<PAGE>
As filed with the Securities and Exchange Commission on June 9, 1998
Registration No. 333-
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
(INCLUDING EXHIBITS)
PULASKI FINANCIAL CORP.
----------------------------------------------
(Exact name of registrant in its charter)
<TABLE>
<S> <C> <C>
Delaware 6035 [applied for]
- -------------------------------- ----------------- -----------------
(State or other jurisdiction of (Primary SIC No.) (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
12300 Olive Boulevard
St. Louis, Missouri 63141
(314) 878-2210
---------------------------------------------------------------
(Address and telephone number of principal executive offices and place of
business)
Paul M. Aguggia, Esquire
Aaron M. Kaslow, Esquire
BREYER & AGUGGIA LLP
1300 I Street, N.W.
Suite 470 East
Washington, D.C. 20005
(202) 737-7900
---------------------------------------------------------------
(Name, address and telephone number of agent for service)
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this registration statement becomes effective.
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 Class of Securities Proposed Maximum Proposed Offering Proposed Maximum Amount of
Being Registered Amount Being Price(1) Aggregate Offering Registration Fee
Registered(1) Price(1)
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 Par Value 10,849,057 $10.00 $108,490,570 $32,004.72
Participation interests 41,000 - - (2)
===========================================================================================================================
===========================================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee. As
described in the Prospectus, the actual number of shares to be issued and sold
are subject to adjustment based upon the estimated pro forma market value of the
registrant and market and financial conditions.
(2) The securities of the Registrant to be purchased by the Pulaski Bank, A
Federal Savings Bank 401(k) Plan are included in the amount shown for Common
Stock. Accordingly, pursuant to Rule 457(h) of the Securities Act of 1933, as
amended, no separate fee is required for the participation interests. Pursuant
to such rule, the amount being registered has been calculated on the basis of
the number of shares of Common Stock that may be purchased with the current
assets of such Plan.
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
PROSPECTUS SUPPLEMENT
PULASKI FINANCIAL CORP.
PULASKI BANK, A FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS AND PROFIT SHARING PLAN
This Prospectus Supplement relates to the offer and sale to participants
("Participants") in the Pulaski Bank, A Federal Savings Bank Employees' Savings
and Profit Sharing Plan ("Plan" or "401(k) Plan") of participation interests and
shares of Pulaski Financial Corp. common stock, par value $.01 per share
("Common Stock"), as set forth herein.
In connection with the proposed reorganization of Pulaski Bank, A Federal
Savings Bank ("Savings Bank" or "Employer") from the mutual holding company form
of organization to a wholly owned subsidiary of a stock savings and loan holding
company, Pulaski Financial Corp. (the "Holding Company") has been formed. The
reorganization of the Savings Bank as a wholly-owned subsidiary of the Holding
Company, the exchange of shares of Savings Bank common stock ("Savings Bank
Common Stock") by public stockholders of the Savings Bank (the "Public
Stockholders") for Common Stock and the sale of Common Stock to the public (the
"Conversion Offerings") are herein referred to as the "Conversion and
Reorganization." Applicable provisions of the 401(k) Plan permit the investment
of the Plan assets in Common Stock at the direction of a Plan Participant. This
Prospectus Supplement relates to the election of a Participant to direct the
purchase of Common Stock in connection with the Conversion and Reorganization.
The Prospectus, dated _________, 1998, of the Holding Company ("Prospectus"),
which is attached to this Prospectus Supplement includes detailed information
with respect to the Conversion and Reorganization, the Conversion Offerings, the
Common Stock and the financial condition, results of operation and business of
the Savings Bank and the Holding Company. This Prospectus Supplement, which
provides detailed information with respect to the Plan, should be read only in
conjunction with the Prospectus. Terms not otherwise defined in this Prospectus
Supplement are defined in the Plan or the Prospectus.
