As filed with the Securities and Exchange Commission on April ____, 1998
Registration No. 333-
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BEN FRANKLIN FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Delaware 6035 Applied For
(State or other jurisdiction of incorporation (Primary Standard Industrial (I.R.S. Employer Identification No.)
or organization) Classification Code Number)
</TABLE>
14 N. Dryden Place, Arlington Heights, Illinois 60004 (847) 398-0990
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Ronald P. Pedersen
President and Chief Executive Officer
Ben Franklin Financial Corporation
14 N. Dryden Place
Arlington Heights, Illinois 60004
(847) 398-0990
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Please send copies of all communications to:
Kip A. Weissman, P.C.
Daniel C. Holdgreiwe, Esq.
SILVER, FREEDMAN & TAFF, L.L.P.
(A limited liability
partnership including
professional corporations)
1100 New York Avenue, N.W.
Seventh Floor, East Tower
Washington, DC 20005
(202) 414-6100
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 being offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933 check the following box. [ ]
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 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
Class of Securities to be Offering Price Aggregate Offering Amount of
to be Registered Registered(1) Per Share(1) Price(1) Registration Fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 1,851,500 shares $10.00 $18,515,000 $5,462
====================================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
Prospectus
[LOGO]
BEN FRANKLIN FINANCIAL, INC.
(Proposed Holding Company for Ben Franklin Bank of Illinois,
formerly Douglas Federal Savings Bank)
$10.00 Per Share
1,851,500 Shares of Common Stock
(Anticipated Maximum, as adjusted)
Ben Franklin Financial, Inc. (the "Holding Company") is offering up to
1,610,000 shares of common stock, par value $.01 per share (the "Common Stock"),
in connection with the conversion of Ben Franklin Bank of Illinois ("Ben
Franklin" or the "Bank") from a federally chartered mutual savings bank to a
federally chartered stock savings bank and the issuance of all of Ben Franklin
outstanding stock to the Holding Company (the "Conversion"). Pursuant to the
Bank's plan of conversion (the "Plan of Conversion" or the "Plan"),
non-transferable rights to subscribe for the Common Stock ("Subscription
Rights") have been given to (i) Ben Franklin's depositors with account balances
of $50.00 or more as of January 31, 1997 ("Eligible Account Holders"), (ii)
tax-qualified employee plans of Ben Franklin and the Holding Company
("Tax-Qualified Employee Plans"), provided, however, that the Tax-Qualified
Employee Plans shall have first priority Subscription Rights to the extent that
the total number of shares of Common Stock sold in the Conversion exceeds the
maximum of the Estimated Valuation Range as defined below, (iii) Ben Franklin's
depositors with account balances of $50 or more as of [_________ __], 1998
("Supplemental Eligible Account Holders"), (iv) certain of its other members
("Other Members"), and (v) its employees, officers and directors (the
"Subscription Offering.)
(continued on next page)
FOR ADDITIONAL INFORMATION ON HOW TO SUBSCRIBE, PLEASE CALL THE STOCK
INFORMATION CENTER AT [(___) ___-____].
----------
FOR A DISCUSSION OF CERTAIN FACTORS TO BE CONSIDERED, SEE "RISK
FACTORS" AT PAGE __.
----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION OR THE FEDERAL DEPOSIT
INSURANCE CORPORATION, NOR HAS SUCH COMMISSION, OFFICE OR CORPORATION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR SAVINGS
DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT AGENCY.
<TABLE>
<CAPTION>
========================================================================================================
Estimated Underwriting Fees, Estimated Net
Purchase Price(1) Commissions and Other Conversion Proceeds(3)
Expenses(2)
----------------- --------------------------- ---------------------
<S> <C> <C> <C>
Per Share(4).................... $10.00 $0.39 $9.61
Minimum Total................... $11,900,000 $550,000 $11,350,000
Midpoint Total.................. $14,000,000 $550,000 $13,450,000
Maximum Total................... $16,100,000 $550,000 $15,550,000
Maximum Total, As Adjusted(5)... $18,515,000 $550,000 $17,965,000
========================================================================================================
</TABLE>
(1) Determined on the basis of an appraisal prepared by Ferguson & Co.
("Ferguson") dated March 20, 1998, which states that the estimated pro forma
market value of the Common Stock ranged from $11,900,000 to $16,100,000 or
between 1,190,000 shares and 1,610,000 shares, of Common Stock at $10.00 per
share. See "The Conversion - Stock Pricing and Number of Shares to be
Issued."
(2) Consists of the estimated costs to the Bank and the Holding Company arising
from the Conversion, including the payment to Friedman, Billings, Ramsey &
Co., Inc. ("FBR") of a fee of $150,000 and estimated expenses of $30,000 in
connection with the sale of shares in the Offering. Such fees may be deemed
to be underwriting fees. The Holding Company has agreed to indemnify FBR
against certain liabilities, including liabilities arising under the
Securities Act of 1933, as amended (the "Securities Act"). See "The
Conversion - Marketing Arrangements" for a more detailed description of
underwriting fees and expenses.
(3) Net Conversion proceeds may vary from the estimated amounts, depending on
the Purchase Price and the number of shares issued. The Purchase Price and
the actual number of shares of Common Stock to be issued in the Conversion
will not be determined until after the close of the Offering.
(4) Assumes the sale of the midpoint number of shares. If the minimum, maximum
or 15% above the maximum number of shares are sold, estimated expenses per
share would be $0.46, $0.34 or $0.30, respectively, resulting in estimated
net Conversion proceeds per share of $9.54, $9.66 or $9.70, respectively.
(5) As adjusted to give effect to the sale of up to an additional 241,500
shares (15% above the maximum of the Estimated Valuation Range) which may be
offered in the Conversion without the resolicitation of subscribers or any
right of cancellation, to reflect changes in market and financial conditions
following the commencement of the Offering. See "Pro Forma Data," and "The
Conversion - Stock Pricing and Number of Shares to be Issued."
Friedman, Billings, Ramsey & Co., Inc.
The date of this Prospectus is [________ __], 1998
<PAGE>
(continued from prior page)
Subscription Rights are non-transferrable. Persons found to be selling
or otherwise transferring their right to purchase stock in the Subscription
Offering or purchasing Common Stock on behalf of another person will be subject
to forfeiture of such rights and possible further sanctions and penalties
imposed by the Office of Thrift Supervision (the "OTS"), an agency of the United
States Government. Subject to the prior rights of holders of Subscription Rights
and to market conditions at or near the completion of the Subscription Offering,
the Holding Company may also offer the Common Stock for sale through FBR on a
best efforts basis in a public offering to selected persons to whom this
prospectus is delivered (the "Public Offering"). Depending on market conditions
and availability of shares, the shares of Common Stock may be offered for sale
in the Public Offering on a best-efforts basis by a selling group of selected
broker-dealers to be managed by FBR. Finally, depending on market conditions,
the Holding Company may also offer the Common Stock for sale through FBR to
persons residing in communities near the Bank's offices in a direct community
offering (the "Direct Community Offering"). The Bank and the Holding Company
reserve the right, in their absolute discretion, to accept or reject, in whole
or in part, any or all orders in the Public Offering or Direct Community
Offering, if any.
The total number of shares to be issued in the Conversion will be based
upon an appraised valuation of the estimated aggregate pro forma market value of
the Holding Company and the Bank as converted. The purchase price per share
("Purchase Price") has been fixed at $10.00. Based on the current aggregate
valuation range of $11,900,000 to $16,100,000 (the "Estimated Valuation Range"),
the Holding Company is offering up to 1,610,000 shares. Depending upon the
market and financial conditions at the time of the completion of the
Subscription Offering and the Direct Community and/or Public Offering (when
referred to together with the Subscription Offering, the "Offering"), if any,
the total number of shares to be issued in the Conversion may be increased or
decreased from the 1,610,000 shares offered hereby, provided that the product of
the total number of shares multiplied by the price per share remains within, or
does not exceed by more than 15% the maximum of the Estimated Valuation Range.
If the aggregate Purchase Price of the Common Stock sold in the Conversion is
below $11,900,000 or above $18,515,000, or if the Offering is extended beyond
__________ __, 1998, subscribers will be permitted to modify or cancel their
subscriptions and to have their subscription funds returned promptly with
interest. Under such circumstances, if subscribers take no action, their
subscription funds will be promptly returned to them with interest. In all other
circumstances, subscriptions are irrevocable by subscribers. See "The Conversion
- - Offering of Holding Company Common Stock."
With the exception of the Tax-Qualified Employee Plans, no Eligible
Account Holder, Supplemental Eligible Account Holder or Other Member may
purchase in their capacity as such in the Subscription Offering more than
$200,000 of Common Stock; no person, together with associates of and persons
acting in concert with such person, may purchase more than $200,000 of Common
Stock in the Public Offering and no person, together with associates of and
persons acting in concert with such person, may purchase more than $800,000 of
Common Stock offered in the Conversion based on the Estimated Valuation Range
(as calculated without giving effect to any increase in the Estimated Valuation
Range subsequent to the date hereof). Under certain circumstances, the maximum
purchase limitations may be increased or decreased at the sole discretion of the
Bank and the Holding Company up to 9.99% of the total number of shares of Common
Stock sold in the Conversion or to one percent of shares of Common Stock offered
in the Conversion. The minimum purchase is 25 shares. See "The Conversion -
Additional Purchase Restrictions." The Bank and the Holding Company have engaged
FBR as financial advisor and agent to consult, advise and assist in the
distribution of shares of Common Stock, on a best-efforts basis in the Offering
including, if necessary, managing selected broker-dealers to assist in selling
stock in the Public Offering. For such services, FBR will receive a marketing
fee of $150,000. If selected dealers are used, the selected dealers will receive
a fee to be negotiated. Such fees may be deemed to be underwriting commissions.
FBR and the selected dealers may be deemed to be underwriters. See "The
Conversion - Marketing Arrangements" and "The Conversion - Offering of Holding
Company Common Stock."
To subscribe for shares of Common Stock in the Subscription Offering,
the Holding Company must receive a stock order form ("Order Form") and
certification form, together with full payment at $10.00 per share (or
appropriate instructions authorizing a withdrawal from a deposit account at the
Bank) for all shares for which subscription is made, at any office of the Bank,
by noon, Arlington Heights, Illinois time, on __________, 1998, unless the
Subscription Offering is extended, at the discretion of the Board of Directors,
up to an additional 45 days with the approval of the OTS, if necessary, but
without additional notice to subscribers (the "Expiration Date"). The date by
which orders must be received in the Public Offering, if any, will be set by the
Holding Company at the time of such offering provided that, if the Offering is
extended beyond _________ __, 1998, each subscriber will have the right to
modify or rescind his or her subscription. Subscription funds will be returned
promptly with interest to each subscriber unless he or she affirmatively
indicates otherwise. See "The Conversion - Offering of Holding Company Common
Stock."
2
<PAGE>
Subscriptions paid by check, bank draft or money order will be placed in a
segregated account at the Bank and will earn interest at the Bank's passbook
rate from the date of receipt until completion or termination of the Conversion.
Payments authorized by withdrawal from deposit accounts at the Bank will
continue to earn interest at the contractual rate until the Conversion is
completed or terminated; these funds will be otherwise unavailable to the
depositor until such time. Authorized withdrawals from time accounts for the
purchase of Common Stock will be permitted without the imposition of early
withdrawal penalties or loss of interest.
The Holding Company has never issued capital stock. Consequently, there
is no existing market for the Holding Company Common Stock at this time.
Therefore, no assurance can be given that an established and liquid trading
market for the Holding Company Common Stock will develop or that resales of the
Common Stock can be made at or above the Purchase Price. The Holding Company has
applied to have the Common Stock listed on the Nasdaq Stock Market under the
symbol "_____." Although it has no obligation to do so, FBR intends to make a
market for the Holding Company Common Stock, depending upon the volume of
trading activity in the common stock. See "Market for Common Stock" and "The
Conversion - Stock Pricing and Number of Shares to be Issued."
3
<PAGE>
[MAP TO COME]
4
<PAGE>
PROSPECTUS SUMMARY
The following summary does not purport to be complete and is qualified
in its entirety by the detailed information and financial statements appearing
elsewhere herein.
Ben Franklin Financial, Inc.
The Holding Company, Ben Franklin Financial, Inc., was recently formed
by Ben Franklin under the laws of Delaware for the purpose of becoming a savings
and loan holding company which will own all of the outstanding capital stock
that Ben Franklin will issue in connection with the Conversion. Immediately
following the Conversion, the only significant assets of the Holding Company
will be the capital stock of Ben Franklin, a note evidencing the Holding
Company's loan to the ESOP and up to approximately 50% of the net proceeds from
the Conversion. See "Use of Proceeds." Upon completion of the Conversion, the
Holding Company's business initially will consist only of the business of Ben
Franklin. See "Ben Franklin Financial, Inc."
Ben Franklin Bank of Illinois
General. Ben Franklin is a federally chartered mutual savings bank
headquartered in Arlington Heights, Illinois. Ben Franklin changed its name from
Douglas Savings Bank to Ben Franklin Bank of Illinois in connection with its
charter conversion from an Illinois chartered mutual savings bank to a mutual
federal savings bank in April 1998. Ben Franklin currently serves the financial
needs of communities in its market area through its main office located in
Arlington Heights and its branch office located in the city of Rolling Meadows,
Illinois. Its deposits are insured up to applicable limits by the Federal
Deposit Insurance Corporation ("FDIC"). At December 31, 1997, Ben Franklin had
total assets of $122.6 million, deposits of $112.8 million and equity of $7.8
million. See "Business - Market Area" and
"- Competition."
Ben Franklin's business has historically involved attracting deposits
from the general public and using such deposits, together with other funds, to
originate primarily one- to four-family residential mortgages and, to a lesser
extent, home equity, and other loans in its market area. The Bank also invests
in securities and other permissible investments. See "Business - Investment
Activities - Securities."
In early 1997, the Bank hired a new President and Chief Executive
Officer with a commercial banking background and began to explore the expansion
of its lending activities. In particular, the Bank has recently began acquiring
home improvement loans qualifying under Title I under the National Housing Act
("Title I loans"), many of which have been or will be sold on a servicing
retained basis. In addition, the Bank intends to begin originating small and
medium sized ($1.0 million or less) multi-family and commercial real estate
loans. The Bank has also recently purchased a participation in a commercial
construction loan, although the overall level of construction and development
lending is expected to be modest. In order to implement these changes, the Bank
has recently hired a number of new employees including a new Chief Financial
Officer, a new commercial loan officer and a new deposit services coordinator.
See "Business - Lending Activities"
The Bank is also considering whether to establish a consumer finance
subsidiary which would make loans to persons with a a variety of different
credit histories and whether to create a new department which would offer loan
administration and other correspondent services to credit unions. In the event
that the Bank determines to go forward with either of the new lines of business,
the Bank's staff would need to be further expanded. However, the Board believes
that the expansion of the Bank's activities will help it compete more
effectively in today's competitive financial services environment and remain an
independent community bank for the foreseeable future. See "Risk Factors -- Risk
Associated with Expansion of Business Activities."
Financial and operational highlights of the Bank include the following:
o Capital Strength. At December 31, 1997, the Bank had total equity of $7.8
million and exceeded the applicable regulatory capital requirements by $1.5
million. Assuming on a pro forma basis that $14.0 million, the midpoint of
the Estimated Valuation Range, of shares were sold in the Conversion and
approximately $6.3
5
<PAGE>
million of the net proceeds were retained by the Holding Company, as of
December 31, 1997, the Bank's tangible capital would have been $12.9
million (10% of assets). See "Pro Forma Regulatory Capital Analysis."
o Asset Quality. One of the principal aims of Ben Franklin's operating
strategy is to maintain a high level of asset quality. The Board has sought
to achieve this goal by emphasizing the origination of one- to four-family
residential mortgage loans in the Bank's market area and by investing in
government-backed or investment grade mortgage-backed and other securities.
The Bank's ratio of non-performing assets to total assets was .05% at
December 31, 1997. At that date, Ben Franklin had no foreclosed assets.
o Expansion of Lending and Fee Based Activities. In 1997, the Bank began to
expand the Bank's lending and fee based activities. In particular, the Bank
has begun to acquire Title I loans and servicing and is about to begin
originating multi-family and commercial real estate loans. The Bank has
also recently purchased an interest in a commercial construction loan.
Finally, the Bank is currently considering whether to establish a consumer
finance subsidiary and/or create a new department to offer loan
administration and other services to credit unions. See "Risk Factors --
Risks Associated with the Expansion of Business Activities."
o Core Deposits. Management believes that the "core" portions of the Bank's
passbook, NOW and money market deposit accounts can have a lower cost and
be more resistant to interest rate changes than certificate accounts.
Accordingly, the Bank uses marketing and customer service initiatives in an
attempt to maintain and expand these accounts. At December 31, 1997, $35.0
million, or 31.0%, of the Bank's total deposits consisted of passbook, NOW
and money market accounts. See "Business -- Source of Funds."
The Conversion
The Offering is being made in connection with the conversion of Ben
Franklin from a federally chartered mutual savings bank to a federally chartered
stock savings bank and the formation of Ben Franklin Financial, Inc. as the
holding company of Ben Franklin. The Conversion is subject to certain
conditions, including the prior approval of the Plan by the Bank's members at a
Special Meeting to be held on [_______ __], 1998. After the Conversion, the
Bank's current voting members (who include certain deposit account holders and
borrowers) will have no voting rights in Ben Franklin and will have no voting
rights in the Holding Company unless they become Holding Company stockholders.
Eligible Account Holders and Supplemental Eligible Account Holders, however,
will have certain liquidation rights in the Bank. See "The Conversion - Effects
of Conversion to Stock Form on Depositors and Borrowers of the Bank -
Liquidation Rights."
The Offering. The shares of Common Stock to be issued in the Conversion
are being offered at a Purchase Price of $10.00 per share in the Subscription
Offering pursuant to nontransferable Subscription Rights in the following order
of priority: (i) Eligible Account Holders (i.e., depositors whose accounts in
the Bank totaled $50 or more on January 31, 1997); (ii) Tax-Qualified Employee
Plans; provided, however, that the Tax Qualified Employee Plans shall have first
priority Subscription Rights to the extent that the total number of shares of
Common Stock sold in the Conversion exceeds the maximum of the Estimated
Valuation Range; (iii) Supplemental Eligible Account Holders (i.e., depositors
whose accounts in the Bank totaled $50 or more on [_______ __], 1998); (iv)
Other Members (i.e., depositors as of ____________); and (v) employees, officers
and directors of the Bank. Subscription Rights received in any of the foregoing
categories will be subordinated to the Subscription Rights received by those in
a prior category. Subscription Rights will expire if not exercised by noon,
Arlington Heights, Illinois time, on [_______ __], 1998, unless extended (the
"Expiration Date").
Subject to the prior rights of holders of Subscription Rights and
market conditions at or near the completion of the Subscription Offering, any
shares of Common Stock not subscribed for in the Subscription Offering may be
offered at the same price in a Public Offering and/or Direct Community Offering
through FBR on a best efforts basis to selected persons to whom this prospectus
is delivered. To order Common Stock in connection with the Public Offering
and/or Direct Community Offering, if any, an executed stock order form and
account withdrawal authorization and certification must be received by FBR prior
to the termination of such offerings. The date by which orders must be received
in the Public Offering and/or Direct Community Offering, if any, will be set by
the Holding Company at the time of such offering provided that if the Offering
is extended beyond _______, 1998, each subscriber will have
6
<PAGE>
the right to modify or rescind his or her subscription. The Holding Company and
the Bank reserve the absolute right to accept or reject any orders in the Public
Offering and Direct Community Offering, if any, in whole or in part.
If necessary, shares of Common Stock may also be offered in connection
with the Public Offering for sale on a best-efforts basis by selected dealers
managed by FBR. See "The Conversion - Public Offering and Direct Community
Offering."
The Bank and the Holding Company have engaged FBR to consult with and
advise the Holding Company and the Bank with respect to the Offering, and FBR
has agreed to solicit subscriptions and purchase orders for shares of Common
Stock in the Offering. Neither FBR nor any selected broker-dealers will have any
obligation to purchase shares of Common Stock in the Offering. FBR will receive
for its services a marketing fee of $150,000. To the extent selected
broker-dealers are utilized in connection with the sale of shares in the Public
Offering, Holding Company will pay a fee to be negotiated with respect to all
shares of Common Stock sold through such broker-dealers. FBR will also receive
reimbursement for certain expenses incurred in connection with the Offering. The
Holding Company has agreed to indemnify FBR against certain liabilities,
including certain liabilities under the Securities Act of 1933, as amended
("Securities Act"). See "The Conversion - Marketing Arrangements."
The Bank has established a Stock Information Center, which will be
managed by FBR, to coordinate the Offering, and answer questions about the
Offering received by telephone. All subscribers will be instructed to mail
payment to the Stock Information Center or deliver payment directly to the
Bank's offices. Payment for shares of Common Stock may be made by cash (if
delivered in person), check or money order or by authorization of withdrawal
from deposit accounts maintained with the Bank. Such funds will not be available
for withdrawal and will not be released until the Conversion is completed or
terminated. See "The Conversion - Method of Payment for Subscriptions."
Purchase Limitations. The Plan of Conversion places limitations on the
number of shares which may be purchased in the Conversion by various categories
of persons. With the exception of the Tax-Qualified Employee Plans, no Eligible
Account Holder, Supplemental Eligible Account Holder, Other Member or director,
officer or employee may purchase in their capacity as such in the Subscription
Offering more than $200,000 of Common Stock; no person, together with associates
of and persons acting in concert with such person, may purchase more than
$200,000 of Common Stock in the Public Offering; and no person or group of
persons acting in concert (other than the Tax-Qualified Employee Plans) may
purchase more than $800,000 of Common Stock in the Conversion. The minimum
purchase limitation is 25 shares of Common Stock. These purchase limits may be
increased or decreased consistent with the Office of Thrift Supervision ("OTS")
regulations at the sole discretion of the Holding Company and the Bank. See "The
Conversion - Offering of Holding Company Common Stock."
Restrictions on Transfer of Subscription Rights. Prior to the
completion of the Conversion, 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. Persons found to be selling or otherwise
transferring their right to purchase stock in the Subscription Offering or
purchasing Common Stock on behalf of another person will be subject to
forfeiture of such rights and possible federal penalties and sanctions. See "The
Conversion - Restrictions on Transfer of Subscription Rights and Shares."
Stock Pricing and Number of Shares of Common Stock to be Issued in the
Conversion. The Purchase Price of the Common Stock is $10.00 per share and is
the same for all purchasers. The aggregate pro forma market value of the Holding
Company and Ben Franklin, as converted, was estimated by Ferguson, which is
experienced in appraising converting thrift institutions, to be the Estimated
Valuation Range. The Board of Directors has reviewed the Estimated Valuation
Range as stated in the appraisal and compared it with recent stock trading
prices as well as other recent pro forma market value estimates. The Board of
Directors has also reviewed the appraisal report, including the assumptions and
methodology utilized therein, and determined that it was not unreasonable.
Depending on market and financial conditions at the time of the
completion of the Offering, the total number of shares of Common Stock to be
issued in the Conversion may be increased or decreased significantly from the
1,610,000 shares offered hereby and the Purchase Price may be decreased.
However, subscribers will be permitted to modify or rescind their subscriptions
if the product of the total number of shares to be issued multiplied by the
price per share is less than $11,900,000 or more than $18,515,000. The appraisal
is not intended to be, and must not be
7
<PAGE>
interpreted as, a recommendation of any kind as to the advisability of voting to
approve the Conversion or of purchasing shares of Common Stock. The appraisal
considers Ben Franklin and the Holding Company only as going concerns and should
not be considered as any indication of the liquidation value of Ben Franklin or
the Holding Company. Moreover, the appraisal is necessarily based on many
factors which change from time to time. There can be no assurance that persons
who purchase shares in the Conversion will be able to sell such shares at prices
at or above the Purchase Price. See "Pro Forma Data" and "The Conversion - Stock
Pricing and Number of Shares to be Issued" for a description of the manner in
which such valuation was made and the limitations on its use.
Purchases by Directors and Executive Officers
The directors and executive officers of Ben Franklin intend to
purchase, for investment purposes and at the same price as the shares are sold
to other investors in the Conversion, approximately $1,025,000 of Common Stock,
or 8.6%, 7.3% or 6.4% of the shares to be sold in the Conversion at the minimum,
midpoint and maximum of the Estimated Valuation Range, respectively. In
addition, an amount of shares equal to an aggregate of 8% of the shares to be
issued in the Conversion is anticipated to be purchased by the ESOP. See "The
Conversion - Participation by the Board and Executive Officers."
Potential Benefits of Conversion to Directors and Executive Officers
Employee Stock Ownership Plan. The Board of Directors of the Bank has
adopted an ESOP, a tax-qualified employee benefit plan for officers and
employees of the Holding Company and the Bank. All employees of the Bank are
eligible to participate in the ESOP after they attain age 21 and complete one
year of service. The Bank's contribution to the ESOP is allocated among
participants on the basis of their relative compensation. Each participant's
account will be credited with cash and shares of Holding Company Common Stock
based upon compensation earned during the year with respect to which the
contribution is made. The ESOP intends to buy up to 8% of the Common Stock
issued in the Conversion (approximately $952,000 to $1.3 million of the Common
Stock based on the issuance of the minimum and the maximum of the Estimated
Valuation Range and the $10.00 per share Purchase Price). The ESOP will purchase
the shares with funds borrowed from the Holding Company, and it is anticipated
that the ESOP will repay the loans through periodic tax-deductible contributions
from the Bank over a ten-year period. These contributions will increase the
compensation expense of the Bank. See "Management - Benefit Plans - Employee
Stock Ownership Plan" for a description of this plan.
Stock Option and Incentive Plan and Recognition and Retention Plan. The
Board of Directors of the Holding Company intends to adopt a Stock Option and
Incentive Plan (the "Stock Option Plan") and a Recognition and Retention Plan
("RRP") to become effective upon ratification by stockholders following the
Conversion. Certain of the directors and executive officers of the Holding
Company and the Bank will receive awards under these plans. It is currently
anticipated that an amount of shares equal to 10% and 4% of the shares sold in
the Conversion will be reserved for issuance under the Stock Option Plan and
RRP, respectively. Depending upon market conditions in the future, the Holding
Company may purchase shares in the open market to fund these plans. See
"Management - Benefit Plans" for a description of these plans.
Under the proposed Stock Option Plan, it is presently intended that the
directors and executive officers be granted options to purchase, in addition to
the shares to be issued in the Conversion, an amount of shares equal to __% of
the shares sold in the Conversion (or ________ and _______ shares, respectively,
of Common Stock based on the minimum and maximum of the Estimated Valuation
Range) at an exercise price equal to the market value per share of the Common
Stock on the date of grant. Such options will be awarded at no expense to the
recipients and pose no financial risk to the recipients until exercised. It is
presently anticipated that Joseph J. Gasior and Ronald P. Pedersen will each
receive an option to purchase an amount of shares equal to 2.5% of the shares
sold in the Conversion (or 29,750 and 40,250 shares, assuming the minimum and
maximum of the Estimated Valuation Range, respectively). See "Management -
Benefit Plans - Stock Option and Incentive Plan."
The award and exercise of options pursuant to the Stock Option Plan
will not result in any expense to the Holding Company; however, when the options
are exercised (or, depending on market conditions, potentially prior to
exercise), the per share earnings and book value of existing stockholders will
likely be diluted.
8
<PAGE>
It is also intended that directors and executive officers be granted
(at no cost and without any requirement of payment by the grantee) an amount of
shares of restricted stock awards equal to __% of the shares sold in the
Conversion (or ______ and ______ shares, respectively, based on the minimum and
maximum of the Estimated Valuation Range) which will vest over five years
commencing one year from stockholder ratification and which will have a total
value of $_______ and $_______ based on the Purchase Price of $10.00 per share
at the minimum and maximum of the Estimated Valuation Range, respectively. It is
presently anticipated that Messrs. Gasior and Pedersen will each receive a
restricted stock award equal to 1.0% of the shares sold in the Conversion (or
11,900 and 16,100 shares, assuming the minimum and maximum of the Estimated
Valuation Range). The restricted stock award to each of Messrs. Gasior and
Pedersen would have an aggregate value ranging from $119,000 and $161,000, (at
the minimum and maximum of the Estimated Valuation Range) based upon the
original Purchase Price of $10.00 per share. See "Risk Factors - Takeover
Defensive Provisions; Dilution of Per Share Value" and "Management - Benefit
Plans - Recognition and Retention Plan."
Following stockholder ratification of the RRP, the RRP will be funded
either with shares purchased in the open market or with authorized but unissued
shares. Based upon the Purchase Price of $10.00 per share, the amount required
to fund the full amount of shares available for grant under the RRP through
open-market purchases would range from approximately $476,000 (based upon the
sale of shares at the minimum of the Estimated Valuation Range) to approximately
$644,000 (based upon the sale of shares at the maximum of the Estimated
Valuation Range). In the event that the per share price of the Common Stock
increases above the $10.00 per share Purchase Price following completion of the
Offering, the amount necessary to fund the RRP would also increase. The expense
related to the cost of the RRP will be recognized over the five-year vesting
period of the awards made pursuant to such plan. The use of authorized but
unissued shares to fund the RRP would dilute the holdings of stockholders who
purchase Common Stock in the Conversion. See "Management - Benefit Plans -
Recognition and Retention Plan."
The Holding Company intends to submit the RRP and the Stock Option Plan
to stockholders for ratification following completion of the Offering, but in no
event prior to six months following the completion of the Conversion. These
plans will only be effective if ratified by the stockholders. In the event the
Stock Option Plan and the RRP are not ratified by stockholders, management may
consider the adoption of alternate incentive plans, although no such plans are
currently contemplated. While the Bank believes that the RRP and the Stock
Option Plan will provide important incentives for the performance and retention
of management, the Bank has no reason to believe that the failure to obtain
shareholder ratification of such plans would result in the departure of any
members of senior management.
Employment Agreement. The Holding Company intends to enter into an
employment agreement with President Pedersen. It is anticipated that this
agreement will provide for a salary equal to the President's current salary,
will have an initial term of three years, subject to annual extension, and will
become effective upon completion of the Conversion. In general, in the event
President Pedersen is terminated without cause, he will be entitled to receive a
severance payment equal to nine months' salary. In addition, in the event he is
terminated in connection with a change in control, Mr. Pedersen will be entitled
to receive a severance payment in lieu of salary equal to 299% of his base
compensation, as defined. See "Management -- Executive Compensation."
Use of Proceeds
The net proceeds from the sale of Common Stock in the Conversion
(estimated at $11.4 million, $13.5 million, $15.6 million and $18.0 million
based on sales at the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Valuation Range, respectively) will substantially increase the
capital of Ben Franklin. See "Pro Forma Data." The Holding Company will utilize
approximately 50% of the net proceeds from the issuance of the Common Stock to
purchase all of the common stock of Ben Franklin to be issued upon Conversion
and will retain approximately 50.0% of the net proceeds; provided that the
amount retained by the Holding Company will be reduced to the extent required
that, upon the completion of the transaction, the Bank's ratio of capital to
assets is at least 10%. The proceeds retained by the Holding Company will be
invested initially in short-term investments. Such proceeds will subsequently be
invested in mortgage backed and other securities and will be available for
general corporate purposes, including the possible repurchase of shares of the
Common Stock, as permitted by the OTS. The Holding Company currently has no
specific plans to make any such repurchases of any of its Common Stock. In
addition, the Holding Company intends to provide the funding for the ESOP loan.
Based upon the initial Purchase Price of $10.00 per share, the dollar amount of
the ESOP loan would range from $952,000 (based upon the sale of shares at the
minimum of the Estimated Valuation
9
<PAGE>
Range) to $1.3 million (based upon the sale of shares at the maximum of the
Estimated Valuation Range). It is anticipated that the ESOP will repay the loan
through periodic tax-deductible contributions from the Bank over a ten-year
period. The interest rate to be charged by the Holding Company on the ESOP loan
will be based upon the Internal Revenue Service ("IRS") prescribed applicable
federal rate at the time of origination.
Finally, the Holding Company currently intends to use a portion of the
proceeds to fund a Recognition and Retention Plan ("RRP"), subject to
stockholder ratification. Compensation expense related to the RRP will be
recognized as share awards vest. See "Pro Forma Data." Following stockholder
ratification of the RRP, the RRP will be funded either with shares purchased in
the open market or with authorized but unissued shares. Based upon the Purchase
Price of $10.00 per share, the amount required to fund the RRP through
open-market purchases would range from approximately $476,000 (based upon the
sale of shares at the minimum of the Estimated Valuation Range) to approximately
$644,000 (based upon the sale of shares at the maximum of the Estimated
Valuation Range). In the event that the per share price of the Common Stock
increases above the $10.00 per share Purchase Price following completion of the
Offering, the amount necessary to fund the RRP would also increase. The use of
authorized but unissued shares to fund the RRP could dilute the holdings of
stockholders who purchase Common Stock in the Conversion. See "Management -
Benefit Plans - Recognition and Retention Plan."
The net proceeds received by Ben Franklin will become part of Ben
Franklin's general funds for use in its business and will be used to support the
Bank's existing operations, subject to applicable regulatory restrictions.
Immediately upon the completion of the Conversion, it is anticipated that the
Bank will invest such proceeds into high quality short-term assets such as U.S.
Treasury bills and overnight bank deposits. Subsequently, the Bank intends to
redirect the net proceeds to its current and projected lending programs, subject
to market conditions. See "Risk Factors -- Risks Associated with Expansion of
Business Activities."
See "Use of Proceeds" for additional information on the utilization of
the offering proceeds as well as OTS restrictions on repurchases of the Holding
Company's stock.
Dividends
The declaration and payment of dividends are subject to, among other
things, the Holding Company's financial condition and results of operations, Ben
Franklin's compliance with its regulatory capital requirements, including the
fully phased-in capital requirements, tax considerations, industry standards,
economic conditions, regulatory restrictions, general business practices and
other factors. There can be no assurance as to whether or when the Holding
Company will pay a dividend. See "Dividends."
Market for Common Stock
The Holding Company has applied to have the Common Stock traded on the
Nasdaq Stock Market under the symbol "____." In order to be traded on the Nasdaq
Stock Market, there must be at least three market makers for the Common Stock.
FBR has indicated its intention to make a market in the Holding Company's Common
Stock following completion of the Conversion, depending upon the volume of
trading activity in the Common Stock and subject to compliance with applicable
laws and other regulatory requirements. Additional market makers have not yet
been secured by the Holding Company. The Holding Company anticipates that it
will be able to secure the additional market makers necessary to enable the
Common Stock to be traded on the Nasdaq Stock Market. A public market having the
desirable characteristics of depth, liquidity and orderliness, however, depends
upon the presence in the marketplace of both willing buyers and sellers of the
Common Stock at any given time, which is not within the control of the Holding
Company, the Bank or any market maker. Further, no assurance can be given that
an investor will be able to resell the Common Stock at or above the Purchase
Price after the Conversion. See "Market for Common Stock" and "The Conversion -
Stock Pricing and Number of Shares to be Issued."
Risk Factors
See "Risk Factors" for information regarding certain factors which
should be considered by prospective investors, including the Bank's recent
decline in net income, risks associated with expansion of business activities,
interest rate risk exposure, competition, takeover defensive provisions
contained in the Holding Company's certificate
10
<PAGE>
of incorporation and bylaws and dilution of per share value, post-conversion
overhead expenses, year 2000 compliance, regulatory oversight, the risk of a
delayed offering, the absence of an active market for the Common Stock, possible
increase in estimated valuation range and number of shares issued and related
earnings dilution and the possible consequences of amendment of the Plan of
Conversion.
11
<PAGE>
SELECTED FINANCIAL INFORMATION
Set forth below are selected financial and other data of the Bank. The
financial data is derived in part from, and should be read in conjunction with,
the Financial Statements and Notes of the Bank presented elsewhere in this
Prospectus.
Selected Consolidated Financial Condition and Operations Information
<TABLE>
<CAPTION>
At December 31
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
(In Thousands)
Selected Financial Condition Data:
<S> <C> <C> <C> <C> <C>
Total assets....................... $122,591 $106,925 $103,441 $91,851 $84,209
Cash and cash equivalents.......... 7,065 2,524 2,762 3,239 4,024
Loans receivable, net.............. 93,950 92,956 90,396 77,380 67,263
Mortgage-backed securities:
Held to maturity................. 79 80 698 711 3,098
Available for sale............... 495 507 523 530 ---
Securities:
Held to maturity................. 510 1,118 3,934 4,954 8,151
Available for sale............... 18,220 7,423 3,291 3,330 ---
Deposits........................... 112,754 94,339 88,795 81,653 77,929
Total borrowings................... --- 3,700 5,800 2,800 ---
Total equity....................... 7,800 7,450 6,920 5,958 5,030
</TABLE>
For the Years Ended December 31,
---------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(In Thousands)
Selected Operations Data:
Total interest income.............. $7,972 $7,775 $7,127 $6,129 $6,022
Total interest expense............. 4,837 4,681 4,164 3,027 2,926
------ ------ ------ ------ ------
Net interest income.............. 3,135 3,094 2,963 3,102 3,096
Provision for loan losses.......... 150 33 32 14 1
------ ------ ------ ------ ------
Net interest income after provision
for loan losses.................. 2,985 3,061 2,931 3,088 3,095
Fees and service charges .......... 150 148 140 127 123
Gain on sales of securities........ 1 -- -- -- 2
Other non-interest income.......... 31 13 13 7 8
------ ------ ------ ------ ------
Total non-interest income.......... 182 161 153 134 133
Total non-interest expense......... 2,668 2,441 1,873 1,757 1,720
------ ------ ------ ------ ------
Income before taxes................ 499 781 1,211 1,465 1,508
Income tax provision............... 201 312 484 564 590
Cumulative effect of change in
accounting principle............. -- -- -- -- (102)
------ ------ ------ ------ -----
Net income......................... $ 298 $ 469 $ 727 $ 901 $ 816
====== ====== ====== ====== =====
12
<PAGE>
Selected Financial Ratios and Other Data
<TABLE>
<CAPTION>
December 31,
-------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ -----
Performance ratios:
<S> <C> <C> <C> <C> <C>
Return on assets (ratio of net income
to average total assets)............. .27% .44% .75% 1.02% .98
Return on equity (ratio of net income
to average equity)................... 3.97 6.79 12.02 16.40 17.66
Interest rate spread information:
Average during period................. 2.59 2.64 2.81 3.46 3.75
End of period......................... 2.42 2.75 2.77 3.28 3.62
Net interest margin(1)................ 2.95 3.00 3.19 3.69 3.94
Ratio of operating expenses to average
total assets.......................... 2.42 2.29 1.94 1.99 2.07
Efficiency ratio(2)...................... 80.43 74.99 60.13 54.30 53.27
Ratio of average interest-earning assets
average to interest-bearing liabilities. 108.07 108.06 108.57 106.39 104.99
Quality ratios:
Non-performing assets to total assets
at end of period........................ .05 .43 .13 .02 .09
Allowance for loan loss to non-performing
loans................................... 618.46 173.55 172.93 152.94 233.33
Allowance for loan losses to gross loans
receivable.............................. .43 .29 .25 .25 .27
Capital ratios:
Equity to total assets at end of period.. 6.36 6.97 6.69 6.49 5.97
Average equity to average assets......... 6.80 6.48 6.25 6.23 5.55
Other data:
Number of full service offices........... 2 2 2 2 2
</TABLE>
- ----------------
(1) Net interest income divided by average interest earning assets.
(2) The efficiency ratio represents non-interest expense (less certain loss
provisions) divided by the sum of net interest income and non-interest
income (other than net security gains).
13
<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 in the Offering.
Recent Decline in Net Income
The Bank's net income has declined from $727,000 in 1995 to $469,000 in
1996 to $298,000 for fiscal 1997. The primary reasons for these declines was a
special deposit insurance premium in 1996 and a significant increase in
compensation and benefits expense in 1997 attributable to the implementation of
several new benefit plans as well as an increase in the number of the Bank's
officers and employees. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations." In 1997, the net income level was also
impacted by an increase in the provision for loan losses. Management is
attempting to address these declines in net income through an expansion of the
Bank's lending and fee based activities. However, in view of the likelihood of
further increases in the Bank's overhead expenses as well as the risks inherent
in the Bank's new activities, there can be no assurance that these efforts will
be successful. See "-Increase in Overhead Expense" and "- Risks Associated with
Expansion of Business Activities."
Risks Associated with Expansion of Business Activities
In early 1997, the Bank hired a new President and Chief Executive
Officer with a commercial banking background and began to explore the expansion
of its business activities. In particular, the Bank has recently begun to
purchase Title I loans from third party lenders with the intention of selling
most such loans to the Federal National Mortgage Association ("FNMA") while
retaining the servicing in order to build a servicing portfolio. See "Business
Lending Activities -- Title I Lending." In addition, the Bank has also recently
purchased a participation in a commercial construction loan (although overall
construction or development activity is expected to be modest) and intends to
begin originating small and medium sized ($1.0 million or less) multi-family and
commercial real estate loans. Finally, the Bank is also beginning to consider
whether to establish a consumer finance subsidiary which would make loans to
persons with a variety of different credit histories and whether to create a new
department to offer loan administration and other correspondent services to
credit unions.
The new activities described above are generally believed to involve a
higher degree of risk than the Bank's current one to four family residential and
home equity lending. In the case of multi-family and commercial real estate
lending and commercial construction or development lending, this higher risk is
due to the larger size of the loans as well as the effects of general economic
conditions on income producing ventures and properties and the difficulty of
monitoring these types of loans. In the case of Title I loan servicing, these
risks relate primarily to the effects of prepayments on the servicing asset. In
the case of consumer lending through a consumer finance subsidiary, there are
significant risks associated with the impact of general economic conditions on
consumer loans, particularly where the borrowers' debt to income ratios and
credit histories are not strong. Finally, there are a number of risks associated
with the possible new fee based activities such as correspondent banking
including the significant start up costs and uncertain revenue streams from such
activities.
A significant risk related to all of these activities described above
is the Bank's lack of experience with respect thereto. Although the Bank's new
President and its new Commercial Loan Officer have experience in most of these
areas, the Bank does not currently have a seasoned infrastructure and tested
procedures in place with respect to these activities. Accordingly, although the
Bank intends to limit its investment in new products and services until it gains
additional experience with respect thereto, there can be no assurance that the
Bank will not experience loan delinquencies and other problems with these new
programs as a result of its inexperience.
14
<PAGE>
Interest Rate Risk Exposure
The Bank's profitability is dependent to a large extent upon its net
interest income, which is the difference between its interest income on
interest-earning assets, such as loans and investments, and its interest expense
on interest-bearing liabilities, such as deposits and borrowings. When interest
rates rise, the Bank's net interest income tends to be adversely impacted since
its liabilities tend to reprice more quickly than its assets. Conversely, in a
declining rate environment the Bank's net interest income is generally
positively impacted since its assets tend to reprice more slowly than its
liabilities.
Changes in the level of interest rates also affect the amount of loans
originated by the Bank and, thus, the amount of loan and commitment fees, as
well as the market value of the Bank's interest-earning assets. In addition,
increases in interest rates also can result in disintermediation, which is the
flow of funds away from savings institutions into direct investments, such as
corporate securities and other investment vehicles, which generally pay higher
rates of return than savings institutions. Further, a flattening of the "yield
curve" (i.e., a decline in the difference between long and short term interest
rates), could adversely impact net interest income to the extent that the Bank's
assets have a longer average term than its liabilities. Finally, a decline in
interest rates could cause loan prepayments which would have an adverse impact
on the Bank's loan servicing assets.
In managing its asset/liability mix, the Bank generally, depending on
the relationship between long- and short-term interest rates, market conditions
and consumer preference, places more emphasis on managing net interest margin
than on better matching the interest rate sensitivity of its assets and
liabilities in an effort to enhance net interest income. As a result, the Bank
will continue to be significantly vulnerable to changes in interest rates and to
decreases in the difference between long and short term interest rates.
At December 31, 1997, the Bank's net portfolio value would have
declined by 26% and 56%, respectively, in the event of a 200 and a 400 basis
point increase in general interest rates. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Quantitative and
Qualitative Disclosures about Market Risk."
Competition
Ben Franklin experiences significant competition in its local market
area in both originating real estate and other loans and attracting deposits.
This competition arises from other savings institutions as well as commercial
banks, mortgage banks, credit unions and national and local securities firms.
The Bank's competitors include many significantly larger banks, including
several large regional banks with offices in Ben Franklin's primary market area.
Due to their size, these large banks can achieve certain economies of scale and
as a result offer a broader range of products and services than are currently
available at the Bank. The Bank attempts to mitigate the effect of such factors
by emphasizing customer service. Such competition may limit Ben Franklin's
growth in the future. See "Business -
Competition."
Takeover Defensive Provisions; Dilution of Per Share Value
Holding Company and Bank Governing Instruments. Certain provisions of
the Holding Company's Certificate of Incorporation and Bylaws assist the Holding
Company in maintaining its status as an independent publicly owned corporation.
However, such provisions may also block stockholders from approving a potential
takeover of the Holding Company which a majority of such stockholders believe to
be in their best interests. These provisions provide for, among other things,
limiting voting rights of beneficial owners of more than 10.0% of the Common
Stock, staggered terms for directors, noncumulative voting for directors, limits
on the calling of special meetings, a fair price/supermajority vote requirement
for certain business combinations and certain notice requirements. The 80% vote
limitation would not affect the ability of an individual who is not the
beneficial owner of more than 10.0% of the Common Stock to solicit revocable
proxies in a public solicitation for proxies for a particular meeting of
stockholders and to vote such proxies. In addition, provisions in the Bank's
federal stock Charter that have an anti-takeover effect could also be applicable
to changes in control of the Holding Company as the sole shareholder of the
Bank. The Bank's Charter includes a provision applicable for five years which
prohibits acquisitions and offers to acquire, directly or indirectly, the
beneficial ownership of more than 10.0% of the Bank's securities. Any person
violating this restriction
15
<PAGE>
may not vote the Bank's securities in excess of 10.0%. Any or all of these
provisions may discourage potential proxy contests and other takeover attempts,
particularly those which have not been negotiated with the Board of Directors.
In addition, the Holding Company's certificate of incorporation also authorizes
preferred stock with terms to be established by the Board of Directors which may
rank prior to the Common Stock as to dividend rights, liquidation preferences,
or both, may have full or limited voting rights and may have a dilutive effect
on the ownership interests of holders of the Common Stock. See "Restrictions on
Acquisitions of Stock and Related Takeover Defensive Provisions."
Regulatory and Statutory Provisions. Federal regulations prohibit, for
a period of three years following the completion of the Conversion, any person
from offering to acquire or acquiring the beneficial ownership of more than
10.0% of the stock of a converted savings institution or its holding company
without prior OTS approval. 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. See "Restrictions on
Acquisitions of Stock and Related Takeover Defensive Provisions."
Employment Agreement and Stock Option Plan. The employment agreement
and the proposed Stock Option Plan also contain provisions that could have the
effect of discouraging takeover attempts of the Holding Company. For more
information regarding this agreement, see "Management - Employment Agreement."
The proposed Stock Option Plan contains a provision allowing the
Holding Company to issue "Limited Stock Appreciation Rights" which are
exercisable only in connection with a change in control and which could have an
anti-takeover effect. However, the Holding Company does not currently intend to
issue any Limited Stock Appreciation Rights. See "Management - Benefit Plans -
Stock Option and Incentive Plan."
Possible Dilutive Effects. The issuance of additional shares pursuant
to the proposed Stock Option Plan and RRP will result in a dilution in the
percentage of ownership of the Holding Company of those persons purchasing
Common Stock in the Conversion, assuming that the shares utilized to fund the
proposed Stock Option Plan and RRP awards come from authorized but unissued
shares. Assuming the exercise of all options available under the Stock Option
Plan and the award of all shares available under the RRP, and assuming the use
of authorized but unissued shares, the interest of stockholders will be diluted
by approximately 9.1%% and 3.8%, respectively. See "Pro Forma Data," "Management
- - Benefit Plans - Stock Option and Incentive Plan," and "- Recognition and
Retention Plan" and "Restrictions on Acquisitions of Stock and Related Takeover
Defensive Provisions." The ownership dilution caused by these plans will result
in a lower level of (diluted) earnings per share than would be the case if these
plans were not implemented. Also, for financial accounting purposes, certain
incentive grants under the proposed RRP will result in the recording of
compensation expense over the vesting period. See "Pro Forma Data."
Voting Control of Directors and Executive Officers. The directors and
executive officers (11 persons) of the Bank intend to purchase an aggregate of
approximately $1,025,000 or approximately 8.6% of the shares offered in the
Conversion at the minimum of the Estimated Valuation Range, or 6.4% of the
shares offered in the Conversion at the maximum of the Estimated Valuation
Range. Directors and executive officers will also receive awards under the
proposed Stock Option Plan and the proposed RRP. Assuming the purchase of
$1,025,000 of Common Stock in the Conversion by directors and executive officers
in the aggregate, the full vesting of the restricted stock to be awarded under
the proposed RRP and the issuance of shares from authorized but unissued shares
in connection with the exercise of all options intended to be awarded under the
proposed Stock Option Plan the Conversion and approval of the Stock Option Plan
and the RRP by the stockholders, the shares owned by the directors and executive
officers in the aggregate would be between 21.2% (at the minimum of the
Estimated Valuation Range) and 19.3% (at the maximum of the Estimated Valuation
Range) of the outstanding shares. In addition, the ESOP is expected to purchase
8% of the shares sold in the Conversion. This stock ownership, if voted as a
block, could defeat takeover attempts or other actions favored by other
stockholders.
16
<PAGE>
Increase in Overhead Expense
In support of the expansion of the Bank's business operations set forth
above, since July 1997, the Bank has hired 3 new officers and 14 new employees
and may add additional officers and employees. As a result, the Bank's
noninterest expense has increased significantly and may rise further in the
future. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations". In addition, after completion of the Conversion, the
Holding Company's noninterest expense is likely to increase further as a result
of the financial accounting, legal and tax expenses usually associated with
operating as a public company. See "Regulation - Federal and State Taxation" and
"Additional Information." In addition, it is currently anticipated that the
Holding Company will record additional expense based on the proposed RRP. See
"Pro Forma Data" and "Management - Benefit Plans - Recognition and Retention
Plan." Finally, the Holding Company will also record additional expense as a
result of the adoption of the ESOP. See "Management - Benefit Plans - Employee
Stock Ownership Plan."
Statement of Position 93-6 "Employers' Accounting for Employee Stock
Ownership Plans" ("SOP 93-6") requires an employer to 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. Assuming shares of Common
Stock appreciate in value over time, the adoption of SOP 93-6 may increase
compensation expense relating to the ESOP to be established in connection with
the Conversion as compared with prior guidance which required the recognition of
compensation expense based on the cost of shares acquired by the ESOP. It is
impossible to determine at this time the extent of such impact on future net
income. See "Pro Forma Data."
Year 2000 Compliance
A critical issue facing the financial institution industry is concerns
over computer systems' ability to process year-date data beyond the year 1999.
Except in recently developed year 2000 compliant programs, computer programmers
consistently have abbreviated dates by eliminating the first two digits of a
year, with the assumption that these two digits would always be "19". Unless
corrected, this situation is expected to cause widespread problems on January 1,
2000, when computer systems may recognize this date as January 1, 1900, and
process data incorrectly or stop processing altogether. This issue could affect
a variety of the Bank's systems from its data processing system which records
loan and deposit information to other ancillary systems such as alarms and
locking devices. Management has considered this issue internally and receives
periodic correspondence from third party data processors regarding their plans
to be year 2000 compliant. While the Bank is not yet year 2000 compliant,
management does not anticipate that the year 2000 compliance issues will have a
material impact on the Bank's results of operations. Nevertheless, if not
properly addressed, these issues could result in interruptions in the Bank's
business and have a material adverse effect on the Bank's results of operations.
Regulatory Oversight
The Bank is subject to extensive regulation, supervision and
examination by the OTS as its chartering authority and primary federal
regulator, and by the FDIC, which insures its deposits up to applicable limits.
The Bank is a member of the Federal Home Loan Bank (the "FHLB") of Chicago and
is subject to certain limited regulation by the Board of Governors of the
Federal Reserve System ("Federal Reserve Board"). As the savings and loan
holding company of the Bank, the Holding Company will be subject to regulation
and oversight by the OTS. See "Regulation." Such regulation and supervision
governs the activities in which an institution can engage and is intended
primarily for the protection of the insurance fund and depositors. Regulatory
authorities have been granted extensive discretion in connection with their
supervisory and enforcement activities which are intended to strengthen the
financial condition of the banking industry, including the imposition of
restrictions on the operation of an institution, the classification of assets by
the institution and the adequacy of an institution's allowance for loan losses.
See "Regulation - Federal Regulation of Savings Associations" and "- Regulatory
Capital Requirements." Any change in such regulation and oversight, whether by
the OTS, the Federal Reserve Board, the FDIC or Congress, could have a material
impact on the Holding Company, the Bank and their respective operations.
17
<PAGE>
Risk of Delayed Offering
The Subscription Offering will expire at noon, Arlington Heights,
Illinois time, on _________, 1998 unless extended by the Bank and the Holding
Company. Depending on the availability of shares and market conditions at or
near the completion of the Subscription Offering, the Holding Company may
conduct a Public Offering through FBR. If the Offering is extended beyond
[_______], 1998, all subscribers will have the right to modify or rescind their
subscriptions and to have their subscription funds returned with interest. There
can be no assurance that the Offering will not be extended as set forth above.
A material delay in the completion of the sale of all unsubscribed
shares in the Public Offering or otherwise may result in a significant increase
in the costs in completing the Conversion. Significant changes in the Bank's
operations and financial condition, the aggregate market value of the shares to
be issued in the Conversion and general market conditions may occur during such
material delay. In the event the Conversion is not consummated within 24 months
after the date of the Special Meeting, OTS regulations would require the Bank to
charge accrued Conversion costs to then-current period operations. See "The
Conversion - Risk of Delayed Offering."
Absence of Active Market for the Common Stock
The Holding Company, as a newly organized company, has never issued
capital stock. Consequently, there is not at this time any market for the Common
Stock. The Holding Company has applied for listing of the Common Stock on the
Nasdaq Stock Market under the symbol "____." FBR has agreed to act as a market
maker and to assist the Holding Company in securing additional market makers to
make a market in the Common Stock. However, there can be no assurance that at
least three market makers will be obtained, that the Bank will receive final
approval for listing on the Nasdaq Stock Market, that an active and liquid
market for the Common Stock will develop or be maintained or that resales of the
Common Stock can be made at or above the Purchase Price. If additional market
makers are not secured or subsequently stop coverage, the Common Stock may not
be listed on the Nasdaq Stock Market (or if initially listed, may be delisted),
which could reduce the activity and liquidity in the market for the Common
Stock. See "Market for Common Stock."
Possible Increase in Estimated Valuation Range and Number of Shares
Issued and Related Earnings Dilution
The number of shares to be sold in the Conversion may be increased as a
result of an increase in the maximum of the Estimated Valuation Range of up to
15% to reflect changes in market and financial conditions following the
commencement of the Subscription Offering. An increase in the number of shares
issued would decrease the pro forma net earnings per share and stockholders'
equity per share but would increase the Holding Company's pro forma consolidated
stockholders' equity and net earnings. See "Pro Forma Data."
Possible Consequences of Amendment to Plan of Conversion
The Plan of Conversion provides that, if deemed necessary or desirable
by the Boards of Directors of the Bank and the Holding Company, the Plan of
Conversion may be substantively amended by a two-thirds vote of the respective
Boards of Directors of the Bank and the Holding Company, as a result of comments
from regulatory authorities or otherwise, at any time with the concurrence of
the Securities and Exchange Commission ("SEC") and the OTS. Moreover, if the
Plan of Conversion is amended, subscriptions which have been received prior to
such amendment will not be refunded unless otherwise required by the SEC or the
OTS. If the Plan of Conversion is amended in a manner that is deemed to be
material to the subscribers by the Holding Company, subscription funds will be
returned to subscribers with interest unless they affirmatively elect to
increase, decrease or maintain their subscriptions. No such amendments are
currently contemplated, although the Bank reserves the right to increase or
decrease purchase limitations without a subscriber resolicitation. See "The
Conversion - Approval, Interpretation, Amendment and Termination."
18
<PAGE>
BEN FRANKLIN FINANCIAL, INC.
The Holding Company was formed at the direction of Ben Franklin in
March 1998 for the purpose of becoming a savings and loan holding company and
owning all of the outstanding stock of the Bank issued in the Conversion. The
Holding Company is incorporated under the laws of the State of Delaware. The
Holding Company is authorized to do business in the State of Illinois, and
generally is authorized to engage in any activity that is permitted by the
Delaware General Corporation Law. The business of the Holding Company initially
will consist only of the business of Ben Franklin. The holding company structure
will, however, provide the Holding Company with greater flexibility than the
Bank has to diversify its business activities, through existing or newly formed
subsidiaries, or through acquisitions or mergers of stock financial
institutions, as well as, other companies. Although there are no current
arrangements, understandings or agreements regarding any such activity or
acquisition, the Holding Company will be in a position after the Conversion,
subject to regulatory restrictions, to take advantage of any favorable
acquisition opportunities that may arise.
The assets of the Holding Company will consist initially of the stock
of Ben Franklin, a note evidencing the Holding Company's loan to the ESOP and up
to 50% of the net proceeds from the Conversion (less the amount used to fund the
ESOP loan). See "Use of Proceeds." Initially, any activities of the Holding
Company are anticipated to be funded by such retained proceeds and the income
thereon and dividends from Ben Franklin, if any. See "Dividends" and "Regulation
- - Holding Company Regulation." Thereafter, activities of the Holding Company may
also be funded through sales of additional securities, through borrowings and
through income generated by other activities of the Holding Company. At this
time, there are no plans regarding such other activities other than the intended
loan to the ESOP to facilitate its purchase of Common Stock in the Conversion.
See "Management - Benefit Plans - Employee Stock Ownership Plan."
The executive office of the Holding Company is located at 14 N. Dryden
Place, Arlington Heights, Illinois. Its telephone number at that address is
(847) 398-0990.
BEN FRANKLIN BANK OF ILLINOIS
Ben Franklin serves the financial needs of communities in its market
area through its main office located at 14 N. Dryden Place, Arlington Heights,
Illinois and its branch office located at 3148 Kirchoff Road, Rolling Meadows,
Illinois. Effective April of 1998, the Bank changed its name from Douglas
Savings Bank to Ben Franklin Bank of Illinois. Its deposits are insured up to
applicable limits by the Federal Deposit Insurance Corporation ("FDIC"). At
December 31, 1997 Ben Franklin had total assets of $122.6 million, deposits of
$112.8 million and equity of $7.8 million (or 6.36% of total assets).
Ben Franklin has been, and intends to continue to be, an independent,
community oriented, financial institution. Ben Franklin's business involves
attracting deposits from the general public and using such deposits, together
with other funds, to originate one- to four-family residential mortgage loans
and, to a lesser extent, home equity and other loans primarily in its market
area. The Bank also invests in securities and other permissible investments. The
Bank has recently expanded its business to include additional activities. See
"Risk Factors -- Risks Associated With Expansion of Business Activities."
The executive office of the Bank is located at 14 N. Dryden Place,
Arlington Heights, Illinois. Its telephone number at that address is (847)
398-0990.
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock
cannot be determined until the Conversion is completed, it is presently
anticipated that such net proceeds will be between $11.4 million and $15.6
million (or up to $18.0 million in the event of an increase in the aggregate pro
forma market value of the Common Stock
19
<PAGE>
of up to 15% above the maximum of the Estimated Valuation Range). See "Pro Forma
Data" and "The Conversion Stock Pricing and Number of Shares to be Issued" as to
the assumptions used to arrive at such amounts.
In exchange for all of the common stock of Ben Franklin issued upon
conversion, the Holding Company will contribute approximately 50% of the net
proceeds from the sale of the Holding Company's Common Stock to Ben Franklin;
provided that the amount retained by the Holding Company will be reduced to the
extent required, so that, upon the completion of the transaction, the Bank's
ratio of capital to assets is at least 10%. On an interim basis, the proceeds
will be invested by the Holding Company in short-term investments. The specific
types and amounts of short-term assets will be determined based on market
conditions at the time of the completion of the Conversion. In addition, the
Holding Company intends to provide the funding for the ESOP loan. Based upon the
initial Purchase Price of $10.00 per share, the dollar amount of the ESOP loan
would range from $952,000 (based upon the sale of shares at the minimum of the
Estimated Valuation Range) to $1.3 million (based upon the sale of shares at the
maximum of the Estimated Valuation Range). The interest rate to be charged by
the Holding Company on the ESOP loan will be based upon the IRS prescribed
applicable federal rate at the time of origination. It is anticipated that the
ESOP will repay the loan through periodic tax-deductible contributions from the
Bank over a ten-year period.
The net proceeds received by Ben Franklin will become part of Ben
Franklin's general funds for use in its business and will be used to support the
Bank's existing operations, subject to applicable regulatory restrictions.
Immediately upon the completion of the Conversion, it is anticipated that the
Bank will invest such proceeds into high quality short-term assets such as U.S.
Treasury bills and overnight bank deposits. Subsequently, the Bank will redirect
the net proceeds to its current and projected lending programs, subject to
market conditions. See "Risk Factors -- Risks Associated With Expansion of
Business Activities."
After the completion of the Conversion, the Holding Company will
redirect the net proceeds invested by it in short-term assets into a variety of
mortgage-backed securities and other securities similar to those already held by
the Bank. Also, the Holding Company may use a portion of the proceeds to fund
the RRP, subject to shareholder approval of such plan. Compensation expense
related to the RRP will be recognized as share awards vest. See "Pro Forma
Data." Following stockholder ratification of the RRP, the RRP will be funded
either with shares purchased in the open market or with authorized but unissued
shares. Based upon the initial Purchase Price of $10.00 per share, the amount
required to fund the RRP through open-market purchases would range from
approximately $496,000 (based upon the sale of shares at the minimum of the
Estimated Valuation Range) to approximately $644,000 (based upon the sale of
shares at the maximum of the Estimated Valuation Range). In the event that the
per share price of the Common Stock increases above the $10.00 per share
Purchase Price following completion of the Offering, the amount necessary to
fund the RRP would also increase. The use of authorized but unissued shares to
fund the RRP could dilute the holdings of stockholders who purchase Common Stock
in the Conversion. See "Business - Lending Activities" and " - Investment
Activities" and "Management - Benefit Plans - Employee Stock Ownership Plan" and
"- Recognition and Retention Plan."
The proceeds may also be utilized by the Holding Company to repurchase
(at prices which may be above or below the initial offering price) shares of the
Common Stock through an open market repurchase program subject to limitations
contained in OTS regulations, although the Holding Company currently has no
specific plan to repurchase any of its stock. In the future, the Board of
Directors of the Holding Company will make decisions on the repurchase of the
Common Stock based on its view of the appropriateness of the price of the Common
Stock as well as the Holding Company's and the Bank's investment opportunities
and capital needs. Under current OTS regulations, no repurchases may be made
within the first year following Conversion except with OTS approval under
"exceptional circumstances." During the second and third years following
Conversion, OTS regulations permit, subject to certain limitations, the
repurchase of up to five percent of the outstanding shares of stock during each
twelve-month period with a greater amount permitted with OTS approval. In
general, the OTS regulations do not restrict repurchases thereafter, other than
limits on the Bank's ability to pay dividends to the Holding Company to fund the
repurchase. For a description of the restrictions on the Bank's ability to
provide the Holding Company with funds through dividends or other distributions,
see "Dividends" and "The Conversion - Restrictions on Repurchase of Stock."
20
<PAGE>
DIVIDENDS
The Board of Directors of the Holding Company has not yet established a
policy with respect to the payment of cash dividends on the Common Stock.
Dividends, when and if paid, will be subject to determination and declaration by
the Board of Directors at its discretion. The Holding Company may also consider
making a one time only special dividend or distribution (including a tax-free
return of capital) provided that the Holding Company will take no steps toward
making such a distribution for at least one year following the completion of the
Conversion. While the Holding Company's Board of Directors has not established
any quantitative factors to utilize in making decisions regarding dividends, it
currently anticipates that it will take into account the Holding Company's
consolidated financial condition, the Bank's regulatory capital requirements,
relevant tax considerations, industry standards, economic conditions, investment
opportunities, regulatory restrictions, general business practices and other
factors. In no event will the Holding Company pay a cash dividend if the Bank is
not meeting its regulatory capital requirements.
It is not presently anticipated that the Holding Company will conduct
significant operations independent of those of Ben Franklin for some time
following the Conversion. As such, the Holding Company does not expect to have
any significant source of income other than earnings on the net proceeds from
the Conversion retained by the Holding Company (which proceeds are currently
estimated to range from $11.4 million to $15.6 million based on the minimum and
the maximum of the Estimated Valuation Range, respectively) and dividends from
Ben Franklin, if any. Consequently, the ability of the Holding Company to pay
cash dividends to its stockholders will be dependent upon such retained proceeds
and earnings thereon, and upon the ability of Ben Franklin to pay dividends to
the Holding Company. See "Description of Capital Stock - Holding Company Capital
Stock - Dividends." Ben Franklin, like all savings banks regulated by the OTS,
is subject to certain restrictions on the payment of dividends based on its net
income, its capital in excess of the regulatory capital requirements and the
amount of regulatory capital required for the liquidation account to be
established in connection with the Conversion. See "The Conversion - Effects of
Conversion to Stock Form on Depositors and Borrowers of the Bank - Liquidation
Rights" and "Regulation - Regulatory Capital Requirements" and "- Limitations on
Dividends and Other Capital Distributions." Earnings allocated to Ben Franklin's
"excess" bad debt reserves and deducted for federal income tax purposes cannot
be used by Ben Franklin to pay cash dividends to the Holding Company without
adverse tax consequences. See "Regulation - Federal and State Taxation."
MARKET FOR COMMON STOCK
Ben Franklin, as a mutual thrift institution, and the Holding Company,
as a newly organized company, have never issued capital stock. Consequently,
there is not at this time an existing market for the Common Stock. The Holding
Company has applied for listing of the Common Stock on the Nasdaq Stock Market
under the symbol "____" upon completion of the Conversion. In order to be quoted
on the Nasdaq Stock Market, among other criteria, there must be at least three
market makers for the Common Stock. FBR has agreed, subject to certain
conditions, to act as a market maker for the Holding Company's Common Stock
following the Conversion, and assist in securing additional market makers to do
the same. A public trading market having the desirable characteristics of depth,
liquidity and orderliness depends upon the presence in the marketplace of both
willing buyers and sellers of the Common Stock at any given time. Accordingly,
there can be no assurance that an active and liquid market for the Common Stock
will develop or be maintained or that resales of the Common Stock can be made at
or above the Purchase Price. See "The Conversion Stock Pricing and Number of
Shares to be Issued."
PRO FORMA DATA
The following table sets forth the historical net loss, equity and per
share data of Ben Franklin at and for the fiscal year ended December 31, 1997,
and after giving effect to the Conversion, the pro forma net income, capital
stock and stockholders' equity and per share data of the Holding Company at and
for the fiscal year ended December 31, 1997. The pro forma data has been
computed on the assumptions that (i) the specified number of shares of Common
Stock was sold at the beginning of the specified period and yielded net proceeds
to the Holding Company as indicated, (ii) 50% of such net proceeds were retained
by the Holding Company and the remainder were used to purchase all of the stock
of Ben Franklin, and (iii) such net proceeds, less the amount of the ESOP and
RRP funding, were invested by the Bank and Holding Company at the beginning of
the period to yield a pre-tax return of 5.55% for the fiscal year ended December
31, 1997. The after-tax rate of return is 3.33% assuming a combined state and
federal income tax rate of
21
<PAGE>
40%. The assumed return is based upon the market yield rate on one-year U.S.
Government Treasury Securities as of December 31, 1997. The use of this current
rate is viewed to be more relevant in the current interest rate environment than
the use of an arithmetic average of the weighted average yield earned by the
Bank on its interest-earning assets and the weighted average rate paid on its
deposits during such periods. Expenses (including the FBR marketing fee) are
estimated to be $550,000. The pro forma net income amounts derived from the
assumptions set forth herein should not be considered indicative of the actual
results of operations of the Holding Company that would have been attained for
any period if the Conversion had been actually consummated at the beginning of
such period, and the assumptions regarding investment yields should not be
considered indicative of the actual yields expected to be achieved during any
future period.
The total number of shares to be issued in the Conversion may be
increased or decreased significantly, or the price per share decreased, to
reflect changes in market and financial conditions prior to the close of the
Offering. However, if the aggregate Purchase Price of the Common Stock sold in
the Conversion is below $11,900,000 (the minimum of the Estimated Valuation
Range) or more than $18,515,000 (15% above the maximum of the Estimated
Valuation Range), subscribers will be offered the opportunity to modify or
cancel their subscriptions. See "The Conversion - Stock Pricing and Number of
Shares to be Issued."
22
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1997
-------------------------------------------------------------------
15% Above
Minimum Midpoint Maximum Maximum
1,190,000 1,400,000 1,610,000 1,851,500
Shares at Shares at Shares at Shares at
$10.00 per $10.00 per $10.00 per $10.00 per
Share Share Share Share
------------------ -------------- ---------------- ----------------
(Dollars in Thousands, Except Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds................................................ $ 11,900 $ 14,000 $ 16,100 $ 18,515
Less offering expenses and commissions........................ (550) (550) (550) (550)
------------- -------------- -------------- --------------
Estimated net conversion proceeds............................ 11,350 13,450 15,550 17,965
Less ESOP shares.............................................. (952) (1,120) (1,288) (1,481)
Less RRP shares............................................... (476) (560) (644) (741)
------------- ------------- ------------- -------------
Estimated proceeds available for investment(1)............... $ 9,922 $ 11,770 $ 13,618 $ 15,743
========== ========== ========== ==========
Net Income:
Historical.................................................. $ 298 $ 298 $ 298 $ 298
Pro Forma Adjustments:
Net earnings from proceeds(2).............................. 330 392 453 524
ESOP(3).................................................... (57) (67) (77) (89)
RRP(4)..................................................... (57) (67) (77) (89)
------------- -------------- -------------- --------------
Pro forma net income(5).................................. $ 514 $ 556 $ 597 $ 644
=========== ============ ============ ============
Net Income Per Share:
Historical(6)............................................. $ 0.27 $ 0.23 $ 0.20 $ 0.17
Pro forma Adjustments:
Net earnings from proceeds............................... 0.30 0.30 0.30 0.31
ESOP(3).................................................. (0.05) (0.05) (0.05) (0.05)
RRP(4)................................................... (0.05) (0.05) (0.05) (0.05)
------------ ------------ ------------- ------------
Pro forma net income per share(3)(4)................. $ 0.47 $ 0.43 $ 0.40 $ 0.38
=========== ============ ============ ============
Number of shares................................... 1,104,320 1,299,200 1,494,080 1,718,192
Stockholders' Equity (Book Value) Per Share(7):
Historical................................................. $ 7,800 $ 7,800 $ 7,800 $ 7,800
Pro Forma Adjustments:
Estimated net Conversion proceeds........................... 11,350 13,450 15,550 17,965
Less common stock acquired by:
ESOP(3).................................................... (952) (1,120) (1,288) (1,481)
RRP(4)..................................................... (476) (560) (644) (741)
------------ ------------- ------------- -------------
Pro forma book value(4)................................ $ 17,722 $ 19,570 $ 21,418 $ 23,543
========= ========== ========== ==========
Stockholders' Equity (Book Value)(7):
Per Share(6):
Historical.................................................. $ 6.55 $ 5.57 $ 4.84 $ 4.21
Pro Forma Per Share Adjustments:
Estimated net Conversion proceeds........................... 9.54 9.61 9.66 9.70
Less common stock acquired by:
ESOP(3).................................................... (0.80) (0.80) (0.80) (0.80)
RRP(4)..................................................... (0.40) (0.40) (0.40) (0.40)
----------- ------------ ------------- ------------
Pro forma book value per share(5)...................... $ 14.89 $ 13.98 $ 13.30 $ 12.71
=========== =========== =========== ===========
Offering price per share as a percentage of Pro Forma
Stockholders' equity per share............................. 67.1% 71.5% 75.2% 78.6%
============ ============= ============= =============
Offering price per share as a percentage of Pro Forma net
income per share........................................... 21.3% 23.3% 25.0% 26.3%
============ ============= ============= =============
Number of shares.............................................. 1,190,000 1,400,000 1,610,000 1,851,500
</TABLE>
23
<PAGE>
- ----------
(1) Reflects a reduction to net proceeds for the cost of the ESOP and the RRP
(which is subject to shareholder ratification) which it is assumed will be
funded from the net proceeds retained by the Holding Company.
