESOP borrowed $140,000 on December 31, 1992 from
a financial institution. The debt was repaid in 1997.
14. OTHER EMPLOYEE BENEFITS
Stock Option Plan - In 1992, the Board of Directors adopted the 1992 Stock
Option Plan (the "1992 Plan") to provide additional incentive to retain
officers, directors and key employees. Options granted under the 1992 Plan
were at the estimated fair value at the date of grant and vested over a
five year period. At December 31, 1997, 20,000 options are outstanding and
all are exercisable.
In 1994, the Board of Directors adopted the 1994 Stock Option Plan (the
"1994 Plan"). Options granted under the 1994 plan were at the estimated
fair value at the date of grant and vested immediately. At December 31,
1997, 20,000 options are outstanding and all are exercisable.
F-17
<PAGE>
There have been no exercises, forfeitures, cancellations or additional
grants of options under either plan for each of the three years in the
period ended December 31, 1997. As the Company accounts for stock-based
compensation under the intrinsic value method, no compensation expense has
been recognized.
Management Recognition Plan - The Company's Board of Directors has also
adopted a Management Recognition Plan (the "MRP") effective December 31,
1992, the objective of which is to enable the Company to retain personnel
of experience and ability in key positions of responsibility. All
employees are eligible to receive benefits under the MRP. Benefits may be
granted at the sole discretion of a committee appointed by the Board of
Directors of the Company. The MRP is managed by trustees who are directors
of the Company and who have responsibility to invest all funds contributed
by the Company to the trust created for the MRP. The Company has
contributed 6,000 shares to the MRP Trust. Unless the MRP committee
specifies otherwise, the shares granted will be in the form of restricted
stock payable over a five-year period at the rate of 20% of such shares
per year following the date of grant of the award. Compensation expense in
the amount of the fair market value of the common stock at the date of the
grant to the employee will be recognized pro rata over the five years
during which the shares are payable. In December 1994, the Board approved
the contribution of an additional 6,000 shares to the MRP Trust. The
shares were contributed in January 1995. As of December 31, 1997, 6,000
shares have been allocated to individual employees.
Supplemental Retirement Benefits - In November 1995, the Company entered
into a Nonqualified Retirement and Death Benefit Agreement (the
"Agreement") with certain officers of the Company. The purpose of the
Agreement is to provide the officers with supplemental retirement benefits
equal to a specified percentage of final compensation and a preretirement
death benefit if the officer does not attain age 65. Total expense
relating to this benefit was approximately $184,512 and $91,800 for the
years ended December 31, 1997 and 1996, respectively.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the carrying amounts and the estimated fair
value of financial instruments is made in accordance with the requirements
of SFAS No. 107, Disclosures about Fair Value of Financial Instruments.
The estimated fair value amounts have been determined by the Company using
available market information and appropriate valuation methodologies.
However, considerable judgment is necessarily required to interpret market
data to develop the estimates of fair value. Accordingly, the estimates
F-18
<PAGE>
presented herein are not necessarily indicative of amounts the Bank could
realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material effect on
the estimated fair value amounts.
<TABLE>
<CAPTION>
December 31, 1997 December 31, 1996
------------------------------- -------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
Assets:
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 20,150,596 $ 20,150,596 $ 40,929,177 $ 40,929,177
Investments held to maturity 34,529,423 35,153,660 46,464,421 46,898,138
Investments available for sale 3,698,205 3,698,205 2,631,218 2,631,218
Mortgage-backed securities available for
sale 111,486,136 111,486,136 93,409,578 93,409,578
Loans receivable 96,280,105 98,205,707 98,626,173 99,612,435
Loans receivable available for sale 1,154,761 1,154,761 2,147,223 2,147,223
Federal Home Loan Bank stock 1,701,700 1,701,700 1,691,200 1,691,200
Liabilities:
NOW, MMDA and Passbook accounts 119,507,557 119,507,557 138,047,846 138,047,846
Certificate accounts 111,050,731 119,064,812 118,498,720 128,520,215
FHLB Advances 7,884,000 6,429,941 7,884,000 6,406,842
</TABLE>
Cash and Cash Equivalents - For cash and cash equivalents, the carrying
amount is a reasonable estimate of fair value.
Investment and Mortgage-backed Securities - Fair values are based on
quoted market prices or dealer quotes.
Loans Receivable - Fair values are based on broker quotes.
Federal Home Loan Bank Stock - Although FHLB Stock is an equity interest
in an FHLB, it is carried at cost because it does not have a readily
determinable fair value.
NOW, MMDA, Passbook, Certificate Accounts and FHLB Advances - The fair
value of NOW, MMDA and Passbook accounts is the amount payable on demand
at the reporting date. The fair value of certificate accounts and FHLB
Advances is estimated using rates currently offered for deposits and
advances of similar remaining maturities.
Commitments to Extend Credit and Letters of Credit - Fair values for
off-balance sheet commitments are based on fees currently charged to enter
into similar agreements, taking into account the remaining terms of the
agreements and the counterparties' credit standings. The fair value of
commitments is deemed immaterial for disclosures in the table above.
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1997 and 1996.
Although management is not aware of any factors that would significantly
affect the fair value amounts, such amounts have not been comprehensively
revalued for purposes of these consolidated financial statements since
that date and, therefore, current estimates of fair value may differ
significantly from the amounts presented herein.
F-19
<PAGE>
16. SAVINGS ASSOCIATION INSURANCE FUND
On September 30, 1996, an omnibus appropriations bill was enacted, which
included the recapitalization of the Savings Association Insurance Fund
(SAIF). Accordingly, all SAIF insured depository institutions were charged
a one-time special assessment on their SAIF-assessable deposits as of
March 31, 1995 at the rate of 65.7 basis points. Accordingly, the Bank
incurred a pre-tax expense of $1,533,127 in 1996.
17. CONVERSION AND REORGANIZATION OF THE COMPANY (UNAUDITED)
On February 18, 1998, the Board of Directors of the Company, the Bank and
FJF adopted a Plan of Conversion and Reorganization and Plan of Merger
(the "Plan"). Pursuant to the Plan, (i) the Company will convert first
into a federal stock holding company and then into an interim federal
stock savings bank. Following its conversion into an interim federal stock
savings bank, it will merge into the Bank with the Bank as the survivor;
(ii) FJF will convert to an interim federal stock savings institution and
merge with and into the Bank, pursuant to which FJF will cease to exist
and the 1,415,000 shares of the outstanding Company stock held by FJF will
be canceled. The Bank will then be acquired by Thistle Group Holdings,
Co., a newly created Pennsylvania chartered holding company, and become a
wholly owned subsidiary of Thistle Group Holdings, Co. The outstanding
public shares of the Company, which amount to $206,000 shares, will be
converted into Exchange Shares pursuant to the exchange ratio upon
completion of the Plan.
Pursuant to the Plan and in connection with the Conversion and
Reorganization, Thistle Group Holdings, Co. is offering shares of common
stock. A subscription offering of the shares of common stock will be
offered initially to eligible account holders, employee benefit plans of
the Company, their members, directors, officers and employees of the
Company. Any shares of common stock not sold in the subscription offering
are expected to be sold by the underwriter to eligible public stockholders
and then to certain members of the general public.
Upon completion of the conversion, the Bank will establish a liquidation
account in an amount equal to the greater of 100% of the Bank's retained
earnings at June 30, 1992, the date of the latest balance sheet contained
in the final offering circular utilized in the Bank's initial public
offering the FJF reorganization, 100% of the Bank's total stockholders'
equity as reflected in its latest balance sheet contained in the final
Prospectus utilized in the offering. The liquidation account will be
maintained for the benefit of eligible account holders who continue to
maintain their accounts at the Bank after the conversion. The liquidation
account will be reduced annually to the extent that eligible account
holders have reduced their qualifying deposits as of each anniversary
date. Subsequent increases will not restore the eligible account holder's
interest in the liquidation account. In the event of a complete
liquidation of the Bank, each eligible account holder will be entitled to
receive a distribution from the liquidation account in an amount
proportionate to the current adjusted qualifying balances for accounts
then held.
Conversion costs will be deferred and reduce the proceeds from the shares
sold in the conversion. If the conversion is not completed, all costs will
be charged as an expense. As of December 31, 1997, no conversion costs
have been incurred.
******
F-20
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
================================================================================ =================================================
No dealer, salesman or other person has been authorized to give any information
or to make any representations not contained in this Prospectus in connection
with the offering made hereby, and, if given or made, such information or
representations must not be relied upon as having been authorized by the Bank,
the Company or the Selling Agent. This Prospectus does not constitute an offer Up to 11,902,500 Shares
to sell, or the solicitation of an offer to buy, any of the securities offered (Anticipated Maximum)
hereby to any person in any jurisdiction in which such offer or solicitation Common Stock
would be unlawful. Neither the delivery of this Prospectus by the Bank, the
Mutual Holding Company, the Mid-Tier Holding Company the Company or the Agent
nor any sale made hereunder shall in any circumstances create an implication
that there has been no change in the affairs of the Bank, the Mid-Tier Holding [Logo]
Company or the Company since any of the dates as of which information is
furnished herein or since the date hereof.
------------
TABLE OF CONTENTS
Page Thistle Group Holdings, Co.
---- ---------------------------
Summary..................................................................
Selected Consolidated Financial and Other Data
Recent Developments...................................................... (Proposed Holding Company for
Management's Discussion and Analysis of Roxborough-Manayunk Federal Savings Bank)
Recent Developments....................................................
Risk Factors............................................................. Common Stock
Thistle Group Holdings, Co............................................... par value $0.10 per share
Thistle Group Holdings, Inc..............................................
The Bank ................................................................
FJF Financial, M.H.C..................................................... ------------
Use of Proceeds..........................................................
Dividend Policy.......................................................... PROSPECTUS
Market for Common Stock..................................................
Capitalization........................................................... ------------
Historical and Pro Forma Capital Compliance..............................
Pro Forma Data...........................................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................
Business of the Bank.....................................................
Regulation............................................................... SANDLER O'NEILL & PARTNERS, L.P.
Federal and State Taxation...............................................
Management of the Company................................................
Management of the Bank...................................................
Beneficial Ownership of Bank Common Stock................................ Dated ____________, 1998
The Conversion and Reorganization........................................
Comparison of Stockholders' Rights.......................................
Certain Restrictions on Acquisition of
the Company............................................................
Description of Capital Stock of the Company..............................
Legal Opinions...........................................................
Tax Opinions.............................................................
Experts..................................................................
Registration Requirements................................................
Additional Information...................................................
Index to Consolidated Financial Statements............................... F-1
Until the later of ___________, 1998, or 25 days after commencement of the
offering of Common Stock, all dealers effecting transactions in the registered
securities, whether or not participating in this distribution, may be required
to deliver a Prospectus. This is in addition to the obligation of dealers to
deliver a Prospectus when acting as underwriters and with respect to their
unsold allotments or subscriptions.
================================================================================ =================================================
</TABLE>
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
* Special Counsel Fees and Expenses.................... $150,000
* Accounting Fees and Expenses......................... 60,000
* Appraisal/Business Plan Fees and Expenses............ 30,000
* Blue Sky Legal and Filing Fees....................... 10,000
* Conversion Agent..................................... 25,000
* Printing Fees and Expenses........................... 45,000
* Postage and Mailing Expenses......................... 15,000
* Stock Certificate Expenses........................... 1,000
* Transfer Agent Fees.................................. 2,000
* Underwriting Fees.................................... 1,000,000
* Underwriting Expenses................................ 40,000
Filing Fees:
OTS......................................... 8,400
Nasdaq (including entry and listing fees)... 84,000
SEC......................................... 35,112
NASD........................................ 12,400
* EDGAR Fees and Expenses.............................. 15,000
* Other................................................ 67,088
---------
Total............................... $1,600,000
=========
- -----------------
* Estimated, at supermax.
Item 14. Indemnification of Directors and Officers
Sections 1741 through 1747 of the Pennsylvania Business Corporation Act
sets forth circumstances under which directors, officers, employees and agents
may be insured or indemnified against liability which they may incur in their
capacities as such.
The Articles of Incorporation of Thistle Group Holdings, Co. (the
"Articles") attached as Exhibit 3(i) hereto, requires indemnification of
directors, officers and employees to the fullest extent permitted by
Pennsylvania law.
Thistle Group Holdings, Co. ("Thistle Group") may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of Thistle Group or is or was serving at the request of Thistle Group
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
him and incurred by him in any such capacity or arising out of his status as
such, whether or not Thistle Group would have the power to indemnify him against
such liability under the provisions of the Articles.
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
Not Applicable
Item 16. Exhibits and Financial Statement Schedules:
The financial statements and exhibits filed as part of this
Registration Statement are as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
(a) List of Exhibits:
1 Agency Agreement with Sandler O'Neill & Partners, L.P.*
2 Amended Plan of Conversion of FJF Financial, M.H.C. and Agreement and Plan
of Reorganization between Guaranty Federal Bancshares, M.H.C. and Guaranty
Federal Savings Bank
3(i) Certificate of Incorporation of Thistle Group Holdings, Co.
3(ii) Bylaws of Thistle Group Holdings, Co.
4 Specimen Stock Certificate of Thistle Group Holdings, Co.
5 Opinion of Malizia, Spidi, Sloane & Fisch, P.C. regarding legality of securities
registered
8.1 Federal Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
8.2 Pennsylvania Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
8.3 Statement of FinPro Financial, Inc. as to the value of subscription rights
10.1 1992 Stock Option Plan of Roxborough-Manayunk Federal Savings Bank
10.2 1992 Management Stock Bonus Plan of Roxborough-Manayunk Federal Savings
Bank
10.3 1994 Stock Option Plan of Roxborough-Manayunk Federal Savings Bank
10.4 1994 Management Stock Bonus Plan of Roxborough-Manayunk Federal Savings
Bank
10.5 Employment Agreement with John F. McGill
10.6 Employment Agreement with Jerry Naessens
23.1 Consent of Malizia, Spidi, Sloane & Fisch, P.C. (included with Exhibits 5, 8.1
and 8.2)
23.2 Consent of Deloitte & Touche LLP
</TABLE>
<PAGE>
23.3 Consent of FinPro Financial, Inc.
24 Power of Attorney (included with signature page)
99.1 Marketing Materials*
- -------------------
* To be filed by amendment
(b) Financial Statements and Schedules:
Except for schedules required for electronic filers, financial
statement schedules are omitted because they are not required or are not
applicable or the required information is shown in the financial statements or
the notes thereto.
Item 17. Undertakings
I. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3)
of the Securities Act of 1933 ("Securities Act");
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement. 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 deviation 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 maximum
aggregate offering price set forth in the "Calculation of Registration Fee"
table in the effective registration statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
(4) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
II. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
<PAGE>
such indemnification is against public policy as expressed in the Securities
Act, and is therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer, or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as
amended, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in Philadelphia,
Pennsylvania, as of March 26, 1998.
THISTLE GROUP HOLDINGS, CO.
/s/John F. McGill, Jr.
-------------------------------------
John F. McGill, Jr.
President and Chief Executive Officer
(Duly Authorized Representative)
We the undersigned directors and officers of Thistle Group Holdings,
Co. do hereby severally constitute and appoint John F. McGill, Jr. and Jerry A.
Naessens our true and lawful attorneys and agents, to do any and all things and
acts in our names in the capacities indicated below and to execute all
instruments for us and in our names in the capacities indicated below which said
John F. McGill, Jr. and Jerry A. Naessens may deem necessary or advisable to
enable Thistle Group Holdings, Co. to comply with the Securities Act of 1933, as
amended, and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with the registration statement on Form S-1
relating to the offering of Thistle Group Holdings, Co.'s common stock,
including specifically but not limited to, power and authority to sign for us or
any of 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 ratify and confirm all that John F. McGill, Jr. and Jerry
A. Naessens shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed below by the following
persons in the capacities indicated as of March 26, 1998.
/s/John F. McGill, Jr. /s/Francis E. McGill, III
- -------------------------------------------- --------------------------------
John F. McGill, Jr. Francis E. McGill, III
President and Chief Executive Officer Director
(Principal Executive Officer)
/s/Jerry A. Naessens /s/Add B. Anderson, Jr.
- -------------------------------------------- --------------------------------
Jerry A. Naessens Add B. Anderson, Jr.
Chief Financial Officer and Secretary Director
(Principal Financial and Accounting Officer)
/s/John F. McGill /s/Joseph P. Healy
- -------------------------------------------- --------------------------------
John F. McGill Joseph P. Healy
Chairman of the Board and Director Director
<PAGE>
INDEX TO EXHIBITS TO FORM S-1
Exhibit
- -------
<TABLE>
<CAPTION>
<S> <C>
(a) List of Exhibits:
1 Agency Agreement with Sandler O'Neill & Partners, L.P.*
2 Plan of Conversion and Reorganization of FJF Financial, M.H.C. and Plans of Merger
between FJF Financial, M.H.C., Thistle Group Holdings, Inc. and Roxborough-Manayunk Federal
Savings Bank.
3(i) Certificate of Incorporation of Thistle Group Holdings, Co.
3(ii) Bylaws of Thistle Group Holdings, Co.
4 Specimen Stock Certificate of Thistle Group Holdings, Co.
5 Opinion of Malizia, Spidi, Sloane & Fisch, P.C. regarding legality of securities registered
8.1 Federal Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
8.2 Pennsylvania Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
8.3 Statement of FinPro Financial, Inc. as to the value of subscription rights
10.1 1992 Stock Option Plan of Roxborough-Manayunk Federal Savings Bank
10.2 1992 Management Stock Bonus Plan of Roxborough-Manayunk Federal Savings Bank
10.3 1994 Stock Option Plan of Roxborough-Manayunk Federal Savings Bank
10.4 1994 Management Stock Bonus Plan of Roxborough-Manayunk Federal Savings Bank
10.5 Employment Agreement with John F. McGill
10.6 Employment Agreement with Jerry Naessens
23.1 Consent of Malizia, Spidi, Sloane & Fisch, P.C. (included with Exhibits 5, 8.1 and 8.2)
23.2 Consent of Deloitte & Touch LLP
23.3 Consent of FinPro Financial, Inc.
24 Power of Attorney (included with signature page)
99.1 Marketing Materials*
</TABLE>
- -------------------
* To be filed by amendment
EXHIBIT 2
<PAGE>
PLAN OF CONVERSION AND REORGANIZATION
of
FJF FINANCIAL, M.H.C.
and
PLANS OF MERGER
between
FJF FINANCIAL, M.H.C., THISTLE GROUP HOLDINGS, INC.
and
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS BANK
as amended
ADOPTED ON FEBRUARY 18, 1998
<PAGE>
TABLE OF CONTENTS
Section
Number Page
- ------ ----
1. Introduction..................................................... 1
2. Definitions...................................................... 3
3. General Procedure for Conversion and Reorganization.............. 9
4. Total Number of Shares and Purchase Price of
Conversion Stock............................................... 10
5. Subscription Rights of Eligible Account Holders (First Priority). 12
6. Subscription Rights of the Tax-Qualified Employee Stock
Benefit Plans (Second Priority)................................ 12
7. Subscription Rights of Supplemental Eligible Account Holders
(Third Priority)............................................... 13
8. Subscription Rights of Other Members (Fourth Priority)........... 13
9. Public Stockholders' Offering ................................... 14
10. Community Offering, Syndicated Community Offering
and Other Offerings............................................ 15
11. Limitations on Subscriptions and Purchases of Conversion Stock... 16
12. Timing of Subscription Offering; Manner of Exercising
Subscription Rights and Order Forms............................ 18
13. Payment for Conversion Stock..................................... 19
14. Account Holders in Nonqualified States or Foreign Countries...... 21
15. Voting Rights of Stockholders.................................... 21
16. Liquidation Account.............................................. 21
17. Transfer of Deposit Accounts..................................... 23
18. Requirements Following Conversion and Reorganization for
Registration, Market Making and Stock Exchange Listing......... 23
19. Directors and Officers of the Bank and Holding Company........... 23
20. Requirements for Stock Purchases by Directors and Officers
Following the Conversion and Merger............................. 23
21. Restrictions on Transfer of Stock................................ 24
22. Restrictions on Acquisition of Stock of the Holding Company...... 25
23. Tax Rulings or Opinions.......................................... 25
24. Stock Compensation Plans......................................... 25
25. Dividend and Repurchase Restrictions on Stock.................... 26
26. Payment of Fees to Brokers....................................... 26
27. Effective Date................................................... 26
28. Amendment or Termination of the Plan............................. 27
29. Interpretation of the Plan....................................... 27
Appendix A - Plan of Merger between Interim Federal Stock Savings Bank No. 1
(formerly the Mutual Holding Company) and the Bank
Appendix B - Plan of Merger between Interim Federal Stock Savings Bank No. 2
(formerly Middle Tier Holding Company) and the Bank
Appendix C - Plan of Merger between Interim Federal Stock Savings Bank No. 3
(subsidiary of Holding Company) and the Bank
i
<PAGE>
1. INTRODUCTION
------------
For purposes of this section, all capitalized terms have the meaning
ascribed to them in Section 2.
On December 31, 1992, Roxborough-Manayunk Federal Savings and Loan
Association (the "Association"), a federally chartered mutual savings
institution reorganized into the mutual holding company form of organization and
consummated a sale of stock to certain members. To accomplish this transaction,
the Association organized a federally chartered, stock savings bank as a wholly
owned subsidiary. The Association then transferred substantially all of its
assets and liabilities to the Bank in exchange for shares of Bank Common Stock,
and reorganized itself into a federally chartered mutual holding company known
as FJF Financial, M.H.C. and sold some of the shares of Bank Common Stock to
certain parties other than the MHC. Upon completion of the MHC Reorganization,
the Mutual Holding Company and the Public Stockholders owned an aggregate of
87.62% and 12.38% of the outstanding Bank Common Stock, respectively. On
September 30, 1997, the Bank completed a reorganization in which the Bank became
a wholly owned subsidiary of a stock middle tier holding company known as
Thistle Group Holdings, Inc. ("Middle Tier Holding Company") Shareholders of the
Bank became shareholders of the Middle Tier Holding Company. As of December 31,
1997, the MHC and the Public Stockholders own an aggregate of 1,415,000 (87.62%)
and 206,000 (12.38%) of the outstanding Middle Tier Holding Company Common
Stock, respectively. Pursuant to this Plan, the Bank will form a new state stock
holding company, Thistle Group Holdings, Co. ("Holding Company") and the
existing shares of Middle Tier Holding Company owned by public shareholders will
be converted pursuant to an Exchange Ratio into shares of Holding Company.
The Boards of Directors of the Mutual Holding Company, the Middle Tier
Holding Company, the Holding Company and the Bank believe that a conversion of
the Mutual Holding Company to stock form pursuant to this Plan of Conversion is
in the best interests of the Mutual Holding Company and the Bank, as well as the
best interests of their respective Members and Stockholders. The Boards of
Directors have determined that this Plan of Conversion equitably provides for
the interests of Members through the granting of subscription rights and the
establishment of a liquidation account. The Conversion and Merger will result in
the Bank being wholly owned by a stock holding company which is owned by public
stockholders, which is a more common structure and form of ownership than a
mutual holding company. In addition, the Conversion and Merger will result in
the raising of additional capital for the Bank and the Holding Company and
should result in a more active and liquid market for the Holding Company Common
Stock than currently exists for Middle Tier Holding Company Common Stock.
Finally, the Conversion and Merger will provide the Holding Company with
additional investment authority and is designed to enable the Bank and Holding
Company to compete more effectively in a market which is consolidating.
1
<PAGE>
If the Association had undertaken a standard conversion involving the
formation of a stock holding company in 1992, applicable OTS regulations would
have required a greater amount of Common Stock to be sold than was sold in the
Bank's initial public offering undertaken with the mutual holding company
reorganization. In addition, if a standard conversion had been conducted in
1992, management of the Bank believed that it would have been difficult to
profitably and prudently invest the larger amount of capital that would have
been raised, when compared to the amount of net proceeds raised in the Bank's
initial public offering. A standard conversion in 1992 also would have
immediately eliminated all aspects of the mutual form of organization and
possibly could have subjected the Bank to interference from stockholders and to
an unwanted acquisition or other change in control of the Bank.
Subsequent to the formation of the Mutual Holding Company, there have been
changes in the policies of the OTS relating to mutual holding companies. In
addition, market conditions for the stocks of savings institutions and their
holding companies have improved. The Bank and Holding Company have also gained
experience in conducting stockholder meetings and other stockholder matters,
such as communications, press releases, and dividend payments. In light of the
foregoing, the Boards of Directors of the Mutual Holding Company, the Middle
Tier Holding Company and the Bank believe (i) that it is in the best interests
of such companies and their respective Members and Stockholders to reorganize
into the stock form of organization at this time, and (ii) that the most
feasible way to do so is through the Conversion and the Mergers.
The Bank formed the Middle Tier Holding Company which became the holding
company for the Bank pursuant to a reorganization completed in September of
1997. In the current transaction, (i) the Middle Tier Holding Company will
convert first into a federal stock holding company and then into an interim
federal stock savings bank, which will merge with and into the Bank, and (ii)
the Mutual Holding Company will convert into an interim federal stock savings
bank and merge with and into the Bank, pursuant to which Mutual Holding Company
will cease to exist and the shares of Middle Tier Holding Company Stock held by
the Mutual Holding Company will be canceled. The Mutual Holding Company will
cease to exist and a liquidation account will be established for the benefit of
depositor Members as of specified dates. Stock of the Middle Tier Holding
Company held by Public Shareholders shall be automatically converted into the
right to receive shares of Holding Company Common Stock based on an Exchange
Ratio plus cash in lieu of any fractional share interest.
In connection with the Conversion and Mergers, the Holding Company will
offer shares of Conversion Stock in the Offerings as provided herein. Shares of
Conversion Stock will be offered in a Subscription Offering in descending order
of priority to Eligible Account Holders, Tax-Qualified Employee Stock Benefit
Plans, Supplemental Eligible Account Holders and Other Members. Remaining shares
may be subscribed for by Public Stockholders in the Public Stockholders'
Offering. Any shares of Conversion Stock remaining unsold after the Subscription
Offering and the Public Stockholders' Offering will be offered for sale to the
public through a Community Offering and/or Syndicated Community Offering, as
determined by the Boards of Directors of the Holding Company and the Bank in
their sole discretion.
2
<PAGE>
The Conversion is intended to provide support to the Bank's lending and
investment activities and thereby enhance the Bank's capabilities to serve the
borrowing and other financial needs of the communities it serves. The use of the
Holding Company will provide greater organizational flexibility and facilitate
possible acquisitions and diversification.
This Plan is subject to the approval of the OTS and also must be approved by
(1) at least a majority of the total number of votes eligible to be cast by
Voting Members of the Mutual Holding Company at the Special Meeting and (2)
holders of at least two-thirds of the shares of outstanding Middle Tier Holding
Company Common Stock at the Stockholders' Meeting. In addition, the Primary
Parties have conditioned the consummation of the Conversion and Reorganization
on the approval of the Plan by at least a majority of the votes cast, in person
or by proxy, by the Public Stockholders at the Stockholders' Meeting.
After the Conversion, the Bank will continue to be regulated by the OTS, as
its chartering authority, and by the FDIC, which insures the Bank's deposits. In
addition, the Bank will continue to be a member of the Federal Home Loan Bank
System, and all insured savings deposits will continue to be insured by the FDIC
up to the maximum amount provided by law.
2. DEFINITIONS
-----------
As used in this Plan, the terms set forth below have the following meanings:
Actual Purchase Price means the price per share at which the Conversion
Stock is ultimately sold by the Holding Company in the Offerings in accordance
with the terms hereof.
Affiliate means a Person who, directly or indirectly, through one or more
intermediaries, controls or is controlled by or is under common control with the
Person specified.
Associate, when used to indicate a relationship with any Person, means (i) a
corporation or organization (other than the Mutual Holding Company, the Middle
Tier Holding Company, the Bank, a majority-owned subsidiary of the Bank or the
Middle Tier Holding Company) 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, provided, however, that such term
shall not include any Tax-Qualified Employee Stock Benefit Plan of the Holding
Company or the Bank in which such Person has a substantial beneficial interest
or serves as a trustee or in a similar fiduciary capacity, and (iii) any
relative or spouse of such Person, or any relative of such spouse, who has the
same home as such Person or who is a director or officer of the Holding Company
or the Bank or any of the subsidiaries of the foregoing.
3
<PAGE>
Bank means Roxborough-Manayunk Federal Savings Bank in its current stock
form as a subsidiary or the Middle Tier Holding Company or Roxborough-Manayunk
Federal Savings Bank as a subsidiary of the Holding Company following
consummation of the Conversion and Reorganization, as the context of the
reference indicates.
Bank Common Stock means the common stock of the Bank, par value $1.00 per
share, which stock is not and will not be insured by the FDIC or any other
governmental authority.
Code means the Internal Revenue Code of 1986, as amended.
Community Offering means the offering for sale by the Holding Company of any
shares of Conversion Stock not subscribed for in the Subscription Offering or
Public Stockholders' Offering to (i) natural persons residing in the Local
Community, and (ii) such other Persons within or without the Commonwealth of
Pennsylvania as may be selected by the Holding Company and the Bank within their
sole discretion.
Control (including the terms "controlling," "controlled by," and "under
common control with") means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
Conversion and Reorganization means (i) the conversion of the Mutual Holding
Company to an interim federal stock savings bank and the subsequent merger,
pursuant to which the Mutual Holding Company will cease to exist, (ii) the
conversion of Middle Tier Holding Company to an interim federal stock savings
bank and merger into Bank, and (iii) the issuance of Conversion Stock by the
Holding Company in the Offerings as provided herein.
Conversion Stock means the Holding Company Common Stock to be issued and
sold in the Offerings pursuant to the Plan of Conversion.
Deposit Account means savings and demand accounts, including passbook
accounts, money market deposit accounts and negotiable order of withdrawal
accounts, and certificates of deposit and other authorized accounts of the Bank
held by a Member.
Director, Officer and Employee means the terms as applied respectively to
any person who is a director, officer or employee of the Mutual Holding Company,
the Bank, the Middle Tier Holding Company, the Holding Company or any subsidiary
thereof.
Eligible Account Holder means any Person holding a Qualifying Deposit on the
Eligibility Record Date for purposes of determining subscription rights and
establishing subaccount balances in the liquidation account to be established
pursuant to the provision herein.
Eligibility Record Date means the date for determining Qualifying Deposits
of Eligible Account Holders and is the close of business on December 31, 1996.
4
<PAGE>
Estimated Price Range means the range of the estimated aggregate pro forma
market value of the Conversion Stock to be issued in the Offerings, as
determined by the Independent Appraiser in accordance with Section 4 hereof.
Exchange Ratio means the rate at which shares of Holding Company Common
Stock will be received by the Public Stockholders in exchange for their Middle
Tier Holding Company Common Stock. The exact rate shall be determined by the
Mutual Holding Company and the Holding Company in order to ensure that upon
consummation of the Conversion and Reorganization, the Public Stockholders will
own in the aggregate approximately the same percentage of the Holding Company
Common Stock to be outstanding upon completion of the Conversion and
Reorganization as the percentage of Middle Tier Holding Company Common Stock
owned by them in the aggregate on the Effective Date, as adjusted in accordance
with OTS policy to reflect any special or excess dividends declared by the Bank
and Middle Tier Holding Company and waived by the Mutual Holding Company, but
before giving effect to (a) cash paid in lieu of any fractional interests of
Middle Tier Holding Company Common Stock and (b) any shares of Conversion Stock
purchased by the Public Stockholders in the Offerings or tax-qualified employee
stock benefit plans thereafter.
Exchange Shares means the shares of Holding Company Common Stock to be
issued to the Public Stockholders in connection with the Middle Tier Holding
Company Merger ("Merger No.
2") with and into the Bank.
FDIC means the Federal Deposit Insurance Corporation or any successor
thereto.
Holding Company means Thistle Group Holding Co., a corporation newly organized
under the laws of the Commonwealth of Pennsylvania. At the completion of the
Reorganization, the Bank will become a wholly owned subsidiary of the Holding
Company.
Holding Company Common Stock means the Common Stock of the Holding Company,
par value $.10 per share, which stock cannot and will not be insured by the FDIC
or any other governmental authority.
Middle Tier Holding Company means Thistle Group Holding, Inc., a corporation
organized under the laws of the Commonwealth of Pennsylvania. Since the
completion of the September 1997 reorganization, the Middle Tier Holding Company
has held all of the outstanding capital stock of the Bank.
Middle Tier Holding Company Common Stock means the Common Stock of the
Middle Tier Holding Company, par value $.10 per share, which stock cannot and
will not be insured by the FDIC or any other governmental authority.
Independent Appraiser means the independent investment banking or financial
consulting firm retained by the Holding Company and the Bank to prepare an
appraisal of the estimated pro forma market value of the Conversion Stock.
5
<PAGE>
Initial Purchase Price means the price per share to be paid initially by
Participants for shares of Conversion Stock subscribed for in the Subscription
Offering, Public Stockholders for shares of Conversion Stock ordered in the
Public Stockholders' Offering and by Persons for shares of Conversion Stock
ordered in the Community Offering and/or Syndicated Community Offering.
Interim Bank No. 1 means an interim federal stock savings bank, which will
be formed as a result of the conversion of FJF Financial, M.H.C. into the stock
form of organization.
Interim Bank No. 2 means an interim federal stock savings bank, which will
be formed as a result of the conversion of Middle Tier Holding Company first
into a federal stock holding company and then into an interim federal stock
savings bank.
Interim Bank No. 3 mean an interim Federal stock savings bank wholly owned
by Holding Company, which will be merged with and into the Bank.
Local Community means all counties in which the Bank has its home office or
a branch office.
Member means any Person qualifying as a member of the Mutual Holding Company
in accordance with its mutual charter and bylaws and the laws of the United
States.
Merger No. 1 means the merger of Interim No. 2 (formerly Middle Tier
Holding Company) with and into the Bank.
Merger No. 2 means the merger of Interim No. 1 (formerly Mutual Holding
Company) with and into the Bank.
Merger No. 3 means the merger of Interim No. 3, a subsidiary of Holding
Company, with and into the Bank.
Mergers means the completion of Merger No. 1, Merger No. 2, and Merger No.
3.
Middle Tier Holding Company means Thistle Group Holdings, Inc., a
Pennsylvania Chartered corporation which currently owns 100% of the Bank.
Mutual Holding Company means FJF Financial, M.H.C. prior to its conversion
into an interim federal stock savings bank.
Offerings means the Subscription Offering, the Public Stockholders Offering,
the Community Offering and the Syndicated Community Offering, if applicable.
Officer means the president, vice-president, secretary, treasurer or
principal financial officer, comptroller or principal accounting officer and any
other person performing similar functions with respect to any organization
whether incorporated or unincorporated.
6
<PAGE>
Order Form means the form or forms provided by the Holding Company,
containing all such terms and provisions as set forth herein, to a Participant
or other Person by which Conversion Stock may be ordered in the Offerings.
Other Member means a Voting Member who is not an Eligible Account Holder or
a Supplemental Eligible Account Holder.
OTS means the Office of Thrift Supervision or any successor thereto.
Participant means any Eligible Account Holder, Tax-Qualified Employee Stock
Benefit Plan, Supplemental Eligible Account Holder and Other Member.
Person means an individual, a corporation, a partnership, an association, a
joint stock company, a trust, an unincorporated organization or a government or
any political subdivision thereof.
Plan and Plan of Conversion means this Plan of Conversion and
Reorganization and Plan of Merger as adopted by the Boards of Directors of the
Mutual Holding Company, the Middle Tier Holding Company and the Bank and any
amendments hereto approved as provided herein. The Board of Directors of Interim
No. 1, Interim No. 2 and Interim No. 3 shall adopt the Plans of Merger included
as Appendices hereto as soon as practicable following their organization.
Primary Parties means the Middle Tier Holding Company, Mutual Holding
Company, the Bank and the Holding Company.
Prospectus means the one or more documents to be used in offering the
Conversion Stock in the Offerings.
Public Stockholders means those Persons who own shares of Middle Tier
Holding Company Common Stock, excluding the Mutual Holding Company, as of the
Stockholder Voting Record Date.
Public Stockholders' Offering means the offering for sale by the Holding
Company of any shares of Conversion Stock not subscribed for in the Subscription
Offering to Public Stockholders, at the sole discretion of the Bank and Holding
Company.
Qualifying Deposit means the aggregate balance of all Deposit Accounts in
the Bank of (i) an Eligible Account Holder at the close of business on the
Eligibility Record Date, provided such aggregate balance is not less than $50,
and (ii) a Supplemental Eligible Account Holder at the close of business on the
Supplemental Eligibility Record Date, provided such aggregate balance is not
less than $50.
7
<PAGE>
Resident means any person who, on the date designated for that category of
subscriber in the Plan, maintained a bona fide residence within the Local
Community and has manifested an intent to remain within the Local Community for
a period of time. The designated dates for Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members are the Eligibility
Record Date, the Supplemental Eligibility Record Date and the Voting Record
Date, respectively. To the extent the person is a corporation or other business
entity, the principal place of business or headquarters must be within the Local
Community in order to qualify as a Resident. To the extent the 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,
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 bona fide resident of the
Local Community. Subscribers in the Community Offering who are natural persons
also will have a purchase preference if they were residents of the Local
Community on the date of the Prospectus. In all cases, however, such
determination shall be in the sole discretion of the Bank and Holding Company.
SEC means the Securities and Exchange Commission.
Special Meeting means the Special Meeting of Members of the Mutual Holding
Company called for the purpose of submitting this Plan to the Members for their
approval, including any adjournments of such meeting.
Stockholders means those Persons who own shares of Holding Company Common
Stock.
Stockholders' Meeting means the annual or special meeting of Stockholders of
Middle Tier Holding Company called for the purpose of submitting this Plan to
the Stockholders for their approval, including any adjournments of such meeting.
Stockholder Voting Record Date means the date for determining the Public
Stockholders of the Middle Tier Holding Company eligible to vote at the
Stockholders' Meeting.
Subscription Offering means the offering of the Conversion Stock to
Participants.
Subscription Rights means nontransferable rights to subscribe for Conversion
Stock granted to Participants pursuant to the terms of this Plan.
Supplemental Eligible Account Holder means any Person holding a Qualifying
Deposit at the close of business on the Supplemental Eligibility Record Date.
Supplemental Eligibility Record Date, if applicable, means the date for
determining Qualifying Deposits of Supplemental Eligible Account Holders and
shall be required if the Eligibility Record Date is more than 15 months prior to
the date of the latest amendment to the Application for Conversion filed by the
Mutual Holding Company prior to approval of such application by the OTS. If
applicable, the Supplemental Eligibility Record Date shall be the last
8
<PAGE>
day of the calendar quarter preceding OTS approval of the Application for
Conversion submitted by the Mutual Holding Company pursuant to this Plan of
Conversion.
Syndicated Community Offering means the offering for sale by a syndicate of
broker-dealers to the general public of shares of Conversion Stock not purchased
in the Subscription Offering and the Community Offering.
Tax-Qualified Employee Stock Benefit Plan means any defined benefit plan or
defined contribution plan, such as an employee stock ownership plan, stock bonus
plan, profit-sharing plan or other plan, which is established for the benefit of
the employees of the Holding Company and the Bank and which, with its related
trust, meets the requirements to be "qualified" under Section 401 of the Code as
from time to time in effect. A "Non-Tax-Qualified Employee Stock Benefit Plan"
is any defined benefit plan or defined contribution stock benefit plan which is
not so qualified.
Voting Member means a Person who at the close of business on the Voting
Record Date is entitled to vote as a Member of the Mutual Holding Company in
accordance with its mutual charter and bylaws.
Voting Record Date means the date or dates for determining the eligibility
of Members to vote at the Special Meeting.
3. GENERAL PROCEDURE FOR CONVERSION AND REORGANIZATION
---------------------------------------------------
A. An application for the Conversion and Reorganization, including the Plan
and all other requisite material (the "Application for Conversion"), shall be
submitted to the OTS for approval. The Mutual Holding Company, the Holding
Company, the Middle Tier Holding Company and the Bank also will cause notice of
the adoption of the Plan by the Boards of Directors of the Mutual Holding
Company, the Middle Tier Holding Company and the Bank to be given by publication
in a newspaper having general circulation in each community in which an office
of the Bank is located; and will cause copies of the Plan to be made available
at each office of the Mutual Holding Company, the Middle Tier Holding Company,
and the Bank for inspection by Members and Stockholders. The Mutual Holding
Company, the Middle Tier Holding Company, and the Bank will cause to be
published, in accordance with the requirements of applicable regulations of the
OTS, a notice of the filing with the OTS of an application to convert the Mutual
Holding Company from mutual to stock form.
B. Promptly following receipt of requisite approval of the OTS, this Plan
will be submitted to the Members for their consideration and approval at the
Special Meeting. The Mutual Holding Company may, at its option, mail to all
Members as of the Voting Record Date, at their last known address appearing on
the records of the Mutual Holding Company and the Bank, a proxy statement in
either long or summary form describing the Plan which will be submitted to a
vote of the Members at the Special Meeting. The Holding Company also shall mail
to all such Members (as well as other Participants) either a Prospectus and
Order Form for the purchase
9
<PAGE>
of Conversion Stock or a letter informing them of their right to receive a
Prospectus and Order Form and a postage prepaid card to request such materials,
subject to the provisions herein. The Plan must be approved by the affirmative
vote of at least a majority of the total number of votes eligible to be cast by
Voting Members at the Special Meeting.
C. Subscription Rights to purchase shares of Conversion Stock will be
issued without payment therefor to Eligible Account Holders, Tax-Qualified
Employee Plans, Supplemental Eligible Account Holders and Other Members.
D. The Middle Tier Holding Company shall file preliminary proxy materials
with the OTS in order to seek the approval of the Plan by its Stockholders.
Promptly following clearance of such proxy materials and the receipt of any
other requisite approval of the OTS, the Middle Tier Holding Company will mail
definitive proxy materials to all Stockholders as of the Stockholder Voting
Record Date, at their last known address appearing on the records of the Middle
Tier Holding Company, for their consideration and approval of this Plan at the
Stockholders' Meeting. The Plan must be approved by the holders of at least
two-thirds of the outstanding shares of Middle Tier Holding Company Common Stock
as of the Stockholder Voting Record Date. In addition, the Primary Parties have
conditioned the consummation of the Conversion and Reorganization on the
approval of the Plan by at least a majority of the votes cast, in person or by
proxy, by the Public Stockholders as of the Stockholder Voting Record Date at
the Stockholders' Meeting.
E. The Mutual Holding Company shall apply to convert to a federal interim
stock savings bank.
F. The Middle Tier Holding Company shall apply to convert first into a
federal stock holding company and then to a federal interim stock savings bank.
G. The Holding Company shall file a Registration Statement with the SEC to
register the Holding Company Common Stock to be issued in the Conversion and
Merger under the Securities Act of 1933, as amended, and shall register such
Holding Company Common Stock under any applicable state securities laws. Upon
registration and after the receipt of all required regulatory approvals, the
Conversion Stock shall be first offered for sale in a Subscription Offering to
Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans,
Supplemental Eligible Account Holders and Other Members. It is anticipated that
any shares of Conversion Stock remaining unsold after the Subscription Offering
will be sold first through the Public Stockholders' Offering and then through a
Community Offering and/or a Syndicated Community Offering. The purchase price
per share for the Conversion Stock shall be a uniform price determined in
accordance with the provisions herein. The Holding Company shall contribute to
the Bank an amount of the net proceeds received by the Holding Company from the
sale of Conversion Stock as shall be determined by the Boards of Directors of
the Holding Company and the Bank and as shall be approved by the OTS.
10
<PAGE>
H. The Effective Date of the Conversion and Reorganization shall be the
date set forth in Section 27 hereof. Upon the effective date, the following
transactions shall occur:
(i) The Mutual Holding Company will convert into an interim federal
stock savings bank to be known as Interim Bank No. 1.
(ii) Middle Tier Holding Company will adopt a federal stock holding
company charter and immediately thereafter an interim federal stock savings
bank charter to be known as Interim Bank No. 2; Interim Bank No. 2 will
then merge with and into the Bank ("Merger No. 1"), with the Bank as the
surviving entity.