A PARTICIPANT'S ELIGIBILITY TO PURCHASE COMMON STOCK IN THE CONVERSION AND
REORGANIZATION THROUGH THE PLAN IS SUBJECT TO THE PARTICIPANT'S GENERAL
ELIGIBILITY TO PURCHASE SHARES OF COMMON STOCK IN THE CONVERSION OFFERINGS AND
THE MAXIMUM AND MINIMUM LIMITATIONS SET FORTH IN THE PLAN OF CONVERSION. SEE
"THE CONVERSION AND REORGANIZATION" AND "-- LIMITATIONS ON PURCHASES OF SHARES"
IN THE PROSPECTUS.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PARTICIPANT, SEE "RISK FACTORS" IN THE PROSPECTUS.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("SEC"), THE OFFICE OF THRIFT SUPERVISION ("OTS"), THE
FEDERAL DEPOSIT INSURANCE CORPORATION ("FDIC") OR ANY OTHER FEDERAL AGENCY OR
ANY STATE SECURITIES COMMISSION, NOR HAS THE SEC, THE OTS, THE FDIC OR ANY OTHER
AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus Supplement is ________________, 1998
<PAGE>
No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement in connection with the offering made hereby, and, if given or made,
such information and representations must not be relied upon as having been
authorized by the Holding Company, the Savings Bank or the Plan. This
Prospectus Supplement does not constitute an offer to sell or solicitation of an
offer to buy any securities in any jurisdiction to any person to whom it is
unlawful to make such offer or solicitation in such jurisdiction. Neither the
delivery of this Prospectus Supplement and the Prospectus nor any sale made
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Savings Bank or the Plan since the date
hereof, or that the information herein contained or incorporated by reference is
correct as of any time subsequent to the date hereof. This Prospectus
Supplement should be read only in conjunction with the Prospectus that is
attached herein and should be retained for future reference.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
The Offering
Securities Offered................................................................................... S-1
Election to Purchase Common Stock in the Conversion and Reorganization............................... S-1
Value of Participation Interests..................................................................... S-1
Method of Directing Transfer......................................................................... S-1
Time for Directing Transfer.......................................................................... S-2
Irrevocability of Transfer Direction................................................................. S-2
Treatment of Savings Bank Common Stock Held in the Plan.............................................. S-2
Direction to Purchase Common Stock After the Conversion and Reorganization........................... S-2
Purchase Price of Common Stock....................................................................... S-3
Nature of a Participant's Interest in the Common Stock............................................... S-3
Voting and Tender Rights of Common Stock............................................................. S-3
Description of the Plan
Introduction......................................................................................... S-3
Eligibility and Participation........................................................................ S-4
Contributions Under the Plan......................................................................... S-4
Limitations on Contributions......................................................................... S-5
Investment of Contributions.......................................................................... S-7
The Employer Stock Fund.............................................................................. S-9
Benefits Under the Plan.............................................................................. S-9
Withdrawals and Distributions from the Plan.......................................................... S-9
Administration of the Plan........................................................................... S-10
Reports to Plan Participants......................................................................... S-11
Plan Administrator................................................................................... S-11
Amendment and Termination............................................................................ S-11
Merger, Consolidation or Transfer.................................................................... S-12
Federal Income Tax Consequences...................................................................... S-12
Restrictions on Resale............................................................................... S-15
Legal Opinions................................................................................................ S-15
Investment Form............................................................................................... S-16
</TABLE>
i
<PAGE>
THE OFFERING
SECURITIES OFFERED
The securities offered hereby are participation interests in the Plan and
up to _______ shares, at the actual purchase price of $10.00 per share, of
Common Stock which may be acquired by the Plan for the accounts of employees
participating in the Plan. The Holding Company is the issuer of the Common
Stock. Only employees and former employees of the Savings Bank and their
beneficiaries may participate in the Plan. Information with regard to the Plan
is contained in this Prospectus Supplement and information with regard to the
Conversion and Reorganization and the financial condition, results of operation
and business of the Savings Bank and the Holding Company is contained in the
attached Prospectus. The address of the principal executive office of the
Savings Bank is 12300 Olive Boulevard, St. Louis, Missouri 63141. The Savings
Bank's telephone number is (314) 878-2210.