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing Common Stock in the Conversion. For purposes of
calculating pro forma net income, proceeds attributable to purchases by the
ESOP and RRP, which purchases are to be funded by the Holding Company and
the Bank, have been deducted from net proceeds.
(3) It is assumed that 8% of the shares of Common Stock offered in the
Conversion will be purchased by the ESOP. The funds used to acquire such
shares will be borrowed by the ESOP from the net proceeds from the
Conversion retained by the Holding Company. The Bank intends to make
contributions to the ESOP in amounts at least equal to the principal and
interest requirement of the debt. The Bank's payment of the ESOP debt is
based upon equal installments of principal and interest over a ten-year
period. However, assuming the Holding Company makes the ESOP loan, interest
income earned by the Holding Company on the ESOP debt will offset the
interest paid by the Bank. The amount of ESOP debt is reflected as a
reduction of stockholders' equity. In the event that the ESOP were to
receive a loan from an independent third party, both ESOP expense and
earnings on the proceeds retained by the Holding Company would be expected
to increase. Only the ESOP shares committed to be released are considered
to be outstanding for the purpose of the earnings per share calculations.
(4) Adjustments to both book value and net earnings have been made to give
effect to the proposed open market purchase (based upon an assumed purchase
price of $10.00 per share) following Conversion by the RRP (subject to
stockholder ratification of such plan) of an amount of shares equal to 4%
of the shares of Common Stock sold in the Conversion for the benefit of
certain directors, officers and employees. Funds used by the RRP to
purchase the shares will be contributed to the RRP by the Holding Company
if the RRP is ratified by stockholders following the Conversion. Therefore,
this funding is assumed to reduce the proceeds available for reinvestment.
For financial accounting purposes, the amount of the contribution will be
recorded as a compensation expense (after giving effect to a combined
federal and state income tax rate of 40%) over the period of vesting. These
grants are scheduled to vest in equal annual installments over the five
years following stockholder ratification of the RRP. However, all unvested
grants will be forfeited in the case of recipients who fail to maintain
continuous service with the Holding Company or its subsidiaries. In the
event the RRP is unable to purchase a sufficient number of shares of Common
Stock to fund the RRP, the RRP may issue authorized but unissued shares of
Common Stock from the Holding Company to fund the remaining balance. In the
event the RRP is funded by the issuance of authorized but unissued shares
in an amount equal to 4.0% of the shares sold in the Conversion, the
interests of existing stockholders would be diluted by approximately 3.8%.
In the event that the RRP is funded through authorized but unissued shares,
for the year ended December 31, 1997, pro forma net income per share would
be $(.46), $(.42), $(.40) and $(.37), respectively, and pro forma
stockholders' equity per share would be $14.70, $13.83, $13.18 and $12.61,
respectively, in each case at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Valuation Range.
(5) No effect has been given to the shares to be reserved for issuance under
the proposed Stock Option Plan which is expected to be adopted by the
Holding Company following the Conversion, subject to stockholder approval.
In the event the Stock Option Plan is funded by the issuance of authorized
but unissued shares in an amount equal to 10% of the shares sold in the
Conversion, at $10.00 per share and all options are vested and exercised
immediately, the interests of existing stockholders would be diluted as
follows: pro forma net income per share for the year ended December 31,
1997 would be $(.45), $(.42), $(.39) and $(.37), respectively, and pro
forma stockholders' equity per share would be $14.45, $13.62, $13.00 and
$12.47, respectively, in each case at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range. In the alternative,
the Holding Company may purchase shares in the open market to fund the
Stock Option Plan following stockholder approval of such plan. To the
extent, the entire 10% of the shares to be reserved for issuance under the
Stock Option Plan were funded through open market purchases at the Purchase
Price of $10.00 per share, proceeds available for reinvestment would be
reduced by $1,190,000, $1,400,000, $1,610,000 and $1,851,500 at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range. See "Management - Benefit Plans - Stock Option and
Incentive Plan."
(6) Historical pro forma per share amounts have been computed as if the shares
of Common Stock indicated had been outstanding at the beginning of the
periods or on the dates shown, but without any adjustment of historical net
income or historical equity to reflect the investment of the estimated net
proceeds of the sale of shares in the Conversion as described above. All
ESOP shares have been considered outstanding for purposes of computing book
value per share. Pro forma share amounts have been computed by dividing the
pro forma net income or stockholders' equity (book value) by the number of
shares indicated as outstanding under SOP 93-6.
(7) "Book value" represents the difference between the stated amounts of the
Bank's assets and liabilities computed in accordance with generally
accepted accounting principles. The amounts shown do not reflect the effect
of the Liquidation Account which will be established for the benefit of
Eligible and Supplemental Eligible Account Holders in the Conversion, or
the federal income tax consequences of the restoration to income of the
Bank's special bad debt reserves for income tax purposes which would be
required in the unlikely event of liquidation. See "The Conversion -
Effects of Conversion to Stock Form on Depositors and Borrowers of the
Bank" and "Regulation - Federal and State Taxation." The amounts shown for
book value do not represent fair market values or amounts, if any,
distributable to stockholders in the unlikely event of liquidation.
24
<PAGE>
PRO FORMA REGULATORY CAPITAL ANALYSIS
As of December 31, 1997, the Bank would have exceeded each of the OTS capital
requirements on both a current and a fully phased-in basis had it been subject
to such requirements on such date. Set forth below is a summary of the Bank's
pro forma compliance with the OTS capital standards as of December 31, 1997
assuming that it had been subject to such standards on such date and based on
historical capital. The table also assumes that the indicated number of shares
were sold as of such date using the assumptions contained under the caption "Pro
Forma Data."
<TABLE>
<CAPTION>
Pro Forma at December 31, 1997
---------------------------------------------------------------------------------------
1,851,500 Shares
1,190,000 Shares 1,400,000 Shares 1,610,000 Shares 15% above
Historical Minimum Midpoint Maximum Maximum
------------------- ----------------------- ---------------------- ------------------- --------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital(2)......... $7,800 6.4% $13,207 10.2% $13,225 10.2% $13,643 10.5% $14,561 11.1%
====== ====== ======= ===== ======= ==== ======== ==== ======= =====
Tangible Capital(3):
Capital level......... $7,426 6.1% $12,833 10.0% $12,851 10.0% $13,269 10.3% $14,187 10.9%
Requirement........... 1,830 1.5 1,925 1.5 1,928 1.5 1,936 1.5 1,953 1.5
------- ------ --------- ------ --------- ----- --------- ------ ---------- -----
Excess................ $5,596 4.6% $10,908 8.5% $10,923 8.5% $11,333 8.8% $12,234 9.4%
====== ====== ======= ====== ======= ===== ======= ====== ========
Core Capital(3):
Capital level......... $7,426 6.1% $12,833 10.0% $12,851 10.0% $13,269 10.3% $14,187 10.9%
Requirement(4)........ 3,659 3.0 3,850 3.0 3,855 3.0 3,873 3.0 3,906 3.0
------- ------ --------- ------- --------- ----- --------- ----- --------- -----
Excess................ $3,767 3.1% $ 8,983 7.0% $ 8,996 7.0% $ 9,396 7.3% $10,281 7.9%
====== ==== ======== ====== ======== ===== ======== ===== ======= =====
Risk-Based Capital(3):
Capital level(5)...... $7,828 11.2% $13,235 18.7% $13,253 18.7% $13,671 19.2% $14,589 20.5%
Requirement(1)........ 5,574 8.0 5,676 8.0 5,679 8.0 5,688 8.0 5,706 8.0
------- ------ --------- ------- --------- ------ --------- ------- ---------- -----
Excess................$ 2,254 3.2% $ 7,559 10.7% $ 7,574 10.7% $ 7,983 11.2% $ 8,883 12.5%
======= ====== ======== ======= ======== ===== ======== ===== ========= =====
</TABLE>
(1) Pro forma amounts and percentages assume net proceeds are invested in
assets that carry a 20% risk-weight.
(2) Total equity as calculated under generally accepted accounting principles
("GAAP"). Assumes that the Bank receives 50% of the net proceeds or such
amount (up to 60.2%) as will give the Bank, upon completion of the
transaction, a capital to assets ratio of 10%, offset in part, by the
aggregate Purchase Price of Common Stock acquired at a price of $10.00 per
share by the ESOP in the Conversion and the RRP (assuming stockholder
ratification of such plan following completion of the Conversion).
(3) Tangible and core capital figures are determined as a percentage of
adjusted total assets; risk-based capital figures are determined as a
percentage of risk-weighted assets. Unrealized gains and losses on debt
securities available for sale are excluded from tangible, core and
risk-based capital. Adjusted total assets at the minimum, midpoint,
maximum, and 15% above the maximum were, $128.3 million, $128.5 million,
$129.1 million and $130.2 million, respectively. Risk weighted assets at
the minimum, midpoint, maximum and 15% above the maximum were $70.9
million, $71.0 million, $71.1 million and $71.3 million, respectively.
(4) The OTS has proposed a core capital requirement for savings associations
comparable to the requirement for national banks. This proposed core
capital ratio is 3% of total adjusted assets for thrifts that receive the
highest supervisory rating for safety and soundness ("CAMEL" rating), with
a 3% to 4% core capital requirement for all other thrifts. See "Regulation
- Regulatory Capital Requirements."
(5) Includes $402,000 of the allowance for loan losses which qualifies as
supplementary capital. See "Regulation - Regulatory Capital Requirements."
25
<PAGE>
CAPITALIZATION
Set forth below is the capitalization, including deposits, of Ben
Franklin as of December 31, 1997, and the pro forma capitalization of the
Holding Company at the minimum, the midpoint, the maximum and 15% above the
maximum of the Estimated Valuation Range, after giving effect to the Conversion
and based on other assumptions set forth in the table and under the caption "Pro
Forma Data."
<TABLE>
<CAPTION>
Holding Company - Pro Forma Based
Upon Sale at $10.00 per share
----------------------------------------------------------
Actual,
As of Minimum Midpoint Maximum Maximum
December 1,190,000 1,400,000 1,610,000 as adjusted
31, 1997 Shares Shares Shares 1,851,500
-------- ------ ------ ------ ---------
(In Thousands, Except Share Amounts)
<S> <C> <C> <C> <C> <C>
Deposits(1)................................. $112,754 $112,754 $112,754 $112,754 $112,754
Borrowings.................................. --- --- --- --- ---
-------- -------- -------- -------- --------
Total deposits and borrowed funds....... $112,754 $112,754 $112,754 $112,754 $112,754
======== ======== ======== ======== ========
Stockholders' equity:
Common Stock ($0.01 par value)
2.5 million shares authorized; shares to
be issued as reflected(2)................ $ --- $ 12 $ 14 $ 16 $ 19
Additional paid-in capital................ --- 11,338 13,436 15,534 17,946
Retained earnings, substantially
restricted(3)............................. 7,426 7,426 7,426 7,426 7,426
Net unrealized gains on securities
available for sale..................... 374 374 374 374 374
Preferred Stock............................. --- --- --- --- ---
Less:
Common Stock acquired by ESOP(4).......... --- (952) (1,120) (1,288) (1,481)
Common Stock acquired by RRP(4)........... --- (476) (560) (644) (741)
------- -------- ---------- ---------- ----------
Total stockholders' equity.............. $ 7,800 $ 17,722 $ 19,570 $ 21,418 $ 23,543
======= ======== ========== ========== ==========
</TABLE>
(1) No effect has been given to withdrawals from deposit accounts for the
purpose of purchasing Common Stock in the Conversion. Any such withdrawals
will reduce pro forma deposits by the amount of such withdrawals.
(2) Does not reflect the shares of Common Stock that may be reserved for
issuance pursuant to the Stock Option Plan.
(3) See "Dividends" and "Regulation - Limitations on Dividends and Other
Capital Distributions" regarding restrictions on future dividend payments
and "The Conversion - Effects of Conversion to Stock Form on Depositors and
Borrowers of the Bank" regarding the liquidation account to be established
upon Conversion.
(4) Assumes that 8% of the shares sold in the Conversion will be purchased by
the ESOP. The funds used to acquire the ESOP shares will be borrowed from
the Holding Company. The Bank intends to make contributions to the ESOP
sufficient to service and ultimately retire the ESOP's debt over a ten-year
period. Also assumes that an amount of shares equal to 4% of the amount of
shares sold in the Conversion will be acquired by the RRP, following
shareholder ratification of such plan after completion of the Conversion.
In the event that the RRP is funded by the issuance of authorized but
unissued shares in an amount equal to 4% of the shares sold in the
Conversion, the interest of existing stockholders would be diluted by
approximately 3.8%. The amount to be borrowed by the ESOP and the Common
Stock acquired by the RRP is reflected as a reduction of stockholders'
equity. See "Management - Benefit Plans - Employee Stock Ownership Plan"
and "- Recognition and Retention Plan."
26
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Bank's financial statements and related notes and with the statistical
information and financial data included in this document.
When used in this document, the words or phrases "will likely result",
"are expected to", "will continue", "is anticipated", "estimate", "project", or
similar expressions are intended to identify "forward looking statements". Such
statements are subject to certain risks and uncertainties-including, changes in
economic conditions in the Bank's market area, changes in policies by regulatory
agencies, fluctuations in interest rates, demand for loans in the Bank's market
area, and competition that could cause actual results to differ materially from
historical results and those presently anticipated or projected. The Bank wishes
to caution readers not to place undue reliance on any such forward looking
statements, which speak only as of the date made. The Bank wishes to advise
readers that the factors listed above could affect the Bank's financial
performance and could cause the Bank's actual results for future periods to
materially differ from any opinions or statements expressed with respect to
future periods in any current statements.
General
The Bank is engaged primarily in attracting deposits from the general
public and using such deposits to originate one-to-four family residential
mortgage and, to a lesser extent, consumer and other loans primarily in its
market areas, and to acquire securities. In early 1997, the Bank hired a new
President with a commercial banking background and began to expand the Bank's
lending and fee based activities. In particular, the Bank has begun to acquire
Title I loans and servicing and is about to begin originating small and medium
sized ($1.0 million or less) multi-family and commercial real estate loans. The
Bank has also purchased an interest in a commercial construction loan, although
the overall level of construction and development lending is expected to be
modest. Finally, the Bank is currently considering establishing a consumer
finance subsidiary and/or a new department which would offer loan administration
and other correspondent services to credit unions. See "Risk Factors -- Risks
Associated With Expansion of Business Activities."
The Bank's revenues are derived principally from interest earned on
loans and securities. The operations of the Bank are influenced significantly by
general economic conditions and by policies of financial institution regulatory
agencies. The Bank's cost of funds is influenced by interest rates on competing
investments and general market interest rates. Lending activities are affected
by the demand for financing of real estate and other types of loans, which in
turn is affected by the interest rates at which such financings may be offered.
The Bank's net interest income is dependent primarily upon the
difference or spread between the average yield earned on loans receivable and
securities and the average rate paid on deposits, as well as the relative
amounts of such assets and liabilities. The Bank, like other thrift
institutions, is subject to interest rate risk to the degree that its
interest-bearing liabilities mature or reprice at different times, or an a
different basis, than its interest-earning assets.
Comparison of Financial Condition at December 31, 1997 and December 31, 1996
Total assets at December 31, 1997 were $122.6 million compared to
$106.9 million at December 31, 1996, an increase of $15.7 million, or 14.65%.
The increase was primarily the result of an increase in certificates of deposit
of $13.7 million and an increase of $4.7 million in non-certificate deposits
which were used to fund a $10.2 million increase in securities, a $4.5 million
increase in cash and cash equivalents and a $3.7 million reduction in federal
funds purchased as the Bank realized competitive opportunities to raise deposit
funds. The increases in deposits were due to special rate promotions. Total
gross loans increased $1.1 million, primarily in one- to four- family mortgage
loans.
Total equity at December 31, 1997 was $7.8 million compared to $7.4
million at December 31, 1996, an increase of $350,000, or 4.70% as a result of
$298,000 of net income for the year as well as a $52,000 increase in the
unrealized gain on securities available-for-sale.
27
<PAGE>
Results of Operations
The Bank's results of operations depend primarily upon the level of
net interest income, which is the difference between the interest income earned
on its interest-earning assets such as loans and securities, and the costs of
the Bank's interest-bearing liabilities, primarily deposits and borrowings.
Results of operations are also dependent upon the level of the Bank's
noninterest income, including fee income and service charges, and affected by
the level of its noninterest expenses, including its general and administrative
expenses. Net interest income depends upon the volume of interest-earning assets
and interest-bearing liabilities and the interest rate earned or paid on them,
respectively.
28
<PAGE>
The following table presents, for the periods indicated, the total
dollar amount of interest income from average interest-earning assets and the
resultant yields, as well as the interest expense on average interest-bearing
liabilities, expressed both in dollars and rates. No tax equivalent adjustments
were made. All average balances are monthly average balances. Non-accruing loans
have been included in the average loan amounts.
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------------------------------------------------------
1997 1996 1995
------------------------------ ------------------------------- ------------------------------
Average Interest Average Interest Average Interest
Outstanding Earned/ Outstanding Earned/ Outstanding Earned/
Balance Paid Yield/Rate Balance Paid Yield/Rate Balance Paid Yield/Rate
------- ---- ---------- ------- ---- ---------- ------- ---- ----------
(Dollars in Thousands)
Interest-Earning Assets:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans receivable....................$ 93,732 $ 7,209 7.69% $ 93,285 $ 7,196 7.71% $ 82,909 $6,506 7.85%
Investment and mortgage backed
securities......................... 10,629 688 6.47 8,866 562 6.34 9,443 600 6.35
Interest-bearing deposits........... 725 16 2.21 818 17 2.08 479 21 4.38
Federal funds sold.................. 1,064 59 5.55 --- --- --- --- --- ---
--------- --------- --------- -------- --------- --------
Total earning assets.............. 106,150 7,972 7.51 102,969 7,775 7.55 92,831 7,127 7.68
Non-interest earning assets......... 4,229 3,727 3,905
--------- --------- ---------
Total assets...................... $110,379 $ 106,696 $96,736
======== ======== =======
Interest-Bearing Liabilities:
Savings and CDs.....................$ 83,262 4,289 5.15 $ 76,128 3,970 5.21 $ 71,945 3,695 5.14
Demand, money market and NOW........ 10,917 321 2.94 12,012 315 2.62 10,868 307 2.82
Federal funds purchased............. 4,048 227 5.61 5,311 292 5.50 2,694 162 6.01
FHLB advances....................... --- --- 1,834 104 5.67 --- --- ---
--------- -------- -------- -------- --------- -------
Total interest-bearing liabilities 98,227 4,837 4.92 95,285 4,681 4.91 85,507 4,164 4.87
-------- ------- -----
Non-interest-bearing liabilities.... 4,641 4,502 5,180
--------- -------- ----------
Total liabilities................. 102,868 99,787 90,687
Equity.............................. 7,511 6,909 6,049
--------- -------- ----------
Total liabilities and equity...... $110,379 $106,696 $96,736
======== ======== =======
Net interest/income spread............ $ 3,135 2.59% $ 3,094 2.64% $2,963 2.81%
======= ==== ======== ==== ====== ====
Net interest margin................... 2.95% 3.00% 3.19%
==== ==== ====
Ratio of interest-earning assets to
interest-bearing liabilities......... 108.07% 108.06% 108.57%
====== ======= =======
</TABLE>
29
<PAGE>
The following table presents the weighted average contractual yields
earned on loans and securities, the combined weighted average yield on
interest-earning assets, the weighted average rates paid on deposits and
borrowings, the combined weighted average rate paid on interest-bearing
liabilities and the resultant interest rate spread at December 31, 1997.
Weighted Average Yields Earned/Rates Paid
December 31, 1997
- --------------------------------------------------------------------------------
Weighted average yield on:
Loans receivable.......................................... 7.74%
Total securities.......................................... 6.45
Interest-bearing deposits................................. 6.47
Federal funds sold........................................ 6.00
Combined weighted average yield on interest-earning
assets.................................................. 7.46
Weighted average rate paid on deposits....................... 5.04
Spread....................................................... 2.42%
The following schedule presents the dollar amount of changes in
interest income and interest expense for major components of interest-earning
assets and interest-bearing liabilities. It distinguishes between the changes
related to outstanding balances and that due to the changes in interest rates.
For each category of interest-earning assets and interest-bearing liabilities,
information is provided on changes attributable to (i) changes in volume (i.e.,
changes in volume multiplied by old rate) and (ii) changes in rate (i.e.,
changes in rate multiplied by old volume). For purposes of this table, changes
attributable to both rate and volume, which cannot be segregated, have been
allocated proportionately to the change due to volume and the change due to
rate.
<TABLE>
<CAPTION>
Year Ended December 31, Year Ended December 31,
1997 vs. 1996 1996 vs. 1995
------------------------------- --------------------------------
Increase Total Increase Total
(Decrease) Increase (Decrease) Increase
Due to (Decrease) Due to (Decrease)
------ ---------- ------ ----------
Volume Rate Volume Rate
------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
(In Thousands)
Interest-earning assets:
Loans receivable....................... $ 34 $(21) $ 13 $802 $(112) $690
Federal funds sold..................... 59 --- 59 --- --- ---
Investment and mortgage-backed
securities........................... 114 12 126 (37) (1) (38)
Interest-bearing deposits............... (2) 1 (1) 10 (14) (4)
---- ---- ----- ----- ------ --------
Total interest-earning assets........ 205 (8) 197 775 (127) 648
----- --- ---- ---- ---- ------
Interest-bearing liabilities:
Savings and CDs....................... 368 (49) 319 217 58 275
Demand, money market and NOW......... (30) 36 6 31 (23) 8
Federal funds purchased............... (71) 6 (65) 145 (15) 130
FHLB advances......................... (104) --- (104) 104 --- 104
---- --- ---- ---- ------ ------
Total interest-bearing liabilities... 163 (7) 156 497 20 517
----- ---- ----- ---- ----- ------
Net interest/spread..................... $ 42 $ (1) $ 41 $278 $(147) $131
===== ==== ===== ==== ===== ====
</TABLE>
30
<PAGE>
Comparison of Operating Results for the Years Ended December 31, 1997 and
December 31, 1996
General. Net income for the year ended December 31, 1997 was $298,000
compared to $469,000 for the year ended December 31, 1996, a decrease of
$171,000, or 36.46%. The decrease was primarily a result of a $227,000 increase
in non-interest expense combined with a $117,000 increase in the provision for
loan losses. These increases were partially offset by increases of $41,000 and
$21,000 of net interest income and non-interest income, respectively and a
decrease of $111,000 in the provision for income taxes.
Interest Income. Interest income for the year ended December 31, 1997 was
$8.0 million compared to $7.8 million for the year ended December 31, 1996, an
increase of $197,000, or 2.53%. The increase was primarily a result of an
increase in the average balance of interest-earning assets to $106.1 million for
the year ended December 31, 1997 from $103.0 million for the year ended December
31, 1996 offsetting a decline in the average yield on interest-earning assets to
7.51% for the year ended December 31, 1997 from 7.55% for the year ended
December 31, 1996.
Interest Expense. Interest expense for the year ended December 31, 1997
was $4.8 million compared to $4.7 million for the year ended December 31, 1996,
an increase of $156,000, or 3.33%. The increase was the result of an increase in
the average balance of interest-bearing liabilities to $98.2 million for the
year ended December 31, 1997 from $95.3 million for the year ended December 31,
1996. The average cost of funds increased nominally to 4.92% for the year ended
December 31, 1997 from 4.91% for the year ended December 31, 1996. The average
cost of savings and certificates of deposit decreased to 5.15% for the year
ended December 31, 1997 from 5.21% for the year ended December 31, 1996 which
was offset by an increase in the average cost of demand and NOW accounts to
2.94% for the year ended December 31, 1997 from 2.62% for the year ended
December 31, 1996. These fluctuations in the cost paid on the various deposit
products were a direct result of competitive pressures within the Bank's market
area.
Net Interest Income. Net interest income of $3.1 million for the year
ended December 31, 1997 reflects an increase of $41,000 or 1.33% from the same
period in 1996. The increase in net interest income was primarily a result of
growth in the interest-earning assets and interest-bearing liabilities which
more than offset a decrease in the net interest spread to 2.59% for the year
ended December 31, 1997 from 2.64% for the year ended December 31, 1996, as well
as a decrease in the net interest margin to 2.95% from 3.00% for the same
period.
Provision for Loan Losses. The Bank's provision for loan losses for the
year ended December 31, 1997 was $150,000 compared to $33,000 for the year ended
December 31, 1996. The increase in the provision was due in part to increases in
automobile and home improvement loans which carry somewhat increased credit risk
as compared to one- to four-family mortgage loans. In addition, management
increased the allowance for loan losses through a provision charged to expense
for loan growth based on a statistical percentage developed considering past
loss experiences, delinquency trends, peer group comparisons, general economic
conditions and other factors. Gross loans increased $1.1 million, or 1.21% from
1996. The allowance for loan losses represented .43% and .29% of gross loans
receivable at December 31, 1997 and 1996, respectively.
In view of the current expansion of the Bank's lending activities, the
Bank's provision for loan losses may increase in future periods. See " Risk
Factors -- Risks Associated with the Expansion of the Bank's Business
Activities."
Non-interest Income. Non-interest income for the year ended December 31,
1997 was $182,000 compared to $161,000 for the year ended December 31, 1996, an
increase of $21,000, or 13.04%. The increase was primarily a result of $19,000
of net loan servicing fees recognized as part of the new Title I loan servicing
program. See "Business --Lending Activities -- Title I Lending."
Non-interest Expense. Non-interest expense for the year ended December
31, 1997 was $2.7 million compared to $2.4 million for the year ended December
31, 1996, an increase of $227,000, or 9.30%. Several factors contributed to the
increase including an increase in compensation and employee benefits primarily
attributable to the adoption of a supplemental retirement plan as well as an
increased number of employees. This increase was offset by a $650,000 decrease
in deposit insurance premium expense primarily attributable to the one-time
special assessment on SAIF-insured deposits paid in 1996 and a reduction of the
FDIC premium in 1997, and a net increase in occupancy, data processing,
advertising, other real estate owned and other operating expenses of $207,000
consisting primarily of a
31
<PAGE>
decrease in the amount of loan origination costs deferred in accordance with
Statement of Financial Accounting Standards No. 91 due to decreased loan
origination volume. Noninterest expense is likely to increase in the future in
view of the expansion of the Company's lending and fee based activities, and,
after Conversion, the implementation of stock based benefit plans and the costs
of operations as a public company. See "Risk Factors - Increased Overhead
Expense."
Income Taxes. The provision for income taxes was $201,000 for the year
ended December 31, 1997 compared to $312,000 for the year ended December 31,
1996. The decrease was primarily a result of a $282,000 decrease in pretax
income.
Comparison of Operating Results for the Years Ended December 31, 1996 and
December 31, 1995
General. Net income for the year ended December 31, 1996 was $469,000
compared to net income of $727,000 for the year ended December 31, 1995, a
decrease of $258,000, or 35.49%. The decrease was primarily a result of a
$491,000 FDIC special assessment on SAIF-insured deposits effective September
30, 1996.
Interest Income. Interest income for the year ended December 31, 1996 was
$7.8 million compared to $7.1 million for the year ended December 31, 1995, an
increase of $648,000 or 9.09%. The increase resulted from a 10.92% increase in
the average balance of interest-earning assets to $103.0 million for the year
ended December 31, 1996 from $92.8 million for the year ended December 31, 1995
offsetting a decline in the average yield on interest-earning assets to 7.55%
for the year ended December 31, 1996 from 7.68% for the year ended December 31,
1995.
Interest Expense. Interest expense for the year ended December 31, 1996
was $4.7 million compared to $4.2 million for the year ended December 31, 1995,
an increase of $517,000, or 12.42%. The increase in interest expense reflected a
larger interest-bearing liability base. The average balance of interest-bearing
liabilities increased 11.44% to $95.3 million for the year ended December 31,
1996 from $85.5 million for the year ended December 31, 1995 as a result of
market demand. Additionally, the average cost of interest-bearing liabilities
increased to 4.91% for the year ended December 31, 1996 from 4.87% for the year
ended December 31, 1995, driven particularly by the average cost of savings and
certificates of deposit which increased to 5.21% for the year ended December 31,
1996 from 5.14% for the year ended December 31, 1995. These fluctuations in the
rates paid on the various deposit products were a direct result of competitive
pressures within the Bank's market area.
Net Interest Income. Net interest income of $3.1 million for the year
ended December 31, 1996 represented an increase of $131,000 from the $3.0
million reported for the year ended December 31, 1995. There was a decrease in
the net interest spread to 2.64% for the year ended December 31, 1996 from 2.81%
for the year ended December 31, 1995. The decrease in the net interest rate
spread was a result of an increase in the average cost of interest-bearing
liabilities combined with a decrease in the average yield on interest-earning
assets. Additionally, the ratio of average interest-earning assets to average
interest-bearing liabilities decreased to 108.06% for the year ended December
31, 1996 from 108.57% for the year ended December 31, 1995, and the net interest
margin decreased to 3.00% from 3.19% for the same period.
Provision for Loan Losses. The Bank's provision for loan losses for the
year ended December 31, 1996 was $33,000 compared to $32,000 for the year ended
December 31, 1995. The Bank experienced modest loan growth during 1996 which
resulted in an increase in the allowance for loan losses. Management increases
the allowance for loan losses through a provision charged to expense for loan
growth based on a statistical percentage developed considering past loss
experiences, delinquency trends, general economic conditions and other factors.
Gross loans at December 31, 1996 increased $2.3 million to $93.0 million, or
2.54% from 1995. The allowance for loan losses represented .29% and .25% of
gross loans receivable at December 31, 1996 and 1995, respectively.
Non-interest Income. Non-interest income for the year ended December 31,
1996 was $161,000 compared to $153,000 for the year ended December 31, 1995, an
increase of $8,000 or 5.23%. The increase was the result of increases in service
charge income due to a larger deposit base.
32
<PAGE>
Non-interest Expense. Non-interest expense was $2.4 million for the year
ended December 31, 1996 compared to $1.9 million for the year ended December 31,
1995, an increase of $568,000 or 30.33%. The increase was primarily due to a
$491,000 one-time special assessment on SAIF insured deposits on September 30,
1996. As a result of the assessment, and depending upon the Bank's capital level
and supervisory rating, annual deposit insurance premiums were decreased for
periods beginning January 1, 1997 from the .23% of deposits previously paid by
the Bank to approximately .06% of deposits. See "Regulation -- Insurance of
Accounts and Regulation by the FDIC."
Income Taxes. The provision for income taxes was $312,000 for the year
ended December 31, 1996 compared to $484,000 for the year ended December 31,
1995. The decrease was primarily due to a $430,000 decrease in pretax income.
Quantitative and Qualitative Disclosure About Market Risk
In an attempt to manage its exposure to changes in interest rates,
management monitors the Bank's interest rate risk. The Board of Directors
reviews at least quarterly the Bank's interest rate risk position and
profitability. The Board of Directors also reviews the Bank's portfolio,
formulates investment strategies and oversees the timing and implementation of
transactions to assure attainment of the Bank's objectives in the most effective
manner. In addition, the Board reviews on a quarterly basis the Bank's
asset/liability position, including simulations of the effect on the Bank's
capital of various interest rate scenarios.
In managing its asset/liability mix, the Bank, depending on the
relationship between long- and short-term interest rates, market conditions and
consumer preference, often places more emphasis on managing short-term net
interest margin than on better matching the interest rate sensitivity of its
assets and liabilities in an effort to enhance net interest income. Management
believes that the increased net interest income resulting from a mismatch in the
maturity of its asset and liability portfolios can, during periods of declining
or stable interest rates, provide high enough returns to justify the increased
exposure to sudden and unexpected increases in interest rates.
The Board has taken a number of steps to manage the Bank's vulnerability
to changes in interest rates. First, the Bank has long used customer service and
marketing efforts to increase and maintain the Bank's passbook and other
non-certificate accounts. At December 31, 1997, $35.0 million or 31.04% of the
Bank's deposits consisted of passbook, NOW and money market accounts. The Bank
believes that a majority of these accounts represent "core" deposits which are
generally somewhat less interest rate sensitive than other types of deposit
accounts. Second, while the Bank continues to originate 30 year fixed rate
residential loans for portfolio as a result of consumer demand, as of December
31, 1997, over 40% of the Bank's loans consisted of adjustable rate mortgage
loans and home equity lines of credit. However, the amount of adjustable rate
loans which the Bank may originate is limited by consumer preference,
particularly during periods of low interest rates. Third, the Bank has begun to
expand its business to include assets such as multi-family and commercial real
estate loans and, to a lesser extent, construction loans which generally have
adjustable rates and or shorter terms than one- to four-family residential
loans. Fourth, the Bank has begun to expand its noninterest income generating
activities which may be somewhat less sensitive to increases in interest rates
(although the Bank's loan servicing activities will likely be sensitive to
prepayments caused by declines in interest rates). Finally, the Bank has focused
a significant portion of its investment activities on securities with terms of
five years or less. At December 31, 1997, $17.6 million of the Bank's securities
had terms to maturity of five years or less.
Management utilizes the net portfolio value ("NPV") analysis to quantify
interest rate risk. In essence, this approach calculates the difference between
the present value of liabilities, expected cash flows from assets and cash flows
from off balance sheet contracts.
33
<PAGE>
Presented below, as of December 31, 1997, is an analysis of the Bank's
estimated interest rate risk as measured by changes in NPV for instantaneous and
sustained parallel shifts in interest rates, up and down 400 basis points in 100
point increments.
Assumed Change $ Change % Change
in Interest Rates $ Amount in NPV in NPV
----------------- -------- -------- --------
(Basis Points) (Dollars in Thousands)
+400 $5,827 $(7,017) (56)%
+300 7,920 (4,924) (30)
+200 9,530 (3,314) (26)
+100 11,633 (1,211) (9)
-- 12,844 --- ---
-100 12,407 (437) (3)
-200 13,995 1,151 9
-300 13,903 1,059 8
-400 15,239 2,395 19
Certain assumptions utilized in assessing the interest rate risk of
thrift institutions were employed in preparing the preceding table. These
assumptions relate to interest rates, loan prepayment rates, deposit decay
rates, and the market values of certain assets under the various interest rate
scenarios. It was also assumed that delinquency rates will not change as a
result of changes in interest rates although there can be no assurance that this
will be the case. Even if interest rates change in the designated amounts, there
can be no assurance that the Bank's assets and liabilities would perform as set
forth above. In addition, a change in U.S. Treasury rates in the designated
amounts accompanied by a change in the shape of the Treasury yield curve would
cause significantly different changes to the NPV than indicated above.
Liquidity and Capital Resources
The Bank's primary sources of funds are deposits and proceeds from
principal and interest payments on loans and mortgage-backed securities. While
maturities and scheduled amortization of loans and securities are predictable
sources of funds, deposit flows and mortgage prepayments are greatly influenced
by general interest rates, economic conditions and competition. The Bank
generally manages the pricing of its deposits to be competitive and to increase
core deposit relationships.
Federal regulations require the Bank to maintain minimum levels of liquid
assets. The required percentage has varied from time to time based upon economic
conditions and savings flows and is currently 4% of net withdrawable savings
deposits and borrowings payable on demand or in one year or less during the
preceding calendar month. Liquid assets for purposes of this ratio include cash,
certain time deposits, U.S. Government, government agency and corporate
securities and other obligations generally having remaining maturities of less
than five years. The Bank has historically maintained its liquidity ratio for
regulatory purposes at levels in excess of those required. At December 31, 1997,
the Bank's liquidity ratio for regulatory purposes was 21.02%.
The Bank's cash flows are comprised of three primary classifications:
cash flows from operating activities, investing activities and financing
activities. Cash flows provided by operating activities were $585,000, $6,000,
and $1.0 million for the years ended December 31, 1997, December 31, 1996, and
December 31, 1995, respectively. Net cash from investing activities consisted
primarily of disbursements for loan originations and the purchase of securities,
offset by principal collections on loans, proceeds from maturation and sales of
securities. Cash flows used by investing activities were $10.9 million, $3.6
million and $11.6 million for the years ended December 31, 1997, 1996 and 1995.
Net cash from financing activities consisted primarily of activity in deposit
and escrow accounts. Cash flows provided by financing activities were $14.8
million, $3.3 million and $10.1 million for the years ended December 31, 1997,
1996 and 1995.
34
<PAGE>
The Bank's most liquid assets are cash and short-term investments. The
levels of these assets are dependent on the Bank's operating, financing, lending
and investing activities during any given period. At December 31, 1997, cash and
short-term investments totaled $7.1 million. The Bank has other sources of
liquidity if a need for additional funds arises, including securities maturing
within one year and the repayment of loans. The Bank may also utilize the sale
of securities available-for-sale, federal funds purchased, Federal Home Loan
Bank advances and other borrowings as sources of funds.
At December 31, 1997, the Bank had outstanding commitments to originate
loans of $1.5 million, $1.0 million of which had fixed interest rates. These
loans are to be secured by properties located in its market area. The Bank
anticipates that it will have sufficient funds available to meet its current
loan commitments. Loan commitments have, in recent periods, been funded through
liquidity, normal deposit flows or federal funds puchased. Certificates of
deposit scheduled to mature in one year or less from December 31, 1997 totaled
$58.7 million. Management believes, based on past experience, that a significant
portion of such deposits will remain with the Bank. Based on the foregoing, in
addition to the Bank's level of core deposits and capital, the Bank considers
its liquidity and capital resources sufficient to meet its outstanding
short-term and long-term needs.
Liquidity management is both a daily and long-term responsibility of
management. The Bank adjusts its investments in liquid assets based upon
management's assessment of (i) expected loan demand, (ii) expected deposit
flows, (iii) yields available on interest-earning deposits and investment
securities, and (iv) the objectives of its asset/liability management program.
Excess liquid assets are invested generally in interest-earning overnight
deposits, Federal funds sold, and short- and intermediate-term U.S. Government
and agency obligations and mortgage-backed securities of short duration. If The
Bank requires funds beyond its ability to generate them internally, it has
additional borrowing capacity with the Federal Home Loan Bank of Chicago. It is
anticipated that immediately upon completion of the Conversion, the Holding
Company's and the Bank's liquid assets will be increased. See "Use of Proceeds".
The Bank is subject to various regulatory capital requirements. At
December 31, 1997, The Bank was in compliance with all applicable capital
requirements. See "Regulation - Regulatory Capital Requirements" and "Pro Forma
Regulatory Capital Analysis" and Note 6 of the Notes to Consolidated Financial
Statements.
Impact of Inflation and Changing Prices
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles which
require the measurement of financial position and operating results in terms of
historical dollars without considering changes in the relative purchasing power
of money over time due to inflation. The primary impact of inflation on the
operations of the Bank is reflected in increased operating costs. Unlike most
industrial companies, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates, generally, have
a more significant impact on a financial institution's performance than does
inflation. Interest rates do not necessarily move in the same direction or to
the same extent as the prices of goods and services.
Impact of New Accounting Standards
In June 1996, the Financial Accounting Standards Board released Statement
of Financial Accounting Standards (SFAS) No. 125, Accounting for Transfers and
Extinguishments of Liabilities. SFAS No. 125 provides accounting and reporting
standards for transfers and servicing of financial assets and extinguishments of
liabilities. SFAS No. 125 requires a consistent application of a
financial-components approach that focuses on control. Under that approach,
after a transfer of financial assets, an entity recognizes the financial and
servicing assets it controls and the liabilities it has incurred, and
derecognizes liabilities when extinguished. SFAS No. 125 also supersedes SFAS
No. 122, Accounting for Mortgage Servicing Rights, and requires that servicing
assets and liabilities be subsequently measured by amortization in proportion to
and over the period of estimated net servicing income or loss and requires
assessment for asset impairment or increases obligations based on their fair
values. SFAS No. 125 applies to transfers and extinguishments occurring after
December 31, 1996 and early or retroactive application is not permitted. Because
the volume and variety of certain transactions will make it difficult for some
entities to comply in the timeframe established,
35
<PAGE>
some provisions have been delayed by SFAS No. 127. The adoption of SFAS No. 125
did not have a material impact on the financial condition or operations of the
Bank.
In June 1997, the FASB issued SFAS No. 130, Reporting Comprehensive
Income. This statement establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in a full set of general-purpose financial statements. This Statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. Income tax
effects must also be shown. This statement is effective for fiscal years
beginning after December 15, 1997. Management does not anticipate that the
adoption of SFAS No. 130 will have a material impact on the results of
operations or financial condition of The Bank.
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, will also become effective during 1998. SFAS No. 131 establishes
standards for the way public companies report information about its operating
segments and requires that these standards be adhered to for interim reporting
as well. SFAS No. 131 requires companies to provide more descriptive disclosures
about its operating segments including the way in which the segment was
determined, the products and services provided by the segment, and the profit or
loss generated by the segment. Management does not anticipate that the adoption
of SFAS No. 131 will have a material impact on the results of operations or
financial condition of The Bank.
BUSINESS
General
As a community-oriented financial institution, Ben Franklin seeks to
serve the financial needs of the communities in its market area. Ben Franklin's
business involves attracting deposits from the general public and using such
deposits, together with other funds, to originate primarily one- to four-family
residential mortgage loans, and, to a lesser extent, home equity and other loans
in its market area. The Bank also invests in other securities and other
permissible investments.
The Bank offers a variety of accounts having a range of interest rates
and terms. The Bank's deposits include passbook, statement savings, demand and
NOW accounts and time deposit accounts. The Bank solicits deposits only in its
primary market area.
In 1997, the Bank began to expand the Bank's lending and fee based
activities. In particular, the Bank has begun to acquire Title I loans and
servicing and intends to begin originating small and medium sized ($1.0 million
or less) multi-family and commercial real estate loans. The Bank has also
recently purchased an interest in a commercial construction loan, although the
overall level of construction and development lending is expected to be modest.
Finally, the Bank is currently also considering establishing a consumer finance
subsidiary as well as a new department which would provide loan administration
and other improvement services to credit unions. See "Risk Factors -- Risks
Associated With Expansion of Business Activities.
Market Area
The Bank conducts business through its main office located at 14 N.
Dryden Place, Arlington Heights, Illinois and a branch office located at 3148
Kirchoff Road, Rolling Meadows, Illinois. Both of these offices are located in
affluent suburban communities located approximately 15 miles to the northwest of
Chicago, Illinois. Over the last 20 years, these communities have experienced
significant population and commercial growth well above the state and national
averages.
Lending Activities
General. The principal lending activity of the Bank is originating one-
to four-family residential and, to a lesser extent, home equity and other loans.
In addition, in 1997, the Bank hired a new President and expanded its lending
activities to include Title I lending, multi-family and commercial real estate
lending, and, to a much lesser extent,
36
<PAGE>
construction and development lending. At December 31, 1997, the Bank's net loans
totaled $94.0 million. See "- Originations of Loans" and "Use of Proceeds."
Under federal law, the aggregate amount of loans that the Bank is
permitted to make to any one borrower is generally limited to the greater of 15%
of unimpaired capital and surplus (25% if the security for such loan has a
"readily ascertainable" value or 30% for certain residential development loans)
or $500,000. At December 31, 1997, based on the above, the Bank's regulatory
loans-to-one borrower limit was approximately $1.1 million. On the same date,
the Bank had no borrowers with outstanding balances in excess of this amount as
its largest loans at such date were single family loans. However, subsequent to
December 31, 1997, the Bank purchased a $1.0 million interest in a construction
loan secured by an interest in a 69 unit mixed use condominium project in Lisle,
Illinois.
Decisions on loan applications are made on the basis of detailed
applications and property valuations (consistent with the Bank's appraisal
policy) by independent appraisers. Under the Bank's loan policy, the individual
processing an application is responsible for ensuring that all documentation is
obtained prior to the submission of the application to a loan officer for
approval. In addition, the loan officer verifies that the application meets the
Bank's underwriting guidelines. Also, each application file is reviewed to
assure its accuracy and completeness.
The Bank's President and its Chief Lending Officer have approval
authority for loans up to $500,000. Loans over $500,000 to $750,000 require the
approval of the Executive Loan Committee. Loans in excess of $750,000 require
approval of the Board of Directors.
The Bank requires title insurance on its mortgage loans, as well as fire
and extended coverage casualty insurance in amounts at least equal to the
principal amount of the loan or the value of improvements on the property,
depending on the type of loan. In addition, the Bank requires escrow for
property taxes, insurance and flood insurance (where appropriate) on its one- to
four-family mortgage loans.
37
<PAGE>
The following table shows the composition of the Bank's loan portfolio by
loan type at the dates indicated.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------- ----------------- ----------------- ----------------- -----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------- ------- ------- ------- ------- ------- ------- -------
(Dollars in Thousands)
Real Estate Loans:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family...........$78,544(1) 83.49% $76,681 82.50% $75,687 83.50% $64,603 83.24% $57,101 84.17%
Construction or development .. --- --- --- --- --- --- 487 .63 275 .40
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total real estate loans... 78,544 83.49 76,681 82.50 75,687 83.50 65,090 83.87 57,376 84.57
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Other loans:
Consumer Loans:
Deposit account............. 99 .11 92 .10 55 .06 39 .05 88 .13
Automobile.................. 350 .37 160 .17 115 .13 41 .05 38 .06
Home equity................. 14,340(1) 15.24 15,184 16.33 14,251 15.72 11,818 15.23 9,910 14.61
Home improvement............ 362(2) .38 251 .27 218 .24 273 .35 246 .36
Other....................... 386 .41 584 .63 320 .35 350 .45 184 .27
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total consumer loans...... 15,537 16.51 16,271 17.50 14,959 16.50 12,521 16.13 10,466 15.43
------- ------ ------- ------ ------- ------ ------- ------ ------- ------
Total loans 94,081 100.00% 92,952 100.00% 90,646 100.00% 77,611 100.00% 67,842 100.00%
====== ====== ====== ====== ======
Less:
Loans in process............. --- --- 227 123 371
Deferred fees and
discounts.................. (271) (273) (207) (88) 26
Allowance for losses ........ 402 269 230 196 182
------- ------- ------- ------- -------
Total loans receivable,
net......................$93,950 $92,956 $90,396 $77,380 $67,263
======= ======= ======= ======= =======
</TABLE>
(1) Does not include $14.8 million of unused home equity lines of credit.
(2) Includes $201,000 of Title I loans.
38
<PAGE>
The following table shows the composition of the Bank's loan portfolio by
fixed and adjustable-rate at the dates indicated.
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993
----------------------- ------------------ -------------------- ------------------- ----------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ ------- ------ ------- ------ -------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Fixed-Rate Loans:
Real estate:
One- to four-family.......... $54,307 57.73% $52,530 56.51% $50,450 55.66% $41,614 53.62% $36,256 53.44%
Construction or development.. --- --- --- --- --- --- 487 .63 275 .41
---------- --------- --------- ------- --------- -------- ---------- -------- ------- -------
Total real estate loans... 54,307 57.73 52,530 56.51 50,450 55.66 42,101 54.25 36,531 53.85
Home Improvement............... 362 .38 251 .27 218 .24 273 .35 246 .36
Automobile..................... 350 .37 160 .17 115 .13 41 .05 38 .06
Other consumer................. 485 .52 676 .73 375 .41 389 .50 272 .40
---------- --------- -------- -------- --------- -------- --------- -------- ------- -------
Total fixed-rate loans..... 55,504 59.00 53,617 57.68 51,158 56.44 42,804 55.15 37,087 54.67%
Adjustable-Rate Loans
Real estate:
One-to four-family........... 24,237 25.76 24,151 25.98 25,237 27.84 22,989 29.62 20,845 30.73
Home equity.................. 14,340 15.24 15,184 16.34 14,251 15.72 11,818 15.23 9,910 14.60
-------- ------- -------- ------- -------- ------- -------- ------- ------- -------
Total adjustable-rate loans. 38,577 41.00 39,335 42.32 39,488 43.56 34,807 44.85 30,755 45.33
-------- ------- -------- -------- -------- ------- -------- ------- ------- ------
Total loans .............. 94,081 100.00% 92,952 100.00% 90,646 100.00% 77,611 100.00% 67,842 100.00%
Less:
Loans in process.............. --- --- 227 123 371
Deferred fees and discounts .. (271) (273) (207) (88) 26
Allowance for loan losses..... 402 269 230 196 182
---------- --------- --------- --------- --------
Total loans receivable, net $93,950 $92,956 $90,396 $77,380 $67,263
======= ======= ======= ======= =======
</TABLE>
39
<PAGE>
The following schedule illustrates the interest rate sensitivity of the
Bank's loan portfolio at December 31, 1997. Loans which have adjustable or
renegotiable interest rates are shown as maturing in the period during which the
contracts are due. The schedule does not reflect the effects of possible
prepayments or enforcement of due-on-sale clauses.
One- to four-family
and home equity(1) Consumer and Other
------------------ ------------------
Due During Weighted Weighted
Years Ending Average Average
December 31, Amount Rate Amount Rate
------------ ------ ---- ------ ----
(Dollars in Thousands)
1998................... $19,288 8.58% $ 119 9.18%
1999 to 2000........... 9,091 7.13 201 9.03
2001 to 2003........... 8,391 7.22 316 8.13
2004 to 2007........... 16,145 7.44 82 9.43
2008 to 2017........... 22,469 7.54 117 9.50
2018 and thereafter.... 17,862 7.80 ---
------ -------
Total............... $93,246 7.71% $ 835 8.83%
======= =======
(1) Includes home equity and home improvement loans.
As of December 31, 1997 the total amount of loans due after December 31,
1998 which had predetermined interest rates was $71.8 million while the total
amount of loans due after such dates which had floating or adjustable interest
rates was $2.9 million.
One- to Four-Family Residential Real Estate Lending. The cornerstone of
the Bank's lending program has historically been the origination of loans
secured by mortgages on owner-occupied one- to four-family residences. At
December 31, 1997, $78.5 million, or 83.5%, of the Bank's total loan portfolio
consisted of first mortgage loans secured by one- to four- family residences.
Historically, the Bank focused its residential lending activities on fixed rate
loans with up to 30 year terms. Beginning in fiscal 1985, the Bank began to
originate adjustable rate loans. The Bank underwrites both its fixed rate and
adjustable one- to four-family residential loans in accordance with Federal Home
Loan Mortgage Corporation ("FHLMC") standards. Substantially all of the Bank's
one- to four-family residential mortgage originations are secured by properties
located in its market area.
While most of the Bank's current fixed rate originations have terms of 15
years, the Bank currently offers conventional fixed-rate mortgage loans with
maturities up to 30 years. The Bank also originates a significant volume of five
to seven year balloon loans as well as "bi-weekly" loans. Since payments are
required on an alternating week basis, these loans tend to have shorter
contractual amortization periods than conventional monthly payment loans.
Interest rates and fees charged on these fixed-rate loans are established on a
regular basis according to market conditions. As of December 31, 1997, the Bank
had $54.5 million of fixed rate loans secured by one- to four-family residential
properties. See "- Originations of Loans."
The Bank also offers ARMs which carry interest rates which adjust
annually at a margin (generally 295 basis points) over the yield on one year
U.S. Treasury securities. Such loans may carry terms to maturity of up to 30
years. The ARM loans currently offered by the Bank generally provide for a 200
basis point annual interest rate change cap and a lifetime cap of 600 basis
points over the initial rate. The initial interest rate on such loans may be
fixed for a period of up to five years. Initial interest rates offered on the
Bank's ARMs may be 150 to 250 basis points below the fully indexed rate,
although borrowers are generally qualified at the fully indexed rate. As a
result, the risk of default on these loans may increase as interest rates
increase. In addition, the Bank's ARMs typically do not adjust below the
40
<PAGE>
initial rate. The Bank's ARMs are convertible at any time into fixed rate loans
for a nominal fee. At December 31, 1997, one- to four-family residential ARMs
totaled $24.2 million or 25.8% of the Bank's loan portfolio.
Ben Franklin will generally lend up to 90% of the lesser of the sales
price or appraised value of the security property on owner occupied one- to
four-family loans. For loans exceeding an 80% loan-to-value ratio, the Bank
requires private mortgage insurance in amounts intended to reduce the Bank's
exposure to 80% or less.
While the Bank seeks to originate most of its one- to four-family
residential loans in amounts which are less than or equal to the applicable
FHLMC maximum, the Bank does make one- to four-family residential loans in
amounts in excess of such maximum. The Bank's delinquency experience on such
loans has been comparable to its experience on smaller loans.
In underwriting one- to four-family residential real estate loans, the
Bank currently evaluates the borrower's ability to make principal, interest, and
escrow payments, and the value of the property that will secure the loan.
Residential loans do not currently include prepayment penalties, are
non-assumable and do not produce negative amortization. The Bank's residential
mortgage loans customarily include due-on-sale clauses giving the Bank the right
to declare the loan immediately due and payable in the event that, among other
things, the borrower sells the property subject to the mortgage.
Income Producing Property Lending. The Bank hired a new President with
commercial lending experience in early 1997 and a new commercial loan officer in
April 1998 and intends to commence multi-family and commercial real estate
lending. Such loans are expected to be permanent loans with terms up to five
years secured by apartment buildings or commercial properties such as
warehouses, small office buildings, small strip malls or retail establishments
located within the greater Chicago area. The Bank's multi-family and commercial
real estate loans may carry either fixed or adjustable rate interest rates,
depending on market conditions. The Bank will seek to obtain a personal
guarantee or other personal liability on all multi-family and commercial real
estate loans. The Bank anticipates that most of its multi-family and commercial
real estate loans will be in amounts of less than $1 million.
Multi-family and commercial real estate loans generally present a higher
level of risk than loans secured by one-to four-family residences. This greater
risk is due to several factors, including the concentration of principal in a
limited number of loans and borrowers, the effects of general economic
conditions on income producing properties and the increased difficulty of
evaluating and monitoring these types of loans. Furthermore, the repayment of
loans secured by multi-family and commercial real estate is typically dependent
upon the successful operation of the related real estate project. If the cash
flow from the project is reduced (for example, if leases are not obtained or
renewed), the borrower's ability to repay the loan may be impaired.
The Bank may also originate or purchase a limited amount of construction
or development loans. The terms on owner occupied construction loans will
probably be similar to the Bank's one to family residential loans (except that
interest only may be required during the construction phase). Commercial
construction or development loans would probably be made for terms up to two
years and would require inspections before disbursements would be made.
Commercial construction loans are generally subject to all of the income
producing property loan risks set forth above as well as additional risks
related to the difficulties and uncertainties of planning, executing and
monitoring a construction or development project.
In early 1998, the Bank purchased a $1.0 million participation in a $5.0
million construction loan on a 69 unit mixed use condominium project located in
Lisle, Illinois.
Title I Lending. Section 1 and 2(a) of the National Housing Act of 1934
(the "Housing Act") authorized the creation of the FHA and the Title I Insurance
Program. Under the Housing Act, the FHA is authorized to insure qualified
lending institutions against losses and certain types of loans including loans
to finance the alteration, repair or improvement of existing single-family,
multi-family and non-residential real property structures. Under Title I, the
payment of approximately 90% of the principle balance and certain other amounts
is insured by the United States of America in the event of a payment default.
The principal amount of Title I Loans may not exceed $25,000 in the case
41
<PAGE>
of a loan for the improvement of a single family structure and $60,000 in the
case of a loan for the improvement of a multi-family structure.
Title I Loans are required to bear fixed rates of interest and may not be
less than six months nor more than 240 months. Subject to other federal and
state regulations, the lender may establish the interest rate to be charged. In
general, Title I Loans are secured by junior liens on the subject property.
A lender's credit risk for the non-guaranteed portion of Title I loans
may be reduced by the amount of a reserve account which is established under
Title I for each lender. The amount of coverage in such reserve account is equal
to 10% of the original principal amount of all Title I loans originated or
purchased and reported for insurance coverage by the lender less the amount of
all insurance claims approved for payment. The amount of reimbursement to which
a lender is entitled is limited to the amount of insurance coverage in the
lender's reserve account. The FHA charges a lender an annual fee equal to fifty
basis points of the original principal balance of each loan for the life of the
loan in order to establish such reserve account.
The Bank has recently begun purchasing Title I loans from other lenders.
To date, most of the Bank's Title I Loan purchases have been from a lender
located in California. In each case, prior to commitment, the Bank's
underwriting personnel review completed loan applications to verify compliance
with the Bank's debt to income underwriting standards, the borrower's credit
history, FHA requirements and federal and state regulations. However, because of
(i) the existence of the federal guarantee and the reserve account, (ii) the
fact that many Title I loans are made at loan to value ratios in excess of 100%
(an thus that such lending is not collateral driven) and (iii) the relatively
small size of such loans, property inspections are not required prior to
acquisition by the Bank.
The Bank seeks to sell most of its Title I Loan acquisitions to FNMA on a
servicing retained basis. Under applicable accounting principles, the Bank
records gains on such sales equal to the sales price less the adjusted carrying
value of the loans sold. Although the Bank seeks to sell such loans within
thirty days of acquisition, the Bank is subject to interest rate risk to the
extent that interest rates change between the date of purchase and sale of such
loans. In the case of sold loans which result in a creation of mortgage loan
servicing assets, the Bank is also subject to the risk that a prepayment of such
loans would result in the elimination of such asset and a related charge to
operations. Finally, even after the sale of such loans, the Bank is subject to
the risk that the FNMA will require it to repurchase sold loans which become
delinquent as to the first payment or as to which there is fraud or documentary
deficiencies. While this has not occurred to date, in several cases, the Bank
has required the originating lender to repurchase previously sold Title I Loans.
In each case, the original lender has repurchased the loan at the Bank's
original cost, although there can be no assurance that the original lenders will
continue to be willing or able to do so in the future.
Title I loans tend to carry higher interest rates than home equity loans
and other home improvement loans. As a result, Title I Loans tend to be used by
persons that would have difficulty qualifying for other types of home
improvement loans. In many cases, the loan to value ratios on Title I properties
are in excess of 100%. As a result, Title I Loans are considered to involve a
higher risk of default than the Bank's other current real estate loans and there
can be no assurance that the reserve accounts set forth above will be sufficient
to offset any losses resulting from such defaults.
Consumer Lending. Management believes that offering consumer loan
products helps to expand the Bank's customer base and to create stronger ties to
its existing customer base. In addition, because consumer loans generally have
shorter terms to maturity and carry higher rates of interest than do residential
mortgage loans, they can be valuable interest rate risk management tools. The
Bank originates a variety of different types of consumer loans, including
automobile and deposit account loans for household and personal purposes. In
addition, the Bank has recently qualified to take applications, in exchange for
an origination fee, for student loans from a State lending authority. However,
because of the tax advantages to borrowers, the Bank has focused its recent
consumer lending activities on home equity lending. At December 31, 1997
consumer loans totaled $835,000 or .89% of total loans outstanding.
Consumer loan terms vary according to the type and value of collateral,
length of contract and creditworthiness of the borrower. The Bank's consumer
loans are made with fixed or adjustable interest rates, with terms of up to five
years.
42
<PAGE>
The Bank has offered home equity loans and lines of credit since fiscal
year 1985. Home equity loans are secured by second mortgages on one- to
four-family owner-occupied residences. The Bank generally uses the same
underwriting standards for home equity loans as for one- to four-family
residential loans. The Bank's home equity loans are written so that the total
commitment amount, when combined with the balance of the first mortgage lien,
may not exceed 80% of the appraised value of the property. The Bank's home
equity loans generally carry fixed terms of up to 10 years and floating interest
rates. At December 31, 1997, the Bank had $14.3 million of outstanding home
equity lines of credit as well as $14.8 million of available but unused lines of
credit.
The underwriting standards employed by the Bank for consumer loans
include a determination of the applicant's payment history on other debts and
ability to meet existing obligations and payments on the proposed loan. Although
creditworthiness of the applicant is of primary consideration, the underwriting
process also includes a comparison of the value of the security, if any, in
relation to the proposed loan amount. Consumer loans may entail greater credit
risk than do residential mortgage loans, particularly in the case of consumer
loans which are unsecured or are secured by rapidly depreciable assets, such as
automobiles. In such cases, any repossessed collateral for a defaulted consumer
loan may not provide an adequate source of repayment of the outstanding loan
balance as a result of the greater likelihood of damage, loss or depreciation.
In addition, consumer loan collections are dependent on the borrower's
continuing financial stability, and thus are more likely to be affected by
adverse personal circumstances. Furthermore, the application of various federal
and state laws, including bankruptcy and insolvency laws, may limit the amount
which can be recovered on such loans.
The Bank is currently considering whether to establish a consumer finance
loan subsidiary (the "Subsidiary"). If established, the Subsidiary would
substantially expand the nature and types of consumer loans originated. In
particular, the Subsidiary would probably concentrate on secured lending
(including junior lien residential and automobile lending) to consumers with a
variety of different credit ratings including those with debt to income ratios
and credit histories which are less favorable than those currently required by
the Bank's underwriting guidelines.
Although the Bank's current intention is that the Subsidiary would
operate within the Bank's current market area, if the initial lending experience
is favorable, the Bank may determine to establish additional subsidiary offices
and expand its geographic focus. Marketing efforts would be made through general
advertising, direct mail as well as cable television. In the event that the Bank
determines to go forward with a consumer loan subsidiary, such subsidiary would
have its own facilities and staff including a President and Chief Executive
Officer who would report directly to the Bank's President and Chief Executive
Officer.
In the event that a consumer finance subsidiary is established, its
activities would involve a number of risks, including (i) the increased default
rate which could result from loans to less credit worthy borrowers, (ii) the
risk that the subsidiary's loans would not saleable in the secondary market, and
(iii) the possibility that claims could be made against it for violations of
various laws related to truth in lending, equal credit opportunity, settlement
procedures, credit disclosure, debt collection practices or similar matters. As
a new line of business without material operations or revenues as of the date of
this prospectus, these new lending activities are also subject to risks,
expenses (including start up expenses) and difficulties which are often
encountered in the establishment of a new business.
Originations, Purchases and Sales of Loans
The lending activities of the Bank are subject to written,
non-discriminatory, underwriting standards and loan origination procedures
established by the Bank's Board of Directors and management. Loan originations
come from a number of sources. Residential loan originations can be attributed
to depositors, retail customers, telephone inquiries, advertising, the efforts
of the Bank's loan officers and referrals from other borrowers, real estate
brokers and builders. The Bank originates loans through its own efforts and does
not compensate mortgage brokers, mortgage bankers or other loan finders,
although it may do so in the future.
While the Bank originates both fixed and adjustable rate loans, its
ability to originate loans is dependent upon the relative customer demand for
loans in its market. Demand is affected by the local economy and the interest
rate environment.
43
<PAGE>
The Bank had not made any material loan sales in recent years prior to
the 1997 sales of Title I loans. The Bank intends to continue its Title I loan
sales and will consider other types of loan sales and will consider other types
of loan sales in the future, as a way to increase loan servicing income and as a
form of liquidity management. The Bank does not hedge its loans for sale
pipeline and, as a result, is subject to a measure of interest rate risk for the
period between the date of acquisition of the loan and the date of sale. At
December 31, 1997, the Bank serviced $4.0 million of loans for others including
$3.8 million of Title I loans.
The Bank had not purchased loans since the mid-1980s until the Bank began
purchasing Title I loans in 1997. The Bank also purchased a participation in a
commercial construction loan in 1998. The Bank intends to continue purchasing
Title I loans and will evaluate the purchase of other loans on a case-by-case
basis. All loan purchases will be subject to a review based on the Bank's normal
underwriting standards prior to purchase.
The following table shows the loan origination and repayment activities
of the Bank for the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
1997 1996 1995
---- ---- ----
(In Thousands)
<S> <C> <C> <C>
Originations by type:
Adjustable rate:
Real estate: One- to four-family....... $5,086 $7,084 $8,057
Non-real estate: Consumer.................. 25 --- ---
-------- -------- ----------
Total adjustable rate......................... 5,111 7,084 8,057
------ ------ -------
Fixed rate:
Real estate: One- to four-family....... 10,550 12,744 21,354
Non-real estate: Consumer.................. 263 435 144
-------- -------- --------
Total fixed-rate............................ 10,813 13,179 21,498
------ ------ ------
Total loans originated........................ 15,924 20,263 29,555
------ ------ ------
Purchases:
Real estate: Title 1 loans............. 4,091 --- ---
------ -------- ---------
Sales and Repayments:
Real estate: One- to four-family....... --- (287) ---
Title 1 loans............. (3,890) --- ---
-------- --------- ----------
Total loans sold........................... (3,890) (287) ---
Principal repayments............................. (14,996) (17,670) (16,520)
------- ------- -------
Total reductions............................ (18,886) (17,957) (16,520)
Increase (decrease) in other items, net.......... (135) 254 (19)
--------- ---------- -----------
Net increase................................ $ 994 $ 2,560 $ 13,016
======== ======== ========
</TABLE>
Delinquencies and Nonperforming Assets
Delinquency Procedures. When a borrower fails to make a required payment
on a loan, the Bank attempts to cure the delinquency by contacting the borrower.
Generally, Bank personnel work with the delinquent borrower on a case by case
basis to solve the delinquency. Generally, a late notice is sent on all
delinquent loans followed by a phone call after the fifteenth day of
delinquency. Additional written and verbal contacts may be made with the
borrower between 30 and 60 days after the due date. If the loan is contractually
delinquent for 90 days, the Bank may institute appropriate action to foreclose
on the property. Generally, after 120 days, foreclosure procedures are
initiated. If foreclosed, the property is sold at public sale and may be
purchased by the Bank.
Real estate acquired by the Bank as a result of foreclosure or by deed in
lieu of foreclosure is classified as real estate owned until it is sold. When
property is acquired by foreclosure or deed in lieu of foreclosure, it is
recorded at
44
<PAGE>
the lower of cost or fair value less estimated selling costs. After acquisition,
all costs incurred in maintaining the property are expensed. Costs relating to
the development and improvement of the property, however, are capitalized.
The following table sets forth the Bank's delinquencies at December 31,
1997.
<TABLE>
<CAPTION>
Loans Delinquencies at December 31, 1997
----------------------------------------------------------------------------
60-89 Days 90 Days and Over Total Delinquent Loans
------------------------ ------------------------ ------------------------
% of % of % of
Number Amount Category Number Amount Category Number Amount Category
------ ------ -------- ------ ------ -------- ------ ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate:
One- to four-family..... -- $ -- --% 1 $ 65 .08% 1 $ 65 .08%
---- ---- ---- ---- ---- ---- ---- ---- ----
Total................. -- $ -- --% 1 $ 65 .08% 1 $ 65 .08%
==== ==== ==== ==== ==== ==== ==== ==== ====
</TABLE>
Classification of Assets. Federal regulations require that each savings
institution classify its own assets on a regular basis. In addition, in
connection with examinations of savings institutions, OTS and FDIC examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets: Substandard,
Doubtful and Loss. Substandard assets have one or more defined weaknesses and
are characterized by the distinct possibility that the Bank will sustain some
loss if the deficiencies are not corrected. Doubtful assets have the weaknesses
of Substandard assets, with the additional characteristics that the weaknesses
make collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified Loss is considered uncollectible and of such little value that
continuance as an asset on the balance sheet of the institution is not
warranted. Assets classified as Substandard or Doubtful require the institution
to establish prudent general allowances for loan losses. If an asset or portion
thereof is classified as a loss, the institution charges off such amount against
the loan loss allowance. If an institution does not agree with an examiner's
classification of an asset, it may appeal this determination to the District
Director of the OTS. As of December 31, 1997, the Bank had no loans classified
as substandard, doubtful or loss.
Non-Performing Assets. The table below sets forth the amounts and
categories of Bank's non-performing assets. Foreclosed assets include assets
acquired in settlement of loans.
December 31,
--------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In Thousands)
Non-accruing loans:
One- to four-family....................... $ -- $ -- $ -- $ -- $ 9
Accruing loans delinquent more than 90 days:
One- to four-family....................... 65 155 133 17 69
Foreclosed assets:
One- to four-family....................... -- 306 -- -- --
---- ---- ---- ---- ----
Total non-performing assets................. $ 65 $461 $133 $ 17 $ 78
==== ==== ==== ==== ====
Total non-performing assets as a
percentage of total assets................ .05% .43% .13% .02% .09%
==== === ==== ==== ====
Other Loans of Concern. In addition to the non-performing assets set forth
in the table above, as of December 31, 1997, there were no other loans with
respect to which known information about the possible credit
45
<PAGE>
problems of the borrowers or the cash flows of the security properties have
caused management to have concerns as to the ability of the borrowers to comply
with present loan repayment terms and which may result in the future inclusion
of such items in the non-performing asset categories.
Allowance for Loan Losses
The allowance for loan losses is established through a provision for loan
losses charged to earnings based on the Bank's evaluation of the risk inherent
in its entire loan portfolio. Such evaluation, which includes a review of all
loans for which full collectibility may not be reasonably assured, considers the
market value of the underlying collateral, growth and composition of the loan
portfolio, delinquency trends, adverse situations that may affect the borrower's
ability to repay, prevailing and projected economic conditions and other factors
that warrant recognition in providing for an adequate allowance for loan losses.
While the Bank believes that it uses the best information available to
determine the allowance for loan losses, unforeseen economic and market
conditions could result in adjustments to the allowance for loan losses, and net
earnings could be significantly affected, if circumstances differ substantially
from the assumptions used in making the final determination. Management believes
its allowance for loan losses is adequate at December 31, 1997; however, future
adjustments could be necessary and net income could be adversely affected if
circumstances differ substantially from the assumptions used in the
determination of allowance for loan losses.
46
<PAGE>
The following table sets forth an analysis of the Bank's allowance for loan
losses for the years indicated.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------
1997 1996 1995 1994 1993
------ ------ ------ ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period.................... $269 $230 $196 $182 $181
Charge-offs:
One- to four-family............................. -- -- -- -- --
Multi-family....................................
Commercial real estate.......................... -- -- -- -- --
Construction or development..................... -- -- -- -- --
Consumer........................................ -- -- -- -- --
Home equity and second mortgage................. 17 -- -- -- --
------ ------ ------ ------- ------
17 -- -- -- --
Recoveries:
One- to four-family............................. -- 6 2 -- --
Multi-family.................................... -- -- -- -- --
Commercial real estate.......................... -- -- -- -- --
Construction or development..................... -- -- -- -- --
Consumer........................................ -- -- -- -- --
Commercial business............................. -- 6 2 -- --
------ ------ ------ ------- ------
-- 6 2 -- --
Net charge-offs (recoveries)...................... 17 (6) (2) -- --
Additions charged to operations................... 150 33 32 14 1
------ ------ ------ ------- ------
Balance at end of period.......................... $402 $269 $230 $196 $182
====== ====== ====== ======= ======
Ratio of net charge-offs (recoveries) during the
period to average gross loans outstanding
during the period................................ 0.02% (.01)% --% --% --%
====== ====== ====== ======= ======
Ratio of net charge-offs (recoveries) during the
period to average non-performing assets.......... 6.47% (2.02)% (2.67)% --% --%
====== ====== ====== ======= ======
Allowance as a percentage of non-performing loans
(end of period)................................. 618.46% 173.55% 172.93% 1152.94% 233.33%
====== ====== ====== ======= ======
</TABLE>
47
<PAGE>
The following table sets forth the allocation of the allowance for loan
losses by category as prepared by the Bank. This allocation is based on
management's assessment as of a given point in time of the risk characteristics
of each of the component parts of the total loan portfolio and is subject to
changes as and when the risk factors of each such component part change. The
allocation is not indicative of either the specific amounts or the loan
categories in which future charge-offs maybe taken, nor should it be taken as an
indicator of future loss trends. The allocation of the allowance to each
category does not restrict the use of the allowance to absorb losses in any
category.
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------- ----------------------------- -----------------------------
Percent Percent Percent
of loans of loans of loans
Amount Loan in Each Amount Loan in Each Amount Loan in Each
of loan Amounts Category of loan Amounts Category of loan Amounts Category
loss by of Total loss by of Total loss by of Total
Allowance Category Loans Allowance Category Loans Allowance Category Loans
--------- -------- -------- --------- -------- -------- --------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
One- to four-family...... $158 $78,745 83.70% $155 $76,681 82.50% $151 $75,687 83.50%
Home equity and second
mortgage................ 72 14,501 15.41 76 15,435 16.60 72 14,469 15.96
Construction or
development............. -- -- -- -- -- -- -- -- --
Consumer................. 9 835 .89 10 836 0.90 7 490 0.54
Unallocated.............. 163 -- -- 28 -- -- -- -- --
---- ------- ------ ---- ------- ------ ---- ------- ------
Total............... $402 $94,081 100.00% $269 $92,952 100.00% $230 $90,646 100.00%
==== ======= ====== ==== ======= ====== ==== ======= ======
</TABLE>
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------------
1994 1993
----------------------------- -----------------------------
Percent Percent
of loans of loans
Amount Loan in Each Amount Loan in Each
of loan Amounts Category of loan Amounts Category
loss by of Total loss by of Total
Allowance Category Loans Allowance Category Loans
--------- -------- -------- --------- -------- --------
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
One- to four-family...... $130 $64,603 83.24% $116 $57,101 84.17%
Home equity and second 7
mortgage................ 60 12,091 15.58 -- 10,156 14.9
Construction or
development............. -- 487 0.63 50 275 0.40
Consumer................. 6 430 0.55 5 310 0.46
Unallocated.............. -- -- -- 11 -- --
---- ------- ------ ---- ------- ------
Total............... $196 $77,611 100.00% $182 $67,842 100.00%
==== ======= ====== ==== ======= ======
</TABLE>
48
<PAGE>
Investment Activities
Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certain certificates of deposit of
insured banks and savings institutions, certain bankers' acceptances, repurchase
agreements and federal funds. Subject to various restrictions, federally
chartered savings institutions may also invest their assets in commercial paper,
investment grade corporate debt securities and mutual funds whose assets conform
to the investments that a federally chartered savings institution is otherwise
authorized to make directly.