(iii) Immediately following Merger No. 1, Interim Bank No. 1, formerly
the Mutual Holding Company, will merge with and into the Bank with the Bank
as the surviving entity ("Merger No. 2"). The shares of Middle Tier Holding
Company Common Stock previously held by the Mutual Holding Company (now
Interim Bank No. 1) will be canceled. Eligible members of the Mutual
Holding Company as of certain specified dates will be granted interests in
a liquidation account to be established by the Bank. The amount in the
liquidation account is the amount of dividends waived by the Mutual Holding
Company plus the greater or (a) 100% of retained earnings as of June 30,
1992 (the date of the latest statement of financial condition contained in
the final offering circular utilized in the Bank's initial stock offering),
or (b) 87.63% of Middle Tier Holding Company's total shareholders' equity
as reflected in its latest statement of financial condition.
(iv) Holding Company will form an interim corporation ("Interim Bank
No. 3"), a new, wholly owned first-tier subsidiary with an interim federal
stock savings bank charter.
(v) Immediately following Merger No. 2, Interim Bank No. 3 will merge
with an into the Bank, with the Bank as the surviving entity ("Merger No.
3"). As a result of Merger No. 3, Bank stock deemed held by Public
Stockholders will be converted into Holding Company Common Stock based upon
the Exchange Ratio which is designed to ensure that the same Public
Stockholders will own, subject to certain adjustments, approximately the
same percentage of Holding Company Common Stock as the percentage of Middle
Tier Holding Company Common Stock owned by them immediately prior to the
Conversion and Reorganization before giving effect to (a) cash paid in lieu
of fractional shares and (b) any shares of Holding Company stock purchased
by Public Stockholders in the Offering and subject to any adjustment as a
result in a change in OTS policy.
(vi) The Holding Company shall sell the Conversion Stock in the
Offerings, as provided herein.
I. The Primary parties may retain and pay for the services of financial and
other advisors and investment bankers to assist in connection with any or all
aspects of the Conversion and Reorganization, including in connection with the
Offerings, the payment of fees to brokers and
11
<PAGE>
investment bankers for assisting Persons in completing and/or submitting Order
Forms. All fees, expenses, retainers and similar items shall be reasonable.
4. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION
-------------------------------------------------------
STOCK
-----
A. The aggregate price at which shares of Conversion Stock shall be sold in
the Offerings shall be based on a pro forma valuation of the aggregate market
value of the Conversion Stock prepared by the Independent Appraiser. The
valuation shall be based on financial information relating to the Primary
Parties, market, financial and economic conditions, a comparison of the Primary
Parties with selected publicly held financial institutions and holding companies
such other factors as the Independent Appraiser may deem to be important. The
valuation shall be stated in terms of an Estimated Price Range, the maximum of
which shall generally be no more than 15% above the average of the minimum and
maximum of such price range and the minimum of which shall generally be no more
than 15% below such average. The valuation shall be updated during the
Conversion as market and financial conditions warrant and as may be required by
the OTS.
B. Based upon the independent valuation, the Boards of Directors of the
Primary Parties shall fix the Initial Purchase Price and the number (or range)
of shares of Conversion Stock ("Offering Range") to be offered in the Offerings.
The Actual Purchase Price and the total number of shares of Conversion Stock to
be issued in the Offerings shall be determined by the Boards of Directors of the
Primary Parties upon conclusion of the Offerings in consultation with the
Independent Appraiser and any financial advisor or investment banker retained by
the Primary Parties in connection therewith.
C. Subject to the approval of the OTS, the Estimated Price Range may be
increased or decreased prior to completion of the Conversion to reflect changes
in market, financial and economic conditions since the commencement of the
Offerings, and under such circumstances the Primary Parties may correspondingly
increase or decrease the total number of shares of Conversion Stock to be issued
in the Conversion to reflect any such change. Notwithstanding anything to the
contrary contained in this Plan, no resolicitation of subscribers shall be
required and subscribers shall not be permitted to modify or cancel their
subscriptions unless the aggregate funds received from the offer of the
Conversion Stock in the Conversion are less than the minimum or (excluding
purchases, if any, by the Holding Company's and the Bank's Tax- Qualified
Employee Stock Benefit Plans) more than 15% above the maximum of the Estimated
Price Range set forth in the Prospectus. In the event of an increase in the
total number of shares offered in the Conversion due to an increase in the
Estimated Price Range, the priority of share allocation shall be as set forth in
this Plan, provided, however, that such priority will have no effect whatsoever
on the ability of the Tax-Qualified Employee Stock Benefit Plans to purchase
additional shares pursuant to Section 4.D.
12
<PAGE>
D. (i) In the event that Tax-Qualified Employee Stock Benefit Plans are
unable to purchase the number of shares subscribed for by such Tax-Qualified
Employee Stock Benefit Plans due to an oversubscription for shares of Conversion
Stock pursuant to Section 5 hereof, Tax- Qualified Employee Stock Benefit Plans
may purchase from the Holding Company, and the Holding Company may sell to the
Tax-Qualified Employee Stock Benefit Plans, such additional shares ("Additional
Shares") of Holding Company Common Stock necessary to fill the subscriptions of
the Tax-Qualified Employee Stock Benefit Plans, provided that such Additional
Shares may not exceed 8% of the total number of shares of Conversion Stock sold
in the Conversion. The sale of Additional Shares, if necessary, will occur
contemporaneously with the sale of the Conversion Stock. The sale of Additional
Shares to Tax-Qualified Employee Stock Benefit Plans by the Holding Company is
conditioned upon receipt by the Holding Company of a letter from the Independent
Appraiser to the effect that such sale would not have a material effect on the
Conversion and Reorganization or the Actual Purchase Price and the approval of
the OTS. The ability of the Tax-Qualified Employee Stock Benefit Plans to
purchase up to an additional 8% of the total number of shares of Conversion
Stock sold in the Conversion shall not be affected or limited in any manner by
the priorities or purchase limitations otherwise set forth in this Plan of
Conversion.
(ii) Notwithstanding anything to the contrary contained in this Plan, if
the final valuation of the Conversion Stock exceeds the maximum of the Estimated
Price Range, up to 8% of the total number of shares of Conversion Stock sold in
the Conversion may be sold to Tax-Qualified Stock Benefit Plans prior to filling
any other orders for Conversion Stock from such shares in excess of the maximum
of the Estimated Price Range.
5. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS
-----------------------------------------------
(FIRST PRIORITY)
----------------
A. Each Eligible Account Holder shall receive, without payment,
nontransferable Subscription Rights to purchase, subject to the further
limitations of Section 11 hereof, up to the greater of (i) the maximum purchase
limitation set forth in Section 11 hereof, (ii) one-tenth of 1% of the total
offering of shares of Conversion Stock in the Subscription Offering, and (iii)
15 times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion Stock offered in the
Subscription Offering by a fraction, of which the numerator is the amount of the
Qualifying Deposit of the Eligible Account Holder and the denominator is the
total amount of all Qualifying Deposits of all Eligible Account Holders, subject
to Section 14 hereof.
B. In the event of an oversubscription for shares of Conversion Stock
pursuant to the provisions herein, available shares shall be allocated among
subscribing Eligible Account Holders so as to permit each such Eligible Account
Holder, to the extent possible, to purchase a number of shares which will make
his or her total allocation equal to the lesser of the number of shares
subscribed for or 100 shares. Any available shares remaining after each such
subscribing Eligible Account Holder has been allocated the lesser of the number
of shares subscribed for or 100 shares shall be allocated among the subscribing
Eligible Account Holders
13
<PAGE>
in the proportion which the Qualifying Deposit of each such subscribing Eligible
Account Holder bears to the total Qualifying Deposits of all such subscribing
Eligible Account Holders whose orders are unfilled, provided that no fractional
shares shall be issued. Subscription Rights of Eligible Account Holders who are
also Directors or Officers and their Associates shall be subordinated to those
of other Eligible Account Holders to the extent that they are attributable to
increased deposits during the one-year period preceding the Eligibility Record
Date.
6. SUBSCRIPTION RIGHTS OF THE TAX-QUALIFIED EMPLOYEE STOCK
-------------------------------------------------------
BENEFIT PLANS (SECOND PRIORITY)
-------------------------------
Notwithstanding the purchase limitations discussed below, Tax-Qualified
Employee Stock Benefit Plans of the Holding Company and the Bank shall receive,
without payment, Subscription Rights to purchase in the aggregate up to 10% of
the Conversion Stock, including first priority to purchase any shares of
Conversion Stock to be issued in the Conversion and Reorganization as a result
of an increase in the Estimated Price Range after commencement of the
Subscription Offering and prior to completion of the Conversion and
Reorganization. Consistent with applicable laws, regulations, policies and
practices of the OTS, Tax-Qualified Employee Stock Benefit Plans may use funds
contributed by the Holding Company or the Bank and/or borrowed from an
independent third party to exercise such Subscription Rights, and the Holding
Company and the Bank may make scheduled discretionary contributions thereto,
provided that such contributions do not cause the Holding Company or the Bank to
fail to meet any applicable regulatory capital requirement.
7. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT
----------------------------------------------------
HOLDERS (THIRD PRIORITY)
------------------------
A. In the event that the Eligibility Record Date is more than 15 months
prior to the date of the latest amendment to the Application for Conversion
filed prior to OTS approval, then, and only in that event, a Supplemental
Eligibility Record Date shall be set and each Supplemental Eligible Account
Holder shall, subject to the further limitations of Section 11 hereof, receive,
without payment, Subscription Rights to purchase up to the greater of (i) the
maximum purchase limitation set forth in Section 11 hereof, (ii) one-tenth of 1%
of the total offering of shares of Conversion Stock in the Subscription
Offering, and (iii) 15 times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of Conversion Stock offered
in the Subscription Offering by a fraction, of which the numerator is the amount
of the Qualifying Deposits of the Supplemental Eligible Account Holder and the
denominator is the total amount of all Qualifying Deposits of all Supplemental
Eligible Account Holders, subject to Section 14 hereof and the availability of
shares of Conversion Stock for purchase after taking into account the shares of
Conversion Stock purchased by Eligible Account Holders and Tax- Qualified
Employee Stock Benefit Plans though the exercise of Subscription Rights under
Sections 5 and 6 hereof.
14
<PAGE>
B. In the event of an oversubscription for shares of Conversion Stock,
available shares shall be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each such Supplemental Eligible Account Holder,
to the extent possible, to purchase a number of shares sufficient to make his
total allocation (including the number of shares, if any, allocated in
accordance with Section 5.A) equal to the lesser of the number of shares
subscribed for or 100 shares. Any remaining available shares shall be allocated
among subscribing Supplemental Eligible Account Holders in the proportion that
the Qualifying Deposits of each bears to the total amount of the Qualifying
Deposits of all such subscribing Supplemental Eligible Account Holders whose
orders are unfilled, provided that no fractional shares shall be issued.
8. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
------------------------------------------------------
A. Each Other Member shall, subject to the further limitations of Section
11 hereof, receive, without payment, Subscription Rights to purchase up to the
greater of (i) the maximum purchase limitation set forth in Section 11 hereof
and (ii) one-tenth of 1% of the total offering of shares of Conversion Stock in
the Subscription Offering, in each case subject to Section 14 hereof and the
availability of shares of Conversion Stock for purchase after taking into
account the shares of Conversion Stock purchased by Eligible Account Holders,
Tax-Qualified Employee Stock Benefit Plans, and Supplemental Eligible Account
Holders, if any, through the exercise of Subscription Rights under Sections 5, 6
and 7 hereof.
B. If, pursuant to this Section, Other Members subscribe for a number of
shares of Conversion Stock in excess of the total number of shares of Conversion
Stock remaining, available shares shall be allocated among subscribing Other
Members so as to permit each such Other Members, to the extent possible, to
purchase a number of shares sufficient to make his total allocation equal to the
lesser of the number of shares subscribed or 100 shares. Any remaining available
shares shall be allocated among subscribing Other Members on a pro rata basis in
the same proportion as each such Other Member's subscription bears to the total
subscriptions of all such subscribing Other Members whose orders are unfilled,
provided that no fractional shares shall be issued.
15
<PAGE>
9. PUBLIC STOCKHOLDERS' OFFERING
-----------------------------
A. If less than the total number of shares of Conversion Stock are sold in
the Subscription Offering, all remaining shares of Conversion Stock shall,
subject to the further limitations of Section 11 hereof, be sold to Public
Stockholders as of the Stockholder Voting Record Date in an amount up to the
greater of (i) the maximum purchase limitation established for the Community
Offering and/or Syndicated Community Offering and (ii) one tenth of 1% of the
total offering of shares of Conversion Stock in the Subscription Offering, in
each case subject to Section 14 hereof and the availability of shares of
Conversion Stock for purchase after taking into account the shares of Conversion
Stock purchased by Eligible Account Holders, Tax- Qualified Employee Stock
Benefit Plans, Supplemental Eligible Account Holders and Other Members. The
Public Stockholders' Offering may commence concurrently with, at any time
during, or as soon as practicable after the end of the Subscription Offering.
The Public Stockholders' Offering must be completed within 45 days after the
completion of the Subscription Offering, unless extended by the Primary Parties
with any required regulatory approval. The ability of Public Stockholders to
purchase stock in the Public Stockholders' Offering is subject to the right of
the Primary Parties in their absolute discretion to accept or reject in whole or
in part all orders in the Public Stockholders' Offering.
B. If, pursuant to this Section, Public Stockholders as of the Stockholder
Voting Record Date subscribe for a number of shares of Conversion Stock in
excess of the total number of shares of Conversion Stock remaining, available
shares shall be allocated among subscribing Public Stockholders as of the
Stockholder Voting Record Date in an equitable manner as determined by the Board
of Directors, provided that no fractional shares shall be issued.
16
<PAGE>
10. COMMUNITY OFFERING, SYNDICATED COMMUNITY OFFERING AND
-----------------------------------------------------
OTHER OFFERINGS
---------------
A. If less than the total number of shares of Conversion Stock are sold in
the Subscription Offering and Public Stockholders' Offering, it is anticipated
that all remaining shares of Conversion Stock shall, if practicable, be sold in
a Community Offering and/or a Syndicated Community Offering. Subject to the
requirements set forth herein, the manner in which the Conversion Stock is sold
in the Community Offering and/or the Syndicated Community Offering shall have as
the objective the achievement of a wide distribution of such stock, subject to
the right of the Primary Parties, in their absolute discretion, to accept or
reject in whole or in part all orders in the Community Offering and/or
Syndicated Community Offering.
B. In the event of a Community Offering, all shares of Conversion Stock
which are not subscribed for in the Subscription Offering and Public
Stockholders' Offering shall be offered for sale by means of a direct community
marketing program, which may provide for the use of brokers, dealers or
investment banking firms experienced in the sale of financial institution
securities. Any available shares in excess of those not subscribed for in the
Subscription Offering and Public Stockholders' Offering will be available for
purchase by members of the general public to whom a Prospectus is delivered by
the Holding Company or on its behalf, with preference given to natural persons
who are Residents of the Local Community ("Preferred Subscribers").
C. A Prospectus and Order Form shall be furnished to such Persons as the
Primary Parties may select in connection with the Community Offering, and each
order for Conversion Stock in the Community Offering shall be subject to the
absolute right of the Primary Parties to accept or reject any such order in
whole or in part either at the time of receipt of an order or as soon as
practicable following completion of the Community Offering. Available shares
will be allocated first to each Preferred Subscriber whose order is accepted in
an amount equal to the lesser of 100 shares or the number of shares subscribed
for by each such Preferred Subscriber, if possible. Thereafter, unallocated
shares shall be allocated among the Preferred Subscribers whose accepted orders
remain unsatisfied in an equitable manner as determined by the Board of
Directors. If there are any shares remaining after all accepted orders by
Preferred Subscribers have been satisfied, any remaining shares shall be
allocated to other members of the general public who place orders in the
Community Offering, applying the same allocation described above for Preferred
Subscribers.
D. The maximum amount of Conversion Stock that any Person may purchase in
the Community Offering shall, subject to the further limitations of Section 11
hereof, not exceed $300,000 provided, however, that this amount may be decreased
or increased to up to 5% of the total offering of shares in the Conversion and
Reorganization, subject to any required regulatory approval but without the
further approval of Members of the Mutual Holding Company or the Stockholders of
the Bank, subject to the preferences set forth in Section 10.B and 10.C of this
Plan. The Primary Parties may commence the Community Offering concurrently with,
at any time during, or as soon as practicable after the end of, the Subscription
17
<PAGE>
Offering and Public Stockholders' Offering, and the Community Offering must be
completed within 45 days after the completion of the Subscription Offering and
Public Stockholders' Offering, unless extended by the Primary Parties with any
required regulatory approval.
E. Subject to such terms, conditions and procedures as may be determined by
the Primary Parties, all shares of Conversion Stock not subscribed for in the
Subscription Offering and Public Stockholders Offering or ordered in the
Community Offering may be sold by a syndicate of broker-dealers to the general
pubic in a Syndicated Community Offering. Each order for Conversion Stock in the
Syndicated Community Offering shall be subject to the absolute right of the
Primary Parties to accept or reject any such order in whole or in part either at
the time of receipt of an order or as soon as practicable after completion of
the Syndicated Community Offering. The amount of Conversion Stock that any
Person may purchase in the Syndicated Community Offering shall, subject to the
further limitations of Section 11 hereof, not exceed $300,000 provided, however,
that this amount may be decreased or increased to up to 5% of the total offering
of shares in the Conversion and Reorganization, subject to any required
regulatory approval but without the further approval of Members of the Mutual
Holding Company or the Stockholders of the Bank. The Primary Parties may
commence the Syndicated Community Offering concurrently with, at any time
during, or as soon as practicable after the end of, the Subscription Offering,
the Public Stockholders' Offering and/or Community Offering. The Syndicated
Community Offering must be completed within 45 days after the completion of the
Subscription Offering, unless extended by the Primary Parties with any required
regulatory approval.
F. If for any reason a Syndicated Community Offering of shares of
Conversion Stock not sold in the Subscription Offering and the Community
Offering cannot be effected, or in the event that any insignificant residue of
shares of Conversion Stock is not sold in the Subscription Offering, Public
Stockholders' Offering, Community Offering or Syndicated Community Offering, the
Primary Parties shall use their best efforts to obtain other purchasers for such
shares in such manner and upon such conditions as may be satisfactory to the
OTS.
11. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF CONVERSION
--------------------------------------------------------
STOCK
-----
The following limitations shall apply to all purchases of Conversion
Stock:
A. The number of shares of Conversion Stock which may be purchased by any
Person (or persons through a single account), in the First Priority, Third
Priority and Fourth Priority in the Subscription Offering shall not exceed such
number of shares of Conversion Stock that when combined with Exchange Shares
received shall equal $300,000 of Holding Company Common Stock, except for
Tax-Qualified Employee Stock Benefit Plans, which in the aggregate may subscribe
for up to 8% of the Conversion Stock.
B. The number of shares of Conversion Stock which may be purchased by any
Person in the Public Stockholders, the Community and/or the Syndicated Community
Offerings shall not exceed such number of shares of Conversion Stock that when
combined with Exchange Shares received shall equal $300,000 of Holding Company
Common Stock.
18
<PAGE>
C. Except for the Tax-Qualified Employee Stock Benefit Plans, the maximum
number of shares of Conversion Stock which may be purchased in all of the
combined categories of the Conversion and Reorganization by any Person (or
persons through a single account) together with any Associate or group of
persons Acting in Concert shall not exceed such number of shares of Conversion
Stock that when combined with Exchange Shares shall equal $904,000 of Holding
Company Common Stock.
D. The number of shares of Conversion Stock which Directors and Officers
and their Associates may purchase in the aggregate in the Offering shall not
exceed 29% of the total number of shares of Conversion Stock sold in the
Offerings, including any shares which may be issued in the event of an increase
in the maximum of the Estimated Price Range to reflect changes in market,
financial and economic conditions after commencement of the Subscription
Offering and prior to completion of the Offerings.
E. No Person may purchase fewer than 25 shares of Conversion Stock in the
Offerings, to the extent such shares are available; provided, however, that if
the Actual Purchase Price is greater than $20.00 per share, such minimum number
of shares shall be adjusted so that the aggregate Actual Purchase Price for such
minimum shares will not exceed $500.00.
F. For purposes of the foregoing limitations and the determination of
Subscription Rights, (i) Directors, Officers and Employees shall not be deemed
to be Associates or a group acting in concert solely as a result of their
capacities as such, (ii) shares purchased by Tax-Qualified Employee Stock
Benefit Plans shall not be attributable to the individual trustees or
beneficiaries of any such plan for purposes of determining compliance with the
limitations set forth in this Section, (iii) shares purchased by Tax-Qualified
Employee Stock Benefit Plans shall not be attributable to the individual
trustees or beneficiaries of any such plan for purposes of determining
compliance with the limitation set forth in this Section, and (iv) Exchange
Shares shall be valued at the Actual Purchase Price.
G. Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the Members of
the Mutual Holding Company or the Stockholders of the Bank, the Primary Parties
may increase or decrease the individual or overall purchase limitations set
forth herein to a percentage which does not exceed 5% of the total shares of
Holding Company Common Stock issued in the Conversion and Reorganization whether
prior to, during or after the Subscription Offering, Community Offering and/or
Syndicated Community Offering. Notwithstanding the foregoing, the maximum
purchase limitation may be increased up to 9.99% provided that orders for
exceeding 5% of the shares being offered shall not exceed, in the aggregate, 10%
of the total offering. In the event that the individual or overall purchase
limitations are increased after commencement of the Subscription Offering or any
other offering, the Primary Parties shall permit any Person who subscribed for
the maximum number of shares of Conversion Stock (plus certain large subscribers
as determined in the sole discretion of the Primary Parties) to purchase an
additional number of shares, so that such Person shall be permitted to subscribe
for the then maximum number of shares permitted to be subscribed for by such
Person, subject to the rights and preferences of any Person who has priority
Subscription Rights. In the event that the individual or overall purchase
limitations are decreased after commencement of the Subscription Offering or any
other offering, the orders of any Person who subscribed for more than the new
purchase limitation
19
<PAGE>
shall be decreased by the minimum amount necessary so that such Person shall be
in compliance with the then maximum number of shares permitted to be subscribed
for by such Person.
H. The Primary Parties shall have the right to take all such action as they
may, in their sole discretion, deem necessary, appropriate or advisable in order
to monitor and enforce the terms, conditions, limitations and restrictions
contained in this Section and elsewhere in this Plan and the terms, conditions
and representations contained in the Order Form, including, but not limited to,
the absolute right (subject only to any necessary regulatory approvals or
concurrences) to reject, limit or revoke acceptance of any subscription or order
and to delay, terminate or refuse to consummate any sale of Conversion Stock
which they believe might violate, or is designed to, or is any part of a plan
to, evade or circumvent such terms, conditions, limitations, restrictions and
representations. Any such action shall be final, conclusive and binding on all
persons, and the Primary Parties and their respective Boards shall be free from
any liability to any Person on account of any such action.
I. Notwithstanding anything to the contrary contained in this Plan, except
as may otherwise be required by the OTS, the Public Stockholders will not have
to sell any Bank Common Stock or be limited in receiving Exchange Shares even if
their ownership of Bank Common Stock when converted into Exchange Shares
pursuant to the MHC Merger would exceed an applicable purchase limitation;
however, they might be precluded from purchasing any Conversion Stock in the
Offerings.
12. TIMING OF SUBSCRIPTION OFFERING; MANNER OF EXERCISING
-----------------------------------------------------
SUBSCRIPTION RIGHTS AND ORDER FORMS
-----------------------------------
A. The Subscription Offering may be commenced concurrently with or at any
time after the mailing to Voting Members of the Mutual Holding Company and
Stockholders of the Bank of the proxy statement(s) to be used in connection with
the Special Meeting and the Stockholders' Meeting. The Subscription Offering may
be closed before the Special Meeting and the Stockholders' Meeting, provided
that the offer and sale of the Conversion Stock shall be conditioned upon the
approval of the Plan by the Voting Members of the Mutual Holding Company and the
Stockholders of the Bank at the Special Meeting and the Stockholders' Meeting,
respectively.
B. The exact timing of the commencement of the Subscription Offering shall
be determined by the Primary Parties in consultation with the Independent
Appraiser and any financial or advisory or investment banking firm retained by
them in connection with the Conversion. The Primary Parties may consider a
number of factors, including, but not limited to, their current and projected
future earnings, local and national economic conditions, and the prevailing
market for stocks in general and stocks of financial institutions in particular.
The Primary Parties shall have the right to withdraw, terminate, suspend, delay,
revoke or modify any such Subscription Offering, at any time and from time to
time, as they in their sole discretion may determine, without liability to any
Person, subject to compliance with applicable securities laws and any necessary
regulatory approval or concurrence.
20
<PAGE>
C. The Primary Parties shall, promptly after the SEC has declared the
Registration Statement, which includes the Prospectus, effective and all
required regulatory approvals have been obtained, distribute or make available
the Prospectus, together with Order Forms for the purchase of Conversion Stock,
to all Participants for the purpose of enabling them to exercise their
respective Subscription Rights, subject to Section 14 hereof. The Primary
Parties may elect to mail a Prospectus and Order Form only to those Participants
who request such materials by returning a postage-paid card to the Primary
Parties by a date specified in the letter informing them of their Subscription
Rights. Under such circumstances, the Subscription Offering shall not be closed
until the expiration of 30 days after the mailing by the Primary Parties of the
postage-paid card to Participants.
D. A single Order Form for all Deposit Accounts maintained with the Bank by
an Eligible Account Holder, Supplemental Eligible Account Holder and any Other
Member may be furnished, irrespective of the number of Deposit Accounts
maintained with the Bank on the Eligibility Record Date and Supplemental
Eligibility Record Date and the Voting Record Date, respectively.
E. The recipient of an Order Form shall have no less than 20 days and no
more than 45 days from the date of mailing of the Order Form (with the exact
termination date to be set forth on the Order Form) to properly complete and
execute the Order Form and deliver it to the Primary Parties. The Primary
Parties may extend such period by such amount of time as they determine is
appropriate. Failure of any Participant to deliver a properly executed Order
Form to the Primary Parties, along with payment (or authorization for payment by
withdrawal) for the shares of Conversion Stock subscribed for, within time
limits prescribed, shall be deemed a waiver and release by such person of any
rights to subscribe for shares of Conversion Stock. Each Participant shall be
required to confirm to the Primary Parties by executing an Order Form that such
Person has fully complied with all of the terms, conditions, limitations and
restrictions in the Plan.
F. The Primary Parties shall have the absolute right, in their sole
discretion and without liability to any Participant or other Person, to reject
any Order Form, including, but not limited to, any Order Form that is (i)
improperly completed or executed; (ii) not timely received; (iii) not
accompanied by the proper payment (or authorization of withdrawal for payment)
or, in the case of institutional investors in the Community Offering, not
accompanied by an irrevocable order together with a legally binding commitment
to pay the full amount of the purchase price prior to 48 hours before the
completion of the Offerings; or (iv) submitted by a Person whose representations
the Primary Parties believe to be false or who they otherwise believe, either
alone, or acting in concert with others, is violating, evading or circumventing,
or intends to violate, evade or circumvent, the terms and conditions of the
Plan. The Primary Parties may, but will not be required to, waive any
irregularity on any Order Form or may require the submission of corrected Order
Forms or the remittance of full payment for shares of Conversion Stock by such
date as they may specify. The interpretation of the Primary Parties of the terms
and conditions of the Order Forms shall be final and conclusive.
21
<PAGE>
13. PAYMENT FOR CONVERSION STOCK
----------------------------
A. Payment for shares of Conversion Stock subscribed for by Participants in
the Subscription Offering and payment for shares of Conversion Stock ordered by
Persons in the Stockholders' Offering, Community Offering and Syndicated
Community Offering (if applicable) shall be equal to the Initial Purchase Price
multiplied by the number of shares which are being subscribed for or ordered,
respectively. Such payment may be made in cash, if delivered in person, or by
check or money order at the time the Order Form is delivered to the Primary
Parties. In addition, the Primary Parties may elect to provide Participants
and/or other Persons who have a Deposit Account with the Bank the opportunity to
pay for shares of Conversion Stock by authorizing the Bank to withdraw from such
Deposit Account an amount equal to the aggregate Purchase Price of such shares.
If the Actual Purchase Price is less than the Initial Purchase Price, the
Primary Parties shall refund the difference to all Participants and other
Persons, unless the Primary Parties choose to provide Participants and other
Persons the opportunity on the Order Form to elect to have such difference
applied to the purchase of additional whole shares of Conversion Stock. If the
Actual Purchase Price is more than the Initial Purchase Price, the Primary
Parties shall reduce the number of shares of Conversion Stock ordered by
Participants and other Persons and refund any remaining amount which is
attributable to a fractional share interest, unless the Primary Parties choose
to provide Participants and other Persons the opportunity to increase the amount
of funds submitted to pay for their shares of Conversion Stock.
B. Consistent with applicable laws and regulations and policies and
practices of the OTS, payment for shares of Conversion Stock subscribed for by
Tax-Qualified Employee Stock Benefit Plans may be made with funds contributed by
the Holding Company and/or funds obtained pursuant to a loan from an independent
third party pursuant to a loan commitment which is in force from the time that
any such plan submits an Order Form until the closing of the transactions
contemplated hereby.
C. If a Participant or other Person authorizes the Bank to withdraw the
amount of the Initial Purchase Price from his or her Deposit Account, the Bank
shall have the right to make such withdrawal or to freeze funds equal to the
aggregate Initial Purchase Price upon receipt of the Order Form. Notwithstanding
any regulatory provisions regarding penalties for early withdrawals from
certificate accounts, the Bank may allow payment by means of withdrawal from
certificate accounts without the assessment of such penalties. In the case of an
early withdrawal of only a portion of such account, the certificate evidencing
such account shall be canceled if any applicable minimum balance requirement
ceases to be met. In such case, the remaining balance will be returned to the
depositor. However, where any applicable minimum balance is maintained in such
certificate account, the rate of return on the balance of the certificate
account shall remain the same as prior to such early withdrawal. This waiver of
the early withdrawal penalty applies only to withdrawals made in connection with
the purchase of Conversion Stock and is entirely within the discretion of the
Primary Parties.
22
<PAGE>
D. The Bank shall pay interest, at not less than the passbook rate, for all
amounts paid in cash, by check or money order to purchase shares of Conversion
Stock in the Subscription Offering, Public Stockholders' Offering and the
Community Offering from the date payment is received until the date the
Conversion and Reorganization is completed or terminated.
E. The Bank shall not knowingly loan funds or otherwise extend credit to
any Participant or other Person to purchase Conversion Stock.
F. Each share of Conversion Stock shall be non-assessable upon payment in
full of the Actual Purchase Price.
14. ACCOUNTHOLDERS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES
----------------------------------------------------------
The Primary Parties shall make reasonable efforts to comply with the
securities laws of all jurisdictions in the United States in which Participants
reside. However, no Participant will be offered or receive any Conversion Stock
under the Plan if such Participant resides in a foreign country or resides in a
jurisdiction of the United States with respect to which any of the following
apply; (a) there are few Participants otherwise eligible to subscribe for shares
under this Plan who reside in such jurisdiction; (b) the granting of
Subscription Rights or the offer or sale of shares of Conversion Stock to such
Participants would require any of the Primary Parties or their respective
Directors and Officers, under the laws of such jurisdiction, to register as a
broker-dealer, salesman or selling agent or to register or otherwise qualify the
Conversion Stock for sale in such jurisdiction, or any of the Primary Parties
would be required to qualify as a foreign corporation or file a consent to
service of process in such jurisdiction; and (c) such registration,
qualification or filing in the judgment of the Primary Parties would be
impracticable or unduly burdensome for reasons of cost or otherwise.
15. VOTING RIGHTS OF STOCKHOLDERS
-----------------------------
Following consummation of the Conversion and Reorganization, voting rights
with respect to the Bank shall be held and exercised exclusively by the Holding
Company as holder of all of the Bank's outstanding voting capital stock, and
voting rights with respect to the Holding Company shall be held and exercised
exclusively by the holders of the Holding Company's voting capital stock.
16. LIQUIDATION ACCOUNT
-------------------
A. At the time of the Merger No. 2, the Bank shall establish a liquidation
account in an amount equal to the amount of the dividends from Bank Common Stock
and Middle Tier Holding Company Common Stock waived by the Mutual Holding
Company plus the greater of (i) the retained earnings of the Bank as of the date
of the latest statement of financial condition contained in the final offering
circular utilized in the Bank's initial public offering, or (ii) 87.62% of the
Middle Tier Holding Company's total stockholders' equity as reflected in its
latest statement of financial condition contained in the final Prospectus
utilized in the Conversion and
23
<PAGE>
Reorganization. The function of the liquidation account will be to preserve the
rights of certain holders of Deposit Accounts in the Bank who maintain such
accounts in the Bank following the Conversion and Reorganization to priority to
distributions in the unlikely event of a liquidation of the Bank subsequent to
the Conversion and Reorganization.
B. The liquidation account shall be maintained for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders, if any, who maintain
their Deposit Accounts in the Bank after the Conversion and Reorganization. Each
such account holder will, with respect to each Deposit Account held, have a
related inchoate interest in a portion of the liquidation account balance, which
interest will be referred to in this Section 16 as the "subaccount balance." All
Deposit Accounts having the same social security number will be aggregated for
purposes of determining the initial subaccount balance with respect to such
Deposit Accounts, except as provided in this Section.
C. In the event of a complete liquidation of the Bank subsequent to the
Conversion and Reorganization (and only in such event), each Eligible Account
Holder and Supplemental Eligible Account Holder, if any, shall be entitled to
receive a liquidation distribution from the liquidation account in the amount of
the then current subaccount balances for Deposit Accounts then held (adjusted as
described below) before any liquidation distribution may be made with respect to
the capital stock of the Bank. No merger, consolidation, sale of bulk assets or
similar combination transaction with another FDIC-insured institution in which
the Bank is not the surviving entity shall be considered a complete liquidation
for this purpose. In any merger or consolidation transaction, the liquidation
account shall be assumed by the surviving entity.
D. The initial subaccount balance for a Deposit Account held by an Eligible
Account Holder and Supplemental Eligible Account Holder, if any, shall be
determined by multiplying the opening balance in the liquidation account by a
fraction, of which the numerator is the amount of the Qualifying Deposits of
such account holder and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders and Supplemental Eligible Account
Holders, if any. For Deposit Accounts in existence at both the Eligibility
Record Date and the Supplemental Eligibility Record Date, if any, separate
initial subaccount balances shall be determined on the basis of the Qualifying
Deposits in such Deposit Accounts on each such record date. Initial subaccount
balances shall not be increased, and shall be subject to downward adjustment as
provided below.
E. If the aggregate deposit balance in the Deposit Account(s) of any
Eligible Account Holder or Supplemental Eligible Account Holder, if any, at the
close of business on any June 30 annual closing date is less than the lesser of
(a) the aggregate deposit balance in such Deposit Account(s) at the close of
business on any other annual closing date subsequent to such record dates or (b)
the aggregate deposit balance in such Deposit Account(s) as of the Eligibility
Record Date or the Supplemental Eligibility Record Date, the subaccount balance
for such Deposit Accounts(s) shall be adjusted by reducing such subaccount
balance in an amount proportionate to the reduction in such deposit balance. In
the event of such a downward adjustment, the subaccount balance shall not be
subsequently increased, notwithstanding any subsequent increase
24
<PAGE>
in the deposit balance of the related Deposit Account(s). The subaccount balance
of an Eligible Account Holder or Supplemental Eligible Account Holder, if any,
will be reduced to zero if the Account Holder ceases to maintain a Deposit
Account at the Bank that has the same social security number as appeared on his
Deposit Account(s) at the Eligibility Record Date or, if applicable, the
Supplemental Eligibility Record Date.
F. Subsequent to the Conversion and Reorganization, the Bank may not pay
cash dividends generally on deposit accounts and/or capital stock of the Bank,
if such dividend or repurchase would reduce the Bank's regulatory capital below
the aggregate amount of the then current subaccount balances for Deposit
Accounts then held; otherwise, the existence of the liquidation account shall
not operate to restrict the use or application of any of the net worth accounts
of the Bank.
G. For purposes of this Section, a Deposit Account includes a predecessor
or successor account which is held by an Account Holder with the same social
security number.
17. TRANSFER OF DEPOSIT ACCOUNTS
----------------------------
Each Deposit Account in the Bank at the time of the consummation of the
Conversion and Reorganization shall become, without further action by the
holder, a Deposit Account in the Bank equivalent in withdrawable amount to the
withdrawal value (as adjusted to give effect to any withdrawal made for the
purchase of Conversion Stock), and subject to the same terms and conditions
(except as to voting and liquidation rights) as such Deposit Account in the Bank
immediately preceding consummation of the Conversion and Reorganization. Holders
of Deposit Accounts in the Bank shall not, as such holders, have any voting
rights.
18. REQUIREMENTS FOLLOWING CONVERSION AND REORGANIZATION FOR
--------------------------------------------------------
REGISTRATION, MARKET MAKING AND STOCK EXCHANGE LISTING
------------------------------------------------------
In connection with the Conversion and Reorganization, the Holding Company
shall register the Holding Company Common Stock pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended, and shall undertake not to
deregister such stock for a period of three years thereafter. The Holding
Company also shall use its best efforts to (i) encourage and assist a market
maker to establish and maintain a market for the Holding Company Common Stock
and (ii) list the Holding Company Common Stock on a national or regional
securities exchange or to have quotations for such stock disseminated on the
National Association of Securities Dealers Automated Quotation System.
19. DIRECTORS AND OFFICERS OF THE BANK AND HOLDING COMPANY
------------------------------------------------------
Each person serving as a Director or Officer of the Bank or the Holding
Company at the time of the Conversion and Reorganization shall continue to serve
as a Director or Officer of the Bank or the Holding Company for the balance of
the term for which the person was elected prior to the Conversion and
Reorganization, and until a successor is elected and qualified.
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<PAGE>
20. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS
----------------------------------------------------------
FOLLOWING THE CONVERSION AND REORGANIZATION
-------------------------------------------
For a period of three years following the Conversion and Reorganization,
the Directors and Officers of the Holding Company and the Bank and their
Associates may not purchase, without the prior written approval of the OTS,
Holding Company Common Stock except from a broker-dealer registered with the
SEC. This prohibition shall not apply, however, to (i) a negotiated transaction
arrived at by direct negotiation between buyer and seller and involving more
than 1% of the outstanding Holding Company Common Stock and (ii) purchases of
stock made by and held by any Tax-Qualified Employee Stock Benefit Plan (and
purchases of stock made by and held by any Non-Tax-Qualified Employee Stock
Benefit Plan following the receipt of stockholder approval of such plan) which
may be attributable to individual officers or directors.
The foregoing restriction on purchases of Holding Company Common Stock
shall be in addition to any restrictions that may be imposed by federal and
state securities laws.
21. RESTRICTIONS ON TRANSFER OF STOCK
---------------------------------
All shares of the Conversion Stock which are purchased by Persons other
than Directors and Officers shall be transferable without restriction, except in
connection with a transaction proscribed by Section 22 of this Plan. Shares of
Conversion Stock purchased by Directors and Officers of the Holding Company and
the Bank on original issue from the Holding Company (by subscription or
otherwise) shall be subject to the restriction that such shares shall not be
sold or otherwise disposed of for value for a period of one year following the
date of purchase, except for any disposition of such shares following the death
of the original purchaser or pursuant to any merger or similar transaction
approved by the OTS. The shares of Conversion Stock issued by the Holding
Company to Directors and Officers shall bear the following legend giving
appropriate notice of such one-year restriction.
The shares of stock evidenced by this Certificate are restricted as to transfer
for a period of one year from the date of this Certificate pursuant to Part 563b
of the Rules and Regulations of the Office of Thrift Supervision. These shares
may not be transferred during such one-year period without a legal opinion of
counsel for the Company that said transfer is permissible under the provisions
of applicable law and regulation. This restrictive legend shall be deemed null
and void after one year from the date of this Certificate.
In addition, the Holding Company shall give appropriate instructions to the
transfer agent for the Holding Company Common Stock with respect to the
applicable restrictions relating to the transfer of restricted stock. Any shares
issued at a later date as a stock dividend, stock split or otherwise with
respect to any such restricted stock shall be subject to the same holding period
restrictions as may then be applicable to such restricted stock.
26
<PAGE>
The foregoing restriction on transfer shall be in addition to any
restrictions on transfer that may be imposed by federal and state securities
laws.
22. RESTRICTIONS ON ACQUISITION OF STOCK OF THE HOLDING COMPANY
-----------------------------------------------------------
The articles of incorporation of the Holding Company shall prohibit any
Person together with Associates or groups of Persons acting in concert from
offering to acquire or acquiring, directly or indirectly, beneficial ownership
of more than 10% of any class of equity securities of the Holding Company, or of
securities convertible into more than 10% of any such class, for five years
following completion of the Conversion and Reorganization. The articles of
incorporation of the Holding Company also shall provide that all equity
securities beneficially owned by any Person in excess of 10% of any class of
equity securities during such five-year period shall be considered "excess
shares," and that excess shares 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. The foregoing
restrictions shall not apply to (i) any offer with a view toward public resale
made exclusively to the Holding Company by underwriters or a selling group
acting on this behalf, (ii) the purchase of shares by a Tax- Qualified Employee
Stock Benefit Plan established for the benefit of the employees of the Holding
Company and its subsidiaries which is exempt from approval requirements under 12
C.F.R. ss.574.3(c)(1)(vi) or any successor thereto, and (iii) any offer or
acquisition approved in advance by the affirmative vote of two-thirds of the
entire Board of Directors of the Holding Company. Directors, Officers or
Employees of the Holding Company or the Bank or any subsidiary thereof shall not
be deemed to be Associates or a group acting in concert with respect to their
individual acquisition of any class of equity securities of the Holding Company
solely as a result of their capacities as such.
23. TAX RULINGS OR OPINIONS
-----------------------
Consummation of the Conversion and Reorganization is conditioned upon prior
receipt by the Primary Parties of either a ruling or an opinion of counsel with
respect to federal tax laws, and either a ruling or an opinion of counsel with
respect to Pennsylvania tax laws, to the effect that consummation of the
transactions contemplated hereby will not result in a taxable reorganization
under the provisions of the applicable codes or otherwise result in any material
adverse tax consequences to the Primary Parties or to account holders receiving
Subscription Rights before or after the Conversion and Reorganization, except in
each case to the extent, if any, that Subscription Rights are deemed to have
fair market value on the date such rights are issued.
24. STOCK COMPENSATION PLANS
------------------------
A. The Holding Company and the Bank are authorized to adopt Tax-Qualified
Employee Stock Benefit Plans in connection with the Conversion and
Reorganization, including without limitation an employee stock ownership plan.
27
<PAGE>
B. The Holding Company and the Bank also are authorized to adopt stock
option plans, restricted stock grant plans and other Non-Tax-Qualified Employee
Stock Benefit Plans, provided that no stock options shall be granted, and no
shares of Conversion Stock shall be purchased, pursuant to any of such plans
prior to the earlier of (i) the one-year anniversary of the consummation of the
Conversion and Reorganization or (ii) the receipt of stockholder approval of
such plans at either the annual or special meeting of stockholders of the
Holding Company to be held not earlier than six months after the completion of
the Conversion and Reorganization.
C. Existing as well as any newly created Tax-Qualified Employee Stock
Benefit Plans may purchase shares of Conversion Stock in the Offerings, to the
extent permitted by the terms of such benefit plans and this Plan.
25. DIVIDEND AND REPURCHASE RESTRICTIONS ON STOCK
---------------------------------------------
A. Except as may otherwise may be permitted by the OTS, the Holding Company
may not repurchase any shares of its capital stock during the first year
following consummation of the Conversion and Reorganization. During the second
and third years following consummation of the Conversion and Reorganization, the
Holding Company may not repurchase any of its capital stock from any person,
other than pursuant to (i) an offer to repurchase made by the Holding Company on
a pro rata basis to all of its stockholders and which is approved by the OTS,
(ii) the repurchase of qualifying shares of a director, if any, (iii) purchases
in the open market by a Tax-Qualified or Non-Tax-Qualified Employee Stock
Benefit Plan in an amount reasonable and appropriate to fund the plan, or (iv) a
repurchase program approved by the OTS.