ELECTION TO PURCHASE COMMON STOCK IN THE CONVERSION AND REORGANIZATION
In connection with the Savings Bank's Conversion and Reorganization, each
Participant in the 401(k) Plan may direct the trustees of the Plan
(collectively, the "Trustee") to transfer up to ___% of a Participant's
beneficial interest in the assets of the Plan to the Employer Stock Fund and to
use such funds to purchase Common Stock issued in connection with the Conversion
and Reorganization. Amounts transferred may include salary deferral, Employer
matching and profit sharing contributions. The Employer Stock Fund consists of
investments in the Common Stock. Funds not transferred to the Employer Stock
Fund may be invested at the Participant's discretion in the other investment
options available under the Plan. See "DESCRIPTION OF THE PLAN --INVESTMENT OF
CONTRIBUTIONS" below. A PARTICIPANT'S ABILITY TO TRANSFER FUNDS TO THE EMPLOYER
STOCK FUND IN THE CONVERSION OFFERINGS IS SUBJECT TO THE PARTICIPANT'S GENERAL
ELIGIBILITY TO PURCHASE SHARES OF COMMON STOCK IN THE CONVERSION OFFERINGS. FOR
GENERAL INFORMATION AS TO THE ABILITY OF THE PARTICIPANTS TO PURCHASE SHARES IN
THE CONVERSION OFFERINGS, SEE "THE CONVERSION AND REORGANIZATION-- THE
SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED COMMUNITY OFFERINGS" IN THE
ATTACHED PROSPECTUS.
VALUE OF PARTICIPATION INTERESTS
The assets of the Plan are valued on an ongoing basis and each Participant
is informed of the value of his or her beneficial interest in the Plan on a
monthly basis. This value represents the market value of past contributions to
the Plan by the Savings Bank and by the Participants and earnings thereon, less
previous withdrawals, and transfers from other Plans.
METHOD OF DIRECTING TRANSFER
The last page of this Prospectus Supplement is an investment form to direct
a transfer to the Employer Stock Fund ("Investment Form"). If a Participant
wishes to transfer funds to the Employer
S-1
<PAGE>
Stock Fund to purchase Common Stock issued in connection with the Conversion
Offerings, the Participant should indicate that decision in Part 2 of the
Investment Form. If a Participant does not wish to make such an election, he or
she does not need to take any action.
TIME FOR DIRECTING TRANSFER
THE DEADLINE FOR SUBMITTING A DIRECTION TO TRANSFER AMOUNTS TO THE EMPLOYER
STOCK FUND IN ORDER TO PURCHASE COMMON STOCK ISSUED IN CONNECTION WITH THE
CONVERSION OFFERINGS IS ___________, 1998. The Investment Form should be
returned to ___________ at the Savings Bank no later than the close of business
on such date.
IRREVOCABILITY OF TRANSFER DIRECTION
A Participant's direction to transfer amounts credited to such
Participant's account in the Plan to the Employer Stock Fund in order to
purchase shares of Common Stock in connection with the Conversion Offerings
shall be irrevocable. Participants, however, will be able to direct the sale of
Common Stock, as explained below.
TREATMENT OF SAVINGS BANK COMMON STOCK HELD IN THE PLAN
Shares of Savings Bank Common Stock held in the Employer Stock Fund prior
to the consummation of the Conversion and Reorganization will treated in the
same manner as shares held by other Public Stockholders. Such shares will be
exchanged for shares of Common Stock pursuant to the Exchange Ratio. Application
of the Exchange Ratio will result in the holders of the outstanding Savings Bank
Common Stock owning, in the aggregate, approximately the same percentage of the
Common Stock to be outstanding upon the completion of the Conversion and
Reorganization as the percentage of Savings Bank Common Stock owned by them, in
the aggregate, immediately prior to the consummation of the Conversion. FOR
ADDITIONAL INFORMATION REGARDING THE TREATMENT OF SAVINGS BANK COMMON STOCK, SEE
"THE CONVERSION AND REORGANIZATION" IN THE PROSPECTUS.
DIRECTION TO PURCHASE COMMON STOCK AFTER THE CONVERSION AND REORGANIZATION
After the Conversion and Reorganization, a Participant will be able to
direct that a certain percentage of such Participant's interests in the trust
assets ("Trust") be transferred to the Employer Stock Fund and invested in
Common Stock or to the other investment funds available under the Plan.
Alternatively, a Participant may direct that a certain percentage of such
Participant's interest in the Employer Stock Fund be transferred from the
Employer Stock Fund to other investment funds available under the Plan.
Participants will be permitted to direct that future contributions made to the
Plan by or on their behalf be invested in Common Stock. Following the initial
election, the allocation of a Participant's interest in the Employer Stock Fund
may be changed by the Participant on a monthly basis. Special restrictions may
apply to transfers directed by those Participants who are executive officers,
directors and principal stockholders of the Holding Company who are subject
S-2
<PAGE>
to the provisions of Section 16(b) of the Securities and Exchange Act of 1934,
as amended ("Exchange Act").