Generally, the investment policy of Ben Franklin is to invest funds among
categories of investments and maturities based upon the Bank's market risk
analysis policies, investment quality, loan and deposit volume, liquidity needs
and performance objectives. The Bank's securities must be classified into any of
three categories: trading, held to maturity and available for sale. Securities
that are bought and held principally for the purpose of selling them in the near
term are classified as trading securities and are reported at fair value with
unrealized gains and losses included in trading account activities in the
statement of operations. Securities that Ben Franklin has the positive intent
and ability to hold to maturity are classified as held to maturity and reported
at amortized cost. All other securities not classified as trading or held to
maturity are classified as available for sale.
49
<PAGE>
The following table sets forth the composition of the Bank's securities and
other earning assets at the dates indicated.
<TABLE>
<CAPTION>
December 31,
------------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
Carrying % of Carrying % of Carrying % of
Value Total Value Total Value Total
-------- ----- -------- ----- -------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Securities held to maturity:
U.S. Government securities............. $ -- -- $1,017 12.01% $ 500 6.30%
Federal agency obligations.............. 510 2.74% -- -- 3,333 41.99
Municipal bonds......................... -- -- 101 1.19 101 1.27
Mortgage-backed securities:
FNMA.................................. 79 .42 80 .94 81 1.02
FHLMC................................. -- -- -- -- 617 7.77
------- ------ ------ ------ ------ ------
589 3.16 1,198 14.14 4,632 58.35
Securities available for sale:
US Government securities................ -- -- -- -- -- --
Federal agency obligations.............. 17,536 94.18 6,765 79.87 2,783 35.06
Municipal bonds......................... -- -- -- -- -- --
Mortgage-backed securities:
FHLMC................................. 495 2.66 507 5.99 523 6.59
------- ------ ------ ------ ------ ------
18,031 96.84 7,272 85.86 3,306 41.65
Total securities.................. $18,620 100.00% $8,470 100.00% $7,938 100.00%
======= ====== ====== ====== ====== ======
Average remaining life of securities...... 3.8 years 2.5 years 2.2 years
Other interest-earning assets:
Interest-earning deposits with banks... $ 2,611 32.08% $1,878 54.34% $2,227 63.12%
FHLB Stock........................ 944 11.60 920 26.62 793 22.48
FHLMC Stock....................... 652 8.01 626 18.11 476 13.49
U.S. League Insurance Stock....... 32 .39 32 .93 32 .91
Federal funds sold................ 3,900 47.92 -- -- -- --
------- ------ ------ ------ ------ ------
Total....................... $ 8,139 100.00% $3,456 100.00% $3,528 100.00%
======= ====== ====== ====== ====== ======
</TABLE>
50
<PAGE>
The following table sets forth the contractual maturities of the Bank's
securities (excluding FHLB stock) at December 31, 1997.
<TABLE>
<CAPTION>
At December 31, 1997
-------------------------------------------------------
Less Than 1 to 5 5 to 10
1 Year Years Years Total Securities
---------- --------- --------- ------------------
Amortized Amortized Amortized Amortized Fair
Cost Cost Cost Cost Value
---------- --------- --------- --------- -----
(In Thousands)
<S> <C> <C> <C> <C> <C>
Federal agency obligations..... $ 301 $16,738 $1,000 $18,039 $18,063
Mortgage-backed securities -- 587 -- 587 574
----- ------- ------ ------- ------
Total securities............... $ 301 $17,325 $1,000 $18,626 $18,637
===== ======= ====== ======= =======
Weighted average yield......... 5.36% 6.49% 6.60% 6.48%
</TABLE>
In order to complement its lending activities and to increase its holdings
of short and medium term assets, the Bank invests primarily in liquidity
investments and in high-quality investments, such as U.S. Treasury and agency
obligations having terms to maturity of five years or less. At December 31,
1997, the Bank's securities portfolio had an amortized cost totaling $18.6
million. At December 31, 1997, the Bank did not own any investment securities of
a single issuer which exceeded 10% of the Bank's retained earnings, other than
federal agency obligations. See Note 2 of the Notes to the Financial Statements
for additional information regarding the Bank's securities portfolio.
Ben Franklin must maintain minimum levels of investments and other assets
that qualify as liquid assets under OTS regulations. Liquidity may increase or
decrease depending upon the availability of funds and comparative yields on
investments in relation to the return on loans. At December 31, 1997, Ben
Franklin's liquidity ratio for regulatory purposes was 21.02%. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -
Quantitative and Qualitative Disclosure of Market Risk" and "- Liquidity and
Capital Resources."
In order to supplement its lending activities and achieve its market risk
analysis goals, the Bank has from time to time invested in mortgage-backed
securities. As of December 31, 1997, all of the mortgage-backed securities owned
by the Bank were issued, insured or guaranteed either directly or indirectly by
a federal agency. However, it should be noted that, while a (direct or indirect)
federal guarantee may indicate a high degree of protection against default, they
do not indicate that the securities will be protected from declines in value
based on changes in interest rates or prepayment speeds.
Sources of Funds
General. The Bank's primary source of funds are deposits. In addition, the
Bank derives funds for loans and investments from loan and security repayments
and prepayments, from cash flows from operations and, to a lesser extent, from
borrowings. Scheduled payments on loans and mortgage-backed and investment
securities are a relatively stable source of funds, while savings inflows and
outflows and loan and mortgage-backed and investment securities prepayments are
significantly influenced by general interest rates and money market conditions.
Borrowings are occasionally used to compensate for reductions in other sources
of funds and to take advantage of lower funding costs that better match the
Bank's short-term needs.
Deposits. The Bank offers a variety of deposit programs to its customers,
including money market deposit accounts, passbook and statement savings
accounts, NOW accounts, checking accounts and time deposits. Deposit account
terms very according to the minimum balance required, the time periods the funds
must remain on deposit and the interest rate, among other factors. The Bank's
deposits are obtained predominantly from its market area. The Bank
51
<PAGE>
relies primarily on customer service and long-standing relationships with
customers to attract and retain deposits; however, market interest rates and
rates offered by competing financial institutions significantly affect the
Bank's ability to attract and retain deposits. During recent years, the Bank
generally has not used brokers to obtain deposits.
The variety of deposit accounts offered by the Bank has allowed it to be
competitive in obtaining funds and to respond with flexibility to changes in
consumer demand. The Bank has become more susceptible to short-term fluctuations
in deposit flows, as customers have become more interest rate conscious. The
Bank manages the pricing of its deposits in keeping with its asset/liability
management, profitability and growth objectives. Based on its experience, the
Bank believes that its passbook, demand and NOW accounts are relatively stable
sources of deposits as compared to certificate deposits. However, the ability of
the Bank to attract and maintain all deposits, and the rates paid on these
deposits, has been and will continue to be significantly affected by market
conditions.
The following table provides maturity information for the Bank's
certificates of deposit with balances of $100,000 or more as of December 31,
1997.
Maturity
---------------------------------------------------------
Over Over
3 Months 3 to 6 6 to 12 Over
or Less Months Months 12 Months Total
-------- ------ ------- --------- -------
(In Thousands)
$3,144 $3,478 $2,991 $2,153 $11,766
=======
The following table sets forth the deposit flows at the Bank during the
periods indicated.
Year Ended December 31,
--------------------------------------
1997 1996 1995
---------- --------- ---------
(Dollars In Thousands)
Opening balance........................ $ 94,339 $ 88,795 $ 81,653
Deposits............................... 249,239 206,434 205,969
Withdrawals............................ (235,530) (205,409) (202,537)
Interest credited...................... 4,706 4,519 3,710
--------- --------- ---------
Ending balance....................... $ 112,754 $ 94,339 $ 88,795
========= ========= =========
Net increase........................... $ 18,415 $ 5,544 $ 7,142
========= ========= =========
Percent increase....................... 19.52% 6.24% 8.75%
===== ==== ====
52
<PAGE>
The following table sets forth the dollar amount of deposits in the various
types of deposit programs offered by the Bank as of the dates indicated.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------------
1997 1996 1995
------------------ ------------------ ------------------
Percent Percent Percent
Amount of Total Amount of Total Amount of Total
------ -------- ------ -------- ------ --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Transaction and Savings Deposits
Passbook accounts................... $ 18,126 16.08% $18,029 19.11% $17,913 20.17%
NOW accounts........................ 9,033 8.01 7,279 7.72 7,741 8.72
Money market accounts............... 7,840 6.95 5,011 5.31 6,000 6.76
-------- ------ ------- ------ ------- ------
Total non-certificates.......... 34,999 31.04 30,319 32.14 31,654 35.65
-------- ------ ------- ------ ------- ------
Certificate Accounts.................. 77,755 68.96 64,020 67.86 57,141 64.35
-------- ------ ------- ------ ------ -----
Total deposits.................. $112,754 100.00% $94,339 100.00% $88,795 100.00%
======== ====== ======= ====== ======= ======
</TABLE>
53
<PAGE>
The following table shows rate and maturity information for the Bank's time
deposits as of December 31, 1997.
<TABLE>
<CAPTION>
Under 4.00- 5.00- 6.00- Percent
4.00% 4.99% 5.99% 6.99% Total of Total
----- ----- ----- ----- ----- --------
(Dollars in Thousands)
Time deposit accounts
maturing in year ending:
<S> <C> <C> <C> <C> <C> <C>
1998........................ $ -- $1,138 $35,788 $21,733 $58,659 75.44%
1999........................ 15 154 3,526 7,275 10,970 14.11
2000........................ -- -- 652 4,387 5,039 6.48
2001........................ -- -- 442 86 528 .68
2002........................ -- -- 363 2,196 2,559 3.29
---- ------ ------- ------- ------- ------
Total................... $ 15 $1,292 $40,771 $35,677 $77,755 100.00%
==== ====== ======= ======= ======= ======
Percent of total........ --% 1.7% 52.4% 45.9%
</TABLE>
For additional information regarding the composition of the Bank's
deposits, see Note 5 of the Notes to the Financial Statements.
Borrowings. Although deposits are the primary source of funds for the
Bank's lending and investment activities and for its general business purposes,
the Bank has occasionally used borrowed funds or federal funds purchased to
supplement them. The Bank has borrowed funds when the cost of borrowings was
attractive when compared to the rate required to be paid on deposits plus the
deposit insurance premium required to be paid. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital."
The Bank may borrow under a line of credit agreement with the FHLB of
Chicago. FHLB advances typically are collateralized by the assets of the Bank.
The Bank has also borrowed overnight funds from various correspondent lenders.
There were no borrowings outstanding at December 31, 1997.
The following table sets forth the maximum month-end balance and average
balance of the Bank's borrowings for the periods indicated.
Year Ended December 31,
----------------------------
1997 1996 1995
------ ------ ------
(In Thousands)
Maximum Balance:
FHLB advances........................... $ -- $4,600 $ --
Federal funds purchased................. 7,800 5,800 5,800
Average Balance:
FHLB advances........................... $ -- $1,834 $ --
Federal funds purchased................. 4,048 5,311 2,694
54
<PAGE>
The following table sets forth the amount and rate of the Bank's borrowings
at the dates indicated.
December 31,
----------------------------
1997 1996 1995
------ ------ ------
(Dollars in Thousands)
FHLB advances................................ $ -- $ -- $ --
Securities sold under agreements
to repurchase................................ -- -- --
Federal Funds purchased -- 3,700 5,800
------ ------ ------
Total borrowings.......................... $ -- $3,700 $5,800
====== ====== ======
Weighted average interest rate of
FHLB advances........................... --% --% --%
Weighted average interest rate of
Federal Funds purchased.................. --% 5.54% 6.01%
==== ==== ====
Subsidiary Activities
As a federally chartered savings bank, Ben Franklin is permitted by OTS
regulations to invest up to 2% of its assets in the stock of, or loans to,
service corporation subsidiaries, and may invest an additional 1% of its assets
in service corporations where such additional funds are used for inner-city or
community development purposes. In addition to investments in service
corporations, federal institutions are permitted to invest an unlimited amount
in operating subsidiaries engaged solely in activities which a federal savings
bank may engage in directly. At December 31, 1997, Ben Franklin did not have any
subsidiaries.
Competition
Ben Franklin faces strong competition both in originating real estate loans
and in attracting deposits. Competition in originating loans comes primarily
from mortgage bankers, commercial banks, credit unions and other savings
institutions, which also make loans secured by real estate located in the Bank's
market area. Ben Franklin competes for loans principally on the basis of the
interest rates and loan fees it charges, the types of loans it originates and
the quality of services it provides to borrowers.
Competition for those deposits is principally from commercial banks, credit
unions, securities firms, mutual funds and other savings institutions located in
the same communities. The ability of the Bank to attract and retain deposits
depends on its ability to provide an investment opportunity that satisfies the
requirements of investors as to rate of return, liquidity, risk, convenient
locations and other factors. The Bank competes for these deposits by offering
competitive rates, maintaining close ties with its local community, advertising
and marketing programs, convenient business hours and a customer-oriented staff.
The Bank is subject to competition from other financial institutions which
may have much greater financial and marketing resources. However, the Bank
believes that it benefits from its community orientation.
Employees
At December 31, 1997, the Bank had a total of 36 employees including nine
part-time employees. None of the Bank's employees are represented by any
collective bargaining agreement. Management considers its employee relations to
be good.
55
<PAGE>
Properties
The following table sets forth information concerning the main office and
the branch office of the Bank at December 31, 1997. At December 31, 1997, the
Bank's premises had an aggregate net book value of approximately $204,000.
Year Owned or Net Book Value at
Location Acquired Leased December 31, 1997
- --------------------------------- -------- -------- -----------------
Main Office:
14 N. Dryden Place
Arlington Heights, Illinois 60004 1977 Leased $184,000
Full Service Branch:
3148 Kirchoff Road
Rolling Meadows, Illinios 60008 1991 Leased $ 20,000
The Bank believes that its current facilities are adequate to meet the
present and foreseeable future needs of the Bank and the Holding Company.
The Bank's depositor and borrower customer files are maintained in-house.
The net book value of the data processing and computer equipment utilized by the
Bank at December 31, 1997 was approximately $61,000.
Legal Proceedings
From time to time, Ben Franklin is involved as plaintiff or defendant in
various legal proceedings arising in the normal course of its business. While
the ultimate outcome of these various legal proceedings cannot be predicted with
certainty, it is the opinion of management that the resolution of these legal
actions should not have a material effect on the Holding Company's and Ben
Franklin's financial position or results of operations.
REGULATION
General
Ben Franklin is a federally chartered savings bank, the deposits of which
are federally insured and backed by the full faith and credit of the United
States Government. Accordingly, Ben Franklin is subject to broad federal
regulation and oversight extending to all its operations. Ben Franklin is a
member of the FHLB of Chicago and is subject to certain limited regulation by
the Board of Governors of the Federal Reserve System ("Federal Reserve Board").
As the savings and loan holding company of Ben Franklin, the Holding Company
also is subject to federal regulation and oversight. The purpose of the
regulation of the Holding Company and other holding companies is to protect
subsidiary savings associations. Ben Franklin is a member of the Savings
Association Insurance Fund ("SAIF") and the deposits of Ben Franklin are insured
by the FDIC. As a result, the FDIC has certain regulatory and examination
authority over Ben Franklin.
Certain of these regulatory requirements and restrictions are discussed
below or elsewhere in this document.
Federal Regulation of Savings Associations
The OTS has extensive authority over the operations of savings banks. As
part of this authority, Ben Franklin is required to file periodic reports with
the OTS and is subject to periodic examinations by the OTS. However, since
56
<PAGE>
the Bank only recently converted from an Illinois chartered savings bank to a
federal savings bank, the Bank has not recently been subject to an OTS
examination. When these examinations are conducted by the OTS, the examiners may
require Ben Franklin to provide for higher general or specific loan loss
reserves. All savings banks are subject to a semi-annual assessment, based upon
the savings bank's total assets, to fund the operations of the OTS.
The OTS also has extensive enforcement authority over all savings
institutions and their holding companies, including Ben Franklin and the Holding
Company. This enforcement authority includes, among other things, the ability to
assess civil money penalties, to issue cease-and-desist or removal orders and to
initiate injunctive actions. In general, these enforcement actions may be
initiated for violations of laws and regulations and unsafe or unsound
practices. Other actions or inactions may provide the basis for enforcement
action, including misleading or untimely reports filed with the OTS. Except
under certain circumstances, public disclosure of final enforcement actions by
the OTS is required.
In addition, the investment, lending and branching authority of Ben
Franklin is prescribed by federal laws and it is prohibited from engaging in any
activities not permitted by such laws. For instance, no savings institution may
invest in non-investment grade corporate debt securities. In addition, the
permissible level of investment by federal associations in loans secured by
non-residential real property may not exceed 400% of total capital, except with
approval of the OTS. Federal savings associations are also generally authorized
to branch nationwide. Ben Franklin is in compliance with the noted restrictions.
The OTS, as well as the other federal banking agencies, has adopted
guidelines establishing safety and soundness standards on such matters as loan
underwriting and documentation, asset quality, earnings standards, internal
controls and audit systems, interest rate risk exposure and compensation and
other employee benefits. Any institution which fails to comply with these
standards must submit a compliance plan. A failure to submit a plan or to comply
with an approved plan will subject the institution to further enforcement
action. The OTS and the other federal banking agencies have also proposed
additional guidelines on asset quality and earnings standards. No assurance can
be given as to whether or in what form the proposed regulations will be adopted.
Insurance of Accounts and Regulation by the FDIC
Ben Franklin is a member of the SAIF, which is administered by the FDIC.
Deposits are insured up to applicable limits by the FDIC and such insurance is
backed by the full faith and credit of the United States Government. As insurer,
the FDIC imposes deposit insurance premiums and is authorized to conduct
examinations of and to require reporting by FDIC-insured institutions. It also
may prohibit any FDIC-insured institution from engaging in any activity the FDIC
determines by regulation or order to pose a serious risk to the FDIC. The FDIC
also has the authority to initiate enforcement actions against savings
associations, after giving the OTS an opportunity to take such action, and may
terminate the deposit insurance if it determines that the institution has
engaged in unsafe or unsound practices or is in an unsafe or unsound condition.
The FDIC's deposit insurance premiums are assessed through a risk-based
system under which all insured depository institutions are placed into one of
nine categories and assessed insurance premiums based upon their level of
capital and supervisory evaluation. Under the system, institutions classified as
well capitalized (i.e., a core capital ratio of at least 5%, a ratio of Tier 1
or core capital to risk-weighted assets ("Tier 1 risk-based capital") of at
least 6% and a risk-based capital ratio of at least 10%) and considered healthy
pay the lowest premium while institutions that are less than adequately
capitalized (i.e., core or Tier 1 risk-based capital ratios of less than 4% or a
risk-based capital ratio of less than 8%) and considered of substantial
supervisory concern pay the highest premium. Risk classification of all insured
institutions will be made by the FDIC for each semi-annual assessment period.
The FDIC is authorized to increase assessment rates, on a semiannual
basis, if it determines that the reserve ratio of the SAIF will be less than the
designated reserve ratio of 1.25% of SAIF-insured deposits. In setting these
increased assessments, the FDIC must seek to restore the reserve ratio to that
designated reserve level, or such higher reserve ratio as established by the
FDIC. The FDIC may also impose special assessments on SAIF members to repay
amounts borrowed from the United States Treasury or for any other reason deemed
necessary by the FDIC.
57
<PAGE>
For the first six months of 1995, the assessment schedule for BIF members
and SAIF members ranged from .23% to .31% of deposits. As is the case with the
SAIF, the FDIC is authorized to adjust the insurance premium rates for banks
that are insured by the BIF of the FDIC in order to maintain the reserve ratio
of the BIF at 1.25% of BIF insured deposits. As a result of the BIF reaching its
statutory reserve ratio the FDIC revised the premium schedule for BIF insured
institutions to provide a range of .04% to .31% of deposits. The revisions
became effective in the third quarter of 1995. In addition, the BIF rates were
further revised, effective January 1996, to provide a range of 0% to .27%. The
SAIF rates, however, were not adjusted. At the time the FDIC revised the BIF
premium schedule, it noted that, absent legislative action (as discussed below),
the SAIF would not attain its designated reserve ratio until the year 2002. As a
result, SAIF insured members would continue to be generally subject to higher
deposit insurance premiums than BIF insured institutions until, all things being
equal, the SAIF attains its required reserve ratio.
In order to eliminate this disparity and any competitive disadvantage
between BIF and SAIF member institutions with respect to deposit insurance
premiums, legislation to recapitalize the SAIF was enacted in September 1996.
The legislation provided for a one-time assessment to be imposed on all deposits
assessed at the SAIF rates, as of March 31, 1995, in order to recapitalize the
SAIF. It also provided for the merger of the BIF and the SAIF on January 1, 1999
if no savings associations then exist. The special assessment rate was
established at .657% of deposits by the FDIC and the resulting assessment of
$491,000 was paid in November 1996. This special assessment significantly
increased non-interest expense and adversely affected the Bank's results of
operations for the year ended December 31, 1996. As a result of the special
assessment, Ben Franklin's deposit insurance premiums was reduced to .06% based
upon its current risk classification and the new assessment schedule for SAIF
insured institutions. These premiums are subject to change in future periods.
Prior to the enactment of the legislation, a portion of the SAIF
assessment imposed on savings associations was used to repay obligations issued
by a federally chartered corporation to provide financing ("FICO") for resolving
the thrift crisis in the 1980s. Although the FDIC has proposed that the SAIF
assessment be equalized with the BIF assessment schedule, effective October 1,
1996, SAIF-insured institutions remain subject to a FICO assessment as a result
of this continuing obligation. Although the legislation also now requires
assessments to be made on BIF-assessable deposits for this purpose, effective
January 1, 1997, that assessment was limited to 20% of the rate imposed on SAIF
assessable deposits until the earlier of December 31, 1999 or when no savings
association continues to exist, thereby imposing a greater burden on SAIF member
institutions such as Ben Franklin. Thereafter, however, assessments on
BIF-member institutions will be made on the same basis as SAIF-member
institutions. The rates established by the FDIC for the first quarter of 1998
are a 6.28 basis points assessment on SAIF deposits and a 1.26 basis points
assessment on BIF deposits.
Regulatory Capital Requirements
Federally insured savings associations, such as Ben Franklin, are
required to maintain a minimum level of regulatory capital. The OTS has
established capital standards, including a tangible capital requirement, a
leverage ratio (or core capital) requirement and a risk-based capital
requirement applicable to such savings associations. These capital requirements
must be generally as stringent as the comparable capital requirements for
national banks. The OTS is also authorized to impose capital requirements in
excess of these standards on individual associations on a case-by-case basis.
The capital regulations require tangible capital of at least 1.5% of
adjusted total assets (as defined by regulation). Tangible capital generally
includes common stockholders' equity and retained income, and certain
noncumulative perpetual preferred stock and related income. In addition, all
intangible assets, other than a limited amount of purchased mortgage servicing
rights, must be deducted from tangible capital for calculating compliance with
the requirement. At December 31, 1997, Ben Franklin did not have any intangible
assets recorded as assets on its financial statements.
The OTS regulations establish special capitalization requirements for
savings associations that own subsidiaries. In determining compliance with the
capital requirements, all subsidiaries engaged solely in activities permissible
for national banks or engaged in certain other activities solely as agent for
its customers are "includable" subsidiaries that are consolidated for capital
purposes in proportion to the association's level of ownership. For excludable
subsidiaries the debt and equity investments in such subsidiaries are deducted
from assets and capital.
58
<PAGE>
At December 31, 1997, Ben Franklin had tangible capital of $7.4 million,
or 6.06% of adjusted total assets, which would have been approximately $5.6
million above the minimum OTS requirement of 1.5% of adjusted total assets in
effect on that date had such requirement been applicable to the Bank on such
date. On a pro forma basis, after giving effect to the sale of the minimum,
midpoint and maximum number of shares of Common Stock offered in the Conversion
and investment of 50% of the net proceeds in assets not excluded for tangible
capital purposes (provided that the amount of net proceeds retained by the
Holding Company will be reduced to the extent required so that, upon the
completion of the transaction the Bank will have at least 10% tangible capital),
Ben Franklin would have had tangible capital equal to 10%, 10% and 10.3%,
respectively, of adjusted total assets at December 31, 1997, which is $10.9
million, $10.9 million and $11.3 million, respectively, above the requirement.
The capital standards also require core capital equal to at least 3% of
adjusted total assets. Core capital generally consists of tangible capital plus
certain intangible assets, including a limited amount of purchased credit card
relationships. As a result of the prompt corrective action provisions discussed
below, however, a savings bank must maintain a core capital ratio of at least 4%
to be considered adequately capitalized unless its supervisory condition is such
to allow it to maintain a 3% ratio. At December 31, 1997, Ben Franklin had no
intangibles which were subject to these tests.
At December 31, 1997, Ben Franklin had core capital equal to $7.4
million, or 6.1% of adjusted total assets, which would have been $3.8 million
above the minimum leverage ratio requirement of 3.0% as in effect on that date
had such requirement been applicable to the Bank on such date. On a pro forma
basis, after giving effect to the sale of the minimum, midpoint and maximum
number of shares of Common Stock offered in the Conversion and investment of 50%
of the net proceeds in assets not excluded from core capital, Ben Franklin would
have had core capital equal to 10%, 10% and 10.3%, respectively, of adjusted
total assets at December 31, 1997, which is $9.0 million, $9.0 million and $9.4
million, respectively, above the requirement.
The OTS risk-based requirement requires savings associations to have
total capital of at least 8% of risk-weighted assets. Total capital consists of
core capital, as defined above, and supplementary capital. Supplementary capital
consists of certain permanent and maturing capital instruments that do not
qualify as core capital and general valuation loan and lease loss allowances up
to a maximum of 1.25% of risk-weighted assets. Supplementary capital may be used
to satisfy the risk-based requirement only to the extent of core capital. The
OTS is also authorized to require a savings association to maintain an
additional amount of total capital to account for concentration of credit risk
and the risk of non-traditional activities. At December 31, 1997, Ben Franklin
had $402,000 of allowance for loan losses that qualify as supplementary capital,
which was less than 1.25% of risk-weighted assets.
Certain exclusions from capital and assets are required to be made for
the purpose of calculating total capital. Such exclusions consist of equity
investments (as defined by regulation) and that portion of land loans and
nonresidential construction loans in excess of an 80% loan-to-value ratio and
reciprocal holdings of qualifying capital instruments. Ben Franklin had no such
exclusions from capital and assets at December 31, 1997.
In determining the amount of risk-weighted assets, all assets, including
certain off-balance sheet items, will be multiplied by a risk weight, ranging
from 0% to 100%, based on the risk inherent in the type of asset. For example,
the OTS has assigned a risk weight of 50% for prudently underwritten permanent
one- to four-family first lien mortgage loans not more than 90 days delinquent
and having a loan to value ratio of not more than 80% at origination unless
insured to such ratio by an insurer approved by the FNMA or FHLMC.
OTS regulations also require that every savings association with more
than normal interest rate risk exposure to deduct from its total capital, for
purposes of determining compliance with such requirement, an amount equal to 50%
of its interest-rate risk exposure multiplied by the present value of its
assets. This exposure is a measure of the potential decline in the net portfolio
value of a savings association, greater than 2% of the present value of its
assets, based upon a hypothetical 200 basis point increase or decrease in
interest rates (whichever results in a greater decline). Net portfolio value is
the present value of expected cash flows from assets, liabilities and
off-balance sheet contracts. The rule will not become effective until the OTS
evaluates the process by which savings associations may appeal an interest rate
risk deduction determination. It is uncertain as to when this evaluation may be
completed. Any savings association with less than $300 million in assets and a
total capital ratio in excess of 12% is exempt from this requirement unless the
OTS
59
<PAGE>
determines otherwise. Based upon its capital level and assets size at December
31, 1997, Ben Franklin is subject to these requirements; however the OTS has not
required implementation of this regulation.
On December 31, 1997, Ben Franklin had total capital of $7.8 million
(including $7.4 million in core capital and $402,000 in qualifying supplementary
capital) and risk-weighted assets of $69.7 million; or total capital of 11.2% of
risk-weighted assets. This amount would have been $2.3 million above the 8%
requirement in effect on that date had the requirement been applicable to the
Bank on such date. On a pro forma basis, after giving effect to the sale of the
minimum, midpoint and maximum number of shares of Common Stock offered in the
Conversion, the infusion to Ben Franklin of $6.8 million, $7.1 million and $7.8
million at the minimum, midpoint, and maximum, respectively, of the net
Conversion proceeds and the investment of those proceeds to Ben Franklin in 20%
risk-weighted government securities, Ben Franklin would have had total capital
of 18.7%, 18.7% and 19.2%, respectively, of risk-weighted assets, which is above
the current 8% requirement by $7.6 million, $7.6 million and $8.0 million,
respectively.
The OTS and the FDIC are authorized and, under certain circumstances
required, to take certain actions against savings associations that fail to meet
their capital requirements. The OTS is generally required to take action to
restrict the activities of an "undercapitalized association" (generally defined
to be one with less than either a 4% core capital ratio, a 4% Tier 1
risked-based capital ratio or an 8% risk-based capital ratio). Any such
association must submit a capital restoration plan and until such plan is
approved by the OTS may not increase its assets, acquire another institution,
establish a branch or engage in any new activities, and generally may not make
capital distributions. The OTS is authorized to impose the additional
restrictions that are applicable to significantly undercapitalized associations.
As a condition to the approval of the capital restoration plan, any
company controlling an undercapitalized association must agree that it will
enter into a limited capital maintenance guarantee with respect to the
institution's achievement of its capital requirements.
Any savings association that fails to comply with its capital plan or is
"significantly undercapitalized" (i.e., Tier 1 risk-based or core capital ratios
of less than 3% or a risk-based capital ratio of less than 6%) must be made
subject to one or more of additional specified actions and operating
restrictions which may cover all aspects of its operations and include a forced
merger or acquisition of the association. An association that becomes
"critically undercapitalized" (i.e., a tangible capital ratio of 2% or less) is
subject to further mandatory restrictions on its activities in addition to those
applicable to significantly undercapitalized associations. In addition, the OTS
must appoint a receiver (or conservator with the concurrence of the FDIC) for a
savings association, with certain limited exceptions, within 90 days after it
becomes critically undercapitalized. Any undercapitalized association is also
subject to the general enforcement authority of the OTS and the FDIC, including
the appointment of a conservator or a receiver.
The OTS is also generally authorized to reclassify an association into a
lower capital category and impose the restrictions applicable to such category
if the institution is engaged in unsafe or unsound practices or is in an unsafe
or unsound condition.
The imposition by the OTS or the FDIC of any of these measures on Ben
Franklin may have a substantial adverse effect on Ben Franklin's operations and
profitability and the value of the Common Stock purchased in the Conversion.
Holding Company stockholders do not have preemptive rights, and therefore, if
the Holding Company is directed by the OTS or the FDIC to issue additional
shares of Common Stock, such issuance may result in the dilution in the
percentage of ownership of the Holding Company of those persons purchasing
shares in the Conversion.
Limitations on Dividends and Other Capital Distributions
OTS regulations impose various restrictions on savings associations with
respect to their ability to make distributions of capital, which include
dividends, stock redemptions or repurchases, cash-out mergers and other
transactions charged to the capital account. OTS regulations also prohibit a
savings association from declaring or paying any dividends or from repurchasing
any of its stock if, as a result, the regulatory capital of the association
would be reduced below the amount required to be maintained for the liquidation
account established in connection with its mutual to stock conversion. See "The
Conversion - Effects of Conversion to Stock Form on Depositors and Borrowers of
the Bank" and "- Restrictions on Repurchase of Stock."
60
<PAGE>
Generally, savings banks, such as Ben Franklin, that before and after the
proposed distribution meet their capital requirements, may make capital
distributions during any calendar year equal to the greater of 100% of net
income for the year-to-date plus 50% of the amount by which the lesser of the
association's tangible, core or risk-based capital exceeds its capital
requirement for such capital component, as measured at the beginning of the
calendar year, or 75% of its net income for the most recent four quarter period.
However, an association deemed to be in need of more than normal supervision by
the OTS may have its dividend authority restricted by the OTS. Ben Franklin may
pay dividends in accordance with this general authority.
Savings associations proposing to make any capital distribution need only
submit written notice to the OTS 30 days prior to such distribution. Savings
associations that do not, or would not meet their current minimum capital
requirements following a proposed capital distribution, however, must obtain OTS
approval prior to making such distribution. The OTS may object to the
distribution during that 30-day period notice based on safety and soundness
concerns. See "- Regulatory Capital Requirements."
The OTS has proposed regulations that would revise the current capital
distribution restrictions. Under the proposal a savings association that is a
subsidiary of a holding company may make a capital distribution with notice to
the OTS provided that it has a CAMEL 1 or 2 rating, is not of supervisory
concern, and would remain adequately capitalized (as defined in the OTS prompt
corrective action regulations) following the proposed distribution. Savings
associations that would remain adequately capitalized following the proposed
distribution but do not meet the other noted requirements must notify the OTS 30
days prior to declaring a capital distribution. The OTS stated it will generally
regard as permissible that amount of capital distributions that do not exceed
50% of the institution's excess regulatory capital plus net income to date
during the calendar year. A savings association may not make a capital
distribution without prior approval of the OTS and the FDIC if it is
undercapitalized before, or as a result of, such a distribution. As under the
current rule, the OTS may object to a capital distribution if it would
constitute an unsafe or unsound practice. No assurance may be given as to
whether or in what form the regulations may be adopted.
Liquidity
All savings associations, including Ben Franklin, 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. For a discussion of what Ben Franklin
includes in liquid assets, see "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources." This liquid asset ratio requirement may vary from time to time
(between 4% and 10%) depending upon economic conditions and savings flows of all
savings associations. At the present time, the minimum liquid asset ratio is 4%.
Penalties may be imposed upon associations for violations of the liquid
asset ratio requirement. At December 31, 1997, Ben Franklin would have been in
compliance with this requirement, with an overall liquid asset ratio of 21.02%
had this requirement been applicable.
Accounting
An OTS policy statement applicable to all savings associations clarifies
and re-emphasizes that the investment activities of a savings association must
be in compliance with approved and documented investment policies and
strategies, and must be accounted for in accordance with GAAP. Under the policy
statement, management must support its classification of and accounting for
loans and securities (i.e., whether held-to-maturity, available-for-sale or
trading) with appropriate documentation. Ben Franklin is in compliance with
these amended rules.
OTS regulations, which may be made more stringent than GAAP by the OTS,
require that transactions be reported in a manner that best reflects their
underlying economic substance and inherent risk and that financial reports must
incorporate any other accounting regulations or orders prescribed by the OTS.
61
<PAGE>
Qualified Thrift Lender Test
Ben Franklin is required to meet a qualified thrift lender ("QTL") test
to avoid certain restrictions on their operations. This test requires a savings
association to have at least 65% of its portfolio assets (as defined by
regulation) in qualified thrift investments on a monthly average for nine out of
every 12 months on a rolling basis. As an alternative, the savings association
may maintain 60% of its assets in those assets specified in Section 7701(a)(19)
of the Internal Revenue Code. Under either test, such assets primarily consist
of residential housing related loans and investments. At December 31, 1997, Ben
Franklin would have met the test with 97.0% of its portfolio assets in qualified
thrift investments.
Any savings association that fails to meet the QTL test must convert to a
commercial bank charter, unless it requalifies as a QTL and thereafter remains a
QTL. If an association does not requalify and converts to a national bank
charter, it must remain SAIF-insured until the FDIC permits it to transfer to
the BIF. If such an association has not yet requalified or converted to a
national bank, its new investments and activities are limited to those
permissible for both a savings association and a national bank, and it is
limited to national bank branching rights in its home state. In addition, the
association is immediately ineligible to receive any new FHLB borrowings and is
subject to national bank limits for payment of dividends. If such association
has not requalified or converted to a national bank within three years after the
failure, it must divest of all investments and cease all activities not
permissible for a national bank. In addition, it must repay promptly any
outstanding FHLB borrowings, which may result in prepayment penalties. If any
association that fails the QTL test is controlled by a holding company, then
within one year after the failure, the holding company must register as a bank
holding company and become subject to all restrictions on bank holding
companies. See "- Holding Company Regulation."
Community Reinvestment Act
Under the Community Reinvestment Act ("CRA"), every FDIC insured
institution has a continuing and affirmative obligation consistent with safe and
sound banking practices to help meet the credit needs of its entire community,
including low and moderate income neighborhoods. The CRA does not establish
specific lending requirements or programs for financial institutions nor does it
limit an institution's discretion to develop the types of products and services
that it believes are best suited to its particular community, consistent with
the CRA. The CRA requires the OTS, in connection with the examination of Ben
Franklin, to assess the institution's record of meeting the credit needs of its
community and to take such record into account in its evaluation of certain
applications, such as a merger or the establishment of a branch, by Ben
Franklin. An unsatisfactory rating may be used as the basis for the denial of an
application by the OTS.
The federal banking agencies, including the OTS, have recently revised
the CRA regulations and the methodology for determining an institution's
compliance with the CRA. Due to the heightened attention being given to the CRA
in the past few years, Ben Franklin may be required to devote additional funds
for investment and lending in its local community. Ben Franklin was examined for
CRA compliance by the FDIC in January 1996 and received a rating of
satisfactory.
Transactions with Affiliates
Generally, transactions between a savings association or its subsidiaries
and its affiliates are required to be on terms as favorable to the association
as transactions with non-affiliates. In addition, certain of these transactions,
such as loans to an affiliate, are restricted to a percentage of the
association's capital. Affiliates of Ben Franklin include the Holding Company
and any company which is under common control with Ben Franklin. In addition, a
savings association may not lend to any affiliate engaged in activities not
permissible for a bank holding company or acquire the securities of most
affiliates.
Certain transactions with directors, officers or controlling persons are
also subject to conflict of interest regulations enforced by the OTS. These
conflict of interest regulations and other statutes also impose restrictions on
loans to such persons and their related interests. Among other things, such
loans must be made on terms substantially the same as for loans to unaffiliated
individuals.
62
<PAGE>
Holding Company Regulation
The Holding Company will be a unitary savings and loan holding company
subject to regulatory oversight by the OTS. As such, the Holding Company is
required to register and file reports with the OTS and is subject to regulation
and examination by the OTS. In addition, the OTS has enforcement authority over
the Holding Company and its non-savings association subsidiaries which also
permits the OTS to restrict or prohibit activities that are determined to be a
serious risk to the subsidiary savings association.
As a unitary savings and loan holding company, the Holding Company
generally is not subject to activity restrictions. If the Holding Company
acquires control of another savings association as a separate subsidiary, it
would become a multiple savings and loan holding company, and the activities of
the Holding Company and any of its subsidiaries (other than Ben Franklin or any
other SAIF-insured savings association) would become subject to such
restrictions unless such other associations each qualify as a QTL and were
acquired in a supervisory acquisition.
If Ben Franklin fails the QTL test, the Holding Company must obtain the
approval of the OTS prior to continuing after such failure, directly or through
its other subsidiaries, any business activity other than those approved for
multiple savings and loan holding companies or their subsidiaries. In addition,
within one year of such failure the Holding Company must register as, and will
become subject to, the restrictions applicable to bank holding companies. The
activities authorized for a bank holding company are more limited than are the
activities authorized for a unitary or multiple savings and loan holding
company. See "- Qualified Thrift Lender Test."
The Holding Company must obtain approval from the OTS before acquiring
control of any other SAIF-insured association. Such acquisitions are generally
prohibited if they result in a multiple savings and loan holding company
controlling savings associations in more than one state. However, such
interstate acquisitions are permitted based on specific state authorization or
in a supervisory acquisition of a failing savings association.
Federal Securities Law
The stock of the Holding Company is registered with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Holding
Company is subject to the information, proxy solicitation, insider trading
restrictions and other requirements of the SEC under the Exchange Act.
Holding Company stock held by persons who are affiliates (generally
officers, directors and principal stockholders) of the Holding Company may not
be resold without registration or unless sold in accordance with certain resale
restrictions. If the Holding Company meets specified current public information
requirements, each affiliate of the Holding Company is able to sell in the
public market, without registration, a limited number of shares in any
three-month period.
Federal Reserve System
The Federal Reserve Board requires all depository institutions to
maintain non-interest bearing reserves at specified levels against their
transaction accounts (primarily checking, NOW and Super NOW checking accounts).
At December 31, 1997, Ben Franklin was in compliance with these reserve
requirements. The balances maintained to meet the reserve requirements imposed
by the Federal Reserve Board may be used to satisfy liquidity requirements that
may be imposed by the OTS. See "- Liquidity."
Savings associations are authorized to borrow from the Federal Reserve
Board "discount window," but Federal Reserve Board regulations require
associations to exhaust other reasonable alternative sources of funds, including
FHLB borrowings, before borrowing from the Federal Reserve Association.
Federal Home Loan Bank System
Ben Franklin is a member of the FHLB of Chicago, which is one of 12
regional FHLBs, that administers the home financing credit function of savings
associations. Each FHLB serves as a reserve or central bank for its members
within
63
<PAGE>
its assigned region. It is funded primarily from 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, which are subject to the oversight of the Federal
Housing Finance Board. All advances from the FHLB are required to be fully
secured by sufficient collateral as determined by the FHLB. In addition, all
long-term advances are required to provide funds for residential home financing.
As a member, Ben Franklin is required to purchase and maintain stock in
the FHLB of Chicago. At December 31, 1997, Ben Franklin had $944,000 in FHLB
stock, which was in compliance with this requirement. In past years, Ben
Franklin has received substantial dividends on its FHLB stock. Over the past
five calendar years such dividends have averaged 6.1%% and were 6.2% for
calendar year 1997. As a result of their holdings, the Bank could borrow up to
$42.9 million from the FHLB.
Under federal law the FHLBs are required to provide funds for the
resolution of troubled savings associations and to contribute to low- and
moderately priced housing programs through direct loans or interest subsidies on
advances targeted for community investment and low- and moderate-income housing
projects. These contributions have affected adversely the level of FHLB
dividends paid and could continue to do so in the future. These contributions
could also have an adverse effect on the value of FHLB stock in the future. A
reduction in value of Ben Franklin's FHLB stock may result in a corresponding
reduction in Ben Franklin's capital.
For the year ended December 31, 1997, dividends paid by the FHLB of
Chicago to Ben Franklin totaled $73,000, which constitute a $5,000 increase from
the amount of dividends received in calendar year 1996.
Federal and State Taxation
Federal Taxation. In August 1996, legislation was enacted that repeals
the percentage of taxable income method of accounting used by many thrifts to
calculate their bad debt reserve for federal income tax purposes. As a result,
small thrifts such as the Bank must recapture that portion of the reserve that
exceeds the amount that could have been taken under the experience method for
post-1987 tax years. The legislation also requires thrifts to account for bad
debts for federal income tax purposes on the same basis as commercial banks for
tax years beginning after December 31, 1995. This change will require the
payment of a $280,000 deferred tax liability payable over a six-year period
beginning in 1998.
In addition to the regular income tax, corporations, including savings
associations such as Ben Franklin, generally are subject to a minimum tax. An
alternative minimum tax is imposed at a minimum tax rate of 20% on alternative
minimum taxable income, which is the sum of a corporation's regular taxable
income (with certain adjustments) and tax preference items, less any available
exemption. The alternative minimum tax is imposed to the extent it exceeds the
corporation's regular income tax and net operating losses can offset no more
than 90% of alternative minimum taxable income.
Ben Franklin currently maintains a tax bad debt reserve in excess of its
base year bad debt balance. The base year bad debt reserve balance is an amount
equal to the amount the tax bad debt reserves on December 31, 1987, or $385,000.
Ben Franklin can only make cash dividends or other distributions (including
distributions in redemption, dissolution or liquidation) to shareholders from
accumulated earnings to the extent the accumulated earnings exceed the base year
amount without adverse tax consequences.
Ben Franklin files its federal and Illinois income tax returns on a
calendar year basis using the accrual method of accounting. The Holding Company
may elect to file a consolidated federal income tax return with Ben Franklin.
Ben Franklin was audited by the IRS with respect to consolidated federal
income tax returns in 1994, 1995 and 1996. With respect to years examined by the
IRS, all deficiencies have been satisfied.
Illinois Taxation. For Illinois income tax purposes, the Bank is taxed at
an effective rate equal to 7.18% of Illinois taxable income. For these purposes,
"Illinois Taxable Income" generally means federal taxable income, subject
64
<PAGE>
to certain adjustments (including the addition of interest income on state and
municipal obligations and the exclusion of interest income on United States
Treasury obligations).
Delaware Taxation. As a Delaware holding company, the Holding Company is
exempted from Delaware corporate income tax but is required to file an annual
report with and pay an annual fee to the State of Delaware. The Holding Company
is also subject to an annual franchise tax imposed by the State of Delaware.
MANAGEMENT
Directors and Executive Officers of the Holding Company and of the Bank
Directors and Executive Officers of the Holding Company. The Board of
Directors of the Holding Company currently consists of seven members. The
directors of the Holding Company are currently comprised of the directors of the
Bank. See "- Board of Directors of the Bank." Directors of the Holding Company
will serve three-year staggered terms so that one-third of the directors will be
elected at each annual meeting of stockholders. The terms of the current
directors of the Holding Company are the same as that of the Bank's board. The
Holding Company does not intend to pay directors a fee for board service.
The executive officers of the Holding 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. The following
table sets forth information regarding executive officers of the Holding
Company. Each executive officer of the Holding Company has held his or her
position since the incorporation of the Holding Company.
Name Title
- ------------------- ---------------------------------------------------------
Joseph J. Gasior Chairman of the Board
Ronald P. Pedersen President and Chief Executive Officer
V. Ted Stutzman Executive Vice-President and Chief Lending Officer
Roger E. Meyers Vice President and Chief Operating Officer
Edward J. Luzwick Secretary
Michael F. Barrett Vice President and Chief Financial and Accounting Officer
Karen A. Cericola Senior Vice President
The Holding Company does not initially intend to pay executive officers
any fees in addition to compensation payable to such persons as executive
officers of the Bank. For information regarding compensation of directors and
executive officers of the Bank, see "Management - Director Compensation" and "-
Executive Compensation."
Board of Directors of the Bank. Prior to the Conversion, the direction
and control of the Bank, as a mutual savings institution, was vested in its
Board of Directors. Upon conversion of the Bank to stock form, each of the
directors of the Bank will continue to serve as a director of the converted
Bank. The Board of Directors of the Bank currently consists of seven members.
Each Director of the Bank has served as such at least since 1992 except for
Robert DeCelles who was elected in 1996, Ronald P. Pedersen who was elected in
1997, and Bernadine Dziedzic who was elected in 1998. The directors serve
three-year staggered terms so that approximately one-third of the directors are
elected at each annual meeting of members. Because the Holding Company will own
all of the issued and outstanding shares of capital stock of the Bank after the
Conversion, directors of the Holding Company will elect the directors of the
Bank.
65
<PAGE>
The following table sets forth certain information regarding the
directors of the Bank.
<TABLE>
<CAPTION>
Director Term
Name Position(s) Held With the Bank Age(1) Since Expires
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Joseph Gasior Chairman of the Board 79 1962 2001
Ronald P. Pedersen President and Chief Executive Officer 57 1997 2001
Robert DeCelles Director 65 1996 2000
Bernadine Dziedzic Director and Secretary 58 1998 1999
Edward J. Luzwick Director and Treasurer 67 1962 2000
Joseph Nowicki Director 82 1992 1999
Charles E. Schuetz Director 75 1962 1999
</TABLE>
(1) At December 31, 1997.
The business experience of each director of the Holding Company and of
the Bank for at least the past five years is set forth below.
Joseph J. Gasior received a B.A. and a J.D. degree from the University of
Chicago. He was a part-time instructor in the field of Business Law at Wilson
Junior College, Chicago, Illinois, from 1946 to 1947 and was an attorney in
private practice from 1948 to 1953. Mr. Gasior served as a Director and
President of Ben Franklin Savings, a thrift institution in Oak Brook, Illinois
("Ben Franklin - Oak Brook") from 1953 to 1983 and is a past President of the
Polish-American Savings and Loan League. Mr. Gasior has been Chairman of the
Board and a salaried executive at the Bank since 1962. He is the father-in-law
of Director Robert E. DeCelles and the brother-in-law of Director Charles E.
Schuetz.
Ronald P. Pedersen, has been President and Chief Executive Officer of the
Bank since January 2, 1997. He previously served as President, Chief Executive
Officer and a member of the Board of Oxford Bank and Trust in Addison, Illinois
for eight years, and Director and senior lender at Aetna Bank of Chicago for
seven years. Mr. Pedersen has been an active member of the Sheshunoff
Affiliation President/Chief Executive Officer Roundtable Program and a faculty
staff member at the American Institution of Banking. He sat as a member of the
Legislative Review Committee of the Illinois Bankers Association and has
participated as a member of various bank associations over the years.
Robert E. DeCelles received his B.S. degree in Business Economics from
Loyola University of Chicago. His real estate experience began in 1969 and
encompasses high rise residential and commercial properties in Chicago, Boston
and Philadelphia. He has been involved in new construction projects in
Philadelphia and Telluride, Colorado. Most recently he has supervised high rise
residential condominium associations in Chicago's Lake Shore Drive and Gold
Coast areas totalling approximately 1400 apartment homes. He has been a member
of Apartment and Building Owners and Managers Association of Illinois (ABOMA)
since 1971; of the Institute of Real Estate Management since 1973; and was
awarded his certified property manager designation in 1974. He has been a member
of the ABOMA Labor Negotiation Group since 1974; and of the ABOMA Board of
Directors since 1976. He served as President of ABOMA from 1990 to 1992 and has
been Management Trustee of Local #1 Janitors Union Health and Pension Fund since
1993. Mr. DeCelles has been a Director of the Bank since 1996. He is the
son-in-law of Chairman of the Board Joseph J. Gasior.
Bernadine Dziedzic is the Secretary of the Bank. From 1957 to 1972 she
served as controller and a Director of Ben Franklin - Oak Brook. From 1972 to
1997, she was editor and chief operating officer for Chicago Law Book Co., a
major law book distributor; and a part-time paralegal for Mr. Gasior in his law
practice. She received a B.A. degree in Accounting and Economics from Mundelein
College (now Loyola University of Chicago), has successfully completed graduate
courses in taxation and book publishing, and is a graduate of the American
Savings and Loan Institute Graduate School of Executive Management at Indiana
University at Bloomington.
66
<PAGE>
Dr. Edward J. Luzwick, D.D.S. received his B.S. degree in Chemistry from
DePaul University of Chicago in 1956 and received his Doctor of Dental Surgery
degree from Loyola University of Chicago in 1960. He was an Associate Professor
of Operative Dentistry at Loyola University Dental School from 1960 to 1962. He
is a life member of the Chicago Dental Society, the American Dental Association
and the American Equilibration Society, a fellow of the American Academy of
General Dentistry since 1970, a fellow of the American Academy of Orthodontics
since 1977 and a charter member of the American Academy of Electrosurgery. Dr.
Luzwick has been a Director of the Bank since 1965; its Treasurer since 1978, a
member of its compensation committee since 1995, and its Dental Administrator
since 1997. Dr. Luzwick has been practicing general dentistry in Mt. Prospect
since 1960.
Joseph Nowicki has over 55 years experience as a real estate appraiser
and is the founder of Affiliated Appraisal Company, La Grange, Illinois. He
served as Assistant Vice President, Loan Department of First Federal Savings of
Chicago from 1938 to 1951; as Loan Manager for Chicago Federal Savings from 1952
to 1954; as President of the Chicago Chapter of Society of Real Estate
Appraisers ("SREA") from 1958 to 1959; as Chairman of the Appraisers Division of
the Chicago Real Estate Board from 1963 to 1964; and as Treasurer of the SREA
Market Data Center, Inc. from 1967 to 1969. He is an MAI appraiser, a member of
the American Institute of Real Estate Appraisers and has testified as an expert
valuation witness in the Circuit Courts of Cook, Lake and Du Page Counties. He
was a director of Ben Franklin - Oak Brook from 1978 to 1983 and has been a
director of the Bank since 1992. Mr. Nowicki had articles published in "The
Mortgage Banker," "American Builder" and "Real Estate Appraiser."
Charles E. Schuetz received a B.S. degree in Physics and Mathematics from
University of Chicago. He taught mathematics at the high school level in the
City of Chicago and Suburban school systems. He is the founder of Charles E.
Schuetz & Co; a builder of single-family residences and light commercial
buildings in Cook and in Du Page County, Illinois, and is a past President of
the Southside Builders Association, Chicago, Illinois. He has been a director of
the Bank since 1962. Mr. Schuetz is the brother-in-law of the Chairman of the
Board, Joseph J. Gasior.
Executive Officers of the Bank Who Are Not Directors. Each of the
executive officers of the Bank will retain his or her position in the converted
Bank. Officers are elected annually by the Board of Direcors of the Bank. The
business experience of the executive officers who are not also directors is set
forth below.
V. Ted Stutzman, age 62, has served as the Bank's Executive Vice
President and Chief Lending Officer since 1987. He joined the Bank in 1985 as
Senior Vice President and Chief Lending Officer. Prior to joining the Bank, Mr.
Stutzman served nine years as Senior Vice President and Retail Lender for Ben
Franklin - Oak Brook.
Roger E. Meyers, age 55, has been Vice President of the Bank since
October of 1980 and in that position has been responsible for all the accounting
and financial reporting for the Bank. In 1998, he was named Chief Operating
Officer. Prior to coming to the Bank, he was Senior Vice President and
Comptroller of Mid-America National Bank of Chicago where he was employed for 13
years.
Michael F. Barrett, age 42, is currently serving as the Chief Financial
and Accounting Officer of the Bank. He is responsible for managing and
overseeing the auditing, record keeping and accounting activities of the Bank.
Prior to joining the Bank in 1998, Mr. Barrett was Vice President & Controller
of Standard Federal Bank, a thrift institution located in the greater
southwestern Chicagoland area. Mr. Barrett holds a BA in Accounting from
Northeastern Illinois University, and an MBA in Finance from the Keller Graduate
School of Management. In addition, he is a Certified Public Accountant and a
Certified Financial Planner.
Karen J. Cericola, age 46, has served as the Bank's Senior Vice President
in charge of Consumer Lending and Loan Marketing since 1987. She joined Douglas
Savings Bank in 1985 as Vice President after having spent the prior five years
with Ben Franklin - Oak Brook, Illinois.
Indemnification
The Certificate of Incorporation of the Holding Company provides that a
director or officer of the Holding Company shall be indemnified by the Holding
Company to the fullest extent authorized by the General Corporation Law of the
State of Delaware against all expenses, liability and loss reasonably incurred
or suffered by such person in
67
<PAGE>
connection with his activities as a director or officer or as a director or
officer of another company, if the director or officer held such position at the
request of the Holding Company. Delaware law requires that such director,
officer, employee or agent, in order to be indemnified, must have acted in good
faith and in a manner reasonably believed to be not opposed to the best
interests of the Holding Company, and, with respect to any criminal action or
proceeding, did not have reasonable cause to believe his or her conduct was
unlawful.
The Certificate of Incorporation and Delaware law also provide that the
indemnification provisions of such Certificate and the statute are not exclusive
of any other right which a person seeking indemnification may have or later
acquire under any statute, provision of the Certificate of Incorporation, Bylaws
of the Holding Company, agreement, vote of stockholders or disinterested
directors or otherwise.
These provisions may have the effect of deterring shareholder derivative
actions, since the Holding Company may ultimately be responsible for expenses
for both parties to the action. A similar effect would not be expected for
third-party claims.
In addition, the Certificate of Incorporation and Delaware law also
provide that the Holding Company may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the Holding
Company or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the Holding
Company has the power to indemnify such person against such expense, liability
or loss under the Delaware General Corporation Law. The Holding Company may
obtain such insurance.
Meetings and Committees of Board of Directors
The Holding Company. The Board of Directors of the Holding Company
recently established standing executive, audit and compensation committees.
These committees did not meet during fiscal 1997.
The Bank. The Bank's Board of Directors meets on a monthly basis. The
Board of Directors met 12 times during the year ended December 30, 1997. During
1997, no director of the Bank attended fewer than 75% of the aggregate of the
total number of Board meetings and the total number of meetings held by the
committees of the Board of Directors on which he or she served. The principal
standing committees of the Bank are the Audit, Compensation, Executive Loan,
Investment and Steering Committees.
The Audit Committee, comprised of Directors Luzwick and Schuetz, oversees
the Bank's audit policy and internal controls and reviews the financial
statements prepared by the Bank's independent auditors. The Audit Committee met
one time in 1997.
The Compensation Committee, comprised of Directors Gasior, DeCelles,
Luzwick, and Pedersen, oversees the Bank's compensation policies. In 1997 the
Compensation Committee met two times.
The Executive Loan Committee, comprised of Directors Gasior, Nowicki,
Schuetz and Pedersen, meets as necessary to consider applications for loans in
excess of $500,000. In 1997 the Executive Loan Committee met 2 times.
The Investment Committee is comprised of Directors Gasior and Pedersen,
who communicate telephonically throughout each month and report monthly to the
Board of Directors of the Bank.
The Steering Committee, comprised of Directors Gasior, DeCelles, Schuetz
and Pedersen, meets at the request of the Board to gather data or formulate
policy recommendations. In 1997 the Steering Committee met 2 times.
68
<PAGE>
Director Compensation
Directors of the Bank are paid a monthly attendance fee of $750 for
service on the Board of Directors and the Chairman is paid an annual salary of
$60,000. Directors receive an additional $250 for attendance at committee
meetings, except that no fees are typically paid with respect to the Investment
Committee.
Executive Compensation
The following table sets forth information concerning the compensation
accrued for services in all capacities to Ben Franklin for the fiscal year ended
December 31, 1997 for the Bank's President and Chief Executive Officer. No other
executive officer's aggregate annual compensation (salary plus bonus) exceeded
$100,000 in fiscal 1997.
<TABLE>
<CAPTION>
Summary Compensation Table
------------------------------------------------------------------------------------------------
Long Term Compensation
Annual Compensation(1) Awards
-------------------------------------------- -----------------------
Restricted
Name and Principal Other Annual Stock Options/ All Other
Position Year Salary($) Bonus($) Compensation($) Award($) SARs(#) Compensation($)
-------- ---- --------- -------- --------------- -------- ------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Ronald P. Pedersen 1997 $135,000 $ --- $8,250 N/A N/A $3,881(2)
President and Chief Executive
Officer
V. Ted Stutzman 1997 $80,850 $22,500 --- N/A N/A $2,999(2)
Executive Vice President and
Chief Lending Officer
</TABLE>
(1) In accordance with the transitional provisions applicable to the revised
rules on executive officer and director compensation disclosure adopted
by the SEC, as informally interpreted by the SEC's Staff, Summary
Compensation information is excluded for the fiscal years ended December
31, 1996 and 1995.
(2) Consists of contributions under Savings Incentive Matching Plan.
69
<PAGE>
Employment Agreement
The Holding Company intends to enter into an employment agreement with
President Pedersen providing for an initial term of three years. The employment
agreement will become effective upon completion of the Conversion and provide
for an annual base salary of $135,000 and a bonus based on a profit sharing
formula. The agreement provides for an annual extension, subject to the
performance of an annual evaluation by disinterested members of the Board of
Directors. The agreement also provides for termination upon the employee's
death, for cause or in certain events specified by OTS regulations. The
employment agreement is also terminable by the employee upon 90 days' notice to
the Holding Company.
In the event Mr. Pedersen is involuntarily terminated without cause, he
will receive his salary and insurance benefits for a period of nine months. In
addition, in the event employment involuntarily terminates in connection with a
" change in control" of the Holding Company or within twelve months thereafter,
the employment agreement provides for the payment to President Pedersen of an
amount equal to 299% of his five-year average annual base compensation. If the
employment of President Pedersen had been terminated as of December 31, 1997
under circumstances entitling him to a change in control severance payment as
described above, he would have been entitled to receive a lump sum cash payment
of approximately $_______. The agreement also provides for the continued payment
to President Pedersen of health benefits for the remainder of the term of his
contract in the event he is terminated in connection with a change in control.
Supplemental Retirement Agreement
The Bank has entered into a non-qualified supplemental retirement
agreement (the "SERA") with Chairman of the Board Joseph J. Gasior to provide
him with an annual supplemental retirement benefit equal to fifty percent of his
final average annual compensation (as calculated over the final three years
before his retirement) for 12 years following his retirement as Chairman of the
Board of Directors.
The Bank may also establish an irrevocable grantor trust in connection
with the SERA. This trust will be funded with contributions from the Bank for
the purpose of providing the benefits promised thereunder. Under such
circumstances, Mr. Gasior would have only the rights of unsecured creditors with
respect to the trust's assets, and would not recognize income with respect to
benefits provided by the SERA until such benefits are received. The assets of
the grantor trust would be considered part of the general assets of the Bank and
would be subject to the claims of the Bank's creditors in the event of the
Bank's insolvency. Earnings on the trust's assets will be taxable to the Bank.
The trustee of the trust may invest the trust's assets in the Holding Company's
stock.
Benefit Plans
General. Ben Franklin Bank of Illinois currently provides insurance
benefits to its employees, including health and life insurance, subject to
certain deductibles and copayments.
During 1997, the Bank adopted a Savings Incentive Matching Plan for
Employees covering substantially all employees. Participants may elect to make
tax deferred contributions to the plan in amounts of up to $6,000 per calendar
year. Annually, the Bank makes dollar for dollar matching contributions based on
amounts contributed by participants up to a maximum of 3% of compensation per
participant. The Bank made contributions under this Plan totaling $16,000 during
1997.
Director Emeritus Plan. The Bank has adopted a Director Emeritus Plan
providing that, upon retirement from the board after age 59 or upon death or
disability while serving as director, each non-employee director qualifying as
director emeritus would be paid an annual benefit for a period of 10 years equal
to (i) 40% of the total amount of board and committee fees paid to him for his
last 12 months of service as a director (the "Final 12 Months Fees") plus (ii)
5% of the Final 12 Months Fees for each full or partial year of service as a
director; provided, that the total annual benefit shall not exceed the Final 12
Months Fees. Only directors with five or more years of service qualify for
participation in this plan.
70
<PAGE>
The Bank may determine to establish an irrevocable grantor trust in
connection with this plan similar to the trust which may be established in
connection with the SERA as described above.
Employee Stock Ownership Plan. The Boards of Directors of Ben Franklin
and the Holding Company have approved the adoption of an ESOP for the benefit of
employees of the Bank. The ESOP is also designed to meet the requirements of an
employee stock ownership plan as described at Section 4975(e)(7) of the Code and
Section 407(d)(6) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and, as such, the ESOP is empowered to borrow in order to
finance purchases of the Common Stock.
It is anticipated that the ESOP will be funded with a loan from the
Holding Company (not to exceed an amount equal to 8% of the gross Conversion
proceeds). The interest rate of the ESOP loan will be equal to the applicable
federal interest rate as determined by the Internal Revenue Service for the
month in which the loan is made, as calculated pursuant to Section 1274(d) of
the Code.
GAAP generally requires that any borrowing by the ESOP from an
unaffiliated lender be reflected as a liability in the Holding Company's
Financial Statements, whether or not such borrowing is guaranteed by, or
constitutes a legally binding contribution commitment of, the Holding Company or
the Bank. The funds used to acquire the ESOP shares will be borrowed from the
Holding Company. Since the Holding Company will finance the ESOP debt, the ESOP
debt will be eliminated through consolidation and no liability will be reflected
on the Holding Company's financial statements. In addition, shares purchased
with borrowed funds will, to the extent of the borrowings, be excluded from
stockholders' equity, representing unearned compensation to employees for future
services not yet performed. Consequently, if the ESOP purchases already-issued
shares in the open market, the Holding Company's consolidated liabilities will
increase to the extent of the ESOP's borrowings, and total and per share
stockholders' equity will be reduced to reflect such borrowings. If the ESOP
purchases newly issued shares from the Holding Company, total stockholders'
equity would neither increase nor decrease, but per share stockholders' equity
and per share net income would decrease because of the increase in the number of
outstanding shares. In either case, as the borrowings used to fund ESOP
purchases are repaid, total stockholders' equity will correspondingly increase.
All employees of the Bank are eligible to participate in the ESOP after
they attain age 21 and complete one year of service. The Bank's contribution to
the ESOP is allocated among participants on the basis of their relative
compensation. Each participant's account will be credited with cash and shares
of Holding Company Common Stock based upon compensation earned during the year
with respect to which the contribution is made. Contributions credited to a
participant's account become fully vested upon such participant's completing
five years of service. Credit will be given for prior years of service for
vesting purposes. ESOP participants are entitled to receive distributions from
their ESOP accounts only upon termination of service. Distributions will be made
in cash and in whole shares of the Holding Company's Common Stock. Fractional
shares will be paid in cash. Participants will not incur a tax liability until a
distribution is made.
Each participating employee is entitled to instruct the trustee of the
ESOP as to how to vote the shares allocated to his or her account. The trustee
will not be affiliated with the Holding Company or Ben Franklin.
The ESOP may be amended by the Board of Directors, except that no
amendment may be made which would reduce the interest of any participant in the
ESOP trust fund or divert any of the assets of the ESOP trust fund for purposes
other than the benefit of participants or their beneficiaries.
Stock Option and Incentive Plan. Among the benefits to the Bank
anticipated from the Conversion is the ability to attract and retain personnel
through the prudent use of stock options and other stock-related incentive
programs. The Board of Directors of the Holding Company intends to adopt a Stock
Option and Incentive Plan (the "Stock Option Plan"), subject to ratification by
stockholders of the Holding Company at a meeting to be held not earlier than six
months after completion of the Conversion. Under the terms of the proposed Stock
Option Plan, stock options covering shares representing an aggregate of up to
10% of the shares of Common Stock issued in the Conversion may be granted to
directors, officers and employees of the Holding Company or its subsidiaries
under the Stock Option Plan.
71
<PAGE>
Options granted under the Stock Option Plan may be either options that
qualify under the Code as "incentive stock options" (options that afford
preferable tax treatment to recipients upon compliance with certain restrictions
and that do not normally result in tax deductions to the employer) or options
that do not so qualify. The exercise price of stock options granted under the
Stock Option Plan is required to be at least equal to the fair market value per
share of the stock on the date of grant. All grants are made in consideration of
past and future services rendered to the Bank, and in an amount deemed necessary
to encourage the continued retention of the officers and directors who are
considered necessary for the continued success of the Bank. In this regard, all
options are intended to vest in five equal annual installments commencing one
year from the date of grant, subject to the continued service of the holder of
such option.
The proposed Stock Option Plan provides for the grant of stock
appreciation rights ("SARs") at any time, whether or not the participant then
holds stock options, granting the right to receive the excess of the market
value of the shares represented by the SARs on the date exercised over the
exercise price. SARs generally will be subject to the same terms and conditions
and exercisable to the same extent as stock options.
Limited SARs may be granted at the time of, and must be related to, the
grant of a stock option or SAR. The exercise of one will reduce to that extent
the number of shares represented by the other. Limited SARs will be exercisable
only for the 45 days following the expiration of the tender or exchange offer,
during which period the related stock option or SAR will be exercisable.
However, no SAR or Limited SAR will be exercisable by a 10% beneficial owner,
director or senior officer within six months of the date of its grant. The
Holding Company has no present intention to grant any SARs or Limited SARs.
The proposed Stock Option Plan will be administered by Stock Plan
Committee of the Holding Company which will consist of at least two
disinterested directors. The Stock Plan Committee will select the recipients and
terms of awards made pursuant to the Stock Option Plan. OTS regulations limit
the amount of shares that may be awarded pursuant to stock-based plans to each
individual officer, each non-employee director and all non-employee directors as
a group to 25%, 5% and 30%, respectively, of the total shares reserved for
issuance under each such stock-based plan.
The Committee currently intends to grant options in amounts expressed as
a percentage of the shares issued in the Conversion, as follows: to each of the
Chairman of the Board and the President - 2.5% and to all executive officers as
a group (5 persons) ____%. In addition, under the terms of the Stock Option
Plan, each non-employee director of the Holding Company at the time of
stockholder ratification of the Stock Option Plan will be granted an option to
purchase shares of Common Stock equal to .5% of the shares sold in the
Conversion. The remaining balance of the available awards is unallocated and
reserved for future use. All options will expire 10 years after the date such
option was granted, which, for the option grants listed above, is expected to be
the date of stockholder ratification of the Stock Option Plan. All proposed
option grants to officers are subject to modification by the Stock Plan
Committee based upon its performance evaluation of the option recipients at the
time of stockholder ratification of the Stock Option Plan following completion
of the Conversion.
After stockholder ratification, the Stock Option Plan will be funded
either with shares purchased in the open market or with authorized but unissued
shares of Common Stock. The use of authorized but unissued shares to fund the
Stock Option Plan could dilute the holdings of stockholders who purchased Common
Stock in the Conversion. See "Pro Forma Data." In no event will the Stock Option
Plan acquire an amount of shares, which, in the aggregate, represent more than
10% of the shares issued in the Conversion.
Under SEC regulations, so long as certain criteria are met, an optionee
may be able to exercise the option at the Purchase Price and immediately sell
the underlying shares at the then-current market price without incurring
short-swing profit liability. This ability to exercise and immediately resell,
which under the SEC regulations applies to stock option plans in general, allows
the optionee to realize the benefit of an increase in the market price for the
stock without the market risk which would be associated with a required holding
period for the stock after payment of the exercise price. Under SEC regulations,
the short-swing liability period now runs for six months before and after the
option grant. All grants are subject to ratification of the Stock Option Plan by
stockholders of the Holding Company following completion of the Conversion.
72
<PAGE>
Recognition and Retention Plan. The Holding Company intends to establish
the RRP in order to provide employees with a proprietary interest in the Holding
Company in a manner designed to encourage such persons to remain with the
Holding Company and the Bank. The RRP will be subject to ratification by
stockholders at a meeting to be held not earlier than six months after the
completion of the Conversion. The Holding Company will contribute funds to the
RRP to enable it to acquire in the open market or from authorized but unissued
shares (with the decision between open market or authorized but unissued shares
based on the Holding Company's future stock price, alternate investment
opportunities and capital needs), following stockholder ratification of such
plan, an amount of stock equal to 4% of the shares of Common Stock issued in the
Conversion.
The Stock Plan Committee of the Board of Directors of the Holding Company
will administer the proposed RRP. Under the terms of the proposed RRP, awards
("Awards") can be granted to key employees without payment by such persons in
the form of shares of Common Stock held by the RRP. Awards are non-transferable
and non-assignable. OTS regulations limit the amount of shares that may be
awarded pursuant to stock-based plans to each individual officer, each
non-employee director and all non-employee directors as a group to 25%, 5% and
30%, respectively, of the total shares reserved for issuance under each such
stock-based plan.
Recipients will earn (i.e., become vested in), over a period of time, the
shares of Common Stock covered by the Award. Awards made pursuant to the RRP
will vest in five equal annual installments commencing one year from the date of
grant. Awards will be 100% vested upon termination of employment due to death or
disability. When shares become vested and are actually distributed in accordance
with the RRP, but in no event prior to such time, the participants will also
receive amounts equal to any accrued dividends with respect thereto. Earned
shares are distributed to recipients as soon as practicable following the date
on which they are earned.
The Stock Plan Committee presently intends to grant restricted stock
awards without cost to the recipients in amounts expressed as a percentage of
the shares sold in the Conversion, as follows: to Messrs. Gasior and Pedersen -
1.0%, and to all executive officers as a group (5 persons) - [__]%. Pursuant to
the terms of the proposed RRP, each non-employee director of the Holding Company
at the time of stockholder ratification of the RRP will be awarded an amount of
shares equal to .2% of the shares sold in the Conversion. All proposed RRP
awards to officers of the Bank are subject to modification by the Stock Plan
Committee based upon its performance evaluation of the award recipients at the
time of stockholder ratification of the RRP following completion of the
Conversion.