B. The Bank may not declare or pay a cash dividend on, or repurchase any
of, its capital stock if the effect thereof would cause the regulatory capital
of the Bank to be reduced below the amount required for the liquidation account.
Any dividend declared or paid on, or repurchase of, the Bank's capital stock
also shall be in compliance with Section 563.134 of the Regulations Applicable
to All Savings Associations, or any successor thereto.
C. Notwithstanding anything to the contrary set forth herein, the Holding
Company may repurchase its capital stock to the extent and subject to the
requirements set forth in Section 563b.3(g)(3) of the Regulations Applicable to
All Savings Associations, or any successor thereto, or as otherwise may be
approved by the OTS.
26. PAYMENT OF FEES TO BROKERS
--------------------------
The Primary Parties may elect to offer to pay fees on a per share basis to
securities brokers who assist purchasers of Conversion Stock in the Offerings.
28
<PAGE>
27. EFFECTIVE DATE
--------------
The Effective Date of the Conversion and Reorganization shall be the date
upon which the last of the following actions occurs: (i) the filing of Articles
of Combination with the OTS with respect to the Mergers, (ii) the closing of the
issuance of the shares of Conversion Stock in the Offerings. The filing of
Articles of Combination relating to the Mergers and the closing of the issuance
of shares of Conversion Stock in the Offerings shall not occur until all
requisite regulatory, Member and Stockholder approvals have been obtained, all
applicable waiting periods have expired and sufficient subscriptions and orders
for the Conversion Stock have been received. It is intended that the closing of
the Mergers and the sale of shares of Conversion Stock in the Offerings shall
occur consecutively and substantially simultaneously.
28. AMENDMENT OR TERMINATION OF THE PLAN
------------------------------------
If deemed necessary or desirable by the Boards of Directors of the Primary
Parties, this Plan may be substantively amended, as a result of comments from
regulatory authorities or otherwise, at any time prior to the solicitation of
proxies from members and Stockholders to vote on the Plan and at any time
thereafter with the concurrence of the OTS. Any amendment to this Plan made
after approval by the Members and Stockholders with the concurrence of the OTS
shall not necessitate further approval by the Members or Stockholders unless
otherwise required by the OTS. This Plan shall terminate if the sale of all
shares of Conversion Stock is not completed within 24 months from the date of
the Special Meeting. Prior to the earlier of the Special Meeting and the
Stockholders' Meeting, this Plan may be terminated by the Boards of Directors of
the Primary Parties without approval of the OTS; after the Special Meeting or
the Stockholder's Meeting, the Boards of Directors may terminate this Plan only
with the approval of the OTS.
29. INTERPRETATION OF THE PLAN
--------------------------
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of each of the Boards of Directors of the
Primary Parties shall be final, subject to the authority of the OTS.
29
<PAGE>
APPENDIX A
MERGER NO. 2
Plan of Merger Between Interim Bank No. 1
(Formerly MHC) and the Bank
PLAN OF MERGER, dated as of __________ __, 1998 ("Plan of Merger") by and
between Interim Bank No. 1, an interim federal stock savings bank, which was
formerly FJF Financial, M.H.C. ("Interim Bank No. 1") and Roxborough-Manayunk
Federal Savings Bank, a federal stock savings bank (the "Bank"). Unless
otherwise noted, defined terms shall have the same meaning as those set forth in
the Plan of Conversion and Reorganization of the Mutual Holding Company and Plan
of Merger between the Mutual Holding Company, the Middle Tier Holding Company
and the Bank ("Plan") (of which this Plan of Merger is Appendix A thereto).
WITNESSETH:
WHEREAS, On December 31, 1992, Roxborough-Manayunk Federal Savings and Loan
Association (the "Association"), a federally chartered mutual savings
institution reorganized into the mutual holding company form of organization
whereby (1) the Association organized a federally chartered, stock savings bank,
Roxborough-Manayunk Federal Savings Bank (the "Bank") as a wholly owned
subsidiary and transferred substantially all of its assets and liabilities to
the Bank in exchange for 87.62% of the Bank's Common Stock, and reorganized
itself into a federally chartered mutual holding company, and (ii) sold 12.38%
of the shares of the Bank Common Stock to the public;
WHEREAS, On September 30, 1997, the Bank completed a reorganization in
which the Bank became a wholly owned subsidiary of a stock middle tier holding
company known as Thistle Group Holdings, Inc., whereby shareholders of the Bank
became shareholders of the Holding Company;
WHEREAS, the Board of Directors of the Mutual Holding Company has
determined that it is in the best interests of the Mutual Holding Company and
its members to convert from the mutual to stock form of organization;
WHEREAS, the Bank is currently a wholly owned subsidiary of the Middle Tier
Holding Company, which is currently a majority owned subsidiary of the Mutual
Holding Company;
WHEREAS, pursuant to the Plan, the Mutual Holding Company will convert into
an interim federal stock savings bank to be known as Interim Bank No. 1;
WHEREAS, Middle Tier Holding Company will adopt a federal stock holding
company charter and immediately thereafter an interim federal stock savings bank
charter to be known as Interim Bank No. 2; Interim Bank No. 2 will then merge
with and into the Bank ("Merger No.
1"), with the Bank as the surviving entity;
A - 1
<PAGE>
WHEREAS, immediately following Merger No. 1, Interim Bank No. 1, formerly
the Mutual Holding Company, will merge with and into the Bank with the Bank as
the surviving entity ("Merger No. 2"). The shares of Middle Tier Holding Company
Common Stock previously held by the Mutual Holding Company (now Interim Bank No.
1) will be canceled. Eligible members of the Mutual Holding Company as of
certain specified dates will be granted interests in a liquidation account to be
established by the Bank;
WHEREAS, Holding Company will form an interim corporation ("Interim Bank
No. 3"), a new, wholly owned first-tier subsidiary with an interim federal stock
savings bank charter, and immediately following Merger No. 2, Interim Bank No. 3
will merge with and into the Bank, with the Bank as the surviving entity
("Merger No. 3"). As a result of Merger No. 3, Bank stock deemed held by Public
Stockholders will be converted into Holding Company Common Stock based upon the
Exchange Ratio which is designed to ensure that the same Public Stockholders
will own approximately the same percentage of Holding Company Common Stock as
the percentage of Middle Tier Holding Company Common Stock owned by them
immediately prior to the Conversion.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, and in accordance with federal law, Interim Bank
No. 1 and the Bank hereby agree that, subject to the conditions hereinafter set
forth, the Mutual Holding Company shall convert to a federal interim stock
savings bank, and Interim Bank No. 1 shall then be merged with and into the Bank
with Bank as the surviving entity. The terms and conditions of such merger shall
be as follows:
1. Regulatory Approvals. The merger shall not become effective until
receipt of approval of the OTS and any other agency having jurisdiction over the
merger, if any.
2. Identity and Name of Resulting Bank. The resulting bank in the Merger
shall be the Bank, Roxborough-Manayunk Federal Savings Bank.
3. Offices of Resulting Bank. The home office of Bank, as the resulting
company, shall be the Bank's office located at 6060 Ridge Avenue, Philadelphia,
Pennsylvania. The locations of the branch offices of the resulting savings bank
shall be those of the Bank in existence on the date of this Plan of Merger.
4. The Bank's Federal Charter and Bylaws. The federal stock charter and
bylaws of the Bank as in effect immediately prior to the effectiveness of the
Merger shall be amended as necessary to accomplish the Merger.
5. Effective Date. The effective date of the Conversion and Merger
("Effective Date") shall be the date as soon as practicable after the issuance
and/or execution by the OTS and any other federal or state regulatory agencies,
of all approvals, certificates and documents as may be required in order to
cause the Conversion and the Merger to become effective.
6. Middle Tier Holding Company Stockholder Approval. The affirmative vote
of the holders of one-half of the outstanding shares of Middle Tier Holding
Company Common Stock and at least a majority of the shares of Middle Tier
Holding Company Common Stock cast
A - 2
<PAGE>
which are not held by the Mutual Holding Company shall be required to approve
this Plan of Merger.
7. Bank Stockholder Approval. The affirmative vote of the holders of
two-thirds of the outstanding shares of the Bank shall be required to approve
this Plan of Merger.
8. Mutual Holding Company Approval. The approval of a majority of the
members of the Mutual Holding Company, as of a specified date shall be required
to approve this Plan of Merger.
9. Cancellation of Middle Tier Holding Company Common Stock held by the
Mutual Holding Company and Member Interests; Liquidation Account.
(a) On the Effective Date, (i) each share of Middle Tier Holding
Company Common Stock issued and outstanding immediately prior to the Effective
Date and held by the Mutual Holding Company shall, by virtue of the
Reorganization and without any action on the part of the holder thereof, be
canceled, (ii) the interests in the Mutual Holding Company of any person, firm
or entity who or which qualified as a member of the Mutual Holding Company in
accordance with its mutual charter and bylaws and the laws of the United States
prior to the Mutual Holding Company's conversion from mutual to stock form (the
"Members") shall, by virtue of the Reorganization and without any action on the
part of the holder thereof, be canceled, and (iii) the Bank shall establish a
liquidation account on behalf of each depositor member of the Mutual Holding
Company, as defined in the Plan, in accordance with Section 16 of the Plan.
(b) At or after the Effective Date and prior to the Merger, each
certificate or certificates theretofore evidencing issued and outstanding shares
of Middle Tier Holding Company Common Stock, other than any such certificate or
certificates held by the Mutual Holding Company, which shall be canceled, shall
be converted into outstanding shares of Holding Company Common Stock based upon
the Exchange Ratio which is designed to provide Public Stockholders
approximately a percentage of Holding Company Common Stock as Middle Tier
Holding Company Stock owned by them before the Conversion and Merger.
10. Dissenting Shares. No Member of the Mutual Holding Company or
stockholder of the Middle Tier Holding Company and the Bank shall have any
dissenter or appraisal rights in connection with the Conversion.
11. Deposits of the Bank. All deposit accounts of the Bank shall remain
without change in their respective terms, interest rates, maturities, minimum
required balances or withdrawal values. After the Effective Date, the resulting
savings bank will continue to issue deposit accounts on the same basis as
immediately prior to the Effective Date.
A - 3
<PAGE>
12. Effect of Merger. Upon the Effective Date of the Merger, all assets and
property (real, personal and mixed, tangible and intangible, chooses in action,
rights and credits) then owned by Interim Bank No. 1 would inure to it, shall
immediately by operation of law and without any conveyance, transfer or further
action, become the property of the Bank, which shall have, hold and enjoy them
in its own right as fully and to the same extent as they were possessed, held
and enjoyed by the Bank immediately prior to the Effective Date of the Merger.
The resulting bank shall be deemed to be a continuation of the entity of both
Interim Bank No. 1 and the Bank and all of the rights and obligations of Interim
Bank No. 1 shall remain unimpaired; and the resulting bank, upon the Effective
Date of the Merger, shall succeed to all those rights and obligations and the
duties and liabilities connected therewith.
13. Directors and Executive Officers. The persons who are the current
officers and directors of the Bank will be the directors and officers of the
resulting bank and such terms or positions will be unchanged.
14. Abandonment of Plan of Merger. This Plan of Merger may be abandoned by
either Interim Bank No. 1 or the Bank at any time before the Effective Date in
the manner set forth in Section 28 of the Plan.
15. Amendment of this Plan of Merger. This Plan of Merger may be amended or
modified at any time by mutual agreement of the Boards of Directors of Interim
Bank No. 1 and the Bank in the manner set forth in Section 28 of the Plan.
16. Governing Law. This Plan of Merger is made pursuant to, and shall be
construed and be governed by, the laws of the United States, and the rules and
regulations promulgated thereunder, including without limitation, the rules and
regulations of the OTS.
17. All Terms Included. This Plan of Merger sets forth all terms,
conditions, agreements and understandings of the Mutual Holding Company, Interim
Bank No. 1 and the Bank with respect to the Conversion.
18. Counterparts. This Plan of Merger may be executed in several identical
counterparts, each of which when executed by the Parties and delivered shall be
an original, but all of which together shall constitute a single instrument. In
making proof of this Plan of Merger, it shall not be necessary to produce or
account for more than one such counterpart.
A - 4
<PAGE>
APPENDIX B
MERGER NO. 1
Plan of Merger Between Interim Bank No. 2
(Formerly Middle Tier Holding Company) and the Bank
PLAN OF MERGER, dated as of __________ __, 1998 ("Plan of Merger") by and
between Interim Bank No. 2, an interim federal stock savings bank, which was
formerly Thistle Group Holdings, Inc. ("Interim Bank No. 2") and
Roxborough-Manayunk Federal Savings Bank, a federal stock savings bank (the
"Bank"). Unless otherwise noted, defined terms shall have the same meaning as
those set forth in the Plan of Conversion and Reorganization of the Mutual
Holding Company and Plan of Merger between the Mutual Holding Company, the
Middle Tier Holding Company and the Bank ("Plan") (of which this Plan of Merger
is Appendix A thereto).
WITNESSETH:
WHEREAS, On December 31, 1992, Roxborough-Manayunk Federal Savings and Loan
Association (the "Association"), a federally chartered mutual savings
institution reorganized into the mutual holding company form of organization
whereby (1) the Association organized a federally chartered, stock savings bank,
Roxborough-Manayunk Federal Savings Bank (the "Bank") as a wholly owned
subsidiary and transferred substantially all of its assets and liabilities to
the Bank in exchange for 87.62% of the Bank's Common Stock, and reorganized
itself into a federally chartered mutual holding company, and (ii) sold 12.38%
of the shares of the Bank Common Stock to the public;
WHEREAS, On September 30, 1997, the Bank completed a reorganization in
which the Bank became a wholly owned subsidiary of a stock middle tier holding
company known as Thistle Group Holdings, Inc., whereby shareholders of the Bank
became shareholders of the Holding Company;
WHEREAS, the Board of Directors of the Mutual Holding Company has
determined that it is in the best interests of the Mutual Holding Company and
its members to convert from the mutual to stock form of organization;
WHEREAS, the Bank is currently a wholly owned subsidiary of the Middle Tier
Holding Company, which is currently a majority owned subsidiary of the Mutual
Holding Company;
WHEREAS, pursuant to the Plan, the Mutual Holding Company will convert into
an interim federal stock savings bank to be known as Interim Bank No. 1;
WHEREAS, Middle Tier Holding Company will adopt a federal stock holding
company charter and immediately thereafter an interim federal stock savings bank
charter to be known as Interim Bank No. 1; Interim Bank No. 1 will then merge
with and into the Bank ("Merger No.
1"), with the Bank as the surviving entity;
B - 1
<PAGE>
WHEREAS, immediately following Merger No. 1, Interim Bank No. 1, formerly
the Mutual Holding Company, will merge with and into the Bank with the Bank as
the surviving entity ("Merger No. 2"). The shares of Middle Tier Holding Company
Common Stock previously held by the Mutual Holding Company (now Interim Bank No.
1) will be canceled. Eligible members of the Mutual Holding Company as of
certain specified dates will be granted interests in a liquidation account to be
established by the Bank;
WHEREAS, Holding Company will form an interim corporation ("Interim Bank
No. 3"), a new, wholly owned first-tier subsidiary with an interim federal stock
savings bank charter, and immediately following Merger No. 2, Interim Bank No. 3
will merge with and into the Bank, with the Bank as the surviving entity
("Merger No. 3"). As a result of Merger No. 3, Bank stock deemed held by Public
Stockholders will be converted into Holding Company Common Stock based upon the
Exchange Ratio which is designed to ensure that the same Public Stockholders
will own approximately the same percentage of Holding Company Common Stock as
the percentage of Middle Tier Holding Company Common Stock owned by them
immediately prior to the Conversion.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, and in accordance with federal law, Interim Bank
No. 2 and the Bank hereby agree that, subject to the conditions hereinafter set
forth, the Middle Tier Holding Company will adopt a federal stock holding
company charter and immediately thereafter shall convert to a federal interim
stock savings bank, and Interim Bank No. 2 shall then be merged with and into
the Bank with Bank as the surviving entity. The terms and conditions of such
merger shall be as follows:
1. Regulatory Approvals. The merger shall not become effective until
receipt of approval of the OTS and any other agency having jurisdiction over the
merger, if any.
2. Identity and Name of Resulting Bank. The resulting bank in the Merger
shall be the Bank, Roxborough-Manayunk Federal Savings Bank.
3. Offices of Resulting Bank. The home office of Bank, as the resulting
company, shall be the Bank's office located at 6060 Ridge Avenue, Philadelphia,
Pennsylvania. The locations of the branch offices of the resulting savings bank
shall be those of the Bank in existence on the date of this Plan of Merger.
4. The Bank's Federal Charter and Bylaws. The federal stock charter and
bylaws of the Bank as in effect immediately prior to the effectiveness of the
Merger shall be amended as necessary to accomplish the Merger.
5. Effective Date. The effective date of the Conversion and Merger
("Effective Date") shall be the date as soon as practicable after the issuance
and/or execution by the OTS and any other federal or state regulatory agencies,
of all approvals, certificates and documents as may be required in order to
cause the Conversion and the Merger to become effective.
6. Middle Tier Holding Company Stockholder Approval. The affirmative vote
of the holders of one-half of the outstanding shares of Middle Tier Holding
Company Common Stock and at least a majority of the shares of Middle Tier
Holding Company Common Stock cast
B - 2
<PAGE>
which are not held by the Mutual Holding Company shall be required to approve
this Plan of Merger.
7. Bank Stockholder Approval. The affirmative vote of the holders of
two-thirds of the outstanding shares of the Bank shall be required to approve
this Plan of Merger.
8. Mutual Holding Company Approval. The approval of a majority of the
members of the Mutual Holding Company, as of a specified date shall be required
to approve this Plan of Merger.
9. Cancellation of Middle Tier Holding Company Common Stock held by the
Mutual Holding Company and Member Interests; Liquidation Account.
(a) On the Effective Date, (i) each share of Middle Tier Holding
Company Common Stock issued and outstanding immediately prior to the Effective
Date and held by the Mutual Holding Company shall, by virtue of the
Reorganization and without any action on the part of the holder thereof, be
canceled, (ii) the interests in the Mutual Holding Company of any person, firm
or entity who or which qualified as a member of the Mutual Holding Company in
accordance with its mutual charter and bylaws and the laws of the United States
prior to the Mutual Holding Company's conversion from mutual to stock form (the
"Members") shall, by virtue of the Reorganization and without any action on the
part of the holder thereof, be canceled, and (iii) the Bank shall establish a
liquidation account on behalf of each depositor member of the Mutual Holding
Company, as defined in the Plan, in accordance with Section 16 of the Plan.
(b) At or after the Effective Date and prior to the Merger, each
certificate or certificates theretofore evidencing issued and outstanding shares
of Middle Tier Holding Company Common Stock, other than any such certificate or
certificates held by the Mutual Holding Company, which shall be canceled, shall
be converted into outstanding shares of Holding Company Common Stock based upon
the Exchange Ratio which is designed to provide Public Stockholders
approximately a percentage of Holding Company Common Stock as Middle Tier
Holding Company Stock owned by them before the Conversion and Merger.
10. Dissenting Shares. No Member of the Mutual Holding Company or
stockholder of the Middle Tier Holding Company and the Bank shall have any
dissenter or appraisal rights in connection with the Conversion.
11. Deposits of the Bank. All deposit accounts of the Bank shall remain
without change in their respective terms, interest rates, maturities, minimum
required balances or withdrawal values. After the Effective Date, the resulting
savings bank will continue to issue deposit accounts on the same basis as
immediately prior to the Effective Date.
B - 3
<PAGE>
12. Effect of Merger. Upon the Effective Date of the Merger, all assets and
property (real, personal and mixed, tangible and intangible, chooses in action,
rights and credits) then owned by Interim Bank No. 2 would inure to it, shall
immediately by operation of law and without any conveyance, transfer or further
action, become the property of the Bank, which shall have, hold and enjoy them
in its own right as fully and to the same extent as they were possessed, held
and enjoyed by the Bank immediately prior to the Effective Date of the Merger.
The resulting bank shall be deemed to be a continuation of the entity of both
Interim Bank No. 2 and the Bank and all of the rights and obligations of Interim
Bank No. 2 shall remain unimpaired; and the resulting bank, upon the Effective
Date of the Merger, shall succeed to all those rights and obligations and the
duties and liabilities connected therewith.
13. Directors and Executive Officers. The persons who are the current
officers and directors of the Bank will be the directors and officers of the
resulting bank and such terms or positions will be unchanged.
14. Abandonment of Plan of Merger. This Plan of Merger may be abandoned by
either Interim Bank No. 2 or the Bank at any time before the Effective Date in
the manner set forth in Section 28 of the Plan.
15. Amendment of this Plan of Merger. This Plan of Merger may be amended or
modified at any time by mutual agreement of the Boards of Directors of Interim
Bank No. 1 and the Bank in the manner set forth in Section 28 of the Plan.
16. Governing Law. This Plan of Merger is made pursuant to, and shall be
construed and be governed by, the laws of the United States, and the rules and
regulations promulgated thereunder, including without limitation, the rules and
regulations of the OTS.
17. All Terms Included. This Plan of Merger sets forth all terms,
conditions, agreements and understandings of the Mutual Holding Company, Interim
Bank No. 2 and the Bank with respect to the Conversion.
18. Counterparts. This Plan of Merger may be executed in several identical
counterparts, each of which when executed by the Parties and delivered shall be
an original, but all of which together shall constitute a single instrument. In
making proof of this Plan of Merger, it shall not be necessary to produce or
account for more than one such counterpart.
B - 4
<PAGE>
APPENDIX C
MERGER NO. 3
Plan of Merger Between Interim Bank No. 3
(Subsidiary of Holding Company) and the Bank
PLAN OF MERGER, dated as of __________ __, 1998 ("Plan of Merger") by and
between Interim Bank No. 3, an interim federal stock savings bank, which is a
wholly owned subsidiary of Thistle Group Holdings, Co. or the Holding Company
("Interim Bank No. 3") and Roxborough-Manayunk Federal Savings Bank, a federal
stock savings bank (the "Bank"). Unless otherwise noted, defined terms shall
have the same meaning as those set forth in the Plan of Conversion and
Reorganization of the Mutual Holding Company and Plan of Merger between the
Mutual Holding Company, the Middle Tier Holding Company and the Bank ("Plan")
(of which this Plan of Merger is Appendix A thereto).
WITNESSETH:
WHEREAS, On December 31, 1992, Roxborough-Manayunk Federal Savings and Loan
Association (the "Association"), a federally chartered mutual savings
institution reorganized into the mutual holding company form of organization
whereby (1) the Association organized a federally chartered, stock savings bank,
Roxborough-Manayunk Federal Savings Bank (the "Bank") as a wholly owned
subsidiary and transferred substantially all of its assets and liabilities to
the Bank in exchange for 87.62% of the Bank's Common Stock, and reorganized
itself into a federally chartered mutual holding company, and (ii) sold 12.38%
of the shares of the Bank Common Stock to the public;
WHEREAS, On September 30, 1997, the Bank completed a reorganization in
which the Bank became a wholly owned subsidiary of a stock middle tier holding
company known as Thistle Group Holdings, Inc., whereby shareholders of the Bank
became shareholders of the Holding Company;
WHEREAS, the Board of Directors of the Mutual Holding Company has
determined that it is in the best interests of the Mutual Holding Company and
its members to convert from the mutual to stock form of organization;
WHEREAS, the Bank is currently a wholly owned subsidiary of the Middle Tier
Holding Company, which is currently a majority owned subsidiary of the Mutual
Holding Company;
WHEREAS, pursuant to the Plan, the Mutual Holding Company will convert into
an interim federal stock savings bank to be known as Interim Bank No. 1;
WHEREAS, Middle Tier Holding Company will adopt a federal stock holding
company charter and immediately thereafter an interim federal stock savings bank
charter to be known as Interim Bank No. 2; Interim Bank No. 2 will then merge
with and into the Bank ("Merger No.
1"), with the Bank as the surviving entity;
C - 1
<PAGE>
WHEREAS, immediately following Merger No. 1, Interim Bank No. 1, formerly
the Mutual Holding Company, will merge with and into the Bank with the Bank as
the surviving entity ("Merger No. 2"). The shares of Middle Tier Holding Company
Common Stock previously held by the Mutual Holding Company (now Interim Bank No.
1) will be canceled. Eligible members of the Mutual Holding Company as of
certain specified dates will be granted interests in a liquidation account to be
established by the Bank;
WHEREAS, Holding Company will form an interim corporation ("Interim Bank
No. 3"), a new, wholly owned first-tier subsidiary with an interim federal stock
savings bank charter, and immediately following Merger No. 2, Interim Bank No. 3
will merge with and into the Bank, with the Bank as the surviving entity
("Merger No. 3"). As a result of Merger No. 3, Bank stock deemed held by Public
Stockholders will be converted into Holding Company Common Stock based upon the
Exchange Ratio which is designed to ensure that the same Public Stockholders
will own approximately the same percentage of Holding Company Common Stock as
the percentage of Middle Tier Holding Company Common Stock owned by them
immediately prior to the Conversion.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, and in accordance with federal law, Interim Bank
No. 3 and the Bank hereby agree that, subject to the conditions hereinafter set
forth, the Holding Company will form as a wholly owned subsidiary, a federal
interim stock savings bank, and Interim Bank No. 3 shall then be merged with and
into the Bank with Bank as the surviving entity. The terms and conditions of
such merger shall be as follows:
1. Regulatory Approvals. The merger shall not become effective until
receipt of approval of the OTS and any other agency having jurisdiction over the
merger, if any.
2. Identity and Name of Resulting Bank. The resulting bank in the Merger
shall be the Bank, Roxborough-Manayunk Federal Savings Bank.
3. Offices of Resulting Bank. The home office of Bank, as the resulting
company, shall be the Bank's office located at 6060 Ridge Avenue, Philadelphia,
Pennsylvania. The locations of the branch offices of the resulting savings bank
shall be those of the Bank in existence on the date of this Plan of Merger.
4. The Bank's Federal Charter and Bylaws. The federal stock charter and
bylaws of the Bank as in effect immediately prior to the effectiveness of the
Merger shall be amended as necessary to accomplish the Merger.
5. Effective Date. The effective date of the Conversion and Merger
("Effective Date") shall be the date as soon as practicable after the issuance
and/or execution by the OTS and any other federal or state regulatory agencies,
of all approvals, certificates and documents as may be required in order to
cause the Conversion and the Merger to become effective.
6. Middle Tier Holding Company Stockholder Approval. The affirmative vote
of the holders of one-half of the outstanding shares of Middle Tier Holding
Company Common Stock and at least a majority of the shares of Middle Tier
Holding Company Common Stock cast
C - 2
<PAGE>
which are not held by the Mutual Holding Company shall be required to approve
this Plan of Merger.
7. Bank Stockholder Approval. The affirmative vote of the holders of
two-thirds of the outstanding shares of the Bank shall be required to approve
this Plan of Merger.
8. Mutual Holding Company Approval. The approval of a majority of the
members of the Mutual Holding Company, as of a specified date shall be required
to approve this Plan of Merger.
9. Cancellation of Middle Tier Holding Company Common Stock held by the
Mutual Holding Company and Member Interests; Liquidation Account.
(a) On the Effective Date, (i) each share of Middle Tier Holding
Company Common Stock issued and outstanding immediately prior to the Effective
Date and held by the Mutual Holding Company shall, by virtue of the
Reorganization and without any action on the part of the holder thereof, be
canceled, (ii) the interests in the Mutual Holding Company of any person, firm
or entity who or which qualified as a member of the Mutual Holding Company in
accordance with its mutual charter and bylaws and the laws of the United States
prior to the Mutual Holding Company's conversion from mutual to stock form (the
"Members") shall, by virtue of the Reorganization and without any action on the
part of the holder thereof, be canceled, and (iii) the Bank shall establish a
liquidation account on behalf of each depositor member of the Mutual Holding
Company, as defined in the Plan, in accordance with Section 16 of the Plan.
(b) At or after the Effective Date and prior to the Merger, each
certificate or certificates theretofore evidencing issued and outstanding shares
of Middle Tier Holding Company Common Stock, other than any such certificate or
certificates held by the Mutual Holding Company, which shall be canceled, shall
be converted into outstanding shares of Holding Company Common Stock based upon
the Exchange Ratio which is designed to provide Public Stockholders
approximately a percentage of Holding Company Common Stock as Middle Tier
Holding Company Stock owned by them before the Conversion and Merger.
10. Dissenting Shares. No Member of the Mutual Holding Company or
stockholder of the Middle Tier Holding Company and the Bank shall have any
dissenter or appraisal rights in connection with the Conversion.
11. Deposits of the Bank. All deposit accounts of the Bank shall remain
without change in their respective terms, interest rates, maturities, minimum
required balances or withdrawal values. After the Effective Date, the resulting
savings bank will continue to issue deposit accounts on the same basis as
immediately prior to the Effective Date.
C - 3
<PAGE>
12. Effect of Merger. Upon the Effective Date of the Merger, all assets and
property (real, personal and mixed, tangible and intangible, chooses in action,
rights and credits) then owned by Interim Bank No. 3 would inure to it, shall
immediately by operation of law and without any conveyance, transfer or further
action, become the property of the Bank, which shall have, hold and enjoy them
in its own right as fully and to the same extent as they were possessed, held
and enjoyed by the Bank immediately prior to the Effective Date of the Merger.
The resulting bank shall be deemed to be a continuation of the entity of both
Interim Bank No. 3 and the Bank and all of the rights and obligations of Interim
Bank No. 3 shall remain unimpaired; and the resulting bank, upon the Effective
Date of the Merger, shall succeed to all those rights and obligations and the
duties and liabilities connected therewith.
13. Directors and Executive Officers. The persons who are the current
officers and directors of the Bank will be the directors and officers of the
resulting bank and such terms or positions will be unchanged.
14. Abandonment of Plan of Merger. This Plan of Merger may be abandoned by
either Interim Bank No. 3 or the Bank at any time before the Effective Date in
the manner set forth in Section 28 of the Plan.
15. Amendment of this Plan of Merger. This Plan of Merger may be amended or
modified at any time by mutual agreement of the Boards of Directors of Interim
Bank No. 3 and the Bank in the manner set forth in Section 28 of the Plan.
16. Governing Law. This Plan of Merger is made pursuant to, and shall be
construed and be governed by, the laws of the United States, and the rules and
regulations promulgated thereunder, including without limitation, the rules and
regulations of the OTS.
17. All Terms Included. This Plan of Merger sets forth all terms,
conditions, agreements and understandings of the Mutual Holding Company, Interim
Bank No. 3 and the Bank with respect to the Conversion.
18. Counterparts. This Plan of Merger may be executed in several identical
counterparts, each of which when executed by the Parties and delivered shall be
an original, but all of which together shall constitute a single instrument. In
making proof of this Plan of Merger, it shall not be necessary to produce or
account for more than one such counterpart.
C - 4
EXHIBIT 3.(i)
<PAGE>
ARTICLES OF INCORPORATION
OF
THISTLE GROUP HOLDINGS, CO.
Article 1. Name. The name of the corporation is Thistle Group Holdings,
Co. (hereinafter, the "Company").
Article 2. Registered Office. The address of the initial registered
office of the Company in the Commonwealth of Pennsylvania is 6060 Ridge Avenue,
Philadelphia, Pennsylvania 19128.
Article 3. Nature of Business. The Company is organized under the
Business Corporation Law of 1988, as amended, of the Commonwealth of
Pennsylvania (the "BCL") for the purpose of engaging in any lawful act or
activity for which a corporation may be organized under the laws of the
Commonwealth of Pennsylvania.
Article 4. Duration. The term of the existence of the Company shall be
perpetual.
Article 5. Capital Stock.
A. Authorized Amount. The total number of shares of capital stock that
the Company has authority to issue is 50,000,000 of which 10,000,000 shall be
serial preferred stock, no par value (hereinafter, the "Preferred Stock") and
40,000,000 shall be common stock, par value $0.10 per share (hereinafter, the
"Common Stock"). Except to the extent required by governing law, rule, or
regulation, the shares of capital stock may be issued from time to time by the
board of directors of the Company (hereinafter, the "Board of Directors")
without further approval of stockholders. The Company shall have the authority
to purchase its capital stock out of funds lawfully available therefor.
B. Common Stock. Except as provided in this Article 5 (or in any
resolution or resolutions adopted by the Board of Directors pursuant hereto),
the exclusive voting power shall be vested in the Common Stock, with each holder
thereof being entitled to one vote for each share of such Common Stock standing
in the holder's name on the books of the Company. Subject to any rights and
preferences of any class of stock having preference over the Common Stock,
holders of Common Stock shall be entitled to such dividends as may be declared
by the Board of Directors out of funds lawfully available therefor. Upon any
liquidation, dissolution, or winding up of the affairs of the Company, whether
voluntary or involuntary, holders of Common Stock shall be entitled to receive
pro rata the remaining assets of the Company after the holders of any class of
stock having preference over the Common Stock have been paid in full any sums to
which they may be entitled.
<PAGE>
C. Authority of Board to Fix Terms of Preferred Stock. A description of
each class of shares and a statement of the voting rights, designations,
preferences, qualifications, privileges, limitations, options, conversion
rights, and other special rights granted to or imposed upon the shares of each
class and of the authority vested in the Board of Directors to establish series
of Preferred Stock or to determine that Preferred Stock will be issued as a
class without series and to fix and determine the voting rights, designations,
preferences, and other special rights of the Preferred Stock as a class or of
the series thereof are as follows:
Preferred Stock may be issued from time to time as a class without
series or in one or more series. Each series shall be designated in
supplementary sections or amendments to these Articles of Incorporation by the
Board of Directors so as to distinguish the shares thereof from the shares of
all other series and classes. The Board of Directors may by resolution and
amendment to these Articles of Incorporation from time to time divide shares of
Preferred Stock into series, or determine that the Preferred Stock shall be
issued as a class without series, fix and determine the number of shares in a
series and the terms and conditions of the issuance of the class or the series,
and, subject to the provisions of this Article 5, fix and determine the rights,
preferences, qualifications, privileges, limitations, and other special rights,
if any, of the class (if none of such shares of the class have been issued) or
of any series so established, including but not limited to, voting rights (which
may be limited, multiple, fractional, or non-voting rights), the rate of
dividend, if any, and whether or to what extent, if any, such dividends shall be
cumulative (including the date from which dividends shall be cumulative, if
any), the price at and the terms and conditions on which shares may be redeemed,
if any, the preference and the amounts payable on shares in the event of
voluntary or involuntary liquidation, sinking fund provisions for the redemption
or purchase of shares in the event shares of the class or of any series are
issued with sinking fund provisions, and the terms and conditions on which the
shares of the class or of any series may be converted in the event the shares of
the class or of any series are issued with the privilege of conversion.
The Board of Directors may, in its discretion, at any time or from time
to time, issue or cause to be issued all or any part of the authorized and
unissued shares of Preferred Stock for consideration of such character and value
as the Board of Directors shall from time to time fix or determine.
D. Repurchase of Shares. The Company may, from time to time, pursuant
to authorization by the Board of Directors and without action by the
stockholders, purchase or otherwise acquire shares of any class, bonds,
debentures, notes, scrip, warrants, obligations, evidences of indebtedness, or
other securities of the Company in such manner, upon such terms, and in such
amounts as the Board of Directors shall determine; subject, however, to such
limitations or restrictions, if any, as are contained in the express terms of
any class of shares of the Company outstanding at the time of the purchase or
acquisition in question or as are imposed by law or regulation.
-2-
<PAGE>
Article 6. Incorporator. The name and business address of the sole
incorporator is as follows:
Name Address
------------------ -----------------
John F. McGill, Jr. 6060 Ridge Avenue
Philadelphia, Pennsylvania 19128
Article 7. Directors. The business and affairs of the Company shall be
managed by or under the direction of the Board of Directors.
A. Number. The number of directors of the Company shall be such number,
not less than 5 nor more than 12 (exclusive of directors, if any, to be elected
by holders of Preferred Stock, voting separately as a class), as shall be
provided from time to time in accordance with the bylaws, provided that no
decrease in the number of directors shall have the effect of shortening the term
of any incumbent director, and provided further that no action shall be taken to
decrease or increase the number of directors from time to time unless at least
eighty percent (80%) of the directors then in office shall concur in said
action.
B. Classified Board. The Board of Directors shall be divided into three
classes of directors that shall be designated Class I, Class II, and Class III.
The members of each class shall be elected for a term of three years and until
their successors are elected and qualified. Such classes shall be as nearly
equal in number as the then total number of directors constituting the entire
Board of Directors shall permit, with the term of office of Class I to expire at
the first annual meeting of stockholders, the term of office of Class II to
expire at the annual meeting of stockholders one year thereafter, and the term
of office of Class III to expire at the annual meeting of stockholders two years
thereafter. At each annual meeting of stockholders following such initial
classification and election, directors elected to succeed those directors whose
terms expire shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election.
Should the number of directors of the Company be reduced, the
directorship(s) eliminated shall be allocated among the classes so that the
number of directors in each class is as specified in the immediately preceding
paragraph. The Board of Directors shall designate, by the name of the
incumbent(s), the position(s) to be abolished. Should the number of directors of
the Company be increased, the additional directorships shall be allocated among
such classes so that the number of directors in each class is as specified in
the immediately preceding paragraph.
Whenever the holders of any one or more series of Preferred Stock of
the Company shall have the right, voting separately as a class, to elect one or
more directors of the Company, the Board of Directors shall consist of said
directors so elected in addition to the number of directors fixed as provided
above in this Article 7. Notwithstanding the foregoing, and except as otherwise
may be required by law, whenever the holders of any one or more series of
Preferred Stock of the Company shall have the right, voting separately as a
class, to elect one or more
-3-
<PAGE>
directors of the Company, the terms of the director or directors elected by such
holders shall expire at the next succeeding annual meeting of stockholders.
C. No Cumulative Voting. Stockholders of the Company shall not be
permitted to cumulate their votes for the election of directors.
D. Vacancies. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any vacancy occurring on the Board of
Directors, including any vacancy created by reason of an increase in the number
of directors, shall be filled by a majority vote of the directors then in
office, whether or not a quorum is present, or by a sole remaining director, and
any director so chosen shall serve until the term of the class to which such
director was appointed shall expire and until a successor is elected and
qualified. When the number of directors is changed, the Board of Directors shall
determine the class or classes to which the increased or decreased number of
directors shall be appointed.
E. Removal. Unless otherwise required by law, a director (including
persons elected by directors to fill vacancies in the Board of Directors) may be
removed from office only for cause by an affirmative vote of not less than a
majority of the total votes eligible to be cast by stockholders. Cause for
removal by stockholders shall exist only if the director whose removal is
proposed has been either declared of unsound mind by an order of a court of
competent jurisdiction, convicted of a felony or of an offense punishable by
imprisonment for a term of more than one year by a court of competent
jurisdiction, or deemed liable by a court of competent jurisdiction for gross
negligence or misconduct in the performance of such director's duties to the
Company. At least 30 days prior to such meeting of stockholders, written notice
shall be sent to the director whose removal will be considered at the meeting.
Directors may also be removed from office in the manner provided in Sections
1726(b) and 1726(c) of the BCL, or any successors to such sections.
F. Nominations of Directors. Nominations of candidates for election as
directors at any annual meeting of stockholders may be made (a) by, or at the
direction of, a majority of the Board of Directors or (b) by any stockholder
entitled to vote at such annual meeting. Only persons nominated in accordance
with the procedures set forth in this Article 7.F shall be eligible for election
as directors at an annual meeting. Ballots bearing the names of all the persons
who have been nominated for election as directors at an annual meeting in
accordance with the procedures set forth in this Article 7.F shall be provided
for use at the annual meeting.
Nominations, other than those made by or at the direction of the Board
of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Company as set forth in this Article 7.F. To be timely, a
stockholder's notice shall be delivered to, or mailed and received at, the
principal executive offices of the Company not less than 60 days prior to the
anniversary date of the immediately preceding annual meeting of stockholders of
the Company; provided, however, that with respect to the first scheduled annual
meeting, notice by the stockholder must be so delivered or received no later
than the close of business on the tenth day following the day on which notice of
the date of the scheduled meeting was mailed and must be delivered or
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received no later than the close of business on the fifth day preceding the date
of the meeting. Such stockholder's notice shall set forth (a) as to each person
whom the stockholder proposes to nominate for election or re-election as a
director and as to the stockholder giving the notice (i) the name, age, business
address, and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of Company stock
that are Beneficially Owned (as determined by Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended) by such person on the date of such
stockholder notice, and (iv) any other information relating to such person that
is required to be disclosed in solicitations of proxies with respect to nominees
for election as directors, pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or any successor thereto; and (b) as to the
stockholder giving the notice (i) the name and address, as they appear on the
Company's books, of such stockholder and any other stockholders known by such
stockholder to be supporting such nominees and (ii) the class and number of
shares of Company stock that are Beneficially Owned by such stockholder on the
date of such stockholder notice and, to the extent known, by any other
stockholders known by such stockholder to be supporting such nominees on the
date of such stockholder notice. At the request of the Board of Directors, any
person nominated by, or at the direction of, the Board of Directors for election
as a director at an annual meeting shall furnish to the Secretary of the Company
the same information required to be set forth in a stockholder's notice of
nomination which pertains to the nominee.
The Board of Directors may reject any nomination by a stockholder not
timely made in accordance with the requirements of this Article 7.F. If the
Board of Directors, or a designated committee thereof, determines that the
information provided in a stockholder's notice does not satisfy the
informational requirements of this Article 7.F in any material respect, the
Secretary of the Company shall notify such stockholder of the deficiency in the
notice. The stockholder shall have an opportunity to cure the deficiency by
providing additional information to the Secretary within such period of time,
not to exceed five days from the date such deficiency notice is given to the
stockholder, as the Board of Directors or such committee shall reasonably
determine. If the deficiency is not cured within such period, or if the Board of
Directors or such committee reasonably determines that the additional
information provided by the stockholder, together with information previously
provided, does not satisfy the requirements of this Article 7.F in any material
respect, then the Board of Directors may reject such stockholder's nomination.
The Secretary of the Company shall notify a stockholder in writing whether such
person's nomination has been made in accordance with the time and informational
requirements of this Article 7.F. Notwithstanding the procedures set forth in
this paragraph, if neither the Board of Directors nor such committee makes a
determination as to the validity of any nominations by a stockholder, the
presiding officer of the annual meeting shall determine and declare at the
annual meeting whether the nomination was made in accordance with the terms of
this Article 7.F. If the presiding officer determines that a nomination was made
in accordance with the terms of this Article 7.F, such person shall so declare
at the annual meeting and ballots shall be provided for use at the meeting with
respect to such nominee. If the presiding officer determines that a nomination
was not made in accordance with the terms of this Article 7.F, such person shall
so declare at the annual meeting and the defective nomination shall be
disregarded.
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Notwithstanding the foregoing, and except as otherwise required by law,
whenever the holders of any one or more series of Preferred Stock shall have the
right, voting separately as a class, to elect one or more directors of the
Company, the provisions of this Article 7.F shall not apply with respect to the
director or directors elected by such holders of Preferred Stock.
Article 8. Preemptive Rights. No holder of any of the shares of any
class or series of stock or of options, warrants, or other rights to purchase
shares of any class or series or of other securities of the Company shall have
any preemptive right to purchase or subscribe for any unissued stock of any
class or series, any unissued bonds, certificates of indebtedness, debentures,
or other securities convertible into or exchangeable for stock of any class or
series or carrying any right to purchase stock of any class or series, or any
shares of any class, bonds, debentures, notes, scrip, warrants, obligations,
evidences of indebtedness, or other securities of the Company purchased by the
Company pursuant to Article 5.D; but any such unissued, or issued but not
outstanding, stock, bonds, certificates of indebtedness, debentures, or other
securities convertible into or exchangeable for stock or carrying any right to
purchase stock may be issued pursuant to resolution of the Board of Directors to
such persons, firms, corporations, or associations, whether or not holders
thereof, and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.