After stockholder ratification, the RRP will be funded either with shares
purchased in the open market or with authorized but unissued shares of Common
Stock issued to the RRP by the Holding Company. The use of authorized but
unissued shares to fund the RRP could dilute the holdings of stockholders who
had purchased Common Stock in the Conversion. In the event the RRP purchases
stock in the open market at prices above the initial Purchase Price, the total
RRP expense may be above that disclosed under the caption "Pro Forma Data." In
no event will the RRP acquire an amount of shares which, in the aggregate,
represent more than 4% of the shares issued in the Conversion.
Certain Transactions
The Bank follows a policy of granting loans to the Bank's directors,
officers and employees. The loans to executive officers and directors are made
in the ordinary course of business and on the same terms and conditions as those
of comparable transactions prevailing at the time, in accordance with the Bank's
underwriting guidelines and do not involve more than the normal risk of
collectibility or present other unfavorable features. Loans to all directors and
executive officers and their associates, including outstanding balances and
commitments totaled $40,000 at December 31, 1997, which was .51% of the Bank's
retained earnings at that date.
73
<PAGE>
THE CONVERSION
The Board of Directors of the Bank and the OTS have approved the Plan of
Conversion. OTS approval does not constitute a recommendation or endorsement of
the Plan of Conversion. Certain terms used in the following summary of the
material terms of the Conversion are defined in the Plan of Conversion, a copy
of which may be obtained by contacting Ben Franklin.
General
The Board of Directors of the Bank unanimously adopted the Plan, subject
to approval by the OTS and the members of the Bank. Pursuant to the Plan, the
Bank will convert from a federally chartered mutual savings loan and Bank to a
federally chartered stock savings bank, with the concurrent formation of a
holding company.
The Conversion will be accomplished through amendment of the Bank's
federal charter to authorize capital stock, at which time the Bank will become a
wholly owned subsidiary of the Holding Company. The Conversion will be accounted
for as a pooling of interests.
Subscription Rights have been granted to the Eligible Account Holders as
of January 31, 1997, Tax-Qualified Employee Plans of the Bank and Holding
Company, Supplemental Eligible Account Holders as of _________, 1998, Other
Members, and directors, officers, and employees of the Bank. Additionally,
subject to the availability of shares and market conditions at or near the
completion of the Subscription Offering, the Common Stock may be offered for
sale in a Public Offering and Direct Community Offering to selected persons on a
best-efforts basis through FBR. See "- Offering of Holding Company Common
Stock." Subscriptions for shares will be subject to the maximum and minimum
purchase limitations set forth in the Plan of Conversion.
Business Purposes
Ben Franklin has several business purposes for the Conversion. The sale
of Holding Company Common Stock will have the immediate result of providing the
Bank with additional equity capital in order to support the expansion of its
existing operations, subject to market conditions. See "Business." The sale of
the Common Stock is the most effective means of increasing the Bank's permanent
capital and does not involve the high interest cost and repayment obligation of
subordinated debt. In addition, investment of that part of the net Conversion
proceeds paid by the Holding Company to the Bank is expected to provide
additional operating income to further increase the Bank's capital on a
continuing basis.
The Board of Directors of the Bank believes that a holding company
structure could facilitate the acquisition of both mutual and stock savings
institutions in the future as well as other companies. If a multiple holding
company structure is utilized in a future acquisition, the acquired savings
institution would be able to operate on a more autonomous basis as a wholly
owned subsidiary of the Holding Company rather than as a division of the Bank.
For example, the acquired savings institution could retain its own directors,
officers and corporate name as well as having representation on the Board of
Directors of the Holding Company. As of the date hereof, there are no plans or
understandings regarding the acquisition of any other institutions.
The Board of Directors of the Bank also believes that a holding company
structure can facilitate the diversification of the Bank's business activities.
While diversification will be maximized if a unitary holding company structure
is utilized because the types of business activities permitted to a unitary
holding company are broader than those of a multiple holding company, either
type of holding company may engage in a broader range of activities than may a
thrift institution directly. Currently, there are no plans that the Holding
Company engage in any material activities apart from holding the shares of the
Bank and investing the remaining net proceeds from the sale of Common Stock in
the Conversion.
The preferred stock and additional common stock of the Holding Company
being authorized in the Conversion will be available for future acquisitions and
for issuance and sale to raise additional equity capital, generally without
stockholder approval or ratification, but subject to market conditions. Although
the Holding Company currently has
74
<PAGE>
no plans with respect to future issuances of equity securities, the more
flexible operating structure provided by the Holding Company and the stock form
of ownership is expected to assist the Bank in competing more aggressively with
other financial institutions in its principal market area.
The Conversion will structure the Bank in the stock form used in the
United States by all commercial banks, most major business corporations and an
increasing number of savings institutions. The Conversion will permit the Bank's
members to become stockholders of the Holding Company, thereby allowing members
to own stock in the financial organization in which they maintain deposit
accounts or with which they have a borrowing relationship. Such ownership should
encourage stockholders to promote the Bank to potential customers, thereby
further contributing to the Bank's earnings potential.
The Bank is also expected to benefit from its management and employees
owning stock, because stock ownership is viewed as an effective performance
incentive and a means of attracting, retaining and compensating personnel.
Effects of Conversion to Stock Form on Depositors and Borrowers of the Bank
Voting Rights. Deposit account holders will have no voting rights in the
converted Bank or the Holding Company and will therefore not be able to elect
directors of either entity or to control their affairs. These rights are
currently accorded to deposit account holders with regard to the Bank.
Subsequent to Conversion, voting rights will be vested exclusively in the
Holding Company as the sole stockholder of the Bank. Voting rights as to the
Holding Company will be held exclusively by its stockholders. Each purchaser of
Holding Company Common Stock shall be entitled to vote on any matters to be
considered by the Holding Company stockholders. A stockholder will be entitled
to one vote for each share of Common Stock owned, subject to certain limitations
applicable to holders of 10% or more of the shares of the Common Stock. See
"Description of Capital Stock."
Deposit Accounts and Loans. The general terms of the Bank's deposit
accounts, the balances of the individual accounts and the existing FDIC
insurance coverage will not be affected by the Conversion. Furthermore, the
Conversion will not affect the loan accounts, the balances of these accounts, or
the obligations of the borrowers under their individual contractual arrangements
with the Bank.
Tax Effects. The Bank has received opinions from Crowe Chizek & Company
LLP with regard to federal income taxation and Illinois taxation to the effect
that the adoption and implementation of the Plan of Conversion set forth herein
will not be taxable for federal or Illinois tax purposes to the Bank or the
Holding Company. See "- Income Tax Consequences."
Liquidation Rights. The Bank has no plans to liquidate, either before or
subsequent to the completion of the Conversion. However, if there should ever be
a complete liquidation, either before or after Conversion, deposit account
holders would receive the protection of insurance by the FDIC up to applicable
limits. Subject thereto, liquidation rights before and after Conversion would be
as follows:
Liquidation Rights in Present Mutual Institution. In addition to the
protection of FDIC insurance up to applicable limits, in the event of a
complete liquidation of the Bank, each holder of a deposit account in the
Bank in its present mutual form would receive his or her pro rata share
of any assets of the Bank remaining after payment of claims of all
creditors (including the claims of all depositors in the amount of the
withdrawal value of their accounts). Such holder's pro rata share of such
remaining assets, if any, would be in the same proportion of such assets
as the balance in his or her deposit account was to the aggregate balance
in all deposit accounts in the Bank at the time of liquidation.
Liquidation Rights in Proposed Converted Institution. After Conversion,
each deposit account holder, in the event of a complete liquidation of
the Bank, would have a claim of the same general priority as the claims
of all other general creditors of the Bank in addition to the protection
of FDIC insurance up to applicable limits. Therefore, except as described
below, the deposit account holder's claim would be solely in the amount
of the balance in his or her deposit account plus accrued interest. The
holder would have no interest in the assets of the Bank above that
amount.
75
<PAGE>
The Plan of Conversion provides that there shall be established, upon the
completion of the Conversion, a special "liquidation account" for the
benefit of Eligible Account Holders (i.e., eligible depositors at January
31, 1997) and Supplemental Account Holders (eligible depositors at
_________, 1998) in an amount equal to the net worth of the Bank as of
the date of its latest consolidated statement of financial condition
contained in the final prospectus relating to the sale of shares of
Holding Company Common Stock in the Conversion. Each Eligible Account
Holder and Supplemental Eligible Account Holder would have an initial
interest in such liquidation account for each deposit account held in the
Bank on the qualifying date. An Eligible Account Holder and Supplemental
Eligible Account Holder's interest as to each deposit account would be in
the same proportion of the total liquidation account as the balance in
his or her account on January 31, 1997 and __________, 1998,
respectively, was to the aggregate balance in all deposit accounts of
Eligible Account Holders and Supplemental Eligible Account Holders on
such dates. However, if the amount in the deposit account of an Eligible
Account Holder or Supplemental Eligible Account Holder on any annual
closing date of the Bank is less than the lowest amount in such account
on January 31, 1997 or _________, 1998 and on any subsequent closing
date, then the account holder's interest in this special liquidation
account would be reduced by an amount proportionate to any such
reduction, and the account holder's interest would cease to exist if such
deposit account were closed.
In addition, the interest in the special liquidation account would never
be increased despite any increase in the balance of the account holders'
related accounts after Conversion, and would only decrease.
Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders were satisfied
would be distributed to the Holding Company as the sole stockholder of
the Bank.
No merger, consolidation, purchase of bulk assets with assumption of
deposit accounts and other liabilities, or similar transaction, whether
the Bank, as converted, or another SAIF-insured institution is the
surviving institution, is deemed to be a complete liquidation for
purposes of distribution of the liquidation account and, in any such
transaction, the liquidation account would be assumed to the full extent
authorized by regulations of the OTS as then in effect. The OTS has
stated that the consummation of a transaction of the type described in
the preceding sentence in which the surviving entity is not a
SAIF-insured institution would be reviewed on a case-by-case basis to
determine whether the transaction should constitute a "complete
liquidation" requiring distribution of any then remaining balance in the
liquidation account. While the Bank believes that such a transaction
should not constitute a complete liquidation, there can be no assurance
that the OTS will not adopt a contrary position.
Common Stock. For information as to the characteristics of the Common
Stock to be issued under the Plan of Conversion, see "Dividends" and
"Description of Capital Stock." Common Stock issued under the Plan of Conversion
cannot, and will not, be insured by the FDIC or any other governmental agency.
The Bank will continue, immediately after completion of the Conversion,
to provide its services to depositors and borrowers pursuant to its existing
policies and will maintain the existing management and employees of the Bank.
Other than for payment of certain expenses incident to the Conversion, no assets
of the Bank will be distributed in the Conversion. Ben Franklin will continue to
be a member of the FHLB System, and its deposit accounts will continue to be
insured by the FDIC. The affairs of Ben Franklin will continue to be directed by
the existing Board of Directors and management.
Offering of Holding Company Common Stock
Under the Plan of Conversion, up to 1,610,000 shares of Holding Company
Common Stock will be offered for sale, subject to certain restrictions described
below, initially through the Offering. Federal conversion regulations require,
with certain exceptions, that all shares offered in a conversion be sold in
order for the conversion to become effective.
76
<PAGE>
The Subscription Offering will expire at noon, Arlington Heights,
Illinois time, on [________], 1998 (the "Subscription Expiration Date") unless
extended by the Bank and the Holding Company. Depending on the availability of
shares and market conditions at or near the completion of the Subscription
Offering, the Holding Company may effect a Public Offering of shares to selected
persons through FBR. To order Common Stock in connection with the Public
Offering and Direct Community Offering, if any, an executed stock order and
account withdrawal authorization and certification must be received by FBR prior
to the termination of the Public Offering and Direct Community Offering. The
date by which orders must be received in the Public Offering, if any, will be
set by the Holding Company at the time of such offering. OTS regulations require
that all shares to be offered in the Conversion be sold within a period ending
not more than 45 days after the Subscription Expiration Date (or such longer
period as may be approved by the OTS) or, despite approval of the Plan of
Conversion by members, the Conversion will not be effected and Ben Franklin will
remain in mutual form. This period expires on [________], 1998, unless extended
with the approval of the OTS. In addition, if the Offering is extended beyond
[________], 1998, all subscribers will have the right to modify or rescind their
subscriptions and to have their subscription funds returned promptly with
interest. In the event that the Conversion is not effected, all funds submitted
and not previously refunded pursuant to the Offering will be promptly refunded
to subscribers with interest at the Bank's current passbook rate and all
withdrawal authorizations will be terminated.
Stock Pricing and Number of Shares to be Issued
Federal regulations require that the aggregate purchase price of the
securities of a thrift institution sold in connection with its conversion must
be based on an appraised aggregate market value of the institution as converted
(i.e., taking into account the expected receipt of proceeds from the sale of the
securities in the conversion), as determined by an independent valuation.
Ferguson, which is experienced in the valuation and appraisal of business
entities, including thrift institutions involved in the conversion process, was
retained by the Bank to prepare an appraisal of the estimated pro forma market
value of the Bank and the Holding Company upon Conversion.
Ferguson will receive a fee of approximately $[________] for its
appraisal in addition to its reasonable out-of-pocket expenses incurred in
connection with the appraisal. Ferguson has also agreed to assist in the
preparation of the Bank's business plan for a separate fee of $[________]. The
Bank has agreed to indemnify Ferguson under certain circumstances against
liabilities and expenses (including legal fees) arising out of, related to, or
based upon the Conversion.
Ferguson has prepared an appraisal of the estimated pro forma market
value of the Bank as converted. The Ferguson appraisal concluded that, at March
20, 1998, an appropriate range for the estimated pro forma market value of the
Bank and the Holding Company was from a minimum of $11.9 million to a maximum of
$16.1 million with a midpoint of $14.0 million. Assuming that the shares are
sold at $10.00 per share in the Conversion, the estimated number of shares to be
issued in the Conversion is expected to be between 1,190,000 and 1,610,000. The
Purchase Price of $10.00 was determined by discussion among the Boards of
Directors of the Bank, the Holding Company and Ferguson, taking into account,
among other factors, (i) the requirement under OTS regulations that the Common
Stock be offered on a manner that would achieve the widest distribution of
shares and (ii) liquidity in the Common Stock subsequent to the Conversion.
The appraisal involved a comparative evaluation of the operating and
financial statistics of the Bank with those of other thrift institutions. The
appraisal also took into account such other factors as the market for thrift
institution stocks generally, prevailing economic conditions, both nationally
and in Illinois, which affect the operations of thrift institutions, the
competitive environment within which the Bank operates and the effect of the
Bank becoming a subsidiary of the Holding Company. No detailed individual
analysis of the separate components of the Holding Company's and the Bank's
assets and liabilities was performed in connection with the evaluation. The Plan
of Conversion requires that all of the shares subscribed for in the Offering be
sold at the same price per share. The Board of Directors reviewed the appraisal,
including the methodology and the appropriateness of the assumptions utilized by
Ferguson and determined that in its opinion the appraisal was not unreasonable.
The Estimated Valuation Range may be amended with the approval of the OTS in
connection with changes in the financial condition or operating results of the
Bank or market conditions generally. As described below, an amendment to the
Estimated Valuation Range above $18,515,000 would not be made without a
resolicitation of subscriptions and/or proxies except in limited circumstances.
77
<PAGE>
If, upon completion of the Offering, at least the minimum number of
shares are subscribed for, Ferguson, after taking into account factors similar
to those involved in its prior appraisal, will determine its estimate of the pro
forma market value of the Bank and the Holding Company upon Conversion, as of
the close of the Offering.
If, based on the estimate of Ferguson, the aggregate pro forma market
value is not within the Estimated Valuation Range, Ferguson, upon the consent of
the OTS, will determine a new Estimated Valuation Range ("Amended Valuation
Range"). If the aggregate pro forma market value of the Bank as converted and
the Holding Company has increased in the Amended Valuation Range to an amount
that does not exceed $18,515,000 (i.e.,15% above the maximum of the Estimated
Valuation Range), then the number of shares to be issued may be increased to
accommodate such increase in value without a resolicitation of subscriptions
and/or proxies. In such event the Bank and the Holding Company do not intend to
resolicit subscriptions and/or proxies unless the Bank and the Holding Company
then determine, after consultation with the OTS, that circumstances otherwise
require such a resolicitation. If, however, the aggregate pro forma market value
of the Holding Company and the Bank, as converted, at that time is less than
$11,900,000 or more than $18,515,000, a resolicitation of subscribers and/or
proxies may be made, the Plan of Conversion may be terminated or such other
actions as the OTS may permit may be taken. In the event that upon completion of
the Offering, the pro forma market value of the Holding Company and Bank, as
converted, is below $11,900,000 or above $18,515,000 (15% above the maximum of
the Estimated Valuation Range), the Holding Company intends to file the revised
appraisal with the SEC by post-effective amendment to its Registration Statement
on Form S-1. See "Additional Information." If the Plan of Conversion is
terminated, all funds would be returned promptly with interest at the rate of
the Bank's current passbook rate, and holds on funds authorized for withdrawal
from deposit accounts would be released. If there is a resolicitation of
subscriptions, subscribers will be given the opportunity to cancel or change
their subscriptions and to the extent subscriptions are so canceled or reduced,
funds will be returned with interest at the Bank's current passbook rate and
holds on funds authorized for withdrawal from deposit accounts will be released
or reduced. Stock subscriptions received by the Holding Company and the Bank may
not be withdrawn by the subscriber and, if accepted by the Holding Company and
the Bank, are final. If the Conversion is not completed prior to [________] (two
years after the date of the Special Meeting), the Plan of Conversion will
automatically terminate.
Any increase in the total number of shares of Common Stock to be offered
in the Conversion will dilute a subscriber's percentage ownership interest and
will reduce the pro forma net income and net worth on a per share basis. A
decrease in the number of shares to be issued in the Conversion will increase a
subscriber's proportionate ownership interest and will increase both pro forma
net income and net worth on a per share basis while decreasing that amount on an
aggregate basis.
No sale of the shares will take place unless, prior thereto, Ferguson
confirms to the OTS that, to the best of Ferguson's knowledge and judgment,
nothing of a material nature has occurred which would cause Ferguson to conclude
that the actual Purchase Price on an aggregate basis is incompatible with its
estimate of the aggregate pro forma market value of the Holding Company and the
Bank as converted at the time of the sale. If, however, the facts do not justify
such a statement, the Offering or other sale may be canceled, a new Estimated
Valuation Range set and new offering held.
In preparing its valuation of the pro forma market value of the Bank and
the Holding Company upon Conversion, Ferguson relied upon and assumed the
accuracy and completeness of all financial and statistical information provided
by the Bank and the Holding Company. Ferguson also considered information based
upon other publicly available sources which it believes are reliable. However,
Ferguson does not guarantee the accuracy and completeness of such information
and did not independently verify the financial statements and other data
provided by the Bank and the Holding Company or independently value the assets
or liabilities of the Bank and the Holding Company. The appraisal is not
intended to be, and must not be interpreted as, a recommendation of any kind as
to the advisability of voting to approve the Conversion or of purchasing shares
of Common Stock. The appraisal considers Ben Franklin and the Holding Company
only as going concerns and should not be considered as any indication of the
liquidation value of Ben Franklin or the Holding Company. Moreover, the
appraisal is necessarily based on many factors which change from time to time.
There can be no assurance that persons who purchase shares in the Conversion
will be able to sell such shares at prices at or above the Purchase Price.
78
<PAGE>
Subscription Offering
In accordance with OTS regulations, non-transferable Subscription Rights
have been granted under the Plan of Conversion to the following persons in the
following order of priority: (1) Eligible Account Holders (deposit account
holders of the Bank maintaining an aggregate balance of $50 or more as of
January 31, 1997), (2) the Holding Company and the Bank's Tax-Qualified Employee
Plans; provided, however, that the Tax-Qualified Employee Plans shall have first
priority Subscription Rights to the extent that the total number of shares of
Common Stock sold in the Conversion exceeds the maximum of the Estimated
Valuation Range; (3) Supplemental Eligible Accounts Holders (deposit account
holders of the Bank maintaining a balance of $50 or more as of [_________]), (4)
Other Members (depositors of the Bank at the close of business on [________],
1998, the voting record date for the Special Meeting) and (5) officers,
directors and employees of the Bank. All subscriptions received will be subject
to the availability of Holding Company Common Stock after satisfaction of all
subscriptions of all persons having prior rights in the Subscription Offering,
and to the maximum and minimum purchase limitations set forth in the Plan of
Conversion.
Category No. 1 is reserved for the Bank's Eligible Account Holders.
Subscription Rights to purchase shares under this category will be allocated
among Eligible Account Holders to permit each such depositor to purchase shares
in this Category in an amount equal to the greater of $200,000 of Common Stock,
one tenth of one percent (.10%) of the total shares offered in the Conversion,
or 15 times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by a
fraction of which the numerator is the amount of the qualifying deposits of the
Eligible Account Holder and the denominator is the total amount of the
qualifying deposit of the Eligible Account Holders in the Bank, in each case on
the Eligibility Record Date. To the extent shares are oversubscribed in this
category, shares shall be allocated first to permit each subscribing Eligible
Account Holder to purchase, to the extent possible, 100 shares and thereafter
among each subscribing Eligible Account Holder pro rata in the same proportion
that his Qualifying Deposit bears to the total Qualifying Deposits of all
subscribing Eligible Account Holders whose subscriptions remain unsatisfied.
Category No. 2 provides for the issuance of Subscription Rights to
Tax-Qualified Employee Plans to purchase up to 10% of the total amount of shares
of Common Stock issued in the Subscription Offering on a second priority basis.
The ESOP intends to purchase a total of 8% of the Common Stock issued in the
Conversion under this category. Subscription Rights received pursuant to this
category shall be subordinated to all rights received by Eligible Account
Holders to purchase shares pursuant to Category No. 1; provided, however, that
notwithstanding any provision of the Plan of Conversion to the contrary, the
Tax-Qualified Employee Plans shall have first priority Subscription Rights to
the extent that the total number of shares of Common Stock sold in the
Conversion exceeds the maximum of the Estimated Valuation Range.
Category No. 3 is reserved for the Bank's Supplemental Eligible Account
Holders. Subscription Rights to purchase shares under this category will be
allocated among Supplemental Eligible Account Holders to permit each such
depositor to purchase shares in this Category in an amount equal to the greater
of $200,000 of Common Stock, one tenth of one percent (.10%) of the total shares
of Common Stock offered in the Conversion, or 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares of
Common Stock to be issued by a fraction of which the numerator is the amount of
the qualifying deposit of the Supplemental Eligible Account Holder and the
denominator is the total amount of the qualifying deposit of the Supplemental
Eligible Account Holders in the converting Bank in each case on [________], 1998
(the "Supplemental Eligibility Record Date"), subject to the overall purchase
limitation after satisfying the subscriptions of Eligible Account Holders and
Tax Qualified Employee Plans. Any non-transferable Subscription Rights received
by an Eligible Account Holder shall reduce, to the extent thereof, the
subscription rights to be distributed to such person as a Supplemental Eligible
Account Holder. In the event of an oversubscription for shares, the shares
available shall be allocated first to permit each subscribing 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 Category No. 1) equal to 100 shares, and thereafter
among each subscribing Supplemental Eligible Account Holder pro rata in the same
proportion that his Qualifying Deposit bears to the total Qualifying Deposits of
all subscribing Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied.
Category No. 4 provides, to the extent that shares are then available
after satisfying the subscriptions of Eligible Account Holders, Tax-Qualified
Employee Plans and Supplemental Eligible Account Holders, for the issuance of
79
<PAGE>
Subscription Rights to Other Members to purchase in this Category up to the
greater of $200,000 of Common Stock, or one-tenth of one percent (.10%) of the
Common Stock offered in the Conversion. In the event of an oversubscription, the
shares available shall be allocated among the subscribing Other Members pro rata
in the same proportion that his number of votes on the Voting Record Date bears
to the total number of votes on the Voting Record Date of all subscribing Other
Members on such date. Such number of votes shall be determined based on the
Bank's mutual charter and bylaws in effect on the date of approval by members of
this Plan of Conversion.
Each depositor (including individual retirement accounts ("IRAs") and
Keogh account beneficiaries) as of [________], 1998 and the date of the Special
Meeting is entitled at the Special Meeting to cast one vote for each $100 or
fraction thereof, of the aggregate withdrawal value of all of such depositor's
savings accounts in the Bank as of the applicable voting record date, up to a
maximum of 1,000 votes. No member may vote more than 1,000 votes. In general,
accounts held in different ownership capacities will be treated as separate
memberships for purposes of applying the [____] vote limitation. For example, if
two persons hold a $100,000 account in their joint names and each of the persons
also holds a separate account for $100,000 in his own name, each person would be
entitled to 1,000 votes for each separate account and they would together be
entitled to cast 1,000 votes on the basis of the joint account for a total of
3,000 votes.
Category No. 5 provides for the issuance of Subscription Rights to
officers, directors and employees of the Bank, to purchase in this Category up
to $200,000 of the Common Stock to the extent that shares are available after
satisfying the subscriptions of eligible subscribers in preference Categories 1,
2, 3 and 4. The total number of shares which may be purchased in the conversion
under this Category may not exceed 23% of the number of shares of Holding
Company Common Stock. In the event of an oversubscription, the available shares
will be allocated pro rata among all subscribers in this category based on the
number of shares ordered by each subscriber.
Public Offering and Direct Community Offering
To the extent that shares remain available and subject to market
conditions at or near the completion of the Subscription Offering, the Holding
Company may offer shares pursuant to the Plan to selected persons in a Public
Offering and/or Direct Community Offering on a best-efforts basis through FBR in
such a manner as to promote a wide distribution of the Common Stock. Any orders
received in connection with the Public Offering and Direct Community Offerings
if any, will receive a lower priority than orders properly made in the
Subscription Offering by persons properly exercising Subscription Rights. In
addition depending on market conditions, FBR may utilize selected broker-dealers
("Selected Dealers") in connection with the sale of shares in the Public
Offering, if any. Common Stock sold in the Public Offering and Direct Community
Offerings will be sold at $10.00 per share and hence will be sold at the same
price as all other shares in the Conversion. The Holding Company and the Bank
have the right to reject orders, in whole or in part, in their sole discretion
in the Public Offering and Direct Community Offering.
No person, together with any associate or group of persons acting in
concert, will be permitted to purchase more than $200,000 of Common Stock in the
Public Offering and Direct Community Offering. To order Common Stock in
connection with the Public Offering or Direct Community Offering, if any, an
executed stock order and account withdrawal authorization and certification must
be received by FBR prior to the termination of such Offering. The date by which
orders must be received in the Public Offering and Direct Community Offering
will be set by the Holding Company at the time of commencement of such offering;
provided however, if the Offering is extended beyond [________], 1998, each
subscriber will have the opportunity to maintain, modify or rescind his or her
subscription. In such event, all subscription funds will be promptly returned
with interest to each subscriber unless he or she affirmatively indicates
otherwise.
FBR may enter into agreements with Selected Dealers to assist in the sale
of shares in the Public Offering. Selected Dealers may only solicit indications
of interest from their customers to place orders with the Holding Company as of
a certain date ("Order Date") for the purchase of shares of Conversion Stock
with the authorization of FBR. When and if FBR and the Holding Company believe
that enough indications of interest and orders have been received to consummate
the Conversion, FBR will request, as of the Order Date, Selected Dealers to
submit orders to purchase shares for which they have received indications of
interest from their customers. Selected Dealers will send confirmation of the
orders to such customers on the next business day after the Order Date.
Customers who authorize Selected Dealers to debit their brokerage accounts are
required to have the funds for payment in their account on but
80
<PAGE>
not before the closing date of the Conversion. On the closing date, Selected
Dealers will remit funds to the account that the Holding Company established for
each Selected Dealer. Each customer's funds so forwarded to the Holding Company,
along with all other accounts held in the same title, will be insured up to the
applicable legal limit. After payment has been received by the Holding Company
from Selected Dealers, funds will earn interest at the Bank's passbook rate
until the completion of the Offering. In the event the Conversion is not
consummated as described above, funds with interest will be returned promptly to
the Selected Dealers, who, in turn, will promptly credit their customers'
brokerage account.
In the event the Holding Company determines to conduct a Public Offering
and/or Direct Community Offering, persons to whom a prospectus is delivered may
subscribe for shares of Common Stock by submitting a completed Stock Order and
Account Withdrawal Authorization Form (provided by FBR) and an executed
Certification along with immediately available funds (which may be obtained by
debiting a FBR account) to FBR by not later than the public offering expiration
date (as established by the Holding Company). Promptly upon receipt of available
funds, together with a properly executed Stock Order and Account Withdrawal
Authorization Form and Certification, FBR will forward such funds to Ben
Franklin to be deposited in a subscription escrow account.
If a subscription in the Public Offering and/or Direct Community Offering
is accepted, promptly after the completion of the Conversion, a certificate for
the appropriate amount of shares will be forwarded to FBR as nominee for the
beneficial owner. In the event that a subscription is not accepted or the
Conversion is not consummated, the Bank will promptly refund with interest the
subscription funds to FBR which will then return the funds to subscribers'
accounts. If the aggregate pro forma market value of the Company and the Bank,
as converted, is less than $11,900,000 or more than $18,515,000, each subscriber
will have the right to modify or rescind his or her subscription.
The opportunity to subscribe for shares of Common Stock in the Public
Offering and/or Direct Community Offering is subject to the right of the Bank
and the Holding Company, in their sole discretion, to accept or reject any such
orders in whole or in part.
Additional Purchase Restrictions
The Plan also provides for certain additional limitations to be placed
upon the purchase of shares in the Conversion. Specifically, no person (other
than a Tax-Qualified Employee Plan) by himself or herself or with an associate,
and no group of persons acting in concert, may subscribe for or purchase more
than $800,000 of Common Stock. For purposes of this limitation, an associate of
a person does not include a Tax-Qualified Employee Plan or Non-Tax Qualified
Employee Plan in which the person has a substantial beneficial interest or
serves as a trustee or in a similar fiduciary capacity. Moreover, for purposes
of this paragraph, shares held by one or more Tax Qualified or Non-Tax Qualified
Employee Plans attributed to a person shall not be aggregated with shares
purchased directly by or otherwise attributable to that person except for that
portion of a plan which is self-directed by a person. See "- Stock Pricing and
Number of Shares to be Issued" regarding potential changes in Subscription
Rights in the event of a decrease in the number of shares to be issued in the
Conversion. Officers and directors and their associates may not purchase, in the
aggregate, more than 33% of the shares to be sold in the Conversion. For
purposes of the Plan, the members of the Board of Directors are not deemed to be
acting in concert solely by reason of their Board membership. For purposes of
this limitation, an associate of an officer or director does not include a
Tax-Qualified Employee Plan. Moreover, any shares attributable to the officers
and directors and their associates, but held by a Tax-Qualified Employee Plan
(other than that portion of a plan which is self-directed) shall not be included
in calculating the number of shares which may be purchased under the limitations
in this paragraph. Shares purchased by employees who are not officers or
directors of the Bank, or their associates, are not subject to this limitation.
The term "associate" is used above to indicate any of the following
relationships with a person: (i) any corporation or organization (other than the
Holding Company or the Bank or a majority-owned subsidiary of the Holding
Company or the Bank) of which a person is an officer or partner or is, directly
or indirectly, the beneficial owner of 10% or more of any class of equity
security; (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; 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 subsidiary of the
Holding Company or the Bank.
81
<PAGE>
The Boards of Directors of the Holding Company and the Bank, in their
sole discretion, may increase the maximum purchase limitations referred to above
up to 9.9% of the total shares to be offered in the Offering, provided that
orders for shares exceeding 5% of the shares being offered in the Offering shall
not exceed, in the aggregate, 10% of the shares being offered in the Offering or
decrease the maximum purchase limitation to one percent of the Common Stock
offered in the Conversion. Requests to purchase additional shares of Common
Stock under this provision will be allocated by the Boards of Directors on a pro
rata basis giving priority in accordance with the priority rights set forth
above. Depending on market and financial conditions, the Boards of Directors of
the Holding Company and the Bank, with the approval of the OTS and without
further approval of the members, may increase or decrease any of the above
purchase limitations.
To the extent that shares are available, each subscriber must subscribe
for a minimum of 25 shares. In computing the number of shares to be allocated,
all numbers will be rounded down to the next whole number.
Common Stock purchased in the Conversion will be freely transferable
except for shares purchased by executive officers and directors of the Bank or
the Holding Company. See "- Restrictions on Transfer of Subscription Rights and
Shares."
Marketing Arrangements
Ben Franklin has retained FBR, a broker-dealer registered with the
Securities and Exchange Commission (the "SEC") and a member of the National
Association of Securities Dealers, Inc. (the "NASD"), to consult with and advise
the Bank and to assist in the distribution of shares in the Offering on a
best-efforts basis. FBR is headquartered in Arlington, Virginia and its phone
number is (703)___-____. Among the services FBR will perform are (i) training
and educating Ben Franklin employees, who will be performing certain ministerial
functions in the Offering, regarding the mechanics and regulatory requirements
of the stock sale process, (ii) keeping records of orders for shares of Common
Stock, (iii) targeting Ben Franklin's sales efforts including preparation of
marketing materials, (iv) assisting in the collection of proxies from Members
for use at the Special Meeting, and (v) providing its registered stock
representatives to staff the Stock Information Center and meeting with and
assisting potential subscribers. For its services, FBR will receive a fee of
$150,000. The Holding Company has agreed to reimburse FBR for its reasonable
out-of-pocket expenses (not to exceed $30,000 without management approval), and
its legal fees and expenses (not to exceed $20,000 without management approval)
and to indemnify FBR against certain claims or liabilities, including certain
liabilities under the Securities Act.
To the extent other registered broker-dealers are utilized and managed by
FBR under a selling syndicate to participate in the Public Offering and/or
Direct Community Offering pursuant to a Selected Dealers' Agreement or
participate in the Public Offering and/or Direct Community Offering as assisting
brokers, the Holding Company may pay a fee to such brokers or selected dealers
in an amount to be negotiated. Fees paid to FBR and to any other broker-dealer
may be deemed to be underwriting fees, and FBR and such other broker-dealers may
be deemed to be underwriters.
In the event there is a Public Offering or Direct Community Offering,
procedures may be implemented to permit a purchaser to pay for his or her shares
with funds held by or deposited with FBR or a "Selected Dealer." See "- Public
Offering and Direct Community Offering."
Directors and executive officers of the Holding Company and the Bank may,
to a limited extent, participate in the solicitation of offers to purchase
Common Stock. Sales will be made from a Stock Information Center located away
from the publicly accessible areas (including teller windows) of the Bank's
office. Other employees of the Bank may participate in the Offering in
administrative capacities, providing clerical work in effecting a sales
transaction or answering questions of a potential purchaser provided that the
content of the employee's responses is limited to information contained in this
Prospectus or other offering document. Other questions of prospective purchasers
will be directed to executive officers or registered representatives of FBR.
Such other employees have been instructed not to solicit offers to purchase
Common Stock or provide advice regarding the purchase of Common Stock. To the
extent permitted under applicable law, directors and executive officers of the
Holding Company and the Bank may participate in the solicitation of offers to
purchase Common Stock, except in the State of Texas where only a representative
of FBR
82
<PAGE>
will be able to offer and sell securities to Texas residents. The Holding
Company will rely on Rule 3a4-1 under the Exchange Act and sales of Common Stock
will be conducted within the requirements of Rule 3a4-1, so as to permit
officers, directors and employees to participate in the sale of Common Stock. No
officer, director or employee of the Holding Company or the Bank will be
compensated in connection with his participation by the payment of commissions
or other remuneration based either directly or indirectly on the transactions in
the Common Stock.
A conversion center will be established at the Bank's home office, in an
area separated from the Bank's banking operations. No sales activities will be
conducted in the public areas of the Bank's offices, but persons will be able to
obtain a Prospectus and sales information at such places, and employees will
inform prospective purchasers to direct their questions to the conversion center
and will provide such persons with the telephone number of the conversion
center. Completed stock orders will be accepted at such places, and will be
promptly forwarded to the conversion center for processing.
The Bank and the Holding Company will make reasonable efforts to comply
with the securities laws of all states in the United States in which persons
entitled to subscribe for shares, pursuant to the Plan of Conversion, reside.
However, no shares will be offered or sold under the Plan of Conversion to any
such person who (1) resides in a foreign country or (2) resides in a state of
the United States in which a small number of persons otherwise eligible to
subscribe for shares under the Plan of Conversion reside or as to which the Bank
and the Holding Company determine that compliance with the securities law of
such state would be impracticable for reasons of cost or otherwise, including,
but not limited to, a requirement that the Bank or the Holding Company or any of
their officers, directors or employees register, under the securities laws of
such state, as a broker, dealer, salesmen or agent. No payments will be made in
lieu of the granting of Subscription Rights to any such person.
Method of Payment for Subscriptions
To purchase shares in the Subscription Offering, an executed order form
and certification form with the required payment for each share subscribed for,
or with appropriate authorization for withdrawal from the Bank's deposit account
(which may be given by completing the appropriate blanks in the order form),
must be received by the Bank by noon, Arlington Heights, Illinois time, on
[________], 1998. 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.
To order Common Stock in connection with the Public Offering and/or
Direct Community Offering, if any, an executed Stock Order and Account
Withdrawal Authorization Form and Certification must be received by FBR prior to
the termination of such offering. The date by which orders must be received in
the Public Offering and Direct Community Offering will be set by the Holding
Company at the time of commencement of such offerings, if any; provided however,
if the Offering is extended beyond [________], 1998, each subscriber will have
the opportunity to maintain, modify or rescind his or her subscription. In such
event, all subscription funds will be promptly returned with interest to each
subscriber unless he or she affirmatively indicates otherwise. In addition, the
Holding Company and the Bank are not obligated to accept orders submitted on
photocopies or facsimile order forms.
The Holding Company and the Bank have the right to waive or permit the
correction of incomplete or improperly executed forms, but do not represent that
they will do so. Once received, an executed order form or stock order and
account withdrawal authorization may not be modified, amended or rescinded
without the consent of the Holding Company and the Bank unless the Conversion
has not been completed by [________], 1998.
Payment for subscriptions in the Subscription Offering, may be made (i)
in cash if delivered in person at the office of the Bank, (ii) by check or money
order or (iii) by authorization of withdrawal from deposit accounts maintained
with the Bank. Interest will be paid on payments made by cash, check, bank draft
or money order, whether or not the Conversion is complete or terminated, at the
Bank's current passbook rate from the date payment is received until the
completion or termination of the Conversion. If payment is made by authorization
of withdrawal from deposit or time accounts, the funds authorized to be
withdrawn from such account will continue to accrue interest at the contractual
rates until completion or termination of the Conversion. Such funds will be
unavailable to the depositor until completion or termination of the Conversion.
83
<PAGE>
If a subscriber authorizes the Bank to withdraw the amount of the
Purchase Price from his certificate account, the Bank will do so as of the
effective date of Conversion. The Bank will waive any applicable penalties for
early withdrawal from time accounts at Ben Franklin for the purpose of
purchasing Common Stock. 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 rate paid on the
remaining balance of the certificate will earn interest at the then-current
passbook rate.
Owners of self-directed IRAs may under certain circumstances use the
assets of such IRAs to purchase shares of Common Stock in the Offering, provided
that such IRAs are self-directed and are not maintained at the Bank. Persons
with IRAs maintained at the Bank must have their accounts transferred to an
unaffiliated institution or broker to purchase shares of Common Stock in the
Offering. In addition, the provisions of the ERISA and Internal Revenue Service
regulations require that officers, directors and 10% stockholders who use
self-directed IRA funds to purchase shares of Common Stock in the Offering make
such purchases for the exclusive benefit of the IRAs.
If the ESOP subscribes for shares during the Subscription Offering, such
plan will not be required to pay for the shares subscribed for at the time it
subscribes, but rather, may pay for such shares of Common Stock subscribed for
the Purchase Price upon consummation of the Conversion, provided that there is
in force from the time of its subscription until such time, a loan commitment to
lend to the ESOP, at such time, the aggregate Purchase Price of the shares for
which it subscribed.
All refunds and any interest due will be paid after completion of the
Conversion. Certificates representing shares of Common Stock purchased will be
mailed to purchasers at the last address of such persons appearing on the
records of the Bank, or to such other address as may be specified in properly
completed order forms, as soon as practicable following consummation of the sale
of all shares of Common Stock. Any certificates returned as undeliverable will
be disposed of in accordance with applicable law.
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 only be distributed with a prospectus. The Bank will accept for
processing only orders submitted on original order forms with the form of
certification. Photocopies or facsimile copies of order forms or certifications
will not be accepted. Payment by cash, check, money order, bank draft or debit
authorization to an existing account at the Bank must accompany the order form.
No wire transfers will be accepted.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (January 31,
1997), Supplemental Eligibility Record Date (_________, 1998) and/or the Voting
Record Date ([________]) must list all accounts on the stock order form giving
all names on each account and the account
number as of the applicable record date.
In addition to the foregoing, if shares are offered through Selected
Dealers, a purchaser may pay for his shares with funds held by or deposited with
a Selected Dealer. If an order form is executed and forwarded to the Selected
Dealer or if the Selected Dealer is authorized to execute the order form on
behalf of a purchaser, the Selected Dealer is required to forward the order form
and funds to the Bank for deposit in a segregated account on or before noon of
the business day following receipt of the order form or execution of the order
form by the Selected Dealer. Alternatively, Selected Dealers may solicit
indications of interest from their customers who indicated an interest and seek
their confirmation as to their intent to purchase. Those indicating an intent to
purchase shall forward executed order forms and certifications to their Selected
Dealer or authorize the Selected Dealer to execute such forms. The Selected
Dealer will acknowledge receipt of the order to its customer in writing on the
following business day and will debit such customer's account on the third
business day after the customer has confirmed his intent to purchase (the "debit
date") and on or before noon of the next business day following the debit date
will send order forms and funds to the Bank for deposit in a segregated account.
If such alternative procedure is employed, purchasers' funds are not required to
be in their accounts with Selected Dealers until the debit date.
84
<PAGE>
Restrictions on Transfer of Subscription Rights and Shares
Prior to the completion of the Conversion, the OTS conversion regulations
prohibit any person with subscription rights, including the Eligible Account
Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account Holders,
Other Members and employees, officers and directors, from transferring or
entering into any agreement or understanding to transfer the legal or beneficial
ownership of the subscription rights issued under the Plan or the shares of
Common Stock to be issued upon their exercise. Such rights may be executed only
by the person to whom they are granted and only for his account. Each person
exercising such subscription rights will be required to certify that he is
purchasing shares solely for his own account and that he has no agreement or
understanding regarding the sale or transfer of such shares. The OTS regulations
also prohibit any person from offering or making an announcement of an offer or
intent to make an offer to purchase such subscription rights or shares of Common
Stock prior to the completion of the Conversion.
The Bank and the Holding Company may 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.
Except as to directors and executive officers of the Bank and the Holding
Company, the shares of Common Stock sold in the Conversion will be freely
transferable. Shares purchased by directors, executive officers or their
associates in the Conversion shall be subject to the restrictions that said
shares shall not be sold during the period of one year following the date of
purchase, except in the event of the death of the stockholder. Accordingly,
stock certificates issued by the Holding Company to directors, executive
officers and their associates shall bear a legend giving appropriate notice of
such restriction and, in addition, the Bank and the Holding Company will give
appropriate instructions to the transfer agent for the Common Stock with respect
to the applicable restriction upon transfer of any restricted shares. Any shares
issued at a later date as a stock dividend, stock split or otherwise, to holders
of restricted stock, shall be subject to the same restrictions that may apply to
such restricted stock. Holding Company stock (like the stock of most companies)
is subject to the requirements of the Securities Act. Accordingly, Holding
Company stock may be offered and sold only in compliance with registration
requirements or pursuant to an applicable exemption from registration.
Holding Company stock received in the Conversion by persons who are not
"affiliates" of the Holding Company may be resold without registration. Shares
received by affiliates of the Holding Company (primarily the directors, officers
and principal stockholders of the Holding Company) will be subject to the resale
restrictions of Rule 144 under the Securities Act, which are discussed below.
Rule 144 generally requires that there be publicly available certain
information concerning the Holding Company, and that sales thereunder be made in
routine brokerage transactions or through a market maker. If the conditions of
Rule 144 are satisfied, each affiliate (or group of persons acting in concert
with one or more affiliates) is entitled to sell in the public market, without
registration, in any three-month period, a number of shares which does not
exceed the greater of (i) 1% of the number of outstanding shares of Holding
Company stock, or (ii) if the stock is admitted to trading on a national
securities exchange or reported through the automated quotation system of a
registered securities bank, the average weekly reported volume of trading during
the four weeks preceding the sale.
Participation by the Board and Executive Officers
The directors and executive officers of Ben Franklin have indicated their
intention to purchase in the Conversion an aggregate of $1,025,000 of Common
Stock, equal to 8.6%, 7.3%, 6.4% or 5.5% of the number of shares to be issued in
the Offering, at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Valuation Range, respectively. The following table sets forth
information regarding Subscription Rights to Common Stock intended to be
exercised by each of the directors of the Bank, including members of their
immediate family and their IRAs, and by all directors and executive officers as
a group. The following table assumes that 1.4 million shares, the midpoint of
the Estimated Valuation Range, of Common Stock are issued at the Purchase Price
of $10 per share and that sufficient shares will be available to satisfy the
subscriptions indicated. The table does not include shares to be purchased
through the ESOP (8% of shares issued in the Conversion) or awarded under the
proposed RRP (an amount of shares which may be acquired after stockholder
ratification of such plan equal to 4% of the shares sold in the Conversion) or
proposed
85
<PAGE>
Stock Option Plan (an amount of shares which may be issued after stockholder
ratification of such plan equal to 10.0% of the shares sold in the Conversion).
<TABLE>
<CAPTION>
Number
Aggregate of Shares Percent of
Purchase at $10.00 Shares at
Name Title Price per Share(1) Midpoint
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Joseph J. Gasior Chairman $400,000 40,000 2.9%
Ronald P. Pedersen President and Chief 25,000 2,500 .2
Executive Officer
Edward Luzwick Director 100,000 10,000 .7
Robert Decelles Director 100,000 10,000 .7
Bernadine Dziedzic Director and Secretary 100,000 10,000 .7
Joseph Nowicki Director 100,000 10,000 .7
Charles E. Schuetz Director 100,000 10,000 .7
All other executive officers
as a group (4 persons) 100,000 10,000 .7
------------ -------- -----
All directors and executive
officers as a group (11 persons) $1,025,000 102,500 7.3%
========== ======== ====
</TABLE>
(1) Includes purchases by spouse. Does not include subscriptions by the ESOP,
or options which are intended to be granted under the proposed Stock
Option Plan or restricted stock awards which are intended to be granted
under the proposed RRP, subject to stockholder ratification of such
plans.
Risk of Delayed Offering
The completion of the sale of all unsubscribed shares in the Offering
will be dependent, in part, upon the Bank's operating results and market
conditions at the time of the Offering. Under the Plan of Conversion, all shares
offered in the Conversion must be sold within a period ending 24 months from the
date of the Special Meeting. While the Bank and the Holding Company anticipate
completing the sale of shares offered in the Conversion within this period, if
the Board of Directors of the Bank and the Holding Company are of the opinion
that economic conditions generally or the market for publicly traded thrift
institution stocks make undesirable a sale of the Common Stock, then the
Offering may be delayed until such conditions improve.
A material delay in the completion of the sale of all unsubscribed shares
in the Public Offering or otherwise may result in a significant increase in the
costs of completing the Conversion. Significant changes in the Bank's operations
and financial condition, the aggregate market value of the shares to be issued
in the Conversion and general market conditions may occur during such material
delay. In the event the Conversion is not consummated within 24 months after the
date of the Special Meeting of Members, the Bank would charge accrued Conversion
costs to then current period operations.
Approval, Interpretation, Amendment and Termination
All interpretations of the Plan of Conversion, as well as the
completeness and validity of order forms and stock order and account withdrawal
authorizations, will be made by the Bank and the Holding Company and will be
final, subject to the authority of the OTS and the requirements of applicable
law. The Plan of Conversion provides that, if deemed necessary or desirable by
the Boards of Directors of the Bank and the Holding Company, the Plan of
Conversion may be substantively amended by the Boards of Directors of the Bank
and the Holding Company, as a result of comments from regulatory authorities or
otherwise, at any time with the concurrence of the OTS and the SEC. In the event
the Plan of Conversion is substantially amended, other than a change in the
maximum purchase limits set forth
86
<PAGE>
herein, the Holding Company intends to notify subscribers of the change and to
refund subscription funds with interest unless subscribers affirmatively elect
to increase, decrease or maintain their subscriptions. The Plan of Conversion
will terminate if the sale of all shares is not completed within 24 months after
the date of the Special Meeting of Members. The Plan of Conversion may be
terminated by the Boards of Directors of the Holding Company and the Bank with
the concurrence of the OTS, at any time. A specific resolution approved by a
two-thirds vote of the Boards of Directors of the Holding Company and the Bank
would be required to terminate the Plan of Conversion prior to the end of such
24-month period.
Restrictions on Repurchase of Stock
For a period of three years following Conversion, the Holding Company may
not repurchase any shares of its capital stock, except in the case of an offer
to repurchase on a pro rata basis made to all holders of capital stock of the
Holding Company. Any such offer shall be subject to the prior approval of the
OTS. Furthermore, the Holding Company may not repurchase any of its stock (i) if
the result thereof would be to reduce the regulatory capital of the Bank below
the amount required for the liquidation account to be established pursuant to
OTS regulations and (ii) except in compliance with the requirements of the OTS'
capital distribution rule.
The above limitations are subject to the OTS conversion rules which
generally provide that the Holding Company may repurchase its capital stock
provided (i) no repurchases occur within one year following the Conversion
(subject to certain exceptions), (ii) repurchases during the second and third
year after conversion are part of an open market stock repurchase program that
does not allow for a repurchase of more than 5% of the Holding Company's
outstanding capital stock during a 12-month period, (iii) the repurchases do not
cause the Bank to become undercapitalized, and (iv) the Holding Company provides
notice to the OTS at lease 10 days prior to the commencement of a repurchase
program and the OTS does not object to such regulations. In addition, the above
limitations do not preclude repurchases of capital stock by the Holding Company
in the event applicable federal regulatory limitations are subsequently
liberalized.
Income Tax Consequences
Consummation of the Conversion is expressly conditioned upon prior
receipt by the Bank of either a ruling from the IRS or an opinion of Crowe,
Chizek and Company LLP with respect to Federal and Illinois taxation, to the
effect that consummation of the Conversion will not be taxable to the converted
Bank or the Holding Company. The full text of the Ferguson Letter (hereinafter
defined) and the Crowe, Chizek and Company LLP opinions, which opinions are
summarized herein, were filed with the SEC as exhibits to the Holding Company's
Registration Statement on Form S-1.
See "Additional Information."
An opinion which is summarized below has been received from Crowe, Chizek
and Company LLP with respect to the proposed Conversion of the Bank to the stock
form. The Crowe, Chizek and Company LLP opinion states that (i) the Conversion
will qualify as a reorganization under Section 368(a)(1)(F) of the Internal
Revenue Code of 1986, as amended, and no gain or loss will be recognized to the
Bank as a result of the proposed Conversion, (ii) no gain or loss will be
recognized to the Bank in its stock form upon the receipt of money and other
property, if any, from the Holding Company for the stock of the Bank; and no
gain or loss will be recognized to the Holding Company upon the receipt of money
for Common Stock of the Holding Company; (iii) the assets of the Bank in its
stock form will have the same basis as the basis of the assets in its mutual
form immediately prior to the Conversion; (iv) the holding period of the assets
of the Bank in its stock form will include the period during which the assets
were held by the Bank in its mutual form prior to Conversion; (v) gain, if any,
will be realized by the depositors of the Bank upon the constructive issuance to
them of withdrawable deposit accounts of the Bank in its stock form,
nontransferable subscription rights to purchase Holding Company Common Stock
and/or interests in the Liquidation Account (any such gain will be recognized by
such depositors, but only in an amount not in excess of the fair market value of
the subscription rights and Liquidation Account interests received); (vi) the
basis of the account holder's savings accounts in the Bank after the Conversion
will be the same as the basis of his or her savings accounts in the Bank prior
to the Conversion; (vii) the basis of the Holding Company Common Stock to its
stockholders will be the purchase price thereof; (viii) a stockholder's holding
period for Holding Company Common Stock acquired through the exercise of
subscription rights shall begin on the date on which the subscription rights are
exercised and the holding period for the Conversion Stock purchased in the
Offering will commence on the date following the date on which such stock is
purchased; (ix) the Bank in its stock form will succeed to and take into account
the earnings and profits or deficit in earnings and profits, of the
87
<PAGE>
Bank, in its mutual form, as of the date of Conversion; (x) the Bank,
immediately after Conversion, will succeed to and take into account the bad debt
reserve accounts of the Bank, in mutual form, and the bad debt reserves will
have the same character in the hands of the Bank after Conversion as if no
Conversion had occurred; and (xi) the creation of the Liquidation Account will
have no effect on the Bank's taxable income, deductions or addition to reserve
for bad debts either in its mutual or stock form.
The opinion from Crowe, Chizek and Company LLP is based, among other
things, on certain assumptions, including the assumptions that the exercise
price of the Subscription Rights to purchase Holding Company Common Stock will
be approximately equal to the fair market value of that stock at the time of the
completion of the proposed Conversion. With respect to the Subscription Rights,
the Bank has received a letter from Ferguson (the "Ferguson Letter") which,
based on certain assumptions, sets forth its belief that the Subscription Rights
to be received by Eligible Account Holders, Supplemental Eligible Account
Holders and other eligible subscribers do not have any economic value at the
time of distribution or at the time the Subscription Rights are exercised,
whether or not a Public Offering takes place.
The Bank has also received an opinion of Crowe, Chizek and Company LLP to
the effect that, based in part on the Ferguson Letter: (i) no taxable income
will be realized by depositors as a result of the exercise of non-transferable
Subscription Rights to purchase shares of Holding Company Common Stock at fair
market value; (ii) no taxable income will be recognized by borrowers, directors,
officers and employees of the Bank on the receipt or exercise of Subscription
Rights to purchase shares of Holding Company Common Stock at fair market value;
and (iii) no taxable income will be realized by the Bank or Holding Company on
the issuance of Subscription Rights to eligible subscribers to purchase shares
of Holding Company Common Stock at fair market value.
Notwithstanding the Ferguson Letter, if the Subscription Rights are
subsequently found to have a fair market value and are deemed a distribution of
property, it is Crowe, Chizek and Company LLP's opinion that gain or income will
be recognized by various recipients of the Subscription Rights (in certain
cases, whether or not the rights are exercised) and the Bank and/or the Holding
Company may be taxable on the distribution of the Subscription Rights.
With respect to Illinois taxation, the Bank has received an opinion from
Crowe, Chizek and Company LLP to the effect that the Illinois tax consequences
to the Bank, in its mutual or stock form, the Holding Company, eligible account
holders, parties receiving Subscription Rights, parties purchasing conversion
stock, and other parties participating in the Conversion will be the same as the
federal income tax consequences described above.
Unlike a private letter ruling, the opinions of Crowe, Chizek and Company
LLP, as well as the Ferguson Letter, have no binding effect or official status,
and no assurance can be given that the conclusions reached in any of those
opinions would be sustained by a court if contested by the IRS or the Delaware
or Illinois tax authorities.
RESTRICTIONS ON ACQUISITIONS OF STOCK AND
RELATED TAKEOVER DEFENSIVE PROVISIONS
Although the Boards of Directors of the Bank and the Holding Company are
not aware of any effort that might be made to obtain control of the Holding
Company after Conversion, the Board of Directors, as discussed below, believe
that it is appropriate to include certain provisions as part of the Holding
Company's certificate of incorporation to protect the interests of the Holding
Company and its stockholders from takeovers which the Board of Directors of the
Holding Company might conclude are not in the best interests of the Bank, the
Holding Company or the Holding Company's stockholders.
The following discussion is a general summary of material provisions of
the Holding Company's certificate of incorporation and bylaws and certain other
regulatory provisions which may be deemed to have an "anti-takeover" effect. The
following description of certain of these provisions is necessarily general and,
with respect to provisions contained in the Holding Company's certificate of
incorporation and bylaws and the Bank's proposed stock charter and bylaws,
reference should be made in each case to the document in question, each of which
is part of the Bank's Conversion Application filed with the OTS and the Holding
Company's Registration Statement filed with the SEC. See "Additional
Information."
88
<PAGE>
Provisions of the Holding Company's Certificate of Incorporation and Bylaws
Directors. Certain provisions of the Holding Company's certificate of
incorporation and bylaws will impede changes in majority control of the Board of
Directors. The Holding Company's certificate of incorporation provides that the
Board of Directors of the Holding Company will be divided into three classes,
with directors in each class elected for three-year staggered terms except for
the initial directors. Thus, assuming a Board of ___ directors, it would take
two annual elections to replace a majority of the Holding Company's Board. The
Holding Company's certificate of incorporation also provides that the size of
the Board of Directors may be increased or decreased only by a majority vote of
the whole Board or by a vote of 80% of the shares eligible to be voted at a duly
constituted meeting of stockholders called for such purpose. The bylaws 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 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 certificate of incorporation provides that a director may only be
removed for cause by the affirmative vote of 80% of the shares eligible to vote.
Restrictions on Call of Special Meetings. The certificate of
incorporation of the Holding Company provides that a special meeting of
stockholders may be called only pursuant to a resolution of the Board of
Directors and for only such business as directed by the Board. Stockholders are
not authorized to call a special meeting.
Absence of Cumulative Voting. The Holding Company's certificate of
incorporation does not provide for cumulative voting rights in the election of
directors.
Authorization of Preferred Stock. The certificate of incorporation of the
Holding Company authorizes 100,000 shares of serial preferred stock, $.01 par
value. The Holding Company is authorized to issue preferred stock from time to
time in one or more series subject to applicable provisions of law, and the
Board of Directors is authorized to fix the designations, powers, preferences
and relative participating, optional and other special rights of such shares,
including voting rights (which could be multiple or as a separate class) and
conversion rights. In the event of a proposed merger, tender offer or other
attempt to gain control of the Holding Company that the Board of Directors does
not approve, it might be possible for the Board of Directors to authorize the
issuance of a series of preferred stock with rights and preferences that would
impede the completion of such a transaction. An effect of the possible issuance
of preferred stock, therefore, may be to deter a future takeover attempt. The
Board of Directors has no present plans or understandings for the issuance of
any preferred stock and does not intend to issue any preferred stock except on
terms which the Board deems to be in the best interests of the Holding Company
and its stockholders.
Limitation on Voting Rights. The certificate of incorporation of the
Holding Company provides that in no event shall any record owner of any
outstanding Common Stock which is beneficially owned, directly or indirectly, by
a person who beneficially owns in excess of 10% of the then outstanding shares
of Common Stock (the "Limit"), be entitled or permitted to any vote in respect
of the shares held in excess of the Limit. This limitation would not inhibit any
person from soliciting (or voting) proxies from other beneficial owners for more
than 10% of the Common Stock or from voting such proxies. Beneficial ownership
is to be determined pursuant to Rule 13d-3 of the General Rules and Regulations
of the Exchange Act, and in any event includes shares beneficially owned by any
affiliate of such person, shares which such person or his affiliates (as defined
in the certificate of incorporation) have the right to acquire upon the exercise
of conversion rights or options and shares as to which such person and his
affiliates have or share investment or voting power but shall not include shares
beneficially owned by directors, officers and employees of the Bank or the
Holding Company. This provision will be enforced by the Board of Directors to
limit the voting rights of persons beneficially owning more than 10% of the
stock and thus could be utilized in a proxy contest or other solicitation to
defeat a proposal that is desired by a majority of the stockholders.
Procedures for Certain Business Combinations. The Holding Company's
certificate of incorporation requires that certain business combinations
(including transactions initiated by management) between the Holding Company (or
any majority-owned subsidiary thereof) and a 10% or more stockholder either (i)
be approved by at least 80% of the total number of outstanding voting shares,
voting as a single class, of the Holding Company, (ii) be approved by two-thirds
89
<PAGE>
of the continuing Board of Directors (i.e., persons serving prior to the 10%
stockholder becoming such) or (iii) involve consideration per share generally
equal to that paid by such 10% stockholder when it acquired its block of stock.
It should be noted that, since the Board and executive officers (nine
persons) intend to purchase approximately $1,025,000 of the shares offered in
the Conversion and may control the voting of additional shares through the ESOP
and proposed RRP and Stock Option Plan, the Board and management may be able to
block the approval of combinations requiring an 80% vote even where a majority
of the stockholders vote to approve such combinations.
Amendment to Certificate of Incorporation and Bylaws. Amendments to the
Holding Company's certificate of incorporation must be approved by the Holding
Company's Board of Directors and also by a majority of the outstanding shares of
the Holding 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 number, classification, election and removal of
directors; amendment of bylaws; call of special stockholder meetings; offers to
acquire and acquisitions of control; director liability; certain business
combinations; power of indemnification; and amendments to provisions relating to
the foregoing in the certificate of incorporation).
The bylaws may be amended by a majority vote of the Board of Directors or
the affirmative vote of at least 80% of the total votes eligible to be voted at
a duly constituted meeting of stockholders.
Purpose and Takeover Defensive Effects of the Holding Company's
Certificate of Incorporation and Bylaws. The Board of Directors of the Bank
believes that the provisions described above are prudent and will reduce the
Holding Company's vulnerability to takeover attempts and certain other
transactions which have not been negotiated with and approved by its Board of
Directors. These provisions will also assist the Bank in the orderly deployment
of the conversion proceeds into productive assets during the initial period
after the Conversion. The Board of Directors believes these provisions are in
the best interest of the Bank and of the Holding Company and its stockholders.
In the judgment of the Board of Directors, the Holding Company's Board will be
in the best position to determine the true value of the Holding Company and to
negotiate more effectively for what may be in the best interests of its
stockholders. Accordingly, the Board of Directors believes that it is in the
best interests of the Holding Company and its stockholders to encourage
potential acquirors to negotiate directly with the Board of Directors of the
Holding Company and that these provisions will encourage such negotiations and
discourage hostile takeover attempts. It is also the view of the Board of
Directors that these provisions should not discourage persons from proposing a
merger or other transaction at prices reflective of the true value of the
Holding Company and which is in the best interests of all stockholders.
Attempts to take over financial institutions and their holding companies
have recently become increasingly common. Takeover attempts which have not been
negotiated with and approved by the Board of Directors present to stockholders
the risk of a takeover on terms which may be less favorable than might otherwise
be available. A transaction which is negotiated and approved by the Board of
Directors, on the other hand, can be carefully planned and undertaken at an
opportune time in order to obtain maximum value for the Holding Company and its
stockholders, with due consideration given to matters such as the management and
business of the acquiring corporation and maximum strategic development of the
Holding Company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above then
current market prices, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
which is under different management and whose objectives may not be similar to
those of the remaining stockholders. The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive the
Holding Company's remaining stockholders of the benefits of certain protective
provisions of the Exchange Act, if the number of beneficial owners becomes less
than the 300 required for Exchange Act registration.
Despite the belief of the Bank and the Holding Company as to the benefits
to stockholders of these provisions of the Holding Company's certificate of
incorporation and bylaws, these provisions may also have the effect of
discouraging a future takeover attempt which would not be approved by the
Holding Company's Board, but pursuant to which stockholders may receive a
substantial premium for their shares over then current market prices. As a
result,
90
<PAGE>
stockholders who might desire to participate in such a transaction may not have
any opportunity to do so. Such provisions will also render the removal of the
Holding Company's Board of Directors and of management more difficult. The Board
will enforce the voting limitation provisions of the charter in proxy
solicitations and accordingly could utilize these provisions to defeat proposals
that are favored by a majority of the stockholders. The Boards of Directors of
the Bank and the Holding Company, however, have concluded that the potential
benefits outweigh the possible disadvantages.
Pursuant to applicable law, at any annual or special meeting of its
stockholders after the Conversion, the Holding Company may adopt additional
charter provisions regarding the acquisition of its equity securities that would
be permitted to a Delaware corporation. The Holding Company and the Bank do not
presently intend to propose the adoption of further restrictions on the
acquisition of the Holding Company's equity securities.
Other Restrictions on Acquisitions of Stock
Delaware Anti-Takeover Statute. The Delaware General Corporation Law (the
"DGCL") provides that buyers who acquire more than 15% of the outstanding stock
of a Delaware corporation, such as the Holding Company, are prohibited from
completing a hostile takeover of such corporation for three years. However, the
takeover can be completed if (i) the buyer, while acquiring the 15% interest,
acquires at least 85% of the corporation's outstanding stock (the 85%
requirement excludes shares held by directors who are also officers and certain
shares held under employee stock plans), or (ii) the takeover is approved by the
target corporation's board of directors and two-thirds of the shares of
outstanding stock of the corporation (excluding shares held by the bidder).
These provisions of the DGCL will not apply to during any period that the
Holding Company has less than 2,000 and does not have voting stock listed on a
national exchange or listed for quotation with a registered national securities
association.
Federal Regulation. 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, this regulation prohibits any person, without
the prior approval of the OTS, from acquiring or making an offer to acquire (if
the offer is opposed by the savings association) more than 10% of the stock of
any converted savings institution if such person is, or after consummation of
such acquisition 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% may not be
counted as shares entitled to vote and may not be voted by any person or counted
as voting shares in connection with any matter submitted to a vote of
stockholders. Like the charter provisions outlined above, these federal
regulations can make a change in control more difficult, even if desired by the
holders of the majority of the shares of the stock. The Board of Directors
reserves the right to ask the OTS or other federal regulators to enforce these
restrictions against persons seeking to obtain control of the Holding Company,
whether in a proxy solicitation or otherwise. The policy of the Board is that
these legal restrictions must be observed in every case, including instances in
which an acquisition of control of the Holding Company is favored by a majority
of the stockholders.
Federal law provides that no company, "directly or indirectly or acting
in concert with one or more persons, or through one or more subsidiaries, or
through one or more transactions," may acquire "control" of a savings
association at any time without the prior approval of the OTS. In addition,
federal regulations require that, prior to obtaining control of a savings
association, a person, other than a company, must give 60 days' prior notice to
the OTS and have received no OTS objection to such acquisition of control. Any
company that acquires such control becomes a "savings and loan holding company"
subject to registration, examination and regulation as a savings and loan
holding company. Under federal law (as well as the regulations referred to
below) the term "savings association" includes state and federally chartered
SAIF-insured institutions and federally chartered savings banks whose accounts
are insured by the FDIC's BIF and holding companies thereof.
Control, as defined under federal law, in general means ownership,
control of or holding irrevocable proxies representing more than 25% of any
class of voting stock, control in any manner of the election of a majority of a
savings association'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%
91
<PAGE>
of any class of a savings association's voting stock, if the acquiror also is
subject to any one of eight "control factors," constitutes a rebuttable
determination of control under the OTS regulations. Such control factors include
the acquiror being one of the two largest stockholders. 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 OTS regulations provide that persons or companies which
acquire beneficial ownership exceeding 10% or more of any class of a savings
association's stock 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
Holding Company Capital Stock
The 2.6 million shares of capital stock authorized by the Holding Company
certificate of incorporation are divided into two classes, consisting of 2.5
million shares of Common Stock (par value $.01 per share) and 100,000 shares of
serial preferred stock (par value $.01 per share). The Holding Company currently
expects to issue between 1,190,000 and 1,610,000 shares (subject to increase to
1,851,500) of Common Stock in the Conversion and no shares of serial preferred
stock. The aggregate par value of the issued shares will constitute the capital
account of the Holding Company on a consolidated basis. Upon payment of the
Purchase Price, all shares issued in the Conversion will be duly authorized,
fully paid and nonassessable. The balance of the purchase price of Common Stock,
less expenses of Conversion, will be reflected as paid-in capital on a
consolidated basis. See "Capitalization."
Each share of the Common Stock will have the same relative rights and
will be identical in all respects with each other share of the Common Stock. The
Common Stock of the Holding Company will represent non-withdrawable capital,
will not be of an insurable type and will not be insured by the FDIC.
Under Delaware law, the holders of the Common Stock will possess
exclusive voting power in the Holding Company. Each stockholder will be entitled
to one vote for each share held on all matters voted upon by stockholders,
subject to the limitation discussed under "Restrictions on Acquisitions of Stock
and Related Takeover Defensive Provisions - Provisions of the Holding Company's
Certificate of Incorporation and Bylaws - Limitation on Voting Rights." If the
Holding Company issues preferred stock subsequent to the Conversion, holders of
the preferred stock may also possess voting powers.
Liquidation or Dissolution. In the event of any liquidation, dissolution
or winding up of the Bank, the Holding Company, as the sole holder of the Bank's
capital stock would be entitled to receive, after payment or provision for
payment of all debts and liabilities of the Bank (including all deposit accounts
and accrued interest thereon) and after distribution of the balance in the
special liquidation account to Eligible and Supplemental Account Holders, all
assets of the Bank available for distribution. In the event of liquidation,
dissolution or winding up of the Holding Company, the holders of its Common
Stock would be entitled to receive, after payment or provision for payment of
all its debts and liabilities, all of the assets of the Holding Company
available for distribution. See "The Conversion - Effects of Conversion to Stock
Form on Depositors and Borrowers of the Bank." If preferred stock is issued
subsequent to the Conversion, the holders thereof may have a priority over the
holders of Common Stock in the event of liquidation or dissolution.
No Preemptive Rights. Holders of the Common Stock will not be entitled to
preemptive rights with respect to any shares which may be issued. The Common
Stock will not be subject to call for redemption, and, upon receipt by the
Holding Company of the full purchase price therefor, each share of the Common
Stock will be fully paid and nonassessable.
Preferred Stock. After Conversion, the Board of Directors of the Holding
Company will be authorized to issue preferred stock in series and to fix and
state the voting powers, designations, preferences and relative, participating,
optional or other special rights of the shares of each such series and the
qualifications, limitations and restrictions thereof. Preferred stock may rank
prior to the Common Stock as to dividend rights, liquidation preferences, or
both,
92
<PAGE>
and may have full or limited voting rights. The holders of preferred stock will
be entitled to vote as a separate class or series under certain circumstances,
regardless of any other voting rights which such holders may have.
Except as discussed above, the Holding Company has no present plans for
the issuance of the additional authorized shares of Common Stock or for the
issuance of any shares of preferred stock. In the future, the authorized but
unissued and unreserved shares of Common Stock will be available for general
corporate purposes, including but not limited to possible issuance as stock
dividends or stock splits, in future mergers or acquisitions, under a cash
dividend reinvestment and stock purchase plan, in a future underwritten or other
public offering, or under a stock based employee plan. The authorized but
unissued shares of preferred stock will similarly be available for issuance in
future mergers or acquisitions, in a future underwritten public offering or
private placement or for other general corporate purposes. Except as described
herein or as otherwise required to approve the transaction in which the
additional authorized shares of common stock or authorized shares of preferred
stock would be issued, no stockholder approval will be required for the issuance
of these shares. Accordingly, the Board of Directors of the Holding Company,
without stockholder approval, can issue preferred stock with voting and
conversion rights which could adversely affect the voting power of the holders
of Common Stock.
Restrictions on Acquisitions. See "Restrictions on Acquisitions of Stock
and Related Takeover Defensive Provisions" for a description of certain
provisions of the Holding Company's certificate of incorporation and bylaws
which may affect the ability of the Holding Company's stockholders to
participate in certain transactions relating to acquisitions of control of the
Holding Company.
Dividends. The Holding Company's Board of Directors may consider a policy
of paying cash dividends on the Common Stock in the future. No decision has been
made, however, as to the amount or timing of such dividends, if any. The
declaration and payment of dividends are subject to, among other things, the
Holding Company's then current and projected consolidated operating results,
financial condition, regulatory restrictions, future growth plans and other
factors the Board deems relevant. Therefore, no assurance can be given that any
dividends will be declared.
The ability of the Holding Company to pay cash dividends to its
stockholders will be dependent, in part, upon the ability of the Bank to pay
dividends to the Holding Company. OTS regulations do not permit the Bank to
declare or pay a cash dividend on its stock or repurchase shares of its stock if
the effect thereof would be to cause its regulatory capital to be reduced below
the amount required for the liquidation account or to meet applicable regulatory
capital requirements. See "Regulation - Limitations on Dividends and Other
Capital Distributions" for information regarding OTS regulations governing the
Bank's ability to pay dividends to the Holding Company.
Delaware law generally limits dividends of the Holding Company to an
amount equal to the excess of its net assets over its paid-in capital or, if
there is no such excess, to its net earnings for the current and immediately
preceding fiscal year. In addition, as the Holding Company does not anticipate,
for the immediate future, engaging in activities other than (i) investing in
cash, short-term securities and investment and mortgage-backed securities
similar to those invested in by the Bank and (ii) holding the stock of Ben
Franklin, the Holding Company's ability to pay dividends will be limited, in
part, by the Bank's ability to pay dividends, as set forth above.
Earnings appropriated to the Bank's "Excess" bad debt reserves and
deducted for federal income tax purposes cannot be used by the Bank to pay cash
dividends to the Holding Company without adverse tax consequences. See
"Regulation - Federal and State Taxation."
LEGAL AND TAX MATTERS
The legality of the Common Stock will be passed upon for Ben Franklin by
the firm of Silver, Freedman & Taff, L.L.P. (a limited liability partnership
including professional corporations), 7th Floor, East Tower, 1100 New York
Avenue, NW, Washington, DC 20005. Silver, Freedman & Taff, L.L.P. has consented
to the references herein to its opinion. The Federal and Illinois income tax
consequences of the Conversion will be passed upon by Crowe, Chizek and Company
LLP. Crowe, Chizek and Company LLP has consented to references herein to its
opinion. FBR has been represented in the Conversion by Elias, Matz, Tiernan &
Herrick L.L.P., 734 15th Street, 12th Floor, N.W., Washington, D.C. 20005.
93
<PAGE>
EXPERTS
The financial statements of Ben Franklin as of December 31, 1997 and
December 31, 1996 and for each of the years in the three year period ended
December 31, 1997 appearing in this Prospectus have been audited by Crowe,
Chizek and Company LLP, independent certified public accountants, as set forth
in their report thereon appearing elsewhere herein, and is included in reliance
upon such report, given upon the authority of such firm as experts in accounting
and auditing.
Ferguson has consented to the inclusion herein of the summary of its
letter to the Bank setting forth its belief as to the estimated pro forma market
value of the Holding Company and the Bank as converted and to the reference to
its opinion that subscription rights received by Eligible Account Holders,
Supplemental Eligible Account Holders and other eligible subscribers do not have
any economic value.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration Statement under
the Securities Act with respect to the Common Stock offered hereby. As permitted
by the rules and regulations of the SEC, this Prospectus does not contain all
the information set forth in the Registration Statement. However, the prospectus
does contain a description of the material provisions of the documents contained
therein. Such information can be examined without charge at the public reference
facilities of the SEC located at 450 Fifth Street, NW, Washington, DC 20549, and
copies of such material can be obtained from the SEC at prescribed rates. In
addition, the SEC maintains a Web site. The address of the SEC's Web site is
"http://www.sec.gov." The statements contained herein as to the contents of any
contract or other document filed as an exhibit to the Registration Statement
are, of necessity, brief descriptions thereof which describe only the material
provisions of such documents; each such statement is qualified by reference to
such contract or document.
The Bank has filed an Application for Conversion with the OTS with
respect to the Conversion. Pursuant to the rules and regulations of the OTS,
this Prospectus omits certain information contained in that Application. The
Application may be examined at the principal offices of the OTS, 1700 G Street,
NW, Washington, DC 20552 and at the Central Regional Office of the OTS, Suite
1300, 200 West Madison Avenue, Chicago, Illinois 60606, without charge.
In connection with the Conversion, the Holding Company will register the
Common Stock with the SEC under Section 12(g) of the Exchange Act, and, upon
such registration, the Holding Company and the holders of its Common Stock will
become subject to the proxy solicitation rules, reporting requirements and
restrictions on stock purchases and sales by directors, officers and greater
than 10% stockholders, the annual and periodic reporting and certain other
requirements of the Exchange Act. Under the Plan, the Holding Company has
undertaken that it will not terminate such registration for a period of at least
three years following the Conversion.
A copy of the Certificate of Incorporation and Bylaws of the Holding
Company are available without charge from the Bank.
94
<PAGE>
[CROWE CHIZEK LETTERHEAD]
Board of Directors
Douglas Savings Bank
Arlington Heights, Illinois
and
Office of Thrift Supervision
Washington, DC
We have been engaged by Ben Franklin Financial, Inc. (the Company) and Douglas
Savings Bank (the Bank) to report in accordance with standards established by
the American Institute of Certified Public Accountants on the appropriate
application of generally accepted accounting principles for the described
proposed transaction.
The facts and circumstances provided to us by management of the Bank (and more
extensively described in the Bank's Plan of Conversion) are that the Bank will
convert from the mutual to the stock form of organization and issue shares of
common stock to the Bank's members and the general public. We understand that
the shares to be issued will be offered first to Eligible Account Holders, then
to the Bank's Tax-Qualified Employee Plan, Supplemental Eligible Account
Holders, certain Other Members, and lastly, to the general public.
Based upon our review of the proposed transaction and subject to our further
review upon its completion, the appropriate accounting for this transaction is
at historical cost in a manner similar to that utilized in a pooling-
of-interest, which, in our opinion, will be in accordance with generally
accepted accounting principles.
The ultimate responsibility for the decision on the appropriate application of
generally accepted accounting principles rests with the preparers of the
financial statements. Our judgment on the appropriate application of generally
accepted accounting principles for the described proposed transaction is based
solely on the facts provided to us as described above; should these facts and
circumstances differ, our conclusion may change.
This letter is intended solely for the use of management and the Boards of
Directors of the Company and the Bank and the Office of Thrift Supervision.
/s/ Crow, Chizek and Company LLP
Crow, Chizek and Company LLP
Oak Brook, Illinois
March 20, 1998
<PAGE>
DOUGLAS SAVINGS BANK
Arlington Heights, Illinois
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997, 1996, and 1995
CONTENTS
REPORT OF INDEPENDENT AUDITORS........................................... F-1
FINANCIAL STATEMENTS
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION...................... F-2
CONSOLIDATED STATEMENTS OF INCOME................................... F-3
CONSOLIDATED STATEMENTS OF EQUITY................................... F-4
CONSOLIDATED STATEMENTS OF CASH FLOWS............................... F-5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.......................... F-6
All schedules are omitted because the required information
is not applicable or is included in the Consolidated
Financial Statements and related notes.
Financial Statements of the Holding Company have not
been provided because Ben Franklin Financial, Inc. has not
conducted any operations to date and has not
been capitalized.
<PAGE>
[CROWE CHIZEK LETTERHEAD]
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Douglas Savings Bank
Arlington Heights, Illinois
We have audited the accompanying consolidated statements of financial condition
of Douglas Savings Bank as of December 31, 1997 and 1996, and the related
consolidated statements of income, equity, and cash flows for each of the three
years in the period ended December 31, 1997. These financial statements are the
responsibility of the Bank's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Douglas Savings Bank
as of December 31, 1997 and 1996, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Oak Brook, Illinois
February 27, 1998
F-1
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31, 1997 and 1996
(Dollars in thousands)
1997 1996
---- ----
ASSETS
Cash and due from banks $ 554 $ 646
Federal funds sold 3,900 -
Interest-bearing deposit accounts 2,611 1,878
---------- ----------
Cash and cash equivalents 7,065 2,524
Securities available-for-sale 18,715 7,930
Securities held-to-maturity (fair value:
1997 - $606, 1996 - $1,222) 589 1,198
Loans receivable, net 93,950 92,956
Federal Home Loan Bank stock 944 920
Premises and equipment, net 449 428
Mortgage servicing rights 212 -
Other real estate owned - 306
Accrued interest receivable 574 496
Other assets 93 167
---------- ----------
Total assets $ 122,591 $ 106,925
========== ==========
LIABILITIES AND EQUITY
Deposits $ $ 112,754 $ 94,339
Federal funds purchased - 3,700
Advances from borrowers for
taxes and insurance 691 557
Other liabilities 1,346 879
---------- ----------
114,791 99,475
Equity
Retained earnings, substantially
restricted 7,426 7,128
Unrealized gain on securities
available-for-sale, net 374 322
---------- ----------
7,800 7,450
---------- ----------
Total liabilities and equity $ 122,591 $ 106,925
========== ==========
See accompanying notes to consolidated financial statements
F-2
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 1997, 1996, and 1995
(Dollars in thousands)
1997 1996 1995
---- ---- ----
Interest income
Loans $ 7,209 $ 7,196 $ 6,506
Securities 688 562 600
Federal funds sold 59 - -
Interest-bearing deposit accounts 16 17 21
--------- -------- --------
7,972 7,775 7,127
Interest expense
Deposits 4,610 4,285 4,002
Other borrowings 227 396 162
--------- -------- --------
4,837 4,681 4,164
--------- -------- --------
Net interest income 3,135 3,094 2,963
Provision for loan losses 150 33 32
--------- -------- --------
Net interest income after provision
for loan losses 2,985 3,061 2,931
Noninterest income
Service fee income 150 148 140
Gain on sale of securities 1 - -
Other 31 13 13
--------- -------- --------
182 161 153
Noninterest expenses
Compensation and employee benefits 1,536 866 927
Occupancy expenses 383 363 352
Data processing services 169 132 126
Federal deposit insurance premium 44 203 186
SAIF assessment - 491 -
Advertising 104 107 111
Loss on sale of other real estate owned 13 - -
Other 419 279 171
--------- -------- --------
2,668 2,441 1,873
--------- -------- --------
Income before income taxes 499 781 1,211
Provision for income taxes 201 312 484
--------- -------- --------
Net income $ 298 $ 469 $ 727
========= ======== ========
See accompanying notes to consolidated financial statements
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF EQUITY
Years ended December 31, 1997, 1996, and 1995
(Dollars in thousands)
Unrealized
Gain on
Securities
Retained Available-
Earnings for-Sale Total
-------- -------- -----
Balance at January 1, 1995 $ 5,932 $ 26 $ 5,958
Net income 727 - 727
Increase in fair value of securities available-
for-sale, net of income taxes of $158 - 235 235
-------- -------- --------
Balance at December 31, 1995 6,659 261 6,920
Net income 469 - 469
Increase in fair value of securities available-
for-sale, net of income taxes of $39 - 61 61
-------- -------- --------
Balance at December 31, 1996 7,128 322 7,450
Net income 298 - 298
Increase in fair value of securities available-
for-sale, net of income taxes of $35 - 52 52
-------- -------- --------
Balance at December 31, 1997 $ 7,426 $ 374 $ 7,800
======== ======== ========
See accompanying notes to consolidated financial statements
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1997, 1996, and 1995
(Dollars in thousands)
<TABLE>
<CAPTION>
1997 1996 1995
---- ---- ----
Cash flows from operating activities
<S> <C> <C> <C>
Net income $ 298 $ 469 $ 727
Adjustments to reconcile net income to net
cash from operating activities
Depreciation 102 88 91
Amortization of premiums and discounts 6 16 29
Provision for loan losses 150 33 32
Gain on sale of securities (1) - -
Loss on sale of other real estate owned 13 - -
Change in mortgage servicing rights (212) - -
Change in loans held for sale (201) - -
Change in deferred loan costs 2 (65) (117)
Change in accrued interest receivable (78) (58) (30)
Stock dividend received - - (7)
Change in deferred income taxes (160) (6) 54
Change in other assets 74 (60) (71)
Change in other liabilities 592 (411) 310
-------- -------- --------
Net cash from operating activities 585 6 1,018
Cash flows from investing activities
Proceeds from sales of securities available-for-sale 301 - -
Proceeds from maturities of securities available-for-sale 3,520 1,788 1,000
Proceeds from maturities of securities held-to-maturity 600 2,800 1,000
Purchase of securities available-for-sale (14,531) (5,816) (600)
Principal repayments on mortgage-backed securities 16 630 50
Net increase in loans (945) (2,834) (12,931)
Purchase of Federal Home Loan Bank stock (24) (127) (92)
Proceeds from sale of other real estate owned 293 - -
Capital expenditures (123) (16) (29)
-------- -------- --------
Net cash from investing activities (10,893) (3,575) (11,602)
Cash flows from financing activities
Net increase in deposits 18,415 5,544 7,142
Net change in federal funds purchased (3,700) (2,100) 3,000
Net change in advances from borrowers for taxes
and insurance 134 (113) (36)
-------- -------- --------
Net cash from financing activities 14,849 3,331 10,106
-------- -------- --------
Net change in cash and cash equivalents 4,541 (238) (478)
Cash and cash equivalents at beginning of year 2,524 2,762 3,240
-------- -------- --------
Cash and cash equivalents at end of year $ 7,065 $ 2,524 $ 2,762
======== ======== ========
Supplemental disclosures of cash flow information
Interest paid $ 4,933 $ 4,915 $ 3,873
Income taxes paid 318 372 378
Transfer of loans to other real estate owned - 306 -
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Douglas Savings Bank (Bank) is a state-chartered mutual savings bank and a
member of the Federal Home Loan Bank (FHLB) system. The Bank maintains insurance
on savings accounts with the Savings Association Insurance Fund (SAIF) of the
Federal Deposit Insurance Corporation.
Nature of Business: Through its main office and one branch location, the Bank
provides a full line of financial services to customers in the Cook County,
Illinois, area. Douglas Savings Bank grants residential and consumer loans,
substantially all of which are secured by specific items of collateral including
residences and consumer assets.
Use of Estimates in the Preparation of Financial Statements: The preparation of
financial statements in conformity with generally accepted accounting principles
and with general practices within the thrift industry requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of the
financial statements, and the reported amount of income and expenses during the
reporting period. Actual results could differ from those estimates.
Principles of Consolidation: The accompanying 1996 financial statements include
the accounts of the Bank and its wholly-owned subsidiary, Courtesy Service, Inc.
All significant intercompany balances and transactions have been eliminated. The
subsidiary was dissolved in 1997.
Securities: Securities are classified as held-to-maturity when the Bank has the
positive intent and ability to hold those securities to maturity. Accordingly,
they are stated at cost, adjusted for amortization of premiums and accretion of
discounts. Securities are classified as available-for-sale when the Bank may
decide to sell those securities for changes in market interest rates, liquidity
needs, changes in yields on alternative investments, and for other reasons. They
are carried at fair value. Unrealized gains and losses on securities
available-for-sale are charged or credited to a valuation allowance which is
included as a separate component of members' equity. Realized gains and losses
on disposition are based on the net proceeds and the adjusted carrying amount of
the securities sold, using the specific identification method.
Recognition of Interest Income on Loans: Interest income on mortgage and
installment loans is recognized over the term of the loans based on the
principal balance outstanding. Unearned interest on home improvement loans is
amortized into income by the interest method.
Loan Origination Fees and Related Costs: Loan origination fees, net of certain
direct loan origination costs, are deferred. The net deferred fee or cost is
recognized as an adjustment to interest income using the interest method over
the contractual life of the loans.
F-6
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Premises and Equipment: Premises and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful lives of the assets. The cost and accumulated
depreciation of assets retired or sold are eliminated from the financial
statements, and the gain or loss on disposition is credited or charged to
operations when incurred.
Servicing Rights: Servicing rights represent the allocated value of servicing
rights retained on loans sold. Servicing rights are expensed in proportion to,
and over the period of, estimated net servicing revenues. Impairment is
evaluated based on the fair value of the rights, using groupings of the
underlying loans as to interest rates. Any impairment of a grouping is reported
as a valuation allowance.
Other Real Estate Owned: Real estate acquired through foreclosure and similar
proceedings is carried at fair value less estimated costs to sell. Losses on
disposition, including expenses incurred in connection with the disposition, are
charged to operations.
Income Taxes: The provision for income taxes is based on an asset and liability
approach which requires the recognition of deferred tax liabilities and assets
for the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities.
Allowance for Loans Losses: Because some loans may not be repaid in full, an
allowance for loan losses is maintained. Increases to the allowance are recorded
by a provision for loan losses charged to expense. Estimating the risk of loss
and the amount of loss on any loan is necessarily subjective. Accordingly, the
valuation allowance is maintained at levels considered adequate to cover losses
that are currently anticipated based on delinquencies, property appraisals, past
loss experience, general economic conditions, information about specific
borrower situations including their financial position, and other factors and
estimates which are subject to change over time. While management may
periodically allocate portions of the allowance for specific problem loan
situations, including impaired loans discussed below, the whole allowance is
available for any charge-offs that occur. Loans are charged off in whole or in
part when management's estimate of the undiscounted cash flows from the loan are
less than the recorded investment in the loan, although collection efforts
continue and future recoveries may occur.
Loans considered to be impaired are reduced to the present value of expected
future cash flows or to the fair value of collateral, by allocating a portion of
the allowance for loan losses to such loans. If these allocations cause the
allowance for loan losses to require increase, such increase is reported as a
provision for loan losses.
F-7
<PAGE>
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Smaller balance homogenous loans are defined as residential first mortgage loans
secured by one-to-four-family residences, residential construction loans, and
share loans and are evaluated collectively for impairment. Commercial real
estate loans are evaluated individually for impairment. Normal loan evaluation
procedures, as described in the second preceding paragraph, are used to identify
loans which must be evaluated for impairment. In general, loans classified as
doubtful or loss are considered impaired while loans classified as substandard
are individually evaluated for impairment. Depending on the relative size of the
credit relationship, late or insufficient payments of 30 to 90 days will cause
management to reevaluate the credit under its normal loan evaluation procedures.
While the factors which identify a credit for consideration for measurement of
impairment, or nonaccrual, are similar, the measurement considerations differ. A
loan is impaired when management believes it is probable they will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. A loan is placed on nonaccrual when payments are more than 90 days
past due unless the loan is adequately collateralized and in the process of
collection.
Cash and Cash Equivalents: Cash and cash equivalents include cash on hand,
federal funds sold, due from banks, and interest-bearing deposit accounts with
maturities of three months or less.
Reclassifications: Some items in prior financial statements have been
reclassified to conform with the current presentation.
NOTE 2 - SECURITIES
Securities are summarized as follows:
<TABLE>
<CAPTION>
----------------------December 31, 1997---------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Securities available-for-sale
<S> <C> <C> <C> <C>
U.S. government agency notes $ 17,530 $ 13 $ (7) $ 17,536
Mortgage-backed securities 508 - (13) 495
Marketable equity securities 54 630 - 684
------------ ----------- ----------- ------------
$ 18,092 $ 643 $ (20) $ 18,715
============ =========== =========== ============
</TABLE>
F-8
<PAGE>
NOTE 2 - SECURITIES (Continued)
<TABLE>
<CAPTION>
----------------------December 31, 1997---------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---- ----- ------ -----
Securities held-to-maturity
<S> <C> <C> <C> <C>
U.S. government agency notes $ 510 $ 17 $ - $ 527
Mortgage-backed securities 79 - - 79
------------- ------------- ------------ -------------
$ 589 $ 17 $ - $ 606
============= ============= ============ =============
----------------------December 31, 1996---------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
Securities available-for-sale
U.S. government agency notes $ 6,817 $ 4 $ (56) $ 6,765
Mortgage-backed securities 523 - (16) 507
Marketable equity securities 54 604 - 658
------------- ------------- ------------ -------------
$ 7,394 $ 608 $ (72) $ 7,930
============= ============= ============ =============
Securities held-to-maturity
U.S. government agency notes $ 1,017 $ 24 $ - $ 1,041
State and political subdivision
notes 101 - 101
Mortgage-backed securities 80 - - 80
------------- ------------- ------------ -------------
$ 1,198 $ 24 $ - $ 1,222
============= ============= ============ =============
</TABLE>
The amortized cost and fair value of securities at December 31, 1997, by
contractual maturity, are shown below. Expected maturities will differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties. Securities not due at
a specified maturity date, particularly mortgage-backed securities and equity
securities, are shown separately.
F-9
<PAGE>
NOTE 2 - SECURITIES (Continued)
<TABLE>
<CAPTION>
Available-for-Sale Held-to-Maturity
------------------ ----------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---- ----- ---- -----
<S> <C> <C> <C> <C>
Due in one year or less $ 301 $ 300 $ - $ -
Due after one year through five years 16,229 16,236 510 527
Due after five years through ten years 1,000 1,000 - -
---------- ---------- ---------- ----------
17,530 17,536 510 527
Mortgage-backed securities 508 495 79 79
Marketable equity securities 54 684 - -
---------- ---------- ---------- ----------
$ 18,092 $ 18,715 $ 589 $ 606
========== ========== ========== ==========
</TABLE>
Proceeds from securities sold during 1997 amounted to $301,000 with gross
realized gains of $1,000. There were no sales of securities for the years ended
December 31, 1996, and 1995.
Securities with a carrying amount of $9,248,000 and $4,501,000, respectively,
were pledged to secure borrowings with the American National Bank at December
31, 1997 and 1996.
NOTE 3 - LOANS RECEIVABLE
Loans receivable at December 31 are summarized as follows:
1997 1996
---- ----
First mortgage loans
Secured by one-to-four-family residences $ 78,544 $ 76,681
Consumer and other loans
Automobile 350 160
Loan contracts receivable 118 120
Home equity 14,340 15,184
Home improvement 362 251
Personal loans 268 464
Loans secured by deposit accounts 99 92
-------- --------
Total consumer and other loans 15,537 16,271
Net deferred loan-origination costs 271 273
Allowance for loan losses (402) (269)
-------- --------
$ 93,950 $ 92,956
======== ========
F-10
<PAGE>
NOTE 3 - LOANS RECEIVABLE (Continued)
The amount of loans serviced for FNMA and FHLMC are $3,971,000, $286,000, and
$35,000 at December 31, 1997, 1996, and 1995, respectively.
Activity of mortgage servicing rights for 1997 follows:
Balance, beginning of year $ -
Additions 224
Amortized to expense 12
---------
Balance, end of year $ 212
=========
Loans outstanding to officers and directors of the Bank total approximately
$40,000 and $43,000 at December 31, 1997 and 1996, respectively.
Activity in the allowance for loan losses for the years ended December 31 is as
follows:
1997 1996 1995
---- ---- ----
Balance at beginning of year $ 269 $ 230 $ 196
Provision for loan losses 150 33 32
Loans charged off (17) - -
Recoveries of loans previously charged off - 6 2
------- ------- -------
$ 402 $ 269 $ 230
======= ======= =======
There were no nonaccrual or impaired loans at December 31, 1997 and 1996.
Additionally, there were no impaired loans during 1997 or 1996.
F-11
<PAGE>
NOTE 4 - PREMISES AND EQUIPMENT
Premises and equipment consist of the following as of December 31:
1997 1996
---- ----
Leasehold improvements $ 495 $ 495
Furniture and fixtures 582 676
Automobiles 63 58
--------- ---------
1,140 1,229
Less accumulated depreciation and amortization (691) (801)
--------- ---------
$ 449 $ 428
========= =========
NOTE 5 - DEPOSITS
Fixed maturity deposit accounts with balances of $100,000 or more totaled
approximately $11,766,000 and $8,817,000 at December 31, 1997 and 1996,
respectively.
At December 31, 1997, scheduled maturities of certificates of deposit are as
follows:
1998 $ 58,659
1999 10,970
2000 5,039
2001 528
2002 2,559
-----------
$ 77,755
===========
NOTE 6 - REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional discretionary, actions by
regulators that, if undertaken, could have a direct material effect on the
Bank's financial statements. 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.
F-12
<PAGE>
NOTE 6 - REGULATORY MATTERS (Continued)
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 of total and Tier I
capital as defined in the regulations to risk-weighted assets as defined and of
Tier I capital to average assets as defined. To be categorized as well
capitalized, the Bank must maintain minimum total risk-based, Tier I risk-based,
and Tier I leverage ratios. The Bank was categorized as well capitalized at
December 31, 1997 and 1996. There are no conditions or events since that
notification that management believes have changed the institution's category.
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If undercapitalized, asset growth
and expansion are limited, and plans for capital restoration are required.
At year end, consolidated actual capital levels and minimum required levels
were:
<TABLE>
<CAPTION>
Minimum Required
To Be Well
Minimum Required Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Regulations
------ ----------------- ------------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
1997
- ----
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-weighted assets) $ 7,828 11.2% $ 5,560 8.0% $ 6,950 10.0%
Tier 1 (core) capital (to risk-weighted
assets) 7,426 10.7 2,780 4.0 4,170 6.0
Tier 1 (leverage) capital (to average
assets) 7,426 6.7 4,415 4.0 5,519 5.0
1996
- ----
Total capital (to risk-weighted assets) $ 7,397 11.3% $ 5,219 8.0% $ 6,524 10.0%
Tier 1 (core) capital (to risk-weighted
assets) 7,128 10.9 2,609 4.0 3,914 6.0
Tier 1 (leverage) capital (to average
assets) 7,128 6.7 4,273 4.0 5,341 5.0
</TABLE>
F-13
<PAGE>
NOTE 7 - EMPLOYEE BENEFITS
During 1997, the Bank adopted a Savings Incentive Matching Plan for Employees
(SIMPLE) covering substantially all employees. Participants may elect to make
tax deferred contributions to the plan up to $6,000 per calendar year. Annually,
the Bank makes dollar for dollar matching contributions based on amounts
contributed by participants up to a maximum of 3% of compensation per
participant. The Bank made contributions totaling $16,000 during 1997.
During 1997, the Bank established a retirement plan for directors which provides
benefits based upon the amount of the prior year's board fees and the number of
years of service to the Bank. Benefits are payable when the individual reaches
age 65 and are payable quarterly for ten years. The maximum quarterly benefit
will be $12,300. The directors' retirement expense recorded in 1997 was
$450,000.
NOTE 8 - INCOME TAXES
The provision for income taxes consists of the following:
1997 1996 1995
---- ---- ----
Current $ 361 $ 318 $ 430
Deferred (160) (6) 54
------------ ------------ ------------
$ 201 $ 312 $ 484
============ ============ ============
The income tax provision differs from the amounts determined by applying the
statutory U.S. federal income tax rate as a result of the following items:
<TABLE>
<CAPTION>
1 9 9 7 1 9 9 6 1 9 9 5
------- ------- -------
Amount % Amount % Amount %
------ - ------ - ------ -
<S> <C> <C> <C> <C> <C> <C>
Income tax computed at the
statutory rate $ 170 34.0% $ 266 34.0% $ 412 34.0%
State income taxes 23 4.6 30 3.8 48 4.0
Other 8 1.7 16 2.1 24 2.0
--------- ------- --------- ------ --------- ------
$ 201 40.3% $ 312 39.9% $ 484 40.0%
========= ======= ========= ====== ========= ======
</TABLE>
F-14
<PAGE>
NOTE 8 - INCOME TAXES (Continued)
The net deferred tax liability consisted of the following at December 31:
1997 1996
---- ----
Deferred tax asset
Deferred compensation $ 175 $ -
Accumulated depreciation 5 -
Deferred tax liabilities
Deferred loan fees (112) (111)
Bad debts (125) (178)
Accumulated depreciation - (1)
Accrual to cash basis (37) (74)
FHLB stock dividends and other (129) (101)
Mortgage servicing rights (82) -
Unrealized gain on securities available-for-sale (249) (214)
------- ------
Net liability $ (554) $ (679)
======= ======
The Bank has qualified under provisions of the Internal Revenue Code which
permit it to deduct from taxable income a provision for bad debts which differs
from the provision charged to income on the financial statements. Retained
earnings at December 31, 1997 include approximately $385,000 for which no
deferred federal income tax liability has been recorded. Tax legislation passed
in 1996 now requires all thrift institutions to deduct a provision for bad debts
for tax purposes based on actual loss experience and recapture the excess bad
debt reserve accumulated in the tax years after 1987. The $280,000 of deferred
tax liability which must be recaptured is reflected in the statements of
financial condition and is payable over a six-year period, beginning in 1998.
NOTE 9 - COMMITMENTS AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments consist of commitments to make loans and fund unused lines
of credit and loans in process. The Bank's exposure to credit loss in the event
of nonperformance by the other party to these financial instruments is
represented by the contractual amount of these instruments. The Bank follows the
same credit policy to make such commitments as is followed for those loans
recorded on the statement of financial condition. At December 31, these
financial instruments are summarized as follows:
F-15
<PAGE>
NOTE 9 - COMMITMENTS AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET
RISK (Continued)
Contractual Amount
------------------
1997 1996
---- ----
Financial instruments whose contract amounts
represent credit risk
Unused lines of credit $ 14,799 $ 14,996
Commitments to make loans 1,526 695
Fixed rate loan commitments totaled $1,046,000 and $695,000 at December 31, 1997
and 1996 and have terms up to 45 days and rates in the range of 6.875% to
7.625%. Since certain commitments to make loans and fund loans in process expire
without being used, these amounts do not necessarily represent future cash
commitments. No losses are anticipated as a result of these transactions.
Financial instruments which potentially subject the Bank to concentrations of
credit risk include deposit accounts in other financial institutions. At
December 31, 1997, the Bank had balances amounting to $5,294,000 on deposit with
American National Bank. This amount includes interest-bearing deposits and
federal funds sold.
The Bank currently leases its main bank and branch facility under noncancelable
five-year operating leases, which include two five-year options to renew. Future
commitments under the operating leases approximate the following:
1998 $ 133
1999 133
2000 137
2001 132
--------
$ 535
========
Rent expense for 1997, 1996, and 1995 was approximately $146,000, $141,000, and
$142,000, respectively.
F-16
<PAGE>
NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts and estimated fair values of the Bank's financial
instruments are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
------------1 9 9 7--------- ----------1 9 9 6-----------
------- -------
Approximate Estimated Approximate Estimated
Carrying Fair Carrying Fair
Value Value Value Value
----- ----- ----- -----
Financial assets
- ----------------
<S> <C> <C> <C> <C>
Cash on hand and in banks $ 554 $ 554 $ 646 $ 646
Federal funds sold 3,900 3,900 - -
Interest-bearing deposits 2,611 2,611 1,878 1,878
Securities available-for-sale 18,715 18,715 7,930 7,930
Securities held-to-maturity 589 606 1,198 1,222
Loans receivable, net 93,950 94,479 92,956 93,028
Federal Home Loan Bank stock 944 944 920 920
Accrued interest receivable 574 574 496 496
Financial liabilities
- ---------------------
NOW, money market, and passbook savings (34,876) (34,876) (30,319) (30,319)
Certificates of deposits (77,878) (77,991) (64,020) (64,079)
Federal funds purchased - - (3,700) (3,700)
Accrued interest payable (10) (10) (106) (106)
</TABLE>
The fair value of a financial instrument is defined as the amount at which the
instrument could be exchanged in a current transaction between willing parties,
other than in a forced or liquidation sale. The methods and assumptions used to
determine fair values for each class of financial instruments are presented
below.
The estimated fair value for cash and cash equivalents; interest-bearing
deposits; Federal Home Loan Bank stock; accrued interest receivable; NOW, money
market, and passbook savings deposits; federal funds purchased; and accrued
interest payable are considered to approximate their carrying values. The
estimated fair value for securities available-for-sale and securities
held-to-maturity are based on quoted market values for the individual securities
or for equivalent securities. The estimated fair value for loans is based on
estimates of the rate the Bank would charge for similar loans at December 31,
1997 and 1996, applied for the time period until estimated payment. The
estimated fair value of certificates of deposit is based on estimates of the
rate the Bank would pay on such deposits at December 31, 1997 and 1996, applied
for the time period until maturity. Loan commitments are not included in the
table above as their estimated fair value is immaterial.
F-17
<PAGE>
NOTE 10 - FAIR VALUE OF FINANCIAL INSTRUMENTS (Continued)
While the above estimates are based on management's judgment of the most
appropriate factors, there is no assurance that were the Bank to have disposed
of these items on December 31, 1997, the fair values would have been achieved,
because the market value may differ depending on the circumstances. The
estimated fair values at December 31, 1997 should not necessarily be considered
to apply at subsequent dates.
NOTE 11 - ADOPTION OF PLAN OF CONVERSION (UNAUDITED)
On February 4, 1998, the Board of Directors of the Bank, subject to regulatory
approval and approval by the members of the Bank, adopted a Plan of Conversion
to convert from a state-chartered mutual savings bank to a federal stock savings
bank with the adoption of a federal thrift charter. The conversion is expected
to be accomplished through the amendment of the Bank's charter and the sale of
the Bank's common stock in an amount equal to the pro forma market value of the
Bank after giving effect to the conversion. A subscription offering of the
shares of common stock will be offered initially to the Bank's eligible deposit
account holders, then to other members of the Bank. Any shares of common stock
not sold in the subscription offering will be offered for sale to the general
public, giving preference to the Bank's market area.
The Board of Directors of the Bank intend to adopt an Employee Stock Ownership
Plan and various stock option and incentive plans, subject to ratification by
the stockholders after conversion, if such stockholder approval is required by
any regulatory body having jurisdiction to require such approval. In addition,
the Board of Directors is authorized to enter into employment contracts with key
employees.
At the time of conversion, the Bank will establish a liquidation account in an
amount equal to its total net worth as of the latest statement of financial
condition appearing in the final prospectus. The liquidation account will be
maintained for the benefit of eligible depositors who continue to maintain their
accounts at the Bank after the conversion. The liquidation account will be
reduced annually to the extent that eligible depositors have reduced their
qualifying deposits. Subsequent increases will not restore an eligible account
holder's interest in the liquidation account. In the event of a complete
liquidation, each eligible depositor 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. The liquidation account balance is
not available for payment of dividends.
F-18
<PAGE>
NOTE 11 - ADOPTION OF PLAN OF CONVERSION (UNAUDITED) (Continued)
The Bank may not declare or pay cash dividends on or repurchase any of its
shares of capital stock if the effect thereof would cause its net worth to be
reduced below applicable regulatory requirements or the amount of the
liquidation accounts of such a declaration and payment would otherwise violate
regulatory requirements.
Conversion costs will be deferred and deducted from the proceeds of the shares
sold in the conversion. If the conversion is not completed, all costs will be
charged to expense. At December 31, 1997, $21,400 of expenses have been
deferred.
<PAGE>
No person has been authorized to give any information or to make any
representation other than as contained in this Prospectus in connection with the
offering made hereby, and, if given or made, such other information or
representation must not be relied upon as having been authorized by the Holding
Company or the Bank. This Prospectus does not constitute an offer to sell or a
solicitation of an offer to buy any of the securities offered hereby to any
person in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making such offer or solicitation is not qualified to do
so, or to any person to whom it is unlawful to make such offer or solicitation
in such jurisdiction. Neither the delivery of this Prospectus nor any sale
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Holding Company or the Bank since any of
the dates as of which information is furnished herein or since the date hereof.
--------------
TABLE OF CONTENTS
Page
Prospectus Summary........................................
Selected Financial Information............................
Recent Developments Data .................................
Management's Discussion and Analysis
of Recent Operating Results ...........................
Risk Factors..............................................
Ben Franklin Financial, Inc...............................
Ben Franklin Bank of Illinois.............................
Use of Proceeds...........................................
Dividends.................................................
Market for Common Stock...................................
Pro Forma Data............................................
Pro Forma Regulatory Capital Analysis.....................
Capitalization............................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations....................
Business .................................................
Regulation................................................
Management ...............................................
The Conversion............................................
Restrictions on Acquisitions of Stock and Related
Takeover Defensive Provisions..........................
Description of Capital Stock..............................
Legal and Tax Matters.....................................
Experts...................................................
Additional Information....................................
Index to Financial Statements.............................
Until the later of [________], 1998 or 90 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.
1,851,500 Shares,
(Maximum, as adjusted)
BEN FRANKLIN FINANCIAL, INC.
(Proposed Holding Company for Ben Franklin
Bank of Illinois)
COMMON STOCK
--------------
PROSPECTUS
--------------
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
[________], 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
Set forth below is an estimate of the amount of fees and expenses
(other than underwriting discounts and commissions) to be incurred in connection
with the issuance of the shares.
SEC registration fee..................................................$ 5,462
NASD fee.............................................................. 2,352
OTS filing fees....................................................... 8,400
Counsel fees and expenses............................................. 80,000
Accounting fees and expenses.......................................... 75,000
Appraisal and business plan fees and expenses......................... 20,000
Conversion agent fees and expenses.................................... 12,000
Marketing agent's fee................................................. 150,000
Marketing agent's expenses including counsel fees and expenses ....... 30,000
Printing, postage and mailing......................................... 70,000
Blue sky fees and expenses............................................ 10,000
Other expenses........................................................ 86,786
--------
TOTAL............................................................$550,000
========
Item 14. Indemnification of Directors and Officers
Article Eleventh of the Holding Company's Certificate of Incorporation
provides for indemnification of directors and officers of the Holding Company
against any and all liabilities, judgments, fines and reasonable settlements,
costs, expenses and attorneys' fees incurred in any actual, threatened or
potential proceeding, except to the extent that such indemnification is limited
by Delaware law and such law cannot be varied by contract or bylaw. Article
Eleventh also provides for the authority to purchase insurance with respect
thereto.
Section 145 of the General Corporation Law of the State of Delaware
authorizes a corporation's Board of Directors to grant indemnity under certain
circumstances to directors and officers, when made, or threatened to be made,
parties to certain proceedings by reason of such status with the corporation,
against judgments, fines, settlements and expenses, including attorneys' fees.
In addition, under certain circumstances such persons may be indemnified against
expenses actually and reasonably incurred in defense of a proceeding by or on
behalf of the corporation. Similarly, the corporation, under certain
circumstances, is authorized to indemnify directors and officers of other
corporations or enterprises who are serving as such at the request of the
corporation, when such persons are made, or threatened to be made, parties to
certain proceedings by reason of such status, against judgments, fines,
settlements and expenses, including
II-1
<PAGE>
attorneys' fees; and under certain circumstances, such persons may be
indemnified against expenses actually and reasonably incurred in connection with
the defense or settlement of a proceeding by or in the right of such other
corporation or enterprise. Indemnification is permitted where such person (i)
was acting in good faith; (ii) was acting in a manner he reasonably believed to
be in or not opposed to the best interests of the corporation or other
corporation or enterprise, as appropriate; (iii) with respect to a criminal
proceeding, has no reasonable cause to believe his conduct was unlawful; and
(iv) was not adjudged to be liable to the corporation or other corporation or
enterprise (unless the court where the proceeding was brought determines that
such person is fairly and reasonably entitled to indemnity).
Unless ordered by a court, indemnification may be made only following a
determination that such indemnification is permissible because the person being
indemnified has met the requisite standard of conduct. Such determination may be
made (i) by the Board of Directors of the Holding Company by a majority vote of
a quorum consisting of directors not at the time parties to such proceeding; or
(ii) if such a quorum cannot be obtained or the quorum so directs, then by
independent legal counsel in a written opinion; or (iii) by the stockholders.
Section 145 also permits expenses incurred by directors and officers in
defending a proceeding to be paid by the corporation in advance of the final
disposition of such proceedings upon the receipt of an undertaking by the
director or officer to repay such amount if it is ultimately determined that he
is not entitled to be indemnified by the corporation against such expenses.
Item 15. Recent Sales of Unregistered Securities
The Registrant is newly incorporated, solely for the purpose of acting
as the holding company of Ben Franklin Savings Bank of Illinois pursuant to the
Plan of Conversion (filed as Exhibit 2 herein), and no sales of its securities
have occurred to date, other than the sale of one share of the Registrant's
stock to its incorporator for the purpose of qualifying the Registrant to do
business in Illinois.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits:
1.1 Letter Agreement regarding marketing and consulting services
with Freedman Billings Ramsey & Company, Inc.
1.2 Form of Agency Agreement*
2 Plan of Conversion
3.1 Certificate of Incorporation of the Holding Company
3.2 Bylaws of the Holding Company
3.3 Charter of Ben Franklin Savings Bank of Illinois in stock form
3.4 Bylaws of Ben Franklin Savings Bank of Illinois in stock form
4 Form of Stock Certificate of the Holding Company
5 Opinion of Silver, Freedman & Taff, L.L.P. with respect to legality
of stock
8.1 Opinion of Crowe Chizek & Co. with respect to Federal and Illinois
income tax consequences of the Conversion
8.2 Ferguson & Co. Letter with respect to estimated pro forma market value
and Subscription Rights
10.1 Form of Proposed Stock Option and Incentive Plan
10.2 Form of Proposed Recognition and Retention Plan
10.3 Form of Employment Agreement with Ronald P. Pedersen
10.4 Employee Stock Ownership Plan
21 Not Applicable
23.1 Consent of Silver, Freedman & Taff, L.L.P.
23.2 Consent of Crowe Chizek & Co.
23.3 Consent of Ferguson & Co.
24 Power of Attorney (set forth on signature page)
99.1 Appraisal
99.2 Proxy Statement and form of proxy to be furnished to Ben
Franklin Savings Bank of Illinois account holders
99.3 Stock Order Form and Order Form Instructions*
99.4 Question and Answer Brochure*
* To be filed by amendment.
II-3
<PAGE>
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(i) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement;
(i) To include any Prospectus required by Section 10(a)(3) of the Securities
Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement; and
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or any
material change to such information in the Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and it will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a form
of prospectus filed by the Registrant pursuant
II-4
<PAGE>
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of prospectus
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.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Chicago,
State of Illinois on April 2, 1998.
BEN FRANKLIN FINANCIAL, INC.
By: /s/ Ronald P. Pedersen
---------------------------------
Ronald P. Pedersen, President,
Chief Executive Officer
and Director
(Duly Authorized Representative)
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Ronald P. Pedersen and Joseph J. Gasior,
and each of them, his true and lawful attorney-in-fact and agent, with full
power of substitution and re-substitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and all other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorney-in-facts and
agents full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all said
attorney-in-facts and agents or their substitutes or substitute may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
/s/ Ronald P. Pedersen /s/ Joseph J. Gasior
- ----------------------------- ------------------------------
Ronald P. Pedersen Joseph J. Gasior
President, Chief Executive Officer and Chairman of the Board
Director
(Principal Executive Officer)
Date: April 2, 1998 Date: April 2, 1998
/s/ Robert E.Decelles /s/ Bernadine Dziedzic
- ----------------------------- ------------------------------
Robert E. Decelles Bernadine Dziedzic
Director Director and Secretary
Date: April 2, 1998 Date: April 2, 1998
/s/ Edward J. Luzwick /s/ Joseph Nowicki
- ----------------------------- ------------------------------
Edward J. Luzwick Joseph Nowicki
Director Director
Date: April 2, 1998 Date: April 2, 1998
/s/ Charles E. Schuetz /s/ Michael F. Barrett
- ----------------------------- ------------------------------
Charles E. Schuetz Michael F. Barrett
Director Principal Financial and
Accounting Officer
Date: April 2, 1998 Date: April 2, 1998
II-6
[FRIEDMAN, BILLINGS, RAMSEY LETTERHEAD]
December 10, 1997
Board of Directors
Attn.: Joseph J. Gasior, Chairman
Douglas Savings Bank
14 N. Dryden Avenue
Arlington Heights, Illinois 60004
RE: Conversion Stock Marketing Services
Gentlemen:
This letter sets forth the terms of the proposed engagement between Friedman,
Billings, Ramsey and Co., Inc. ("FBW') and Douglas Savings Bank ("Douglas
Savings"), concerning our Investment Banking Services in connection with the
Conversion of Douglas Savings from a federally chartered mutual savings bank to
a holding company form of organization (the "Conversion"), and the sale of stock
in Douglas Savings' newly formed holding company (the "Holding Company").
FBR is prepared to assist Douglas Savings in connection with the offering of its
shares of common stock during the Subscription Offering and Community Offering
as such terms are defined in Douglas Savings' Plan of Conversion (together, the
"Offering"). The specific terms (including those related to indemnification) of
the services contemplated hereunder shall be set forth in a definitive sales
agency agreement (the "Agreement") between FBR and Douglas Savings to be
executed prior to the date the prospectus is declared effective by the
appropriate regulatory authorities. The price of the shares during the
Subscription Offering and Community Offering will be the price established by
Douglas Savings' Board of Directors, based upon an independent appraisal as
approved by the appropriate regulatory authorities, provided such price is
mutually acceptable to FBR and Douglas Savings.
In connection with the Subscription Offering and Community Offering, FBR will
render the following services:
1. Act as the Financial Advisor to Douglas Savings
2. Create marketing materials and formulate a marketing plan
3. Conduct training for all Directors and Employees concerning the
Conversion
4. Manage Stock Center and staff with FBR personnel
<PAGE>
5. Assist Douglas Savings and Attorneys with listing on NASDAQ
6. Assist Douglas Savings with the proxy solicitation
After the Offering, FBR intends to provide:
1. After market support as a Market Maker for Douglas Savings
2. Research coverage of Douglas Savings
3. For a period of twelve months following the completion of the
conversion, FBR will continue to act as Financial Advisor for Douglas
Savings without further remuneration and provide advice upon request.
At the appropriate time, FBR, in conjunction with its counsel, will conduct an
examination of the relevant documents and records of Douglas Savings as FBR
deems necessary and appropriate. Douglas Savings will make all documents,
records and other information deemed necessary by FBR or its counsel available
to them upon request.
For its services in connection with the Offering, FBR will receive the following
compensation and reimbursement from Douglas Savings:
1. A management fee of $20,000 payable as follows: $10,000 upon the
signing of this letter and $10,000 upon receiving OTS approval of the
Conversion Application. Should the Conversion be terminated for any
reason not attributable to the action or inaction of FBR, FBR shall
have earned and be entitled to be paid fees accruing through the stage
at which point the termination occurred.
2. A success fee of $150,000. The management fee of $20,000 will be
credited against the marketing fee.
3. The foregoing fees are to be payable to FBR at closing as defined in
the Agreement to be entered into between FBR and Douglas Savings.
4. FBR shall be reimbursed for reasonable expenses incurred by them,
including legal fees. Legal fees for FBR's outside counsel shall not
exceed $20,000. FBR's other out-of-pocket expenses are not expected to
exceed $10,000. Should FBR's expenses, including legal fees and other
out-of-pocket expenses incurred by FBR, exceed $30,000, Douglas
Savings must approve such expenses above that amount for FBR to be
reimbursed. FBR's reasonable expenses, including both legal fees and
other out-of-pocket expenses, shall be reimbursed as described above
whether or not the Agreement is consummated.
<PAGE>
It is further understood that Douglas Savings will pay all other expenses of the
Plan including but not limited to its attorneys' fees, NASD filing fees, filing
and registration fees and fees of either FBR's attorneys or your attorneys
relating to any required state securities law filings, telephone charges, air
freight, supplies, conversion agent charges, transfer agent charges, fees
relating to auditing and accounting and costs of printing all documents
necessary in connection with the foregoing.
For purpose of FBR's obligation to file certain documents and to make certain
representations to the NASD in connection with the Plan, Douglas Savings
warrants that: (a) Douglas Savings has not privately placed any securities
within the last 18 months; (b) there have been no material dealings within the
last 12 months between Douglas Savings and any NASD member or any person related
to or associated with any such member; (c) none of the officers or directors of
Douglas Savings has any affiliation with any NASD member; (d) Douglas Savings
has not granted FBR a right of first refusal with respect to the underwriting of
any future offering of Douglas Savings stock; and (e) there has been no
intermediary between FBR and Douglas Savings in connection with the public
offering of Douglas Savings shares, and no person is being compensated in any
manner for providing such service.
Douglas Savings agrees to indemnify and hold harmless FBR and its affiliates (as
defined in Rule 405 under the Securities Act of 1933, as amended) and their
respective directors, officers, employees, agents and controlling persons (FBR
and each such person being an "Indemnified Party") from and against any and all
losses, claims, damages and liabilities (or actions, including shareholder
actions, in respect thereof), joint or several, to which such Indemnified Party
may become subject under any applicable federal or state law, or otherwise,
which are reasonably related to or result from the performance by FBR of the
services contemplated by, or the engagement of FBR pursuant to, this letter
agreement and will promptly reimburse any Indemnified Party for all reasonable
expenses (including reasonable counsel fees and expenses) as they are incurred
in connection with the investigation of, preparation for or defense arising
therefrom, whether or not such Indemnified Party is a party and whether or not
such claim, action or proceeding is initiated or brought by Douglas Savings.
Douglas Savings will not be liable to any Indemnified Party under the foregoing
indemnification and reimbursement provisions, (i) for any settlement by an
Indemnified Party effected without its prior written consent; or (ii) to the
extent that any loss, claim, damage or liability is found by a court to have
resulted primarily from FBR's gross negligence or willful misconduct, (iii) to
the extent any loss, claim or liability is based on a false or misleading
statement by an FBR employee or agent which is not consistent with the Holding
Company's prospectus or (iv) to the extent any loss, claim, damage or liability
is caused by information supplied by FBR in writing expressly for use in SEC
filed documents. FBR shall repay to Douglas Savings any amounts paid by Douglas
Savings for reimbursement of FBR's and any Indemnified Party's expenses in the
event that such expenses were incurred in relation to an act or omission with
respect to which it is finally determined that FBR has acted in gross negligence
or with willful misconduct. Douglas Savings also agrees that no Indemnified
Party shall have any liability (whether direct or indirect, in contract or tort
or otherwise) to Douglas Savings or its security holders or creditors related to
or arising out of the engagement of FBR pursuant to, or the performance by FBR
of the services contemplated by, this letter agreement except to the extent that
any loss, claim, damage or liability is found in a final judgment by a court to
have
<PAGE>
resulted primarily from FBR's gross negligence or willful misconduct or willful
failure to perform the terms of this contract.
Promptly after receipt by an Indemnified Party of notice of any intention or
threat to commence an action, suit or proceeding or notice of the commencement
of any action, suit or proceeding, such Indemnified Party will, if a claim in
respect thereof is to be made against Douglas Savings pursuant hereto, promptly
notify Douglas Savings in writing of the same. In case any such action is
brought against any Indemnified Party and such Indemnified Party notifies
Douglas Savings of the commencement thereof, Douglas Savings may elect to assume
the defense thereof, with counsel reasonably satisfactory to such Indemnified
Party, and an Indemnified Party may retain counsel to participate in the defense
of any such action; provided, however, that in no event shall Douglas Savings be
required to pay fees and expenses for more than one firm of attorneys
representing Indemnified Parties.
If the indemnification provided for in this letter agreement is for any reason
held unenforceable by an Indemnified Party, Douglas Savings agrees to contribute
to the losses, claims, damages and liabilities for which such indemnification is
held unenforceable (i) in such proportion as is appropriate to reflect the
relative benefits to Douglas Savings, on the one hand, and FBR on the other
hand, of the Transaction as contemplated (whether or not the Transaction is
consummated) or, (ii) if (but only if) the allocation provided for in clause (i)
is for any reason unenforceable, in such proportion as is appropriate to reflect
not only the relative benefits referred to in clause (i) but also the relative
fault of Douglas Savings, on the one hand, and FBR, on the other hand, as well
as any other relevant equitable considerations. Each of the parties hereto (on
its own behalf and, to the extent permitted by applicable law, on behalf of its
stockholders) waives all right to trial by jury in any action, proceeding or
counteraction (whether based upon contract, or otherwise) related to or arising
out of our engagement pursuant to, or the performance by us of the services
contemplated by, this Letter Agreement.
Notwithstanding any provision in this letter to the contrary, Douglas Savings
shall not provide indemnification or contribution as contemplated under the
terms of this letter if such indemnification or contribution would cause Douglas
Savings to violate the provisions of Sections 23A and 23B of the Federal Reserve
Act.
This letter is merely a statement of intent and is not a binding legal agreement
except as to the compensation and reimbursement paragraphs numbered 1-4 above
and the indemnity described above. While FBR and Douglas Savings agree in
principle to the contents hereof and the purpose to proceed promptly, and in
good faith, to work out the arrangements with respect to the proposed offering,
any legal obligations between FBR and Douglas Savings shall be only as set forth
in a duly executed Agreement, which Agreement shall include customary
representations and warranties, covenants and indemnification provisions (which
indemnification provisions shall supersede, in part, the indemnity described
above). Such Agreement shall be in the form and content satisfactory to, among
other things, there being in FBR's opinion no material adverse change in the
condition or obligations of Douglas Savings or no market conditions which might
render the sale of the shares by Douglas Savings hereby contemplated
inadvisable.
<PAGE>
The validity and interpretation of this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the Commonwealth of
Virginia (excluding the conflicts of laws rules).
Please acknowledge your agreement to the foregoing by signing below and
returning to FBR one copy of this letter along with a payment of $10,000. This
proposal is open for your acceptance for a period of thirty (30) days from the
date hereof.
Very truly yours,
FRIEDMAN, BILLINGS, RAMSEY & CO., INC.
/s/ James C. Neuhauser
By: James C. Neuhauser
Title: Managing Director
Date: 12/12/97
Agreed and Accepted to this 17th day of December, 1997
Douglas Savings Bank
On behalf of Douglas Savings and on behalf of the Holding Company to be formed
By: /s/ Joseph J. Gasior
Title: Chairman of the Board
Ratified and approved this ___ day of ___, 1997.
On behalf of the Holding Company
By: /s/ Joseph J. Gasior
Title: Chairman of the Board
Douglas Savings Bank
Arlington Heights, Illinois
PLAN OF CONVERSION
From Mutual to Stock Form of Organization
I. GENERAL
The Board of Directors of Douglas Savings Bank (the "Bank") has adopted
a plan to convert the Bank's mutual charter from an Illinois to a federal
charter. On February 4, 1998, the Board of Directors of the Bank adopted a Plan
of Conversion whereby the Bank would convert from a mutual savings institution.
The Plan includes, as part of the conversion, the concurrent formation of a
holding company, to be named in the future. The Plan provides that
non-transferable subscription rights to purchase Holding Company Conversion
Stock will be offered first to Eligible Account Holders of record as of the
Eligibility Record Date, then to the Bank's Tax-Qualified Employee Plans, then
to Supplemental Eligible Account Holders of record as of the Supplemental
Eligibility Record Date, then to Other Members, and then to directors, officers
and employees. Concurrently with, at any time during, or promptly after the
Subscription Offering, and on a lowest priority basis, an opportunity to
subscribe may also be offered to the general public in a Direct Community
Offering, a Public Offering or both. The price of the Holding Company Conversion
Stock will be based upon an independent appraisal of the Bank and will reflect
its estimated pro forma market value, as converted. It is the desire of the
Board of Directors of the Bank to attract new capital to the Bank in order to
increase its capital, support future savings growth and increase the amount of
funds available for residential and other mortgage lending. The Converted Bank
is also expected to benefit from its management and other personnel having a
stock ownership in its business, since stock ownership is viewed as an effective
performance incentive and a means of attracting, retaining and compensating
management and other personnel. No change will be made in the Board of Directors
or management as a result of the Conversion.
II. DEFINITIONS
Acting in Concert: The term "acting in concert" shall have the same
meaning given it in ss.574.2(c) of the Rules and Regulations of the OTS.
Actual Subscription Price: The price per share, determined as provided
in Section V of the Plan, at which Holding Company Conversion Stock will be sold
in the Subscription Offering.
Affiliate: An "affiliate" of, or a Person "affiliated" with, a
specified Person, is a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by or is under common control with,
the Person specified.
Associate: The term "associate," when used to indicate a relationship
with any Person, means (i) any corporation or organization (other than the
Holding Company, the Bank or a majority-owned subsidiary of the Holding Company)
of which such Person is an officer or partner or is, directly or indirectly, the
beneficial owner of ten percent or more of any class of equity securities, (ii)
any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar fiduciary
capacity, and (iii) any relative or spouse of such Person, or
1
<PAGE>
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 subsidiary of the
Holding Company; provided, however, that any Tax-Qualified or Non-Tax-Qualified
Employee Plan shall not be deemed to be an associate of any director or officer
of the Holding Company or the Bank, to the extent provided in Section V hereof.
Bank: Douglas Savings Bank or such other name as the institution may
adopt.
Conversion: Change of the Bank's charter and bylaws to federal stock
charter and bylaws; sale by the Holding Company of Holding Company Conversion
Stock; and issuance and sale by the Converted Bank of Converted Bank Common
Stock to the Holding Company, all as provided for in the Plan.
Converted Bank: The federally chartered stock savings institution
resulting from the Conversion of the Bank in accordance with the Plan.
Deposit Account: Any withdrawable or repurchasable account or deposit
in the Bank including Savings Accounts and demand accounts.
Direct Community Offering: The offering to the general public of any
unsubscribed shares which may be effected as provided in Section V hereof.
Eligibility Record Date: The close of business on January 31, 1997.
Eligible Account Holder: Any Person holding a Qualifying Deposit in the
Bank on the Eligibility Record Date.
Exchange Act: The Securities Exchange Act of 1934, as amended.
Holding Company: A corporation which upon completion of the Conversion
will own all of the outstanding common stock of the Converted Bank, and the name
of which will be selected in the future.
Holding Company Conversion Stock: Shares of common stock, par value
$.01 per share, to be issued and sold by the Holding Company as a part of the
Conversion; provided, however, that for purposes of calculating Subscription
Rights and maximum purchase limitations under the Plan, references to the number
of shares of Holding Company Conversion Stock shall refer to the number of
shares offered in the Subscription Offering.
Local Community: The geographic area encompassing Cook County,
Illinois.
Market Maker: A dealer (i.e., any Person who engages directly or
indirectly as agent, broker or principal in the business of offering, buying,
selling, or otherwise dealing or trading in securities issued by another Person)
who, with respect to a particular security, (i) regularly publishes bona fide,
2
<PAGE>
competitive bid and offer quotations in a recognized inter-dealer quotation
system; or (ii) furnishes bona fide competitive bid and offer quotations on
request; and (iii) is ready, willing, and able to effect transactions in
reasonable quantities at his quoted prices with other brokers or dealers.
Maximum Subscription Price: The price per share of Holding Company
Conversion Stock to be paid initially by subscribers in the Subscription
Offering.
Member: Any Person or entity that qualifies as a member of the Bank
pursuant to its charter and bylaws.
Non-Tax-Qualified Employee Plan: Any defined benefit plan or defined
contribution plan of the Bank or the Holding Company, such as an employee stock
ownership plan, stock bonus plan, profit-sharing plan or other plan, which with
its related trust does not meet the requirements to be "qualified" under Section
401 of the Internal Revenue Code.
OTS: Office of Thrift Supervision, Department of the Treasury, and its
successors.
Officer: An executive officer of the Holding Company or the Bank,
including the Chairman of the Board, President, Executive Vice Presidents,
Senior Vice Presidents in charge of principal business functions, Secretary and
Treasurer.
Order Forms: Forms to be used in the Subscription Offering to exercise
Subscription Rights.
Other Members: Members of the Bank, other than Eligible Account
Holders, Tax-Qualified Employee Plans or Supplemental Eligible Account Holders,
as of the Voting Record Date.
Person: An individual, a corporation, a partnership, an association, a
joint-stock company, a trust, any unincorporated organization, or a government
or political subdivision thereof.
Plan: This Plan of Conversion of the Bank, including any amendment
approved as provided in this Plan.
Public Offering: The offering for sale to selected members of the
general public of any shares of Holding Company Conversion Stock not subscribed
for in the Subscription Offering or the Direct Community Offering, if any.
Public Offering Price: The price per share at which any unsubscribed
shares of Holding Company Conversion Stock are initially offered for sale in the
Public Offering.
Qualifying Deposit: The aggregate balance of $50 or more of each
Deposit Account of an Eligible Account Holder as of the Eligibility Record Date
or of a Supplemental Eligible Account Holder as of the Supplemental Eligibility
Record Date.
SAIF: Savings Association Insurance Fund.
3
<PAGE>
Savings Account: The term "Savings Account" means any withdrawable
account in the Bank except a demand account.
SEC: Securities and Exchange Commission.
Special Meeting: The Special Meeting of Members called for the purpose
of considering and voting upon the Plan of Conversion.
Subscription Offering: The offering of shares of Holding Company
Conversion Stock for subscription and purchase pursuant to Section V of the
Plan.
Subscription Rights: Non-transferable, non-negotiable, personal rights
of the Bank's Eligible Account Holders, Tax-Qualified Employee Plans,
Supplemental Eligible Account Holders, Other Members, and directors, Officers
and employees to subscribe for shares of Holding Company Conversion Stock in the
Subscription Offering.
Supplemental Eligibility Record Date: The last day of the calendar
quarter preceding approval of the Plan by the OTS.
Supplemental Eligible Account Holder: Any person holding a Qualifying
Deposit in the Bank (other than an officer or director and their associates) on
the Supplemental Eligibility Record Date.
Tax-Qualified Employee Plans: Any defined benefit plan or defined
contribution plan of the Bank or the Holding Company, such as an employee stock
ownership plan, stock bonus plan, profit-sharing plan or other plan, which with
its related trust meets the requirements to be "qualified" under Section 401 of
the Internal Revenue Code.
Voting Record Date: The date set by the Board of Directors in
accordance with federal regulations for determining Members eligible to vote at
the Special Meeting.
III. STEPS PRIOR TO SUBMISSION OF PLAN OF CONVERSION TO THE MEMBERS FOR
APPROVAL
Prior to submission of the Plan of Conversion to its Members for
approval, the Bank must receive from the OTS approval of the Application for
Approval of Conversion to convert to the federal stock form of organization. The
following steps must be taken prior to such regulatory approval:
A. The Board of Directors shall adopt the Plan by not less than a
two-thirds vote.
B. The Bank shall notify its Members of the adoption of the Plan by
publishing a statement in a newspaper having a general circulation in
each community in which the Bank maintains an office.
4
<PAGE>
C. Copies of the Plan adopted by the Board of Directors shall be made
available for inspection at each office of the Bank.
D. The Bank will promptly cause an Application for Approval of Conversion
on Form AC to be prepared and filed with the OTS, an Application on
Form H-(e)1 (or other applicable form) to be prepared and filed with
the OTS and a Registration Statement on Form S-1 to be prepared and
filed with the SEC.
E. Upon receipt of notice from the OTS to do so, the Bank shall notify
its Members that it has filed the Application for Approval of
Conversion by posting notice in each of its offices and by publishing
notice in a newspaper having general circulation in each community in
which the Bank maintains an office.
IV. CONVERSION PROCEDURE
Following approval of the application by the OTS, the Plan will be
submitted to a vote of the Members at the Special Meeting. If the Plan is
approved by Members holding a majority of the total number of votes entitled to
be cast at the Special Meeting, the Bank will take all other necessary steps
pursuant to applicable laws and regulations to convert to a federal stock
savings institution as part of a concurrent holding company formation pursuant
to the terms of the Plan.
The Holding Company Conversion Stock will be offered for sale in the
Subscription Offering at the Maximum Subscription Price to Eligible Account
Holders, Tax-Qualified Employee Plans, Supplemental Eligible Account Holders,
Other Members and directors, Officers and employees of the Bank, prior to or
within 45 days after the date of the Special Meeting. The Bank may, either
concurrently with, at any time during, or promptly after the Subscription
Offering, also offer the Holding Company Conversion Stock to and accept
subscriptions from other Persons in a Direct Community and/or Public Offering;
provided that the Bank's Eligible Account Holders, Tax- Qualified Employee
Plans, Supplemental Eligible Account Holders, Other Members and directors,
Officers and employees shall have the priority rights to subscribe for Holding
Company Conversion Stock set forth in Section V of this Plan. However, the
Holding Company and the Bank may delay commencing the Subscription Offering
beyond such 45-day period in the event there exist unforeseen material adverse
market or financial conditions. If the Subscription Offering commences prior to
the Special Meeting, subscriptions will be accepted subject to the approval of
the Plan at the Special Meeting.
The period for the Subscription Offering and Direct Community Offering
and/or Public Offering will be not less than 20 days nor more than 45 days
unless extended by the Bank. If for any reason all the Conversion shares are not
sold in the Subscription Offering and Direct Community and/or Public Offering,
the Holding Company and the Bank will use their best efforts to obtain other
purchasers, subject to OTS approval. Completion of the sale of all shares of
Holding Company Conversion Stock not sold in the Subscription Offering and
Direct Community and/or Public Offering is required within 45 days after
termination of the Subscription Offering, subject to extension of such 45-day
period by the Holding Company and the Bank with the approval of the OTS. The
Holding Company and the Bank may jointly seek one or more extensions of such
45-day
5
<PAGE>
period if necessary to complete the sale of all shares of Holding Company
Conversion Stock. In connection with such extensions, subscribers and other
purchasers will be permitted to increase, decrease or rescind their
subscriptions or purchase orders to the extent required by the OTS in approving
the extensions. Completion of the sale of all shares of Holding Company
Conversion Stock is required within 24 months after the date of the Special
Meeting.
V. STOCK OFFERING
A. Total Number of Shares and Purchase Price of Conversion Stock
The total number of shares of Holding Company Conversion Stock to
be issued and sold in the Conversion will be determined jointly by the
Boards of Directors of the Holding Company and the Bank prior to the
commencement of the Subscription Offering, subject to adjustment if
necessitated by market or financial conditions prior to consummation
of the Conversion. The total number of shares of Holding Company
Conversion Stock shall also be subject to increase in connection with
any oversubscriptions in the Subscription Offering or Direct Community
and/or Public Offering.
The aggregate price for which all shares of Holding Company
Conversion Stock will be issued will be based on an independent
appraisal of the estimated total pro forma market value of the Holding
Company and the Converted Bank. Such appraisal shall be performed in
accordance with OTS guidelines and will be updated as appropriate
under or required by applicable regulations.
The appraisal will be made by an independent investment banking
or financial consulting firm experienced in the area of thrift
institution appraisals. The appraisal will include, among other
things, an analysis of the historical and pro forma operating results
and net worth of the Converted Bank and a comparison of the Holding
Company, the Converted Bank and the Conversion Stock with comparable
thrift institutions and holding companies and their respective
outstanding capital stocks.
Based upon the independent appraisal, the Boards of Directors of
the Holding Company and the Bank will jointly fix the Maximum
Subscription Price.
The Actual Subscription Price for each share of Holding Company
Conversion Stock will be determined by dividing the estimated
appraised aggregate pro forma market value of the Holding Company and
the Converted Bank, based on the independent appraisal as updated upon
completion of the Subscription Offering and Direct Community Offering
and/or Public Offering, if any, or other sale of all of the Holding
Company Conversion Stock, by the total number of shares of Holding
Company Conversion Stock to be issued and sold by the Holding Company
upon Conversion. Such appraisal will then be expressed in terms of a
specific aggregate dollar amount rather than as a range.
6
<PAGE>
B. Subscription Rights
Non-transferable Subscription Rights to purchase shares will be
issued without payment therefor to Eligible Account Holders,
Tax-Qualified Employee Plans, Supplemental Eligible Account Holders,
Other Members and directors, Officers and employees of the Bank as set
forth below.
1. Preference Category No. 1: Eligible Account Holders
Each Eligible Account Holder shall receive non-transferable
Subscription Rights to subscribe for shares of Holding Company
Conversion Stock in an amount equal to the greater of $200,000,
or one-tenth of one percent (.10%) of the total offering of
shares, or 15 times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares of
common stock to be issued by a fraction of which the numerator is
the amount of the qualifying deposit of the Eligible Account
Holder and the denominator is the total amount of qualifying
deposits of all Eligible Account Holders in the converting Bank
in each case on the Eligibility Record Date.
If sufficient shares are not available, shares shall be
allocated first to permit each subscribing Eligible Account
Holder to purchase to the extent possible 100 shares and
thereafter among each subscribing Eligible Account Holder pro
rata in the same proportion that his Qualifying Deposit bears to
the total Qualifying Deposits of all subscribing Eligible Account
Holders whose subscriptions remain unsatisfied.
Non-transferable Subscription Rights to purchase Holding
Company Conversion Stock received by directors and Officers of
the Bank and their Associates, based on their increased deposits
in the Bank in the one-year period preceding the Eligibility
Record Date, shall be subordinated to all other subscriptions
involving the exercise of non-transferable Subscription Rights of
Eligible Account Holders.
2. Preference Category No. 2: Tax-Qualified Employee Plans
Each Tax-Qualified Employee Plan shall be entitled to
receive non-transferable Subscription Rights to purchase up to
10% of the shares of Holding Company Conversion Stock, provided
that singly or in the aggregate such plans (other than that
portion of such plans which is self-directed) shall not purchase
more than 10% of the shares of the Holding Company Conversion
Stock. Subscription Rights received pursuant to this Category
shall be subordinated to all rights received by Eligible Account
Holders to purchase shares pursuant to Category No. 1; provided,
however, that notwithstanding any other provision of this Plan to
the contrary, the Tax- Qualified Employee Plans shall have a
first priority Subscription Right to the extent that the total
number of shares of Holding Company Conversion Stock sold in the
Conversion exceeds the maximum of the appraisal range as set
forth in the subscription prospectus.
7
<PAGE>
3. Preference Category No. 3: Supplemental Eligible Account Holders
Each Supplemental Eligible Account Holder shall receive
non-transferable Subscription Rights to subscribe for shares of
Holding Company Conversion Stock in an amount equal to the
greater of $200,000, or one-tenth of one percent (.10%) of the
total offering of shares, or 15 times the product (rounded down
to the next whole number) obtained by multiplying the total
number of shares of common stock to be issued by a fraction of
which the numerator is the amount of the qualifying deposit of
the Supplemental Eligible Account Holder and the denominator is
the total amount of qualifying deposits of all Supplemental
Eligible Account Holders in the converting Bank in each case on
the Supplemental Eligibility Record Date.
Subscription Rights received pursuant to this category shall
be subordinated to all Subscription Rights received by Eligible
Account Holders and Tax-Qualified Employee Plans pursuant to
Category Nos. 1 and 2 above.
Any non-transferable Subscription Rights to purchase shares
received by an Eligible Account Holder in accordance with
Category No. 1 shall reduce to the extent thereof the
Subscription Rights to be distributed to such person pursuant to
this Category.
In the event of an oversubscription for shares under the
provisions of this subparagraph, the shares available shall be
allocated first to permit each subscribing 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 Category
No. 1) equal to 100 shares, and thereafter among each subscribing
Supplemental Eligible Account Holder pro rata in the same
proportion that his Qualifying Deposit bears to the total
Qualifying Deposits of all subscribing Supplemental Eligible
Account Holders whose subscriptions remain unsatisfied.
8
<PAGE>
4. Preference Category No. 4: Other Members
Each Other Member shall receive non-transferable
Subscription Rights to subscribe for shares of Holding Company
Conversion Stock remaining after satisfying the subscriptions
provided for under Category Nos. 1 through 3 above, subject to
the following conditions:
a. Each Other Member shall be entitled to subscribe for an
amount of shares equal to the greater of $200,000, or
one-tenth of one percent (.10%) of the total offering of
shares of common stock in the Conversion, to the extent that
Holding Company Conversion Stock is available.
b. In the event of an oversubscription for shares under the
provisions of this subparagraph, the shares available shall
be allocated among the subscribing Other Members pro rata in
the same proportion that his number of votes on the Voting
Record Date bears to the total number of votes on the Voting
Record Date of all subscribing Other Members on such date.
Such number of votes shall be determined based on the Bank's
mutual charter and bylaws in effect on the date of approval
by members of this Plan of Conversion.
5. Preference Category No. 5: Directors, Officers and Employees
Each director, Officer and employee of the Bank as of the
date of the commencement of the Subscription Offering shall be
entitled to receive non-transferable Subscription Rights to
purchase shares of the Holding Company Conversion Stock to the
extent that shares are available after satisfying subscriptions
under Category Nos. 1 through 4 above. The shares which may be
purchased under this Category are subject to the following
conditions:
a. The total number of shares which may be purchased under this
Category may not exceed 23% of the number of shares of
Holding Company Conversion Stock.
b. The maximum amount of shares which may be purchased under
this Category by any Person is $200,000 of Holding Company
Conversion Stock. In the event of an oversubscription for
shares under the provisions of this subparagraph, the shares
available shall be allocated pro rata among all subscribers
in this Category.
9
<PAGE>
C. Public Offering and Direct Community Offering
1. Any shares of Holding Company Conversion Stock not subscribed for
in the Subscription Offering may be offered for sale in a Direct
Community Offering. This will involve an offering of all
unsubscribed shares directly to the general public with a
preference to those natural persons residing in the Local
Community. The Direct Community Offering, if any, shall be for a
period of not less than 20 days nor more than 45 days unless
extended by the Holding Company and the Bank, and shall commence
concurrently with, during or promptly after the Subscription
Offering. The purchase price per share to the general public in a
Direct Community Offering shall be the same as the Actual
Subscription Price. The Holding Company and the Bank may use an
investment banking firm or firms on a best efforts basis to sell
the unsubscribed shares in the Subscription and Direct Community
Offering. The Holding Company and the Bank may pay a commission
or other fee to such investment banking firm or firms as to the
shares sold by such firm or firms in the Subscription and Direct
Community Offering and may also reimburse such firm or firms for
expenses incurred in connection with the sale. The Holding
Company Conversion Stock will be offered and sold in the Direct
Community Offering, in accordance with OTS regulations, so as to
achieve the widest distribution of the Holding Company Conversion
Stock. No person, by himself or herself, or with an Associate or
group of Persons acting in concert, may subscribe for or purchase
more than $200,000 of Holding Company Conversion Stock in the
Direct Community Offering.