Article 9. Elimination of Directors' Liability. A director of the
Company shall not be personally liable, as such, for monetary damages for any
action taken unless: (i) the director has breached or failed to perform such
director's fiduciary duties, or other duties under Chapter 17, Subchapter B of
the BCL, of such director's office, and (ii) the breach or failure to perform
constitutes self-dealing, willful misconduct, or recklessness; provided,
however, that the foregoing shall not apply to (i) the responsibility or
liability of a director pursuant to any criminal statute; or (ii) the liability
of a director for the payment of taxes pursuant to federal, state, or local law.
If the laws of the Commonwealth of Pennsylvania are amended after the effective
date of these Articles of Incorporation to eliminate further or limit the
personal liability of directors, then the liability of a director of the Company
shall be eliminated or limited to the fullest extent permitted by law.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Company shall not adversely affect any right or protection
of a director of the Company existing at the time of such repeal or
modification.
Article 10. Indemnification, etc. of Officers, Directors, Employees,
and Agents.
A. Persons. The Company shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, including actions by or in the right of
the Company, whether civil, criminal, administrative, or investigative, by
reason of the fact that such person is or was a director, officer, employee,
fiduciary, trustee, or agent of the Company, or is or was serving at the request
of the Company as a director, officer, employee, fiduciary, trustee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise.
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B. Extent -- Derivative Actions. In the case of a threatened, pending,
or completed action or suit by or in the right of the Company against a person
named in paragraph A by reason of such person holding a position named in
paragraph A, the Company shall indemnify such person if such person satisfies
the standard in paragraph C, for expenses (including attorneys' fees) actually
and reasonably incurred by such person in connection with the defense or
settlement of the action or suit.
C. Standard -- Derivative Suits. In the case of a threatened, pending,
or completed action or suit by or in the right of the Company, a person named in
paragraph A shall be indemnified only if:
1. such person is successful on the merits or otherwise; or
2. such person acted in good faith in the transaction that is
the subject of the suit or action, and in a manner reasonably believed
to be in, or not opposed to, the best interests of the Company,
including, but not limited to, the taking of any and all actions in
connection with the Company's response to any tender offer or any offer
or proposal of another party to engage in a Business Combination (as
defined in Article 13 of these Articles) not approved by the Board of
Directors. However, such person shall not be indemnified in respect of
any claim, issue, or matter as to which such person has been adjudged
liable to the Company unless (and only to the extent that) the court of
common pleas or the court in which the suit was brought shall
determine, upon application, that despite the adjudication of liability
but in view of all the circumstances, such person is fairly and
reasonably entitled to indemnity for such expenses as the court shall
deem proper.
D. Extent -- Nonderivative Suits. In case of a threatened, pending, or
completed suit, action, or proceeding (whether civil, criminal, administrative,
or investigative), other than a suit by or in the right of the Company, together
hereafter referred to as a nonderivative suit, against a person named in
paragraph A by reason of such person holding a position named in paragraph A,
the Company shall indemnify such person if such person satisfies the standard in
paragraph E, for amounts actually and reasonably incurred by such person in
connection with the defense or settlement of the nonderivative suit, including,
but not limited to (i) expenses (including attorneys' fees), (ii) amounts paid
in settlement, (iii) judgments, and (iv) fines.
E. Standard -- Nonderivative Suits. In case of a nonderivative suit, a
person named in paragraph A shall be indemnified only if:
1. such person is successful on the merits or otherwise; or
2. such person acted in good faith in the transaction that is
the subject of the nonderivative suit and in a manner such person
reasonably believed to be in, or not opposed to, the best interests of
the Company, including, but not limited to, the taking of any and all
actions in connection with the Company's response to any tender offer
or
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any offer or proposal of another party to engage in a Business
Combination (as defined in Article 13 of these Articles) not approved
by the Board of Directors and, with respect to any criminal action or
proceeding, such person had no reasonable cause to believe such
person's conduct was unlawful. The termination of a nonderivative suit
by judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent shall not, in itself, create a presumption
that the person failed to satisfy the standard of this paragraph E.2.
F. Determination That Standard Has Been Met. A determination that the
standard of paragraph C or E has been satisfied may be made by a court, or,
except as stated in paragraph C.2 (second sentence), the determination may be
made by:
1. the Board of Directors by a majority vote of a quorum
consisting of directors of the Company who were not parties to the
action, suit, or proceeding;
2. if such a quorum is not obtainable or if obtainable and a
majority of a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion; or
3. the stockholders of the Company.
G. Proration. Anyone making a determination under paragraph F may
determine that a person has met the standard as to some matters but not as to
others, and may reasonably prorate amounts to be indemnified.
H. Advancement of Expenses. Reasonable expenses incurred by a director,
officer, employee, or agent of the Company in defending a civil or criminal
action, suit, or proceeding described in Article 10.A may be paid by the Company
in advance of the final disposition of such action, suit, or proceeding upon
receipt of an undertaking by or on behalf of such person to repay such amount if
it shall ultimately be determined that the person is not entitled to be
indemnified by the Company.
I. Other Rights. The indemnification and advancement of expenses
provided by or pursuant to this Article 10 shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any insurance or other agreement, vote of stockholders or
directors, or otherwise, both as to actions in their official capacity and as to
actions in another capacity while holding an office, and shall continue as to a
person who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors, and administrators of such person.
J. Insurance. The Company shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against any
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liability asserted against such person and incurred by such person in any such
capacity, or arising out of such person's status as such, whether or not the
Company would have the power to indemnify such person against such liability
under the provisions of this Article 10.
K. Security Fund; Indemnity Agreements. By action of the Board of
Directors (notwithstanding their interest in the transaction), the Company may
create and fund a trust fund or fund of any nature, and may enter into
agreements with its officers, directors, employees, and agents for the purpose
of securing or insuring in any manner its obligation to indemnify or advance
expenses provided for in this Article 10.
L. Modification. The duties of the Company to indemnify and to advance
expenses to any person as provided in this Article 10 shall be in the nature of
a contract between the Company and each such person, and no amendment or repeal
of any provision of this Article 10, and no amendment or termination of any
trust or other fund created pursuant to Article 10.K hereof, shall alter to the
detriment of such person the right of such person to the advancement of expenses
or indemnification related to a claim based on an act or failure to act which
took place prior to such amendment, repeal, or termination.
M. Proceedings Initiated by Indemnified Persons. Notwithstanding any
other provision in this Article 10, the Company shall not indemnify a director,
officer, employee, or agent for any liability incurred in an action, suit, or
proceeding initiated by (which shall not be deemed to include counter-claims or
affirmative defenses) or participated in as an intervenor or amicus curiae by
the person seeking indemnification unless such initiation of or participation in
the action, suit, or proceeding is authorized, either before or after its
commencement, by the affirmative vote of a majority of the directors then in
office.
N. Savings Clause. If this Article 10 or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify each director, officer, employee, and agent
of the Company as to costs, charges, and expenses (including attorneys' fees),
judgments, fines, and amounts paid in settlement with respect to any action,
suit, or proceeding, whether civil, criminal, administrative, or investigative,
including an action by or in the right of the Company to the fullest extent
permitted by any applicable portion of this Article 10 that shall not have been
invalidated and to the fullest extent permitted by applicable law.
If the laws of the Commonwealth of Pennsylvania are amended to permit
further indemnification of the directors, officers, employees, and agents of the
Company, then the Company shall indemnify such persons to the fullest extent
permitted by law. Any repeal or modification of this Article by the stockholders
of the Company shall not adversely affect any right or protection of a director,
officer, employee, or agent existing at the time of such repeal or modification.
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Article 11. Meetings of Stockholders and Stockholder Proposals.
A. Special Meetings of Stockholders. Special meetings of the
stockholders of the Company may be called only by the Board of Directors
pursuant to a resolution approved by the affirmative vote of a majority of the
directors then in office.
B. Action Without a Meeting. Notwithstanding any other provision of
these Articles or the Bylaws of the Company, no action required to be taken or
which may be taken at any annual or special meeting of the stockholders of the
Company may be taken without a meeting, and the power of stockholders to consent
in writing, without a meeting, to the taking of any action is specifically
denied.
C. Stockholder Proposals. At an annual meeting of stockholders, only
such new business shall be conducted, and only such proposals shall be acted
upon, as shall have been brought before the annual meeting by, or at the
direction of, (1) the Board of Directors or (2) any stockholder of the Company
who complies with all the requirements set forth in this Article 11.C.
Proposals, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Company as set forth in this Article 11.C. For stockholder proposals to
be considered at the annual meeting of stockholders, the stockholder's notice
shall be delivered to, or mailed and received at, the principal executive
offices of the Company not less than 60 days prior to the anniversary date of
the immediately preceding annual meeting of stockholders of the Company. Such
stockholder's notice shall set forth as to each matter the stockholder proposes
to bring before the annual meeting (a) a brief description of the proposal
desired to be brought before the annual meeting and the reasons for conducting
such business at the annual meeting, (b) the name and address, as they appear on
the Company's books, of the stockholder proposing such business and, to the
extent known, any other stockholders known by such stockholder to be supporting
such proposal, (c) the class and number of shares of the Company stock that are
Beneficially Owned by the stockholder on the date of such stockholder notice
and, to the extent known, by any other stockholders known by such stockholder to
be supporting such proposal on the date of such stockholder notice, and (d) any
financial interest of the stockholder in such proposal (other than interests
which all stockholders would have).
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The Board of Directors may reject any stockholder proposal not timely
made in accordance with the terms of this Article 11.C. If the Board of
Directors, or a designated committee thereof, determines that the information
provided in a stockholder's notice does not satisfy the informational
requirements of this Article 11.C in any material respect, the Secretary of the
Company shall promptly notify such stockholder of the deficiency in the notice.
The stockholder shall have an opportunity to cure the deficiency by providing
additional information to the Secretary within such period of time, not to
exceed five days from the date such deficiency notice is given to the
stockholder, as the Board of Directors or such committee shall reasonably
determine. If the deficiency is not cured within such period, or if the Board of
Directors or such committee determines that the additional information provided
by the stockholder, together with information previously provided, does not
satisfy the requirements of this Article 11.C in any material respect, then the
Board of Directors may reject such stockholder's proposal. The Secretary of the
Company shall notify a stockholder in writing whether such stockholder's
proposal has been made in accordance with the time and informational
requirements of this Article 11.C. Notwithstanding the procedures set forth in
this paragraph, if neither the Board of Directors nor such committee makes a
determination as to the validity of any stockholder proposal, the presiding
officer of the annual meeting shall determine and declare at the annual meeting
whether the stockholder proposal was made in accordance with the terms of this
Article 11.C. If the presiding officer determines that a stockholder proposal
was made in accordance with the terms of this Article 11.C, such person shall so
declare at the annual meeting and ballots shall be provided for use at the
meeting with respect to any such proposal. If the presiding officer determines
that a stockholder proposal was not made in accordance with the terms of this
Article 11.C, such person shall so declare at the annual meeting and any such
proposal shall not be acted upon at the annual meeting.
This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of report of officers, directors, and
committees of the Board of Directors, but in connection with such reports, no
new business shall be acted upon at such annual meeting unless stated, filed,
and received as herein provided.
Article 12. Certain Limitations on Voting Rights
A. Limitations. Notwithstanding any other provision of these Articles,
in no event shall any record owner of any outstanding Common Stock which is
beneficially owned, directly or indirectly, by a person who, as of any record
date for the determination of stockholders entitled to vote on any matter,
beneficially owns in excess of 10% of the then-outstanding shares of Common
Stock (the "Limit"), be entitled, or permitted to any vote in respect of the
shares held in excess of the Limit. The number of votes which may be cast by any
record owner by virtue of the provisions hereof in respect of Common Stock
beneficially owned by such person owning shares in excess of the Limit shall be
a number equal to the total number of votes which a single record owner of all
Common Stock owned by such person would be entitled to cast, multiplied by a
fraction, the numerator of which is the number of shares of such class or series
which are both beneficially owned by such person and owned of record by such
record owner and the
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denominator of which is the total number of shares of Common Stock beneficially
owned by such Person owning shares in excess of the Limit.
Further, for a period of five years from the completion of the
conversion of FJF Financial, M.H.C. from mutual to stock form, no Person 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.
B. Definitions. The following definitions shall apply to this Article
12.
1. "Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as in effect on the date of filing of this
Certificate.
2. "Beneficial Ownership" (including "Beneficially Owned")
shall be determined pursuant to Rule 13d-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934 (or any successor
rule or statutory provision), or, if said Rule 13d-3 shall be rescinded
and there shall be no successor rule or provision thereto, pursuant to
said Rule 13d-3 as in effect on the date of filing of this Certificate;
provided, however, that a Person shall, in any event, also be deemed
the "beneficial owner" of any Common Stock:
(a) which such Person or any of its Affiliates owns,
directly or indirectly; or
(b) which such Person or any of its Affiliates has
(i) the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to
any agreement, arrangement or understanding (but shall not be
deemed to be the Beneficial Owner of any Voting Shares (as
defined in Article 13) solely by reason of an agreement,
contract, or other arrangement with this Company to effect any
transaction which is described in Section A of Article 13) or
upon the exercise of conversion rights, exchange rights,
warrants, or options or otherwise, or (ii) sole or shared
voting or investment power with respect thereto pursuant to
any agreement, arrangement, understanding, relationship or
otherwise (but shall not be deemed to be the Beneficial Owner
of any Voting Shares solely by reason of a revocable proxy
granted for a particular meeting of stockholders, pursuant to
a public solicitation of proxies for such meeting, with
respect to shares of which neither such Person nor any such
Affiliate is otherwise deemed the Beneficial Owner); or
(c) which are owned directly or indirectly, by any
other Person with which such first mentioned Person or any of
its Affiliates acts as a partnership, limited partnership,
syndicate or other group pursuant to any agreement,
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arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of capital stock of
this Company;
and provided further, however, that (1) no director or officer of this Company
(or any Affiliate of any such director or officer) shall, solely by reason of
any or all of such directors or officers acting in their capacities as such, be
deemed, for any purposes hereof, to Beneficially Own any Common Stock
Beneficially Owned by any other such director or officer (or any Affiliate
thereof), and (2) neither any employee stock ownership or similar plan of this
Company or any subsidiary of this Company, nor any trustee with respect thereto
or any Affiliate of such trustee (solely by reason of such capacity of such
trustee), shall be deemed, for any purposes hereof, to Beneficially Own any
Common Stock held under any such plan. For purposes of computing the percentage
Beneficial Ownership of Common Stock of a Person, the outstanding Common Stock
shall include shares deemed owned by such Person through application of this
subsection but shall not include any other Common Stock which may be issuable by
this Company pursuant to any agreement, or upon exercise of conversion rights,
warrants or options, or otherwise. For all other purposes, the outstanding
Common Stock shall include only Common Stock then outstanding and shall not
include any Common Stock which may be issuable by this Company pursuant to any
agreement, or upon the exercise of conversion rights, warrants or options, or
otherwise.
3. The term "Offer" shall mean every written offer to buy or
acquire, solicitation of an offer to sell, tender offer or request or invitation
for tender of, a security or interest in a security for value; provided that the
term "Offer" shall not include (i) inquiries directed solely to the management
of the Company and not intended to be communicated to stockholders which are
designed to elicit an indication of management's receptivity to the basic
structure of a potential acquisition with respect to the amount of cash and or
securities, manner of acquisition and formula for determining price, or (ii)
non-binding expressions of understanding or letters of intent with the
management of the Company regarding the basic structure of a potential
acquisition with respect to the amount of cash and/or securities, manner of
acquisition and formula for determining price.
4. A "Person" shall mean any individual, firm, corporation, or
other entity.
C. The board of directors shall have the power to construe and apply
the provisions of this Article 12 and to make all determinations necessary or
desirable to implement such provisions, including but not limited to matters
with respect to (i) the number of shares of Common Stock Beneficially Owned by
any Person, (ii) whether a Person is an Affiliate of another, (iii) whether a
Person has an agreement, arrangement, or understanding with another as to the
matters referred to in the definition of Beneficial Ownership, (iv) the
application of any other definition or operative provision of the section to the
given facts, or (v) any other matter relating to the applicability or effect of
this Article 12.
D. The board of directors shall have the right to demand that any
Person who is reasonably believed to Beneficially Own Common Stock in excess of
the Limit (or holders of
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record of Common Stock Beneficially Owned by any Person in excess of the Limit)
supply the Company with complete information as to (i) the record owner(s) of
all shares Beneficially Owned by such Person who is reasonably believed to own
shares in excess of the Limit and (ii) any other factual matter relating to the
applicability or effect of this Article 12 as may reasonably be requested of
such Person.
E. Except as otherwise provided by law or expressly provided in this
Article 12, the presence in person or by proxy of the holders of record of
shares of capital stock of the Company entitling the holders thereof to cast a
majority of the votes (after giving effect, if required, to the provisions of
this Article 12) entitled to be cast by the holders of shares of capital stock
of the Company entitled to vote shall constitute a quorum at all meetings of the
stockholders, and every reference in these Articles to a majority or other
proportion of capital stock (or the holders thereof) for purposes of determining
any quorum requirement or any requirement for stockholder consent or approval
shall be deemed to refer to such majority or other proportion of the votes (or
the holders thereof) then entitled to be cast in respect of such capital stock.
F. The provisions of this Article 12 shall not be applicable to any
tax-qualified defined benefit plan or defined contribution plan of the Company
or its subsidiaries or to the acquisition of more than 10% of any class of
equity security of the Company if such acquisition has been approved by
two-thirds of the entire Board of Directors, as described in Article 13 of this
Article; provided, however, that such approval shall only be effective if such
Directors shall have the power to construe and apply the provisions of this
Article 12 and to make all determinations necessary or desirable to implement
such provisions, including but not limited to matters with respect to (a) the
number of shares Beneficially Owned by any Person, (b) whether a Person has an
agreement, arrangement, or understanding with another as to the matters referred
to in the definition of Beneficial Ownership, (c) the application of any other
material fact relating to the applicability or effect of this Article 12. Any
constructions, applications, or determinations made by the Directors pursuant to
this Article 12 in good faith and on the basis of such information and
assistance as was then reasonably available for such purpose shall be conclusive
and binding upon the Company and its stockholders.
G. In the event any provision (or portion thereof) of this Article 12
shall be found to be invalid, prohibited or unenforceable for any reason, the
remaining provisions (or portions thereof) of this Article 12 shall remain in
full force and effect, and shall be construed as if such invalid, prohibited or
unenforceable provision had been stricken herefrom or otherwise rendered
inapplicable, it being the intent of this Company and its stockholders that each
such remaining provision (or portion thereof) of this Article 12 remain, to the
fullest extent permitted by law, applicable and enforceable as to all
stockholders, including stockholders owning an amount of stock over the Limit,
notwithstanding any such finding.
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Article 13. Stockholder Approval of Business Combinations
A. General Requirement. The definitions and other provisions set forth
in Article 12 are also applicable to this Article 13. The affirmative vote of
the holders of not less than eighty percent (80%) of the outstanding shares of
Voting Shares (as hereinafter defined) shall be required for the approval or
authorization of any "Business Combination" as defined and set forth below:
1. Any merger, consolidation, share exchange or division of
the Company or any Subsidiary of the Company with or into (i) any Interested
Shareholder (as hereinafter defined), or (ii) with, involving or resulting in
any other corporation (whether or not itself an Interested Shareholder of the
Company) which is, or after the merger, consolidation, share exchange or
division would be, an Affiliate or Associate of the Interested Shareholder;
2. A sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or series of transactions) to or with the
Interested Shareholders or any Affiliate or Associate or such Interested
Shareholder of assets of the Company or any Subsidiary of the Company (i) Having
an aggregate Market Value (as hereinafter defined) equal to 10% or more of the
aggregate Market Value of all the assets, determined on a consolidated bases, of
such Company; (ii) having an aggregate Market Value equal to 10% or more of the
aggregate Market Value of all outstanding shares of such Company; or (iii)
representing 10% or more of the earning power or net income, determined on a
consolidated basis, of such Company.
3. The issuance or transfer by the Company or any Subsidiary
of the Company (in one or a series of transactions) of any shares of such
Company or any Subsidiary of such Company which has an aggregate Market Value
equal to 5% or more of the aggregate Market Value of all the outstanding shares
of the Company to the Interested Shareholder or any Affiliate or Associate of
such Interested Shareholder except pursuant to the exercise of option rights to
purchase shares, or pursuant to the conversion of securities having conversion
rights, offered, or a dividend or distribution paid or made, pro rata to all
shareholders of the Company.
4. The adoption at any time of any plan or proposal for the
liquidation or dissolution of the Company proposed by, or pursuant to any
agreement, arrangement or understanding with the Interested Shareholder or any
Affiliate or Associate of such Interested Shareholder.
5. A reclassification of securities (including, without
limitation, any split of shares, dividend of shares, or other distribution of
shares in respect of shares, or any reverse split of shares), or
recapitalization of the Company, or any merger or consolidation of the Company
with any Subsidiary of the Company, or any other transaction (whether or not
with or into or otherwise involving the Interested Shareholder), proposed by, or
pursuant to any agreement, arrangement or understanding (whether or not in
writing) with, the Interested Shareholder or any Affiliate or Associate of the
Interested Shareholder, which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any class
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<PAGE>
or series of Voting Shares or securities convertible into Voting Shares of the
Company or any Subsidiary of the Company which is, directly or indirectly, owned
by the Interested Shareholder or any Affiliate or Associate of the Interested
Shareholder, except as a result of immaterial changes due to fractional share
adjustments.
6. The receipt by the Interested Shareholder or any Affiliate
or Associate of the Interested Shareholder of the benefit, directly or
indirectly (except proportionately as a shareholder of the Company), of any
loans, advances, guarantees, pledges or other financial assistance or tax
credits or other tax advantages provided by or through the Company.
The affirmative vote required by this Article 13 shall be in addition
to the vote of the holders of any class or series of stock of the Company
otherwise required by law, by any other Article of these Articles of
Incorporation, as the same may be amended from time to time, by any resolution
of the Board of Directors providing for the issuance of a class or series of
stock, or by any agreement between the Company and any national securities
exchange.
B. Certain Definitions.
1. "Share Acquisition Date" means with respect to any Person
and the Company, the date that such person first became an Interested
Shareholder of the Company.
2. The "Market Value" of the common stock of the Company shall
be the highest closing sale price during the 30-day period immediately preceding
the date in question of the share of the composite tape for New York Stock
Exchange-listed shares, or, if the shares are not quoted on the composite tape
or if the shares are not listed on the exchange, on the principal United States
securities exchange registered under the exchange act, on which such shares are
listed, or, if the shares are not listed on any such exchange, the highest
closing bid quotation with respect to the share during the 30-day period
preceding the date in question on the National Association of Securities
Dealers, Inc. Automated Quotations System or any system then in use, or if no
quotations are available, the fair market value on the date in question of the
share as determined by the Board of Directors of the Company in good faith. In
the case of property other than cash or shares, the fair market value of the
property on the date in question as determined by the Board of Directors of the
Company in good faith.
3. The term "Interested Shareholder," means any Person (other
than the Company or any Subsidiary of the Company) that:
(i) Is the Beneficial Owner, directly or indirectly, of shares
entitling that Person to cast at least 20% of the votes that all shareholders
would be entitled to cast in an election of directors of the Company; or
(ii) Is an Affiliate or Associate of such Company and at any
time within the five-year period immediately prior to the date in question was
the Beneficial Owner, directly or
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<PAGE>
indirectly, of shares entitling that Person to cast at least 20% of the votes
that all shareholders would be entitled to cast in an election of directors of
the Company.
Exception - For the purpose of determining whether a Person is an
Interested Shareholder:
(1) The number of votes that would be entitled to be cast in
an election of directors of the Company shall be calculated by including shares
deemed to be beneficially owned by the Person through application of the
definition of "Beneficial Owner" in section 12.B, but excluding any other
unissued shares of such Company which may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion or option rights or
otherwise; and
(2) There shall be excluded from the Beneficial Ownership of
the Interested Shareholder any:
Shares which were acquired pursuant to a stock split, stock dividend,
reclassification or similar recapitalization with respect to shares described
under this paragraph that have been held continuously since their issuance by
the Company by the natural Person or entity that acquired them from the Company.
For the purpose only of determining the percentage of the outstanding
shares of Voting Shares which any corporation, partnership, person, or other
entity beneficially owns, directly or indirectly, the outstanding shares of
Voting Shares will be deemed to include any shares of Voting Shares which such
corporation, partnership, person or other entity beneficially owns pursuant to
the foregoing provisions of this subsection (whether or not such shares of
Voting Shares are in fact issued or outstanding), but shall not include any
other shares of Voting Shares which may be issuable either immediately or at
some future date pursuant to any agreement, arrangement, or understanding or
upon exercise of conversion rights, exchange rights, warrants, options, or
otherwise.
4. The term "Voting Shares" shall mean any shares of the
authorized stock of the Company entitled to vote generally in the election of
directors.
C. Exceptions. The provisions of this Article 13 shall not apply to a
Business Combination which is approved by two-thirds of those members of the
Board of Directors who were directors prior to the time when the Interested
Shareholder became an Interested Shareholder (the "Continuing Directors"). The
provisions of this Article 13 also shall not apply to a Business Combination:
(1) Approved by the affirmative vote of the holders of shares
entitling such holders to cast a majority of the votes that all shareholders
would be entitled to cast in an election of directors of the Company, not
including any Voting Shares beneficially owned by the Interested Shareholder or
any Affiliate or Associate of such Interested Shareholder, at a meeting
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<PAGE>
called for such purpose no earlier than three months after the Interested
Shareholder became, and if at the time of the meeting the Interested Shareholder
is, the Beneficial Owner, directly or indirectly, of shares entitling the
Interested Shareholder to cast at least 80% of the votes that all shareholders
would be entitled to cast in an election of directors of the Company; or
(2) Approved by the affirmative vote of all of the holders of
all of the outstanding common shares.
(3) Approved by the affirmative vote of the holders of shares
entitling such holders to cast a majority of the votes that all shareholders
would be entitled to cast in an election of directors of the Company, not
including any Voting Shares beneficially owned by the Interested Shareholder or
any Affiliate or Associate of the Interested Shareholder, at a meeting called
for such purpose no earlier than five years after the Interested Shareholder's
Share Acquisition Date.
(4) Approved at a shareholders' meeting called for such
purpose no earlier than five years after the Interested Shareholder's Share
Acquisition Date.
D. Additional Provisions. Nothing contained in this Article 13, shall
be construed to relieve an Interested Shareholder from any fiduciary obligation
imposed by law. In addition, nothing contained in this Article 13 shall prevent
any shareholder of the Company from objecting to any Business Combination and
from demanding any appraisal rights which may be available to such shareholder.
E. Amendments. Notwithstanding any provisions of these Articles of
Incorporation or the Bylaws of the Company (and notwithstanding the fact that a
lesser percentage may be specified by laws, these Articles of Incorporation or
the Bylaws of the Company), the affirmative vote of the holders of at least 80
percent of the outstanding shares entitled to vote thereon (and, if any class or
series is entitled to vote thereon separately, the affirmative vote of the
holders of at least 80 percent of the outstanding shares of each such class or
series) shall be required to amend or repeal this Article 13 or adopt any
provisions inconsistent with this Article.
Article 14. Evaluation of Offers. The Board of Directors of the
Company, when evaluating any offer to (A) make a tender or exchange offer for
any equity security of the Company, (B) merge or consolidate the Company with
another corporation or entity or (C) purchase or otherwise acquire all or
substantially all of the properties and assets of the Company, may, in
connection with the exercise of its judgment in determining what is in the best
interest of the Company and its stockholders, give due consideration to all
relevant factors, including, without limitation, the social and economic effect
of acceptance of such offer: on the Company's present and future customers and
employees and those of its subsidiaries; on the communities in which the Company
and its subsidiaries operate or are located; on the ability of the Company to
fulfill its corporate objectives as a financial institution holding company and
on the ability of its subsidiary financial institution to fulfill the objectives
of a federally insured financial institution under applicable statutes and
regulations.
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<PAGE>
Article 15. Stockholder Approval of Certain Transactions
A. Stockholder Vote. Any merger, consolidation, liquidation, or
dissolution of the Company or any action that would result in the sale or other
disposition of all or substantially all of the assets of the Company
("Transaction") shall require the affirmative vote of the holders of at least
eighty percent (80%) of the outstanding shares of capital stock of the Company
eligible to vote at a legal meeting.
B. Board Approval. The provisions of Article 15.A shall not apply to a
particular Transaction, and such Transaction shall require only such stockholder
vote, if any, as would be required by Pennsylvania law, if such Transaction is
approved by two-thirds of the entire Board of Directors of the Company.
Article 16. Amendment of Articles and Bylaws.
A. Articles. The Company reserves the right to amend, alter, change, or
repeal any provision contained in these Articles of Incorporation, in the manner
now or hereafter prescribed by law, and all rights conferred upon stockholders
herein are granted subject to this reservation. No amendment, addition,
alteration, change, or repeal of these Articles of Incorporation shall be made
unless such amendment addition, alteration, change, or repeal is first proposed
and approved by the Board of Directors pursuant to a resolution proposed and
adopted by the affirmative vote of a majority of the directors then in office,
and thereafter is approved by the holders of a majority (except as provided
below) of the shares of the Company entitled to vote generally in an election of
directors, voting together as a single class, as well as such additional vote of
the Preferred Stock as may be required by the provisions of any series thereof.
Notwithstanding anything contained in these Articles of Incorporation to the
contrary, the affirmative vote of the holders of at least eighty percent (80%)
of the shares of the Company entitled to vote generally in an election of
directors, voting together as a single class, as well as such additional vote of
the Preferred Stock as may be required by the provisions of any series thereof,
shall be required to amend, adopt, alter, change, or repeal any provision
inconsistent with Articles 7, 8, 9, 10, 11, 12, 13, 14, 15 and 16.
B. Bylaws. The Board of Directors or stockholders may adopt, alter,
amend, or repeal the Bylaws of the Company. Such action by the Board of
Directors shall require the affirmative vote of a majority of the directors then
in office at any regular or special meeting of the Board of Directors. Such
action by the stockholders shall require the affirmative vote of the holders of
at least eighty percent (80%) of the shares of the Company entitled to vote
generally in an election of directors, voting together as a single class, as
well as such additional vote of the Preferred Stock as may be required by the
provisions of any series thereof.
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<PAGE>
IN WITNESS WHEREOF, I, being the Incorporator, for the purpose of
forming a corporation under the laws of the Commonwealth of Pennsylvania, do
make, file and record these Articles of Incorporation, and, accordingly, have
hereto set my hand this the 24th day of March, 1998.
/s/John F. McGill, Jr.
-----------------------------------------
John F. McGill, Jr.
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EXHIBIT 3.(ii)
<PAGE>
BYLAWS
OF
THISTLE GROUP HOLDINGS, CO.
ARTICLE I. OFFICES
1.1 Registered Office and Registered Agent. The registered office of
Thistle Group Holdings, Co. (the "Company") shall be located in the Commonwealth
of Pennsylvania at such place as may be fixed from time to time by the board of
directors of the Company (the "Board" or "Board of Directors") upon filing of
such notices as may be required by law, and the registered agent shall have a
business office identical with such registered office.
1.2 Other Offices. The Company may have other offices within or outside
the Commonwealth of Pennsylvania at such place or places as the Board of
Directors may from time to time determine.
ARTICLE II. STOCKHOLDERS' MEETING
2.1 Meeting Place. All meetings of the stockholders shall be held at
the principal place of business of the Company, or at such other place within or
without the Commonwealth of Pennsylvania as shall be determined by the Board of
Directors and stated in the notice of such meeting.
2.2 Annual Meeting Time. The annual meeting of the stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year on such date and time
as may be determined by the Board of Directors and stated in the notice of such
meeting.
2.3 Organization and Conduct. Each meeting of the stockholders shall be
presided over by the Chairman of the Board, or in the Chairman's absence by the
President, or if neither the Chairman nor the President is present, by any Vice
President. The Secretary, or in the Secretary's absence a temporary Secretary,
shall act as secretary of each meeting of the stockholders. In the absence of
the Secretary and any temporary Secretary, the chairman of the meeting may
appoint any person present to act as secretary of the meeting. The chairman of
any meeting of the stockholders, unless prescribed by law or regulation or
unless the Board of Directors has otherwise determined, shall determine the
order of the business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussions as shall be
deemed appropriate by such chairman in the chairman's sole discretion.
2.4 Notice.
(a) Notice of the date, time, and place of, and the general
business to be conducted at, an annual or special meeting of stockholders shall
be given by delivering personally, by facsimile transmission, or by mailing a
written or printed notice of the same, at least ten (10) days prior to the
meeting, to each stockholder of record entitled to vote at such meeting. When
any stockholders' meeting, either annual or special, is adjourned and a new
record date is fixed for an adjourned meeting of stockholders, 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 unless new business
<PAGE>
is to be transacted thereat or a new record date is fixed therefor, other than
an announcement at the meeting at which such adjournment is taken.
2.5 Voting Lists. The officer or agent having charge of the transfer
books for shares of the Company shall make a complete list of the shareholders
entitled to vote at any meeting of shareholders, arranged in alphabetical order,
with the address of and the number of shares held by each. The list shall be
produced and kept open at the time and place of the meeting and shall be subject
to inspection of any shareholder during the whole time of the meeting for the
purposes thereof.
2.6 Quorum. Except as otherwise required by law:
(a) A quorum at any annual or special meeting of stockholders
shall consist of stockholders representing, either in person or by proxy, a
majority of the outstanding capital stock of the Company entitled to vote at
such meeting without regard to any shares for which a broker indicates on a
proxy that it does not have discretionary authority as to such shares to vote on
such matter ("Broker Non-votes").
(b) The votes of a majority of those present, without regard
to Broker Non-votes or votes of abstention, at any properly called meeting or
adjourned meeting of stockholders, at which a quorum as defined above is
present, shall be sufficient to transact business, unless such greater vote is
required by these Bylaws, the Articles of Incorporation, or the laws of the
Commonwealth of Pennsylvania.
2.7 Voting of Shares.
(a) Except as otherwise provided in these Bylaws or to the
extent that voting rights of the shares of any class or classes are limited or
denied by the Articles of Incorporation, each stockholder, on each matter
submitted to a vote at a meeting of stockholders, shall have one vote for each
share of capital stock registered in such person's name on the books of the
Company.
(b) Directors are to be elected by a plurality of votes cast
by the shares entitled to vote in the election of directors at a meeting at
which a quorum is present. Stockholders shall not be permitted to cumulate their
votes for the election of directors. If, at any meeting of the stockholders, due
to a vacancy or vacancies or otherwise, directors of more than one class of the
Board of Directors are to be elected, each class of directors to be elected at
the meeting shall be elected in a separate election by a plurality vote.
2.8 Fixing Record Date. The Board of Directors may fix a time prior to
the date of any meeting of shareholders as a record date for the determination
of the shareholders entitled to notice of, or to vote at, the meeting, which
time, except in the case of an adjourned meeting, shall be not more than 90 days
prior to the date of the meeting of shareholders. Only shareholders of record on
the date fixed shall be so entitled notwithstanding any transfer of shares on
the books of the Company after any record date fixed as provided in this
subsection. The Board of Directors may similarly fix a record date for the
determination of shareholders of record for any other purpose. When a
determination of shareholders of record has been made as provided in this
section for purposes of a meeting, the determination shall apply to any
adjournment thereof unless the Board fixes a new record date for the adjourned
meeting.
2.9 Proxies. A stockholder may vote either in person or by proxy
executed in writing by the stockholder, or such person's duly authorized
attorney-in-fact. A telegram, telex, cablegram, datagram, or similar
transmission from a shareholder or attorney-in-fact, or a photographic,
facsimile, or similar reproduction of a writing executed by a shareholder or
attorney-in-fact may be treated as properly
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executed for purposes of this section and shall be so treated if it sets forth a
confidential and unique identification number or other mark furnished by the
Company to the shareholder for the purposes of a particular meeting or
transaction. No proxy shall be valid after three years from the date of its
execution, unless otherwise provided in the proxy.
2.10 Voting of Shares in the Name of Two or More Persons. Where shares
are held jointly or as tenants in common by two or more persons as fiduciaries
or otherwise, if only one or more of such persons is present in person or by
proxy, all of the shares standing in the names of such persons shall be deemed
to be represented for the purpose of determining a quorum and the Company shall
accept as the vote of all such shares the votes cast by such person or a
majority of them and if in any case such persons are equally divided upon the
manner of voting the shares held by them, the vote of such shares shall be
divided equally among such persons, without prejudice to the rights of such
joint owners or the beneficial owners thereof among themselves, except that, if
there shall have been filed with the Secretary of the Company a copy, certified
by an attorney-at-law to be correct, of the relevant portions of the agreements
under which such shares are held or the instrument by which the trust or estate
was created or the decree of court appointing them, or of a decree of court
directing the voting of such shares, the persons specified as having such voting
power in the latest such document so filed, and only such persons, shall be
entitled to vote such shares but only in accordance therewith.
2.11 Voting of Shares by Certain Holders. Shares standing in the name
of another corporation may be voted by an 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 such person,
either in person or by proxy, without a transfer of such shares into such
person's name. Shares standing in the name of a trustee may be voted by the
trustee, either in person or by proxy. Shares standing in the name of a receiver
may be voted by such receiver without the transfer thereof into the receiver's
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 stockholder whose
shares are pledged shall be entitled to vote such shares until the shares have
been transferred into the name of the pledgee or nominee, and thereafter the
pledgee or nominee shall be entitled to vote the shares so transferred.
2.12 Judges of Election. For each meeting of stockholders, the Board of
Directors may appoint the judges of election. If for any meeting the
inspector(s) appointed by the Board of Directors shall be unable to act or the
Board of Directors shall fail to appoint any inspector, one or more inspectors
may be appointed at the meeting by the chairman thereof. The number of
inspectors shall be one or three. Except for such duties as may be designated in
the Articles of Incorporation to another person, such inspectors determine the
number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the authenticity,
validity, and effect of proxies, receive votes or ballots, hear and determine
all challenges and questions in any way arising in connection with the right to
vote, count and tabulate all votes, determine the result and do such acts as may
be proper to conduct the election or vote with fairness to all shareholders. If
there are three inspectors, the decision, act, or certificate of a majority
shall be effective in all respects as the decision, act, or certificate of all.
Inspectors need not be stockholders.
2.13 Action By Shareholders Without a Meeting. Action required to be
taken or which may be taken at any annual or special meeting of stockholders of
the Company may be taken without a meeting as set forth in the Articles of
Incorporation, which provisions are incorporated herein with the same effect as
if they were set forth herein.
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<PAGE>
ARTICLE III. CAPITAL STOCK
3.1 Certificates. Certificates of stock shall be issued in numerical
order, and each stockholder shall be entitled to a certificate signed by the
President or a Vice President, and the Secretary or the Treasurer, and may be
sealed with the seal of the Company or a facsimile thereof. The signatures of
such officers may be facsimiles if the certificate is manually signed on behalf
of a transfer agent, or registered by a registrar, other than the Company itself
or an employee of the Company. If an officer who has signed or whose facsimile
signature has been placed upon such certificate ceases to be an officer of the
Company before the certificate is issued, it may be issued by the Company with
the same effect as if the person were an officer on the date of issue. Each
certificate of stock shall state:
(a) that the Company is incorporated under the laws of the
Commonwealth of Pennsylvania;
(b) the name of the person to whom issued;
(c) the number and class of shares and the designation of the
series, if any, which such certificate represents;
(d) the par value of each share represented by such
certificate, or a statement that such shares are without par value; and
(e) that the Company will furnish to any shareholder upon
request and without charge, a full statement of the designations, preferences,
limitations, and relative rights of each class authorized to be issued.
3.2 Transfers.
(a) Transfers of stock shall be made only upon the stock
transfer books of the Company, kept at the registered office of the Company or
at its principal place of business, or at the office of its transfer agent or
registrar, and before a new certificate is issued the old certificate shall be
surrendered for cancellation. The Board of Directors may, by resolution, open a
share register in any state of the United States, and may employ an agent or
agents to keep such register, and to record transfers of shares therein.
(b) Shares of stock shall be transferred by delivery of the
certificates therefor, accompanied either by an assignment in writing on the
back of the certificate or an assignment separate from the certificate, or by a
written power of attorney to sell, assign, and transfer the same, signed by the
holder of said certificate. No shares of stock shall be transferred on the books
of the Company until the outstanding certificates therefor have been surrendered
to the Company.
3.3 Registered Owner. Registered stockholders shall be treated by the
Company as the holders in fact of the stock standing in their respective names
and the Company shall not be bound to recognize any equitable or other claim to
or interest in any share on the part of any other person, whether or not it
shall have express or other notice thereof, except as expressly provided below
or by the laws of the Commonwealth of Pennsylvania. The Board of Directors may
adopt by resolution a procedure whereby a stockholder of the Company may certify
in writing to the Company that all or a portion of the shares registered in the
name of such stockholder are held for the account of a specified person or
persons. The resolution shall set forth:
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(a) The classification of stockholders who may certify;
(b) The purpose or purposes for which the certification may be
made;
(c) The form of certification and information to be contained
therein;
(d) If the certification is with respect to a record date or
closing of the stock transfer books, the date within which the certification
must be received by the Company; and
(e) Such other provisions with respect to the procedure as are
deemed necessary or desirable.
Upon receipt by the Company of a certification complying with a
resolution meeting the above requirements, the persons specified in the
certification shall be deemed, for the purpose or purposes set forth in the
certification, to be the holders of record of the number of shares specified in
place of the stockholder making the certification.
3.4 Mutilated, Lost, or Destroyed Certificates. In case of any
mutilation, loss, or destruction of any certificate of stock, another may be
issued in its place upon receipt of proof of such mutilation, loss, or
destruction. The Board of Directors may impose conditions on such issuance and
may require the giving of a satisfactory bond or indemnity to the Company in
such sum as the Board might determine, or the Board may establish such other
procedures as it deems necessary.
3.5 Fractional Shares or Scrip. The Company may (a) issue fractions of
a share which shall entitle the holder a proportional interest to exercise
voting rights, to receive dividends thereon, and to participate in any of the
assets of the Company in the event of liquidation; (b) arrange for the
disposition of fractional interests by those entitled thereto; (c) pay in cash
the fair value of fractions of a share as of the time when those entitled to
receive such shares are determined; or (d) issue scrip in registered or bearer
form which shall entitle to holder to receive a certificate for a full share
upon the surrender of such scrip aggregating a full share.
3.6 Shares of Another Company. Shares owned by the Company in another
corporation, domestic or foreign, may be voted by such officer, agent, or proxy
as the Board of Directors may determine or, in the absence of such
determination, by the President of the Company.
ARTICLE IV. BOARD OF DIRECTORS
4.1 Number and Powers. The management of all the affairs, property, and
interest of the Company shall be vested in a Board of Directors. The Board of
Directors shall be divided into three classes as nearly equal in number as
possible. The initial Board of Directors shall consist of seven (7) persons. The
classification and term of the directors shall be as set forth in the Articles
of Incorporation, which provisions are incorporated herein with the same effect
as if they were set forth herein. Directors must own no less than twelve (12)
shares of the voting stock of the Company. Such shares shall be kept on deposit
in the vault of the Company. Any director shall cease to act when no longer
holding such shares, which fact shall be reported to the Board by the Secretary,
whereupon the Board shall declare the seat of such director vacant. Directors
need not be residents of the Commonwealth of Pennsylvania. In addition to the
powers, authorities, and duties expressly conferred upon it by these Bylaws and
the Articles of Incorporation, the Board of Directors may exercise all such
powers of the Company and do
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all such lawful acts and things as are not by statute or by the Articles of
Incorporation or by these Bylaws directed or required to be exercised or done by
the stockholders.
In discharging the powers and duties of their respective positions, the
Board of Directors, committees of the Board of Directors, and individual
directors may, in considering the best interests of the Company, consider to the
extent they deem appropriate the effects of any action upon any and all groups
affected by such action, including stockholders, employees, suppliers,
customers, and creditor of the Company, and upon the communities in which
offices or other establishments of the Company are located; the short-term and
long-term interests of the Company; the resources, intent, and conduct (past,
stated, and potential) of any person seeking to acquire control of the Company;
and any and all other factors, provided however, the Board of Directors,
committees of the Board of Directors, or any individual director shall not be
required, in considering the best interests of the Company or the effects of any
action, to regard any interest or interests of any particular group affected by
the action as a dominant or controlling interest or factor.