In the event of an oversubscription for shares in the Direct
Community Offering, shares may be allocated (to the extent shares
remain available) first to cover orders of natural persons
residing in the Local Community, then to cover the orders of any
other person subscribing for shares in the Direct Community
Offering so that each such person may receive 1,000 shares, and
thereafter, on a pro rata basis to such persons based on the
amount of their respective subscriptions.
The Bank and the Holding Company, in their sole discretion, may
reject subscriptions, in whole or in part, received from any
Person under this Section V.C. Further, the Bank and the Holding
Company may, at their sole discretion, elect to forego a Direct
Community Offering and instead effect a Public Offering as
described below.
2. Any shares of Holding Company Conversion Stock not sold in the
Subscription Offering and the Direct Community Offering, if any,
may be sold to selected members of the general public in the
Public Offering. The Public Offering shall be completed within 45
days after the termination of the Subscription Offering, unless
such period is extended as provided in Section IV hereof. The
Holding Company and the Bank may, in their sole
10
<PAGE>
discretion, reject any subscription, in whole or in part,
received in the Public Offering. No person, by himself or
herself, or with an Associate or group of persons acting in
concert, may purchase more than $200,000 of shares in the Public
Offering and/or Direct Community Offering.
3. If for any reason a Public Offering of unsubscribed shares of
Holding Company Conversion Stock cannot be effected and any
shares remain unsold after the Subscription Offering and the
Direct Community Offering, if any, the Boards of Directors of the
Holding Company and the Bank will seek to make other arrangements
for the sale of the remaining shares. Such other arrangements
will be subject to the approval of the OTS and to compliance with
applicable securities laws.
D. Additional Limitations Upon Purchases of Shares of Holding Company
Conversion Stock
The following additional limitations shall be imposed on all
purchases of Holding Company Conversion Stock in the Conversion:
1. No Person, by himself or herself, or with an Associate or group
of Persons acting in concert, may subscribe for or purchase in
the Conversion a number of shares of Holding Company Conversion
Stock which exceeds an amount of shares equal to $800,000. For
purposes of this paragraph, an Associate of a Person does not
include a Tax-Qualified or Non-Tax Qualified Employee Plan in
which the person has a substantial beneficial interest or serves
as a trustee or in a similar fiduciary capacity. Moreover, for
purposes of this paragraph, shares held by one or more
Tax-Qualified or Non-Tax Qualified Employee Plans attributed to a
Person shall not be aggregated with shares purchased directly by
or otherwise attributable to that Person.
2. Directors and Officers and their Associates may not purchase in
all categories in the Conversion an aggregate of more than 33% of
the Holding Company Conversion Stock. For purposes of this
paragraph, an Associate of a Person does not include any
Tax-Qualified Employee Plan. Moreover, any shares attributable to
the Officers and directors and their Associates, but held by one
or more Tax-Qualified Employee Plans shall not be included in
calculating the number of shares which may be purchased under the
limitation in this paragraph.
3. The minimum number of shares of Holding Company Conversion Stock
that may be purchased by any Person in the Conversion is 25
shares, provided sufficient shares are available.
4. The Boards of Directors of the Holding Company and the Bank may,
in their sole discretion, increase the maximum purchase
limitation referred to in
11
<PAGE>
subparagraph 1. herein up to 9.99%, provided that orders for
shares exceeding 5% of the shares being offered in the Conversion
shall not exceed, in the aggregate, 10% of the shares being
offered in the Conversion. Requests to purchase additional shares
of Holding Company Conversion Stock under this provision will be
allocated by the Boards of Directors on a pro rata basis giving
priority in accordance with the priority rights set forth in this
Section V.
Depending upon market and financial conditions, the Boards of Directors
of the Holding Company and the Bank, with the approval of the OTS and without
further approval of the Members, may increase or decrease any of the above
purchase limitations.
For purposes of this Section V, the directors of the Holding Company
and the Bank shall not be deemed to be Associates or a group acting in concert
solely as a result of their serving in such capacities.
Each Person purchasing Conversion Stock in the Conversion shall be
deemed to confirm that such purchase does not conflict with the above purchase
limitations.
E. Restrictions and Other Characteristics of Holding Company Conversion
Stock Being Sold
1. Transferability. Holding Company Conversion Stock purchased by
Persons other than directors and Officers of the Holding Company
or the Bank will be transferable without restriction. Shares
purchased by directors or Officers shall not be sold or otherwise
disposed of for value for a period of one year from the date of
Conversion, except for any disposition of such shares (i)
following the death of the original purchaser, or (ii) resulting
from an exchange of securities in a merger or acquisition
approved by the applicable regulatory authorities. Any transfers
that could result in a change of control of the Bank or the
Holding Company or result in the ownership by any Person or group
acting in concert of more than 10% of any class of the Bank's or
the Holding Company's equity securities are subject to the prior
approval of the OTS.
The certificates representing shares of Holding Company
Conversion Stock issued to directors and Officers shall bear a
legend giving appropriate notice of the one-year holding period
restriction. Appropriate instructions shall be given to the
transfer agent for such stock with respect to the applicable
restrictions relating to the transfer of restricted stock. Any
shares of common stock of the Holding Company subsequently issued
as a stock dividend, stock split, or otherwise, with respect to
any such restricted stock, shall be subject to the same holding
period restrictions for Holding Company or Bank directors and
Officers as may be then applicable to such restricted stock.
12
<PAGE>
No director or Officer of the Holding Company or of the Bank, or
Associate of such a director or Officer, shall purchase any
outstanding shares of capital stock of the Holding Company for a
period of three years following the Conversion without the prior
written approval of the OTS, except through a broker or dealer
registered with the SEC or in a "negotiated transaction"
involving more than one percent of the then-outstanding shares of
common stock of the Holding Company. As used herein, the term
"negotiated transaction" means a transaction in which the
securities are offered and the terms and arrangements relating to
any sale are arrived at through direct communications between the
seller or any Person acting on its behalf and the purchaser or
his investment representative. The term "investment
representative" shall mean a professional investment advisor
acting as agent for the purchaser and independent of the seller
and not acting on behalf of the seller in connection with the
transaction.
2. Repurchase and Dividend Rights. Except as permitted by applicable
regulations, for a period of three years following Conversion,
the Converted Bank shall not repurchase any shares of its capital
stock, except in the case of an offer to repurchase on a pro rata
basis made to all holders of capital stock of the Converted Bank.
A repurchase of qualifying shares of a director shall not be
deemed to be a repurchase for purposes of this Section V.E.2.
Present regulations also provide that the Converted Bank may not
declare or pay a cash dividend on or repurchase any of its stock
(i) if the result thereof would be to reduce the regulatory
capital of the Converted Bank below the amount required for the
liquidation account to be established pursuant to Section XIII
hereof, and (ii) except in compliance with requirements of
Section 563.134 of the Rules and Regulations of the OTS.
The above limitations are subject to Section 563b.3 (g)(3) of the
Rules and Regulations of the OTS, which generally provides that
the Converted Bank may repurchase its capital stock provided (i)
no repurchases occur within one year following conversion, (ii)
repurchases during the second and third year after conversion are
part of an open market stock repurchase program that does not
allow for a repurchase of more than 5% of the Bank's outstanding
capital stock during a twelve-month period without OTS approval,
(iii) the repurchases do not cause the Bank to become
undercapitalized, and (iv) the Bank provides notice to the OTS at
least 10 days prior to the commencement of a repurchase program
and the OTS does not object. In addition, the above limitations
shall not preclude payments of dividends or repurchases of
capital stock by the Converted Bank in the event applicable
federal regulatory limitations are liberalized or waived by the
OTS subsequent to OTS approval of the Plan.
13
<PAGE>
3. Voting Rights. After Conversion, holders of deposit accounts will
not have voting rights in the Bank or the Holding Company.
Exclusive voting rights as to the Bank will be vested in the
Holding Company, as the sole stockholder of the Bank. Voting
rights as to the Holding Company will be held exclusively by its
stockholders.
F. Exercise of Subscription Rights; Order Forms
1. If the Subscription Offering occurs concurrently with the
solicitation of proxies for the Special Meeting, the subscription
prospectus and Order Form may be sent to each Eligible Account
Holder, Tax-Qualified Employee Plan, Supplemental Eligible
Account Holder, Other Member, and director, Officer and employee
at their last known address as shown on the records of the Bank.
However, the Bank may, and if the Subscription Offering commences
after the Special Meeting the Bank shall, furnish a subscription
prospectus and Order Form only to Eligible Account Holders,
Tax-Qualified Employee Plans, Supplemental Eligible Account
Holders, Other Members, and directors, Officers and employees who
have returned to the Bank by a specified date prior to the
commencement of the Subscription Offering a post card or other
written communication requesting a subscription prospectus and
Order Form. In such event, the Bank shall provide a postage-paid
post card for this purpose and make appropriate disclosure in its
proxy statement for the solicitation of proxies to be voted at
the Special Meeting and/or letter sent in lieu of the proxy
statement to those Eligible Account Holders, Tax- Qualified
Employee Plans or Supplemental Eligible Account Holders who are
not Members on the Voting Record Date.
2. Each Order Form will be preceded or accompanied by a subscription
prospectus describing the Holding Company and the Converted Bank
and the shares of Holding Company Conversion Stock being offered
for subscription and containing all other information required by
the OTS or the SEC or necessary to enable Persons to make
informed investment decisions regarding the purchase of Holding
Company Conversion Stock.
3. The Order Forms (or accompanying instructions) used for the
Subscription Offering will contain, among other things, the
following:
(i) A clear and intelligible explanation of the Subscription
Rights granted under the Plan to Eligible Account Holders,
Tax- Qualified Employee Plans, Supplemental Eligible Account
Holders, Other Members, and directors, Officers and
employees;
(ii) A specified expiration date by which Order Forms must be
returned to and actually received by the Bank or its
representative for purposes of exercising Subscription
Rights, which date will be not less than 20 days after the
Order Forms are mailed by the Bank;
14
<PAGE>
(iii)The Maximum Subscription Price to be paid for each share
subscribed for when the Order Form is returned;
(iv) A statement that 25 shares is the minimum number of shares
of Holding Company Conversion Stock that may be subscribed
for under the Plan;
(v) A specifically designated blank space for indicating the
number of shares being subscribed for;
(vi) A set of detailed instructions as to how to complete the
Order Form including a statement as to the available
alternative methods of payment for the shares being
subscribed for;
(vii)Specifically designated blank spaces for dating and signing
the Order Form;
(viii) An acknowledgment that the subscriber has received the
subscription prospectus;
(ix) A statement of the consequences of failing to properly
complete and return the Order Form, including a statement
that the Subscription Rights will expire on the expiration
date specified on the Order Form unless such expiration date
is extended by the Holding Company and the Bank, and that
the Subscription Rights may be exercised only by delivering
the Order Form, properly completed and executed, to the Bank
or its representative by the expiration date, together with
required payment of the Maximum Subscription Price for all
shares of Holding Company Conversion Stock subscribed for;
(x) A statement that the Subscription Rights are
non-transferable and that all shares of Holding Company
Conversion Stock subscribed for upon exercise of
Subscription Rights must be purchased on behalf of the
Person exercising the Subscription Rights for his own
account; and
(xi) A statement that, after receipt by the Bank or its
representative, a subscription may not be modified,
withdrawn or canceled without the consent of the Bank.
15
<PAGE>
G. Method of Payment
Payment for all shares of Holding Company Conversion Stock
subscribed for, computed on the basis of the Maximum Subscription
Price, must accompany all completed Order Forms. Payment may be made
in cash (if presented in Person), by check, or, if the subscriber has
a Deposit Account in the Bank (including a certificate of deposit),
the subscriber may authorize the Bank to charge the subscriber's
account.
If a subscriber authorizes the Bank to charge his or her account,
the funds will continue to earn interest, but may not be used by the
subscriber until all Holding Company Conversion Stock has been sold or
the Plan of Conversion is terminated, whichever is earlier. The Bank
will allow subscribers to purchase shares by withdrawing funds from
certificate accounts without the assessment of early withdrawal
penalties with the exception of prepaid interest in the form of
promotional gifts. In the case of early withdrawal of only a portion
of such account, the certificate evidencing such account shall be
canceled if the remaining balance of the account is less than the
applicable minimum balance requirement, in which event the remaining
balance will earn interest at the passbook rate. This waiver of the
early withdrawal penalty is applicable only to withdrawals made in
connection with the purchase of Holding Company Conversion Stock under
the Plan of Conversion. Interest will also be paid, at not less than
the then-current passbook rate, on all orders paid in cash, by check
or money order, from the date payment is received until consummation
of the Conversion. Payments made in cash, by check or money order will
be placed by the Bank in an escrow or other account established
specifically for this purpose.
In the event of an unfilled amount of any subscription order, the
Converted Bank will make an appropriate refund or cancel an
appropriate portion of the related withdrawal authorization, after
consummation of the Conversion, including any difference between the
Maximum Subscription Price and the Actual Subscription Price (unless
subscribers are afforded the right to apply such difference to the
purchase of additional whole shares). If for any reason the Conversion
is not consummated, purchasers will have refunded to them all payments
made and all withdrawal authorizations will be canceled in the case of
subscription payments authorized from accounts at the Bank.
If any Tax-Qualified Employee Plans or Non-Tax-Qualified Employee
Plans subscribe for shares during the Subscription Offering, such
plans will not be required to pay for the shares subscribed for at the
time they subscribe, but may pay for such shares of Holding Company
Conversion Stock subscribed for upon consummation of the Conversion.
In the event that, after the completion of the Subscription Offering,
the amount of shares to be issued is increased above the maximum of
the appraisal range included in the Prospectus, the Tax Qualified and
Non-Tax Qualified Employee Plans shall be entitled to increase their
subscriptions by a percentage equal to the percentage increase in the
amount of shares to be issued above the maximum of the appraisal range
provided that such subscriptions shall continue to be subject to
applicable purchase limits and stock allocation procedures.
16
<PAGE>
H. Undelivered, Defective or Late Order Forms; Insufficient Payment
The Boards of Directors of the Holding Company and the Bank shall
have the absolute right, in their sole discretion, to reject any Order
Form, including but not limited to, any Order Forms which (i) are not
delivered or are returned by the United States Postal Service (or the
addressee cannot be located); (ii) are not received back by the Bank
or its representative, or are received after the termination date
specified thereon; (iii) are defectively completed or executed; (iv)
are not accompanied by the total required payment for the shares of
Holding Company Conversion Stock subscribed for (including cases in
which the subscribers' Deposit Accounts or certificate accounts are
insufficient to cover the authorized withdrawal for the required
payment); or (v) are submitted by or on behalf of a Person whose
representations the Boards of Directors of the Holding Company and the
Bank 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 this Plan. In such event, the Subscription Rights of
the Person to whom such rights have been granted will not be honored
and will be treated as though such Person failed to return the
completed Order Form within the time period specified therein. The
Bank may, but will not be required to, waive any irregularity relating
to any Order Form or require submission of corrected Order Forms or
the remittance of full payment for subscribed shares by such date as
the Bank may specify. The interpretation of the Holding Company and
the Bank of the terms and conditions of this Plan and of the proper
completion of the Order Form will be final, subject to the authority
of the OTS.
I. Member in Non-Qualified States or in Foreign Countries
The Holding Company and the Bank will make reasonable efforts to
comply with the securities laws of all states in the United States in
which Persons entitled to subscribe for Holding Company Conversion
Stock pursuant to the Plan reside. However, no shares will be offered
or sold under the Plan of Conversion to any such Person who (1)
resides in a foreign country or (2) resides in a state of the United
States in which a small number of Persons otherwise eligible to
subscribe for shares under the Plan of Conversion reside or as to
which the Holding Company and the Bank determine that compliance with
the securities laws of such state would be impracticable for reasons
of cost or otherwise, including, but not limited to, a requirement
that the Holding Company or the Bank or any of their officers,
directors or employees register, under the securities laws of such
state, as a broker, dealer, salesman or agent. No payments will be
made in lieu of the granting of Subscription Rights to any such
Person.
VI. FEDERAL STOCK CHARTER AND BYLAWS
A. As part of the Conversion, the Bank will take all appropriate steps to
amend its charter to read in the form of federal stock savings
institution charter as prescribed by the OTS. The name of the Bank, as
converted, will not change. A copy of the proposed stock charter is
available upon request. By their approval of the Plan, the Members of
the Bank will thereby approve and adopt such charter.
17
<PAGE>
B. The Bank will also take appropriate steps to amend its bylaws to read
in the form prescribed by the OTS for a federal stock savings
institution. A copy of the proposed federal stock bylaws is available
upon request.
C. The effective date of the adoption of the Bank's federal stock charter
and bylaws shall be the date of the issuance and sale of the Holding
Company Conversion Stock as specified by the OTS.
VII. HOLDING COMPANY CERTIFICATE OF INCORPORATION
A copy of the proposed certificate of incorporation of the Holding
Company will be made available from the Bank upon request.
VIII. DIRECTORS OF THE CONVERTED BANK
Each Person serving as a member of the Board of Directors of the Bank
at the time of the Conversion will thereupon become a director of the Converted
Bank.
IX. STOCK OPTION AND INCENTIVE PLAN AND RECOGNITION AND RETENTION PLAN
In order to provide an incentive for directors, Officers and employees
of the Holding Company and its subsidiaries (including the Bank), the Board of
Directors of the Holding Company intends to adopt, subject to shareholder
approval, a stock option and incentive plan and a recognition and retention plan
as soon as permitted by applicable regulation.
X. CONTRIBUTIONS TO TAX-QUALIFIED EMPLOYEE PLANS
The Converted Bank and the Holding Company may in their discretion make
scheduled contributions to any Tax-Qualified Employee Plans, provided that any
such contributions which are for the acquisition of Holding Company Conversion
Stock, or the repayment of debt incurred for such an acquisition, do not cause
the Converted Bank to fail to meet its regulatory capital requirements.
XI. SECURITIES REGISTRATION AND MARKET MAKING
Promptly following the Conversion, the Holding Company will register
its stock with the SEC pursuant to the Exchange Act. In connection with the
registration, the Holding Company will
18
<PAGE>
undertake not to deregister such stock, without the approval of the OTS, for a
period of three years thereafter.
The Holding Company shall use its best efforts to encourage and assist
two or more market makers to establish and maintain a market for its common
stock promptly following Conversion. The Holding Company will also use its best
efforts to cause its common stock to be quoted on the National Association of
Securities Dealers, Inc. Automated Quotations System or to be listed on a
national or regional securities exchange.
XII. STATUS OF SAVINGS ACCOUNTS AND LOANS SUBSEQUENT TO CONVERSION
Each Deposit Account holder shall retain, without payment, a
withdrawable Deposit Account or Accounts in the Converted Bank, equal in amount
to the withdrawable value of such account holder's Deposit Account or Accounts
prior to Conversion. All Deposit Accounts will continue to be insured by the
SAIF up to the applicable limits of insurance coverage, and shall be subject to
the same terms and conditions (except as to voting and liquidation rights) as
such Deposit Account in the Bank at the time of the Conversion. All loans shall
retain the same status after Conversion as these loans had prior to Conversion.
XIII. LIQUIDATION ACCOUNT
For purposes of granting to Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain Deposit Accounts at the
Converted Bank a priority in the event of a complete liquidation of the
Converted Bank, the Converted Bank will, at the time of Conversion, establish a
liquidation account in an amount equal to the net worth of the Bank as shown on
its latest statement of financial condition contained in the final offering
circular used in connection with the Conversion. The creation and maintenance of
the liquidation account will not operate to restrict the use or application of
any of the regulatory capital accounts of the Converted Bank; provided, however,
that such regulatory capital accounts will not be voluntarily reduced below the
required dollar amount of the liquidation account. Each Eligible Account Holder
and Supplemental Eligible Account Holder shall, with respect to the Deposit
Account held, have a related inchoate interest in a portion of the liquidation
account balance ("subaccount balance").
The initial subaccount balance of a Deposit Account held by an Eligible
Account Holder and/or Supplemental Eligible Account Holder 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 Deposit in the Deposit
Account on the Eligibility Record Date and/or the Supplemental Eligibility
Record Date and the denominator is the total amount of the Qualifying Deposits
of all Eligible Account Holders and Supplemental Eligible Account Holders on
such record dates in the Bank. For Deposit Accounts in existence at both dates,
separate subaccounts shall be determined on the basis of the Qualifying Deposits
in such Deposit Accounts on such record dates. Such initial subaccount balance
shall not be increased, and it shall be subject to downward adjustment as
provided below.
19
<PAGE>
If the deposit balance in any Deposit Account of an Eligible Account
Holder or Supplemental Eligible Account Holder at the close of business on any
annual closing date subsequent to the record date is less than the lesser of (i)
the deposit balance in such Deposit Account at the close of business on any
other annual closing date subsequent to the Eligibility Record Date or the
Supplemental Eligibility Record Date or (ii) the amount of the Qualifying
Deposit in such Deposit Account on the Eligibility Record Date or Supplemental
Eligibility Record Date, the subaccount balance shall be reduced in an amount
proportionate to the reduction in such deposit balance. In the event of a
downward adjustment, the subaccount balance shall not be subsequently increased,
notwithstanding any increase in the deposit balance of the related Deposit
Account. If all funds in such Deposit Account are withdrawn, the related
subaccount balance shall be reduced to zero.
In the event of a complete liquidation of the Bank (and only in such
event), each Eligible Account Holder and Supplemental Eligible Account Holder
shall be entitled to receive a liquidation distribution from the liquidation
account in the amount of the then-current adjusted subaccount balances for
Deposit Accounts then held before any liquidation distribution may be made to
stockholders. No merger, consolidation, bulk purchase of assets with assumptions
of Deposit Accounts and other liabilities, or similar transactions with another
institution the accounts of which are insured by the SAIF, shall be considered
to be a complete liquidation. In such transactions, the liquidation account
shall be assumed by the surviving institution.
XIV. RESTRICTIONS ON ACQUISITION OF CONVERTED BANK
Regulations of the OTS limit acquisitions, and offers to acquire,
direct or indirect beneficial ownership of more than 10% of any class of an
equity security of the Converted Bank or the Holding Company. In addition,
consistent with the regulations of the OTS, the charter of the Converted Bank
shall provide that for a period of five years following completion of the
Conversion: (i) no Person (i.e., no individual, group acting in concert,
corporation, partnership, association, joint stock company, trust, or
unincorporated organization or similar company, syndicate, or any other group
formed for the purpose of acquiring, holding or disposing of securities of an
insured institution) shall directly or indirectly offer to acquire or acquire
beneficial ownership of more than 10% of any class of the Bank's equity
securities. Shares beneficially owned in violation of this charter provision
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
the shareholders for a vote. This limitation shall not apply to any offer to
acquire or acquisition of beneficial ownership of more than 10% of the common
stock of the Bank by a corporation whose ownership is or will be substantially
the same as the ownership of the Bank, provided that the offer or acquisition is
made more than one year following the date of completion of the Conversion; (ii)
shareholders shall not be permitted to cumulate their votes for elections of
directors; and (iii) special meetings of the shareholders relating to changes in
control or amendment of the charter may only be called by the Board of
Directors.
XV. AMENDMENT OR TERMINATION OF PLAN
If necessary or desirable, the Plan may be amended at any time prior to
submission of the Plan and proxy materials to the Members by a two-thirds vote
of the respective Boards of Directors of the Holding Company and the Bank. After
submission of the Plan and proxy materials to the
20
<PAGE>
Members, the Plan may be amended by a two-thirds vote of the respective Boards
of Directors of the Holding Company and the Bank only with the concurrence of
the OTS. In the event that the Bank determines that for tax purposes or
otherwise it is in the best interest of the Bank to convert from a federal
mutual to a federal stock institution without the concurrent formation of a
holding company, the Plan may be substantively amended, with OTS approval, in
such respects as the Board of Directors of the Bank deems appropriate to reflect
such change from a holding company conversion to a direct conversion. In the
event the Plan is so amended, common stock of the Bank will be substituted for
Holding Company Conversion Stock in the Subscription and Direct Community and/or
Public Offerings, if any, and subscribers will be resolicited as described in
Section V hereof. Any amendments to the Plan (including amendments to reflect
the elimination of the concurrent holding company formation) made after approval
by the Members with the concurrence of the OTS shall not necessitate further
approval by the Members unless otherwise required.
The Plan may be terminated by a two-thirds vote of the Bank's Board of
Directors at any time prior to the Special Meeting of Members, and at any time
following such Special Meeting with the concurrence of the OTS. In its
discretion, the Board of Directors of the Bank may modify or terminate the Plan
upon the order or with the approval of the OTS and without further approval by
Members. The Plan shall terminate if the sale of all shares of Conversion Stock
is not completed within 24 months of the date of the Special Meeting. A specific
resolution approved by a majority of the Board of Directors of the Bank is
required in order for the Bank to terminate the Plan prior to the end of such
24-month period.
XVI. EXPENSES OF THE CONVERSION
The Holding Company and the Bank shall use their best efforts to assure
that expenses incurred by them in connection with the Conversion shall be
reasonable.
XVII. TAX RULING
Consummation of the Conversion is expressly conditioned upon prior
receipt of either a ruling of the United States Internal Revenue Service or an
opinion of tax counsel or other tax advisor with respect to federal taxation,
and either a ruling of the Illinois taxation authorities or an opinion of tax
counsel or other tax advisor with respect to Illinois taxation, to the effect
that consummation of the transactions contemplated herein will not be taxable to
the Holding Company or the Bank.
XVIII. EXTENSION OF CREDIT FOR PURCHASE OF STOCK
The Bank may not knowingly loan funds or otherwise extend credit to any
Person to purchase in the Conversion shares of Holding Company Conversion Stock.
21
CERTIFICATE OF INCORPORATION
OF
BEN FRANKLIN FINANCIAL, INC.
FIRST: The name of the Corporation is Ben Franklin Financial, Inc.
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of Delaware.
FOURTH:
A. The total number of shares of all classes of stock which the
Corporation shall have the authority to issue is two million six hundred
thousand (2,600,000) consisting of:
1. one hundred thousand (100,000) shares of preferred stock, par
value one cent ($.01) per share (the "Preferred Stock"); and
2. two million five hundred thousand (2,500,000) shares of common
stock, par value one cent ($.01) per share (the "Common Stock").
B. The Board of Directors is hereby expressly authorized, subject to
any limitations prescribed by law, to provide for the issuance of the shares of
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of Delaware (such certificate being hereinafter
referred to as a "Preferred Stock Designation"), to establish from time to time
the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and any qualifications, limitations or restrictions thereof. The number of
authorized shares of the Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote of
the holders of a majority of the Common Stock, without a vote of the holders of
the Preferred Stock, or of any series thereof, unless a vote of any such holders
is required pursuant to the terms of any Preferred Stock Designation.
C. 1. Notwithstanding any other provision of this Certificate of
Incorporation, in no event shall any record owner of any outstanding Common
Stock which is beneficially owned, directly or indirectly, by a person who, as
of any record date for the determination of stockholders entitled to vote 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
1
<PAGE>
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 beneficially owned by such person and owned of record by such record
owner and the denominator of which is the total number of shares of Common Stock
beneficially owned by such person owning shares in excess of the Limit.
2. The following definitions shall apply to this Section C of
this Article FOURTH:
(a) An "affiliate" of a specified person shall mean a person
that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with,
the person specified.
(b) "Beneficial ownership" 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 statutory provision
thereto, pursuant to said Rule 13d-3 as in effect on March 1,
1998; provided, however, that a person shall, in any event, also
be deemed the "beneficial owner" of any Common Stock:
(1) which such person or any of its affiliates
beneficially owns, directly or indirectly; or
(2) which such person or any of its affiliates has (i)
the right to acquire (whether such right is exercisable
immediately or only after the passage of time), pursuant to
any agreement, arrangement or understanding (but shall not
be deemed to be the beneficial owner of any voting shares
solely by reason of an agreement, contract, or other
arrangement with this Corporation to effect any transaction
which is described in any one or more of the clauses of
Section A of Article EIGHTH) or upon the exercise of
conversion rights, exchange rights, warrants, or options or
otherwise, or (ii) sole or shared voting or investment power
with respect thereto pursuant to any agreement, arrangement,
understanding, relationship or otherwise (but shall not be
deemed to be the beneficial owner of any voting shares
solely by reason of a revocable proxy granted for a
particular meeting of stockholders, pursuant to a public
solicitation of proxies for such meeting, with respect to
shares of which neither such person nor any such affiliate
is otherwise deemed the beneficial owner); or
(3) which are beneficially owned, directly or
indirectly, by any other person with which such first
mentioned person or any of its affiliates acts as a
partnership, limited partnership, syndicate or other group
pursuant to any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of
any shares of capital stock of this Corporation;
2
<PAGE>
and provided further, however, that (1) no director or
officer of this Corporation (or any affiliate of any such
director or officer) shall, solely by reason of any or all
of such directors or officers acting in their capacities as
such, be deemed, for any purposes hereof, to beneficially
own any Common Stock beneficially owned by any other such
director or officer (or any affiliate thereof), and (2)
neither any employee stock ownership or similar plan of this
Corporation or any subsidiary of this Corporation nor any
trustee with respect thereto (or any affiliate of such
trustee) shall, solely by reason of such capacity of such
trustee, 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 Corporation
pursuant to any agreement, or upon exercise of conversion
rights, warrants or options, or otherwise. For all other
purposes, the outstanding Common Stock shall include only
Common Stock then outstanding and shall not include any
Common Stock which may be issuable by this Corporation
pursuant to any agreement, or upon the exercise of
conversion rights, warrants or options, or otherwise.
(c) A "person" shall mean any individual, firm, corporation,
or other entity.
(d) The Board of Directors shall have the power to construe
and apply the provisions of this section and to make all
determinations necessary or desirable to implement such
provisions, including but not limited to matters with respect to
(1) the number of shares of Common Stock beneficially owned by
any person, (2) whether a person is an affiliate of another, (3)
whether a person has an agreement, arrangement, or understanding
with another as to the matters referred to in the definition of
beneficial ownership, (4) the application of any other definition
or operative provision of this Section to the given facts, or (5)
any other matter relating to the applicability or effect of this
Section.
3. The Board of Directors shall have the right to demand that any
person who is reasonably believed to beneficially own Common Stock in
excess of the Limit (or holds of record Common Stock beneficially
owned by any person in excess of the Limit) (a "Holder in Excess")
supply the Corporation with complete information as to (a) the record
owner(s) of all shares beneficially owned by such Holder in Excess,
and (b) any other factual matter relating to the applicability or
effect of this section as may reasonably be requested of such Holder
in Excess. The Board of Directors shall further have the right to
receive from any Holder in Excess reimbursement for all expenses
incurred by the Board in connection with its investigation of any
matters relating to the applicability or effect of this section on
such Holder in Excess, to the extent such investigation is deemed
appropriate by the Board of Directors as a result of the Holder in
Excess refusing to supply the Corporation with the information
described in the previous sentence.
3
<PAGE>
4. Except as otherwise provided by law or expressly provided in
this Section C, the presence, in person or by proxy, of the holders of
record of shares of capital stock of the Corporation entitling the
holders thereof to cast one-third of the votes (after giving effect,
if required, to the provisions of this Section) entitled to be cast by
the holders of shares of capital stock of the Corporation entitled to
vote shall constitute a quorum at all meetings of the stockholders,
and every reference in this Certificate of Incorporation to a majority
or other proportion of capital stock (or the holders thereof) for
purposes of determining any quorum requirement or any requirement for
stockholder consent or approval shall be deemed to refer to such
majority or other proportion of the votes (or the holders thereof)
then entitled to be cast in respect of such capital stock.
5. Any constructions, applications, or determinations made by the
Board of Directors, pursuant to this Section in good faith and on the
basis of such information and assistance as was then reasonably
available for such purpose, shall be conclusive and binding upon the
Corporation and its stockholders.
6. In the event any provision (or portion thereof) of this
Section C shall be found to be invalid, prohibited or unenforceable
for any reason, the remaining provisions (or portions thereof) of this
Section shall remain in full force and effect, and shall be construed
as if such invalid, prohibited or unenforceable provision had been
stricken herefrom or otherwise rendered inapplicable, it being the
intent of this Corporation and its stockholders that each such
remaining provision (or portion thereof) of this Section C remain, to
the fullest extent permitted by law, applicable and enforceable as to
all stockholders, including stockholders owning an amount of stock
over the Limit, notwithstanding any such finding.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers
and authority expressly conferred upon them by Statute or by this
Certificate of Incorporation or the By-laws of the Corporation, the
directors are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation.
B. The directors of the Corporation need not be elected by written
ballot unless the By-laws so provide.
C. Subject to the rights of holders of any class or series of
Preferred Stock, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of stockholders of the Corporation and may not be effected
by any consent in writing by such stockholders.
D. Subject to the rights of holders of any class or series of
Preferred Stock, special meetings of stockholders of the Corporation may be
called only by the Board of Directors
4
<PAGE>
pursuant to a resolution adopted by a majority of the total number of
directors which the Corporation would have if there were no vacancies on
the Board of Directors (the "Whole Board").
E. Stockholders shall not be permitted to cumulate their votes for the
election of directors.
SIXTH:
A. The number of directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board. The directors, other than those who may be
elected by the holders of any class or series of Preferred Stock, shall be
divided into three classes, as nearly equal in number as reasonably
possible, with the term of office of the first class to expire at the
conclusion of the first annual meeting of stockholders, the term of office
of the second class to expire at the conclusion of the annual meeting of
stockholders one year thereafter and the term of office of the third class
to expire at the conclusion of the annual meeting of stockholders two years
thereafter, with each director to hold office until his or her successor
shall have been duly elected and qualified. At each annual meeting of
stockholders following such initial classification and election, directors
elected to succeed those directors whose terms expire shall be elected for
a term of office to expire at the third succeeding annual meeting of
stockholders after their election, with each director to hold office until
his or her successor shall have been duly elected and qualified.
B. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies in the
Board of Directors resulting from death, resignation, retirement,
disqualification, removal from office or other cause may be filled only by
a majority vote of the directors then in office, though less than a quorum,
and directors so chosen shall hold office for a term expiring at the annual
meeting of stockholders at which the term of office of the class to which
they have been elected expires, and until such director's successor shall
have been duly elected and qualified. No decrease in the number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director.
C. Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting
of the stockholders of the Corporation shall be given in the manner
provided in the By-laws of the Corporation.
D. Subject to the rights of the holders of any series of Preferred
Stock then outstanding, any directors, or the entire Board of Directors,
may be removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least 80% of the voting power of all
of the then-outstanding shares of capital stock of the Corporation entitled
to vote generally in the election of directors (after giving effect to the
provisions of Article FOURTH of this Certificate of Incorporation), voting
together as a single class.
5
<PAGE>
SEVENTH: The Board of Directors is expressly empowered to adopt, amend
or repeal the By-laws of the Corporation. Any adoption, amendment or repeal of
the By-laws of the Corporation by the Board of Directors shall require the
approval of a majority of the Whole Board. The stockholders shall also have
power to adopt, amend or repeal the By-laws of the Corporation. In addition to
any vote of the holders of any class or series of stock of this Corporation
required by law or by this Certificate of Incorporation, the affirmative vote of
the holders of at least 80% of the voting power of all of the then-outstanding
shares of the capital stock of the Corporation entitled to vote generally in the
election of directors (after giving effect to the provisions of Article FOURTH
hereof), voting together as a single class, shall be required to adopt, amend or
repeal any provisions of the By-laws of the Corporation.
EIGHTH:
A. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided in
this Section:
1. any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (a) any Interested
Stockholder (as hereinafter defined) or (b) any other corporation
(whether or not itself an Interested Stockholder) which is, or after
such merger or consolidation would be, an Affiliate (as hereinafter
defined) of an Interested Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to or
with any Interested Stockholder, or any Affiliate of any Interested
Stockholder, of any assets of the Corporation or any Subsidiary having
an aggregate Fair Market Value (as hereafter defined) equaling or
exceeding 25% or more of the combined assets of the Corporation and
its Subsidiaries; or
3. the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or a series of transactions) of any securities of
the Corporation or any Subsidiary to any Interested Stockholder or any
Affiliate of any Interested Stockholder in exchange for cash,
securities or other property (or a combination thereof) having an
aggregate Fair Market Value equaling or exceeding 25% of the combined
assets of the Corporation and its Subsidiaries except pursuant to an
employee benefit plan of the Corporation or any Subsidiary thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of any
Interested Stockholder or any Affiliate of any Interested Stockholder;
or
5. any reclassification of securities (including any reverse
stock split), or recapitalization of the Corporation, or any merger or
consolidation of the Corporation with any of its Subsidiaries or any
other transaction (whether or not with or into or otherwise involving
an Interested Stockholder) which has the effect, directly or
indirectly,
6
<PAGE>
of increasing the proportionate share of the outstanding shares of any
class of equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any Interested
Stockholder or any Affiliate of any Interested Stockholder (a
"Disproportionate Transaction"); provided, however, that no such
transaction shall be deemed a Disproportionate Transaction if the
increase in the proportionate ownership of the Interested Stockholder
or Affiliate as a result of such transaction is no greater than the
increase experienced by the other stockholders generally;
shall require the affirmative vote of the holders of at least 80% of the
voting power of the then-outstanding shares of stock of the Corporation
entitled to vote in the election of directors (the "Voting Stock"), voting
together as a single class. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or by any other provisions of this
Certificate of Incorporation or any Preferred Stock Designation or in any
agreement with any national securities exchange or quotation system or
otherwise.
The term "Business Combination" as used in this Article EIGHTH shall
mean any transaction which is referred to in any one or more of paragraphs
1 through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only the affirmative vote of the majority of the
outstanding shares of capital stock entitled to vote, or such vote as is
required by law or by this Certificate of Incorporation, if, in the case of
any Business Combination that does not involve any cash or other
consideration being received by the stockholders of the Corporation solely
in their capacity as stockholders of the Corporation, the condition
specified in the following paragraph 1 is met or, in the case of any other
Business Combination, either the condition specified in the following
paragraph 1 or all of the conditions specified in of the following
paragraph 2 are met:
1. The Business Combination shall have been approved by a
majority of the Disinterested Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
(a) The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business
Combination of consideration other than cash to be received per
share by the holders of Common Stock in such Business Combination
shall at least be equal to the higher of the following:
(1) (if applicable) the Highest Per Share Price,
including any brokerage commissions, transfer taxes and
soliciting dealers' fees, paid by the Interested Stockholder
or any of its Affiliates for any shares of Common Stock
acquired by it (i) within the two-year period immediately
prior to the first public announcement of the proposal of
the Business
7
<PAGE>
Combination (the "Announcement Date"), or (ii) in the
transaction in which it became an Interested Stockholder,
whichever is higher.
(2) the Fair Market Value per share of Common Stock on
the Announcement Date or on the date on which the Interested
Stockholder became an Interested Stockholder (such latter
date is referred to in this Article EIGHTH as the
"Determination Date"), whichever is higher.
(b) The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the Business
Combination of consideration other than cash to be received per
share by holders of shares of any class of outstanding Voting
Stock other than Common Stock shall be at least equal to the
highest of the following (it being intended that the requirements
of this subparagraph (b) shall be required to be met with respect
to every such class of outstanding Voting Stock, whether or not
the Interested Stockholder has previously acquired any shares of
a particular class of Voting Stock):
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage commissions,
transfer taxes and soliciting dealers' fees, paid by the
Interested Stockholder for any shares of such class of
Voting Stock acquired by it (i) within the two-year period
immediately prior to the Announcement Date, or (ii) in the
transaction in which it became an Interested Stockholder,
whichever is higher;
(2) (if applicable) the highest preferential amount per
share to which the holders of shares of such class of Voting
Stock are entitled in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the
Corporation; and
(3) the Fair Market Value per share of such class of
Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher.
(c) The consideration to be received by holders of a
particular class of outstanding Voting Stock (including Common
Stock) shall be in cash or in the same form as the Interested
Stockholder has previously paid for shares of such class of
Voting Stock. If the Interested Stockholder has paid for shares
of any class of Voting Stock with varying forms of consideration,
the form of consideration to be received per share by holders of
shares of such class of Voting Stock shall be either cash or the
form used to acquire the largest number of shares of such class
of Voting Stock previously acquired by the Interested
Stockholder. The price determined in accordance with Section B.2
of this Article EIGHTH shall
8
<PAGE>
be subject to appropriate adjustment in the event of any stock
dividend, stock split, combination of shares or similar event.
(d) After such Interested Stockholder has become an
Interested Stockholder and prior to the consummation of such
Business Combination; (i) except as approved by a majority of the
Disinterested Directors, there shall have been no failure to
declare and pay at the regular date therefor any full quarterly
dividends (whether or not cumulative) on any outstanding stock
having preference over the Common Stock as to dividends or
liquidation; (ii) there shall have been (X) no reduction in the
annual rate of dividends paid on the Common Stock (except as
necessary to reflect any subdivision of the Common Stock), except
as approved by a majority of the Disinterested Directors, and (Y)
an increase in such annual rate of dividends as necessary to
reflect any reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction which
has the effect of reducing the number of outstanding shares of
Common Stock, unless the failure to so increase such annual rate
is approved by a majority of the Disinterested Directors; and
(iii) neither such Interested Stockholder nor any of its
Affiliates shall have become the beneficial owner of any
additional shares of Voting Stock except as part of the
transaction which results in such Interested Stockholder becoming
an Interested Stockholder.
(e) After such Interested Stockholder has become an
Interested Stockholder, such Interested Stockholder shall not
have received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Corporation,
whether in anticipation of or in connection with such Business
Combination or otherwise.
(f) A proxy or information statement describing the proposed
Business Combination and complying with the requirements of the
Securities Exchange Act of 1934 and the rules and regulations
thereunder (or any subsequent provisions replacing such Act,
rules or regulations) shall be mailed to stockholders of the
Corporation at least 30 days prior to the consummation of such
Business Combination (whether or not such proxy or information
statement is required to be mailed pursuant to such Act or
subsequent provisions).
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a group acting in
concert, a corporation, a partnership, an association, a joint
venture, a pool, a joint stock company, a trust, an unincorporated
organization or similar company, a syndicate or any other group formed
for the purpose of acquiring, holding or disposing of securities.
2. "Interested Stockholder" shall mean any Person (other than the
Corporation or any holding company or Subsidiary thereof) who or
which:
9
<PAGE>
(a) is the beneficial owner, directly or indirectly, of more
than 10% of the voting power of the outstanding Voting Stock; or
(b) is an Affiliate of the Corporation and at any time
within the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly, of 10%
or more of the voting power of the then-outstanding Voting Stock;
or
(c) is an assignee of or has otherwise succeeded to any
shares of Voting Stock which were at any time within the two-year
period immediately prior to the date in question beneficially
owned by any Interested Stockholder, if such assignment or
succession shall have occurred in the course of a transaction or
series of transactions not involving a public offering within the
meaning of the Securities Act of 1933.
3. A Person shall be a "beneficial owner" of any Voting Stock:
(a) which such Person or any of its Affiliates or Associates
(as hereinafter defined) beneficially owns, directly or
indirectly within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as in effect on March 1, 1998; or
(b) which such Person or any of its Affiliates or Associates
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 or upon the exercise of
conversion rights, exchange rights, warrants or options, or
otherwise, or (ii) the right to vote pursuant to any agreement,
arrangement or understanding (but neither such Person nor any
such Affiliate or Associate shall be deemed to be the beneficial
owner of any shares of Voting Stock solely by reason of a
revocable proxy granted for a particular meeting of stockholders,
pursuant to a public solicitation of proxies for such meeting,
and with respect to which shares neither such Person nor any such
Affiliate or Associate is otherwise deemed the beneficial owner);
or
(c) which are beneficially owned, directly or indirectly
within the meaning of Rule 13d-3 under the Securities Exchange
Act of 1934, as in effect on March 1, 1998, by any other Person
with which such Person or any of its Affiliates or Associates has
any agreement, arrangement or understanding for the purposes of
acquiring, holding, voting (other than solely by reason of a
revocable proxy as described in Subparagraph (b) of this
Paragraph 3) or in disposing of any shares of Voting Stock;
provided, however, that, in the case of any employee stock ownership
or similar plan of the Corporation or of any Subsidiary in which the
beneficiaries thereof possess the right to vote any shares of Voting
Stock held by such plan, no such plan nor any trustee with
10
<PAGE>
respect thereto (nor 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 shares of Voting Stock held under any
such plan.
4. For the purpose of determining whether a Person is an
Interested Stockholder pursuant to Section C.2., the number of shares
of Voting Stock deemed to be outstanding shall include shares deemed
owned through application of this Section C.3. but shall not include
any other shares of Voting Stock which may be issuable pursuant to any
agreement, arrangement or understanding, or upon exercise of
conversion rights, warrants or options, or otherwise.
5. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in effect on
March 1, 1998
6. "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by the
Corporation; provided, however, that for the purposes of the
definition of Interested Stockholder set forth in this Section C.2.,
the term "Subsidiary" shall mean only a corporation of which a
majority of each class of equity security is owned, directly or
indirectly, by the Corporation.
7. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested Stockholder and was
a member of the Board of Directors prior to the time that the
Interested Stockholder became an Interested Stockholder, and any
director who is thereafter chosen to fill any vacancy on the Board of
Directors or who is elected and who, in either event, is unaffiliated
with the Interested Stockholder, and in connection with his or her
initial assumption of office is recommended for appointment or
election by a majority of Disinterested Directors then on the Board of
Directors.
8. "Fair Market Value" means: (a) in the case of stock, the
highest closing sales price of the stock during the 30-day period
immediately preceding the date in question of a share of such stock of
the Nasdaq System or any system then in use, or, if such stock is
admitted to trading on a principal United States securities exchange
registered under the Securities Exchange Act of 1934, Fair Market
Value shall be the highest sale price reported during the 30-day
period preceding the date in question, or, if no such quotations are
available, the Fair Market Value on the date in question of a share of
such stock as determined by the Board of Directors in good faith, in
each case with respect to any class of stock, appropriately adjusted
for any dividend or distribution in shares of such stock or in
combination or reclassification of outstanding shares of such stock
into a smaller number of shares of such stock, and (b) in the case of
property other than cash or stock, the Fair Market Value of such
property on the date in question as determined by the Board of
Directors in good faith.
11
<PAGE>
9. Reference to "Highest Per Share Price" shall in each case with
respect to any class of stock reflect an appropriate adjustment for
any dividend or distribution in shares of such stock or any stock
split or reclassification of outstanding shares of such stock into a
greater number of shares of such stock or any combination or
reclassification of outstanding shares of such stock into a smaller
number of shares of such stock.
10. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash to be
received" as used in Sections B.2.(a) and B.2.(b) of this Article
EIGHTH shall include the shares of Common Stock and/or the shares of
any other class of outstanding Voting Stock retained by the holders of
such shares.
D. A majority of the Disinterested Directors of the Corporation shall
have the power and duty to determine for the purposes of this Article
EIGHTH, on the basis of information known to them after reasonable inquiry,
(a) whether a person is an Interested Stockholder; (b) the number of shares
of Voting Stock beneficially owned by any person; (c) whether a person is
an Affiliate or Associate of another; and (d) whether the assets which are
the subject of any Business Combination have, or the consideration to be
received for the issuance or transfer of securities by the Corporation or
any Subsidiary in any Business Combination has an aggregate Fair Market
Value equaling or exceeding 25% of the combined assets of the Corporation
and its Subsidiaries. A majority of the Disinterested Directors shall have
the further power to interpret all of the terms and provisions of this
Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the Voting Stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least 80% of the voting power of all
of the then-outstanding shares of the Voting Stock, voting together as a
single class, shall be required to alter, amend or repeal this Article
EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any
offer of another Person (as defined in Article EIGHTH hereof) to (A) make a
tender or exchange offer for any equity security of the Corporation, (B) merge
or consolidate the Corporation with another corporation or entity or (C)
purchase or otherwise acquire all or substantially all of the properties and
assets of the Corporation, may, in connection with the exercise of its judgment
in determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, the social and economic effect of acceptance of such offer on the
Corporation's present and future customers and employees and those of its
Subsidiaries (as defined in Article EIGHTH hereof); on the communities in which
the Corporation and its Subsidiaries operate or are located; on the ability of
the Corporation to fulfill its corporate
12
<PAGE>
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.
TENTH:
A. Except as set forth in Section B of this Article TENTH, in addition
to any affirmative vote of stockholders required by law or this Certificate
of Incorporation, any direct or indirect purchase or other acquisition by
the Corporation of any Equity Security (as hereinafter defined) of any
class from any Interested Person (as hereinafter defined) shall require the
affirmative vote of the holders of at least 80% of the Voting Stock of the
Corporation that is not beneficially owned (for purposes of this Article
TENTH beneficial ownership shall be determined in accordance with Section
C.2(b) of Article FOURTH hereof) by such Interested Person, voting together
as a single class. Such affirmative vote shall be required notwithstanding
the fact that no vote may be required, or that a lesser percentage may be
specified, by law or by any other provisions of this Certificate of
Incorporation or any Preferred Stock Designation or in any agreement with
any national securities exchange or quotation system, or otherwise. Certain
defined terms used in this Article TENTH are as set forth in Section C
below.
B. The provisions of Section A of this Article TENTH shall not be
applicable with respect to:
1. any purchase or other acquisition of securities made as part
of a tender or exchange offer by the Corporation or a Subsidiary
(which term, as used in this Article TENTH, is as defined in the first
clause of Section C.6 of Article EIGHTH hereof) of the Corporation to
purchase securities of the same class made on the same terms to all
holders of such securities and complying with the applicable
requirements of the Securities Exchange Act of 1934 and the rules and
regulations thereunder (or any subsequent provision replacing such
Act, rules or regulations);
2. any purchase or acquisition made pursuant to an open market
purchase program approved by a majority of the Board of Directors,
including a majority of the Disinterested Directors (which term, as
used in this Article TENTH, is as defined in Article EIGHTH hereof);
or
3. any purchase or acquisition which is approved by a majority of
the Board of Directors, including a majority of the Disinterested
Directors, and which is made at no more than the Market Price (as
hereinafter defined), on the date that the understanding between the
Corporation and the Interested Person is reached with respect to such
purchase (whether or not such purchase is made or a written agreement
relating to such purchase is executed on such date), of shares of the
class of Equity Security to be purchased.
C. For the purposes of this Article TENTH:
13
<PAGE>
1. The term Interested Person shall mean any Person (other than
the Corporation, Subsidiaries of the Corporation, pension, profit
sharing, employee stock ownership or other employee benefit plans of
the Corporation and its Subsidiaries, entities organized or
established by the Corporation or any of its Subsidiaries pursuant to
the terms of such plans and trustees and fiduciaries with respect to
any such plan acting in such capacity) that is the direct or indirect
beneficial owner of 5% or more of the Voting Stock of the Corporation,
and any Affiliate or Associate of any such person.
2. The Market Price of shares of a class of Equity Security on
any day shall mean the highest sale price of shares of such class of
Equity Security on such day, or, if that day is not a trading day, on
the trading day immediately preceding such day, on the national
securities exchange or the Nasdaq System or any other system then in
use on which such class of Equity Security is traded.
3. The term Equity Security shall mean any security described in
Section 3(a)(11) of the Securities Exchange Act of 1934, as in effect
on March 1, 1998, which is traded on a national securities exchange or
the Nasdaq System or any other system then in use.
4. For purposes of this Article TENTH, all references to the term
Interested Stockholder in the definition of Disinterested Director
shall be deemed to refer to the term Interested Person.
ELEVENTH:
A. Each person who was or is made a party or is threatened to be made
a party to or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (hereinafter a
"proceeding"), by reason of the fact that he or she is or was a director or
an officer of the Corporation or is or was serving at the request of the
Corporation as a director or officer of another corporation, including,
without limitation, any Subsidiary (as defined in Article EIGHTH herein),
partnership, joint venture, trust or other enterprise, including service
with respect to an employee benefit plan (hereinafter an "indemnitee"),
whether the basis of such proceeding is alleged action in an official
capacity as a director or officer or in any other capacity while serving as
a director or officer, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General
Corporation Law, as the same exists or may hereafter be amended (but, in
the case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than such
law permitted the Corporation to provide prior to such amendment), against
all expense, liability and loss (including attorneys' fees, judgments,
fines, ERISA excise taxes or penalties and amounts paid in settlement)
reasonably incurred or suffered by such indemnitee in connection therewith;
provided, however, that, except as provided in Section C hereof with
respect to proceedings to enforce rights to indemnification, the
Corporation shall indemnify any such indemnitee in connection with a
proceeding (or part thereof) initiated by such indemnitee only if such
proceeding (or part thereof) was authorized by the Board of Directors of
the Corporation.
14
<PAGE>
B. The right to indemnification conferred in Section A of this Article
shall include the right to be paid by the Corporation the expenses incurred
in defending any such proceeding in advance of its final disposition
(hereinafter an "advancement of expenses"); provided, however, that, if the
Delaware General Corporation Law requires, an advancement of expenses
incurred by an indemnitee in his or her capacity as a director or officer
(and not in any other capacity in which service was or is rendered by such
indemnitee, including, without limitation, service to an employee benefit
plan) shall be made only upon delivery to the Corporation of an undertaking
(hereinafter an "undertaking"), by or on behalf of such indemnitee, to
repay all amounts so advanced if it shall ultimately be determined by final
judicial decision from which there is no further right to appeal
(hereinafter a "final adjudication"), that such indemnitee is not entitled
to be indemnified for such expenses under this Section or otherwise. The
rights to indemnification and to the advancement of expenses conferred in
Sections A and B of this Article shall be contract rights and such rights
shall continue as to an indemnitee who has ceased to be a director or
officer and shall inure to the benefit of the indemnitee's heirs, executors
and administrators.
C. If a claim under Section A or B of this Article is not paid in full
by the Corporation within 60 days after a written claim has been received
by the Corporation, except in the case of a claim for an advancement of
expenses, in which case the applicable period shall be 20 days, the
indemnitee may at any time thereafter bring suit against the Corporation to
recover the unpaid amount of the claim. If successful in whole or in part
in any such suit, or in a suit brought by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the
indemnitee shall also be entitled to be paid the expense of prosecuting or
defending such suit. In (1) any suit brought by the indemnitee to enforce a
right to indemnification hereunder (but not in a suit brought by the
indemnitee to enforce a right to an advancement of expenses) it shall be a
defense that, and (2) in any suit by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking the
Corporation shall be entitled to recover such expenses upon a final
adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither
the failure of the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification
of the indemnitee is proper in the circumstances because the indemnitee has
met the applicable standard of conduct set forth in the Delaware General
Corporation Law, nor an actual determination by the Corporation (including
its Board of Directors, independent legal counsel, or its stockholders)
that the indemnitee has not met such applicable standard of conduct, shall
create a presumption that the indemnitee has not met the applicable
standard of conduct or, in the case of such a suit brought by the
indemnitee, be a defense to such suit. In any suit brought by the
indemnitee to enforce a right to indemnification or to an advancement of
expenses hereunder, or by the Corporation to recover an advancement of
expenses pursuant to the terms of an undertaking, the burden of proving
that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article or otherwise shall be on the
Corporation.
D. The rights to indemnification and to the advancement of expenses
conferred in this Article shall not be exclusive of any other right which
any person may have or hereafter
15
<PAGE>
acquire under any statute, the Corporation's Certificate of Incorporation,
By-laws, agreement, vote of stockholders or Disinterested Directors or
otherwise.
E. The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by
a majority vote of the disinterested directors, grant rights to
indemnification and to the advancement of expenses to any employee or agent
of the Corporation to the fullest extent of the provisions of this Article
with respect to the indemnification and advancement of expenses of
directors and officers of the Corporation.
TWELFTH: A director of this Corporation shall not be personally liable
to the Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (A) for any breach of the
director's duty of loyalty to the Corporation or its stockholders, (B) for acts
or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (C) under Section 174 of the Delaware General
Corporation Law, or (D) for any transaction from which the director derived an
improper personal benefit. If the Delaware General Corporation Law is hereafter
amended to further eliminate or limit the personal liability of directors, then
the liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation Law, as so
amended.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification.
THIRTEENTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80% of the voting power of all of
the then-outstanding shares of the capital stock of the Corporation entitled to
vote generally in the election of directors (after giving effect to the
provisions of Article FOURTH), voting together as a single class, shall be
required to amend or repeal this Article THIRTEENTH, Sections B or C of Article
FOURTH, Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH,
Article EIGHTH, Article TENTH or Article ELEVENTH.
16
<PAGE>
FOURTEENTH: The name and mailing address of the sole incorporator are
as follows:
NAME MAILING ADDRESS
---- ---------------
Ronald P. Pedersen Ben Franklin Bank of Illinois
14 N. Dryden Place
Arlington Heights, Illinois 60004
17
<PAGE>
I, THE UNDERSIGNED, being the incorporator, for the purpose of forming
a corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation, do certify that the facts herein stated are
true, and, accordingly, have hereto set my hand this 31 day of March 1998.
/s/ Ronald P. Pedersen
Ronald P. Pedersen, Sole Incorporator
18
BEN FRANKLIN FINANCIAL CORPORATION
BY-LAWS
ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting.
An annual meeting of the stockholders, for the election of directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix.
Section 2. Special Meetings.
Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, special meetings of stockholders of the
Corporation may be called only by the Board of Directors pursuant to a
resolution adopted by a majority of the total number of directors which the
Corporation would have if there were no vacancies on the Board of Directors
(hereinafter the "Whole Board").
Section 3. Notice of Meetings.
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten nor more than 60 days before the
date on which the meeting is to be held, to each stockholder entitled to vote at
such meeting, except as otherwise provided herein or required by law (meaning,
here and hereinafter, as required from time to time by the Delaware General
Corporation Law or the Certificate of Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than 30
days after the date for which the meeting was originally noticed, or if a new
record date is fixed for the adjourned meeting, written notice of the place,
date and time of the adjourned meeting shall be given in conformity herewith. At
any adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
At any meeting of the stockholders, the holders of at least one-third
of all of the shares of the stock entitled to vote at the meeting, present in
person or by proxy, shall constitute a quorum for all purposes, unless or except
to the extent that the presence of a larger number may be required by law. Where
a separate vote by a class or classes is required, a majority of the shares
1
<PAGE>
of such class or classes, present in person or represented by proxy, shall
constitute a quorum entitled to take action with respect to that vote on that
matter.
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote who
are present, in person or by proxy, may adjourn the meeting to another place,
date or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by law,
those present at such adjourned meeting shall constitute a quorum, and all
matters shall be determined by a majority of the votes cast at such meeting.
Section 5. Organization.
Such person as the Board of Directors may have designated or, in the
absence of such a person, the President of the Corporation or, in his or her
absence, such person as may be chosen by the holders of a majority of the shares
entitled to vote who are present, in person or by proxy, shall call to order any
meeting of the stockholders and act as chairman of the meeting. In the absence
of the Secretary of the Corporation, the secretary of the meeting shall be such
person as the chairman appoints.
Section 6. Conduct of Business.
(a) The chairman of any meeting of stockholders shall determine the
order of business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seem to
him or her in order.
(b) At any annual meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting (i) by or
at the direction of the Board of Directors or (ii) by any stockholder of
the Corporation who is entitled to vote with respect thereto and who
complies with the notice procedures set forth in this Section 6(b). For
business to be properly brought before an annual meeting by a stockholder,
the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice must be
delivered or mailed to and received at the principal executive offices of
the Corporation not less than 60 days prior to the anniversary of the
preceding year's annual meeting; provided, however, that in the event that
the date of the annual meeting is advanced by more than 20 days, or delayed
by more than 60 days from such anniversary date, notice by the stockholder
to be timely must be so delivered not later than the close of business on
the later of the 60th day prior to such annual meeting or the tenth day
following the day on which notice of the date of the annual meeting was
mailed or public announcement of the date of such meeting is first made. A
stockholder's notice to the Secretary shall set forth as to each matter
such stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting
and the reasons for conducting such business at the annual meeting, (ii)
the name and address, as they appear on the Corporation's books, of the
stockholder who proposed such business, (iii) the class and number of
shares of the Corporation's capital stock that
2
<PAGE>
are beneficially owned by such stockholder and (iv) any material interest
of such stockholder in such business. Notwithstanding anything in these
By-laws to the contrary, no business shall be brought before or conducted
at an annual meeting except in accordance with the provisions of this
Section 6(b). The officer of the Corporation or other person presiding over
the annual meeting shall, if the facts so warrant, determine and declare to
the meeting that business was not properly brought before the meeting in
accordance with the provisions of this Section 6(b) and, if he or she
should so determine, he or she shall so declare to the meeting and any such
business so determined to be not properly brought before the meeting shall
not be transacted.
At any special meeting of the stockholders, only such business shall
be conducted as shall have been brought before the meeting by or at the
direction of the Board of Directors.
(c) Only persons who are nominated in accordance with the procedures
set forth in these By-laws shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of stockholders at which directors are
to be elected only (i) by or at the direction of the Board of Directors or
(ii) by any stockholder of the Corporation entitled to vote for the
election of directors at the meeting who complies with the notice
procedures set forth in this Section 6(c). Such nominations, other than
those made by or at the direction of the Board of Directors, shall be made
by timely notice in writing to the Secretary of the Corporation. To be
timely, a stockholder's notice shall be delivered or mailed to and received
at the principal executive offices of the Corporation not less than 70 days
prior to the date of the meeting; provided, however, that in the event that
less than 80 days' notice or public announcement of the date of the meeting
is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the meeting was
mailed. Such stockholder's notice shall set forth (x) as to each person
whom such stockholder proposes to nominate for election or re-election as a
director, all information relating to such person that is required to be
disclosed in solicitations of proxies for election of directors, or is
otherwise required, in each case pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (including such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); and (y) as to the stockholder giving the
notice: (A) the name and address, as they appear on the Corporation's
books, of such stockholder and (B) the class and number of shares of the
Corporation's capital stock that are beneficially owned by such
stockholder. At the request of the Board of Directors, any person nominated
by the Board of Directors for election as a director shall furnish to the
Secretary of the Corporation that information required to be set forth in a
stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the Corporation unless
nominated in accordance with the provisions of this Section 6(c). The
officer of the Corporation or other person presiding at the meeting shall,
if the facts so warrant, determine that a nomination was not made in
accordance with such provisions and, if he or she should so determine, he
or she shall so declare to the meeting and the defective nomination shall
be disregarded.
3
<PAGE>
Section 7. Proxies and Voting.
At any meeting of the stockholders, every stockholder entitled to vote
may vote in person or by proxy authorized by an instrument in writing (or as
otherwise permitted under applicable law) by the stockholder or his duly
authorized attorney-in-fact filed in accordance with the procedure established
for the meeting. Proxies solicited on behalf of the management shall be voted as
directed by the stockholder or in the absence of such direction, as determined
by a majority of the Board of Directors. No proxy shall be valid after eleven
months from the date of its execution except for a proxy coupled with an
interest.
Each stockholder shall have one vote for every share of stock entitled
to vote which is registered in his or her name on the record date for the
meeting, except as otherwise provided herein or in the Certificate of
Incorporation of the Corporation or as required by law.
All voting, including on the election of directors but excepting where
otherwise required by law, may be by a voice vote; provided, however, that upon
demand therefore by a stockholder entitled to vote or his or her proxy, a stock
vote shall be taken. Every stock vote shall be taken by ballot, each of which
shall state the name of the stockholder or proxy voting and such other
information as may be required under the procedure established for the meeting.
Every vote taken by ballot shall be counted by an inspector or inspectors
appointed by the chairman of the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or as provided in the Certificate of
Incorporation, all other matters shall be determined by a majority of the votes
cast.
Section 8. Stock List.
The officer who has charge of the stock transfer books of the
Corporation shall prepare and make, in the time and manner required by
applicable law, a list of stockholders entitled to vote and shall make such list
available for such purposes, at such places, at such times and to such persons
as required by applicable law. The stock transfer books shall be the only
evidence as to the identity of the stockholders entitled to examine the stock
transfer books or to vote in person or by proxy at any meeting of stockholders.
Section 9. Consent of Stockholders in Lieu of Meeting.
Subject to the rights of the holders of any class or series of
preferred stock of the Corporation, any action required or permitted to be taken
by the stockholders of the Corporation must be effected at a duly called annual
or special meeting of stockholders of the Corporation and may not be effected by
any consent in writing by such stockholders.
4
<PAGE>
Section 10. Inspectors of Election
The Board of Directors shall, in advance of any meeting of
stockholders, appoint one or more persons as inspectors of election, to act at
the meeting or any adjournment thereof and make a written report thereof, in
accordance with applicable law.
ARTICLE II
BOARD OF DIRECTORS
Section 1. General Powers, Number and Term of Office.
The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. The number of directors shall be
as provided for in the Certificate of Incorporation. The Board of Directors
shall annually elect a Chairman of the Board and a President from among its
members and shall designate, when present, either the Chairman of the Board or
the President to preside at its meetings.
The directors, other than those who may be elected by the holders of
any class or series of preferred stock, shall be divided into three classes, as
nearly equal in number as reasonably possible, with the term of office of the
first class to expire at the conclusion of the first annual meeting of
stockholders, the term of office of the second class to expire at the conclusion
of the annual meeting of stockholders one year thereafter and the term of office
of the third class to expire at the conclusion of the annual meeting of
stockholders two years thereafter, with each director to hold office until his
or her successor shall have been duly elected and qualified. At each annual
meeting of stockholders, commencing with the first annual meeting, directors
elected to succeed those directors whose terms expire shall be elected for a
term of office to expire at the third succeeding annual meeting of stockholders
after their election, with each director to hold office until his or her
successor shall have been duly elected and qualified.
Section 2. Vacancies and Newly Created Directorships.
Subject to the rights of the holders of any class or series of
preferred stock then outstanding, newly created directorships resulting from any
increase in the authorized number of directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by a majority vote of the
directors then in office, though less than a quorum, and directors so chosen
shall hold office for a term expiring at the annual meeting of stockholders at
which the term of office of the class to which they have been elected expires,
and until such director's successor shall have been duly elected and qualified.
No decrease in the number of authorized directors constituting the Board shall
shorten the term of any incumbent director.
5
<PAGE>
Section 3. Regular Meetings.
Regular meetings of the Board of Directors shall be held at such place
or places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
Special meetings of the Board of Directors may be called by one-third
(1/3) of the directors then in office (rounded up to the nearest whole number)
or by the President and shall be held at such place, on such date, and at such
time as they or he or she shall fix. Notice of the place, date, and time of each
such special meeting shall be given to each director by whom it is not waived by
mailing written notice not less than five days before the meeting or by
telegraphing or telexing or by facsimile transmission of the same not less than
24 hours before the meeting. Unless otherwise indicated in the notice thereof,
any and all business may be transacted at a special meeting.
Section 5. Quorum.
At any meeting of the Board of Directors, a majority of the authorized
number of directors then constituting the Board shall constitute a quorum for
all purposes. If a quorum shall fail to attend any meeting, a majority of those
present may adjourn the meeting to another place, date, or time, without further
notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
At any meeting of the Board of Directors, business shall be transacted
in such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
Section 8. Powers.
The Board of Directors may, except as otherwise required by law,
exercise all such powers and do all such acts and things as may be exercised or
done by the Corporation, including, without limiting the generality of the
foregoing, the unqualified power:
6
<PAGE>
(i) To declare dividends from time to time in accordance with law;
(ii) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(iii) To authorize the creation, making and issuance, in such form as
it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(iv) To remove any officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any officer upon
any other person for the time being;
(v) To confer upon any officer of the Corporation the power to
appoint, remove and suspend subordinate officers, employees and agents;
(vi) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for directors, officers, employees and
agents of the Corporation and its subsidiaries as it may determine;
(vii) To adopt from time to time such insurance, retirement, and other
benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and,
(viii) To adopt from time to time regulations, not inconsistent with
these By-laws, for the management of the Corporation's business and
affairs.
Section 9. Compensation of Directors.
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as directors,
including, without limitation, their services as members of committees of the
Board of Directors.
ARTICLE III
COMMITTEES
Section 1. Committees of the Board of Directors.
The Board of Directors, by a vote of a majority of the Board of
Directors, may from time to time designate committees of the Board, with such
lawfully delegable powers and duties as it thereby confers, to serve at the
pleasure of the Board and shall, for those committees and any others provided
for herein, elect a director or directors to serve as the member or members,
designating, if it desires, other directors as alternate members who may replace
any absent or disqualified member at any meeting of the committee. Any committee
so designated may exercise
7
<PAGE>
the power and authority of the Board of Directors to declare a dividend, to
authorize the issuance of stock or to adopt a certificate of ownership and
merger pursuant to Section 253 of the Delaware General Corporation Law if the
resolution which designated the committee or a supplemental resolution of the
Board of Directors shall so provide. In the absence or disqualification of any
member of any committee and any alternate member in his or her place, the member
or members of the committee present at the meeting and not disqualified from
voting, whether or not he or she or they constitute a quorum, may by unanimous
vote appoint another member of the Board of Directors to act at the meeting in
the place of the absent or disqualified member.
Section 2. Conduct of Business.
Each committee may determine the procedural rules for meeting and
conducting its business and shall act in accordance therewith, except as
otherwise provided herein or required by law. Adequate provision shall be made
for notice to members of all meetings; one-third (1/3) of the members shall
constitute a quorum unless the committee shall consist of one or two members, in
which event one member shall constitute a quorum; and all matters shall be
determined by a majority vote of the members present. Action may be taken by any
committee without a meeting if all members thereof consent thereto in writing,
and the writing or writings are filed with the minutes of the proceedings of
such committee.
Section 3. Nominating Committee.
The Board of Directors may appoint a Nominating Committee of the Board,
consisting of not less than three members, one of which shall be the President
if, and only so long as, the President remains in office as a member of the
Board of Directors. The Nominating Committee shall have authority (i) to review
any nominations for election to the Board of Directors made by a stockholder of
the Corporation pursuant to Section 6(c)(ii) of Article I of these By-laws in
order to determine compliance with such By-law and (ii) to recommend to the
Whole Board nominees for election to the Board of Directors to replace those
directors whose terms expire at the annual meeting of stockholders next ensuing.
ARTICLE IV
OFFICERS
Section 1. Generally.
(a) The Board of Directors as soon as may be practicable after the
annual meeting of stockholders shall choose a President, a Secretary and a
Treasurer and from time to time may choose such other officers as it may
deem proper. The President shall be chosen from among the directors. Any
number of offices may be held by the same person.
8
<PAGE>
(b) The term of office of all officers shall be until the next annual
election of officers and until their respective successors are chosen, but
any officer may be removed from office at any time by the affirmative vote
of a majority of the authorized number of directors then constituting the
Board of Directors.
(c) All officers chosen by the Board of Directors shall each have such
powers and duties as generally pertain to their respective offices, subject
to the specific provisions of this Article IV. Such officers shall also
have such powers and duties as from time to time may be conferred by the
Board of Directors or by any committee thereof.
Section 2. President.
The President shall be the chief executive officer and, subject to the
control of the Board of Directors, shall have general power over the management
and oversight of the administration and operation of the Corporation's business
and general supervisory power and authority over its policies and affairs. The
President shall see that all orders and resolutions of the Board of Directors
and of any committee thereof are carried into effect.
Each meeting of the stockholders and of the Board of Directors shall be
presided over by such officer as has been designated by the Board of Directors
or, in his or her absence, by such officer or other person as is chosen at the
meeting. The Secretary or, in his or her absence, the General Counsel of the
Corporation or such officer as has been designated by the Board of Directors or,
in his or her absence, such officer or other person as is chosen by the person
presiding, shall act as secretary of each such meeting.
Section 3. Vice President.
The Vice President or Vice Presidents, if any, shall perform the duties
of the President in the President's absence or during his or her disability to
act. In addition, the Vice Presidents shall perform the duties and exercise the
powers usually incident to their respective offices and/or such other duties and
powers as may be properly assigned to them from time to time by the Board of
Directors, the Chairman of the Board or the President.
Section 4. Secretary.
The Secretary or an Assistant Secretary shall issue notices of
meetings, shall keep their minutes, shall have charge of the seal and the
corporate books, shall perform such other duties and exercise such other powers
as are usually incident to such offices and/or such other duties and powers as
are properly assigned thereto by the Board of Directors, the Chairman of the
Board or the President.
9
<PAGE>
Section 5. Treasurer.
The Treasurer shall have charge of all monies and securities of the
Corporation, other than monies and securities of any division of the Corporation
which has a treasurer or financial officer appointed by the Board of Directors,
and shall keep regular books of account. The funds of the Corporation shall be
deposited in the name of the Corporation by the Treasurer with such banks or
trust companies or other entities as the Board of Directors from time to time
shall designate. The Treasurer shall sign or countersign such instruments as
require his or her signature, shall perform all such duties and have all such
powers as are usually incident to such office and/or such other duties and
powers as are properly assigned to him or her by the Board of Directors, the
Chairman of the Board or the President, and may be required to give bond,
payable by the Corporation, for the faithful performance of his duties in such
sum and with such surety as may be required by the Board of Directors.
Section 6. Assistant Secretaries and Other Officers.
The Board of Directors may appoint one or more assistant secretaries
and one or more assistants to the Treasurer, or one appointee to both such
positions, which officers shall have such powers and shall perform such duties
as are provided in these By-laws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
Section 7. Action with Respect to Securities of Other Corporations
Unless otherwise directed by the Board of Directors, the President, or
any officer of the Corporation authorized by the President, shall have power to
vote and otherwise act on behalf of the Corporation, in person or by proxy, at
any meeting of stockholders of or with respect to any action of stockholders of
any other corporation in which this Corporation may hold securities and
otherwise to exercise any and all rights and powers which this Corporation may
possess by reason of its ownership of securities in such other Corporation.
ARTICLE V
STOCK
Section 1. Certificates of Stock.
Each stockholder shall be entitled to a certificate signed by, or in
the name of the Corporation by, the President or a Vice President, and by the
Secretary or an Assistant Secretary, or the Treasurer or an Assistant Treasurer,
certifying the number of shares owned by him or her. Any or all of the
signatures on the certificate may be by facsimile.
10
<PAGE>
Section 2. Transfers of Stock.
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these
By-laws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefore.
Section 3. Record Date.
In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
60 nor less than ten days before the date of any meeting of stockholders, nor
more than 60 days prior to the time for such other action as hereinbefore
described; provided, however, that if no record date is fixed by the Board of
Directors, the record date for determining stockholders entitled to notice of or
to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held, and, for determining stockholders entitled to receive payment of any
dividend or other distribution or allotment of rights or to exercise any rights
of change, conversion or exchange of stock or for any other purpose, the record
date shall be at the close of business on the day on which the Board of
Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
In the event of the loss, theft or destruction of any certificate of
stock, another may be issued in its place pursuant to such regulations as the
Board of Directors may establish concerning proof of such loss, theft or
destruction and concerning the giving of a satisfactory bond or bonds of
indemnity.
Section 5. Regulations.
The issue, transfer, conversion and registration of certificates of
stock shall be governed by such other regulations as the Board of Directors may
establish.
11
<PAGE>
ARTICLE VI
NOTICES
Section 1. Notices.
Except as otherwise specifically provided herein or required by law,
all notices required to be given to any stockholder, director, officer, employee
or agent shall be in writing and may in every instance be effectively given by
hand delivery to the recipient thereof, by depositing such notice in the mail,
postage paid, by sending such notice by prepaid telegram or mailgram or by
sending such notice by facsimile machine or other electronic transmission. Any
such notice shall be addressed to such stockholder, director, officer, employee
or agent at his or her last known address as the same appears on the books of
the Corporation. The time when such notice is received, if hand delivered or
dispatched, if delivered through the mail, by telegram or mailgram or by
facsimile machine or other electronic transmission, shall be the time of the
giving of the notice.
Section 2. Waivers.
A written waiver of any notice, signed by a stockholder, director,
officer, employee or agent, whether before or after the time of the event for
which notice is to be given, shall be deemed equivalent to the notice required
to be given to such stockholder, director, officer, employee or agent. Neither
the business nor the purpose of any meeting need be specified in such a waiver.
ARTICLE VII
MISCELLANEOUS
Section 1. Facsimile Signatures.
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these By-laws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
The Board of Directors may provide a suitable seal, containing the name
of the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
Assistant Treasurer.
12
<PAGE>
Section 3. Reliance upon Books, Reports and Records.
Each director, each member of any committee designated by the Board of
Directors, and each officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such director or committee member reasonably
believes are within such other person's professional or expert competence and
who has been selected with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
In applying any provision of these By-laws which requires that an act
be done or not be done a specified number of days prior to an event or that an
act be done during a period of a specified number of days prior to an event,
calendar days shall be used, the day of the doing of the act shall be excluded
and the day of the event shall be included.
ARTICLE VIII
AMENDMENTS
The By-laws of the Corporation may be adopted, amended or repealed as
provided in Article SEVENTH of the Certificate of Incorporation of the
Corporation.
13
Charter of
BEN FRANKLIN BANK OF ILLINOIS
SECTION 1. Corporate Title. The full corporate title of the bank is Ben
Franklin Bank of Illinois.
SECTION 2. Office. The home office of the bank shall be located in the
City of Arlington Heights, County of Cook, in the State of Illinois.
SECTION 3. Duration. The duration of the bank is perpetual.
SECTION 4. Purpose and Powers. The purpose of the bank is to pursue any
or all of the lawful objectives of a federal bank chartered under Section 5 of
the Home Owners' Loan Act and to exercise all of the express, implied, and
incidental powers conferred thereby and by all acts amendatory thereof and
supplemental thereto, subject to the Constitution and laws of the United States
as they are now in effect, or as they may hereafter be amended, and subject to
all lawful and applicable rules, regulations, and orders of the Office of Thrift
Supervision ("Office").
SECTION 5. Capital Stock. The total number of shares of all classes of
the capital stock which the bank has the authority to issue is two million six
hundred thousand (2,600,000) of which two million five hundred thousand
(2,500,000) shall be common stock of par value of $.01 per share, and of which
one hundred thousand (100,000) shall be serial preferred stock of par value
$.01 per share. The shares may be issued from time to time as authorized by the
board of directors without further approval of stockholders, except as otherwise
provided in this Section 5 or to the extent that such approval is required by
governing law, rule or regulation. The consideration for the issuance of the
shares shall be paid in full before their issuance and shall not be less than
the par value. Neither promissory notes nor future services shall constitute
payment or part payment for the issuance of shares of the bank. The
consideration for the shares shall be cash, tangible or intangible property (to
the extent direct investment in such property would be permitted to the savings
bank), labor, or services actually performed for the bank, or any combination of
the foregoing. In the absence of actual fraud in the transaction, the value of
such property, labor, or services, as determined by the board of directors of
the bank, shall be conclusive. Upon payment of such consideration, such shares
shall be deemed to be fully paid and nonassessable. In the case of a stock
dividend, that part of the surplus of the bank which is transferred to stated
capital upon the issuance of shares as a share dividend shall be deemed to be
the consideration for their issuance.
Except for shares issuable in connection with the conversion of the
bank from the mutual to the stock form of organization, no shares of capital
stock (including shares issuable upon conversion, exchange, or exercise of other
securities) shall be issued, directly or indirectly, to officers, directors, or
controlling persons of the bank other than as part of a general public offering
or as qualifying shares to a director, unless their issuance or the plan under
which they
1
<PAGE>
would be issued has been approved by a majority of the total votes eligible to
be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series, or to more than one vote per share, except
as to the cumulation of votes for the election of directors: Provided, That this
restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of preferred stock,
voting as a class or series, to elect some members of the board of
directors, less than a majority thereof, in the event of default in
the payment of dividends on any class or series of preferred stock;
(ii) To any provision which would require the holders of preferred stock,
voting as a class or series, to approve the merger or consolidation of
the bank with another corporation or the sale, lease, or conveyance
(other than by mortgage or pledge) of properties or business in
exchange for securities of a corporation other than the bank if the
preferred stock is exchanged for securities of such other corporation:
Provided, That no provision may require such approval for transactions
undertaken with the assistance or pursuant to the direction of the
Office or the Federal Deposit Insurance Corporation.
(iii)To any amendment which would adversely change the specific terms of
any class or series of capital stock as set forth in this Section 5
(or in any supplementary sections hereto), including any amendment
which would create or enlarge any class or series ranking prior
thereto in rights and preferences. An amendment which increases the
number of authorized shares of any class or series of capital stock,
or substitutes the surviving bank in a merger or consolidation for the
bank, shall not be considered to be such an adverse change.
A description of the different classes and series (if any) of the
bank's capital stock and a statement of the designations, and the relative
rights, preferences, and limitations of the shares of each class and series (if
any) of capital stock are as follows:
A. Common Stock. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of common stock
shall be entitled to one vote for each share held by such holder, except as to
the cumulation of votes for the election of directors.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preference over the common stock as to the payment of dividends, the full amount
of dividends and of sinking fund, retirement fund, or other retirement payments,
if any, to which such holders are respectively entitled in preference to the
2
<PAGE>
common stock, then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends out of any
assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
bank, the holders of the common stock (and the holders of any class or series of
stock entitled to participate with the common stock in the distribution of
assets) shall be entitled to receive, in cash or in kind, the assets of the bank
available for distribution remaining after: (i) Payment or provision for payment
of the bank's debts and liabilities; (ii) distributions or provision for
distributions in settlement of its liquidation account; and (iii) distributions
or provisions for distributions to holders of any class or series of stock
having preference over the common stock in the liquidation, dissolution, or
winding up of the bank. Each share of common stock shall have the same relative
rights as and be identical in all respects with all the other shares of common
stock.
B. Preferred Stock. The bank may provide in supplementary sections to
its charter for one or more classes of preferred stock, which shall be
separately identified. The shares of any class may be divided into and issued in
series, with each series separately designated so as to distinguish the shares
thereof from the shares of all other series and classes. The terms of each
series shall be set forth in a supplementary section to the charter. All shares
of the same class shall be identical except as to the following relative rights
and preferences, as to which there may be variations between different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the shares
of such series, whether dividends shall be cumulative and, if so, from
which date(s), the payment date(s) for dividends, and the
participating or other special rights, if any, with respect to
dividends;
(c) The voting powers, full or limited, if any, of shares of such series;
(d) Whether the shares of such series shall be redeemable and, if so, the
price(s) at which, and the terms and conditions on which, such shares
may be redeemed;
(e) The amount(s) payable upon the shares of such series in the event of
voluntary or involuntary liquidation, dissolution, or winding up of
the bank;
(f) Whether the shares of such series shall be entitled to the benefit of
a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and if so entitled, the amount of such fund
and the manner of its application, including the price(s) at which
such shares may be redeemed or purchased through the application of
such fund;
3
<PAGE>
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock of the
bank and, if so, the conversion price(s), or the rate(s) of exchange,
and the adjustments thereof, if any, at which such conversion or
exchange may be made, and any other terms and conditions of such
conversion or exchange;
(h) The price or other consideration for which the shares of such series
shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial
preferred stock and whether such shares may be reissued as shares of
the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The board of directors shall have authority to divide, by the adoption
of supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established
by a supplementary charter section adopted by the board of directors, the bank
shall file with the Secretary to the Office a dated copy of that supplementary
section of this charter established and designating the series and fixing and
determining the relative rights and preferences thereof.
SECTION 6. Preemptive Rights. Holders of the capital stock of the bank
shall not be entitled to preemptive rights with respect to any shares of the
bank which may be issued.
SECTION 7. Liquidation Account. Pursuant to the requirements of the
Office's regulations (12 C.F.R. Part 563b) the bank shall establish and maintain
a liquidation account for the benefit of its savings account holders as of
January 31, 1997 ("eligible savers") and _________, 1998 ("supplemental eligible
savers"). In the event of a complete liquidation of the bank, it shall comply
with such regulations with respect to the amount and the priorities on
liquidation of each eligible saver's and supplemental eligible saver's inchoate
interest in the liquidation account, to the extent it is still in existence:
Provided, That an eligible saver's and supplemental eligible saver's inchoate
interest in the liquidation account shall not entitle such eligible saver or
supplemental eligible saver to any voting rights at meetings of the bank's
stockholders.
SECTION 8. Certain Provisions Applicable for Five Years.
Notwithstanding anything contained in the bank's charter or bylaws to the
contrary, for a period of five years from the date
4
<PAGE>
of completion of the conversion of the bank from mutual to stock form, the
following provisions shall apply:
A. Beneficial Ownership Limitation. No person shall directly or
indirectly offer to acquire or acquire the beneficial ownership of more than 10%
of any class of an equity security of the bank. This limitation shall not apply
to a transaction in which the bank forms a holding company without change in the
respective beneficial ownership interests of its stockholders other than
pursuant to the exercise of any dissenter and appraisal rights, the purchase of
shares by underwriters in connection with a public offering, or the purchase of
shares by a tax-qualified employee stock benefit plan which is exempt from the
approval requirements under Section 574.3(c)(1)(vi) of the Office's regulations.
In the event shares are acquired in violation of this Section 8, all
shares beneficially owned by any person in excess of 10% shall be considered
"excess shares" and shall not be counted as shares entitled to vote and shall
not be voted by any person or counted as voting shares in connection with any
matters submitted to the stockholders for a vote.
For purposes of this Section 8, the following definitions apply:
(1) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, a bank, a joint stock company, a trust,
an unincorporated organization or similar company, a syndicate or any other
group formed for the purpose of acquiring, holding or disposing of the equity
securities of the bank.
(2) The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value.
(3) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(4) The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal whether or not
pursuant to an express agreement, or (b) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangements,
whether written or otherwise.
B. Cumulative Voting Limitation. Stockholders shall not be permitted to
cumulate their votes for election of directors.
C. Call for Special Meetings. Special meetings of stockholders relating
to changes in control of the bank or amendments to its charter shall be called
only upon direction of the board of directors.
5
<PAGE>
SECTION 9. Directors. The bank shall be under the direction of a board
of directors. The authorized number of directors, as stated in the bank's
bylaws, shall not be fewer than five nor more than fifteen except when a greater
number is approved by the Director of the Office.
SECTION 10. Amendment of Charter. Except as provided in Section 5, no
amendment, addition, alteration, change, or repeal of this charter shall be
made, unless such is first proposed by the board of directors of the bank, then
preliminarily approved by the Office, which preliminary approval may be granted
by the Office pursuant to regulations specifying preapproved charter amendments,
and thereafter approved by the stockholders by a majority of the total votes
eligible to be cast at a legal meeting. Any amendment, addition, alteration,
change, or repeal so acted upon shall be effective upon filing with the Office
in accordance with regulatory procedures or on such other date as the Office may
specify in its preliminary approval.
6
<PAGE>
BEN FRANKLIN BANK OF ILLINOIS
ATTEST: ________________________ By: ______________________________
Bernadine Dziedzic Ronald P. Pedersen
Secretary President and Chief Executive
Officer
DIRECTOR OF THE OFFICE OF
THRIFT SUPERVISION
ATTEST: ________________________ By: ______________________________
Secretary of the Office Director of the Office
of Thrift Supervision of Thrift Supervision
Declared effective this ____ day of ____________.199__
7
BYLAWS OF
BEN FRANKLIN BANK OF ILLINOIS
ARTICLE I
HOME OFFICE
The home office of the bank shall be in the City of Arlington Heights,
in the County of Cook, in the State of Illinois.
ARTICLE II
SHAREHOLDERS
Section 1. Place of Meetings. All annual and special meetings of
shareholders shall be held at the home office of the bank or at such other place
in the state in which the principal place of business of the bank is located as
the board of directors may determine.
Section 2. Annual Meeting. A meeting of shareholders of the bank for
the election of directors and for the transaction of any other business of the
bank shall be held annually within 120 days after the end of the bank's fiscal
year on the fourth Wednesday of each April, if not a legal holiday, and if a
legal holiday, then on the next day following which is not a legal holiday, at
10:00 a.m., or at such other date and time within such 120-day period as the
board of directors may determine.
Section 3. Special Meetings. Special meetings of the shareholders for
any purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision ("Office"), may be called at any time by the
chairman of the board, the president, or a majority of the board of directors,
and shall be called by the chairman of the board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the bank entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the bank addressed to the chairman
of the board, the president, or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the Office or these bylaws. The
board of directors shall designate, when present, either the chairman of the
board or the president to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day,
and hour of the meeting and the purpose(s) for which the meeting is called shall
be delivered not fewer than 10 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, or the secretary, or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed
1
<PAGE>
to be delivered when deposited in the mail, addressed to the shareholder at the
address as it appears on the stock transfer books or records of the bank as of
the record date prescribed in Section 6 of this Article II with postage prepaid.
When any shareholders' meeting, either annual or special, is adjourned for 30
days or more, notice of the adjourned meeting shall be given as in the case of
an original meeting. It shall not be necessary to give any notice of the time
and place of any meeting adjourned for less than 30 days or of the business to
be transacted at the meeting, other than an announcement at the meeting at which
such adjournment is taken.
Section 6. Fixing of Record Date. For the purpose of determining
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more than
60 days and, in case of a meeting of shareholders, not fewer than 10 days prior
to the date on which the particular action, requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the bank shall make a complete list of the shareholders entitled to
vote at such meeting, or any adjournment, arranged in alphabetical order, with
the address and the number of shares held by each. This list of shareholders
shall be kept on file at the home office of the bank and shall be subject to
inspection by any shareholder at any time during usual business hours for a
period of 20 days prior to such meeting. Such list shall also be produced and
kept open at the time and place of the meeting and shall be sub ject to
inspection by any shareholder during the entire time of the meeting. The
original stock transfer book shall constitute prima facie evidence of the
shareholders entitled to examine such list or transfer books or to vote at any
meeting of shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the board of directors may
elect to follow the procedures prescribed in Section 552.6(d) of the Office's
regulations as now or hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the bank
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum.
Section 9. Proxies. At all meetings of shareholders, a shareholder may
vote by proxy executed in writing by the shareholder or by his or her duly
authorized attorney in fact. Proxies so licited on behalf of the management
shall be voted as directed by the shareholder or, in the absence of such
direction, as determined by a majority of the board of directors. No proxy shall
be valid more than eleven months from the date of its execution except for a
proxy coupled with an interest.
2
<PAGE>
Section 10. Voting of Shares in the Name of Two or More Persons. When
ownership stands in the name of two or more persons, in the absence of written
directions to the bank to the contrary, at any meeting of the shareholders of
the bank any one or more of such shareholders may cast, in person or by proxy,
all votes to which such ownership is entitled. In the event an attempt is made
to cast conflicting votes, in person or by proxy, by the several persons in
whose names shares of stock stand, the vote or votes to which those persons are
entitled shall be cast as directed by a majority of those holding such stock and
present in person or by proxy at such meeting, but no votes shall be cast for
such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in the
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares standing in the name of a receiver may be voted by such receiver, and
shares held by or under the control of a receiver may be voted by such receiver
without the transfer into his or her name if authority to do so is contained in
an appropriate order of the court or other public authority by which such
receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the bank nor shares
held by another corporation, if a majority of the shares entitled to vote for
the election of directors of such other corporation are held by the bank, shall
be voted at any meeting or counted in determining the total number of
outstanding shares at any given time for purposes of any meeting.
Section 12. Cumulative Voting. Unless otherwise provided in the charter
of the bank, every shareholder entitled to vote at an election for directors
shall have the right to vote, in person or by proxy, the number of shares owned
by the shareholder for as many persons as there are directors to be elected and
for whose election the shareholder has a right to vote, or to cumulate the votes
by giving one candidate as many votes as the number of such directors to be
elected multiplied by the number of shares shall equal or by distributing such
votes on the same principle among any number of candidates.
Section 13. Inspectors of Election. In advance of any meeting of
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act
3
<PAGE>
at such meeting or any adjournment. The number of inspectors shall be either one
or three. Any such appointment shall not be altered at the meeting. If
inspectors of election are not so appointed, the chairman of the board or the
president may, or on the request of not fewer than 10% of the votes represented
at the meeting shall, make such appointment at the meeting. If appointed at the
meeting, the majority of the votes present shall determine whether one or three
inspectors are to be appointed. In case any person appointed as inspector fails
to appear or fails or refuses to act, the vacancy may be filled by appointment
by the board of directors in advance of the meeting or at the meeting by the
chairman of the board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of
such inspectors shall include: determining the number of shares and the voting
power of each share, the shares repre sented at the meeting, the existence of a
quorum, and the authenticity, validity, and effect of proxies; receiving votes,
ballots, or consents; hearing and determining all challenges and questions in
any way arising in connection with the rights to vote; counting and tabulating
all votes or consents; determining the result; and such acts as may be proper to
conduct the election or vote with fairness to all shareholders.
Section 14. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the bank. No nominations for directors
except those made by the nominating committee shall be voted upon at the annual
meeting unless other nominations by shareholders are made in writing and
delivered to the secretary of the bank at least five days prior to the date of
the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the bank. Ballots bearing the names of all
persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. However, if the nominating committee
shall fail or refuse to act at least 20 days prior to the annual meeting,
nominations for directors may be made at the annual meeting by any shareholder
entitled to vote and shall be voted upon.
Section 15. New Business. At an annual meeting of shareholders only
such new business shall be conducted, and only such proposals shall be acted
upon, as shall have been properly brought before the meeting. For any new
business proposed by management to be properly brought before the annual
meeting, such new business shall be approved by the board of directors, either
directly or through its approval of proxy solicitation materials related
thereto, and shall be stated in writing and filed with the secretary of the bank
at least 20 days before the date of the annual meeting, and all business so
stated, proposed and filed shall be considered at the annual meeting. Any
shareholder may make any other proposal at the annual meeting and the same may
be discussed and considered, but unless properly brought before the meeting such
proposal shall not be acted upon at the meeting. For a proposal to be properly
brought before an annual meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the secretary of the bank. To be
timely, a shareholder's notice must be delivered to or received at the principal
executive offices of the bank,
4
<PAGE>
not less than 20 days prior to the meeting; provided, however, that in the event
that less than 30 days' notice of the date of the meeting is given to
shareholders (which notice shall be accompanied by a proxy or information
statement which describes each matter proposed by the board of directors to be
acted upon at the meeting), notice by the shareholder to be timely must be so
received not later than the close of business on the 10th day following the day
on which such notice of the date of the annual meeting was mailed. A
shareholder's notice to the secretary shall set forth as to each matter the
shareholder proposes to bring before the annual meeting: (a) a brief description
of the proposal desired to be brought before the annual meeting; (b) the name
and address of the shareholder proposing such business; and (c) the class and
number of shares of the bank which are owned of record by the shareholder.
Notwithstanding anything in the bylaws to the contrary, no business shall be
conducted at an annual meeting except in accordance with the procedures set
forth in this Section 15.
Section 16. Informal Action by Shareholders. Any action required to be
taken at a meeting of shareholders, or any other action which may be taken at a
meeting of shareholders, may be taken without a meeting if consent in writing,
setting forth the action so taken, shall be given by all of the shareholders
entitled to vote with respect to the subject matter.
ARTICLE III
BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the bank shall
be under the direction of its board of directors. The board of directors shall
annually elect a chairman of the board and a president from among its members
and shall designate, when present, either the chairman of the board or the
president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of
____ members and shall be divided into three classes as nearly equal in number
as possible. The members of each class shall be elected for a term of three
years and until their successors are elected and qualified. One class shall be
elected by ballot annually.
Section 3. Regular Meetings. A regular meeting of the board of
directors shall be held without other notice than this bylaw immediately after,
and at the same place as, the annual meeting of shareholders. The board of
directors may provide, by resolution, the time and place, within the bank's
normal lending territory, for the holding of additional regular meetings without
other notice than such resolution.
Section 4. Qualification. Each director shall at all times be the
beneficial owner of not less than 100 shares of capital stock of the bank unless
the bank is a wholly owned subsidiary of a holding company.
5
<PAGE>
Section 5. Special Meetings. Special meetings of the board of directors
may be called by or at the request of the chairman of the board, the president,
or one-third of the directors. The persons authorized to call special meetings
of the board of directors may fix any place, within the bank's normal lending
territory, as the place for holding any special meeting of the board of direc
tors called by such persons.
Members of the board of directors may participate in special meetings
by means of conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other. Such participation
shall constitute presence in person but shall not constitute attendance for the
purpose of compensation pursuant to Section 12 of this Article.
Section 6. Notice. Written notice of any special meeting shall be given
to each director at least two days prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed or when delivered to the telegraph company if sent by
telegram. Any director may waive notice of any meeting by a writing filed with
the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by
Section 2 of this Article III shall constitute a quorum for the transaction of
business at any meeting of the board of directors; but if less than such
majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time. Notice of any adjourned meeting shall be
given in the same manner as prescribed by Section 6 of this Article III.
Section 8. Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
Section 9. Action Without a Meeting. Any action required or permitted
to be taken by the board of directors at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the directors.
Section 10. Resignation. Any director may resign at any time by sending
a written notice of such resignation to the home office of the bank addressed to
the chairman of the board or the president. Unless otherwise specified, such
resignation shall take effect upon receipt by the chairman of the board or the
president. More than three consecutive absences from regular meetings of the
board of directors, unless excused by resolution of the board of directors,
shall automatically constitute a resignation, effective when such resignation is
accepted by the board of directors.
6
<PAGE>
Section 11. Vacancies. Any vacancy occurring on the board of directors
may be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by election by the board of directors for a
term of office continuing only until the next election of directors by the
shareholders.
Section 12. Compensation. Directors, as such, may receive a stated
salary for their services. By resolution of the board of directors, a reasonable
fixed sum, and reasonable expenses of attendance, if any, may be allowed for
actual attendance at each regular or special meeting of the board of directors.
Members of either standing or special committees may be allowed such compen
sation for actual attendance at committee meetings as the board of directors may
determine.
Section 13. Presumption of Assent. A director of the bank who is
present at a meeting of the board of directors at which action on any bank
matter is taken shall be presumed to have assented to the action taken unless
his or her dissent or abstention shall be entered in the minutes of the meeting
or unless he or she shall file a written dissent to such action with the person
acting as the secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the secretary of the bank within five
days after the date a copy of the minutes of the meeting is received. Such right
to dissent shall not apply to a director who voted in favor of such action.
Section 14. Removal of Directors. At a meeting of shareholders called
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. If less than the entire board is to be removed, no one of the
directors may be removed if the votes cast against the removal would be
sufficient to elect a director if then cumulatively voted at an election of the
class of directors of which such director is a part. Whenever the holders of the
shares of any class are entitled to elect one or more directors by the
provisions of the charter or supplemental sections thereto, the provisions of
this section shall apply, in respect to the removal of a director or directors
so elected, to the vote of the holders of the outstanding shares of that class
and not to the vote of the outstanding shares as a whole.
Section 15. Director Liability Limitation. A director is not personally
liable to the savings bank or its shareholders for monetary damages for a breach
of the director's fiduciary duty; provided, however, that such provision may not
eliminate or limit the liability of a director for any of the following:
(1) an act or omission that is grossly negligent;
(2) a breach of the director's duty of loyalty to the savings bank or
its shareholders;
(3) acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
(4) a transaction from which the director derived an improper personal
benefit; or
(5) an act or omission occurring before the effective date of this
section.
7
<PAGE>
This section shall have no effect on the enforcement authority of the
Office of Thrift Supervision.
ARTICLE IV
EXECUTIVE AND OTHER COMMITTEES
Section 1. Appointment. The board of directors, by resolution adopted
by a majority of the full board, may designate the chief executive officer and
two or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the ex tent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the board of
directors with reference to: the declaration of dividends; the amendment of the
charter or bylaws of the bank, or recommending to the shareholders a plan of
merger, consolidation, or conversion; the sale, lease, or other disposition of
all or substantially all of the property and assets of the bank otherwise than
in the usual and regular course of its business; a voluntary dissolution of the
bank; a revocation of any of the foregoing; or the approval of a transaction in
which any member of the executive committee, directly or indirectly, has any
material beneficial interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this
Article IV, each member of the executive committee shall hold office until the
next regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee may be
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee may
be called by any member thereof upon not less than one days' notice stating the
place, date, and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive com mittee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
8
<PAGE>
Section 6. Action Without a Meeting. Any action required or permitted
to be taken by the executive committee at a meeting may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall be
signed by all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be
filled by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive
committee may be removed at any time with or without cause by resolution adopted
by a majority of the full board of directors. Any member of the executive
committee may resign from the executive committee at any time by giving written
notice to the president or secretary of the bank. Unless otherwise specified,
such resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by resolution
establish an audit, loan or other committee composed of directors as it may
determine to be necessary or ap propriate for the conduct of the business of the
bank and may prescribe the duties, constitution, and procedures thereof.
ARTICLE V
OFFICERS
Section 1. Positions. The officers of the bank shall be a president,
one or more vice presidents, a secretary, and a chief financial officer, each of
whom shall be elected by the board of directors. The board of directors may also
designate the chairman of the board as an officer. The president shall be the
chief executive officer, unless the board of directors designates the chairman
of the board as chief executive officer. The president shall be a director of
the bank. The offices of the secretary and chief financial officer may be held
by the same person and a vice president may also be either the secretary or the
chief financial officer. The board of directors may designate one or more vice
presidents as executive vice president or senior vice president. The board of
directors may also elect or authorize the appointment of such other officers as
the business of the bank may require. The officers shall have such authority and
perform such duties as the board of directors may from time to time authorize or
determine. In the absence of action by the board of directors, the officers
shall have such powers and duties as generally pertain to their respective
offices.
Section 2. Election and Term of Office. The officers of the bank shall
be elected annually at the first meeting of the board of directors held after
each annual meeting of the shareholders. If
9
<PAGE>
the election of officers is not held at such meeting, such election shall be
held as soon thereafter as possible. Each officer shall hold office until a
successor has been duly elected and qualified or until the officer's death,
resignation, or removal in the manner hereinafter provided. Election or
appointment of an officer, employee, or agent shall not of itself create
contractual rights. The board of directors may authorize the bank to enter into
an employment contract with any officer in accordance with regulations of the
Office, but no such contract shall impair the right of the board of directors to
remove any officer at any time in accordance with Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the board of
directors whenever in its judgment the best interests of the bank will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be
fixed from time to time by the board of directors.
ARTICLE VI
CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. To the extent permitted by regulations of the
Office, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the board of directors may authorize any officer,
employee, or agent of the bank to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the bank. Such authority may be
general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the bank
and no evidence of indebtedness shall be issued in its name unless authorized by
the board of directors. Such authority may be general or confined to specific
instances.
Section 3. Checks, Drafts, etc. All checks, drafts, or other orders for
the payment of money, notes, or other evidences of indebtedness issued in the
name of the bank shall be signed by one or more officers, employees, or agents
of the bank in such manner as shall from time to time be determined by the board
of directors.
Section 4. Deposits. All funds of the bank not otherwise employed shall
be deposited from time to time to the credit of the bank in any duly authorized
depositories as the board of directors may select.
10
<PAGE>
ARTICLE VII
CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of
capital stock of the bank shall be in such form as shall be determined by the
board of directors and approved by the Office. Such certificates shall be signed
by the chief executive officer or by any other officer of the bank authorized by
the board of directors, attested by the secretary or an assistant secretary, and
sealed with the corporate seal or a facsimile thereof. The signatures of such
officers upon a certificate may be facsimiles if the certificate is manually
signed on behalf of a transfer agent or a registrar other than the bank itself
or one of its employees. Each certificate for shares of capital stock shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the bank. All
certificates surrendered to the bank for transfer shall be canceled and no new
certificate shall be issued until the former certificate for a like number of
shares has been surrendered and canceled, except that in the case of a lost or
destroyed certificate, a new certificate may be issued upon such terms and
indemnity to the bank as the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of
the bank shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the bank. Such transfer shall be made only on surrender for cancellation of the
certificate for such shares. The person in whose name shares of capital stock
stand on the books of the bank shall be deemed by the bank to be the owner for
all purposes.
ARTICLE VIII
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the bank shall end on the last day of December of
each year. The bank shall be subject to an annual audit as of the end of its
fiscal year by independent public accountants appointed by and responsible to
the board of directors. The appointment of such accountants shall be subject to
annual ratification by the shareholders.
11
<PAGE>
ARTICLE IX
DIVIDENDS
Subject to the terms of the bank's charter and the regulations and
orders of the Office, the board of directors may, from time to time, declare,
and the bank may pay, dividends on its outstanding shares of capital stock.
ARTICLE X
CORPORATE SEAL
The board of directors shall provide a bank seal which shall be two
concentric circles between which shall be the name of the bank. The year of
incorporation or an emblem may appear in the center.
ARTICLE XI
AMENDMENTS
These bylaws may be amended in a manner consistent with the regulations
of the Office at any time by a majority of the full board of directors or by a
majority of the votes cast by the shareholders of the bank at any legal meeting.
12
NUMBER ____
COMMON STOCK
CUSIP No. _____________
BEN FRANKLIN FINANCIAL, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
This Certifies that
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, PAR VALUE $.01 PER SHARE OF
BEN FRANKLIN FINANCIAL, INC. (the "Corporation"), a Delaware corporation. The
shares represented by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, or by his duly
authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate is not valid until countersigned
and registered by the Corporation's transfer agent and registrar. This security
is not a deposit or account and is not federally insured or guaranteed.
IN WITNESS WHEREOF, the Corporation 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________________________
_____________________________ _____________________________
Bernadine Dziedzic, Corporate Secretary Ronald P. Pederson, President
and Chief Executive Officer
[Seal]
Countersigned and Registered
____________________________
Transfer Agent and Registrar
<PAGE>
BEN FRANKLIN FINANCIAL, INC.
The shares represented by this certificate are issued subject to all
the provisions of the certificate of incorporation and bylaws of the Corporation
as from time to time amended (copies of which are on file at the principal
executive offices of the Corporation).
The Corporation's certificate of incorporation provides that no
"person" (as defined in the certificate of incorporation) who "beneficially
owns" (as defined in the certificate of incorporation) in excess of 10% of the
outstanding shares of the Corporation shall be entitled to vote any shares held
in excess of such limit. This provision of the certificate of incorporation
shall not apply to an acquisition of securities of the Corporation by an
employee stock purchase plan or other employee benefit plan of the Corporation
or any of its subsidiaries.
The Corporation's certificate of incorporation also includes a
provision the general effect of which is to require the affirmative vote of the
holders of 80% of the outstanding voting shares of the Corporation to approve
certain "business combinations" (as defined in the certificate of incorporation)
between the Corporation and a stockholder owning in excess of 10% of the
outstanding shares of the Corporation. However, only the affirmative vote of a
majority of the outstanding shares or such vote as is otherwise required by law
(rather than the 80% voting requirement) is applicable to the particular
transaction if it is approved by a majority of the "disinterested directors" (as
defined in the certificate of incorporation) or, alternatively, the transaction
satisfies certain minimum price and procedural requirements. The Corporation's
certificate of incorporation also contains a provision which requires the
affirmative vote of holders of at least 80% of the outstanding voting shares of
the Corporation which are not beneficially owned by the "interested person" (as
defined in the certificate of incorporation) to approve the direct or indirect
purchase or other acquisition by the Corporation of any "equity security" (as
defined in the certificate of incorporation) from such interested person.
The Corporation will furnish to any stockholder upon request and
without charge a full statement of the powers, designations, preferences and
relative participating, optional or other special rights of each authorized
class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights, to the extent that the same have
been fixed, and of the authority of the board of directors to designate the same
with respect to other series. Such request may be made to the Corporation or to
its transfer agent and registrar.
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:
<TABLE>
<CAPTION>
<S> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT ______ Custodian ________
TEN ENT - as tenants by the entirety (Cust) (Minor)
JT TEN - as joint tenants with right of Under Uniform Gift to Minors Act - ____________
survivorship and not as tenants (State)
in common. UNIF TRANS MIN ACT ______ Custodian ________
(Cust) (Minor)
Under Uniform Transfers to Minors Act - _________
(State)
</TABLE>
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 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
Association with full power of substitution in the premises.
Dated _______________________ ________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST
CORRESPOND WITH THE NAME AS WRITTEN UPON
THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE WHATEVER.
April 2, 1998
The Board of Directors
Ben Franklin Financial, Inc.
14 North Dryden Place
Arlington Heights, Illinois 60004
Re: Registration Statement
Under the Securities Act of 1933
Gentlemen:
This opinion is rendered in connection with the Registration Statement
to be filed on Form S-1 with the Securities and Exchange Commission under the
Securities Act of 1933 relating to the 1,851,500 shares of Common Stock of Ben
Franklin Financial, Inc. (the "Company"), par value $.01 per share, to be
issued. As counsel, we have reviewed the Certificate of Incorporation of the
Company and such other documents as we have deemed appropriate for the purpose
of this opinion. We are rendering this opinion as of the time the Registration
Statement referred to above becomes effective.
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
sold, be validly issued, fully paid and non-assessable shares of Common Stock of
the Company.
Very truly yours,
/s/ SILVER FREEDMAN & TAFF, L.L.P.
SILVER FREEDMAN & TAFF, L.L.P.
[CROWE CHIZEK LETTERHEAD]
March 31, 1998
Board of Directors
Douglas Savings Bank
14 North Dryden
Arlington Heights, IL 60004
RE: Federal and Illinois Income Tax Opinion Relating To The Conversion Of
Douglas Savings Bank From A State-Chartered Mutual Savings Bank To A
Federally-Chartered Stock Savings Bank Under Section 368(a)(1)(F) of
the Internal Revenue Code of 1986, As Amended.
----------------------------------------------------------------------
Gentlemen:
You have requested our opinion with respect to the federal and Illinois
income tax consequences of the proposed conversion (the "Conversion") of Douglas
Savings Bank ("Mutual") from an federally-chartered mutual savings bank to a
federally-chartered stock savings bank ("Stock Bank") pursuant to the provisions
of Mutual's Plan of Conversion ("Plan"). The Board of Directors of Mutual has
unanimously adopted the plan to pursuant which Mutual will effect the
Conversion.
The Conversion will be accomplished through amendment of Mutual's federal
charter to authorize capital stock. Concurrent with the Conversion, Stock Bank
will change its name to Ben Franklin Bank of Illinois. Pursuant to the Plan,
immediately following the Conversion, all of the outstanding stock of Stock Bank
to be issued in connection with the Conversion will be owned by Ben Franklin
Financial Corporation ("Holding Company"). Holding Company was formed in March,
1998, as a Delaware corporation at the direction of Mutual for the purpose of
becoming a savings and loan holding company and owning all of the outstanding
stock of Stock Bank issued in the Conversion.
The depositors of Mutual currently have liquidation rights in Mutual. Following
the Conversion, Stock Bank will maintain a liquidation account and the Eligible
Account Holders and the Supplemental Eligible Account Holders will continue to
have liquidation rights in Stock Bank.
Pursuant to the Plan, non-transferable rights to subscribe for the Common Stock
of the Holding Company have been given to: (i) the Eligible Account Holders,
(ii) tax-qualified employees plans of Mutual and the Holding Company; (iii) the
Supplemental Eligible Account Holders; (iv) certain other members of Mutual; and
(v) Mutual's employees, officers and directors. Holding Company will utilize
approximately 50% of the net proceeds from the issuance of the
<PAGE>
Board of Directors
Douglas Savings Bank
March 31, 1998
Page 2
common stock to purchase all of the common stock of Stock Bank issued in the
Conversion and will retain approximately 50% of the net proceeds.
The Conversion and related transactions are described in the Plan. We have made
such inquiries and have examined such documents and records as we have deemed
appropriate for the purpose of this opinion. In rendering the opinion, we have
received certain standard representations from Mutual regarding Mutual, Stock
Bank and the Holding Company (the "Representations"). The Representations are
required to be furnished prior to execution and delivery of this letter. We will
rely on the Representations of Mutual and the statement of facts contained in
the Plan. We have also assumed the authenticity of all signatures, the legal
capacity of all natural persons and the conformity of all documents submitted to
us as copies. Each capitalized term used herein, unless otherwise defined, has
the meaning set forth in the Plan. We have assumed that the Conversion and
related transactions will be consummated strictly in accordance with the terms
of the Plan.
The Plan and the Prospectus filed with the Securities and Exchange Commission
(the "Prospectus") contain detailed descriptions of the parties to the
transactions and the transactions themselves. These documents as well as the
Representations to be provided by Mutual are incorporated in this letter as part
of the statement of facts.
OPINION
Based solely on the facts set forth above and in the Plan and
Prospectus, and on the Representations discussed above, and our analysis and
examination of applicable federal and Illinois income tax laws, rulings,
regulations, judicial precedents and the Ferguson Letter (as described in the
Prospectus), we are of the opinion that, under current federal law pursuant to
the Internal Revenue Code, as amended ("Code"), and Illinois law pursuant to
Chapter 35 of the Illinois Compiled Statutes ("Illinois Code"), if the
transaction is undertaken in accordance with the above assumptions and in
accordance with the Plan of Conversion:
(1) The Conversion will constitute a reorganization within the meaning
of Section 368(a)(1)(F) of the Code. Neither Mutual nor Stock Bank will
recognize any gain or loss as a result of the transaction (Rev. Rul.
80-105, 1980-1 C.B. 78; ITA Sec. 403(a)[35 ILCS 5/403(a)]). Mutual and
Stock Bank will each be a party to a reorganization within the meaning of
Section 368(b) of the Code.
(2) Stock Bank will recognize no gain or loss upon the receipt of
money and other property, if any, in the Conversion, in exchange for shares
of its common stock. (Section 1032(a) of the Code; ITA Sec. 403(a)[35 ILCS
5/403(a)]).
(3) No gain or loss will be recognized by Holding Company upon the
receipt of money for Holding Company Conversion Stock. (Section 1032(a) of
the Code; ITA Sec. 403(a) [35 ILCS 5/403(a)]).
<PAGE>
Board of Directors
Douglas Savings Bank
March 31, 1998
Page 3
(4) The basis of Mutual's assets in the hands of Stock Bank will be
the same as the basis of those assets in the hands of Mutual immediately
prior to the transaction. (Section 362(b) of the Code; ITA Sec. 403(a)[35
ILCS 5/403(a)]).
(5) Stock Bank's holding period of the assets of Mutual will include
the period during which such assets were held by Mutual prior to the
Conversion. (Section 1223(2) of the Code; ITA Sec. 403(a)[35 ILCS
5/403(a)]).
(6) Stock Bank, for purposes of Section 381 of the Code, will be
treated as if there had been no reorganization. The tax attributes of
Mutual enumerated in Section 381(a) of the Code will be taken into account
by Stock Bank as if there had been no reorganization. Accordingly, the tax
year of Mutual will not end on the effective date of the Conversion. The
part of the tax year of Mutual before the Conversion will be includable in
the tax year of Stock Bank after the Conversion. Therefore, Mutual will not
have to file a federal or Illinois income tax return for the portion of the
tax year prior to the Conversion. (Rev. Rul. 57-276, 1957-1 C.B. 126); ITA
Sec. 401(a)[35 ILCS 5/401(a)]).
(7) Depositors will realize gain, if any, upon the constructive
issuance to them of withdrawable deposit accounts of Stock Bank,
Subscription Rights, and/or interests in the liquidation account of Stock
Bank. Any gain resulting therefrom will be recognized, but only in an
amount not in excess of the fair market value of the liquidation accounts
and/or Subscription Rights received. The liquidation accounts will have
nominal, if any, fair market value. Based solely on the accuracy of the
conclusion reached in the Ferguson Letter, and our reliance on such
opinion, that the Subscription Rights have no value at the time of
distribution or exercise, no gain or loss will be required to be recognized
by depositors upon receipt or distribution of Subscription Rights. (Section
1001 of the Code); See Paulsen v. Commissioner, 469 U.S. 131, 139 (1985).
Likewise, based solely on the accuracy of the aforesaid conclusion reached
in the Ferguson Letter, and our reliance thereon, we give the following
opinions: (a) no taxable income will be recognized by the borrowers,
directors, officers, and employees of Mutual upon the distribution to them
of Subscription Rights or upon the exercise or lapse of the Subscription
Rights to acquire Holding Company Conversion Stock at fair market value;
(b) no taxable income will be realized by the depositors of Mutual as a
result of the exercise or lapse of the Subscription Rights to purchase
Holding Company Conversion Stock at fair market value. Rev. Rul. 56-572,
1956-2 C.B. 182; and (c) no taxable income will be realized by Mutual,
Stock Bank, or Holding Company on the issuance or distribution of
Subscription Rights to depositors of Mutual to purchase shares of Holding
Company Conversion Stock at fair market value. (Section 311 of the Code;
ITA Sec. 203(a)(1)[35 ILCS 5/203(a)(1)]).
Notwithstanding the Ferguson Letter, if the Subscription Rights are
subsequently found to have a fair market value, income may be recognized by
various recipients of the subscription Rights (in certain cases, whether or not
the rights are exercised) and Holding Company and/or Stock Bank may be taxable
on the distribution of the Subscription Rights. (Section 311 of the Code.) In
this regard, the Subscription Rights may be taxed partially or entirely at
ordinary income tax rates.
<PAGE>
Board of Directors
Douglas Savings Bank
March 31, 1998
Page 4
(8) The creation of the liquidation account on the records of Stock
Bank will have no effect on Mutual's or Stock Bank's taxable income,
deductions, or additions to the reserve for bad debts under Section 593 of
the Code, or distributions to shareholders under Section 593(e); ITA Sec.
403(a)[35 ILCS 5/403(a)].
(9) Pursuant to the provisions of Section 381(c)(4) of the Code and
Section 1.381(c)(4)-1(a)(1)(ii) of the Income Tax Regulations, Stock Bank
will succeed to and take into account, immediately after the
reorganization, the dollar amounts of those accounts of Mutual which
represent bad debt reserves in respect of which Mutual has taken a bad debt
deduction for taxable years ending on or before the date of the
reorganization. The bad debt reserves will not be required to be restored
to the gross income of either Mutual or Stock Bank as a result of the
Conversion for the taxable year of the reorganization, and such bad debt
reserves will have the same character in the hands of Stock Bank as they
would have had in the hands of Mutual if no reorganization had occurred. No
opinion is being expressed as to whether the bad debt reserves will be
required to be restored to the gross income of either Mutual or Stock Bank
for the taxable year of the transfer if Mutual or Stock Bank fails to meet
the requirements of Section 593(a)(2) of the Code during such taxable year.
ITA Sec. 402(a)[35 ILCS 5/402(a)].
(10) A depositor's basis in the savings deposits of Stock Bank will be
the same as the basis of his savings deposits in Mutual. (Section 1012 of
the Code.) Based upon the Ferguson Letter, the basis of the Subscription
Rights will be zero. The basis of the interest in the liquidation account
of Stock Bank received by Eligible Account Holders and Supplemental
Eligible Account Holders will be equal to the cost of such property, i.e.,
the fair market value of the proprietary interest in Mutual, which in this
transaction we assume to be zero. ITA Sec. 203(a)(1)[35 ILCS 5/203(a)(1)].
(11) The basis of Holding Company Conversion Stock to its shareholders
will be the purchase price thereof. (Section 1012 of the Code; ITA Sec.
203(a)(1)[35 ILCS 5/203(a)(1)]).
(12) A shareholder's holding period for Holding Company Conversion
Stock acquired through the exercise of the Subscription Rights shall begin
on the date on which the Subscription Rights are exercised. (Section
1223(6) of the Code). The holding period for the Holding Company Conversion
Stock purchase pursuant to the direct community offering, public offering,
or under other purchase arrangements will commence on the date following
the date on which such stock is purchased. (Rev. Rul. 70-598, 1970-2 C.B.
168; ITA Sec. 203(a)(1)[35 ILCS 5/203(a)(1)]).
(13) Regardless of any book entries that are made for the
establishment of a liquidation account, the reorganization will not
diminish the accumulated earnings and profits of Mutual available for the
subsequent distribution of dividends, within the meaning of Section 316 of
the Code and Section 1.312-11(b) and (c) of the Regulations. Stock Bank
will succeed to and take into account the earnings and profits, or deficit
in earnings and profits, of Mutual as of the date of Conversion. ITA Sec.
403(a)[35 ILCS 5/403(a)].
<PAGE>
Board of Directors
Douglas Savings Bank
March 31, 1998
Page 5
LIMITATIONS OF OPINION
The above opinions are effective to the extent that Mutual is solvent.
No opinion is expressed about the tax treatment of the transaction if Mutual is
insolvent. Whether or not Mutual is solvent will be determined at the end of the
taxable year in which the transaction is consummated.
Our opinion expressed herein is based solely upon current provisions of
the Code and Illinois Code including applicable regulations thereunder and
current judicial and administrative authority. Any future amendment to the Code
or Illinois Code or applicable regulations, or new judicial decisions or
administrative interpretations, any of which could be retroactive in effect,
could cause us to modify our opinion. Our opinion is not binding on the Internal
Revenue Service or Illinois Department of Revenue, and the Internal Revenue
Service or Illinois Department of Revenue could disagree with the conclusions
reached in the opinion. In the event of such disagreement, there can be no
assurance that the Internal Revenue Service or Illinois Department of Revenue
would not prevail in a judicial proceeding, although we believe that the
positions expressed in our opinion would prevail fi the matters are challenged.
Further, no opinion is expressed under the provisions of any of the other
sections of the Code or Illinois Code including applicable regulations which may
also be applicable thereto, or to the tax treatment of any conditions existing
at the time of, or effects resulting from the transaction which are not
specifically covered by the opinion set forth above.
If any fact or assumption contained in this opinion letter changes, it
is imperative we be notified to determine the effect, if any, on the conclusions
reached therein.
Very truly yours,
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
[FERGUSON & COMPANY LETTERHEAD]
March 31, 1998
Board of Directors
Douglas Savings Bank
14 North Dryden Avenue
Arlington Heights, Illinois
Gentlemen:
All capitalized terms not otherwise defined in this letter have
meanings given such terms in the Plan of Conversion adopted by the Board of
Directors of Douglas Savings Bank, Arlington Heights, Illinois, ("Bank") on
February 4, 1998.
It is our understanding that, pursuant to Office of Thrift Supervision
regulations, subscription rights are non-transferable. Persons violating such
prohibition may lose their rights to purchase stock in the Conversion and be
subject to other possible sanctions.
Because the Subscription Rights to purchase shares of Common Stock in
the Bank to be issued to the Bank's employee stock benefit plans, depositors of
the Bank, and to other members of the Bank will be acquired by such recipients,
without cost, will be 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 paid by members of the general public in a Community Offering, we are of
the opinion that:
(1) the Subscription Rights will have no ascertainable fair market value
and,
(2) the price at which the Subscription Rights are exercisable will not be
more or less than the fair market value of the shares on the date of
exercise.
Sincerely,
Ferguson & Company
/s/ Charles M. Hebert
Charles M. Hebert
Principal
BEN FRANKLIN FINANCIAL, INC.
1999 STOCK OPTION AND INCENTIVE PLAN
1. Plan Purpose. The purpose of the Plan is to promote the long-term
interests of the Corporation and its stockholders by providing a means for
attracting and retaining directors, advisory directors, director emeritus,
officers and employees of the Corporation and its Affiliates. It is intended
that designated Options granted pursuant to the provisions of this Plan to
persons employed by the Corporation or its Affiliates will qualify as Incentive
Stock Options. Options granted to persons who are not employees will be
Non-Qualified Stock Options.
2. Definitions. The following definitions are applicable to the Plan:
"Affiliate" - means any "parent corporation" or "subsidiary corporation"
of the Corporation, as such terms are defined in Section 424(e) and (f),
respectively, of the Code.
"Bank" - means Ben Franklin Bank of Illinois and any successor entity.
"Award" - means the grant of an Incentive Stock Option, a Non-Qualified
Stock Option, a Stock Appreciation Right, a Limited Stock Appreciation Right or
any combination thereof, as provided in the Plan.
"Code" - means the Internal Revenue Code of 1986, as amended.
"Committee" - means the Committee referred to in Section 3 hereof.
"Continuous Service" - means the absence of any interruption or
termination of service as a director, advisory director, director emeriti,
officer or employee of the Corporation or an Affiliate, except that when used
with respect to any Options or Rights which at the time of exercise are intended
to be Incentive Stock Options, continuous service means the absence of any
interruption or termination of service as an employee of the Corporation or an
Affiliate. Service shall not be considered interrupted in the case of sick
leave, military leave or any other leave of absence approved by the Corporation
or in the case of transfers between payroll locations of the Corporation or
between the Corporation, its parent, its subsidiaries or its successor. With
respect to any advisory director or director emeritus, continuous service shall
mean availability to perform such functions as may be required of such persons.
"Corporation"- means Ben Franklin Financial, Inc., a Delaware corporation.
"Employee" - means any person, including an officer or director, who is
employed by the Corporation or any Affiliate.
"ERISA" - means the Employee Retirement Income Security Act of 1974, as
amended.
"Exercise Price" - means (i) in the case of an Option, the price per Share
at which the Shares subject to such Option may be purchased upon exercise of
such Option and (ii) in the case of a Right, the price per Share (other than the
Market Value per Share on the date of exercise and the Offer Price per Share as
defined in Section 10 hereof) which, upon grant, the Committee determines shall
be utilized in calculating the aggregate value which a Participant shall be
entitled to receive pursuant to Sections 9, 10 or 12 hereof upon exercise of
such Right.
"Incentive Stock Option" - means an option to purchase Shares granted by
the Committee pursuant to Section 6 hereof which is subject to the limitations
and restrictions of Section 8 hereof and is intended to qualify under Section
422(b) of the Code.
"Limited Stock Appreciation Right" - means a stock appreciation right with
respect to Shares granted by the Committee pursuant to Sections 6 and 10 hereof.
1
<PAGE>
"Market Value" - means the average of the high and low quoted sales price
on the date in question (or, if there is no reported sale on such date, on the
last preceding date on which any reported sale occurred) of a Share on the
Composite Tape for the New York Stock Exchange-Listed Stocks, or, if on such
date the Shares are not quoted on the Composite Tape, on the New York Stock
Exchange, or, if the Shares are not listed or admitted to trading on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which the Shares are listed or admitted
to trading, or, if the Shares are not listed or admitted to trading on any such
exchange, the mean between the closing high bid and low asked quotations with
respect to a Share on such date on the NASDAQ System, or any similar system then
in use, or, if no such quotations are available, the fair market value on such
date of a Share as the Committee shall determine.
"Non-Employee Director" - means a director who a) is not currently an
officer or employee of the Corporation; b) is not a former employee of the
Corporation who receives compensation for prior services (other than from a tax-
qualified retirement plan); c) has not been an officer of the Corporation; d)
does not receive remuneration from the Corporation in any capacity other than as
a director; and e) does not possess an interest in any other transactions or is
not engaged in a business relationship for which disclosure would be required
under Item 404(a) or (b) of Regulation S-K.
"Non-Qualified Stock Option" - means an option to purchase Shares granted
by the Committee pursuant to Section 6 hereof which is not intended to qualify
under Section 422(b) of the Code.
"Option"- means an Incentive Stock Option or a Non-Qualified Stock Option.
"Participant" - means any director, advisory director, director emeritus,
officer or employee of the Corporation or any Affiliate who is selected by the
Committee to receive an Award or who is granted an Award pursuant to Section 19
hereof.
"Plan"- means the 1999 Stock Option and Incentive Plan of the Corporation.
"Related" - means (i) in the case of a Right, a Right which is granted in
connection with, and to the extent exercisable, in whole or in part, in lieu of,
an Option or another Right and (ii) in the case of an Option, an Option with
respect to which and to the extent a Right is exercisable, in whole or in part,
in lieu thereof has been granted.
"Right" - means a Limited Stock Appreciation Right or a Stock Appreciation
Right.
"Shares" - means the shares of common stock of the Corporation.
"Stock Appreciation Right" - means a stock appreciation right with respect
to Shares granted by the Committee pursuant to Sections 6 and 9 hereof.
"Ten Percent Beneficial Owner" - means the beneficial owner of more than
ten percent of any class of the Corporation's equity securities registered
pursuant to Section 12 of the Securities Exchange Act of 1934.
3. Administration. The Plan shall be administered by a Committee
consisting of two or more members, each of whom shall be a Non-Employee
Director. The members of the Committee shall be appointed by the Board of
Directors of the Corporation. Except as limited by the express provisions of the
Plan, the Committee shall have sole and complete authority and discretion,
subject to Office of Thrift Supervision Regulations, to (i) select Participants
and grant Awards; (ii) determine the number of Shares to be subject to types of
Awards generally, as well as to individual Awards granted under the Plan; (iii)
determine the terms and conditions upon which Awards shall be granted under the
Plan; (iv) prescribe the form and terms of instruments evidencing such grants;
and (v) establish from time to time regulations for the administration of the
Plan, interpret the Plan, and make all determinations deemed necessary or
advisable for the administration of the Plan.
2
<PAGE>
A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by a majority of the Committee without a meeting, shall
be acts of the Committee.
4. Participation in Committee Awards. The Committee may select from time
to time Participants in the Plan from those directors (including advisory
directors and directors emeriti), officers and employees of the Corporation or
its Affiliates who, in the opinion of the Committee, have the capacity for
contributing to the successful performance of the Corporation or its Affiliates.
5. Shares Subject to Plan. Subject to adjustment by the operation of
Section 11 hereof, the maximum number of Shares with respect to which Awards may
be made under the Plan is 10% of the total Shares issued in the Bank's
conversion to the capital stock form. The Shares with respect to which Awards
may be made under the Plan may be either authorized and unissued shares or
issued shares heretofore or hereafter reacquired and held as treasury shares.
Shares which are subject to Related Rights and Related Options shall be counted
only once in determining whether the maximum number of Shares with respect to
which Awards may be granted under the Plan has been exceeded. An Award shall not
be considered to have been made under the Plan with respect to any Option or
Right which terminates and new Awards may be granted under the Plan with respect
to the number of Shares as to which such termination has occurred.
6. General Terms and Conditions of Options and Rights. The Committee shall
have full and complete authority and discretion, subject to Office of Thrift
Supervision Regulations and except as expressly limited by the Plan, to grant
Options and/or Rights and to provide the terms and conditions (which need not be
identical among Participants) thereof. In particular, the Committee shall
prescribe the following terms and conditions: (i) the Exercise Price of any
Option or Right, which shall not be less than the Market Value per Share at the
date of grant of such Option or Right, (ii) the number of Shares subject to, and
the expiration date of, any Option or Right, which expiration date shall not
exceed ten years from the date of grant, (iii) the manner, time and rate
(cumulative or otherwise) of exercise of such Option or Right, and (iv) the
restrictions, if any, to be placed upon such Option or Right or upon Shares
which may be issued upon exercise of such Option or Right. As required by Office
of Thrift Supervision Regulations, each non-employee director of the Corporation
may not be granted Awards with respect to more than 5% of the total shares
subject to the Plan and all non-employee directors of the Corporation, in the
aggregate, may not be granted Awards with respect to more than 30% of the total
shares subject to the Plan. Notwithstanding the foregoing and subject to
compliance with applicable Office of Thrift Supervision Regulations, no
individual shall be granted Awards in any calendar year with respect to more
than 25% of the total shares subject to the Plan in any calendar year or during
the entire term of the Plan.
Any Award made pursuant to this Plan, which Award is subject to the
requirements of Office of Thrift Supervision Regulations, shall vest in five
equal annual installments with the first installment vesting no sooner than the
one-year anniversary of the date of grant, except in the event of death or
disability. In the event Office of Thrift Supervision Regulations are amended
(the "Amended Regulations") to permit shorter vesting periods, any Award made
pursuant to this Plan, which Award is subject to the requirements of such
Amended Regulations, may vest, at the sole discretion of the Committee, in
accordance with such Amended Regulations.
Furthermore, at the time of any Award, the Participant shall enter into an
agreement with the Corporation in a form specified by the Committee, agreeing to
the terms and conditions of the Award and such other matters as the Committee,
in its sole discretion, shall determine (the "Option Agreement").
7. Exercise of Options or Rights.
(a) Except as provided herein, an Option or Right granted under the Plan shall
be exercisable during the lifetime of the Participant to whom such Option
or Right was granted only by such Participant and, except as provided in
paragraphs (c) and (d) of this Section 7, no such Option or Right may be
exercised unless at the time such Participant exercises such Option or
Right, such Participant has maintained Continuous Service since the date of
grant of such Option or Right.
3
<PAGE>
(b) To exercise an Option or Right under the Plan, the Participant to whom such
Option or Right was granted shall give written notice to the Corporation in
form satisfactory to the Committee (and, if partial exercises have been
permitted by the Committee, by specifying the number of Shares with respect
to which such Participant elects to exercise such Option or Right) together
with full payment of the Exercise Price, if any and to the extent required.
The date of exercise shall be the date on which such notice is received by
the Corporation. Payment, if any is required, shall be made either (i) in
cash (including check, bank draft or money order) or (ii) by delivering (A)
Shares already owned by the Participant and having a fair market value
equal to the applicable exercise price, such fair market value to be
determined in such appropriate manner as may be provided by the Committee
or as may be required in order to comply with or to conform to requirements
of any applicable laws or regulations, or (B) a combination of cash and
such Shares.
(c) If a Participant to whom an Option or Right was granted shall cease to
maintain Continuous Service for any reason (excluding death, disability and
termination of employment by the Corporation or any Affiliate for cause),
such Participant may, but only within the period of three months
immediately succeeding such cessation of Continuous Service and in no event
after the expiration date of such Option or Right, exercise such Option or
Right to the extent that such Participant was entitled to exercise such
Option or Right at the date of such cessation, provided, however, that such
right of exercise after cessation of Continuous Service shall not be
available to a Participant if the Committee otherwise determines and so
provides in the applicable instrument or instruments evidencing the grant
of such Option or Right. If a Participant to whom an Option or Right was
granted shall cease to maintain Continuous Service by reason of death or
disability then, unless the Committee shall have otherwise provided in the
instrument evidencing the grant of an Option or Right, all Options and
Rights granted and not fully exercisable shall become exercisable in full
upon the happening of such event and shall remain so exercisable (i) in the
event of death for the period described in paragraph (d) of this Section 7
and (ii) in the event of disability for a period of one year following such
date. If the Continuous Service of a Participant to whom an Option or Right
was granted by the Corporation is terminated for cause, all rights under
any Option or Right of such Participant shall expire immediately upon the
effective date of such termination.
(d) In the event of the death of a Participant while in the Continuous Service
of the Corporation or an Affiliate or within the three-month period
referred to in paragraph (c) of this Section 7, the person to whom any
Option or Right held by the Participant at the time of his death is
transferred by will or the laws of descent and distribution, or in the case
of an Award other than an Incentive Stock Option, pursuant to a qualified
domestic relations order, as defined in the Code or Title 1 of ERISA or the
rules thereunder may, but only to the extent such Participant was entitled
to exercise such Option or Right upon his death as provided in paragraph
(c) above, exercise such Option or Right at any time within a period of one
year succeeding the date of death of such Participant, but in no event
later than ten years from the date of grant of such Option or Right.
Following the death of any Partici pant to whom an Option was granted under
the Plan, irrespective of whether any Related Right shall have theretofore
been granted to the Participant or whether the person entitled to exercise
such Related Right desires to do so, the Committee may, as an alternative
means of settlement of such Option, elect to pay to the person to whom such
Option is transferred by will or by the laws of descent and distribution,
or in the case of an Option other than an Incentive Stock Option, pursuant
to a qualified domestic relations order, as defined in the Code or Title I
of ERISA or the rules thereunder, the amount by which the Market Value per
Share on the date of exercise of such Option shall exceed the Exercise
Price of such Option, multiplied by the number of Shares with respect to
which such Option is properly exercised. Any such settlement of an Option
shall be considered an exercise of such Option for all purposes of the
Plan.
8. Incentive Stock Options. Incentive Stock Options may be granted only to
Participants who are Employees. Any provision of the Plan to the contrary
notwithstanding, (i) no Incentive Stock Option shall be granted more than ten
years from the date the Plan is adopted by the Board of Directors of the
Corporation and no Incentive Stock Option shall be exercisable more than ten
years from the date such Incentive Stock Option is granted, (ii) the Exercise
Price of any Incentive Stock Option shall not be less than the Market Value per
Share on the date such Incentive Stock Op tion is granted, (iii) any Incentive
Stock Option shall not be transferable by the Participant to whom such Incentive
Stock Option is granted other than by will or the laws of descent and
distribution, and shall be exercisable during such Participant's lifetime only
by such Participant, (iv) no Incentive Stock Option shall be granted to any
individual who,
4
<PAGE>
at the time such Incentive Stock Option is granted, owns stock possessing more
than ten percent of the total combined voting power of all classes of stock of
the Corporation or any Affiliate unless the Exercise Price of such Incentive
Stock Option is at least 110 percent of the Market Value per Share at the date
of grant and such Incentive Stock Option is not exercisable after the expiration
of five years from the date such Incentive Stock Option is granted, and (v) the
aggregate Market Value (determined as of the time any Incentive Stock Option is
granted) of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by a Participant in any calendar year shall not
exceed $100,000.
9. Stock Appreciation Rights. A Stock Appreciation Right shall, upon its
exercise, entitle the Participant to whom such Stock Appreciation Right was
granted to receive a number of Shares or cash or combination thereof, as the
Committee in its discretion shall determine, the aggregate value of which (i.e.,
the sum of the amount of cash and/or Market Value of such Shares on date of
exercise) shall equal (as nearly as possible, it being understood that the
Corporation shall not issue any fractional shares) the amount by which the
Market Value per Share on the date of such exercise shall exceed the Exercise
Price of such Stock Appreciation Right, multiplied by the number of Shares with
respect of which such Stock Appreciation Right shall have been exercised. A
Stock Appreciation Right may be Related to an Option or may be granted
independently of any Option as the Committee shall from time to time in each
case determine. At the time of grant of an Option the Committee shall determine
whether and to what extent a Related Stock Appreciation Right shall be granted
with respect thereto, provided, however, and notwithstanding any other provision
of the Plan, that if the Related Option is an Incentive Stock Option, the
Related Stock Appreciation Right shall satisfy all the restrictions and
limitations of Section 8 hereof as if such Related Stock Appreciation Right were
an Incentive Stock Option and as if other rights which are Related to Incentive
Stock Options were Incentive Stock Options. In the case of a Related Option,
such Related Option shall cease to be exercisable to the extent of the Shares
with respect to which the Related Stock Appreciation Right was exercised. Upon
the exercise or termination of a Related Option, any Related Stock Appreciation
Right shall terminate to the extent of the Shares with respect to which the
Related Option was exercised or terminated.
10. Limited Stock Appreciation Rights. At the time of grant of an Option
or Stock Appreciation Right to any Participant, the Committee shall have full
and complete authority and discretion to also grant to such Participant a
Limited Stock Appreciation Right which is Related to such Option or Stock
Appreciation Right, provided, however and notwithstanding any other provision of
the Plan, that if the Related Option is an Incentive Stock Option, the Related
Limited Stock Appreciation Right shall satisfy all the restrictions and
limitations of Section 8 hereof as if such Related Limited Stock Appreciation
Right were an Incentive Stock Option and as if all other Rights which are
Related to Incentive Stock Options were Incentive Stock Options. Subject to
vesting requirements contained in 12 C.F.R. ss. 563b.3(g)(4) or any successor
regulation, a Limited Stock Appreciation Right shall be exercisable only during
the period beginning on the first day following the date of expiration of any
"offer" (as such term is hereinafter defined) and ending on the forty-fifth day
following such date.
A Limited Stock Appreciation Right shall, upon its exercise, entitle the
Participant to whom such Limited Stock Appreciation Right was granted to receive
an amount of cash equal to the amount by which the "Offer Price per Share" (as
such term is hereinafter defined) or the Market Value on the date of such
exercise, as shall have been provided by the Committee in its discretion at the
time of grant, shall exceed the Exercise Price of such Limited Stock
Appreciation Right, multiplied by the number of Shares with respect to which
such Limited Stock Appreciation Right shall have been exercised. Upon the
exercise of a Limited Stock Appreciation Right, any Related Option and/or
Related Stock Appreciation Right shall cease to be exercisable to the extent of
the Shares with respect to which such Limited Stock Appreciation Right was
exercised. Upon the exercise or termination of a Related Option or Related Stock
Appreciation Right, any Related Limited Stock Appreciation Right shall terminate
to the extent of the Shares with respect to which such Related Option or Related
Stock Appreciation Right was exercised or terminated.
For the purposes of this Section 10, the term "Offer" shall mean any
tender offer or exchange offer for Shares other than one made by the
Corporation, provided that the corporation, person or other entity making the
offer acquires pursuant to such offer either (i) 25% of the Shares outstanding
immediately prior to the commencement of such offer or (ii) a number of Shares
which, together with all other Shares acquired in any tender offer or exchange
offer (other than one made by the Corporation) which expired within sixty days
of the expiration date of the offer in
5
<PAGE>
question, equals 25% of the Shares outstanding immediately prior to the
commencement of the offer in question. The term "Offer Price per Share" as used
in this Section 10 shall mean the highest price per Share paid in any Offer
which Offer is in effect any time during the period beginning on the sixtieth
day prior to the date on which a Limited Stock Appreciation Right is exercised
and ending on the date on which such Limited Stock Appreciation Right is
exercised. Any securities or property which are part or all of the consideration
paid for Shares in the Offer shall be valued in determining the Offer Price per
Share at the higher of (A) the valuation placed on such securities or property
by the corporation, person or other entity making such Offer or (B) the
valuation placed on such securities or property by the Committee.
11. Adjustments Upon Changes in Capitalization. In the event of any change
in the outstanding Shares subsequent to the effective date of the Plan by reason
of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Corporation, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan and the
number, class and exercise price of shares with respect to which Awards
theretofore have been granted under the Plan shall be appropriately adjusted by
the Committee, whose determination shall be conclusive.
12. Effect of Merger. In the event of any merger, consolidation or
combination of the Corporation (other than a merger, consolidation or
combination in which the Corporation is the continuing entity and which does not
result in the outstanding Shares being converted into or exchanged for different
securities, cash or other property, or any combination thereof) pursuant to a
plan or agreement the terms of which are binding upon all stockholders of the
Corporation (except to the extent that dissenting stockholders may be entitled,
under statutory provisions or provisions contained in the certificate or
articles of incorporation, to receive the appraised or fair value of their
holdings), any Participant to whom an Option or Right has been granted at least
six months prior to such event shall have the right (subject to the provisions
of the Plan and any limitation or vesting period applicable to such Option or
Right), thereafter and during the term of each such Option or Right, to receive
upon exercise of any such Option or Right an amount equal to the excess of the
fair market value on the date of such exercise of the securities, cash or other
property, or combination thereof, receivable upon such merger, consolidation or
combination in respect of a Share over the Exercise Price of such Right or
Option, multiplied by the number of Shares with respect to which such Option or
Right shall have been exercised. Such amount may be payable fully in cash, fully
in one or more of the kind or kinds of property payable in such merger,
consolidation or combination, or partly in cash and partly in one or more of
such kind or kinds of property, all in the discretion of the Committee.
13. Assignments and Transfers. No Award nor any right or interest of a
Participant under the Plan in any instrument evidencing any Award under the Plan
may be assigned, encumbered or transferred except, in the event of the death of
a Participant, by will or the laws of descent and distribution or in the case of
Awards other than Incentive Stock Options pursuant to a qualified domestic
relations order, as defined in the Code or Title I of ERISA or the rules
thereunder.
14. Employee Rights Under the Plan. No director, officer or employee shall
have a right to be selected as a Participant nor, having been so selected, to be
selected again as a Participant and no director, officer, employee or other
person shall have any claim or right to be granted an Award under the Plan or
under any other incentive or similar plan of the Corporation or any Affiliate.
Neither the Plan nor any action taken thereunder shall be construed as giving
any employee any right to be retained in the employ of the Corporation or any
Affiliate.
15. Delivery and Registration of Stock. The Corporation's obligation to
deliver Shares with respect to an Award shall, if the Committee so requests, be
conditioned upon the receipt of a representation as to the investment intention
of the Participant to whom such Shares are to be delivered, in such form as the
Committee shall determine to be necessary or advisable to comply with the
provisions of the Securities Act of 1933 or any other Federal, state or local
securities legislation or regulation. It may be provided that any representation
requirement shall become inoperative upon a registration of the Shares or other
action eliminating the necessity of such representation under such Securities
Act or other securities legislation. The Corporation shall not be required to
deliver any Shares under the Plan prior to (i) the admission of such shares to
listing on any stock exchange or other system on which Shares may then be
6
<PAGE>
listed, and (ii) the completion of such registration or other qualification of
such Shares under any state or Federal law, rule or regulation, as the Committee
shall determine to be necessary or advisable.
16. Withholding Tax. The Corporation shall have the right to deduct from
all amounts paid in cash with respect to the exercise of a Right 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 or Right pursuant to the Plan, the Corporation shall
have the right to require the Participant or such other person to pay the
Corporation the amount of any taxes which the Corporation is required to
withhold with respect to such Shares, and may, in its sole discretion, withhold
sufficient Shares to cover the amount of taxes which the Corporation is required
to withhold.
17. Amendment or Termination. The Board of Directors of the Corporation
may amend, suspend or terminate the Plan or any portion thereof at any time,
subject to Office of Thrift Supervision Regulations, but (except as provided in
Section 11 hereof) no amendment shall be made without approval of the
stockholders of the Corporation which shall (i) increase the aggregate number of
Shares with respect to which Awards may be made under the Plan, (ii) materially
increase the benefits accruing to Participants, (iii) materially change the
requirements as to eligibility for participation in the Plan or (iv) change the
class of persons eligible to participate in the Plan; provided, however, that no
such amendment, suspension or termination shall impair the rights of any
Participant, without his consent, in any Award theretofore made pursuant to the
Plan.