4.2 Change of Number. The number of directors may at any time be
increased or decreased by a vote of two-thirds of the Board of Directors,
provided that no decrease shall have the effect of shortening the term of any
incumbent director except as provided in Sections 4.4 and 4.5 hereunder.
Notwithstanding anything to the contrary contained within these Bylaws, the
number of directors may neither be less than 5 nor more than 12.
4.3 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 or the President. Unless otherwise specified therein, such
resignation shall take effect upon receipt thereof by the Chairman or the
President.
4.4 Vacancies. All vacancies in the Board of Directors shall be filled
in the manner provided in the Articles of Incorporation, which provisions are
incorporated herein with the same effect as if they were set forth herein.
4.5 Removal of Directors. Directors may be removed in the manner
provided in the Articles of Incorporation, which provisions are incorporated
herein with the same effect as if they were set forth herein.
4.6 Regular Meetings. Regular meetings of the Board of Directors or any
committee thereof may be held without notice at the principal place of business
of the Company or at such other place or places, either within or without the
Commonwealth of Pennsylvania, as the Board of Directors or such committee, as
the case may be, may from time to time designate. The annual meeting of the
Board of Directors shall be held without notice immediately after the
adjournment of the annual meeting of stockholders.
4.7 Special Meetings.
(a) Special meetings of the Board of Directors may be called
at any time by the Chairman, President, or by a majority of the authorized
number of directors, to be held at the principal place of business of the
Company or at such other place or places as the Board of Directors or the person
or persons calling such meeting may from time to time designate. Notice of all
special meetings of the Board of Directors shall be given to each director at
least five (5) days prior to such meeting by telegram, telex, cablegram,
courier, facsimile, or other similar communication, by letter, or personally.
Such notice need neither specify the business to be transacted at, nor the
purpose of, the meeting.
6
<PAGE>
(b) Special meetings of any committee may be called at any
time by such person or persons and with such notice as shall be specified for
such committee by the Board of Directors, or in the absence of such
specification, in the manner and with the notice required for special meetings
of the Board of Directors.
4.8 Quorum. A majority of the Board of Directors shall be necessary at
all meetings to constitute a quorum for the transaction of business.
4.9 Waiver of Notice. Attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened. A waiver of notice signed by the
director or directors, whether before, during, or after the time stated for the
meeting, shall be equivalent to the giving of notice.
4.10 Registering Dissent. A director who is present at a meeting of the
Board of Directors at which action on a corporate matter is taken shall be
presumed to have assented to such action unless such director's dissent is
entered in the minutes of the meeting, or unless the director files a written
dissent to such action with the person acting as the secretary of the meeting
before the adjournment thereof, or unless the director delivers a dissent in
writing to the Secretary of the Company immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a director who voted in favor
of such action.
4.11 Executive, Audit, and Other Committees. Standing or special
committees may be appointed by the Board of Directors from its own number from
time to time, and the Board of Directors may from time to time invest such
committees with such powers as it may see fit, subject to such conditions as may
be prescribed by the Board. An Executive Committee may be appointed by
resolution passed by a majority of the full Board of Directors. It shall have
and exercise all of the authority of the Board of Directors, except in reference
to the submission of any action requiring the approval of stockholders, the
creation or filling of vacancies on the Board of Directors, the adoption,
amendment, or repeal of these Bylaws, the amendment or repeal of any resolution
of the Board which, by its terms, is only amendable or repealable by the entire
Board, or any action on matters committed by these Bylaws or resolution of the
Board to another committee of the Board. An Audit Committee shall be appointed
by resolution passed by a majority of the full Board of Directors, and at least
a majority of the members of the Audit Committee shall be directors who are not
also officers of the Company. The Audit Committee shall review the records and
affairs of the Company to determine its financial condition, shall review the
Company's systems of internal control with management and the Company's
independent auditors, and shall monitor the Company's adherence in accounting
and financial reporting to generally accepted accounting principles, as well as
such other duties as may be assigned to it by the Board of Directors. All
committees appointed by the Board of Directors shall keep regular minutes of the
transactions of their meetings and shall cause them to be recorded in books kept
for that purpose in the office of the Company. The designation of any such
committee, and the delegation of authority thereto, shall not relieve the Board
of Directors, or any member thereof, of any responsibility imposed by law.
4.12 Remuneration. The Board of Directors, by the affirmative vote of a
majority of the directors then in office, and irrespective of any personal
interest of any of its members, shall have the authority to establish reasonable
fee for all directors for services to the Company as directors, officers, or
otherwise, or to delegate such authority to any appropriate committee; provided,
that nothing herein contained shall be construed to preclude any director from
serving the Company in any other capacity and receiving compensation therefor.
Members of standing or special committees may be allowed like compensation for
attending committee meetings.
7
<PAGE>
4.13 Action by Directors Without a Meeting. Any action which may be
taken at a meeting of the directors, or of a committee thereof, may be taken
without a meeting if a consent in writing, setting forth the action so taken or
to be taken, shall be signed by all of the directors, or all of the members of
the committee, as the case may be. Such consent shall have the same effect as a
unanimous vote.
4.14 Action of Directors by Communications Equipment. Any action which
may be taken at a meeting of directors, or of a committee thereof, may be taken
by means of a conference telephone or similar communications equipment by means
of which persons participating in the meeting can hear each other at the same
time. Participation in a meeting pursuant to this section shall constitute
presence in person at the meeting
ARTICLE V. OFFICERS
5.1 Designations. The officers of the Company may include the Chairman
of the Board, a President, a Secretary, and a Treasurer, as well as such Vice
Presidents (including Executive and Senior Vice Presidents), Assistant
Secretaries, and Assistant Treasurers as the Board may designate, who shall be
elected for one year by the directors at their first meeting after the annual
meeting of stockholders, and who shall hold office until their successors are
elected and qualify. Any two or more offices may be held by the same person,
except that the offices of President and Secretary and President and Treasurer
may not be held by the same person. The President and Chairman of the Board
shall be members of the Board.
5.2 Powers and Duties. The officers of the Company 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.
5.3 Delegation. In the case of absence or inability to act of any
officer of the Company and of any person herein authorized to act in such
officer's place, the Board of Directors may from time to time delegate the
powers or duties of such officer to any other officer or any director or other
person whom it may select.
5.4 Vacancies. Vacancies in any office arising from any cause may be
filled by the Board of Directors at any regular or special meeting of the Board.
5.5 Other Officers. The Board may appoint such other officers and
agents as it shall deem necessary or expedient, who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
5.7 Term - Removal. The officers of the Company shall hold office until
their successors are chosen and qualified. Any officer or agent elected or
appointed by the Board of Directors may be removed at any time, with or without
cause, by the affirmative vote of a majority of the whole Board of Directors,
but such removal shall be without prejudice to the contractual rights, if any,
of the person so removed. The election or appointment of an officer or agent
shall not in itself create contractual rights.
8
<PAGE>
ARTICLE VI. FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Company shall end on the 31st 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. The appointment of such accountants shall be subject to
annual ratification by the stockholders.
ARTICLE VII. DIVIDENDS AND FINANCE
7.1 Dividends. Dividends may be declared by the Board of Directors and
paid by the Company out of retained earnings of the Company subject to the
conditions and limitations imposed by the laws of the Commonwealth of
Pennsylvania.
7.2. Reserves. Before making any distribution of earned surplus, there
may be set aside out of the earned surplus of the Company such sum or sums as
the directors from time to time in their absolute discretion deem expedient as a
reserve fund to meet contingencies, or for equalizing dividends, or for
maintaining any property of the Company, or for any other purpose. Any earned
surplus of any year not distributed as dividends shall be deemed to have thus
been set apart until otherwise disposed of by the Board of Directors.
7.3 Depositories. The monies of the Company shall be deposited in the
name of the Company in such bank or banks or trust company or trust companies as
the Board of Directors shall designate, and shall be drawn out only by check or
other order for payment of money signed by such persons and in such manner as
may be determined by resolution of the Board of Directors.
ARTICLE VIII. NOTICES
Except as may otherwise be required by law, any notice to any
stockholder or director may be delivered personally, by mail, by telegram,
telex, or TWX (with answerback received), or by courier service or facsimile
transmission. If sent by mail, telegraph, or courier service, the notice shall
be deemed to have been given to the person when deposited in the United States
mail or with a telegraph or courier service for delivery to that person or, in
the case of telex or TWX, when dispatched to the address of the addressee at
such persons last known address (or to such persons telex, TWX, or facsimile
number) in the records of the Company, with postage or courier or other charges
thereon prepaid.
ARTICLE IX. SEAL
The corporate seal of the Company shall be in such form and bear such
inscription as may be adopted by resolution of the Board of Directors, or by
usage of the officers on behalf of the Company.
9
<PAGE>
ARTICLE X. BOOKS AND RECORDS
The Company shall keep correct and complete books and records of
account and shall keep minutes and proceedings of meetings of its stockholders
and Board of Directors; and it shall keep at its registered office or principal
place of business, or at the office of its transfer agent or registrar, a record
of its stockholders, giving the names and addresses of all stockholders and the
number and class of the shares held by each. Any books, records, and minutes may
be in written form or any other form capable of being converted into written
form within a reasonable time.
ARTICLE XI. AMENDMENTS
These Bylaws may be altered, amended or repealed only as set forth in
the Articles of Incorporation, which provisions are incorporated herein with the
same effect as if they were set forth herein.
10
EXHIBIT 4
<PAGE>
================================================================================
COMMON STOCK THISTLE GROUP HOLDINGS, CO. CUSIP
CERTIFICATE NO.
INCORPORATED UNDER THE
LAWS OF THE COMMONWEALTH OF PENNSYLVANIA SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT:
IS THE OWNER OF:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK,
$0.10 PAR VALUE PER SHARE OF
Thistle Group Holdings, Co.
The shares represented by this certificate are transferable only on the
stock transfer books of the corporation by the holder of record hereof in
person, or by his duly authorized attorney or legal representative, upon the
surrender of this certificate properly endorsed. This certificate and the shares
represented hereby are issued and shall be held subject to all the provisions
contained in the corporation's official corporate papers filed with the
Department of State of the Commonwealth of Pennsylvania (copies of which are on
file with the Transfer Agent), to all of the provisions the holder by acceptance
hereof, assents.
This certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT
FEDERALLY INSURED OR GUARANTEED.
In Witness Whereof, Thistle Group Holdings, Co. has caused this
certificate to be executed by the facsimile signatures of its duly authorized
officers and has caused a facsimile of its corporate seal to be hereunto
affixed.
DATED:
- ------------------------------------ ------------------------------------
PRESIDENT SECRETARY
SEAL
Incorporated 1998
================================================================================
<PAGE>
THISTLE GROUP HOLDINGS, CO.
The shares represented by this certificate are subject to a limitation
contained in the articles of incorporation (the "Articles") to the effect that
in no event shall any record owner of any outstanding common stock which is
beneficially owned, directly or indirectly, by a person who beneficially owns in
excess of 10% of the outstanding shares of common stock ( the "Limit") be
entitled or permitted to any vote in respect of shares held in excess of the
Limit. In addition, for five years from the initial sale of common stock, no
person or entity may offer to acquire or acquire more than 10% of the then
outstanding shares of any class of equity securities of the corporation.
The Board of Directors of the corporation is authorized by
resolution(s), from time to time adopted, to provide for the issuance of serial
preferred stock in series and to fix and state the voting powers, designations,
preferences, and relative, participating, optional, or other special rights of
the shares of each such series and the qualifications, limitations, and
restrictions thereof. The corporation will furnish to any shareholder upon
request and without charge a full description of each class of stock and any
series thereof.
The shares represented by this certificate may not be cumulatively
voted in the election of directors of the corporation. The Articles also require
the approval of not less than 80% of the corporation's voting stock prior to the
corporation engaging in certain business combinations (as defined in the
Articles) with a person who is the beneficial owner of 10% or more of the
corporation's outstanding voting stock, or with an affiliate or associate of the
corporation. This restriction does not apply if certain approvals are obtained
from the Board of Directors. The affirmative vote of holders of 80% of the
outstanding shares of capital stock of the corporation entitled to vote
generally in the election of directors (considered for this purpose as a single
class) is required to amend this and certain other provisions of the Articles.
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 TRANS MIN ACT - ________Custodian_______
(Cus) (Minor)
TEN ENT - as tenants by the entireties under Uniform Transfers to Minors Act
-----------------------
(State)
TEN ENT - as tenants by the entireties
JT TEN - as joint tenants with right of
survivorship and not as tenants
in common
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED ________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR
OTHER IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING 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 _____________________ X___________________________________
X___________________________________
NOTICE: The signatures to this assignment must correspond with the
name(s) as written upon the face of the certificate in every particular, without
alteration or enlargement or any change whatever.
SIGNATURE(S) GUARANTEED: ___________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE
GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS
AND LOAN ASSOCIATIONS, AND CREDIT UNIONS WITH
MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE
MEDALLION PROGRAM) PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
Countersigned and Registered:
Transfer Agent and Registrar
By:
------------------------------
Authorized Signature
EXHIBIT 5
<PAGE>
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
ATTORNEYS AT LAW
1301 K STREET, N.W.
SUITE 700 EAST
WASHINGTON, D.C. 20005
(202) 434-4660
FACSIMILE: (202) 434-4661
March 26, 1998
Board of Directors
Thistle Group Holdings, Co.
6060 Ridge Avenue
Philadelphia, Pennsylvania 19128
Re: Registration Statement Under the Securities Act of 1933, as Amended
-------------------------------------------------------------------
Ladies and Gentlemen:
This opinion is rendered in connection with the Registration Statement
on Form S-1 ("Registration Statement") to be filed with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, (the "Act")
relating to the issuance of up to 11,902,500 shares of common stock, par value
$0.10 per share (the "Common Stock"), of Thistle Group Holdings, Co. (the
"Company"), in connection with the conversion of FJF Financial, M.H.C. (the
"MHC") from the mutual form to a federal interim stock savings bank ("Interim
I"), the merger of Thistle Group Holdings, Inc. ("Mid-Tier") after Mid-Tier's
conversion to a federal middle-tier holding company and then to a federal
interim stock savings bank into Roxborough- Manayunk Federal Savings Bank (the
"Bank"), the merger of Interim I into the Bank, and the merger of a third
interim savings institution, a to-be-formed wholly owned subsidiary of the
Company, with and into the Bank (the "Conversion and Reorganization") all
pursuant to a written plan (the "Plan"). As special counsel to the Company, we
have reviewed the corporate proceedings relating to the Plan and the Conversion
and Reorganization and such other legal matters as we have deemed appropriate
for the purpose of rendering this opinion.
Based on the foregoing, we are of the opinion that the shares of Common
Stock of the Company covered by the aforesaid Registration Statement will, when
issued in accordance with the terms of the Plan against full payment therefor,
be validly issued, fully paid, and non-assessable.
We hereby consent to the use of this opinion and to the reference to
our firm appearing in the Company's Prospectus under the headings "The
Conversion and Reorganization -- Tax Aspects" and "Legal and Tax Matters." We
also consent to any references to our legal opinion referred to under the
aforementioned headings in the Prospectus. In giving this consent, we do not
admit that we come within the category of persons whose consent is required
under Section 7 of the Act or the rules and regulations of the Securities and
Exchange Commission adopted under the Act.
<PAGE>
Board of Directors
March 26, 1998
Page 2
This opinion is given as of the effective date of the Registration
Statement and we assume no obligation to advise you of changes that may
hereafter be brought to our attention.
Very truly yours,
/s/Malizia, Spidi, Sloane & Fisch
---------------------------------
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
EXHIBIT 8.1
<PAGE>
[FORM OF OPINION]
____________, 1998
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
6060 Ridge Avenue
Philadelphia, Pennsylvania 19128
Dear Board Members:
You have asked that we provide you our opinion in regard to certain
federal income tax matters relating to the Plan of Conversion and Reorganization
of FJF Financial, M.H.C. and Plans of Merger between FJF Financial, M.H.C.,
Thistle Group Holdings, Inc. and Roxborough-Manayunk Federal Savings Bank
adopted on February 18, 1998, as amended (the "Plan"). We have examined the Plan
and certain other documents as we deemed necessary in order to provide our
opinions. Unless otherwise defined, all terms used in this letter have the
meanings given to them in the Plan.
In our examination, we assumed that original documents were authentic,
copies were accurate and signatures were genuine. We have further assumed the
absence of adverse facts not apparent from the face of the instruments and
documents we examined. In rendering our opinion, we have relied upon certain
written representations of Roxborough-Manayunk Federal Savings Bank (the
"Bank"), FJF Financial, M.H.C. (the "MHC"), and Thistle Group Holdings, Inc.
(the "Mid-Tier") (collectively referred to herein as the "Representations")
which are attached hereto.
We assumed that the Plan has been or will be duly and validly
authorized and approved and adopted and that all parties will comply with the
terms and conditions of the Plan, and that the various representations and
warranties which have been provided to us are accurate, complete, true and
correct. Accordingly, we express no opinion concerning the effect, if any, of
variations from the foregoing.
In issuing the opinions set forth below, we have referred solely to
existing provisions of (1) the Internal Revenue Code of 1986, as amended (the
"Code"), and existing and proposed Treasury Regulations thereunder; and (2)
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 after
the date hereof.
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
____________, 1998
Page 2
There can be no assurance that our opinions would be adopted by the
Internal Revenue Service (the "Service") or a court. The outcome of litigation
cannot be predicted. We have, however, attempted in good faith to opine as to
the merits of each tax issue with respect to which an opinion was requested.
STATEMENT OF FACTS
On December 31, 1992, the Bank, a federally chartered mutual savings
institution at the time reorganized into the mutual holding company form of
organization and consummated a sale of stock to certain members. To accomplish
this transaction, the Bank organized a federally chartered, stock savings bank
as a wholly owned subsidiary. The Bank then transferred substantially all of its
assets and liabilities to the Bank in exchange for shares of the Bank's common
stock, and reorganized itself into a federally chartered mutual holding company
known as FJF Financial, M.H.C. and sold some of the shares of the Bank's common
stock to certain parties other than the MHC. Upon completion of the MHC
Reorganization, the MHC and the public stockholders owned an aggregate of 87.62%
and 12.38% of the outstanding common stock of the Bank, respectively. On
September 30, 1997, the Bank completed a reorganization in which the Bank became
a wholly owned subsidiary of a stock middle tier holding company known as
Thistle Group Holdings, Inc. Shareholders of the Bank became shareholders of the
Mid-Tier. As of December 31, 1997, the MHC and the public stockholders own an
aggregate of 1,415,000 (87.62%) and 206,000 (12.38%) of the outstanding Mid-Tier
common stock, respectively. Pursuant to the Plan, the Bank will form a new
Pennsylvania stock holding company named Thistle Group Holdings, Co. (the
"Holding Company") and the existing shares of the Mid-Tier owned by public
stockholders will be converted pursuant to an Exchange Ratio into shares of
Holding Company.
The Boards of Directors of the MHC, the Mid-Tier, the Holding Company,
and the Bank believe that a conversion of the MHC to stock form pursuant to the
Plan is in the best interests of the MHC, the Mid-Tier, and the Bank, as well as
the best interests of their respective members and stockholders. The Boards of
Directors have determined that the Plan equitably provides for the interests of
members through the granting of subscription rights and the establishment of a
liquidation account. The Conversion and Merger will result in the Bank being
wholly owned by a stock holding company which is owned by public stockholders,
which is a more common structure and form of ownership than a mutual holding
company. In addition, the Conversion and Merger will result in the raising of
additional capital for the Bank and the Holding Company and should result in a
more active and liquid market for the Holding Company Common Stock than
currently exists for the Mid-Tier's common stock. Finally, the Conversion and
Merger will provide the Holding Company with additional investment authority and
is designed to enable the Bank and Holding Company to compete more effectively
in a market which is consolidating.
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
____________, 1998
Page 3
For valid business reasons, the present corporate structure of the MHC,
the Mid-Tier, and the Bank will be changed pursuant to the following proposed
transactions:
(i) The Mid-Tier will convert from a Pennsylvania stock holding company
into a federal holding company and thereafter into an interim federal stock
savings bank ("Interim One")
and MHC will convert from its mutual form to a federal interim stock savings
bank ("Interim Two").
(ii) Interim One will merge into Bank with the Bank being the surviving
corporation ("Merger 1").
(iii) Immediately after Merger 1, Interim Two will merge with and into
the Bank, with the Bank being the surviving corporation ("Merger 2"). The Bank's
common stock which was previously held by the MHC will be extinguished. Eligible
members of the MHC as of certain specified dates set forth in the Plan will be
granted interests in a liquidation account to be established by the Bank
(referred to herein as "Liquidation Interests").
(iv) The Bank will form a Pennsylvania corporation as a new, wholly
owned, first tier subsidiary (i.e., the "Holding Company"), which will become a
new holding company.
(v) The Holding Company will form an interim federal stock savings bank
("Interim Three") as a new, wholly owned first tier subsidiary.
(vi) Immediately following Merger 2, Interim Three will merge with and
into the Bank, with the Bank being the surviving entity ("Merger 3"). Merger 1,
Merger 2, and Merger 3 will be completed in accordance with applicable federal
and state laws. As a result of Merger 3, the Bank's common stock deemed held by
the Public Stockholders will be converted into the Holding Company's common
stock ("Holding Company Common Stock") based upon an exchange ratio which
ensures that the Public Stockholders will own, in the aggregate, approximately
the same percentage of Holding Company Common Stock outstanding upon completion
of the Conversion as the percentage of the Bank's common stock ("Bank Common
Stock") owned by them in the aggregate immediately prior to the consummation of
the Conversion, before giving effect to: (a) cash paid in lieu of fractional
shares, and (b) any shares of Holding Company Common Stock purchased by Public
Stockholders in the Offerings; in addition, the shares of Interim Three will be
converted into shares of Bank Common Stock.
(vii) Simultaneously with the consummation of Merger 3, the Holding
Company will sell additional shares of Holding Company Common Stock, with
priority subscription rights granted
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
____________, 1998
Page 4
to certain members of the MHC and the Bank at specified dates, and to tax
qualified employee benefit plans, directors, and employees of the Bank.
ANALYSIS AND OPINION
Section 354 of the Code provides that no gain or loss shall be
recognized by stockholders who exchange common stock in a corporation, which is
a party to a reorganization, solely for common stock in another corporation
which is a party to the reorganization. Section 356 of the Code provides that
stockholders shall recognize gain to the extent they receive money as part of a
reorganization, such as money received in lieu of fractional shares. Section 358
of the Code provides that, with certain adjustments for money received in a
reorganization, a stockholder's basis in the common stock he or she receives in
a reorganization shall equal the basis of the common stock which he or she
surrendered in the transaction. Section 1223(1) states that, where a stockholder
receives property in an exchange which has the same basis as the property
surrendered, he or she shall be deemed to have held the property received for
the same period as the property exchanged, provided that the property exchanged
had been held as a capital asset.
Section 361 of the Code provides that no gain or loss shall be
recognized to a corporation which is a party to a reorganization on any transfer
of property pursuant to a plan of reorganization. Section 362 of the Code
provides that if property is acquired by a corporation in connection with a
reorganization, then the basis of such property shall be the same as it would be
in the hands of the transferor immediately prior to the transfer. Section
1223(2) of the Code states that where a corporation will have a carryover basis
in property received from another corporation which is a party to a
reorganization, the holding period of such assets in the hands of the acquiring
corporation shall include the period for which such assets were held by the
transferor, provided that the property transferred had been held as a capital
asset. Section 1032 of the Code states that no gain or loss shall be recognized
to a corporation on the receipt of property in exchange for common stock.
Section 368(a)(1)(F) of the Code provides that a mere change in
identity, form, or place of organization, however effected, is a reorganization.
When MHC converts itself from a federal mutual holding company to a federal
interim stock savings bank, the changes at the corporate level will be
insubstantial. Similarly, when the Mid-Tier adopts a federal charter and
subsequently converts itself into a federal stock savings bank, the changes at
the corporate level will be insubstantial. In addition, Rev. Rul. 80-105
provides that the conversion of a federal mutual savings and loan association to
a state or federal stock savings and loan association, and the conversion of a
state chartered mutual savings and loan association to a stock savings and loan
association in the same state are reorganizations under Code Section
368(a)(1)(F).
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
____________, 1998
Page 5
Therefore, the change in the form of operation of the MHC and the Mid-Tier
should constitute reorganizations within the meaning of Section 368(a)(1)(F) of
the Code.
Section 368(a)(1)(A) of the Code defines the term "reorganization" to
include a "statutory merger or consolidation" of corporations. Section
368(a)(2)(E) of the Code provides that a transaction otherwise qualifying as a
merger under Section 368(a)(1)(A), shall not be disqualified by reason of the
fact that common stock of a corporation which before the merger was in control
of the merged corporation, is used in the transaction if (i) after the
transaction, the corporation surviving the merger holds substantially all of its
properties and the properties of the merged corporation; and (ii) former
stockholders of the surviving corporation exchanged, for an amount of voting
common stock of the controlling corporation, an amount of common stock in the
surviving corporation which constitutes control of such corporation.
In order to qualify as a reorganization under Section 368(a)(1)(A), a
transaction must constitute a merger or consolidation effected pursuant to the
corporation laws of the United States or a state. Merger 1, Merger 2 and Merger
3 will be consummated in accordance with applicable federal and state laws.
In addition, a transaction qualifying as a reorganization under Section
368(a)(1)(A) of the Code must satisfy the "continuity of interest doctrine"
which requires that the continuing common stock interest of the former owners of
an acquired corporation, considered in the aggregate, represents a "substantial
part" of the value of their former interest and provides them with a "definite
and substantial interest" in the affairs of the acquiring corporation or a
corporation in control of the acquiring corporation. Helvering v. Minnesota Tea
Co., 296 U.S. 378 (1935); Southwest Natural Gas Co. v. Comm'r., 189 F.2d 332
(5th Cir. 1951), cert. denied, 342 U.S. 860 (1951).
As a result of Merger 1, the shareholders of the Mid-Tier receive an
interest in the Bank which will subsequently be converted into an interest in
the Holding Company. Consequently, the continuity of interest doctrine should be
satisfied with regard to Merger 1.
With regard to Merger 2, the MHC, as a federally-chartered mutual
holding company, does not have stockholders and has no authority to issue
capital stock. Instead, the MHC has members who are accorded a variety of
proprietary rights such as voting rights and certain rights in the unlikely
event of liquidation. Prior to Merger 2, certain depositors in the Bank have
both a deposit account in the institution and a pro rata inchoate proprietary
interest in the net worth of the MHC based upon the balance in his account in
the Bank, an interest which may only be realized in the event of a liquidation
of the MHC. However, this inchoate proprietary interest is tied to the
depositor's account and has no tangible market value separate from such deposit
account. A depositor who reduces or closes his account receives a portion or all
of the balance
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
____________, 1998
Page 6
in the account but nothing for his ownership interest in the net worth of the
MHC, which is lost to the extent that the balance in the account is reduced.
In accordance with the Plan, the Members will receive Liquidation
Interests and continue their inchoate proprietary interests in the Bank
following Merger 2. Although the Liquidation Interests would not allow the
Members the right to vote or the right to pro rata distributions of earnings,
they would be entitled to share in the distribution of assets upon the
liquidation of the Bank following Merger 2. The Members' Liquidation Interests
in the Bank is substantially similar to their current ownership interest in the
MHC (a liquidation interest in the MHC). Because the Members are not in effect
"cashing out" their inchoate proprietary interests in the MHC, they would
continue to maintain an inchoate proprietary interest in the Bank upon the
consummation of Merger 2. Such payments to be received as Liquidation Interests
are not guaranteed and can only be received by Members who continue to maintain
deposit accounts in the Bank following Merger 1. Therefore, it would seem that
the exchange of the Members' equity interests in the MHC for Liquidation
Interests should not violate the continuity of interest requirement of Section
1.368-1(b) of the Treasury Regulations. In addition, in PLR 9510044, the Service
held on facts which are identical to those of Merger 2, as described above, that
the continuity of interest doctrine was satisfied. Although a private letter
ruling cannot be cited as precedent, it is illustrative of the Service's
position on an issue.
As a result of Merger 3, the shareholders of Bank will receive a
continuing interest in the Holding Company, the sole shareholder of Bank.
Consequently, the continuity of interest doctrine should be satisfied with
regard to Merger 3.
One of the requirements of Section 368(a)(2)(E) of the Code is that
subsequent to the transaction, the corporation surviving the merger must hold
substantially all of its properties and the properties of the merged
corporation. The Bank has represented that, following Merger 3, it will hold at
least 90% of the fair-market value of its net assets and at least 70% of the
fair-market value of its gross assets, and at least 90% of the fair-market value
of Interim Three's net assets and at least 70% of the fair-market value of
Interim Three's gross assets held immediately prior to Merger 3. Based upon the
representations, the Bank will clearly satisfy this requirement of Code Section
368(a)(2)(E).
Pursuant to Code Section 368(a)(2)(E), the Holding Company must also
acquire control of the Bank in Merger 3. Control is defined as at least 80% of
the total combined voting power of all classes of stock entitled to vote, and at
least 80% of the total number of shares. Subsequent to Merger 3, the Holding
Company will hold all of the Bank Common Stock. However, there is an issue as to
whether the Liquidation Interests must be taken into account for purposes of the
"control" test. If the Liquidation Interests are to be included in determining
whether the Holding Company acquired control of the Bank in Merger 3, it would
be necessary
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
____________, 1998
Page 7
to recognize such interests as another class of Bank Common Stock. Although the
Liquidation Interests may be compared to the equity interests held by members of
the MHC, which afforded members an equity/ownership interest in the MHC, these
interests in the Bank are too remote to qualify as a separate class of Bank
Common Stock. Therefore, the Liquidation Interests should be disregarded in
determining whether the Holding Company acquires control of the Bank in Merger
3. The Service's analysis in PLR 9510044 supports this conclusion. PLR 9510044
involved the conversion of a mutual holding company from the mutual to stock
form and a subsequent merger of mutual holding company into stock savings bank
with bank surviving. The stock of the savings bank held by mutual holding
company was extinguished and members of mutual holding company were granted
interests in a liquidation account established at bank. Subsequent thereto, the
bank engaged in a typical reorganization under Section 368(a)(2)(E) of the Code
to create a holding company structure identical to the structure of the Bank
subsequent to Merger 3. The Service held that the liquidation interests in bank
(as well as stock previously held by mutual holding company in bank) were to be
disregarded in determining whether control of the bank was obtained by the
holding company in accordance with Section 368(c) of the Code.
In addition to the requirements discussed above, there is a judicially
created substance over form concept often referred to as the "step transaction
doctrine" which applies throughout tax law, including the corporate
reorganization area. The step transaction doctrine is an extremely amorphous
concept. Often, application of the doctrine hinges on whether a court finds that
a particular series of transactions runs counter to a significant tax policy.
Notwithstanding years of litigation and hundreds of cases, the exact contours of
the step transaction doctrine, and even its proper formulation, are still the
subject of intense debate. Consequently, it often will be difficult to determine
with a high degree of certainty whether a series of related transactions will be
stepped together in some fashion for tax purposes.
The courts over the years have developed three distinct verbal
formulations of the doctrine: (i) the binding commitment test, (ii) the end
result test, and (iii) the interdependence test. While the courts nominally
apply one or more of these three tests, a careful reading of the relevant cases
indicates that the courts, as a preliminary matter, in deciding whether to apply
the step transaction doctrine, tend to focus primarily on two key factors:
intent and temporal proximity. However, case law and the Service's
pronouncements indicate that there are limitations on the ability to assert the
step transaction doctrine, regardless of (i) the taxpayer's intent at the time
of the first transaction to engage in the later transactions, and (ii) the short
period of time that elapses between the transactions.
Case law and the Service's pronouncements indicate that if two or more
transactions carried out pursuant to an overall plan have economic significance
independent of each other, the transactions generally will not be stepped
together. The Service's most significant
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
____________, 1998
Page 8
pronouncement regarding independent economic significance is Rev. Rul. 79-250.
In that ruling, the Service asserted that:
the substance of each of a series of steps will be recognized and the
step transaction doctrine will not apply, if each such step
demonstrates independent economic significance, is not subject to
attack as a sham, and was undertaken for valid business purposes and
not mere avoidance of taxes.
The parties to Merger 2 maintain a separate and distinct business
purpose for consummating Merger 2 (e.g., allowing for the conversion of the MHC
from mutual to stock form). Immediately after the consummation of Merger 2, the
Bank will no longer be controlled by the MHC but will instead be controlled by
its public stockholders. The facts indicate that the merger of MHC with and into
the Bank will result in a real and substantial change in the form of ownership
of the Bank that is sufficient to conclude that Merger 2 comports with the
underlying purposes and assumptions of a reorganization under Section
368(a)(1)(A) of the Code.
In addition, we believe that, because the various steps contemplated by
the Plan were necessitated by the requirements of the Office of Thrift
Supervision, each of Merger 1, Merger 2 and Merger 3 has a business purpose and
independent significance and, as a result, the step transaction doctrine should
not be applied to these transactions. However, our opinion is not binding upon
the Service, and there can be no assurance that the Service will not assert a
contrary position. Revenue Ruling 72-405 involved Corporation X which formed a
wholly owned subsidiary, merged an unrelated corporation Y into the subsidiary
and then liquidated the subsidiary. The Service held that the overall plan for
the transactions was the acquisition of Corporation Y assets by Corporation X
and that the transitory existence of the subsidiary did not have independent
economic significance. As a result, the step transaction doctrine was applied,
the transitory existence of the subsidiary was ignored and the transaction was
treated as a direct acquisition of Corporation Y assets by Corporation X.
It is possible that the Service could assert, based upon reasoning
similar to that which was applied in Revenue Ruling 72-405, that the overall
plan of the transactions contemplated by the Plan is the maintenance of the
Bank's holding company structure and the merger of MHC into Bank and that, as a
result, the step transaction doctrine should be applied and the transitory
elimination of the holding company structure in Merger 1 and re-creation of the
holding company structure in Merger 3 should be ignored for tax purposes. If the
Service were successful with such an assertion, the transaction would be treated
as a direct merger of MHC into the Bank which may not qualify as a tax free
reorganization resulting in taxable gain to the parties to the transaction.
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
____________, 1998
Page 9
The Service is currently reviewing the question of whether certain
downstream mergers of a parent corporation into its subsidiary or inversion
transactions, where a parent and its subsidiary reverse positions, which
otherwise qualify for tax-free treatment nevertheless should be treated as
taxable transactions because they circumvent the repeal of the "General
Utilities doctrine." We do not believe that the transactions undertaken pursuant
to the Plan constitute the type of transactions which circumvent the "General
Utilities doctrine."
Based upon the foregoing, and assuming Merger 1, Merger 2, and Merger 3
are consummated as described herein and in the Plan, we are of the opinion that:
1. The change in the form of operation of the MHC to a federal stock
savings bank and the change in form of operation of the Mid-Tier to a federal
stock savings bank constitute reorganizations under Section 368(a)(1)(F) of the
Code and Merger 1 and Merger 2 each qualify as a reorganization within the
meaning of Section 368(a)(1)(A) of the Code. The MHC, the Mid-Tier, the Holding
Company, and the Bank will be a party to a "reorganization" as defined in
Section 368(b) of the Code.
2. Interim One and Interim Two will recognize no gain or loss pursuant
to Merger 1 and Merger 2.
3. No gain or loss will be recognized by the Bank upon the receipt of
the assets of Interim One and Interim Two in Merger 1 and Merger 2,
respectively.
4. Merger 3 qualifies as a reorganization within the meaning of Section
368(a)(1)(A) of the Code. Therefore, the Bank, the Holding Company, and Interim
Three will each be a party to a reorganization as defined in Section 368(b) of
the Code.
5. No gain or loss will be recognized by Interim Three upon the
transfer of its assets to the Bank pursuant to Merger 3.
6. No gain or loss will be recognized by the Bank upon the receipt of
the assets of Interim Three.
7. No gain or loss will be recognized by the Holding Company upon the
receipt of Bank Common Stock solely in exchange for Holding Company Common
Stock.
8. No gain or loss will be recognized by the Holding Company's public
stockholders upon their receipt of Holding Company Common Stock.
9. The basis of the Holding Company Common Stock to be received by the
Public
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
____________, 1998
Page 10
Stockholders will be the same as the basis of the Holding Company Common Stock
surrendered before giving effect to any payment of cash in lieu of fractional
shares.
10. The holding period of the Holding Company Common Stock to be
received by the Public Stockholders will include the holding period of the
Holding Company Common Stock, provided that the Holding Company Common Stock was
held as a capital asset on the date of the exchange.
11. No gain or loss will be recognized by the Holding Company upon the
sale of Holding Company Common Stock in the Offerings.
12. The Eligible Account Holders, Supplemental Eligible Account
Holders, and Other Members (as such terms are defined in the Plan) will
recognize gain, if any, upon the issuance to them of: (i) withdrawable savings
accounts in the Bank following the Conversion, (ii) Liquidation Interests, and
(iii) nontransferable subscription rights to purchase Holding Company Common
Stock, but only to the extent of the value, if any, of the subscription rights.
13. The tax basis to the holders of Holding Company Common Stock
purchased in the Offerings will be the amount paid therefor, and the holding
period for such shares will begin on the date of exercise of the subscription
rights if purchased through the exercise of subscription rights. If purchased in
the Offerings (as such terms are defined in the Plan), the holding period for
such stock will begin on the day after the date of purchase.
The opinions set forth above represent our conclusions as to the
application of existing federal income tax law to the facts of the above
described transaction. 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 Service, or that a court considering the issues would not hold contrary to
such opinions. However, we believe that a court, if such issues were litigated,
is more likely than not to concur with our opinion.
All of the opinions set forth above are qualified to the extent that
the validity or enforceability 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.
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
____________, 1998
Page 11
Further, 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.
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.
CONSENT
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement on Form S-1 ("Form S-1") to be filed by the Holding
Company with the Securities and Exchange Commission, and as an exhibit to the
MHC's Application for Conversion on the Form AC as filed with the OTS ("Form
AC"), and to the references to our firm in the Prospectus which is part of both
the Form S-1 and the Form AC.
Very truly yours,
Malizia, Spidi, Sloane & Fisch, P.C.
EXHIBIT 8.2
<PAGE>
[Form of State Tax Opinion]
______________, 1998
Board of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
6060 Ridge Avenue
Philadelphia, Pennsylvania 19128
Board Members:
You have requested our opinion regarding certain Pennsylvania tax
consequences to FJF Financial, M.H.C. (the "MHC"), Thistle Group Holdings, Inc.
(the "Mid-Tier") and Roxborough-Manayunk Federal Savings Bank (the "Bank"), and
the Bank's depositors under the laws of the Commonwealth of Pennsylvania of the
proposed mutual-to-stock conversion and reorganization (the "Conversion and
Reorganization") under which the MHC will convert from the mutual holding
company form to the stock form. In addition, the MHC will simultaneously
reorganize its corporate structure to the holding company structure as described
in the Plan of Conversion and Reorganization of FJF Financial, M.H.C. and Plans
of Merger between FJF Financial, M.H.C., Thistle Group Holdings, Inc. and
Roxborough-Manayunk Federal Savings Bank adopted on February 18, 1998, as
amended (the "Plan").
We have provided the Mid-Tier and the Bank an opinion of this firm
regarding certain federal income tax consequences of the Conversion and
Reorganization (the "Federal Tax Opinion"). Based upon the facts stated in the
Federal Tax Opinion, including certain representations of the MHC, the Mid-Tier,
and the Bank, the Federal Tax Opinion concludes, among other things, that
certain transactions contemplated by the Conversion and Reorganization qualify
as tax-free reorganizations under ss. 368(a)(1)(F) of the Internal Revenue Code
of 1986, as amended, and that the MHC, the Bank, the Mid-Tier, and the
depositors of the Bank will not recognize income, gain, or loss for federal
income tax purposes upon the implementation of the Plan.
Based upon (1) the facts and circumstances attendant to the Conversion
and Reorganization, including the representations of the Bank, as described in
the Federal Tax Opinion, (2) current provisions of Pennsylvania law, as
reflected in Pennsylvania statutes, administrative regulations and rulings
thereunder, and court decisions, (3) the Federal Tax Opinion, and (4) the
assumption that the Conversion and Reorganization will not result in the
recognition of any gain or income on the books of the Bank, the Mid-Tier, or the
MHC under
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
___________, 1998
Page 2
generally accepted accounting principles, it is our opinion that under the laws
of the Commonwealth of Pennsylvania, the implementation of the Conversion and
Reorganization will not cause any tax liability to be incurred (a) by the Bank,
the MHC, or by the Mid-Tier under the Pennsylvania Mutual Thrift Institutions
Tax ("MTIT"), 72 P.S. ss.8501 et seq., (b) by the depositors of the Bank under
the Pennsylvania Personal Income Tax ("PIT"), 72 P.S. ss.7301 et seq., and (c)
by Thistle Group Holdings, Co. (the "Holding Company" under the Pennsylvania
Corporate Net Income Tax ("CNIT"), 72 P.S. ss.7401 et seq.
Our opinions herein are expressly limited to those taxes specified in
the immediately preceding paragraph and specifically do not include any opinions
with respect to the consequences to depositors of the implementation of the
Conversion and Reorganization under any other taxes imposed by the Commonwealth
of Pennsylvania or any other subdivision thereof, or imposed by states other
than Pennsylvania and local jurisdictions of such states. In addition, the
opinions herein specifically do not include (1) an opinion with respect to the
consequences to the Bank, the MHC, the Mid-Tier, and the Holding Company of the
implementation of the Plan under any local taxes imposed by any political
subdivision of the Commonwealth of Pennsylvania, and under any state or local
realty or other transfer tax, or (2) an opinion with respect to tax liabilities
under the MTIT, the PIT, or the CNIT attributable to events after the Conversion
and Reorganization or to any assets held or acquired by the Holding Company
other than stock of the Bank.
Our opinion is based on the facts and conditions as stated herein,
whether directly or by reference to the Federal Tax Opinion. If any of the facts
and conditions are not entirely complete or accurate, it is imperative that we
be informed immediately, as the inaccuracy or incompleteness could have a
material effect on our conclusions. In rendering our opinion, we are relying
upon the relevant provisions of the Code, the laws of the Commonwealth of
Pennsylvania, as amended, the regulations and rules thereunder and judicial and
administrative interpretations thereof, which are subject to change or
modification by subsequent legislative, regulatory, administrative, or judicial
decisions. Any such changes could also have an effect on the validity of our
opinion. We undertake no responsibility to update or supplement our opinion. Our
opinion is not binding on the Internal Revenue Service or the Commonwealth of
Pennsylvania, nor can any assurance be given that any of the foregoing parties
will not take a contrary position or that our opinion will be upheld if
challenged by such parties.
Finally, we hereby consent to the filing of this opinion as an exhibit
to the Application for Conversion on Form AC ("Form AC") of the MHC filed with
the Office of Thrift Supervision, the filing of this opinion as an exhibit to
the Application H-(e)(1)S of the Holding
<PAGE>
Boards of Directors
Roxborough-Manayunk Federal Savings Bank
Thistle Group Holdings, Inc.
___________, 1998
Page 3
Company to be filed with the Office of Thrift Supervision, and the filing of
this opinion as an exhibit to the Holding Company's Registration Statement on
Form S-1 ("Form S-1") to be filed with the Securities and Exchange Commission,
and to reference to our firm in the prospectus contained in the Form AC and Form
S-1.
Very truly yours,
Malizia, Spidi, Sloane & Fisch, P.C.
EXHIBIT 8.3
<PAGE>
[FINPRO LOGO]
26 Church Street o P.O. Box 323
Liberty Corner, N.J. 07938
(908) 604-9336 o (908) 604-5951 (FAX)
March 24, 1998
Board of Directors
Roxborough Manayunk Federal Savings Bank
6060 Ridge Avenue
Philadelphia, PA 19128
Dear Board Members:
All capitalized terms not otherwise defined in this letter have the meanings
given such terms in the Plan of Conversion and Agreement and Plan of
Reorganization (the "Plan") adopted by the Board of Directors of Roxborough
Manayunk Federal Savings Bank (the "Bank"), Thistle Group Holdings, Inc. (the
"Mid- Tier Company"), and FJF Financial, M.H.C. (the "MHC") whereby the Bank,
the Mid-Tier Company and the MHC will reorganize into the stock holding company
structure form of organization, and issue shares of Common Stock of a newly
formed Pennsylvania-chartered holding company, Thistle Group Holdings, Co. (the
"Company") in a Subscription and Community Offering.