18. Effective Date and Term of Plan. The Plan shall become effective upon
its ratification by stockholders of the Corporation. It shall continue in effect
for a term of ten years unless sooner terminated under Section 17 hereof.
19. Initial Grant. By, and simultaneously with, the ratification of this
Plan by the stockholders of the Corporation, each member of the Board of
Directors of the Corporation at the time of stockholder ratification of this
Plan who is not a full-time Employee is hereby granted a ten-year Non-Qualified
Stock Option to purchase .5% of the shares sold in the Conversion at an Exercise
Price per share equal to the Market Value per share of the Shares on the date of
grant. Each such Option shall be evidenced by a Non-Qualified Stock Option
Agreement in a form approved by the Board of Directors and shall be subject in
all respects to the terms and conditions of this Plan, which are controlling.
All Options granted pursuant to this section shall vest in five equal annual
installments with the first installment vesting on the first anniversary of the
date of grant, subject to the Director maintaining Continuous Service with the
Corporation or its Affiliates since the date of grant. All Options granted
pursuant to this Section 19 shall be rounded down to the nearest whole share to
the extent necessary to ensure that no Options to purchase stock representing
fractional shares are granted.
7
BEN FRANKLIN FINANCIAL, INC.
1999 RECOGNITION AND RETENTION PLAN
1. Plan Purpose. The purpose of the Plan is to promote the long-term
interests of the Corporation and its stockholders by providing a means for
attracting and retaining directors, executive officers and employees of the
Corporation and its Affiliates.
2. Definitions. The following definitions are applicable to the Plan:
"Award" - means the grant of Restricted Stock pursuant to the terms of
Section 12 of the Plan or by the Committee, as provided in the Plan.
"Affiliate" - means any "parent corporation" or "subsidiary corporation" of
the Corporation, as such terms are defined in Section 424(e) and (f),
respectively, of the Code.
"Bank" - means Ben Franklin Bank of Illinois, a savings institution and its
successors.
"Beneficiary" - means the person or persons designated by a Participant to
receive any benefits payable under the Plan in the event of such Participant'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 Participant's surviving spouse, if
any, or if none, his estate.
"Code" - means the Internal Revenue Code of 1986, as amended.
"Committee" - means the Committee of the Board of Directors of the
Corporation referred to in Section 6 hereof.
"Continuous Service" - means the absence of any interruption or termination
of service as a director, director emeritus, advisory director, executive
officer or employee of the Corporation or any Affiliate. Service shall not be
considered interrupted in the case of sick leave, military leave or any other
leave of absence approved by the Corporation or any Affiliate or in the case of
transfers between payroll locations of the Corporation or its Affiliates or
between the Corporation, its Affiliates or its successor. With respect to any
director emeritus or advisory director, continuous service shall mean
availability to perform such functions as may be required of such individuals.
"Conversion" - means the conversion of the Bank from the mutual to the
stock form of organization.
"Corporation" - means Ben Franklin Financial, Inc., a Delaware corporation.
"Disability" - means any physical or mental impairment which qualifies an
employee, director, director emeritus or advisor director for disability
benefits under any applicable long-term disability plan maintained by the Bank
or an Affiliate, or, if no such plan applies to such individual, which renders
such employee or director, in the judgment of the Committee, unable to perform
his customary duties and responsibilities.
"ERISA" - means the Employee Retirement Income Security Act of 1974, as
amended.
"Non-Employee Director" - means a director who a) is not currently an
officer or employee of the Corporation; b) is not a former employee of the
Corporation who receives compensation for prior services (other than from a
tax-qualified retirement plan); c) has not been an officer of the Corporation;
d) does not receive remuneration from the Corporation in any capacity other than
as a director; and e) does not possess an
1
<PAGE>
interest in any other transactions or is not engaged in a business relationship
for which disclosure would be required under Item 404(a) or (b) of Regulation
S-K.
"Participant" - means any director, director emeritus, advisory director,
executive officer or employee of the Corporation or any Affiliate who is
selected by the Committee to receive an Award or a director who is granted an
award pursuant to Section 12.
"Plan" - means the 1999 Recognition and Retention Plan of the Corporation.
"Restricted Period" - means the period of time selected by the Committee
for the purpose of determining when restrictions are in effect under Section 3
hereof with respect to Restricted Stock awarded under the Plan.
"Restricted Stock" - means Shares which have been contingently awarded to a
Participant by the Committee subject to the restrictions referred to in Section
3 hereof, so long as such restrictions are in effect.
"Shares" - means the common stock, par value $0.01 per share, of the
Corporation.
3. Terms and Conditions of Restricted Stock. The Committee shall have full
and complete authority, subject to the limitations of the Plan, to grant Awards
and, in addition to the terms and conditions contained in paragraphs (a) through
(f) of this Section 3, to provide such other terms and conditions (which need
not be identical among Participants) in respect of such Awards, and the vesting
thereof, as the Committee shall determine, subject to Office of Thrift
Supervision Regulations.
(a) At the time of an award of Restricted Stock, the Committee shall establish
for each Participant a Restricted Period, during which or at the expiration
of which, as the Committee shall determine and provide in the agreement
referred to in paragraph (d) of this Section 3, the Shares awarded as
Restricted Stock shall vest, and subject to any such other terms and
conditions as the Committee shall provide, shares of Restricted Stock may
not be sold, assigned, transferred, pledged, voted or otherwise encumbered
by the Participant, except as hereinafter provided, during the Restricted
Period. Except for such restrictions, and subject to paragraphs (c) and (e)
of this Section 3 and Section 4 hereof, the Participant as owner of such
shares shall have all the rights of a stockholder.
No director who is not an employee of the Corporation shall be granted
Awards with respect to more than 5% of the total shares subject to the
Plan. All non-employee directors of the Corporation, in the aggregate, may
not be granted Awards with respect to more than 30% of the total shares
subject to the Plan and no individual shall be granted Awards with respect
to more than 25% of the total shares subject to the Plan. No Awards shall
begin vesting earlier than one year from the date the Plan is approved by
stockholders of the Corporation and no Award shall vest at a rate in excess
of 20% per year, except in the event of death or disability. In the event
Office of Thrift Supervision Regulations are amended (the "Amended
Regulations") to permit shorter vesting periods, any Award made pursuant to
this Plan, which Award is subject to the requirements of such Amended
Regulations, may vest, at the sole discretion of the Committee, in
accordance with such Amended Regulations.
Subject to compliance with Office of Thrift Supervision Regulations, the
Committee shall have the authority, in its discretion, to accelerate the
time at which any or all of the restrictions shall lapse with respect to an
Award, or to remove any or all of such restrictions, whenever it may
determine that such action is appropriate by reason of changes in
applicable tax or other laws or other changes in circum stances occurring
after the commencement of such Restricted Period.
(b) Except as provided in Section 5 hereof, if a Participant ceases to maintain
Continuous Service for any reason (other than death or disability), unless
the Committee shall otherwise determine, all Shares of
2
<PAGE>
Restricted Stock theretofore awarded to such Participant and which at the
time of such termination of Continuous Service are subject to the
restrictions imposed by paragraph (a) of this Section 3 shall upon such
termination of Continuous Service be forfeited and returned to the
Corporation. If a Participant ceases to maintain Continuous Service by
reason of death or disability, Restricted Stock then still subject to
restrictions imposed by paragraph (a) of this Section 3 will be free of
those restrictions.
(c) Each certificate in respect of Shares of Restricted Stock awarded under the
Plan shall be registered in the name of the Participant and deposited by
the Participant, together with a stock power endorsed in blank, with the
Corporation and shall bear the following (or a similar) legend:
The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) contained in the 1999 Recognition and Retention Plan of
Ben Franklin Financial, Inc.. Copies of such Plan are on file in the
offices of the Secretary of Ben Franklin Financial, Inc., 14 N.
Dryden Avenue, Arlington Heights, Illinois 60004.
(d) At the time of any Award, the Participant shall enter into an Agreement
with the Corporation in a form specified by the Committee, agreeing to the
terms and conditions of the Award and such other matters as the Committee,
in its sole discretion, shall determine (the "Restricted Stock Agreement").
(e) The payment to the Participant of dividends or other distributions declared
or paid on such shares by the Corporation shall be deferred until the
lapsing of the restrictions imposed under paragraph (a) of this Section 3,
and such dividends or other distributions shall be held by the Corporation
for the account of the Participant until such time. There shall be credited
at the end of each year (or portion thereof) interest on the amount of the
deferred dividends or other distributions at a rate per annum as the
Committee, in its discretion, may determine. Payment of deferred dividends
or other distributions, together with interest accrued thereon, shall be
made upon the earlier to occur of the lapsing of the restrictions imposed
under paragraph (a) of this Section 3 or upon death or disability of the
Participant. Shares of Restricted Stock subject to restriction on the date
of any shareholder vote shall be voted by an independent party to be named
by the Committee.
(f) At the lapsing of the restrictions imposed by paragraph (a) of this Section
3, the Corporation shall deliver to the Participant (or where the relevant
provision of paragraph (b) of this Section 3 applies in the case of a
deceased Participant, to his legal representative, beneficiary or heir) the
certificate(s) and stock power deposited with it pursuant to paragraph (c)
of this Section 3 and the Shares represented by such certificate(s) shall
be free of the restrictions referred to in paragraph (a) of this Section 3.
4. Adjustments Upon Changes in Capitalization. In the event of any change
in the outstanding Shares subsequent to the effective date of the Plan by reason
of any reorganization, recapitalization, stock split, stock dividend,
combination or exchange of shares, merger, consolidation or any change in the
corporate structure or Shares of the Corporation, the maximum aggregate number
and class of shares as to which Awards may be granted under the Plan and the
number and class of shares with respect to which Awards theretofore have been
granted under the Plan shall be appropriately adjusted by the Committee, whose
determination shall be conclusive. Any shares of stock or other securities
received as a result of any of the foregoing by a Participant with respect to
Restricted Stock shall be subject to the same restrictions and the
certificate(s) or other instruments representing or evidencing such shares or
securities shall be legended and deposited with the Corporation in the manner
provided in Section 3 hereof.
5. Assignments and Transfers. During the Restricted Period, no Award nor
any right or interest of a Participant under the Plan in any instrument
evidencing any Award under the Plan may be assigned, encumbered or transferred
except (i) in the event of the death of a Participant, by will or the laws of
descent
3
<PAGE>
and distribution, or (ii) pursuant to a qualified domestic relations order as
defined in the Code or Title I of ERISA or the rules thereunder.
6. Administration. The Plan shall be administered by a Committee consisting
of two or more members, each of whom shall be a Non-Employee Director. The
members of the Committee shall be appointed by the Board of Directors of the
Corporation. Except as limited by the express provisions of the Plan, the
Committee shall have sole and complete authority and discretion, subject to
Office of Thrift Supervision Regulations, to (i) select Participants and grant
Awards; (ii) determine the number of Shares to be subject to types of Awards
generally, as well as individual Awards granted under the Plan; (iii) determine
the terms and conditions upon which Awards shall be granted under the Plan; (iv)
prescribe the form and terms of instruments evidencing such grants; and (v)
establish from time to time regulations for the administration of the Plan,
interpret the Plan, and make all determinations deemed necessary or advisable
for the administration of the Plan. The Committee may maintain, and update from
time to time as appropriate, a list designating selected directors as
Non-Employee Directors. The purpose of such list shall be to evidence the status
of such individuals as Non-Employee Directors and the Board of Directors may
appoint to the Committee any individual actually qualifying as a Non-Employee
Directors regardless of whether identified as such on said list.
A majority of the Committee shall constitute a quorum, and the acts of a
majority of the members present at any meeting at which a quorum is present, or
acts approved in writing by a majority of the Committee without a meeting, shall
be acts of the Committee.
7. Shares Subject to Plan. Subject to adjustment by the operation of
Section 4 hereof, the maximum number of Shares with respect to which Awards may
be made under the Plan is 4% of the total Shares issued in the Association's
Conversion. The Shares with respect to which Awards may be made under the Plan
may be either authorized and unissued Shares or issued Shares heretofore or
hereafter reacquired and held as treasury Shares. An Award shall not be
considered to have been made under the Plan with respect to Restricted Stock
which is forfeited and new Awards may be granted under the Plan with respect to
the number of Shares as to which such forfeiture has occurred.
The Corporation's obligation to deliver Shares with respect to an Award
shall, if the Committee so requests, be conditioned upon the receipt of a
representation as to the investment intention of the Participant to whom such
Shares are to be delivered, in such form as the Committee shall determine to be
necessary or advisable to comply with the provisions of the Securities Act of
1933 or any other Federal, state or local securities legislation or regulation.
It may be provided that any representation requirement shall become inoperative
upon a registration of the Shares or other action eliminating the necessity of
such representation under such Securities Act or other securities legislation.
The Corporation shall not be required to deliver any Shares under the Plan prior
to (i) the admission of such shares to listing on any stock exchange on which
Shares may then be listed, and (ii) the completion of such registration or other
qualification of such Shares under any state or Federal law, rule or regulation,
as the Committee shall determine to be necessary or advisable.
8. Employee Rights Under the Plan. No director, director emeritus, advisory
director, officer or employee shall have a right to be selected as a Participant
nor, having been so selected, to be selected again as a Participant and no
director, officer, employee or other person shall have any claim or right to be
granted an Award under the Plan or under any other incentive or similar plan of
the Corporation or any Affiliate. Neither the Plan nor any action taken
thereunder shall be construed as giving any officer or employee any right to be
retained in the employ of the Corporation, the Bank or any Affiliate.
9. Withholding Tax. Upon the termination of the Restricted Period with
respect to any shares of Restricted Stock (or at such earlier time, if any, that
an election is made by the Participant under Section 83(b) of the Code, or any
successor provision thereto, to include the value of such shares in taxable
income), the Corporation may, in its sole discretion, withhold from any payment
or distribution made under this Plan
4
<PAGE>
sufficient Shares or withhold sufficient cash to cover any applicable
withholding and employment taxes. The Corporation shall have the right to deduct
from all dividends paid with respect to shares of Restricted Stock the amount of
any taxes which the Corporation is required to withhold with respect to such
dividend payments. No discretion or choice shall be conferred upon any
Participant with respect to the form, timing or method of any such tax
withholding.
10. Amendment or Termination. The Board of Directors of the Corporation may
amend, suspend or terminate the Plan or any portion thereof at any time, subject
to Office of Thrift Supervision Regulations, but (except as provided in Section
4 hereof) no amendment shall be made without approval of the stockholders of the
Corporation which shall (i) increase the aggregate number of Shares with respect
to which Awards may be made under the Plan, (ii) materially increase the
benefits accruing to Participants, (iii) materially change the requirements as
to eligibility for participation in the Plan or (iv) change the class of persons
eligible to participate in the Plan; provided, however, that no such amendment,
suspension or termination shall impair the rights of any Participant, without
his consent, in any Award theretofore made pursuant to the Plan.
11. Term of Plan. The Plan shall become effective upon its ratification by
the stockholders of the Corporation. It shall continue in effect for a term of
ten years unless sooner terminated under Section 11 hereof.
12. Director Awards. By, and simultaneously with, the ratification of this
Plan by the stockholders of the Corporation, each member of the Board of
Directors of the Corporation who is not a full-time employee of the Corporation
is hereby granted an Award equal to .2% of the shares sold in the Conversion.
Each of the Awards granted in this Section 12 shall be earned in five equal
annual installments, with the first installment vesting on the first anniversary
of the date of grant, as long as the director maintains Continuous Service with
the Corporation or its affiliates, provided, however, that no Award shall be
earned in any fiscal year in which the Bank fails to meet all of its fully
phased-in capital requirements.
5
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made and entered into as of
this ___ day of __________, 1998, by and between Ben Franklin Financial, Inc.
(the "Holding Company") and Ronald P. Pedersen (the "Employee").
WHEREAS, the Employee is currently serving as President and Chief
Executive Officer of Ben Franklin Bank of Illinois (the "Bank") pursuant to an
employment agreement between the Bank and the Employee dated ____________ ___,
1998 (the "Prior Employment Agreement"); and
WHEREAS, the Bank has adopted a plan of conversion whereby the Bank
will convert to capital stock form as the subsidiary of the Holding Company
subject to the approval of the Bank's members and the Office of Thrift
Supervision (the "Conversion"); and
WHEREAS, the Employee has agreed that the Prior Employment Agreement
shall terminate when this Agreement becomes effective; and
WHEREAS, the board of directors of the Holding Company ("Board of
Directors") recognizes that, as is the case with publicly held corporations
generally, the possibility of a change in control of the Holding Company and/or
the Bank may exist and that such possibility, and the uncertainty and questions
which it may raise among management, may result in the departure or distraction
of key management personnel to the detriment of the Bank, the Holding Company
and their respective stockholders; and
WHEREAS, the Board of Directors believes it is in the best interests of
the Holding Company to enter into this Agreement with the Employee in order to
assure continuity of management of the Holding Company and to reinforce and
encourage the continued attention and dedication of the Employee to the
Employee's assigned duties without distraction in the face of potentially
disruptive circumstances arising from the possibility of a change in control of
the Holding Company or the Bank, although no such change is now contemplated;
and
WHEREAS, the Board of Directors has approved and authorized the
execution of this Agreement with the Employee to take effect as stated in
Section 2 hereof;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein, it is AGREED as follows:
1. Definitions.
(a) The term "Change in Control" means (1) an event of a
nature that (i) results in a change in control of the Bank or the Holding
Company within the meaning of the Home Owners' Loan Act of 1933 and 12 C.F.R.
Part 574 as in effect on the date hereof; or (ii) would be required to be
reported in response to Item 1 of the current report on Form 8-K, as in effect
on the date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 (the "Exchange Act"); (2) any person (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the beneficial owner
(as defined in Rule 13d-3 under the Exchange Act),
1
<PAGE>
directly or indirectly of securities of the Bank or the Holding Company
representing 20% or more of the Bank's or the Holding Company's outstanding
securities; (3) individuals who are members of the board of directors of the
Bank or the Holding Company on the date hereof (the "Incumbent Board") cease for
any reason to constitute at least a majority thereof, provided that any person
becoming a director subsequent to the date hereof whose election was approved by
a vote of at least three-quarters of the directors comprising the Incumbent
Board, or whose nomination for election by the Holding Company's stockholders
was approved by the nominating committee serving under an Incumbent Board, shall
be considered a member of the Incumbent Board; or (4) a reorganization, merger,
consolidation, sale of all or substantially all of the assets of the Bank or the
Holding Company or a similar transaction in which the Bank or the Holding
Company is not the resulting entity. The term "Change in Control" shall not
include an acquisition of securities by an employee benefit plan of the Bank or
the Holding Company or the acquisition of securities of the Bank by the Holding
Company in connection with the Conversion. In the application of 12 C.F.R. Part
574 to a determination of a Change in Control, determinations to be made by the
OTS or its Director under such regulations shall be made by the Board of
Directors.
(b) The term "Commencement Date" means the date of completion
of the Conversion.
(c) The term "Date of Termination" means the date upon which
the Employee ceases to serve as an employee of the Holding Company.
(d) The term "Involuntary Termination" means termination of
the employment of Employee without the Employee's express written consent, and
shall include a material diminution of or interference with the Employee's
duties, responsibilities and benefits as President and Chief Executive Officer
of the Holding Company and the Bank, including (without limitation) any of the
following actions unless consented to in writing by the Employee: (1) a change
in the principal workplace of the Employee to a location outside of a 30 mile
radius from the Bank's headquarters office as of the date hereof; (2) a material
demotion of the Employee; (3) a material reduction in the number or seniority of
other personnel reporting to the Employee or a material reduction in the
frequency with which, or in the nature of the matters with respect to which,
such personnel are to report to the Employee, other than as part of a Bank- or
Holding Company-wide reduction in staff; (4) a material adverse change in the
Employee's salary, perquisites, benefits, contingent benefits or vacation, other
than as part of an overall program applied uniformly and with equitable effect
to all members of the senior management of the Bank or the Holding Company; and
(5) a material permanent increase in the required hours of work or the workload
of the Employee. The term "Involuntary Termination" does not include Termination
for Cause or termination of employment due to retirement, death, disability or
suspension or temporary or permanent prohibition from participation in the
conduct of the Bank's affairs under Section 8 of the Federal Deposit Insurance
Act ("FDIA").
(e) The terms "Termination for Cause" and "Terminated for
Cause" mean termination of the employment of the Employee because of the
Employee's personal dishonesty, incompetence, willful misconduct, breach of a
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule, or regulation (other than traffic
2
<PAGE>
violations or similar offenses) or final cease-and-desist order, or material
breach of any provision of this Agreement. The Employee shall not be deemed to
have been Terminated for Cause unless and until there shall have been delivered
to the Employee a copy of a resolution, duly adopted by the affirmative vote of
not less than a majority of the entire membership of the Board of Directors at a
meeting of the Board called and held for such purpose (after reasonable notice
to the Employee and an opportunity for the Employee, together with the
Employee's counsel, to be heard before the Board), stating that in the good
faith opinion of the Board the Employee has engaged in conduct described in the
preceding sentence and specifying the particulars thereof in detail.
2. Term. The term of this Agreement shall be the period of three years
commencing on the Commencement Date unless extended as provided herein and
subject to earlier termination as provided herein. Beginning on the first
anniversary of the Commencement Date and on each anniversary thereafter, the
term of this Agreement shall be extended for a period of one year in addition to
the then-remaining term, provided that (1) the Holding Company has not given
notice to the Employee in writing at least 60 days prior to such date that the
term of this Agreement shall not be extended further; and (2) prior to such
date, the Board of Directors explicitly reviews and approves the extension.
Reference herein to the term of this Agreement shall refer to both such initial
term and such extended terms. Notwithstanding the foregoing, in the event that
there is no net increase in operating profits of the Bank for two consecutive
years, the Board of Directors may terminate this Agreement with no obligation to
the Employee on the part of the Holding Company. The Employee agrees that, in
consideration of the Holding Company's entering into this Agreement, immediately
prior to the Commencement date, the Prior Employment Agreement shall terminate
with no obligation to the Employee thereunder on the part of the Bank.
3. Employment. The Employee is employed as President and Chief
Executive Officer of the Holding Company and the Bank. As such, the Employee
shall render administrative and management services for the Holding Company and
its subsidiaries as are customarily performed by persons situated in similar
executive capacities, and shall have such other powers and duties the Board of
Directors may prescribe from time to time. To the extent that the Bank provides
salary and other compensation and benefits to the Employee which he is entitled
to receive under this Agreement, the Holding Company shall have no such
obligation to the Employee.
4. Compensation.
(a) Salary. The Holding Company agrees to pay the Employee
during the term of this Agreement an annual salary of $135,000. The amount of
the Employee's salary shall be reviewed annually by the Board of Directors.
Adjustments in salary or other compensation shall not limit or reduce any other
obligation of the Holding Company under this Agreement. The Employee's salary in
effect from time to time during the term of this Agreement shall not thereafter
be reduced.
(b) Bonuses. The Employee shall be entitled to an annual bonus
for fiscal years 1998, 1999 and 2000 payable within 30 days after the filing
with the Securities and Exchange Commission of the Holding Company's Annual
Report on Form 10-K (the "10-K") equal to 5% of the excess of (A) the Holding
Company's net income for any such year as reported in the
3
<PAGE>
related 10-K over (B) $781,000 as calculated without regard to (i) any change in
accounting principals after March 31, 1998, (ii) any extraordinary items, (iii)
any gain or loss from the sale of securities, physical assets or deposits or
(iv) any other item, which, in the reasonable judgment of the Board of
Directors, did not arise in the ordinary course of business.
(c) Expenses. The Employee shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by the Employee in performing
services under this Agreement in accordance with the policies and procedures
applicable to the executive officers, provided that the Employee accounts for
such expenses as required under such policies and procedures.
5. Benefits.
(a) Participation in Retirement and Employee Benefit Plans.
The Employee shall be entitled to participate in all plans relating to pension,
thrift, profit-sharing, group life insurance, medical and dental coverage,
education, and other retirement or employee benefits or combinations thereof, in
which all executive officers participate; provided, however, that this section
shall not require the Holding Company or the Bank to provide benefits which are
duplicate of those already provided to the Employee by the Bank.
(b) Fringe Benefits. The Employee shall be eligible to
participate in, and receive benefits under, any fringe benefit plans which are
or may become applicable to all executive officers.
6. Vacations; Leave. The Employee shall be entitled to four
non-consecutive weeks of paid vacation, no more than two of which shall be
consecutive.
7. Termination of Employment.
(a) Involuntary Termination. The Board of Directors may
terminate the Employee's employment at any time, but, except in the case of
Termination for Cause, termination of employment shall not prejudice the
Employee's right to compensation or other benefits under this Agreement. Except
as provided in section 2 of this Agreement, in the event of Involuntary
Termination other than in connection with or within 12 months after a Change in
Control, the Holding Company shall, during the nine months following the Date of
Termination, (1) pay to the Employee the Employee's salary at the rate in effect
immediately prior to the Date of Termination, in such manner and at such times
as such salary would have been payable if the Employee had continued to be
employed under this Agreement, and (2) provide to the Employee health benefits
as maintained for the benefit of executive officers from time to time during
such periods; provided that, the Holding Company's obligations under this
section 7(a) shall be reduced to the extent that the Employee earns salary and
receives substantially similar health benefits from another employer during such
period.
(b) Termination for Cause. In the event of Termination for
Cause, the Holding Company shall pay the Employee the Employee's salary through
the Date of Termination, and the Holding Company shall have no further
obligation to the Employee under this Agreement.
4
<PAGE>
(c) Voluntary Termination. The Employee's employment may be
voluntarily terminated by the Employee at any time upon 60 days' written notice
or such shorter period as may be agreed upon between the Employee and the Board
of Directors. In the event of such voluntary termination, the Holding Company
shall be obligated to continue to pay to the Employee the Employee's salary and
benefits only through the Date of Termination, at the time such payments are
due, and the Holding Company shall have no further obligation to the Employee
under this Agreement.
(d) Change in Control. Except as provided in section 2 of this
Agreement, in the event of Involuntary Termination in connection with or within
12 months after a Change in Control which occurs at any time while the Employee
is employed under this Agreement, the Holding Company shall, subject to Section
8 of this Agreement, (1) pay to the Employee in a lump sum in cash within 25
business days after the Date of Termination an amount equal to 299% of the
Employee's "base amount" as defined in Section 280G of the Internal Revenue Code
of 1986, as amended (the "Code"); and (2) provide to the Employee during the
remaining term of this Agreement such health benefits as are maintained for
executive officers from time to time during the remaining term of this Agreement
or substantially the same health benefits as were maintained for its executive
officers immediately prior to the Date of Termination.
(e) Death; Disability. In the event of the death of the
Employee while employed under this Agreement and prior to any termination of
employment, the Employee's estate, or such person as the Employee may have
previously designated in writing, shall be entitled to receive the salary of the
Employee through the day on which the Employee died. If the Employee becomes
disabled as defined in the Holding Company's or the Bank's then current
disability plan, if any, or if the Employee is otherwise unable to serve as
President and Chief Executive Officer of the Holding Company and the Bank, the
Employee shall be entitled to receive group and other disability income benefits
of the type, if any, then provided for executive officers.
(f) Temporary Suspension or Prohibition. 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. ss. 1818(e)(3) and (g)(1), the Holding Company's obligations under
this Agreement shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the Holding
Company may in its discretion (i) pay the Employee all or part of the
compensation withheld while its obligations under this Agreement were suspended
and (ii) reinstate in whole or in part any of its obligations which were
suspended.
(g) Permanent Suspension or Prohibition. If the Employee is
removed and/or permanently prohibited from participating in the conduct of the
Bank's affairs by an order issued under Section 8(e)(4) or (g)(1) of the FDIA,
12 U.S.C. ss. 1818(e)(4) and (g)(1), all obligations of the Holding Company
under this Agreement shall terminate as of the effective date of the order, but
vested rights of the contracting parties shall not be affected.
5
<PAGE>
(h) Default of the Bank. If the Bank is in default (as defined
in Section 3(x)(1) of the FDIA), all obligations under this Agreement shall
terminate as of the date of default, but this provision shall not affect any
vested rights of the contracting parties.
(i) Termination by Regulators. 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: (1) by
the Director of the Office of Thrift Supervision (the "Director") or his or her
designee, at the time the Federal Deposit Insurance Corporation enters into an
agreement to provide assistance to or on behalf of the Bank under the authority
contained in Section 13(c) of the FDIA; or (2) by the Director or his or her
designee, at the time the Director or his or her designee approves a supervisory
merger to resolve problems related to operation of the Bank or when the Bank is
determined by the Director to be in an unsafe or unsound condition. Any rights
of the parties that have already vested, however, shall not be affected by any
such action.
8. Certain Reduction of Payments by the Bank.
(a) Notwithstanding any other provision of this Agreement, if
the value and amounts of benefits under this Agreement, together with any other
amounts and the value of benefits received or to be received by the Employee in
connection with a Change in Control would cause any amount to be nondeductible
by the Bank or the Holding Company for federal income tax purposes pursuant to
Section 280G of the Code, then amounts and benefits under this Agreement shall
be reduced (not less than zero) to the extent necessary so as to maximize
amounts and the value of benefits to the Employee without causing any amount to
become nondeductible by the Bank or the Holding Company pursuant to or by reason
of such Section 280G. The Employee shall determine the allocation of such
reduction among payments and benefits to the Employee.
(b) Any payments made to the Employee pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with 12 U.S.C. 1828(k) and any regulations promulgated thereunder.
9. Confidential Information, Covenant Not to Compete and
Non-Solicitation.
(a) Confidential Information. The Employee acknowledges that
in the course of his employment, he will have access to and become informed of
confidential and secret information which is a competitive asset of the Holding
Company and its subsidiaries ("Confidential Information"), including, without
limitation, (i) the terms of any agreement between the Holding Company or any
subsidiary thereof and any employee, customer or supplier, (ii) pricing
strategy, (iii) merchandising and marketing methods, (iv) product development
ideas and strategies, (v) financial results, (vi) strategic plans and
demographic anaylses, and (vii) any non-public information concerning the
Holding Company or any of its subsidiaries, or their respective employees,
suppliers or customers. The Employee agrees that he will keep all Confidential
Information in strict confidence and will not make known, divulge, reveal,
furnish, make available, or use any Confidential Information that could
materially affect the operations,
6
<PAGE>
profitability or reputation of the Holding Company or any of its subsidiaries
(except in the course of his regular authorized duties). The Employee may
disclose information as required by law (after giving the Holding Company notice
and opportunity to contest such requirement). The Employee's obligations under
this Section 8 are in addition to, and not in limitation of or preemption of,
all other obligations of confidentiality which the Employee may have to the
Holding Company and its subsidiaries under general legal or equitable
principles.
(b) Return of Confidential Information. Except in the ordinary
course of the business of the Holding Company and its subsidiaries, the Employee
has not made, nor shall at any time following the date of this Agreement, make
or cause to be made, any copies, pictures, duplicates, facsimiles or other
reproductions or recordings or any abstracts or summaries including or
reflecting Confidential Information. All such documents and other property
furnished to the Employee by the Holding Company or any of its subsidiaries or
otherwise acquired or developed by the Holding Company or any of its
subsidiaries shall at all times be the property of the Holding Company or such
subsidiary. Upon termination of the Employee's employment by the Bank, the
Employee will return to the Holding Company or such subsidiary any such
documents or other property of the Holding Company or such subsidiary which are
in the possession, custody or control of the Employee.
(c) Non-Solicitation of Employees and Customers. Without the
prior written consent of the Holding Company (which may not be unreasonably
withheld), the Employee shall not at any time during the term of this agreement
and during the two years following the Date of Termination in any capacity, on
his own behalf or on behalf of any other firm, person or entity, undertake or
assist in the solicitation (i) of any employee to terminate his or her
employment with the Holding Company or any of its subsidiaries, or (ii) of any
customer of the Holding Company or any subsidiary thereof to cease doing
business with Holding Company or any of its subsidiaries.
(d) Non-Competition. In the event Employee voluntarily
resigns, the Employee shall not, for a period equal to the lesser of one year
from the date of termination, directly or indirectly, own, manage, operate or
control, or participate in the ownership, management, operation or control of,
or be employed by or connected in any manner with, any financial institution
having an office located within five miles of any office of the Bank or any
certificate thereof as of the date of termination. The provisions of this
Section shall not prevent the Employee from purchasing, solely for investment,
not more than five percent of any financial institution's stock or other
securities which are traded on any national or regional securities markets.
10. No Assignments.
(a) This Agreement is personal to each of the parties hereto,
and neither party may assign or delegate any of its rights or obligations
hereunder without first obtaining the written consent of the other party;
provided, however, that the Holding Company shall require any successor or
assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Holding Company or the Bank, by an assumption agreement in form and substance
satisfactory to the Employee, to expressly assume
7
<PAGE>
and agree to perform this Agreement in the same manner and to the same extent
that the Holding Company would be required to perform it if no such succession
or assignment had taken place. Failure of the Bank to obtain such an assumption
agreement prior to the effectiveness of any such succession or assignment shall
be a breach of this Agreement and shall entitle the Employee to compensation in
the same amount and on the same terms as the compensation pursuant to Section
7(d) hereof. For purposes of implementing the provisions of this Section 1(a),
the date on which any such succession becomes effective shall be deemed the Date
of Termination.
(b) This Agreement and all rights of the Employee hereunder
shall inure to the benefit of and be enforceable by the Employee's personal and
legal representatives, executors, administrators, successors, heirs,
distributees, devisees and legatees. If the Employee should die while any
amounts would still be payable to the Employee hereunder if the Employee had
continued to live, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Employee's devisee,
legatee or other designee or if there is no such designee, to the Employee's
estate.
11. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when personally delivered or sent by certified
mail, return receipt requested, postage prepaid, to the Holding Company at its
home office, to the attention of the Board of Directors with a copy to the
Secretary of the Holding Company, or, if to the Employee, to such home or other
address as the Employee has most recently provided in writing to the Holding
Company.
12. Amendments. No amendments or additions to this Agreement shall be
binding unless in writing and signed by both parties, except as herein otherwise
provided.
13. Headings. The headings used in this Agreement are included solely
for convenience and shall not affect, or be used in connection with, the
interpretation of this Agreement.
14. 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.
15. Governing Law. This Agreement shall be governed by the laws of the
United States to the extent applicable and otherwise by the laws of the State of
Illinois.
16. Arbitration. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
accordance with the rules of the American Arbitration Association then in
effect. Judgment may be entered on the arbitrator's award in any court having
jurisdiction.
8
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
HOLDING COMPANY
------------------------------------
By:
Its:
------------------------------------
Ronald P. Pederson
9
CONSENT OF COUNSEL
We consent to the use of our opinion, to the incorporation by reference
of such opinion as an exhibit to the Form S-1 and to the reference to our firm
under the headings "The Conversion Legal and Tax Matters" in the Prospectus
included in this Form S-1. In giving this consent, we do not admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended, or the rules and regulations of the
Securities and Exchange Commission thereunder.
/s/ SILVER, FREEDMAN & TAFF, L.L.P.
SILVER, FREEDMAN & TAFF, L.L.P.
Washington, D.C.
April 2, 1998
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Ben Franklin Bank of Illinois
We consent to the use in this Registration Statement on Form S-1 filed with the
Securities and Exchange Commission and Form AC filed with the Office of Thrift
Supervision on April 2, 1998, of our report dated February 27, 1998, on the
financial statements of Ben Franklin Bank of Illinois (formerly know as Douglas
Savings Bank) for the year ended December 31, 1997. We also consent to the
reference to us under the headings "The Conversion - Income Tax Consequences"
and "Experts", in this Registration Statement on Forms S-1 and AC.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Oak Brook, Illinois
April 2, 1998
[FERGUSON & COMPANY LETTERHEAD]
March 31, 1998
Board of Directors
Douglas Savings Bank
14 North Dryden Avenue
Arlington Heights, Illinois
Directors:
We hereby consent to the use of our firm's name in the Form AC Application
for Conversion of Douglas Savings Bank, and any amendments thereto, in the Form
S-1 Registration Statement of Ben Franklin Financial, Inc. and any amendments
thereto, and in the Application H-(e)1-S fo Ben Franklin Financial, Inc. We also
hereby consent to the inclusion of, summary of, and reference to our Appraisal
Report and our opinion concerning subscription rights in such filings including
the Prospectus of Ben Franklin Financial, Inc.
Sincerely,
/s/ Charles M. Hebert
Charles M. Hebert
Principal
BEN FRANKLIN BANK OF ILLINOIS
14 N. Dryden Place
Arlington Heights, Illinois 60004
(847) 398-0990
------------------------------------
NOTICE OF SPECIAL MEETING OF MEMBERS
------------------------------------
Notice is hereby given that a Special Meeting of Members (the "Special
Meeting") of Ben Franklin Bank of Illinois ("Ben Franklin" or the "Bank") will
be held at the main office of the Bank located at 14 N. Dryden Place, Arlington
Heights, Illinois, on ________ __, 1998 at __:__ _.m., local time. The purpose
of this Special Meeting is to consider and vote upon:
1. A plan to convert the Bank from a federally chartered mutual savings
bank to a federally chartered stock savings bank, including the
adoption of a federal stock savings bank charter and bylaws, with the
concurrent sale of all the Bank's common stock to Ben Franklin
Financial, Inc., a Delaware corporation (the "Holding Company"), and
sale by the Holding Company of shares of its common stock; and
such other business as may properly come before the Special Meeting or any
adjournment thereof. Management is not aware of any such other business.
The members who shall be entitled to notice of and to vote at the
Special Meeting and any adjournment thereof are depositors of the Bank at the
close of business on _______ __, 1998 who continue to be depositors as of the
date of the Special Meeting. In the event there are not sufficient votes for
approval of the Plan of Conversion at the time of the Special Meeting, the
Special Meeting may be adjourned from time to time in order to permit further
solicitation of proxies.
BY ORDER OF THE BOARD OF DIRECTORS
____________________________________
Joseph J. Gasior
Chairman of the Board
Arlington Heights, Illinois
________ __, 1998
- --------------------------------------------------------------------------------
YOUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE
FOR APPROVAL OF THE PLAN OF CONVERSION BY COMPLETING THE
ENCLOSED PROXY CARD AND RETURNING IT IN THE ENCLOSED
POSTAGE-PAID ENVELOPE AS SOON AS POSSIBLE.
YOUR VOTE IS VERY IMPORTANT.
- --------------------------------------------------------------------------------
<PAGE>
SUMMARY OF PROPOSED CONVERSION
This summary does not purport to be complete and is qualified in its
entirety by the more detailed information contained in the remainder of this
Proxy Statement and the accompanying Prospectus.
Under its present "mutual" form of organization, Ben Franklin has no
stockholders. Its deposit account holders are members of the Bank and have
voting rights in that capacity. In the unlikely event of liquidation, the Bank's
deposit account holders would have the sole right to receive any assets of the
Bank remaining after payment of its liabilities (including the claims of all
deposit account holders to the withdrawal value of their deposits). Under the
Plan of Conversion (the "Plan of Conversion") to be voted on at the Special
Meeting, the Bank would be converted into a federally chartered savings bank
organized in stock form, and all of the Bank's common stock would be sold
concurrently to the Holding Company (the "Conversion"). The Holding Company will
offer and sell its common stock (the "Common Stock") in an offering to (1)
account holders with an account balance of $50 or more on January 31, 1997
("Eligible Account Holders"), (2) tax-qualified employee plans of the Bank and
the Holding Company ("Tax-Qualified Employee Plans") provided, however, that the
Tax-Qualified Employee Plans shall have first priority Subscription Rights to
the extent that the total number of shares of Common Stock sold in the
Conversion exceeds the maximum of the appraisal range, (3) account holders of
the Bank with an account balance of $50 or more as of __________ __, 1997
("Supplemental Eligible Account Holders"), (4) certain other members of the Bank
as of ________ __, 1997 who are not Eligible or Supplemental Eligible Account
Holders ("Other Members") and (5) employees, officers and directors of the Bank
(the "Subscription Offering"). It is anticipated that Tax-Qualified Employee
Plans will purchase 8% of the Common Stock sold in the Conversion.
To the extent the Common Stock is not all sold to the persons in the
foregoing categories, the Holding Company may offer and sell the remainder of
the Common Stock in a direct community offering ("Direct Community Offering") or
public offering ("Public Offering") through Friedman, Billings, Ramsey & Co.,
Inc. ("FBR") to selected persons to whom a prospectus (the "Prospectus") is
delivered. The Subscription Offering and the Public Offering and/or Direct
Community Offering are referred to collectively as the "Offering." Voting and
liquidation rights with respect to the Bank would thereafter be held by the
Holding Company, except to the limited extent of the liquidation account (the
"Liquidation Account") that will be established for the benefit of Eligible and
Supplemental Eligible Account Holders of the Bank and voting and liquidation
rights in the Holding Company would be held only by those persons who become
stockholders of the Holding Company through purchase of shares of its Common
Stock. See "Description of the Plan of Conversion - Principal Effects of
Conversion - Liquidation Rights of Depositor Members."
THE CONVERSION WILL NOT AFFECT THE BALANCE, INTEREST RATE OR FEDERAL
INSURANCE PROTECTION OF ANY SAVINGS DEPOSIT, AND NO PERSON WILL BE OBLIGATED TO
PURCHASE ANY STOCK IN THE CONVERSION.
Business Purposes for Conversion Net Conversion proceeds are expected to
increase the capital of Ben Franklin, which
will support the expansion of its financial
services to the public. The conversion to
stock form and the use of a holding company
structure are also expected to enhance its
ability to expand through possible mergers
and acquisitions ( although no such
transactions are contemplated at this time)
and will facilitate its future access to the
capital markets. The Bank will continue to
be subject to comprehensive regulation and
examination by the Office of Thrift
Supervision, Department of Treasury ("OTS")
and the Federal Deposit Insurance
Corporation ("FDIC").
i
<PAGE>
Subscription Offering As part of the Conversion, Common Stock is
being offered for sale in the Subscription
Offering, in the priorities summarized
below, to the Bank's (1) Eligible Account
Holders, (2) Tax-Qualified Employee Plans,
(3) Supplemental Eligible Account Holders
(4) Other Members, and (5) employees,
officers and directors. If necessary, all
shares of Common Stock not purchased in the
Subscription Offering, if any, may be
offered in connection with the Public
Offering and/or Direct Community Offering
for sale to selected persons through FBR.
Subscription Rights of Eligible Each Eligible Account Holder has been given
Account Holders non-transferable rights to subscribe for an
amount equal to the greater of $200,000 of
Common Stock, one-tenth of one percent of
the total number of shares offered in the
Subscription Offering or 15 times the
product (rounded down to the whole next
number) obtained by multiplying the total
number of shares to be issued by a fraction
of which the numerator is the amount of
qualifying deposits of such subscriber and
the denominator is the total qualifying
deposits of all account holders in this
category on the qualifying date.
Subscription Rights of The Bank's Tax-Qualified Employee Plans have
Tax-Qualified Employee Plan been given non-Employee Plans transferable
rights to subscribe, individually and in the
aggregate, for up to 10% of the total number
of shares sold in the Conversion after
satisfaction of subscriptions of Eligible
Account Holders. Notwithstanding the
foregoing, to the extent orders for shares
exceed the maximum of the appraisal range,
Tax-Qualified Employee Plans shall be
afforded a first priority to purchase shares
sold above the maximum of the appraisal
range. It is anticipated that Tax-Qualified
Employee Plans will purchase 8% of the
Common Stock sold in the Conversion.
Subscription Rights of Supplemental After satisfaction of subscriptions of
Eligible Account Holders Eligible Account Holders and Tax-Qualified
Employee Plans, each Supplemental Eligible
Account Holder (other than directors and
officers of the Bank) has been given non-
transferable rights to subscribe for an
amount equal to the greater of $200,000 of
Common Stock, one-tenth of one percent of
the total number of shares offered in the
Conversion or 15 times the product (rounded
down to the whole next number) obtained by
multiplying the total number of shares to be
issued by a fraction of which the numerator
is the amount of qualifying deposits of such
subscriber and the denominator is the total
qualifying deposits of all account holders
in this category on the qualifying date. The
subscription rights of each Supplemental
Eligible Account Holder shall be reduced to
the extent of such person's subscription
rights as an Eligible Account Holder.
Subscription Rights of Other Each Other Member has been given non-
Members transferable rights to subscribe for an
amount equal to the greater of $200,000 of
Common Stock or one-tenth of one percent of
the total number of shares offered in the
Conversion after satisfaction of the
subscriptions of the Bank's Eligible Account
Holders, Tax-Qualified Employee Plans and
Supplemental Eligible Account Holders.
ii
<PAGE>
Subscription Rights of Bank Each individual employee, officer and
Personnel director of the Bank has been given the
right to subscribe for an amount equal to
the greater of $200,000 of Common Stock
after satisfaction of the subscriptions of
Eligible Account Holders, Tax-Qualified
Employee Plans, Supplemental Eligible
Account Holders and Other Members. Total
shares subscribed for by the employees,
officers and directors in this category may
not exceed 23% of the total shares offered
in the Conversion.
Public Offering and/or Subject to prior rights of holders of
Direct Community Offering subscription rights, the Holding Company may
also offer the Common Stock for sale to
selected persons through FBR in a Public
Offering and/or Direct Community Offering.
Purchase Limitations No person may purchase more than $200,000 of
Common Stock in the Subscription Offering.
No person, together with associates, and
persons acting in concert, may purchase more
than $600,000 of Common Stock in the
Conversion. No person, together with
associates of and persons acting in concert
with such person, may purchase more than
$200,000 of Common Stock in the Public
Offering and/or Direct Community Offering.
The aggregate purchases of directors and
executive officers and their associates may
not exceed 33% of the total number of shares
offered in the Conversion. These purchase
limitations do not apply to the Bank's
Tax-Qualified Employee Plans.
Expiration Date of the All subscriptions for Common Stock in
Subscription Offering connection with the Subscription Offering
must be received by noon,Arlington Heights,
Illinois Time on _____ __, 1998.
How to Subscribe for Shares For information on how to subscribe for
Common Stock being offered in the
Subscription Offering, please read the
Prospectus and the order form and
instructions accompanying this Proxy
Statement. Subscriptions will not become
effective until the Plan of Conversion has
been approved by the Bank's members and all
of the Common Stock offered in the
Conversion has been subscribed for or sold
in the Offering or through such other means
as may be approved by the OTS.
Price of Common Stock All sales of Common Stock in the Offering
will be made at the same price per share
which is currently expected to be $10.00 per
share on the basis of an independent
appraisal of the pro forma market value of
the Bank and the Holding Company upon
Conversion. On the basis of a preliminary
appraisal by Ferguson and Company
("Ferguson"), which has been reviewed by the
OTS, a minimum of 1,190,000 and a maximum of
1,851,500 shares will be offered in the
Conversion. See "The Conversion - Stock
Pricing and Number of Shares to be Issued"
in the Prospectus.
Tax Consequences The Bank has received an opinion from Crowe
Chizek and Company LLP ("Crowe Chizek"),
stating that the Conversion is a nontaxable
reorganization under Section 368(a)(1)(F) of
the Internal Revenue Code. The Bank has also
received an opinion from Crowe Chizek
stating that the Conversion will not be a
taxable transaction for Illinois income tax
purposes.
Required Vote Approval of the Plan of Conversion will
require the affirmative vote of a majority
of all votes eligible to be cast at the
Special Meeting.
iii
<PAGE>
BEN FRANKLIN BANK OF ILLINOIS
PROXY STATEMENT
SPECIAL MEETING OF MEMBERS TO BE HELD ON ________ __, 1998
PURPOSE OF MEETING
This Proxy Statement is being furnished to you in connection with the
solicitation on behalf of the Board of Directors of Ben Franklin Bank of
Illinois ("Ben Franklin" or the "Bank") of the proxies to be voted at the
Special Meeting of Members (the "Special Meeting") of the Bank to be held at the
Bank's main office located at 14 N. Dryden Place, Arlington Heights, Illinois
___________, on ________ __, 1998 at __:__ _.m., local time, and at any
adjournments thereof. The Special Meeting is being held for the purpose of
considering and voting upon a Plan of Conversion under which the Bank would be
converted (the "Conversion") from a federally chartered mutual savings bank into
a federally chartered stock savings bank, the concurrent sale of all the common
stock of the stock savings bank to Ben Franklin Financial, Inc. (the "Holding
Company"), a Delaware corporation, and the sale by the Holding Company of shares
of its common stock (the "Common Stock").
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS THAT YOU VOTE
TO APPROVE THE PLAN OF CONVERSION.
The Bank is currently organized in "mutual" rather than "stock" form,
meaning that it has no stockholders and no authority under its federal mutual
charter to issue capital stock. The Bank's Board of Directors has adopted the
Plan of Conversion providing for the Conversion. The sale of Common Stock of the
Holding Company, which was recently formed to become the holding company of the
Bank, will substantially increase the Bank's net worth. The Holding Company will
exchange 50% of the net proceeds from the sale of the Common Stock for the
common stock of the Bank to be issued upon Conversion. The Holding Company
expects to retain the balance of the net proceeds as its initial capitalization,
a portion of which the Holding Company intends to lend to the ESOP to fund its
purchase of Common Stock. This increased capital will support the expansion of
the Bank's financial services to the public. The Board of Directors of the Bank
also believes that the conversion to stock form and the use of a holding company
structure will enhance the Bank's ability to expand through possible mergers and
acquisitions (although no such transactions are contemplated at this time) and
will facilitate its future access to the capital markets.
The Board of Directors of the Bank believes that the Conversion will
further benefit the Bank by enabling it to attract and retain key personnel
through prudent use of stock-related incentive compensation and benefit plans.
The Board of Directors of the Holding Company intends to adopt a stock option
and incentive plan and a recognition and retention plan, subject to approval of
Holding Company stockholders following completion of the Conversion. See
"Management - Benefit Plans" in the accompanying Prospectus.
Voting in favor of the Plan of Conversion will not obligate any person
to purchase any Common Stock.
THE OFFICE OF THRIFT SUPERVISION ("OTS") HAS APPROVED THE PLAN OF
CONVERSION SUBJECT TO THE APPROVAL OF THE BANK'S MEMBERS AND THE SATISFACTION OF
CERTAIN OTHER CONDITIONS. HOWEVER, SUCH APPROVAL DOES NOT CONSTITUTE A
RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION BY THE OTS.
INFORMATION RELATING TO VOTING AT THE SPECIAL MEETING
The Board of Directors of the Bank has fixed , 1998 as the voting
record date ("Voting Record Date") for the determination of members entitled to
notice of the Special Meeting. All Bank depositors are members of the Bank under
its current charter. All Bank depositors of record as of the close of business
on the Voting Record
1
<PAGE>
Date who continue to be depositors and borrowers as of the date of the Special
Meeting will be entitled to vote at the Special Meeting or any adjournment
thereof.
Each depositor member (including IRA and Keogh account beneficiaries)
will be entitled at the Special Meeting to cast one vote for each $100, or
fraction thereof, of the aggregate withdrawal value of all of such depositor's
accounts in the Bank as of the Voting Record Date, up to a maximum of 1,000
votes. In general, accounts held in different ownership capacities will be
treated as separate memberships for purposes of applying the 1,000 vote
limitation. For example, if two persons hold a $100,000 account in their joint
names and each of the persons also holds a separate account for $100,000 in his
own name, each person would be entitled to 1,000 votes for each separate account
and they would together be entitled to cast 1,000 votes on the basis of the
joint account. Where no proxies are received from IRA and Keogh account
beneficiaries, after due notification, the Bank, as trustee of these accounts,
is entitled to vote these accounts in favor of the Plan of Conversion. Each
member borrower is entitled to one vote in addition to any other vote the
borrower may otherwise have.
Approval of the Plan of Conversion requires the affirmative vote of a
majority of the total outstanding votes of the Bank's members eligible to be
cast at the Special Meeting. As of _______ __, 1998, the Bank had approximately
______ members who were entitled to cast a total of approximately _________
votes at the Special Meeting.
Bank members may vote at the Special Meeting or any adjournment thereof
in person or by proxy. Any member giving a proxy will have the right to revoke
the proxy at any time before it is voted by giving written notice to the
Secretary of the Bank, provided that such written notice is received by the
Secretary prior to the Special Meeting or any adjournment thereof, or upon
request if the member is present and chooses to vote in person.
All properly executed proxies received by the Board of Directors of the
Bank will be voted in accordance with the instructions indicated thereon by the
members giving such proxies. If no instructions are given, such proxies will be
voted in favor of the Plan of Conversion and the establishment of the charitable
foundation. If any other matters are properly presented at the Special Meeting
and may properly be voted on, the proxies solicited hereby will be voted on such
matters in accordance with the best judgment of the proxy holders named thereon.
Management is not aware of any other business to be presented at the Special
Meeting.
If a proxy is not executed and is returned and the member does not vote
in person, the Bank is prohibited by OTS regulations from using a previously
executed proxy to vote for the Conversion or the Foundation. As a result,
failure to vote may have the same effect as a vote against the Plan of
Conversion and the Foundation.
To the extent necessary to permit approval of the Plan of Conversion,
proxies may be solicited by officers, directors or regular employees of the
Bank, in person, by telephone or through other forms of communication and, if
necessary, the Special Meeting may be adjourned to a later date. In addition,
FBR will assist the Bank in the solicitation of proxies. Such persons will be
reimbursed by the Bank for their expenses incurred in connection with such
solicitation. The Bank will bear all costs of this solicitation. The proxies
solicited hereby will be used only at the Special Meeting and at any adjournment
thereof.
DESCRIPTION OF THE PLAN OF CONVERSION
The Plan of Conversion to be presented for approval at the Special
Meeting provides for the Conversion to be accomplished through adoption of
amended charter and bylaws for the Bank to authorize the issuance of capital
stock along with the concurrent formation of a holding company. As part of the
Conversion, the Plan of Conversion provides for the subscription offering (the
"Subscription Offering") of the Common Stock to the Bank's (i) Eligible Account
Holders (deposit account holders with an account balance of $50 or more as of
January 31, 1997; (ii) Tax-Qualified Employee Plans, (iii) Supplemental Eligible
Account Holders (deposit account holders with an account balance of $50 or more
as of __________ __, 1998); (iv) Other Members (deposit account holders eligible
to vote at the Special Meeting who are not as Eligible Account Holders or
Supplemental Eligible Account Holders); and (v) the Bank's employees, officers
and directors. Notwithstanding the foregoing, to the extent orders for shares
exceed the maximum of the appraisal range, Tax-Qualified Employee Plans shall be
afforded a first priority to purchase shares sold above the maximum of the
appraisal range. It is anticipated that Tax-Qualified Employee Plans will
purchase 8% of the Common Stock sold in the Conversion. If necessary, all shares
of Common Stock not purchased in the Subscription
2
<PAGE>
Offering, if any, may be offered to selected persons in connection with the
Public Offering and/or Direct Community Offering through FBR.
THE SUBSCRIPTION OFFERING HAS COMMENCED AS OF THE DATE OF MAILING OF
THIS PROXY STATEMENT. A PROSPECTUS EXPLAINING THE TERMS OF THE SUBSCRIPTION
OFFERING, INCLUDING HOW TO ORDER AND PAY FOR SHARES AND DESCRIBING THE BUSINESS
OF THE BANK AND THE HOLDING COMPANY; ACCOMPANIES THIS PROXY STATEMENT AND SHOULD
BE READ BY ALL PERSONS WHO WISH TO CONSIDER SUBSCRIBING FOR COMMON STOCK. THE
SUBSCRIPTION OFFERING EXPIRES AT NOON, ARLINGTON HEIGHTS, ILLINOIS TIME ON
________ __, 1998 UNLESS EXTENDED BY THE BANK AND THE HOLDING COMPANY.
The federal conversion regulations require that all stock offered in a
conversion must be sold in order for the conversion to become effective. The
conversion regulations require that the offering be completed within 45 days
after completion of the Subscription Offering period unless extended by the Bank
and the Holding Company with the approval of the OTS. This 45-day period expires
________ __, 1998 unless the Subscription Offering is extended. If this is not
possible, an occurrence that is currently not anticipated, the Board of
Directors of the Bank and the Holding Company will consult with the OTS to
determine an appropriate alternative method of selling all unsubscribed shares
offered in the Conversion. The Plan of Conversion provides that the Conversion
must be completed within 24 months after the date of the Special Meeting.
The Public Offering and/or Direct Community Offering or any other sale
of the unsubscribed shares will be made as soon as practicable after the
completion of the Subscription Offering. No sales of shares may be completed,
either in the Subscription Offering or otherwise, unless the Plan of Conversion
is approved by the members of the Bank.
The commencement and completion of the Offering, however, is subject to
market conditions and other factors beyond the Bank's control. Due to adverse
conditions in the stock market in the past, a number of converting thrift
institutions encountered significant delays in completing their stock offerings
or were not able to complete them at all. No assurance can be given as to the
length of time after approval of the Plan of Conversion at the Special Meeting
that will be required to complete the Public Offering and/or Direct Community
Offering or other sale of the Common Stock to be offered in the Conversion. If
delays are experienced, significant changes may occur in the estimated pro forma
market value of the Holding Company's Common Stock, together with corresponding
changes in the offering price and the net proceeds realized by the Bank and the
Holding Company from the sale of the Common Stock. The Bank and the Holding
Company may also incur substantial additional printing, legal, accounting and
other expenses in completing the Conversion.
The following is a brief summary of the Conversion and is qualified in
its entirety by reference to the Plan of Conversion, a complete copy of which is
attached hereto. The Bank's federal stock charter and bylaws that will become
effective upon completion of the Conversion are available from the Bank upon
request. A copy of the Holding Company's articles of incorporation and bylaws
are also available from the Bank upon request.
Principal Effects of Conversion
Depositors. The Conversion will not change the amount, interest rate,
withdrawal rights or federal insurance protection of deposit accounts, or affect
deposit accounts in any way other than with respect to voting and liquidation
rights as discussed below.
Borrowers. The rights and obligations of borrowers under their loan
agreements with the Bank will remain unchanged by the Conversion. The principal
amount, interest rate and maturity date of loans will remain as they were
contractually fixed prior to the Conversion.
Voting Rights of Members. Under the Bank's current federal mutual
charter, depositors have voting rights as members of the Bank with respect to
the election of directors and certain other affairs of the Bank. After the
Conversion, exclusive voting rights with respect to all such matters will be
vested in the Holding Company as the sole stockholder of the Bank. Depositors
will no longer have any voting rights, except to the extent that they become
stockholders of the Holding Company through the purchase of its Common Stock.
Voting rights in the Holding Company will be held exclusively by its
stockholders.
3
<PAGE>
Liquidation Rights of Depositor Members. Currently, in the unlikely
event of liquidation of the Bank, any assets remaining after satisfaction of all
creditors' claims in full (including the claims of all depositors to the
withdrawal value of their accounts) would be distributed pro rata among the
depositors of the Bank, with the pro rata share of each being the same
proportion of all such remaining assets as the withdrawal value of each
depositor's account is of the total withdrawal value of all accounts in the Bank
at the time of liquidation. After the Conversion, the assets of the Bank would
first be applied, in the event of liquidation, against the claims of all
creditors (including the claims of all depositors to the withdrawal value of
their accounts). Any remaining assets would then be distributed to the persons
who qualified as Eligible Account Holders or Supplemental Eligible Account
Holders under the Plan of Conversion to the extent of their interests in a
"Liquidation Account" that will be established at the time of the completion of
the Conversion and then to the Holding Company as the sole stockholder of the
Bank's outstanding common stock. The Bank's depositors who did not qualify as
Eligible Account Holders or Supplemental Eligible Account Holders would have no
right to share in any residual net worth of the Bank in the event of liquidation
after the Conversion, but would continue to have the right as creditors of the
Bank to receive the full withdrawal value of their deposits prior to any
distribution to the Holding Company as the Bank's sole stockholder. In addition,
the Bank's deposit accounts will continue to be insured by the Federal Deposit
Insurance Corporation ("FDIC") to the maximum extent permitted by law, currently
up to $100,000 per insured account. The Liquidation Account will initially be
established in an amount equal to the net worth of the Bank as of the date of
the Bank's latest statement of financial condition contained in the final
prospectus used in connection with the Conversion. Each Eligible Account Holder
and/or Supplemental Eligible Account Holder will receive an initial interest in
the Liquidation Account in the same proportion as the balance in all of his
qualifying deposit accounts was of the aggregate balance in all qualifying
deposit accounts of all Eligible Account Holders and Supplemental Eligible
Account Holders on January 31, 1997 or ________ __, 1998, respectively. For
accounts in existence on both dates, separate subaccounts shall be determined on
the basis of the qualifying deposits in such accounts on the record dates.
However, if the amount in the qualifying deposit account on any annual closing
date of the Bank is less than the lowest amount in such deposit account on the
Eligibility Record Date and/or Supplemental Eligibility Record Date, and any
subsequent annual closing date, this interest in the Liquidation Account will be
reduced by an amount proportionate to such reduction in the related deposit
account and will not thereafter be increased despite any subsequent increase in
the related deposit account.
The Bank. Under federal law, the stock savings bank resulting from the
Conversion will be deemed to be a continuation of the mutual savings bank rather
than a new entity and will continue to have all of the rights, privileges,
properties, assets and liabilities of the Bank prior to the Conversion. The
Conversion will enable the Bank to issue capital stock, but will not change the
general objectives, purposes or types of business currently conducted by the
Bank, and no assets of the Bank will be distributed in order to effect the
Conversion, other than to pay the expenses incident thereto. After the
Conversion, the Bank will remain subject to examination and regulation by the
OTS and will continue to be a member of the Federal Home Loan Bank System. The
Conversion will not cause any change in the executive officers or directors of
the Bank.
Tax Consequences. Consummation of the Conversion is expressly
conditioned upon prior receipt of either a ruling of the United States Internal
Revenue Service ("IRS") or an opinion letter with respect to federal taxation,
and either a ruling of the Illinois taxation authorities or an opinion letter
with respect to Illinois taxation, to the effect that the Conversion will not be
a taxable transaction to the Holding Company, the Bank or the Bank's deposit
account holders receiving subscription rights.
The Bank has received an opinion of Crowe Chizek, to the effect that
(i) the Conversion will qualify as a reorganization under Section 368(a)(1)(F)
of the Internal Revenue Code of 1986, as amended, and no gain or loss will be
recognized to the Bank in either its mutual form or its stock form by reason of
the proposed Conversion, (ii) no gain or loss will be recognized to the Bank in
its stock form upon the receipt of money and other property, if any, from the
Holding Company for the stock of the Bank; and no gain or loss will be
recognized to the Holding Company upon the receipt of money for Common Stock of
the Holding Company; (iii) the assets of the Bank in either its mutual or its
stock form will have the same basis before and after the Conversion; (iv) the
holding period of the assets of the Bank in its stock form will include the
period during which the assets were held by the Bank in its mutual form prior to
Conversion; (v) gain, if any, will be realized by the depositors of the Bank
upon the constructive issuance to them of withdrawable deposit accounts of the
Bank in its stock form, nontransferable subscription rights to purchase Holding
Company Common Stock and/or interests in the Liquidation Account (any such gain
will be recognized by such depositors, but only in an amount not in excess of
the fair market value of the subscription rights and Liquidation Account
interests received); (vi) the basis of the account holder's savings accounts in
the Bank after the Conversion will be the same as
4
<PAGE>
the basis of his or her savings accounts in the Bank prior to the Conversion;
(vii) the basis of each account holder's interest in the Liquidation Account is
assumed to be zero; (viii) based on the Ferguson Letter, as hereinafter defined,
the basis of the subscription rights will be zero; (ix) the basis of the Holding
Company Common Stock to its stockholders will be the purchase price thereof; (x)
a stockholder's holding period for Holding Company Common Stock acquired through
the exercise of subscription rights shall begin on the date on which the
subscription rights are exercised and the holding period for the Conversion
Stock purchased in the Offering will commence on the date following the date on
which such stock is purchased; (xi) the Bank in its stock form will succeed to
and take into account the earnings and profits or deficit in earnings and
profits, of the Bank, in its mutual form, as of the date of Conversion; (xii)
the Bank, immediately after Conversion, will succeed to and take into account
the bad debt reserve accounts of the Bank, in mutual form, and the bad debt
reserves will have the same character in the hands of the Bank after Conversion
as if no Conversion had occurred; and (xiii) the creation of the Liquidation
Account will have no effect on the Bank's taxable income, deductions or addition
to reserve for bad debts either in its mutual or stock form.
The opinion from Crowe Chizek is based, among other things, on certain
assumptions, including the assumptions that the exercise price of the
Subscription Rights to purchase Holding Company Common Stock will be
approximately equal to the fair market value of that stock at the time of the
completion of the proposed Conversion. With respect to the Subscription Rights,
the Bank will receive a letter from Ferguson (the "Ferguson Letter") which,
based on certain assumptions, will conclude that the Subscription Rights to be
received by Eligible Account Holders, Supplemental Eligible Account Holders and
other eligible subscribers do not have any economic value at the time of
distribution or at the time the Subscription Rights are exercised, whether or
not a Direct Community or Public Offering takes place.
The Bank has also received an opinion of Crowe Chizek to the effect
that, based in part on the Ferguson Letter: (i) no taxable income will be
realized by depositors as a result of the exercise of non-transferable
Subscription Rights to purchase shares of Holding Company Common Stock at fair
market value; (ii) no taxable income will be recognized by borrowers, directors,
officers and employees of the Bank on the receipt or exercise of Subscription
Rights to purchase shares of Holding Company Common Stock at fair market value;
and (iii) no taxable income will be realized by the Bank or Holding Company on
the issuance of Subscription Rights to eligible subscribers to purchase shares
of Holding Company Common Stock at fair market value.
Notwithstanding the Ferguson Letter, if the Subscription Rights are
subsequently found to have a fair market value and are deemed a distribution of
property, it is Crowe Chizek's opinion that gain or income will be recognized by
various recipients of the Subscription Rights (in certain cases, whether or not
the rights are exercised) and the Bank and/or the Holding Company may be taxable
on the distribution of the Subscription Rights.
With respect to Illinois taxation, the Bank has received an opinion
from Crowe Chizek to the effect that the Illinois tax consequences to the Bank,
in its mutual or stock form, the Holding Company, eligible account holders,
parties receiving Subscription Rights, parties purchasing conversion stock, and
other parties participating in the Conversion will be the same as the federal
income tax consequences described above.
Unlike a private letter ruling, the opinions of Crowe, Chizek, as well
as the Ferguson Letter, have no binding effect or official status, and no
assurance can be given that the conclusions reached in any of those opinions
would be sustained by a court if contested by the IRS or the Delaware or
Illinois tax authorities.
Approval, Interpretation, Amendment and Termination
Under the Plan of Conversion, the letter from the OTS giving approval
thereto, and applicable regulations, consummation of the Conversion is subject
to the satisfaction of the following conditions: (a) approval of the Plan of
Conversion by members of the Bank casting at least a majority of the votes
eligible to be cast at the Special Meeting; (b) sale of all of the Common Stock
to be offered in the Conversion; and (c) receipt of favorable rulings or
opinions of counsel as to the federal and Illinois tax consequences of the
Conversion.
The Plan of Conversion may be substantively amended by the Boards of
Directors of the Bank and the Holding Company with the concurrence of the OTS.
If the Plan of Conversion is amended, proxies which have been received prior to
such amendment will not be resolicited unless otherwise required by the OTS.
Also, as required by the federal regulations, the Plan of Conversion provides
that the transactions contemplated thereby may be terminated by the Board
5
<PAGE>
of Directors of the Bank alone at any time prior to the Special Meeting and may
be terminated by the Board of Directors of the Bank at any time thereafter with
the concurrence of the OTS, notwithstanding approval of the Plan of Conversion
by the members of the Bank at the Special Meeting. All interpretations by the
Bank and the Holding Company of the Plan of Conversion and of the order forms
and related materials for the Subscription Offering will be final, except as
regards or affects the OTS.
Judicial Review
Section 5(i)(2)(B) of the Home Owners' Loan Act, as amended, 12 U.S.C.
ss.1464(i)(2)(B) and Section 563b.8(u) of the Rules and Regulations promulgated
thereunder (12 C.F.R. Section 563b.8(u)) provide: (i) that persons aggrieved by
a final action of the OTS which approves, with or without conditions, or
disapproves a plan of conversion, may obtain review of such final action only by
filing a written petition in the United States Court of Appeals for the circuit
in which the principal office or residence of such person is located, or in the
United States Court of Appeals for the District of Columbia, requesting that the
final action of the OTS be modified, terminated or set aside, and (ii) that such
petition must be filed within 30 days after publication of notice of such final
action in the Federal Register, or 30 days after the date of mailing of the
notice and proxy statement for the meeting of the converting institution's
members at which the conversion is to be voted on, whichever is later. The
notice of the Special Meeting of the Bank's members to vote on the Plan of
Conversion described herein is included at the beginning of this Proxy
Statement. The statute and regulation referred to above should be consulted for
further information.
ADDITIONAL INFORMATION
The information contained in the accompanying Prospectus, including a
more detailed description of the Plan of Conversion, consolidated financial
statements of the Bank and a description of the capitalization and business of
the Bank and the Holding Company, including the Bank's directors and executive
officers and their compensation, the anticipated use of the net proceeds from
the sale of the Common Stock, and a description of the Common Stock, is intended
to help you evaluate the Conversion and the establishment of the Foundation and
is incorporated herein by reference.
YOUR VOTE IS VERY IMPORTANT TO US. PLEASE TAKE A MOMENT NOW TO COMPLETE
AND RETURN YOUR PROXY CARD IN THE POSTAGE-PAID ENVELOPE PROVIDED. YOU MAY STILL
ATTEND THE SPECIAL MEETING AND VOTE IN PERSON EVEN THOUGH YOU HAVE VOTED YOUR
PROXY. FAILURE TO SUBMIT A PROXY WILL HAVE THE SAME EFFECT AS VOTING AGAINST THE
CONVERSION.
If you have any questions, please call our Information Center at (___)
___-____.
IMPORTANT: YOU MAY BE ENTITLED TO VOTE IN MORE THAN ONE CAPACITY.PLEASE
SIGN, DATE AND PROMPTLY RETURN EACH PROXY CARD YOU RECEIVE.
----------
THIS PROXY STATEMENT IS NOT AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE PROSPECTUS.
THE COMMON STOCK IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY
INSURED OR GUARANTEED.
6
<PAGE>
REVOCABLE PROXY
BEN FRANKLIN BANK OF ILLINOIS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
FIRST SECURITY FEDERAL SAVINGS BANK
The undersigned member of Ben Franklin Bank of Illinois (the "Bank")
hereby appoints the Board of Directors of the Bank as proxies to cast all votes
which the undersigned member is entitled to cast at a Special Meeting of Members
to be held at the Bank's office located at 14 N. Dryden Place, Arlington
Heights, Illinois 60004, at the hour and date stated in the Proxy Statement, and
at any and all adjournments and postponements thereof, and to act with respect
to all votes that the undersigned would be entitled to cast, if then personally
present, in accordance with the instructions on the reverse side hereof to vote
FOR or AGAINST:
1) The adoption of the Plan of Conversion to convert the Bank
from a federally chartered mutual savings bank to a federally
chartered stock savings bank, including the adoption of a
federal stock savings bank charter and bylaws, with the
simultaneous issuance of its common stock to Ben Franklin
Financial, Inc., a Delaware corporation (the "Holding
Company") and sale by the Holding Company of shares of its
Common Stock; and
This proxy will be voted as directed by the undersigned member. UNLESS
CONTRARY DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR ADOPTION OF THE PLAN
OF CONVERSION. In addition, this proxy will be voted at the discretion of the
Board of Directors upon any other matter as may properly come before the Special
Meeting.
The undersigned member may revoke this proxy at any time before it is
voted by delivering to the Secretary of the Bank either by a written revocation
of the proxy or a duly executed proxy bearing a later date, or by appearing at
the Special Meeting and voting in person. The undersigned member hereby
acknowledges receipt of the Notice of Special Meeting and Proxy Statement.
(IMPORTANT: PLEASE VOTE, DATE AND SIGN ON REVERSE SIDE)
<PAGE>
BEN FRANKLIN BANK OF ILLINOIS
Please Mark Votes Below
Approval of the Plan of Conversion
FOR [] AGAINST [] DATE: , 1997
---------------------
X
-----------------------------------
X
-----------------------------------
IMPORTANT: Please sign your name
exactly as it appears on this proxy.
Joint accounts need only one
signature. When signing as an
attorney, administrator, agent,
corporation, officer, executor,
trustee or guardian, etc., please
add your full title to your
signature.
NOTE: IF YOU RECEIVE MORE THAN ONE PROXY CARD, PLEASE SIGN AND
RETURN ALL CARDS IN THE ACCOMPANYING ENVELOPE.