We understand that in accordance with the Plan, Subscription Rights to purchase
shares of the Company's Common Stock are to be issued to (i) Eligible Account
Holders; (ii) the ESOP; (iii) Supplemental Eligible Account Holders; and (iv)
Other Members, 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 opinion 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 Common Stock in the offering will
thereafter be able to buy or sell such shares at the same price paid in the
Subscription Offering.
Very Truly Yours,
FinPro, Inc.
/s/ Donald J. Musso
-------------------
Donald J. Musso
President
EXHIBIT 10.1
<PAGE>
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS BANK
1992 STOCK OPTION PLAN
1. Purpose of the Plan. The Plan shall be known as the
Roxborough-Manayunk Federal Savings Bank 1992 Stock Option Plan (the "Plan").
The purpose of the Plan is to attract and retain the best available personnel
for positions of substantial responsibility and to provide additional incentive
to officers, directors and key employees of Roxborough-Manayunk Federal Savings
Bank (the "Savings Bank"), or any present or future parent or subsidiary of the
Savings Bank to promote the success of the business. The Plan is intended to
provide for the grant of "Incentive Stock Options," within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and
Non-Incentive Stock Options, options that do not so qualify. Each and every one
of the provisions of the Plan relating to Incentive Stock Options shall be
interpreted to conform to the requirements of Section 422 of the Code.
2. Definitions. As used herein, the following definitions
shall apply.
(a) "Award" means the grant by the Committee of an Incentive
Stock Option or a Non-Incentive Stock Option, or any combination thereof, as
provided in the Plan.
(b) "Board" shall mean the Board of Directors of the Savings
Bank.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Committee" shall mean the Stock Option Committee
appointed by the Board in accordance with paragraph 5(a) of the Plan.
(e) "Common Stock" shall mean common stock, par value $1.00
per share, of the Savings Bank.
(f) "Continuous Employment" or "Continuous Status as an
Employee" shall mean the absence of any interruption or termination of
employment with the Savings Bank or any present or future Parent or Subsidiary
of the Savings Bank. Employment shall not be considered interrupted in the case
of sick leave, military leave or any other leave of absence approved by the
Savings Bank or in the case of transfers between payroll locations, of the
Savings Bank or between the Savings Bank, its Parent, its Subsidiaries or a
successor.
(g) "Director" shall mean a member of the Board of the Savings
Bank.
<PAGE>
(h) "Effective Date" shall mean the date specified in Section
15 hereof.
(i) "Employee" shall mean any person employed by the Savings
Bank or any present or future Parent or Subsidiary of the Savings Bank.
(j) "Incentive Stock Option" or "ISO" shall mean an option to
purchase Shares granted by the Committee pursuant to Section 8 hereof which is
subject to the limitations and restrictions of Section 8 hereof and is intended
to qualify under Section 422 of the Code.
(k) "Non-Incentive Stock Option" or "Non-ISO" shall mean an
option to purchase Shares granted pursuant to Section 9 hereof, which option is
not intended to qualify under Section 422 of the Code.
(l) "Option" shall mean an Incentive or Non-Incentive Stock
Option granted pursuant to this Plan providing the holder of such Option with
the right to purchase Common Stock.
(m) "Optioned Stock" shall mean stock subject to an Option
granted pursuant to the Plan.
(n) "Optionee" shall mean any person who receives an Option or
Award pursuant to the Plan.
(o) "Parent" shall mean any present or future corporation
which would be a "parent corporation" as defined in Subsections 424(e) and (g)
of the Code.
(p) "Participant" means any director, officer or key employee
of the Savings Bank or any Parent or Subsidiary of the Savings Bank or any other
person providing a service to the Savings Bank who is selected by the Committee
to receive an Award, or who by the express terms of the Plan is granted an
Award.
(q) "Plan" shall mean the Roxborough-Manayunk Federal Savings
Bank 1992 Stock Option Plan.
(r) "Savings Bank" shall mean Roxborough-Manayunk
Federal Savings Bank.
(s) "Share" shall mean one share of the Common Stock.
(t) "Subsidiary" shall mean any present or future corporation
which would be a "subsidiary corporation" as defined in Subsections 424(f) and
(g) of the Code.
<PAGE>
3. Shares Subject to the Plan. Except as otherwise required by
by the provisions of Section 13 hereof, the aggregate number of Shares with
respect to which Awards may be made pursuant to the Plan shall not exceed 20,000
1. Such Shares may either be authorized but unissued shares or treasury shares.
An Award shall not be considered to be made under the Plan with respect
to any Option which terminates prior to its exercise, and new Awards may be
granted under the Plan with respect to the number of Shares as to which such
termination has occurred.
4. Six Month Holding Period.
A total of six months must elapse between the date of the
grant of an Option and the date of the sale of Common Stock received through the
exercise of an Option.
5. Administration of the Plan.
(a) (i) Composition of the Committee. Except as indicated in
paragraph 5(a)(ii) below, the Plan shall be administered by the Committee
consisting of at least three non-employee Directors of the Savings Bank
appointed by the Board and serving at the pleasure of the Board. Officers,
Directors, key employees and other persons who are designated by the Committee
shall be eligible to receive Awards under the Plan, and all persons designated
as members of the Committee shall be "disinterested persons" within the meaning
of Rule 16b-3 under the Securities Exchange Act of 1934.
(ii) For the purpose of granting Awards to
directors, the selection of any Director to whom Awards may be granted, as well
as the number of Shares subject to Awards, must be determined by a
"disinterested committee", as defined in Rule 16b-3 under the Securities
Exchange Act of 1934.
(b) Powers of the Committee. The Committee is authorized
(but only to the extent not contrary to the express provisions of the Plan or to
resolutions adopted by the Board) to interpret the Plan to prescribe, amend and
rescind rules and regulations relating to the Plan, to determine the form and
content of Awards to be issued under the Plan and to make other determinations
necessary or advisable for the administration of the Plan, and shall have and
may exercise such other power and authority as may be delegated to it by the
Board from time to time. A majority of the entire Committee shall constitute a
quorum and the action of a majority of the members present at any meeting at
which a quorum is present shall be deemed the action of the Committee. In no
event may the Committee revoke outstanding Awards without the consent of the
Participant.
--------
1 A set number of authorized, but unissued shares equal to 10% of shares issued
in the initial stock offering.
<PAGE>
The Chairman of the Savings Bank and such other officers as
shall be designated by the Committee are hereby authorized to execute
instruments evidencing Awards on behalf of the Savings Bank and to cause them to
be delivered to the Participants.
(c) Effect of Committee's Decision. All decisions,
determinations and interpretations of the Committee shall be final and
conclusive on all persons affected thereby.
6. Eligibility.
(i) Awards may be granted to officers, Directors,
key employees and other persons. The Committee shall from time to time determine
the officers, Directors, key employees and other persons who shall be granted
Awards under the Plan, the number to be granted to each such officer, Director,
key employee and other persons under the Plan, and whether Awards granted to
each such Participant under the Plan shall be Incentive and/or Non-Incentive
Stock Options. In selecting Participants and in determining the number of Shares
of Common Stock to be granted to each such Participant pursuant to each Award
granted under the Plan, the Committee may consider the nature of the services
rendered by each such Participant, each such Participant's current and potential
contribution to the Savings Bank and such other factors as the Committee may, in
its sole discretion, deem relevant. Officers, Directors, key employees or other
persons who have been granted an Award may, if otherwise eligible, be granted
additional Awards.
(ii) The aggregate fair market value (determined as
of the date the Option is granted) of the Shares with respect to which Incentive
Stock Options are exercisable for the first time by each Employee during any
calendar year (under all Incentive Stock Option plans, as defined in Section 422
of the Code, of the Savings Bank or any present or future Parent or Subsidiary
of the Savings Bank) shall not exceed $100,000. Notwithstanding the prior
provisions of this Section 6, the Committee may grant Options in excess of the
foregoing limitations, provided said Options shall be clearly and specifically
designated as not being Incentive Stock Options, as defined in Section 422 of
the Code.
7. Term of the Plan. The Plan shall continue in effect for a term of
ten (10) years from the Effective Date, unless sooner terminated pursuant to
Section 18 hereof. No Option shall be granted under the Plan after ten (10)
years from the Effective Date.
<PAGE>
8. Terms and Conditions of Incentive Stock Options. Incentive Stock
Options may be granted only to Participants who are Employees. Each Incentive
Stock Option granted pursuant to the Plan shall be evidenced by an instrument in
such form as the Committee shall from time to time approve. Each and every
Incentive Stock Option granted pursuant to the Plan shall comply with, and be
subject to, the following terms and conditions:
(a) Option Price.
(i) The price per Share at which each Incentive
Stock Option granted under the Plan may be exercised shall not, as to any
particular Incentive Stock Option, be less than the fair market value of the
Common Stock at the time such Incentive Stock Option is granted. For such
purposes, if the Common Stock is traded otherwise than on a national securities
exchange at the time of the granting of an Option, then the price per Share of
the Optioned Stock shall be not less than the mean between the bid and asked
price on the date the Incentive Stock Option is granted or, if there is no bid
and asked price on said date, then on the next prior business day on which there
was a bid and asked price. If no such bid and asked price is available, then the
price per Share shall be determined by the Committee. If the Common Stock is
listed on a national securities exchange at the time of the granting of an
Incentive Stock Option, then the price per Share shall be not less than the
average of the highest and lowest selling price on such exchange on the date
such Incentive Stock Option is granted or, if there were no sales on said date,
then the price shall be not less than the mean between the bid and asked price
on such date.
(ii) In the case of an Employee who owns Common
Stock representing more than ten percent (10%) of the outstanding Common Stock
at the time the Incentive Stock Option is granted, the Incentive Stock Option
price shall not be less than one hundred and ten percent (110%) of the fair
market value of the Common Stock at the time the Incentive Stock Option is
granted.
(b) Payment. Full payment for each Share of Common Stock
purchased upon the exercise of any Incentive Stock Option granted under the Plan
shall be made at the time of exercise of each such Incentive Stock Option and
shall be paid in cash (in United States Dollars), Common Stock or a combination
of cash and Common Stock. Common Stock utilized in full or partial payment of
the exercise price shall be valued at its fair market value at the date of
exercise. The Savings Bank shall accept full or partial payment in Common Stock
only to the extent permitted by applicable law. No Shares of Common Stock shall
be issued until full payment therefor has been received by the Savings Bank, and
no Optionee shall have any of the rights of a stockholder of the Savings Bank
until Shares of Common Stock are issued to him.
<PAGE>
(c) Term of Incentive Stock Option. The term of each Incentive
Stock Option granted pursuant to the Plan shall be not more ten (10) years from
the date each such Incentive Stock Option is granted, provided that in the case
of an Employee who owns stock representing more than ten percent (10%) of the
Common Stock outstanding at the time the Incentive Stock Option is granted, the
term of the Incentive Stock Option shall not exceed five (5) years.
(d) Exercise Generally. Except as otherwise provided in
Section 10 hereof, no Incentive Stock Option may be exercised unless the
Optionee shall have been in the employ of the Savings Bank at all times during
the period beginning with the date of grant of any such Incentive Stock Option
and ending on the date three (3) months prior to the date of exercise of any
such Incentive Stock Option. The Committee may impose additional conditions upon
the right of an Optionee to exercise any Incentive Stock Option granted
hereunder which are not inconsistent with the terms of the Plan or the
requirements for qualification as an Incentive Stock Option under Section 422 of
the Code.
(e) Cashless Exercise. An Optionee who has held an Incentive
Stock Option for at least six months may engage in the "cashless exercise" of
the Option. In a cashless exercise, an Optionee gives the Savings Bank written
notice of the exercise of the Option together with an order to a registered
broker-dealer or equivalent third party, to sell part or all of the Optioned
Stock and to deliver enough of the proceeds to the Savings Bank to pay the
Option price and any applicable withholding taxes. If the Optionee does not sell
the Optioned Stock through a registered broker-dealer or equivalent third party,
he can give the Savings Bank written notice of the exercise of the Option and
the third party purchaser of the Optioned Stock shall pay the Option price plus
any applicable withholding taxes to the Savings Bank.
(f) Transferability. Any Incentive Stock Option granted
pursuant to the Plan shall be exercised during an Optionee's lifetime only by
the Optionee to whom it was granted and shall not be assignable or transferable
otherwise than by will or by the laws of descent and distribution.
9. Terms and Conditions of Non-Incentive Stock Options. Each
Non-Incentive Stock Option granted pursuant to the Plan shall be evidenced by an
instrument in such form as the Committee shall from time to time approve. Each
and every Non-Incentive Stock Option granted pursuant to the Plan shall comply
with and be subject to the following terms and conditions.
(a) Option Price. The exercise price per Share of Common Stock
for each Non-Incentive Stock Option granted pursuant to the Plan, shall be at
such price as the Committee may determine in its sole discretion.
<PAGE>
(b) Payment. Full payment for each Share of Common Stock
purchased upon the exercise of any Non-Incentive Stock Option granted under the
Plan shall be made at the time of exercise of each such Non-Incentive Stock
Option and shall be paid in cash (in United States Dollars), Common Stock or a
combination of cash and Common Stock. Common Stock utilized in full or partial
payment of the exercise price shall be valued at its fair market value at the
date of exercise. The Savings Bank shall accept full or partial payment in
Common Stock only to the extent permitted by applicable law. No Shares of Common
Stock shall be issued until full payment therefor has been received by the
Savings Bank and no Optionee shall have any of the rights of a stockholder of
the Savings Bank until the Shares of Common Stock are issued to him.
(c) Term. The term of each Non-Incentive Stock Option granted
pursuant to the Plan shall be not more than ten (10) years from the date each
such Non-Incentive Stock Option is granted.
(d) Exercise Generally. The Committee may impose additional
conditions upon the right of any Participant to exercise any Non-Incentive Stock
Option granted hereunder which is not inconsistent with the terms of the Plan.
(e) Cashless Exercise. An Optionee who has held a
Non-Incentive Stock Option for at least six months may engage in the "cashless
exercise" of the Option. In a cashless exercise, an Optionee gives the Savings
Bank written notice of the exercise of the Option together with an order to a
registered broker-dealer or equivalent third party, to sell part or all of the
Optioned Stock and to deliver enough of the proceeds to the Savings Bank to pay
the Option price and any applicable withholding taxes. If the Optionee does not
sell the Optioned Stock through a registered broker-dealer or equivalent third
party, he can give the Savings Bank written notice of the exercise of the Option
and the third party purchaser of the Optioned Stock shall pay the Option price
plus any applicable withholding taxes to the Savings Bank.
(f) Transferability. Any Non-Incentive Stock Option granted
pursuant to the Plan shall be exercised during an Optionee's lifetime only by
the Optionee to whom it was granted and shall not be assignable or transferable
otherwise than by will or by the laws of descent and distribution.
10. Effect of Termination of Employment, Disability or Death on
Incentive Stock Options.
(a) Termination of Employment. In the event that any
Optionee's employment with the Savings Bank shall terminate for any reason,
other than Permanent and Total Disability (as such term is defined in Section
22(e)(3) of the Code) or death, all of any such Optionee's Incentive Stock
Options, and all of any such Optionee's rights to purchase or receive Shares of
Common Stock pursuant thereto, shall automatically terminate on the earlier of
(i) the respective expiration dates of any such Incentive Stock Options or
<PAGE>
(ii) the expiration of not more than three (3) months after the date of such
termination of employment, but only if, and to the extent that, the Optionee was
entitled to exercise any such Incentive Stock Options at the date of such
termination of employment. In the event that a subsidiary ceases to be a
subsidiary of the Savings Bank, the employment of all of its employees who are
not immediately thereafter employees of the Savings Bank shall be deemed to
terminate upon the date such subsidiary so ceases to be a Subsidiary of the
Savings Bank.
(b) Disability. In the event that any Optionee's employment
with the Savings Bank shall terminate as the result of the Permanent and Total
Disability of such Optionee, such Optionee may exercise any Incentive Stock
Options granted to him pursuant to the Plan at any time prior to the earlier of
(i) the respective expiration dates of any such Incentive Stock Options or (ii)
the date which is one (1) year after the date of such termination of employment,
but only if, and to the extent that, the Optionee was entitled to exercise any
such Incentive Stock Options at the date of such termination of employment.
(c) Death. In the event of the death of an Optionee, any
Incentive Stock Options granted to such Optionee may be exercised by the person
or persons to whom the Optionee's rights under any such Incentive Stock Options
pass by will or by the laws of descent and distribution (including the
Optionee's estate during the period of administration) at any time prior to the
earlier of (i) the respective expiration dates of any such Incentive Stock
Options or (ii) the date which is two (2) years after the date of death of such
Optionee but only if, and to the extent that, the Optionee was entitled to
exercise any such Incentive Stock Options at the date of death. For purposes of
this Section 10(c), any Incentive Stock Option held by an Optionee shall be
considered exercisable at the date of his death if the only unsatisfied
condition precedent to the exercisability of such Incentive Stock Option at the
date of death is the passage of a specified period of time. At the discretion of
the Committee, upon exercise of such Options the Optionee may receive Shares or
cash or combination thereof. If cash shall be paid in lieu of Shares, such cash
shall be equal to the difference between the fair market value of such Shares
and the exercise price of such Options on the exercise date.
(d) Incentive Stock Options Deemed Exercisable. For purposes
of Sections 10(a), 10(b) and 10(c) above, any Incentive Stock Option held by any
Optionee shall be considered exercisable at the date of termination of his
employment if any such Incentive Stock Option would have been exercisable at
such date of termination of employment.
(e) Termination of Incentive Stock Options. To the extent that
any Incentive Stock Option granted under the Plan to any Optionee whose
employment with the Savings Bank terminates shall not have been exercised within
the applicable period set forth in this Section 10, any such Incentive Stock
Option, and all
<PAGE>
rights to purchase or receive Shares of Common Stock pursuant thereto, as the
case may be, shall terminate on the last day of the applicable period.
11. Effect of Termination of Employment, Disability or Death on
Non-Incentive Stock Options. The terms and conditions of Non-Incentive Stock
Options relating to the effect of the termination of an Optionee's employment,
disability of an Optionee or his death shall be such terms and conditions as the
Committee shall, in its sole discretion, determine at the time of termination,
unless specifically provided for by the terms of the Agreement at the time of
grant of the Award.
12. Right of Repurchase and Restrictions on Disposition. The
Committee, in its sole discretion, may include, as a term of any Incentive Stock
Option or Non-Incentive Stock Option, the right (the "Repurchase Right"), but
not the obligation, to repurchase all or any amount of the Shares acquired by an
Optionee pursuant to the exercise of any such Options. The intent of the
Repurchase Right is to encourage the continued employment of the Optionee. The
Repurchase Right shall provide for, among other things, a specified duration of
the Repurchase Right, a specified price per Share to be paid upon the exercise
of the Repurchase Right and a restriction on the disposition of the Shares by
the Optionee during the period of the Repurchase Right. The Repurchase Right may
permit the Savings Bank to transfer or assign such right to another party. The
Savings Bank may exercise the Repurchase Right only to the extent permitted by
applicable law.
13. Recapitalization, Merger, Consolidation, Change in Control and
Similar Transactions.
(a) Adjustment. Subject to any required action by the
stockholders of the Savings Bank, within the sole discretion of the Committee,
the aggregate number of Shares of Common Stock for which Options may be granted
hereunder, the number of Shares of Common Stock covered by each outstanding
Option, and the exercise price per Share of Common Stock of each such Option,
shall all be proportionately adjusted for any increase or decrease in the number
of issued and outstanding Shares of Common Stock resulting from a subdivision or
consolidation of Shares (whether by reason of merger, consolidation,
recapitalization, reclassification, split-up, combination of shares, or
otherwise) or the payment of a stock dividend (but only on the Common Stock) or
any other increase or decrease in the number of such Shares of Common Stock
effected without the receipt of consideration by the Savings Bank (other than
Shares held by dissenting stockholders).
(b) Change in Control. All outstanding Awards shall become
immediately exercisable in the event of a change in control or imminent change
in control of the Savings Bank, as determined by the Committee. In the event of
such a change in control or imminent change in control, the Optionee shall, at
the discretion of the Committee, be entitled to receive cash in an amount equal
to
<PAGE>
the fair market value of the Common Stock subject to any Incentive or
Non-Incentive Stock Option over the Option Price of such Shares, in exchange for
the surrender of such Options by the Optionee on that date in the event of a
change in control or imminent change in control of the Savings Bank. For
purposes of this Section 13, "change in control" shall mean: (i) the execution
of an agreement for the sale of all, or a material portion, of the assets of the
Savings Bank; (ii) the execution of an agreement for a merger or
recapitalization of the Savings Bank or any merger or recapitalization whereby
the Savings Bank is not the surviving entity; (iii) a change of control of the
Savings Bank, as otherwise defined or determined by the Office of Thrift
Supervision or regulations promulgated by it; or (iv) the acquisition, directly
or indirectly, of the beneficial ownership (within the meaning of that term as
it is used in Section 13(d) of the Securities Exchange Act of 1934 and the rules
and regulations promulgated thereunder) of twenty-five percent (25%) or more of
the outstanding voting securities of the Savings Bank by any person, trust,
entity or group. The term "person" refers to an individual or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein. For purposes of this Section 13, "imminent change in
control" shall refer to any offer or announcement, oral or written, by any
person or persons acting as a group, to acquire control of the Savings Bank. The
decision of the Committee as to whether a change in control or imminent change
in control has occurred shall be conclusive and binding.
(c) Extraordinary Corporate Action. Subject to any required
action by the stockholders of the Savings Bank, in the event of any change in
control, recapitalization, merger, consolidation, exchange of Shares, spin-off,
reorganization, tender offer, liquidation or other extraordinary corporate
action or event, the Committee, in its sole discretion, shall have the power,
prior or subsequent to such action or event to:
(i) appropriately adjust the number of Shares of
Common Stock subject to each Option, the exercise price per Share of Common
Stock, and the consideration to be given or received by the Savings Bank upon
the exercise of any outstanding Option;
(ii) cancel any or all previously granted Options,
provided that appropriate consideration is paid to the Optionee in
connection therewith; and/or
(iii) make such other adjustments in connection with
the Plan as the Committee, in its sole discretion, deems necessary, desirable,
appropriate or advisable; provided, however, that no action shall be taken by
the Committee which would cause Incentive Stock Options granted pursuant to the
Plan to fail to meet the requirements of Section 422 of the Code.
<PAGE>
Except as expressly provided in Sections 13(a) and 13(b)
hereof, no Optionee shall have any rights by reason of the occurrence of any of
the events described in this Section 13.
(d) Acceleration. The Committee shall at all times have the
power to accelerate the exercise date of Options previously granted under the
Plan.
14. Time of Granting Options. The date of grant of an Option under the
Plan shall, for all purposes, be the date on which the Committee makes the
determination of granting such Option. Except, however, for purposes of
compliance with Section 16 of the Securities Exchange Act of 1934, the date of
grant of an Option shall be deemed the later of the date of grant or the date of
stockholder approval of the Plan. Notice of the determination of the grant of an
Option shall be given to each individual to whom an Option is so granted within
a reasonable time after the date of such grant in a form determined by the
Committee.
15. Effective Date. The Plan shall become effective upon the effective
date of the Federal stock charter of the Savings Bank and simultaneous
reorganization of the Savings Bank under Parent, a Federally chartered mutual
holding company. Options may be granted prior to ratification of the Plan by the
stockholders of the Savings Bank if the exercise of such Options is subject to
such stockholder ratification.
16. Approval by Stockholders. The Plan shall be approved by
stockholders of the Savings Bank within twelve (12) months before or after the
date the Plan becomes effective.
17. Modification of Options. At any time and from time to time, the
Board may authorize the Committee to direct the execution of an instrument
providing for the modification of any outstanding Option, provided no such
modification, extension or renewal shall confer on the holder of said Option any
right or benefit which could not be conferred on him by the grant of a new
Option at such time, or shall not materially decrease the Optionee's benefits
under the Option without the consent of the holder of the Option, except as
otherwise permitted under Section 18 hereof. Notwithstanding anything herein to
the contrary, the Committee shall have the authority to cancel outstanding
Options with the consent of the Optionee and to reissue new Options at a lower
exercise price equal to the then fair market value per share of Common Stock in
the event that the fair market value per share of Common Stock at any time prior
to the date of exercise of outstanding Options falls below the exercise price of
such Options.
18. Amendment and Termination of the Plan.
(a) Action by the Board. The Board may alter, suspend or
discontinue the Plan, except that no action of the Board may increase (other
than as provided in Section 13 hereof) the maximum number of Shares permitted to
be optioned under the Plan,
<PAGE>
materially increase the benefits accruing to Participants under the Plan or
materially modify the requirements for eligibility for participation in the Plan
unless such action of the Board shall be subject to approval or ratification by
the stockholders of the Savings Bank.
(b) Change in Applicable Law. Notwithstanding any other
provision contained in the Plan, in the event of a change in any federal or
state law, rule or regulation which would make the exercise of all or part of
any previously granted Incentive and/or Non-Incentive Stock Option unlawful or
subject the Savings Bank to any penalty, the Committee may restrict any such
exercise without the consent of the Optionee or other holder thereof in order to
comply with any such law, rule or regulation or to avoid any such penalty.
19. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to any Option granted under the Plan unless the issuance and delivery of
such Shares shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the rules and regulations
promulgated thereunder, any applicable state securities law and the requirements
of any stock exchange upon which the Shares may then be listed.
Notwithstanding anything herein to the contrary, in no event shall the
Savings Bank issue new Shares upon the exercise of an Option to the extent that
such issuance would result in Parent holding less than a majority of the
outstanding Shares of Savings Bank, for so long as Parent shall be a Federally
chartered mutual holding company pursuant to 12 C.F.R. 575.
The inability of the Savings Bank to obtain from any regulatory body or
authority deemed by the Savings Bank's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder shall relieve the Savings Bank of any
liability in respect of the non-issuance or sale of such Shares.
As a condition to the exercise of an Option, the Savings Bank may
require the person exercising the Option to make such representations and
warranties as may be necessary to assure the availability of an exemption from
the registration requirements of federal or state securities law.
20. Reservation of Shares. During the term of the Plan, the Savings
Bank will reserve and keep available a number of Shares sufficient to satisfy
the requirements of the Plan.
21. Unsecured Obligation. No Participant under the Plan shall have any
interest in any fund or special asset of the Savings Bank by reason of the Plan
or the grant of any Incentive or Non-Incentive Stock Option under the Plan. No
trust fund shall be created in connection with the Plan or any grant of any
Incentive or Non-Incentive Stock Option hereunder and there shall be no
<PAGE>
required funding of amounts which may become payable to any Participant.
22. Withholding Tax. The Savings Bank shall have the right to deduct
from all amounts paid in cash with respect to the cashless exercise of Options
under the Plan any taxes required by law to be withheld with respect to such
cash payments. Where a Participant or other person is entitled to receive Shares
pursuant to the exercise of an Option pursuant to the Plan, the Savings Bank
shall have the right to require the Participant or such other person to pay the
Savings Bank the amount of any taxes which the Savings Bank is required to
withhold with respect to such Shares, or, in lieu thereof, to retain, or sell
without notice, a number of such Shares sufficient to cover the amount required
to be withheld.
23. Governing Law. The Plan shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania, except to the
extent that federal law shall be deemed to apply.
EXHIBIT 10.2
<PAGE>
Roxborough-Manayunk Federal Savings and Loan Association
Management Stock Bonus Plan
and Trust Agreement
Article I
---------
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 Roxborough-Manayunk Federal Savings and Loan Association
("Association") hereby establishes the Management Stock Bonus Plan (the "Plan")
and Trust (the "Trust") upon the terms and conditions hereinafter stated in this
Management Stock Bonus Plan and Trust Agreement (the "Agreement").
1.02 The Trustee hereby accepts this Trust and agrees to hold the Trust
assets existing on the date of this Agreement and all additions and accretions
thereto upon the terms and conditions hereinafter stated.
Article II
----------
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to reward and retain personnel of
experience and ability in key positions of responsibility with the Association
and its subsidiaries, by providing such key employees of the Association and its
subsidiaries with an equity interest in the parent mutual holding company of the
Association ("Parent"), as compensation for their future professional
contributions and service to the Association and its subsidiaries.
Article III
-----------
DEFINITIONS
The following words and phrases when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meaning as set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.
3.01 "Association" means Roxborough-Manayunk Federal Savings and Loan
Association and any successor corporation thereto.
3.02 "Beneficiary" means the person or persons designated by the
Recipient to receive any benefits payable under the Plan in the event of such
Recipient's death. Such person or persons shall be designated in writing on
forms provided for this purpose by the Committee and may be changed from time to
time by similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, Recipient's estate.
<PAGE>
3.03 "Board" means the Board of Directors of the Association, or any
successor corporation thereto.
3.04 "Committee" means the Management Stock Bonus Plan Committee
appointed by the Board pursuant to Article IV hereof.
3.05 "Common Stock" means shares of the common stock, $1.00 par value
per share, of the Association or any successor corporation thereto.
3.06 "Employee" means any person who is employed by the
Association or a Subsidiary.
3.07 "Parent" shall mean any future parent corporation of
the Association.
3.08 "Plan Shares" means shares of Common Stock held in the Trust which
are awarded or issuable to a Recipient pursuant to the Plan.
3.09 "Plan Share Award" means a right granted to an Employee under this
Plan to receive Plan Shares.
3.10 "Plan Share Reserve" means the shares of Common Stock held by the
Trustee pursuant to Sections 5.03 and 5.04.
3.11 "Recipient" means an Employee who receives a Plan Share Award
under the Plan.
3.12 "Subsidiary" means those subsidiaries of the Association which,
with the consent of the Board, agree to participate in this Plan.
3.13 "Trustee" or "Trustee Committee" means that person(s) or entity
nominated by the Committee and approved by the Board pursuant to Sections 4.01
and 4.02 to hold legal title to the Plan assets for the purposes set forth
herein.
Article IV
----------
ADMINISTRATION OF THE PLAN
4.01 Role of the Committee. The Plan shall be administered and
interpreted by the Committee, which shall consist of not less than three
non-employee members of the Board, which shall have all of the powers allocated
to it in this and other sections of the Plan. All persons designated as members
of the Committee shall be "disinterested persons" within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934, as amended ("1934 Act"). The
interpretation and construction by the Committee of any provisions of the Plan
or of any Plan Share Award granted hereunder shall be final and binding. The
Committee shall act by
2
<PAGE>
vote or written consent of a majority of its members. Subject to the express
provisions and limitations of the Plan, the Committee may adopt such rules,
regulations and procedures as it deems appropriate for the conduct of its
affairs. The Committee shall report its actions and decisions with respect to
the Plan to the Board at appropriate times, but in no event less than one time
per calendar year. The Committee shall recommend to the Board one or more
persons or entity to act as Trustee(s) in accordance with the provision of this
Plan and Trust and the terms of Article VIII hereof.
4.02 Role of the Board. The members of the Committee and the Trustee or
Trustees shall be appointed or approved by, and will serve at the pleasure of
the Board. The Board may in its discretion from time to time remove members
from, or add members to, the Committee, and may remove, replace or add Trustees.
The Board shall have all of the powers allocated to it in this and other
sections of the Plan, may take any action under or with respect to the Plan
which the Committee is authorized to take, and may reverse or override any
action taken or decision made by the Committee under or with respect to the
Plan, provided, however, that the Board may not revoke any Plan Share Award
already made except as provided in Section 7.01(b) herein. Members of the Board
who are eligible for or who have been granted Plan Share Awards may not vote on
any matters affecting the administration of the Plan or the grant of Plan Shares
or Plan Share Awards (although such members may be counted in determining the
existence of a quorum at any meeting of the Board during which actions taken).
Further, with respect to all actions taken by the Board in regard to the Plan,
such action shall be taken by a majority of the Board where such a majority of
the directors acting in the matter are "disinterested persons" within the
meaning of Rule 16b-3 promulgated under the 1934 Act.
4.03 Limitation on Liability. No member of the Board or the Committee
or the Trustee(s) shall be liable for any determination made in good faith with
respect to the Plan or any Plan Share Awards granted under it. If a member of
the Board or Committee or any Trustee is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by any reason of
anything done or not done by him in such capacity under or with respect to the
Plan, the Association shall indemnify such member against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she reasonably
believed to be in the best interests of the Association and its Subsidiaries
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful.
3
<PAGE>
Article V
---------
CONTRIBUTIONS; PLAN SHARE RESERVE
5.01 Amount and Timing of Contributions. The Board of Directors of the
Association shall determine the amounts (or the method of computing the amounts)
to be contributed by the Association to the Trust established under this Plan.
Such amounts shall be paid to the Trustee at the time of contribution. No
contributions to the Trust by Employees shall be permitted.
5.02 Initial Investment. Any funds held by the Trust prior to the
issuance of Common Stock as part of the reorganization transaction of the
Association shall be invested by the Trustee in such interest-bearing account or
accounts at the Association as the Trustee shall determine to be appropriate.
5.03 Investment of Trust Assets. Upon the issuance of Common Stock as
part of the reorganization transaction of Association under a mutual holding
company ("Reorganization"), the Trust shall purchase Common Stock in an amount
equal to up to 100% of the Trust's assets, after providing for any required
withholding as needed for tax purposes, provided, however, that the Trust shall
not purchase more than 3% of the aggregate shares of Common Stock to be issued
at the time of the Reorganization.
5.04 Effect of Allocations, Returns and Forfeitures Upon Plan Share
Reserves. Upon the allocation of Plan Share Awards under Section 6.02, or the
decision of the Committee to return Plan Shares to the Association, the Plan
Share Reserve shall be reduced by the number of Shares subject to the Awards so
allocated or returned. Any Shares subject to an Award which may not be earned
because of forfeiture by the Recipient pursuant to Section 7.01 shall be added
to the Plan Share Reserve.
Article VI
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ELIGIBILITY; ALLOCATIONS
6.01 Eligibility. Employees of the Association and its Subsidiaries are
eligible to receive Plan Share Awards within the sole discretion of the
Committee.
6.02 Allocations. The Committee will determine which of the Employees
referenced in Section 6.01 above will be granted Plan Share Awards and the
number of Shares covered by each Award, effective upon the Reorganization,
provided, however, that the number of Shares covered by such Awards may not
exceed the number of Shares in the Plan Share Reserve immediately prior to the
grant of such Awards, and provided further, that in no event shall any Awards be
made which will violate the Charter, Bylaws or Plan of Reorganization of the
Association or Subsidiaries or any applicable
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federal or state law or regulation. In the event Shares are forfeited for any
reason or additional Shares are purchased by the Trustee, the Committee may,
from time to time, determine which of the Employees referenced in Section 6.01
above will be granted additional Plan Share Awards to be awarded from forfeited
Shares. In selecting those Employees to whom Plan Share Awards will be granted
and the number of shares covered by such Awards, the Committee shall consider
the position duties and responsibilities of the eligible Employees, the value of
their services to the Association and its Subsidiaries, and any other factors
the Committee may deem relevant. All actions by the Committee shall be deemed
final, except to the extent that such actions are revoked by the Board.
6.03 Form of Allocation. As promptly as practicable after a
determination is made pursuant to Section 6.02 that a Plan Share Award is to be
made, the Committee shall notify the Recipient in writing of the grant of the
Award, the number of Plan Shares covered by the Award, and the terms upon which
the Plan Shares subject to the award may be earned. The date on which the
Committee so notifies the Recipient shall be considered the date of grant of the
Plan Share Awards. The Committee shall maintain records as to all grants of Plan
Share Awards under the Plan.
6.04 Allocations Not Required. Notwithstanding anything to the contrary
in Sections 6.01 and 6.02, no Employee shall have any right or entitlement to
receive a Plan Share Award hereunder, such Awards being at the total discretion
of the Committee and the Board, nor shall the Employees as a group have such a
right. The Committee may, with the approval of the Board (or, if so directed by
the Board) return all Common Stock in the Plan Share Reserve to the Association
at any time, and cease issuing Plan Share Awards.
Article VII
-----------
EARNINGS AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 Earnings Plan Shares; Forfeitures.
(a) General Rules. Unless the Committee shall specifically state to the
contrary at the time a Plan Share Award is granted, Plan Shares subject to an
Award shall be earned and non-forfeitable by a Recipient at the rate of
one-fifth of such Award following one year after granting of such Award, and an
additional one-fifth following each of the next four successive years; provided
that such Recipient remains an Employee during such period.
(b) Revocation for Misconduct. Notwithstanding anything herein to the
contrary, the Board may, by resolution, immediately revoke, rescind and
terminate any Plan Share Award, or portion thereof, previously awarded under
this Plan, to the extent Plan
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Shares have not been delivered thereunder to the Recipient, whether or not yet
earned, in the case of an Employee who is discharged from the employ of the
Association or a Subsidiary for Cause (as hereinafter defined), or who is
discovered after termination of employment to have engaged in conduct that would
have justified termination for cause. "Cause" is defined as personal dishonesty,
incompetence, willful misconduct, breach of fiduciary duty involving personal
profits, intentional failure to perform stated duties, willful violation of a
material provision of any law, rule or regulation (other than traffic violations
and similar offense), or a material violation of a final cease-and-desist order
or any other action which results in a substantial financial loss to the
Association or its Subsidiaries. A determination of "Cause" shall be made by the
Board within its sole discretion.
(c) Exception for Terminations Due to Death or Disability.
Notwithstanding the general rule contained in Section 7.01(a) above, all Plan
Shares subject to a Plan Share Award held by a Recipient whose employment with
the Association or a Subsidiary terminates due to death or disability (as
determined by the Committee), shall be deemed earned as of the Recipient's last
day of employment with the Association or Subsidiary and shall be distributed as
soon a practicable thereafter.
(d) Exception for Termination after a Change in Control.
Notwithstanding the general rule contained in Section 7.01 above, all Plan
Shares subject to a Plan Share Award held by a recipient shall be deemed to be
immediately 100% earned and non-forfeitable in the event of a "change in
control" or "imminent change in control" of the Association and shall be
distributed as soon as practicable thereafter. For purposes of this Plan,
"change in control" shall mean: (i) the execution of an agreement for the sale
of all, or a material portion, of the assets of the Association; (ii) the
execution of an agreement for a merger or recapitalization of the Association or
any merger or recapitalization whereby the Association is not the surviving
entity; (iii) a change of control of the Association, as otherwise defined or
determined by the Office of Thrift Supervision or regulations promulgated by it;
or (iv) the acquisition, directly or indirectly, of the beneficial ownership
(within the meaning of that term as it is used in Section 13(d) of the 1934 Act
and the rules and regulations promulgated thereunder) of twenty-five percent
(25%) or more of the outstanding voting securities of the Association by any
person, trust, entity or group. This limitation shall not apply to the purchase
of shares of up to 25% of any class of securities of the Association by a
tax-qualified employee stock benefit plan which is exempt from the approval
requirements, set forth under 12 C.F.R. ss.574.3(c)(1)(vi) as now in effect or
as may hereafter be amended, or the ownership of any class of securities in any
amount by the Parent of the Association. The term "person" refers to an
individual or a corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship,
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unincorporated organization or any other form of entity not specifically listed
herein. For purposes of this section, "imminent change in control" shall refer
to any offer or announcement, oral or written, by any person or persons acting
as a group, to acquire control of the Association. The decision of the Committee
as to whether a change in control or imminent change in control has occurred
shall be conclusive and binding.
7.02 Payment of Dividends. A holder of a Plan Share Award, whether or
not non-forfeitable, shall also be entitled to receive an amount equal to any
cash dividends declared and paid with respect to shares of Common Stock
represented by such Plan Share Award between the date the relevant Plan Share
Award was initially granted to such Recipient and the date the Plan Shares are
distributed.
7.03 Distribution of Plan Shares.
(a) Timing of Distributions: General Rule. Except as provided in
Subsections (d) and (e) below, Plan Shares shall be distributed to the Recipient
or his Beneficiary, as the case may be, as soon as practicable after they have
been earned. No fractional shares shall be distributed.
(b) Form of Distribution. All Plan Shares, together with any shares
representing stock dividends, shall be distributed in the form of Common Stock.
One share of Common Stock shall be given for each Plan Share earned. Payments
representing cash dividends (and earning thereon) shall be made in cash.
(c) Withholding. The Trustee may withhold from any cash payment made
under this Plan sufficient amounts to cover any applicable withholding and
employment taxes, and if the amount of such cash payment is not sufficient, the
Trustee may require the Recipient or Beneficiary to pay to the Trustee the
amount required to be withheld as a condition of delivering the Plan Shares. The
Trustee shall pay over to the Association or Subsidiary which employs or
employed such recipient any such amount withheld from or paid by the Recipient
or Beneficiary.
(d) Timing: Exception for 10% Shareholders. Notwithstanding Subsection
(a) above, no Plan Shares may be distributed prior to the date which is five (5)
years from the effective date of the Association's Reorganization to the extent
the Recipient or Beneficiary, as the case may be, would after receipt of such
Shares own in excess of ten percent (10%) of the issued and outstanding shares
of Common Stock held by parties other than Parent, unless such action is
approved in advance by a majority vote of disinterested directors of the Board.
Any Plan Shares remaining undistributed solely by reason of the operation of
this Subsection (d) shall be distributed to the Recipient or his Beneficiary on
the date which is five years from the effective date of the
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<PAGE>
Association's Reorganization.
(e) Regulatory Exceptions. No Plan Shares shall be distributed,
however, unless and until all of the requirements of all applicable law and
regulation shall have been fully complied with, including the receipt of
approval of the Plan by the stockholders of the Association by such vote, if
any, as may be required by applicable law and regulations as determined by the
Board.
7.04 Voting of Plan Shares. After a Plan Share Award has been granted,
the Recipient shall be entitled to direct the Trustee as to the voting of the
Plan Shares which are covered by the Plan Share Award and which have not yet
been earned and distributed pursuant to Section 7.03, subject to rules and
procedures adopted by the Committee for this purpose. All shares of Common Stock
held by the Trust as to which Recipients are not entitled to direct, or have not
directed, the voting of, shall be voted by the Trustee as directed by the
Committee.
Article VIII
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TRUST
8.01 Trust. The Trustee shall receive, hold, administer, invest and
make distributions and disbursements from the Trust in accordance with the
provisions of the Plan and Trust and the applicable directions, rules,
regulations, procedures and policies established by the Committee pursuant to
the Plan.
8.02 Management of Trust. It is the intent of this Plan and Trust that
the Trustee shall have complete authority and discretion with respect to the
management, control and investment of the Trust, and that the Trustee shall
invest all assets of the Trust, except those attributable to cash dividends paid
with respect to Plan Shares not held in the Plan Share Reserve, in Common Stock
to the fullest extent practicable, and except to the extent that the Trustee
determines that the holding of monies in cash or cash equivalents is necessary
to meet the obligations of the Trust. In performing their duties, the Trustees
shall have the power to do all things and execute such instruments as may be
deemed necessary or proper, including the following powers:
(a) To invest up to one hundred percent (100%) of all Trust assets in
the Common Stock without regard to any law now or hereafter in force
limiting investments for Trustees or other fiduciaries. The investment
authorized herein may constitute the only investment of the Trust, and
in making such investment, the Trustees are authorized to purchase
Common Stock from Association or from any other source, and such Common
Stock so purchased may be outstanding, newly issued, or Treasury
shares.
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<PAGE>
(b) To invest in any Trust assets not otherwise invested in accordance
with (a) above in such deposit accounts, and certificates of deposit
(including those issued by the Association), obligations of the United
States government or its agencies or such other investments as shall be
considered the equivalent of cash.
(c) To sell, exchange or otherwise dispose of any property at any time
held or acquired by the Trust.
(d) To cause stocks, bonds or other securities to be registered in the
name of a nominee, without the addition of words indicating that such
security is an asset of the Trust (but accurate records shall be
maintained showing that such security is an asset of the Trust).
(e) To hold cash without interest in such amounts as may be in the
opinion of the Trustee reasonable for the proper operation of the Plan
and Trust.
(f) To employ brokers, agents, custodians, consultants and accountants.
(g) To hire counsel to render advice with respect to their rights,
duties and obligations hereunder, and such other legal services or
representation as they may deem desirable.
(h) To hold funds and securities representing the amounts to be
distributed to a Recipient or his Beneficiary as a consequence of a
dispute as to the disposition thereof, whether in a segregated account
or held in common with other assets.
Notwithstanding anything herein contained to the contrary, the Trustee
shall not be required to make any inventory, appraisal or settlement or report
to any court, or to secure any order of court for the exercise of any power
herein contained, or give bond.
8.03 Records and Accounts. The Trustee shall maintain accurate and
detailed records and accounts of all transactions of the Trust, which shall be
available at all reasonable times for inspection by any legally entitled person
or entity to the extent required by applicable law, or any other person
determined by the Committee.
8.04 Earnings. All earnings, gains and losses with respect to Trust
assets shall be allocated in accordance with a reasonable procedure adopted by
the Committee, to bookkeeping accounts for Recipients or to the general account
of the Trust, depending on the nature and allocation of the assets generating
such earnings, gains and losses. In particular, any earnings on cash dividends
received with respect to shares of Common Stock
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<PAGE>
shall be allocated to accounts for Recipients, except to the extent that such
cash dividends are distributed to Recipients, if such shares are the subject of
outstanding Plan Share Awards, or, otherwise to the Plan Share Reserve.
8.05 Expenses. All costs and expenses incurred in the operation and
administration of this Plan shall be paid by the Association.
8.06 Indemnification. The Association shall indemnify, defend and hold
the Trustee harmless against all claims, expenses and liabilities arising out of
or related to the exercise of the Trustee's powers and the discharge of their
duties hereunder, unless the same shall be due to their gross negligence or
willful misconduct.
Article IX
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MISCELLANEOUS
9.01 Adjustments for Capital Changes. The aggregate number of Plan
Shares available for issuance pursuant to the Plan Share Awards and the number
of Shares to which any Plan Share Award relates shall be proportionately
adjusted for any increase or decrease in the total number of outstanding shares
of Common Stock issued subsequent to the effective date of the Plan resulting
from any split, subdivision or consolidation of shares or other capital
adjustment, or other increase or decrease in such shares effected without
receipt or payment of consideration by the Association.
9.02 Amendment and Termination of the Plan. The Board may, by
resolution, at any time, amend or terminate the Plan. The power to amend or
terminate the Plan shall include the power to direct the Trustee to return to
the Association all or part of the assets of the Trust, including shares of
Common Stock held in the Plan Share Reserve, as well as shares of Common Stock
and other assets subject to Plan Share Awards but not yet earned by the
Employees to whom they are allocated. However, the termination of the Trust
shall not affect a Recipients right to earn Plan Share Awards and to the
distribution of Common Stock relating thereto, including earnings thereon, in
accordance with the terms of this Plan and the grant by the Committee or the
Board.
9.03 Nontransferable. Plan Share Awards and rights to Plan Shares shall
not be transferable by a Recipient, and during the lifetime of the Recipient,
Plan Shares may only be earned by and paid to the Recipient who was notified in
writing of the Award by the Committee pursuant to Section 6.03. No Recipient or
Beneficiary shall have any right in or claim to any assets of the Plan or Trust,
nor shall the Association, or any Subsidiary be subject to any claim for
benefits hereunder.
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9.04 Employment Rights. Neither the Plan nor any grant of a Plan Share
Award or Plan Shares hereunder nor any action taken by the Trustee, the
Committee or the Board in connection with the Plan shall create any right,
either express or implied, on the part of any Employee to continue in the employ
of the Association, or a Subsidiary thereof.
9.05 Voting and Dividend Rights. No Recipient shall have any voting or
dividend rights of a stockholder with respect to any Plan Shares covered by a
Plan Share Award, except as expressly provided in Sections 7.02 and 7.04 above,
prior to the time said Plan Shares are actually distributed to him.
9.06 Governing Law. The Plan and Trust shall be governed and construed
under the laws of the Commonwealth of Pennsylvania, except to the extent that
Federal Law shall be deemed applicable.
9.07 Effective Date. This Plan shall be as effective as
of the effective date of the completion of the Reorganization.
9.08 Term of Plan. This Plan shall remain in effect until the earlier
of (1) termination by the Board, (2) the distribution of all assets of the
Trust, or (3) 21 years from the Effective Date. Termination of the Plan shall
not effect any Plan Share Awards previously granted, and such Awards shall
remain valid and in effect until they have been earned and paid, or by their
terms expire or are forfeited.
9.09 Tax Status of Trust. It is intended that the trust established
hereby be treated as grantor trust of the Association under the provisions of
Section 671 et seq. of the Internal Revenue Code, as the same may be amended
from time to time.
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EXHIBIT 10.3
<PAGE>
ROXBOROUGH-MANAYUNK FEDERAL SAVINGS BANK
1994 STOCK OPTION PLAN
----------------------
1. Purpose of the Plan. The Plan shall be known as the
Roxborough-Manayunk Federal Savings Bank 1994 Stock Option Plan (the "Plan").
The purpose of the Plan is to attract and retain the best available personnel
for positions of substantial responsibility and to provide additional incentive
to officers, directors and key employees of Roxborough-Manayunk Federal Savings
Bank (the "Savings Bank"), or any present or future parent or subsidiary of the
Savings Bank to promote the success of the business. The Plan is intended to
provide for the grant of "Incentive Stock Options," within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and
Non-Incentive Stock Options, options that do not so qualify. Each and every one
of the provisions of the Plan relating to Incentive Stock Options shall be
interpreted to conform to the requirements of Section 422 of the Code.
2. Definitions. As used herein, the following definitions
shall apply.
(a) "Award" means the grant by the Committee of an Incentive
Stock Option or a Non-Incentive Stock Option, or any combination thereof, as
provided in the Plan.
(b) "Board" shall mean the Board of Directors of the Savings
Bank.
(c) "Code" shall mean the Internal Revenue Code of 1986, as
amended.
(d) "Committee" shall mean the Stock Option Committee
appointed by the Board in accordance with paragraph 5(a) of the Plan.
(e) "Common Stock" shall mean common stock, par value $1.00
per share, of the Savings Bank.
(f) "Continuous Employment" or "Continuous Status as an
Employee" shall mean the absence of any interruption or termination of
employment with the Savings Bank or any present or future Parent or Subsidiary
of the Savings Bank. Employment shall not be considered interrupted in the case
of sick leave, military leave or any other leave of absence approved by the
Savings Bank or in the case of transfers between payroll locations, of the
Savings Bank or between the Savings Bank, its Parent, its Subsidiaries or a
successor.
(g) "Director" shall mean a member of the Board of the Savings
Bank.
<PAGE>
(h) "Effective Date" shall mean the date specified in Section
15 hereof.
(i) "Employee" shall mean any person employed by the Savings
Bank or any present or future Parent or Subsidiary of the Savings Bank.
(j) "Incentive Stock Option" or "ISO" shall mean an option to
purchase Shares granted by the Committee pursuant to Section 8 hereof which is
subject to the limitations and restrictions of Section 8 hereof and is intended
to qualify under Section 422 of the Code.
(k) "Non-Incentive Stock Option" or "Non-ISO" shall mean an
option to purchase Shares granted pursuant to Section 9 hereof, which option is
not intended to qualify under Section 422 of the Code.
(l) "Option" shall mean an Incentive or Non-Incentive Stock
Option granted pursuant to this Plan providing the holder of such Option with
the right to purchase Common Stock.
(m) "Optioned Stock" shall mean stock subject to an Option
granted pursuant to the Plan.
(n) "Optionee" shall mean any person who receives an Option or
Award pursuant to the Plan.
(o) "Parent" shall mean any present or future corporation
which would be a "parent corporation" as defined in Subsections 424(e) and (g)
of the Code.
(p) "Participant" means any director, officer or key employee
of the Savings Bank or any Parent or Subsidiary of the Savings Bank or any other
person providing a service to the Savings Bank who is selected by the Committee
to receive an Award, or who by the express terms of the Plan is granted an
Award.
(q) "Plan" shall mean the Roxborough-Manayunk Federal Savings
Bank 1994 Stock Option Plan.
(r) "Savings Bank" shall mean Roxborough-Manayunk
Federal Savings Bank.
(s) "Share" shall mean one share of the Common Stock.
(t) "Subsidiary" shall mean any present or future corporation
which would be a "subsidiary corporation" as defined in Subsections 424(f) and
(g) of the Code.
3. Shares Subject to the Plan. Except as otherwise required
by the provisions of Section 13 hereof, the aggregate number of
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<PAGE>
Shares with respect to which Awards may be made pursuant to the Plan shall not
exceed 20,000 shares. Such Shares may either be authorized but unissued shares
or treasury shares.
An Award shall not be considered to be made under the Plan with respect
to any Option which terminates prior to its exercise, and new Awards may be
granted under the Plan with respect to the number of Shares as to which such
termination has occurred.
4. Six Month Holding Period.
A total of six months must elapse between the date of the
grant of an Option and the date of the sale of Common Stock received through the
exercise of an Option.
5. Administration of the Plan.
(a) (i) Composition of the Committee. Except as indicated in
paragraph 5(a)(ii) below, the Plan shall be administered by the Committee
consisting of at least three non-employee Directors of the Savings Bank
appointed by the Board and serving at the pleasure of the Board. Officers,
Directors, key employees and other persons who are designated by the Committee
shall be eligible to receive Awards under the Plan, and all persons designated
as members of the Committee shall be "disinterested persons" within the meaning
of Rule 16b-3 under the Securities Exchange Act of 1934.
(ii) For the purpose of granting Awards to
directors, the selection of any Director to whom Awards may be granted, as well
as the number of Shares subject to Awards, must be determined by a
"disinterested committee", as defined in Rule 16b-3 under the Securities
Exchange Act of 1934.
(b) Powers of the Committee. The Committee is authorized (but
only to the extent not contrary to the express provisions of the Plan or to
resolutions adopted by the Board) to interpret the Plan to prescribe, amend and
rescind rules and regulations relating to the Plan, to determine the form and
content of Awards to be issued under the Plan and to make other determinations
necessary or advisable for the administration of the Plan, and shall have and
may exercise such other power and authority as may be delegated to it by the
Board from time to time. A majority of the entire Committee shall constitute a
quorum and the action of a majority of the members present at any meeting at
which a quorum is present shall be deemed the action of the Committee. In no
event may the Committee revoke outstanding Awards without the consent of the
Participant.
The Chairman of the Savings Bank and such other officers as
shall be designated by the Committee are hereby authorized to
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<PAGE>
execute instruments evidencing Awards on behalf of the Savings Bank and to cause
them to be delivered to the Participants.
(c) Effect of Committee's Decision. All decisions,
determinations and interpretations of the Committee shall be final
and conclusive on all persons affected thereby.
6. Eligibility.
(i) Awards may be granted to officers, Directors,
key employees and other persons. The Committee shall from time to time determine
the officers, Directors, key employees and other persons who shall be granted
Awards under the Plan, the number to be granted to each such officer, Director,
key employee and other persons under the Plan, and whether Awards granted to
each such Participant under the Plan shall be Incentive and/or Non-Incentive
Stock Options. In selecting Participants and in determining the number of Shares
of Common Stock to be granted to each such Participant pursuant to each Award
granted under the Plan, the Committee may consider the nature of the services
rendered by each such Participant, each such Participant's current and potential
contribution to the Savings Bank and such other factors as the Committee may, in
its sole discretion, deem relevant. Officers, Directors, key employees or other
persons who have been granted an Award may, if otherwise eligible, be granted
additional Awards.
(ii) The aggregate fair market value (determined as
of the date the Option is granted) of the Shares with respect to which Incentive
Stock Options are exercisable for the first time by each Employee during any
calendar year (under all Incentive Stock Option plans, as defined in Section 422
of the Code, of the Savings Bank or any present or future Parent or Subsidiary
of the Savings Bank) shall not exceed $100,000. Notwithstanding the prior
provisions of this Section 6, the Committee may grant Options in excess of the
foregoing limitations, provided said Options shall be clearly and specifically
designated as not being Incentive Stock Options, as defined in Section 422 of
the Code.
(iii) In no event shall Shares subject to Options
granted to non-employee Directors in the aggregate under this Plan exceed more
than 30% of the total number of Shares authorized for delivery under this Plan
pursuant to Section 3 herein.
7. Term of the Plan. The Plan shall continue in effect for a term of
ten (10) years from the Effective Date, unless sooner terminated pursuant to
Section 18 hereof. No Option shall be granted under the Plan after ten (10)
years from the Effective Date.
8. Terms and Conditions of Incentive Stock Options. Incentive Stock
Options may be granted only to Participants who are Employees. Each Incentive
Stock Option granted pursuant to the
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<PAGE>
Plan shall be evidenced by an instrument in such form as the Committee shall
from time to time approve. Each and every Incentive Stock Option granted
pursuant to the Plan shall comply with, and be subject to, the following terms
and conditions:
(a) Option Price.
(i) The price per Share at which each Incentive
Stock Option granted under the Plan may be exercised shall not, as to any
particular Incentive Stock Option, be less than the fair market value of the
Common Stock at the time such Incentive Stock Option is granted. For such
purposes, if the Common Stock is traded otherwise than on a national securities
exchange at the time of the granting of an Option, then the price per Share of
the Optioned Stock shall be not less than the mean between the bid and asked
price on the date the Incentive Stock Option is granted or, if there is no bid
and asked price on said date, then on the next prior business day on which there
was a bid and asked price. If no such bid and asked price is available, then the
price per Share shall be determined by the Committee. If the Common Stock is
listed on a national securities exchange at the time of the granting of an
Incentive Stock Option, then the price per Share shall be not less than the
average of the highest and lowest selling price on such exchange on the date
such Incentive Stock Option is granted or, if there were no sales on said date,
then the price shall be not less than the mean between the bid and asked price
on such date.
(ii) In the case of an Employee who owns Common
Stock representing more than ten percent (10%) of the outstanding Common Stock
at the time the Incentive Stock Option is granted, the Incentive Stock Option
price shall not be less than one hundred and ten percent (110%) of the fair
market value of the Common Stock at the time the Incentive Stock Option is
granted.
(b) Payment. Full payment for each Share of Common Stock
purchased upon the exercise of any Incentive Stock Option granted under the Plan
shall be made at the time of exercise of each such Incentive Stock Option and
shall be paid in cash (in United States Dollars), Common Stock or a combination
of cash and Common Stock. Common Stock utilized in full or partial payment of
the exercise price shall be valued at its fair market value at the date of
exercise. The Savings Bank shall accept full or partial payment in Common Stock
only to the extent permitted by applicable law. No Shares of Common Stock shall
be issued until full payment therefor has been received by the Savings Bank, and
no Optionee shall have any of the rights of a stockholder of the Savings Bank
until Shares of Common Stock are issued to him.
(c) Term of Incentive Stock Option. The term of each Incentive
Stock Option granted pursuant to the Plan shall be not more ten (10) years from
the date each such Incentive Stock Option
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<PAGE>
is granted, provided that in the case of an Employee who owns stock representing
more than ten percent (10%) of the Common Stock outstanding at the time the
Incentive Stock Option is granted, the term of the Incentive Stock Option shall
not exceed five (5) years.
(d) Exercise Generally. Except as otherwise provided in
Section 10 hereof, no Incentive Stock Option may be exercised unless the
Optionee shall have been in the employ of the Savings Bank at all times during
the period beginning with the date of grant of any such Incentive Stock Option
and ending on the date three (3) months prior to the date of exercise of any
such Incentive Stock Option. The Committee may impose additional conditions upon
the right of an Optionee to exercise any Incentive Stock Option granted
hereunder which are not inconsistent with the terms of the Plan or the
requirements for qualification as an Incentive Stock Option under Section 422 of
the Code.
(e) Cashless Exercise. An Optionee who has held an Incentive
Stock Option for at least six months may engage in the "cashless exercise" of
the Option. In a cashless exercise, an Optionee gives the Savings Bank written
notice of the exercise of the Option together with an order to a registered
broker-dealer or equivalent third party, to sell part or all of the Optioned
Stock and to deliver enough of the proceeds to the Savings Bank to pay the
Option price and any applicable withholding taxes. If the Optionee does not sell
the Optioned Stock through a registered broker-dealer or equivalent third party,
he can give the Savings Bank written notice of the exercise of the Option and
the third party purchaser of the Optioned Stock shall pay the Option price plus
any applicable withholding taxes to the Savings Bank.
(f) Transferability. Any Incentive Stock Option granted
pursuant to the Plan shall be exercised during an Optionee's lifetime only by
the Optionee to whom it was granted and shall not be assignable or transferable
otherwise than by will or by the laws of descent and distribution.
9. Terms and Conditions of Non-Incentive Stock Options. Each
Non-Incentive Stock Option granted pursuant to the Plan shall be evidenced by an
instrument in such form as the Committee shall from time to time approve. Each
and every Non-Incentive Stock Option granted pursuant to the Plan shall comply
with and be subject to the following terms and conditions.
(a) Options Granted to Directors. Subject to the
limitations of Section 6(iii), 1,000* Non-Incentive Stock Options
- --------
* Non-discretionary formula grant of options to directors equalling 5.0%
of total shares reserved to each non-employee director(6), to a maximum
of 30% in the aggregate (6,000 shares).
6
<PAGE>
will be granted to each Director who is not an Employee as of December 31, 1994,
at an exercise price equal to the fair market value per share of the Common
Stock on such date of grant as determined based upon an independent appraisal.
Options may be granted to newly appointed or elected non-employee Directors
within the sole discretion of the Committee. The Option will be exercisable
immediately upon stockholder ratification of the Plan and will remain
exercisable for up to ten years from such date of grant. Such Options may be
exercised for a period of ten years following the date of grant without regard
to the continued services of such Directors as a Director or Director Emeritus,
or in the event of such person's death during the term of his directorship, by
the personal representative of his estate or person or persons to whom his
rights under such Option shall have passed by will or by laws of descent and
distribution. Unless otherwise inapplicable, or inconsistent with the provisions
of this paragraph, the Options to be granted to Directors hereunder shall be
subject to all other provisions of this Plan.
(b) Option Price. The exercise price per Share of Common Stock
for each Non-Incentive Stock Option granted pursuant to the Plan, shall be at
such price as the Committee may determine in its sole discretion.
(c) Payment. Full payment for each Share of Common Stock
purchased upon the exercise of any Non-Incentive Stock Option granted under the
Plan shall be made at the time of exercise of each such Non-Incentive Stock
Option and shall be paid in cash (in United States Dollars), Common Stock or a
combination of cash and Common Stock. Common Stock utilized in full or partial
payment of the exercise price shall be valued at its fair market value at the
date of exercise. The Savings Bank shall accept full or partial payment in
Common Stock only to the extent permitted by applicable law. No Shares of Common
Stock shall be issued until full payment therefor has been received by the
Savings Bank and no Optionee shall have any of the rights of a stockholder of
the Savings Bank until the Shares of Common Stock are issued to him.
(d) Term. The term of each Non-Incentive Stock Option granted
pursuant to the Plan shall be not more than ten (10) years from the date each
such Non-Incentive Stock Option is granted.
(e) Exercise Generally. The Committee may impose additional
conditions upon the right of any Participant to exercise any Non-Incentive Stock
Option granted hereunder which is not inconsistent with the terms of the Plan.
(f) Cashless Exercise. An Optionee who has held a
Non-Incentive Stock Option for at least six months may engage in
- ----------------------
7
<PAGE>
the "cashless exercise" of the Option. In a cashless exercise, an Optionee gives
the Savings Bank written notice of the exercise of the Option together with an
order to a registered broker-dealer or equivalent third party, to sell part or
all of the Optioned Stock and to deliver enough of the proceeds to the Savings
Bank to pay the Option price and any applicable withholding taxes. If the
Optionee does not sell the Optioned Stock through a registered broker-dealer or
equivalent third party, he can give the Savings Bank written notice of the
exercise of the Option and the third party purchaser of the Optioned Stock shall
pay the Option price plus any applicable withholding taxes to the Savings Bank.
(g) Transferability. Any Non-Incentive Stock Option granted
pursuant to the Plan shall be exercised during an Optionee's lifetime only by
the Optionee to whom it was granted and shall not be assignable or transferable
otherwise than by will or by the laws of descent and distribution.
10. Effect of Termination of Employment, Disability or Death
on Incentive Stock Options.
(a) Termination of Employment. In the event that any
Optionee's employment with the Savings Bank shall terminate for any reason,
other than Permanent and Total Disability (as such term is defined in Section
22(e)(3) of the Code) or death, all of any such Optionee's Incentive Stock
Options, and all of any such Optionee's rights to purchase or receive Shares of
Common Stock pursuant thereto, shall automatically terminate on the earlier of
(i) the respective expiration dates of any such Incentive Stock Options or (ii)
the expiration of not more than three (3) months after the date of such
termination of employment, but only if, and to the extent that, the Optionee was
entitled to exercise any such Incentive Stock Options at the date of such
termination of employment. In the event that a subsidiary ceases to be a
subsidiary of the Savings Bank, the employment of all of its employees who are
not immediately thereafter employees of the Savings Bank shall be deemed to
terminate upon the date such subsidiary so ceases to be a Subsidiary of the
Savings Bank.
(b) Disability. In the event that any Optionee's employment
with the Savings Bank shall terminate as the result of the Permanent and Total
Disability of such Optionee, such Optionee may exercise any Incentive Stock
Options granted to him pursuant to the Plan at any time prior to the earlier of
(i) the respective expiration dates of any such Incentive Stock Options or (ii)
the date which is one (1) year after the date of such termination of employment,
but only if, and to the extent that, the Optionee was entitled to exercise any
such Incentive Stock Options at the date of such termination of employment.
(c) Death. In the event of the death of an Optionee, any
Incentive Stock Options granted to such Optionee may be
8
<PAGE>
exercised by the person or persons to whom the Optionee's rights under any such
Incentive Stock Options pass by will or by the laws of descent and distribution
(including the Optionee's estate during the period of administration) at any
time prior to the earlier of (i) the respective expiration dates of any such
Incentive Stock Options or (ii) the date which is two (2) years after the date
of death of such Optionee but only if, and to the extent that, the Optionee was
entitled to exercise any such Incentive Stock Options at the date of death. For
purposes of this Section 10(c), any Incentive Stock Option held by an Optionee
shall be considered exercisable at the date of his death if the only unsatisfied
condition precedent to the exercisability of such Incentive Stock Option at the
date of death is the passage of a specified period of time. At the discretion of
the Committee, upon exercise of such Options the Optionee may receive Shares or
cash or combination thereof. If cash shall be paid in lieu of Shares, such cash
shall be equal to the difference between the fair market value of such Shares
and the exercise price of such Options on the exercise date.
(d) Incentive Stock Options Deemed Exercisable. For purposes
of Sections 10(a), 10(b) and 10(c) above, any Incentive Stock Option held by any
Optionee shall be considered exercisable at the date of termination of his
employment if any such Incentive Stock Option would have been exercisable at
such date of termination of employment.
(e) Termination of Incentive Stock Options. To the extent that
any Incentive Stock Option granted under the Plan to any Optionee whose
employment with the Savings Bank terminates shall not have been exercised within
the applicable period set forth in this Section 10, any such Incentive Stock
Option, and all rights to purchase or receive Shares of Common Stock pursuant
thereto, as the case may be, shall terminate on the last day of the applicable
period.
11. Effect of Termination of Employment, Disability or Death on
Non-Incentive Stock Options. The terms and conditions of Non-Incentive Stock
Options relating to the effect of the termination of an Optionee's employment,
disability of an Optionee or his death shall be such terms and conditions as the
Committee shall, in its sole discretion, determine at the time of termination,
unless specifically provided for by the terms of the Agreement at the time of
grant of the Award.
12. Right of Repurchase and Restrictions on Disposition. The
Committee, in its sole discretion, may include, as a term of any Incentive
Stock Option or Non-Incentive Stock Option, the right (the "Repurchase
Right"), but not the obligation, to repurchase all or any amount of the
Shares acquired by an Optionee pursuant to the exercise of any such
Options. The intent of the Repurchase Right is to encourage the continued
employment of the Optionee. The Repurchase Right shall provide for, among
other things, a specified
9
<PAGE>
duration of the Repurchase Right, a specified price per Share to be paid upon
the exercise of the Repurchase Right and a restriction on the disposition of the
Shares by the Optionee during the period of the Repurchase Right. The Repurchase
Right may permit the Savings Bank to transfer or assign such right to another
party. The Savings Bank may exercise the Repurchase Right only to the extent
permitted by applicable law.
13. Recapitalization, Merger, Consolidation, Change in
Control and Similar Transactions.
(a) Adjustment. Subject to any required action by the
stockholders of the Savings Bank, within the sole discretion of the Committee,
the aggregate number of Shares of Common Stock for which Options may be granted
hereunder, the number of Shares of Common Stock covered by each outstanding
Option, and the exercise price per Share of Common Stock of each such Option,
shall all be proportionately adjusted for any increase or decrease in the number
of issued and outstanding Shares of Common Stock resulting from a subdivision or
consolidation of Shares (whether by reason of merger, consolidation,
recapitalization, reclassification, split-up, combination of shares, or
otherwise) or the payment of a stock dividend (but only on the Common Stock) or
any other increase or decrease in the number of such Shares of Common Stock
effected without the receipt of consideration by the Savings Bank (other than
Shares held by dissenting stockholders).
(b) Change in Control. All outstanding Awards shall become
immediately exercisable in the event of a change in control or imminent change
in control of the Savings Bank, as determined by the Committee. In the event of
such a change in control or imminent change in control, the Optionee shall, at
the discretion of the Committee, be entitled to receive cash in an amount equal
to the fair market value of the Common Stock subject to any Incentive or
Non-Incentive Stock Option over the Option Price of such Shares, in exchange for
the surrender of such Options by the Optionee on that date in the event of a
change in control or imminent change in control of the Savings Bank. For
purposes of this Section 13, "change in control" shall mean: (i) the execution
of an agreement for the sale of all, or a material portion, of the assets of the
Savings Bank; (ii) the execution of an agreement for a merger or
recapitalization of the Savings Bank or any merger or recapitalization whereby
the Savings Bank is not the surviving entity; (iii) a change of control of the
Savings Bank, as otherwise defined or determined by the Office of Thrift
Supervision or regulations promulgated by it; or (iv) the acquisition, directly
or indirectly, of the beneficial ownership (within the meaning of that term as
it is used in Section 13(d) of the Securities Exchange Act of 1934 and the rules
and regulations promulgated thereunder) of twenty-five percent (25%) or more of
the outstanding voting securities of the Savings Bank by any person, trust,
entity or group. The term "person" refers to an individual or a corporation,
10
<PAGE>
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein. For purposes of this Section 13, "imminent change in
control" shall refer to any offer or announcement, oral or written, by any
person or persons acting as a group, to acquire control of the Savings Bank. The
decision of the Committee as to whether a change in control or imminent change
in control has occurred shall be conclusive and binding.
(c) Extraordinary Corporate Action. Subject to any required
action by the stockholders of the Savings Bank, in the event of any change in
control, recapitalization, merger, consolidation, exchange of Shares, spin-off,
reorganization, tender offer, liquidation or other extraordinary corporate
action or event, the Committee, in its sole discretion, shall have the power,
prior or subsequent to such action or event to:
(i) appropriately adjust the number of Shares of
Common Stock subject to each Option, the exercise price per Share of Common
Stock, and the consideration to be given or received by the Savings Bank upon
the exercise of any outstanding Option;
(ii) cancel any or all previously granted Options,
provided that appropriate consideration is paid to the Optionee in
connection therewith; and/or
(iii) make such other adjustments in connection with
the Plan as the Committee, in its sole discretion, deems necessary, desirable,
appropriate or advisable; provided, however, that no action shall be taken by
the Committee which would cause Incentive Stock Options granted pursuant to the
Plan to fail to meet the requirements of Section 422 of the Code.
Except as expressly provided in Sections 13(a) and 13(b)
hereof, no Optionee shall have any rights by reason of the occurrence of any of
the events described in this Section 13.
(d) Acceleration. The Committee shall at all times have the
power to accelerate the exercise date of Options previously granted under the
Plan.
(e) Treatment of Options in the Event of a Conversion
Transaction. In the event that FJF Financial, M.H.C. and the Savings Bank enter
into a transaction whereby FJF Financial, M.H.C. shall no longer own a majority
of the Common Stock of the Savings Bank and thereafter a parent holding company
shall own 100% of the Common Stock of the Savings Bank ("Stock Holding Company")
(the "Conversion Transaction"), any Options outstanding shall, at the election
of the holder, (i) be convertible into Options for Common Stock of the Stock
Holding Company, or (ii) be exercised by the holder prior to the effective date
of the Conversion Transaction and the holder shall be entitled to exchange, in
the same manner as
11
<PAGE>
other minority stockholders of the Savings Bank, the shares of Common Stock of
the Savings Bank received upon such exercise for shares of Common Stock of the
Stock Holding Company. If for any reason such Options are not to be converted or
such shares are not exchanged, the holders of Options under this plan shall
receive cash payment for the shares of stock represented by the Options in an
amount equal to the fair market value of the shares underlying the Options or
the initial offering price of the number of shares of common stock of the Stock
Holding Company for which the Common Stock underlying the options would
otherwise be exchanged, in both cases less the original exercise price of such
options and, with respect to options that have been exercised for shares which
are not exchanged, the Stock Holding Company shall redeem such shares for cash
in the same manner as such redemption would occur for other minority
stockholders of the Savings Bank. Any exchange, conversion of Options, or cash
payment for shares shall be subject to applicable federal and state regulations
and, if necessary, subject to the approval of the appropriate regulatory
authorities.
14. Time of Granting Options. The date of grant of an Option under the
Plan shall, for all purposes, be the date on which the Committee makes the
determination of granting such Option. Except, however, for purposes of
compliance with Section 16 of the Securities Exchange Act of 1934, the date of
grant of an Option shall be deemed the later of the date of grant or the date of
stockholder approval of the Plan. Notice of the determination of the grant of an
Option shall be given to each individual to whom an Option is so granted within
a reasonable time after the date of such grant in a form determined by the
Committee.
15. Effective Date. The Plan shall become effective the date of Board
adoption of the Plan. Options may be granted prior to ratification of the Plan
by the stockholders of the Savings Bank if the exercise of such Options is
subject to such stockholder ratification.
16. Approval by Stockholders. The Plan shall be approved by
stockholders of the Savings Bank within twelve (12) months before or after the
date of Board adoption of the Plan.
17. Modification of Options. At any time and from time to time, the
Board may authorize the Committee to direct the execution of an instrument
providing for the modification of any outstanding Option, provided no such
modification, extension or renewal shall confer on the holder of said Option any
right or benefit which could not be conferred on him by the grant of a new
Option at such time, or shall not materially decrease the Optionee's benefits
under the Option without the consent of the holder of the Option, except as
otherwise permitted under Section 18 hereof. Notwithstanding anything herein to
the contrary, the Committee shall have the authority to cancel outstanding
Options with the consent of the Optionee and to reissue new Options at a lower
12
<PAGE>
exercise price equal to the then fair market value per share of Common Stock in
the event that the fair market value per share of Common Stock at any time prior
to the date of exercise of outstanding Options falls below the exercise price of
such Options.
18. Amendment and Termination of the Plan.
(a) Action by the Board. The Board may alter, suspend or
discontinue the Plan, except that no action of the Board may increase (other
than as provided in Section 13 hereof) the maximum number of Shares permitted to
be optioned under the Plan, materially increase the benefits accruing to
Participants under the Plan or materially modify the requirements for
eligibility for participation in the Plan unless such action of the Board shall
be subject to approval or ratification by the stockholders of the Savings Bank.
(b) Change in Applicable Law. Notwithstanding any other
provision contained in the Plan, in the event of a change in any federal or
state law, rule or regulation which would make the exercise of all or part of
any previously granted Incentive and/or Non-Incentive Stock Option unlawful or
subject the Savings Bank to any penalty, the Committee may restrict any such
exercise without the consent of the Optionee or other holder thereof in order to
comply with any such law, rule or regulation or to avoid any such penalty.
19. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to any Option granted under the Plan unless the issuance and delivery of
such Shares shall comply with all relevant provisions of law, including, without
limitation, the Securities Act of 1933, as amended, the rules and regulations
promulgated thereunder, any applicable state securities law and the requirements
of any stock exchange upon which the Shares may then be listed.
Notwithstanding anything herein to the contrary, in no event shall the
Savings Bank issue new Shares upon the exercise of an Option to the extent that
such issuance would result in Parent holding less than a majority of the
outstanding Shares of Savings Bank, for so long as Parent shall be a Federally
chartered mutual holding company pursuant to 12 C.F.R. 575.
The inability of the Savings Bank to obtain from any regulatory body or
authority deemed by the Savings Bank's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder shall relieve the Savings Bank of any
liability in respect of the non-issuance or sale of such Shares.
As a condition to the exercise of an Option, the Savings Bank may
require the person exercising the Option to make such representations and
warranties as may be necessary to assure the
13
<PAGE>
availability of an exemption from the registration requirements of
federal or state securities law.
20. Reservation of Shares. During the term of the Plan, the Savings
Bank will reserve and keep available a number of Shares sufficient to satisfy
the requirements of the Plan.
21. Unsecured Obligation. No Participant under the Plan shall have any
interest in any fund or special asset of the Savings Bank by reason of the Plan
or the grant of any Incentive or Non-Incentive Stock Option under the Plan. No
trust fund shall be created in connection with the Plan or any grant of any
Incentive or Non-Incentive Stock Option hereunder and there shall be no required
funding of amounts which may become payable to any Participant.
22. Withholding Tax. The Savings Bank shall have the right to deduct
from all amounts paid in cash with respect to the cashless exercise of Options
under the Plan any taxes required by law to be withheld with respect to such
cash payments. Where a Participant or other person is entitled to receive Shares
pursuant to the exercise of an Option pursuant to the Plan, the Savings Bank
shall have the right to require the Participant or such other person to pay the
Savings Bank the amount of any taxes which the Savings Bank is required to
withhold with respect to such Shares, or, in lieu thereof, to retain, or sell
without notice, a number of such Shares sufficient to cover the amount required
to be withheld.
23. Governing Law. The Plan shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania, except to the
extent that federal law shall be deemed to apply.
14
EXHIBIT 10.4
<PAGE>
Roxborough-Manayunk Federal Savings Bank
1994 Management Stock Bonus Plan
and Trust Agreement
Article I
---------
ESTABLISHMENT OF THE PLAN AND TRUST
1.01 Roxborough-Manayunk Federal Savings Bank ("Savings Bank") hereby
establishes the 1994 Management Stock Bonus Plan (the "Plan") and Trust (the
"Trust") upon the terms and conditions hereinafter stated in this Management
Stock Bonus Plan and Trust Agreement (the "Agreement").
1.02 The Trustee hereby accepts this Trust and agrees to hold the Trust
assets existing on the date of this Agreement and all additions and accretions
thereto upon the terms and conditions hereinafter stated.
Article II
----------
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to reward and retain personnel of
experience and ability in key positions of responsibility with the Savings Bank
and its subsidiaries, by providing such key employees of the Savings Bank and
its subsidiaries with an equity interest in the parent mutual holding company of
the Savings Bank ("Parent"), as compensation for their future professional
contributions and service to the Savings Bank and its subsidiaries.
Article III
-----------
DEFINITIONS
The following words and phrases when used in this Plan with an initial
capital letter, unless the context clearly indicates otherwise, shall have the
meaning as set forth below. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.
3.01 "Beneficiary" means the person or persons designated by the
Recipient to receive any benefits payable under the Plan in the event of such
Recipient's death. Such person or persons shall be designated in writing on
forms provided for this purpose by the Committee and may be changed from time to
time by similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Recipient's surviving spouse, if any,
or if none, Recipient's estate.
3.02 "Board" means the Board of Directors of the Savings Bank, or any
successor corporation thereto.
<PAGE>
3.03 "Committee" means the Management Stock Bonus Plan Committee
appointed by the Board pursuant to Article IV hereof.
3.04 "Common Stock" means shares of the common stock, $1.00 par value
per share, of the Savings Bank or any successor corporation thereto.
3.05 "Employee" means any person who is employed by the
Savings Bank or a Subsidiary.
3.06 "Parent" shall mean any future parent corporation of the Savings
Bank.
3.07 "Plan Shares" means shares of Common Stock held in the Trust which
are awarded or issuable to a Recipient pursuant to the Plan.
3.08 "Plan Share Award" means a right granted to an Employee under this
Plan to receive Plan Shares.
3.09 "Plan Share Reserve" means the shares of Common Stock held by the
Trustee pursuant to Sections 5.03 and 5.04.
3.10 "Recipient" means an Employee who receives a Plan Share Award
under the Plan.
3.11 "Savings Bank" means Roxborough-Manayunk Federal Savings Bank and
any successor corporation thereto.
3.12 "Subsidiary" means those subsidiaries of the Savings Bank which,
with the consent of the Board, agree to participate in this Plan.
3.13 "Trustee" or "Trustee Committee" means that person(s) or entity
nominated by the Committee and approved by the Board pursuant to Sections 4.01
and 4.02 to hold legal title to the Plan assets for the purposes set forth
herein.
Article IV
----------
ADMINISTRATION OF THE PLAN
4.01 Role of the Committee. The Plan shall be administered and
interpreted by the Committee, which shall consist of not less than three
non-employee members of the Board, which shall have all of the powers allocated
to it in this and other sections of the Plan. All persons designated as members
of the Committee shall be "disinterested persons" within the meaning of Rule
16b-3 under the Securities Exchange Act of 1934, as amended ("1934 Act"). The
interpretation and construction by the Committee of any provisions of the Plan
or of any Plan Share Award granted hereunder shall be final and binding. The
Committee shall act by
2
<PAGE>
vote or written consent of a majority of its members. Subject to the express
provisions and limitations of the Plan, the Committee may adopt such rules,
regulations and procedures as it deems appropriate for the conduct of its
affairs. The Committee shall report its actions and decisions with respect to
the Plan to the Board at appropriate times, but in no event less than one time
per calendar year. The Committee shall recommend to the Board one or more
persons or entity to act as Trustee(s) in accordance with the provision of this
Plan and Trust and the terms of Article VIII hereof.
4.02 Role of the Board. The members of the Committee and the Trustee or
Trustees shall be appointed or approved by, and will serve at the pleasure of
the Board. The Board may in its discretion from time to time remove members
from, or add members to, the Committee, and may remove, replace or add Trustees.
The Board shall have all of the powers allocated to it in this and other
sections of the Plan, may take any action under or with respect to the Plan
which the Committee is authorized to take, and may reverse or override any
action taken or decision made by the Committee under or with respect to the
Plan, provided, however, that the Board may not revoke any Plan Share Award
already made except as provided in Section 7.01(b) herein. Members of the Board
who are eligible for or who have been granted Plan Share Awards may not vote on
any matters affecting the administration of the Plan or the grant of Plan Shares
or Plan Share Awards (although such members may be counted in determining the
existence of a quorum at any meeting of the Board during which actions taken).
Further, with respect to all actions taken by the Board in regard to the Plan,
such action shall be taken by a majority of the Board where such a majority of
the directors acting in the matter are "disinterested persons" within the
meaning of Rule 16b-3 promulgated under the 1934 Act.
4.03 Limitation on Liability. No member of the Board or the Committee
or the Trustee(s) shall be liable for any determination made in good faith with
respect to the Plan or any Plan Share Awards granted under it. If a member of
the Board or Committee or any Trustee is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, by any reason of
anything done or not done by him in such capacity under or with respect to the
Plan, the Savings Bank shall indemnify such member against expenses (including
attorney's fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him or her in connection with such action, suit or
proceeding if he or she acted in good faith and in a manner he or she reasonably
believed to be in the best interests of the Savings Bank and its Subsidiaries
and, with respect to any criminal action or proceeding, had no reasonable cause
to believe his conduct was unlawful.
3
<PAGE>
Article V
---------
CONTRIBUTIONS; PLAN SHARE RESERVE
5.01 Amount and Timing of Contributions. The Board of Directors of the
Savings Bank shall determine the amounts (or the method of computing the
amounts) to be contributed by the Savings Bank to the Trust established under
this Plan. Such amounts shall be paid to the Trustee at the time of
contribution. No contributions to the Trust by Employees shall be permitted.
5.02 Initial Investment. Any funds held by the Trust prior to the
acquisition of Common Stock either through open-market purchases or from
authorized, but unissued shares from the Savings Bank, shall be invested by the
Trustee in such interest-bearing account or accounts at the Savings Bank as the
Trustee shall determine to be appropriate.
5.03 Investment of Trust Assets. The Trust shall purchase Common Stock
in an amount equal to up to 100% of the Trust's assets, after providing for any
required withholding as needed for tax purposes, provided, however, that the
Trust shall not purchase more than 6,000 shares of Common Stock in the
aggregate.
5.04 Effect of Allocations, Returns and Forfeitures Upon Plan Share
Reserves. Upon the allocation of Plan Share Awards under Section 6.02, or the
decision of the Committee to return Plan Shares to the Savings Bank, the Plan
Share Reserve shall be reduced by the number of Shares subject to the Awards so
allocated or returned. Any Shares subject to an Award which may not be earned
because of forfeiture by the Recipient pursuant to Section 7.01 shall be added
to the Plan Share Reserve.
Article VI
----------
ELIGIBILITY; ALLOCATIONS
6.01 Eligibility. Employees of the Savings Bank and its Subsidiaries
are eligible to receive Plan Share Awards within the sole discretion of the
Committee.
6.02 Allocations. The Committee will determine which of the Employees
referenced in Section 6.01 above will be granted Plan Share Awards and the
number of Shares covered by each Award, effective upon the Reorganization,
provided, however, that the number of Shares covered by such Awards may not
exceed the number of Shares in the Plan Share Reserve immediately prior to the
grant of such Awards, and provided further, that in no event shall any Awards be
made which will violate the Charter, Bylaws or Plan of Reorganization of the
Savings Bank or Subsidiaries or any applicable federal or state law or
regulation. In the event Shares
4
<PAGE>
are forfeited for any reason or additional Shares are purchased by the Trustee,
the Committee may, from time to time, determine which of the Employees
referenced in Section 6.01 above will be granted additional Plan Share Awards to
be awarded from forfeited Shares. In selecting those Employees to whom Plan
Share Awards will be granted and the number of shares covered by such Awards,
the Committee shall consider the position duties and responsibilities of the
eligible Employees, the value of their services to the Savings Bank and its
Subsidiaries, and any other factors the Committee may deem relevant. All actions
by the Committee shall be deemed final, except to the extent that such actions
are revoked by the Board.
6.03 Form of Allocation. As promptly as practicable after a
determination is made pursuant to Section 6.02 that a Plan Share Award is to be
made, the Committee shall notify the Recipient in writing of the grant of the
Award, the number of Plan Shares covered by the Award, and the terms upon which
the Plan Shares subject to the award may be earned. The date on which the
Committee so notifies the Recipient shall be considered the date of grant of the
Plan Share Awards. The Committee shall maintain records as to all grants of Plan
Share Awards under the Plan.
6.04 Allocations Not Required. Notwithstanding anything to the contrary
in Sections 6.01 and 6.02, no Employee shall have any right or entitlement to
receive a Plan Share Award hereunder, such Awards being at the total discretion
of the Committee and the Board, nor shall the Employees as a group have such a
right. The Committee may, with the approval of the Board (or, if so directed by
the Board) return all Common Stock in the Plan Share Reserve to the Savings Bank
at any time, and cease issuing Plan Share Awards.
6.05 Awards to Directors. Notwithstanding anything herein to the
contrary, as of January 1, 1995, a Plan Share Award consisting of 300 Plan
Shares shall be awarded to each director of the Savings Bank that is not
otherwise an Employee as of such date. Such Plan Share Award shall be
immediately earned and non- forfeitable. Subsequent to the Effective Date, Plan
Share Awards may be awarded to newly elected or appointed directors of the
Savings Bank by the Committee, provided that total Plan Share Awards to
non-employee directors of the Savings Bank shall not exceed 1,800 Plan Shares in
the aggregate under the Plan.
Article VII
-----------
EARNINGS AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 Earnings Plan Shares; Forfeitures.
(a) General Rules. Unless the Committee shall specifically
state to the contrary at the time a Plan Share Award is granted,
Plan Shares subject to an Award shall be earned and non-forfeitable
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<PAGE>
by a Recipient at the rate of one-fifth of such Award as of the date of grant of
such Award, and an additional one-fifth following each of the next four
successive years; provided that such Recipient remains an Employee during such
period.
(b) Revocation for Misconduct. Notwithstanding anything herein to the
contrary, the Board may, by resolution, immediately revoke, rescind and
terminate any Plan Share Award, or portion thereof, previously awarded under
this Plan, to the extent Plan Shares have not been delivered thereunder to the
Recipient, whether or not yet earned, in the case of an Employee who is
discharged from the employ of the Savings Bank or a Subsidiary for Cause (as
hereinafter defined), or who is discovered after termination of employment to
have engaged in conduct that would have justified termination for cause. "Cause"
is defined as personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profits, intentional failure to perform stated
duties, willful violation of a material provision of any law, rule or regulation
(other than traffic violations and similar offense), or a material violation of
a final cease-and-desist order or any other action which results in a
substantial financial loss to the Savings Bank or its Subsidiaries. A
determination of "Cause" shall be made by the Board within its sole discretion.
(c) Exception for Terminations Due to Death or Disability.
Notwithstanding the general rule contained in Section 7.01(a) above, all Plan
Shares subject to a Plan Share Award held by a Recipient whose employment with
the Savings Bank or a Subsidiary terminates due to death or disability (as
determined by the Committee), shall be deemed earned as of the Recipient's last
day of employment with the Savings Bank or Subsidiary and shall be distributed
as soon a practicable thereafter.
(d) Exception for Termination after a Change in Control.
Notwithstanding the general rule contained in Section 7.01 above, all Plan
Shares subject to a Plan Share Award held by a recipient shall be deemed to be
immediately 100% earned and non-forfeitable in the event of a "change in
control" or "imminent change in control" of the Savings Bank and shall be
distributed as soon as practicable thereafter. For purposes of this Plan,
"change in control" shall mean: (i) the execution of an agreement for the sale
of all, or a material portion, of the assets of the Savings Bank; (ii) the
execution of an agreement for a merger or recapitalization of the Savings Bank
or any merger or recapitalization whereby the Savings Bank is not the surviving
entity; (iii) a change of control of the Savings Bank, as otherwise defined or
determined by the Office of Thrift Supervision or regulations promulgated by it;
or (iv) the acquisition, directly or indirectly, of the beneficial ownership
(within the meaning of that term as it is used in Section 13(d) of the 1934 Act
and the rules and regulations promulgated thereunder) of twenty-five percent
(25%) or more of the outstanding voting securities of the Savings
6
<PAGE>
Bank by any person, trust, entity or group. This limitation shall not apply to
(i) the purchase of shares of up to 25% of any class of securities of the
Savings Bank by a tax-qualified employee stock benefit plan which is exempt from
the approval requirements, set forth under 12 C.F.R. ss.574.3(c)(1)(vi) as now
in effect or as may hereafter be amended, (ii) a transaction whereby FJF
Financial, M.H.C. shall cease to own at least 51% of the outstanding Common
Stock of the Savings Bank in connection with a reorganization whereby a new
parent savings and loan holding company shall be formed with the approval of a
majority vote of the Board, or (iii) the ownership of any class of securities in
any amount by the Parent of the Savings Bank. The term "person" refers to an
individual or a corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization or any other
form of entity not specifically listed herein. For purposes of this section,
"imminent change in control" shall refer to any offer or announcement, oral or
written, by any person or persons acting as a group, to acquire control of the
Savings Bank. The decision of the Committee as to whether a change in control or
imminent change in control has occurred shall be conclusive and binding.
7.02 Payment of Dividends. A holder of a Plan Share Award, whether or
not non-forfeitable, shall also be entitled to receive an amount equal to any
cash dividends declared and paid with respect to shares of Common Stock
represented by such Plan Share Award between the date the relevant Plan Share
Award was initially granted to such Recipient and the date the Plan Shares are
distributed.
7.03 Distribution of Plan Shares.
(a) Timing of Distributions: General Rule. Except as provided in
Subsections (d) and (e) below, Plan Shares shall be distributed to the Recipient
or his Beneficiary, as the case may be, as soon as practicable after they have
been earned. No fractional shares shall be distributed.
(b) Form of Distribution. All Plan Shares, together with any shares
representing stock dividends, shall be distributed in the form of Common Stock.
One share of Common Stock shall be given for each Plan Share earned. Payments
representing cash dividends (and earning thereon) shall be made in cash.
(c) Withholding. The Trustee may withhold from any cash payment made
under this Plan sufficient amounts to cover any applicable withholding and
employment taxes, and if the amount of such cash payment is not sufficient, the
Trustee may require the Recipient or Beneficiary to pay to the Trustee the
amount required to be withheld as a condition of delivering the Plan Shares. The
Trustee shall pay over to the Savings Bank or Subsidiary which
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<PAGE>
employs or employed such recipient any such amount withheld from or paid by the
Recipient or Beneficiary.
(d) Timing: Exception for 10% Shareholders. Notwithstanding Subsection
(a) above, no Plan Shares may be distributed prior to the date which is five (5)
years from the effective date of the Savings Bank's Reorganization to the extent
the Recipient or Beneficiary, as the case may be, would after receipt of such
Shares own in excess of ten percent (10%) of the issued and outstanding shares
of Common Stock held by parties other than Parent, unless such action is
approved in advance by a majority vote of disinterested directors of the Board.
Any Plan Shares remaining undistributed solely by reason of the operation of
this Subsection (d) shall be distributed to the Recipient or his Beneficiary on
the date which is five years from the effective date of the Savings Bank's
Reorganization.
(e) Regulatory Exceptions. No Plan Shares shall be distributed,
however, unless and until all of the requirements of all applicable law and
regulation shall have been fully complied with, including the receipt of
approval of the Plan by the stockholders of the Savings Bank by such vote, if
any, as may be required by applicable law and regulations as determined by the
Board.
7.04 Voting of Plan Shares. After a Plan Share Award has been granted,
the Recipient shall be entitled to direct the Trustee as to the voting of the
Plan Shares which are covered by the Plan Share Award and which have not yet
been earned and distributed pursuant to Section 7.03, subject to rules and
procedures adopted by the Committee for this purpose. All shares of Common Stock
held by the Trust as to which Recipients are not entitled to direct, or have not
directed, the voting of, shall be voted by the Trustee as directed by the
Committee.
Article VIII
------------
TRUST
8.01 Trust. The Trustee shall receive, hold, administer, invest and
make distributions and disbursements from the Trust in accordance with the
provisions of the Plan and Trust and the applicable directions, rules,
regulations, procedures and policies established by the Committee pursuant to
the Plan.
8.02 Management of Trust. It is the intent of this Plan and Trust that
the Trustee shall have complete authority and discretion with respect to the
management, control and investment of the Trust, and that the Trustee shall
invest all assets of the Trust, except those attributable to cash dividends paid
with respect to Plan Shares not held in the Plan Share Reserve, in Common Stock
to the fullest extent practicable, and except to the
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<PAGE>
extent that the Trustee determines that the holding of monies in cash or cash
equivalents is necessary to meet the obligations of the Trust. In performing
their duties, the Trustees shall have the power to do all things and execute
such instruments as may be deemed necessary or proper, including the following
powers:
(a) To invest up to one hundred percent (100%) of all Trust assets in
the Common Stock without regard to any law now or hereafter in force
limiting investments for Trustees or other fiduciaries. The investment
authorized herein may constitute the only investment of the Trust, and
in making such investment, the Trustees are authorized to purchase
Common Stock from Savings Bank or from any other source, and such
Common Stock so purchased may be outstanding, newly issued, or Treasury
shares.
(b) To invest in any Trust assets not otherwise invested in accordance
with (a) above in such deposit accounts, and certificates of deposit
(including those issued by the Savings Bank), obligations of the United
States government or its agencies or such other investments as shall be
considered the equivalent of cash.
(c) To sell, exchange or otherwise dispose of any property at any time
held or acquired by the Trust.
(d) To cause stocks, bonds or other securities to be registered in the
name of a nominee, without the addition of words indicating that such
security is an asset of the Trust (but accurate records shall be
maintained showing that such security is an asset of the Trust).
(e) To hold cash without interest in such amounts as may be in the
opinion of the Trustee reasonable for the proper operation of the Plan
and Trust.
(f) To employ brokers, agents, custodians, consultants and accountants.
(g) To hire counsel to render advice with respect to their rights,
duties and obligations hereunder, and such other legal services or
representation as they may deem desirable.
(h) To hold funds and securities representing the amounts to be
distributed to a Recipient or his Beneficiary as a consequence of a
dispute as to the disposition thereof, whether in a segregated account
or held in common with other assets.
Notwithstanding anything herein contained to the contrary, the
Trustee shall not be required to make any inventory, appraisal or
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<PAGE>
settlement or report to any court, or to secure any order of court for the
exercise of any power herein contained, or give bond.
8.03 Records and Accounts. The Trustee shall maintain accurate and
detailed records and accounts of all transactions of the Trust, which shall be
available at all reasonable times for inspection by any legally entitled person
or entity to the extent required by applicable law, or any other person
determined by the Committee.
8.04 Earnings. All earnings, gains and losses with respect to Trust
assets shall be allocated in accordance with a reasonable procedure adopted by
the Committee, to bookkeeping accounts for Recipients or to the general account
of the Trust, depending on the nature and allocation of the assets generating
such earnings, gains and losses. In particular, any earnings on cash dividends
received with respect to shares of Common Stock shall be allocated to accounts
for Recipients, except to the extent that such cash dividends are distributed to
Recipients, if such shares are the subject of outstanding Plan Share Awards, or,
otherwise to the Plan Share Reserve.
8.05 Expenses. All costs and expenses incurred in the operation and
administration of this Plan shall be paid by the Savings Bank.
8.06 Indemnification. The Savings Bank shall indemnify, defend and hold
the Trustee harmless against all claims, expenses and liabilities arising out of
or related to the exercise of the Trustee's powers and the discharge of their
duties hereunder, unless the same shall be due to their gross negligence or
willful misconduct.
Article IX
----------
MISCELLANEOUS
9.01 Adjustments for Capital Changes. The aggregate number of Plan
Shares available for issuance pursuant to the Plan Share Awards and the number
of Shares to which any Plan Share Award relates shall be proportionately
adjusted for any increase or decrease in the total number of outstanding shares
of Common Stock issued subsequent to the effective date of the Plan resulting
from any split, subdivision or consolidation of shares or other capital
adjustment, or other increase or decrease in such shares effected without
receipt or payment of consideration by the Savings Bank.
9.02 Amendment and Termination of the Plan. The Board may, by
resolution, at any time, amend or terminate the Plan. The power to amend or
terminate the Plan shall include the power to direct the Trustee to return to
the Savings Bank all or part of the assets of the Trust, including shares of
Common Stock held in the
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<PAGE>
Plan Share Reserve, as well as shares of Common Stock and other assets subject
to Plan Share Awards but not yet earned by the Employees to whom they are
allocated. However, the termination of the Trust shall not affect a Recipients
right to earn Plan Share Awards and to the distribution of Common Stock relating
thereto, including earnings thereon, in accordance with the terms of this Plan
and the grant by the Committee or the Board.
9.03 Nontransferable. Plan Share Awards and rights to Plan Shares shall
not be transferable by a Recipient, and during the lifetime of the Recipient,
Plan Shares may only be earned by and paid to the Recipient who was notified in
writing of the Award by the Committee pursuant to Section 6.03. No Recipient or
Beneficiary shall have any right in or claim to any assets of the Plan or Trust,
nor shall the Savings Bank, or any Subsidiary be subject to any claim for
benefits hereunder.
9.04 Employment Rights. Neither the Plan nor any grant of a Plan Share
Award or Plan Shares hereunder nor any action taken by the Trustee, the
Committee or the Board in connection with the Plan shall create any right,
either express or implied, on the part of any Employee to continue in the employ
of the Savings Bank, or a Subsidiary thereof.
9.05 Voting and Dividend Rights. No Recipient shall have any voting or
dividend rights of a stockholder with respect to any Plan Shares covered by a
Plan Share Award, except as expressly provided in Sections 7.02 and 7.04 above,
prior to the time said Plan Shares are actually distributed to him.
9.06 Governing Law. The Plan and Trust shall be governed and construed
under the laws of the Commonwealth of Pennsylvania, except to the extent that
Federal Law shall be deemed applicable.
9.07 Effective Date. This Plan shall be as effective as of the date of
adoption by the Board; provided however, that awards made in accordance with the
Plan or the Committee shall be subject to ratification of the Plan by
stockholders of the Savings Bank within one year of the date of Board adoption
of the Plan.
9.08 Term of Plan. This Plan shall remain in effect until the earlier
of (1) termination by the Board, (2) the distribution of all assets of the
Trust, or (3) 21 years from the Effective Date. Termination of the Plan shall
not effect any Plan Share Awards previously granted, and such Awards shall
remain valid and in effect until they have been earned and paid, or by their
terms expire or are forfeited.
9.09 Tax Status of Trust. It is intended that the trust established
hereby be treated as grantor trust of the Savings Bank under the provisions of
Section 671 et seq. of the Internal Revenue Code, as the same may be amended
from time to time.
11
EXHIBIT 10.5
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT entered into this _________ day of February, 1995, and
effective as of January 1, 1995 ("Effective Date"), by and between
Roxborough-Manayunk Federal Savings Bank (the "Bank"), a federal stock savings
bank, which has the majority of its stock owned by FJF Financial, MHC, a federal
mutual holding company (the "MHC"), and John F. McGill, Sr. (the "Employee").
WHEREAS, the Employee has heretofore been employed by the Bank and the
MHC as Chairman of the Board, President and Chief Executive Officer and is
experienced in all phases of the business of the Bank; and
WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship of the Bank and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed in the capacity as the Chairman
of the Board, President and Chief Executive Officer of the MHC and the Bank. The
Employee shall render such administrative and management services to the Bank as
are currently rendered and as are customarily performed by persons situated in a
similar executive capacity. The Employee shall also promote, by entertainment or
otherwise, as and to the extent permitted by law, the business of the Bank. The
Employee's other duties shall be such as the Board of Directors for the Bank
(the "Board of Directors" or "Board") may from time to time reasonably direct,
including normal duties as an officer of the Bank.
2. Base Compensation. The Bank agrees to pay the Employee during the
term of this Agreement a salary at the rate of at least $ per annum, payable in
cash not less frequently than monthly; provided, that the rate of such salary
shall be reviewed by the Board of Directors not less often than annually, and
Employee shall be entitled to receive annually an increase at such percentage or
in such an amount as the Board of Directors in its sole discretion may decide at
such time.
3. Discretionary Bonus. The Employee shall be entitled to participate
in an equitable manner with all other senior management employees of the Bank in
discretionary bonuses that may be authorized and declared by the Board of
Directors to its senior management employees from time to time. No other
compensation provided for in this Agreement shall be deemed a substitute for the
Employee's right to participate in such discretionary bonuses when and as
declared by the Board of Directors.
4. (a) Participation in Retirement and Medical Plans. The Employee
shall be entitled to participate in any plan of the Bank relating to pension,
profit-sharing, or other retirement benefits and medical coverage or
reimbursement plans that the Bank may adopt for the benefit of its employees.
Additionally, Employee's dependent family shall be eligible to participate in
medical and
<PAGE>
dental insurance plans sponsored by the Bank with the cost of such premiums paid
by the Bank.
(b) Employee Benefits; Expenses. The Employee shall be eligible to
participate in any fringe benefits which may be or may become applicable to the
Bank's senior management employees, including by example, participation in any
stock option or incentive plans adopted by the Board of Directors of Bank, club
memberships, a reasonable expense account, and any other benefits which are
commensurate with the responsibilities and functions to be performed by the
Employee under this Agreement. The Bank shall reimburse Employee for all
reasonable out-of-pocket expenses which Employee shall incur in connection with
his service for the Bank.
5. Term. The term of employment of Employee under this Agreement shall
be for the period commencing on the Effective Date and ending December 31, 1997.
Additionally, on each annual anniversary date from the Effective Date, the term
of employment under this Agreement shall be extended for an additional one year
period beyond the then effective expiration date upon a determination and
resolution of the Board of Directors that the performance of the Employee has
met the requirements and standards of the Board, and that the term of such
Agreement shall be extended.
6. Loyalty; Noncompetition.
(a) The Employee shall devote his full time and attention to the
performance of his employment under this Agreement. During the term of
Employee's employment under this Agreement, the Employee shall not engage in any
business or activity contrary to the business affairs or interests of the Bank.
(b) Nothing contained in this Paragraph 6 shall be deemed to prevent or
limit the right of Employee to invest in the capital stock or other securities
of any business dissimilar from that of the Bank, or, solely as a passive or
minority investor, in any business.
7. Standards. The Employee shall perform his duties under this
Agreement in accordance with such reasonable standards expected of employees
with comparable positions in comparable organizations and as may be established
from time to time by the Board of Directors.
8. Vacation and Sick Leave. At such reasonable times as the Board of
Directors shall in its discretion permit, the Employee shall be entitled,
without loss of pay, to absent himself voluntarily from the performance of his
employment under this Agreement, with all such voluntary absences to count as
vacation time; provided that:
(a) The Employee shall be entitled to annual vacation leave of at least
_________ weeks in accordance with the policies as are
2
<PAGE>
periodically established by the Board of Directors for senior
management employees of the Bank.
(b) The Employee shall not be entitled to receive any additional
compensation from the Bank on account of his failure to take vacation leave and
Employee shall not be entitled to accumulate unused vacation from one fiscal
year to the next, except in either case to the extent authorized by the Board of
Directors for senior management employees of the Bank.
(c) In addition to the aforesaid paid vacations, the Employee shall be
entitled without loss of pay, to absent himself voluntarily from the performance
of his employment with the Bank for such additional periods of time and for such
valid and legitimate reasons as the Board of Directors in its discretion may
determine. Further, the Board of Directors shall be entitled to grant to the
Employee a leave or leaves of absence with or without pay at such time or times
and upon such terms and conditions as the Board of Directors in its discretion
may determine.
(d) In addition, the Employee shall be entitled to an annual sick leave
benefit as established by the Board of Directors for senior management employees
of the Bank. In the event that any sick leave benefit shall not have been used
during any year, such leave shall accrue to subsequent years only to the extent
authorized by the Board of Directors for employees of the Bank.
9. Termination and Termination Pay.
The Employee's employment under this Agreement shall be terminated upon
any of the following occurrences:
(a) The death of the Employee during the term of this Agreement, in
which event the Employee's estate shall be entitled to receive the compensation
due the Employee through the later of the last day of the calendar year in which
Employee's death shall have occurred or six months after his death.
(b) The Board of Directors may terminate the Employee's employment at
any time, but any termination by the Board of Directors other than termination
for Just Cause, shall not prejudice the Employee's right to all compensation and
all other benefits under the Agreement. The Employee shall have no right to
receive compensation or other benefits for any period after termination for Just
Cause. Termination for "Just Cause" shall include termination because of the
Employee's personal dishonesty, incompetence, willful misconduct, 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 the Agreement.
(c) Except as provided pursuant to Section 12 herein, in the event
Employee's employment under this Agreement is terminated by the Board of
Directors without Just Cause, the Bank shall be
3
<PAGE>
obligated to continue to pay the Employee the salary provided pursuant to
Section 2 herein, up to the date of termination of the term (including any
renewal term) of this Agreement and the cost of Employee obtaining all health,
life, disability, and other benefits which the Employee would be eligible to
participate in through such date based upon the benefit levels substantially
equal to those being provided Employee at the date of termination of employment.
(d) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement
shall terminate, as of the effective date of the order, but the vested rights of
the parties shall not be affected.
(e) If the Bank is in default (as defined in Section 3(x)(1) of FDIA)
all obligations under this Agreement shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the contracting
parties.
(f) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Bank: (i) by the Director of the Office of Thrift
Supervision ("Director of OTS"), or his or her designee, at the time that the
Federal Deposit Insurance Corporation ("FDIC") or the Resolution Trust
Corporation enters into an agreement to provide assistance to or on behalf of
the Bank under the authority contained in Section 13(c) of FDIA; or (ii) by the
Director of the OTS, or his or her designee, at the time that the Director of
the OTS, or his or her designee approves a supervisory merger to resolve
problems related to operation of the Bank or when the Bank is determined by the
Director of the OTS 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.
(g) The voluntary termination by the Employee during the term of this
Agreement with the delivery of no less than 60 days written notice to the Board
of Directors, other than pursuant to Section 12(b), in which case the Employee
shall be entitled to receive only the compensation, vested rights, and all
employee benefits up to the date of such termination.
(h) Notwithstanding anything herein to the contrary, any payments made
to the Employee pursuant to the Agreement, or otherwise, shall be subject to and
conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
10. Suspension of Employment. If the Employee is suspended and/or
temporarily prohibited from participating in the conduct of the Bank's affairs
by a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C.
1818(e)(3) and (g)(1)), the Bank's obligations under the Agreement shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the
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<PAGE>
charges in the notice are dismissed, the Bank shall, (i) pay the Employee all or
part of the compensation withheld while its contract obligations were suspended
and (ii) reinstate any of its obligations which were suspended.
11. Disability. If the Employee shall become disabled or incapacitated
to the extent that he is unable to perform his duties hereunder, by reason of
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of Directors, Employee shall nevertheless continue to
receive the compensation and benefits provided under the terms of this Agreement
as follows: 100% of such compensation and benefits for a period of 12 months,
but not exceeding the remaining term of the Agreement, and 80% thereafter for
the remainder of the term of the Agreement. Such benefits noted herein shall be
reduced by any benefits otherwise provided to the Employee during such period
under the provisions of disability insurance coverage in effect for Bank
employees. Thereafter, Employee shall be eligible to receive benefits provided
by the Bank under the provisions of disability insurance coverage in effect for
Bank employees. Upon returning to active full-time employment, the Employee's
full compensation as set forth in this Agreement shall be reinstated as of the
date of commencement of such activities. In the event that the Employee returns
to active employment on other than a full-time basis, then his compensation (as
set forth in Paragraph 2 of this Agreement) shall be reduced in proportion to
the time spent in said employment, or as shall otherwise be agreed to by the
parties.
12. Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the event
of the involuntary termination of Employee's employment under this Agreement,
absent Just Cause, in connection with, or within twelve (12) months after, any
change in control of the Bank, Employee shall be paid an amount equal to the
product of 2.99 times the Employee's "base amount" as defined in Section
280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code") and
regulations promulgated thereunder. Said sum shall be paid, at the option of
Employee, either in one (1) lump sum within thirty (30) days of such termination
discounted to the present value of such payment using as the discount rate the
"prime rate" as published in the Wall Street Journal Eastern Edition as of the
date of such payment, or in periodic payments over the next 36 months or the
remaining term of this Agreement whichever is less, as if Employee's employment
had not been terminated, and such payments shall be in lieu of any other future
payments which the Employee would be otherwise entitled to receive under Section
9 of this Agreement. Notwithstanding the forgoing, all sums payable hereunder
shall be reduced in such manner and to such extent so that no such payments made
hereunder when aggregated with all other payments to be made to the Employee by
the Bank shall be deemed an "excess parachute payment" in accordance with
Section 280G of the Code and be subject to the excise tax provided at Section
4999(a) of the Code. The term "control" shall refer to the ownership, holding or
power to vote more than 25% of the Bank's outstanding
5
<PAGE>
voting stock by any person other than the MHC, the control of the election of a
majority of the Bank's directors, or the exercise of a controlling influence
over the management or policies of the Bank by any person or by persons acting
as a group within the meaning of Section 13(d) of the Securities Exchange Act of
1934 ("Exchange Act"). The term "control" shall also refer to the control of
proxies by any person, other than the Board of Directors of the MHC, to direct
more than 25% of the outstanding votes of the MHC, the control of the election
of a majority of the MHC's directors, or the exercise of a controlling influence
over the management or policies of the MHC by any person or by persons acting as
a group within the meaning of Section 13(d) of the Exchange Act. The term
"person" means an individual other than the Employee, or a corporation,
partnership, trust, association, joint venture, pool, syndicate, sole
proprietorship, unincorporated organization or any other form of entity not
specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, Employee may voluntary terminate his employment under this Agreement
within twelve (12) months following a change in control of the Bank, and
Employee shall thereupon be entitled to receive the payment described in Section
12(a) of this Agreement, upon the occurrence, or within six (6) months
thereafter, of any of the following events, which have not been consented to in
advance by the Employee in writing: (i) if Employee would be required to move
his personal residence or perform his principal executive functions more than
thirty-five (35) miles from the Employee's primary office as of the signing of
this Agreement; (ii) if in the organizational structure of the Bank or the MHC,
Employee would be required to report to a person or persons other than the Board
of Directors of the Bank or a holding company of the Bank; (iii) if the Bank
should fail to maintain existing employee benefits plans, including material
fringe benefit, stock option and retirement plans; (iv) if Employee would be
assigned duties and responsibilities other than those normally associated with
his position as referenced at Section 1, herein; (v) if Employee would not be
elected or reelected to the Board of Directors of the Bank or the MHC or any
other holding company of the Bank; (vi) if Employee's responsibilities or
authority have in any way been materially diminished or reduced; (vii) if the
OTS, Federal Deposit Insurance Corporation ("FDIC"), Resolution Trust
Corporation ("RTC") or any other department, agency or quasi- agency of the
federal government cause or bring about, without the consent of the Bank and the
MHC, a change in the corporate structure or organization of the Bank and/or the
MHC or (viii) the OTS, FDIC, RTC or any other agency or quasi-agency of the
federal government cause or bring about, without the consent of the Bank and the
MHC, a distribution of retained earnings or proceeds from the sale of securities
to depositors, borrowers, any government agency or organization or civic or
charitable organization.
(c) Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Bank ("AAA")
6
<PAGE>
nearest to the home office of the Bank, and judgment upon the award rendered may
be entered in any court having jurisdiction thereof, except to the extend that
the parties may otherwise reach a mutual settlement of such issue. The Bank
shall incur the cost of all fees and expenses associated with filing a request
for arbitration with the AAA, whether such filing is made on behalf of the Bank
or the Employee, and the costs and administrative fees associated with employing
the arbitrator and related administrative expenses assessed by the AAA. The Bank
shall reimburse Employee for all costs and expenses, including reasonable
attorneys' fees, arising from such dispute, proceedings or actions,
notwithstanding the ultimate outcome thereof, following the delivery of the
decision of the arbitrator or upon delivery of other legal judgment or
settlement of the matter. Such reimbursement shall be paid within ten (10) days
of Employee furnishing to the Bank evidence, which may be in the form, among
other things, of a canceled check or receipt, of any costs or expenses incurred
by Employee. Any such request for reimbursement by Employee shall be made no
more frequently than at sixty (60) day intervals.
13. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank or MHC which shall acquire,
directly or indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank or the MHC.
(b) Since the Bank is contracting for the unique and personal skills of
the Employee, the Employee shall be precluded from assigning or delegating his
rights or duties hereunder without first obtaining the written consent of the
Bank.
14. Amendments. No amendments or additions to this Agreement shall be
binding upon the parties hereto unless made in writing and signed by both
parties, except as herein otherwise specifically provided.
15. Applicable Law. This agreement shall be governed by all respects
whether as to validity, construction, capacity, performance or otherwise, by the
laws of the Commonwealth of Pennsylvania, except to the extent that Federal law
shall be deemed to apply.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
17. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
7
EXHIBIT 10.6
<PAGE>
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT entered into this _________ day of February, 1995, and
effective as of January 1, 1995 ("Effective Date"), by and between
Roxborough-Manayunk Federal Savings Bank (the "Bank"), a federal stock savings
bank, which has the majority of its stock owned by FJF Financial, MHC, a federal
mutual holding company (the "MHC"), and Jerry A. Naessens (the "Employee").
WHEREAS, the Employee has heretofore been employed by the Bank and the
MHC as Treasurer and Chief Financial Officer and is experienced in all phases of
the business of the Bank; and
WHEREAS, the parties desire by this writing to set forth the continuing
employment relationship of the Bank and the Employee.
NOW, THEREFORE, it is AGREED as follows:
1. Employment. The Employee is employed in the capacity as the
Treasurer and Chief Financial Officer of the MHC and the Bank. The Employee
shall render such administrative and management services to the Bank as are
currently rendered and as are customarily performed by persons situated in a
similar executive capacity. The Employee shall also promote, by entertainment or
otherwise, as and to the extent permitted by law, the business of the Bank. The
Employee's other duties shall be such as the Board of Directors for the Bank
(the "Board of Directors" or "Board") may from time to time reasonably direct,
including normal duties as an officer of the Bank.
2. Base Compensation. The Bank agrees to pay the Employee during the
term of this Agreement a salary at the rate of at least $ per annum, payable in
cash not less frequently than monthly; provided, that the rate of such salary
shall be reviewed by the Board of Directors not less often than annually, and
Employee shall be entitled to receive annually an increase at such percentage or
in such an amount as the Board of Directors in its sole discretion may decide at
such time.
3. Discretionary Bonus. The Employee shall be entitled to participate
in an equitable manner with all other senior management employees of the Bank in
discretionary bonuses that may be authorized and declared by the Board of
Directors to its senior management employees from time to time. No other
compensation provided for in this Agreement shall be deemed a substitute for the
Employee's right to participate in such discretionary bonuses when and as
declared by the Board of Directors.
4. (a) Participation in Retirement and Medical Plans. The
Employee shall be entitled to participate in any plan of the Bank relating to
pension, profit-sharing, or other retirement benefits and medical coverage or
reimbursement plans that the Bank may adopt for the benefit of its employees.
Additionally, Employee's dependent family shall be eligible to participate in
medical and dental insurance plans sponsored by the Bank with the cost of such
premiums paid by the Bank.
<PAGE>
(b) Employee Benefits; Expenses. The Employee shall be eligible to
participate in any fringe benefits which may be or may become applicable to the
Bank's senior management employees, including by example, participation in any
stock option or incentive plans adopted by the Board of Directors of Bank, club
memberships, a reasonable expense account, and any other benefits which are
commensurate with the responsibilities and functions to be performed by the
Employee under this Agreement. The Bank shall reimburse Employee for all
reasonable out-of-pocket expenses which Employee shall incur in connection with
his service for the Bank.
5. Term. The term of employment of Employee under this Agreement shall
be for the period commencing on the Effective Date and ending December 31, 1997.
Additionally, on each annual anniversary date from the Effective Date, the term
of employment under this Agreement shall be extended for an additional one year
period beyond the then effective expiration date upon a determination and
resolution of the Board of Directors that the performance of the Employee has
met the requirements and standards of the Board, and that the term of such
Agreement shall be extended.
6. Loyalty; Noncompetition.
(a) The Employee shall devote his full time and attention to the
performance of his employment under this Agreement. During the term of
Employee's employment under this Agreement, the Employee shall not engage in any
business or activity contrary to the business affairs or interests of the Bank.
(b) Nothing contained in this Paragraph 6 shall be deemed to prevent or
limit the right of Employee to invest in the capital stock or other securities
of any business dissimilar from that of the Bank, or, solely as a passive or
minority investor, in any business.
7. Standards. The Employee shall perform his duties under this
Agreement in accordance with such reasonable standards expected of employees
with comparable positions in comparable organizations and as may be established
from time to time by the Board of Directors.
8. Vacation and Sick Leave. At such reasonable times as the Board of
Directors shall in its discretion permit, the Employee shall be entitled,
without loss of pay, to absent himself voluntarily from the performance of his
employment under this Agreement, with all such voluntary absences to count as
vacation time; provided that:
(a) The Employee shall be entitled to annual vacation leave of at least
_________ weeks in accordance with the policies as are periodically established
by the Board of Directors for senior management employees of the Bank.
2
<PAGE>
(b) The Employee shall not be entitled to receive any additional
compensation from the Bank on account of his failure to take vacation leave and
Employee shall not be entitled to accumulate unused vacation from one fiscal
year to the next, except in either case to the extent authorized by the Board of
Directors for senior management employees of the Bank.
(c) In addition to the aforesaid paid vacations, the Employee shall be
entitled without loss of pay, to absent himself voluntarily from the performance
of his employment with the Bank for such additional periods of time and for such
valid and legitimate reasons as the Board of Directors in its discretion may
determine. Further, the Board of Directors shall be entitled to grant to the
Employee a leave or leaves of absence with or without pay at such time or times
and upon such terms and conditions as the Board of Directors in its discretion
may determine.
(d) In addition, the Employee shall be entitled to an annual sick leave
benefit as established by the Board of Directors for senior management employees
of the Bank. In the event that any sick leave benefit shall not have been used
during any year, such leave shall accrue to subsequent years only to the extent
authorized by the Board of Directors for employees of the Bank.
9. Termination and Termination Pay.
The Employee's employment under this Agreement shall be terminated upon
any of the following occurrences:
(a) The death of the Employee during the term of this Agreement, in
which event the Employee's estate shall be entitled to receive the compensation
due the Employee through the later of the last day of the calendar year in which
Employee's death shall have occurred or six months after his death.
(b) The Board of Directors may terminate the Employee's employment at
any time, but any termination by the Board of Directors other than termination
for Just Cause, shall not prejudice the Employee's right to all compensation and
all other benefits under the Agreement. The Employee shall have no right to
receive compensation or other benefits for any period after termination for Just
Cause. Termination for "Just Cause" shall include termination because of the
Employee's personal dishonesty, incompetence, willful misconduct, 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 the Agreement.
(c) Except as provided pursuant to Section 12 herein, in the event
Employee's employment under this Agreement is terminated by the Board of
Directors without Just Cause, the Bank shall be obligated to continue to pay the
Employee the salary provided pursuant to Section 2 herein, up to the date of
termination of the term (including any renewal term) of this Agreement and the
cost of
3
<PAGE>
Employee obtaining all health, life, disability, and other benefits which the
Employee would be eligible to participate in through such date based upon the
benefit levels substantially equal to those being provided Employee at the date
of termination of employment.
(d) If the Employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Bank under this Agreement
shall terminate, as of the effective date of the order, but the vested rights of
the parties shall not be affected.
(e) If the Bank is in default (as defined in Section 3(x)(1) of FDIA)
all obligations under this Agreement shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the contracting
parties.
(f) All obligations under this Agreement shall be terminated, except to
the extent determined that continuation of this Agreement is necessary for the
continued operation of the Bank: (i) by the Director of the Office of Thrift
Supervision ("Director of OTS"), or his or her designee, at the time that the
Federal Deposit Insurance Corporation ("FDIC") or the Resolution Trust
Corporation enters into an agreement to provide assistance to or on behalf of
the Bank under the authority contained in Section 13(c) of FDIA; or (ii) by the
Director of the OTS, or his or her designee, at the time that the Director of
the OTS, or his or her designee approves a supervisory merger to resolve
problems related to operation of the Bank or when the Bank is determined by the
Director of the OTS 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.
(g) The voluntary termination by the Employee during the term of this
Agreement with the delivery of no less than 60 days written notice to the Board
of Directors, other than pursuant to Section 12(b), in which case the Employee
shall be entitled to receive only the compensation, vested rights, and all
employee benefits up to the date of such termination.
(h) Notwithstanding anything herein to the contrary, any payments made
to the Employee pursuant to the Agreement, or otherwise, shall be subject to and
conditioned upon compliance with 12 USC ss.1828(k) and any regulations
promulgated thereunder.
10. Suspension of Employment. If the Employee is suspended and/or
temporarily prohibited from participating in the conduct of the Bank's affairs
by a notice served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C.
1818(e)(3) and (g)(1)), the Bank's obligations under the Agreement shall be
suspended as of the date of service, unless stayed by appropriate proceedings.
If the charges in the notice are dismissed, the Bank shall, (i) pay the Employee
all or part of the compensation withheld while its
4
<PAGE>
contract obligations were suspended and (ii) reinstate any of its obligations
which were suspended.
11. Disability. If the Employee shall become disabled or incapacitated
to the extent that he is unable to perform his duties hereunder, by reason of
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of Directors, Employee shall nevertheless continue to
receive the compensation and benefits provided under the terms of this Agreement
as follows: 100% of such compensation and benefits for a period of 12 months,
but not exceeding the remaining term of the Agreement, and 80% thereafter for
the remainder of the term of the Agreement. Such benefits noted herein shall be
reduced by any benefits otherwise provided to the Employee during such period
under the provisions of disability insurance coverage in effect for Bank
employees. Thereafter, Employee shall be eligible to receive benefits provided
by the Bank under the provisions of disability insurance coverage in effect for
Bank employees. Upon returning to active full-time employment, the Employee's
full compensation as set forth in this Agreement shall be reinstated as of the
date of commencement of such activities. In the event that the Employee returns
to active employment on other than a full-time basis, then his compensation (as
set forth in Paragraph 2 of this Agreement) shall be reduced in proportion to
the time spent in said employment, or as shall otherwise be agreed to by the
parties.
12. Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the event
of the involuntary termination of Employee's employment under this Agreement,
absent Just Cause, in connection with, or within twelve (12) months after, any
change in control of the Bank, Employee shall be paid an amount equal to the
product of 2.99 times the Employee's "base amount" as defined in Section
280G(b)(3) of the Internal Revenue Code of 1986, as amended (the "Code") and
regulations promulgated thereunder. Said sum shall be paid, at the option of
Employee, either in one (1) lump sum within thirty (30) days of such termination
discounted to the present value of such payment using as the discount rate the
"prime rate" as published in the Wall Street Journal Eastern Edition as of the
date of such payment, or in periodic payments over the next 36 months or the
remaining term of this Agreement whichever is less, as if Employee's employment
had not been terminated, and such payments shall be in lieu of any other future
payments which the Employee would be otherwise entitled to receive under Section
9 of this Agreement. Notwithstanding the forgoing, all sums payable hereunder
shall be reduced in such manner and to such extent so that no such payments made
hereunder when aggregated with all other payments to be made to the Employee by
the Bank shall be deemed an "excess parachute payment" in accordance with
Section 280G of the Code and be subject to the excise tax provided at Section
4999(a) of the Code. The term "control" shall refer to the ownership, holding or
power to vote more than 25% of the Bank's outstanding voting stock by any person
other than the MHC, the control of the election of a majority of the Bank's
directors, or the exercise of
5
<PAGE>
a controlling influence over the management or policies of the Bank by any
person or by persons acting as a group within the meaning of Section 13(d) of
the Securities Exchange Act of 1934 ("Exchange Act"). The term "control" shall
also refer to the control of proxies by any person, other than the Board of
Directors of the MHC, to direct more than 25% of the outstanding votes of the
MHC, the control of the election of a majority of the MHC's directors, or the
exercise of a controlling influence over the management or policies of the MHC
by any person or by persons acting as a group within the meaning of Section
13(d) of the Exchange Act. The term "person" means an individual other than the
Employee, or a corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization or any other
form of entity not specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the
contrary, Employee may voluntary terminate his employment under this Agreement
within twelve (12) months following a change in control of the Bank, and
Employee shall thereupon be entitled to receive the payment described in Section
12(a) of this Agreement, upon the occurrence, or within six (6) months
thereafter, of any of the following events, which have not been consented to in
advance by the Employee in writing: (i) if Employee would be required to move
his personal residence or perform his principal executive functions more than
thirty-five (35) miles from the Employee's primary office as of the signing of
this Agreement; (ii) if in the organizational structure of the Bank or the MHC,
Employee would be required to report to a person or persons other than the
President, Chairman of the Board and Board of Directors of the Bank or a holding
company of the Bank; (iii) if the Bank should fail to maintain existing employee
benefits plans, including material fringe benefit, stock option and retirement
plans; (iv) if Employee would be assigned duties and responsibilities other than
those normally associated with his position as referenced at Section 1, herein;
(v) if Employee would not be elected or reelected to the Board of Directors of
the Bank or the MHC or any other holding company of the Bank; (vi) if Employee's
responsibilities or authority have in any way been materially diminished or
reduced; (vii) if the OTS, Federal Deposit Insurance Corporation ("FDIC"),
Resolution Trust Corporation ("RTC") or any other department, agency or quasi-
agency of the federal government cause or bring about, without the consent of
the Bank and the MHC, a change in the corporate structure or organization of the
Bank and/or the MHC or (viii) the OTS, FDIC, RTC or any other agency or
quasi-agency of the federal government cause or bring about, without the consent
of the Bank and the MHC, a distribution of retained earnings or proceeds from
the sale of securities to depositors, borrowers, any government agency or
organization or civic or charitable organization.
(c) Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Bank ("AAA") nearest to the home office of the Bank, and judgment
upon the award
6
<PAGE>
rendered may be entered in any court having jurisdiction thereof, except to the
extend that the parties may otherwise reach a mutual settlement of such issue.
The Bank shall incur the cost of all fees and expenses associated with filing a
request for arbitration with the AAA, whether such filing is made on behalf of
the Bank or the Employee, and the costs and administrative fees associated with
employing the arbitrator and related administrative expenses assessed by the
AAA. The Bank shall reimburse Employee for all costs and expenses, including
reasonable attorneys' fees, arising from such dispute, proceedings or actions,
notwithstanding the ultimate outcome thereof, following the delivery of the
decision of the arbitrator or upon delivery of other legal judgment or
settlement of the matter. Such reimbursement shall be paid within ten (10) days
of Employee furnishing to the Bank evidence, which may be in the form, among
other things, of a canceled check or receipt, of any costs or expenses incurred
by Employee. Any such request for reimbursement by Employee shall be made no
more frequently than at sixty (60) day intervals.
13. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding upon
any corporate or other successor of the Bank or MHC which shall acquire,
directly or indirectly, by merger, consolidation, purchase or otherwise, all or
substantially all of the assets or stock of the Bank or the MHC.
(b) Since the Bank is contracting for the unique and personal skills of
the Employee, the Employee shall be precluded from assigning or delegating his
rights or duties hereunder without first obtaining the written consent of the
Bank.
14. Amendments. No amendments or additions to this Agreement shall be
binding upon the parties hereto unless made in writing and signed by both
parties, except as herein otherwise specifically provided.
15. Applicable Law. This agreement shall be governed by all respects
whether as to validity, construction, capacity, performance or otherwise, by the
laws of the Commonwealth of Pennsylvania, except to the extent that Federal law
shall be deemed to apply.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
17. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
7
EXHIBIT 23.2
<PAGE>
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Thistle Group Holdings,
Co. on Form S-1 to be filed with the Securities and Exchange Commission and Form
AC to be filed with the Office of Thrift Supervision of our report on Thisle
Group Holdings, Inc and subsidiary dated February 5, 1998 appearing in the
Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
/s/DELOITTE & TOUCHE LLP
- ------------------------
DELOITTE & TOUCHE LLP
Philadelphia, PA
March 25, 1998
EXHIBIT 23.3
<PAGE>
[FINPRO LOGO]
26 Church Stret o P.O. Box 323
Liberty Corner, N.J. 07938
(908) 604-9336 o (908) 604-5951 (FAX)
March 24, 1998
Board of Directors
Roxborough Manayunk Federal Savings Bank
6060 Ridge Avenue
Philadelphia, PA 19128
Dear Board Members:
We hereby consent to the use of our firm's name, FinPro, Inc. ("FinPro") in the
Form S-1 Registration Statement and Amendments thereto of Thistle Group
Holdings, co. so filed with the Securities and Exchange Commission, the Form AC
Application for Conversion and the prospectus included therein filed by FJF
Financial, M.H.C. and any amendments thereto, for the Valuation Appraisal Report
("Report") regarding the valuation of Thistle Group Holdings, Co. provided by
FinPro, and our opinion regarding subscription rights filed as exhibits to the
Form S-1 and Form AC referred to below. We also consent to the use of our firms'
name and the inclusion of, summary of and references to our Report and Opinion
in the prospectus included in the Form S-1, and any amendments thereto.
Very Truly Yours,
/s/ Donald J. Musso
-------------------
Donald J. Musso
Liberty Corner, New Jersey
March 24, 1998