PURCHASE PRICE OF COMMON STOCK
The funds transferred to the Employer Stock Fund for the purchase of Common
Stock in connection with the Conversion will be used by the Trustee to purchase
shares of Common Stock. The price paid for such shares of Common Stock will be
the same price as is paid by all other persons who purchase shares of Common
Stock in the Conversion Offerings.
NATURE OF A PARTICIPANT'S INTEREST IN THE COMMON STOCK
The Holding Company Stock purchased for an account of a Participant will be
held in the name in the Employer Stock Fund. Any earnings, losses or expenses
with respect to the Common Stock, including dividends and appreciation or
depreciation in value, will be credited or debited to the account and will not
be credited to or borne by any other accounts.
VOTING AND TENDER RIGHTS OF COMMON STOCK
The Trustee generally will exercise voting and tender rights attributable
to all Common Stock held by the Trust as directed by Participants with an
interest in the Employer Stock Fund. With respect to each matter as to which
holders of Common Stock have the right to vote, each Participant will be
allocated a number of voting instruction rights reflecting such Participant's
proportionate interest in the Employer Stock Fund. The percentage of shares of
Common Stock held in the Employer Stock Fund that are voted in the affirmative
or negative on each matter shall be the same percentage of the total number of
voting instruction rights that are exercised in either the affirmative or
negative, respectively.
DESCRIPTION OF THE PLAN
INTRODUCTION
The Savings Bank adopted the Plan effective ________________. The Plan is
a cash or deferred arrangement established in accordance with the requirement
under Section 401(a) and Section 401(k) of the Internal Revenue Code of 1986, as
amended ("Code").
The Savings Bank intends that the Plan, in operation, will comply with the
requirements under Section 401(a) and Section 401(k) of the Code. The Savings
Bank will adopt any amendments to the Plan that may be necessary to ensure the
qualified status of the Plan under the Code and applicable Treasury Regulations.
The Savings Bank has received a determination from the Internal Revenue Service
("IRS") that the Plan is qualified under Section 401(a) of the Code and that it
satisfies the requirements for a qualified cash or deferred arrangement under
Section 401(k) of the Code.
S-3
<PAGE>
EMPLOYEE RETIREMENT INCOME SECURITY ACT. The Plan is an "individual account
plan" other than a "money purchase pension plan" within the meaning of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). As such,
the Plan is subject to all of the provisions of Title I (Protection of Employee
Benefit Rights) and Title II (Amendments to the Internal Revenue Code Relating
to Retirement Plans) of ERISA, except the funding requirements contained in Part
3 of Title I of ERISA, which by their terms do not apply to an individual
account plan (other than a money purchase pension plan). The Plan is not subject
to Title IV (Plan Termination Insurance) of ERISA. Neither the funding
requirements contained in Title IV of ERISA nor the plan termination insurance
provisions contained in Title IV will be extended to Participants or
beneficiaries under the Plan.
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS OR HER
BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH
THE SAVINGS BANK. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON
WITHDRAWALS MADE PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2, UNLESS A
PARTICIPANT RETIRES AS PERMITTED UNDER THIS PLAN REGARDLESS OF WHETHER SUCH A
WITHDRAWAL OCCURS DURING HIS OR HER EMPLOYMENT WITH THE SAVINGS BANK OR AFTER
TERMINATION OF EMPLOYMENT.
REFERENCE TO FULL TEXT OF PLAN. THE FOLLOWING STATEMENTS ARE SUMMARIES OF
THE MATERIAL PROVISIONS OF THE PLAN. THEY ARE NOT COMPLETE AND ARE QUALIFIED IN
THEIR ENTIRETY BY THE FULL TEXT OF THE PLAN, WHICH IS FILED AS AN EXHIBIT TO THE
REGISTRATION STATEMENT FILED WITH THE SEC. COPIES OF THE PLAN ARE AVAILABLE TO
ALL EMPLOYEES BY FILING A REQUEST WITH THE PLAN ADMINISTRATOR. EACH EMPLOYEE IS
URGED TO READ CAREFULLY THE FULL TEXT OF THE PLAN.
ELIGIBILITY AND PARTICIPATION
Any employee of the Savings Bank is eligible to participate and will become
a Participant in the Plan following completion of 1,000 hours of service with
the Savings Bank within a consecutive 12 month period of employment and the
attainment of age 21. The Plan fiscal year is the calendar year ("Plan Year").
Directors who are not employees of the Savings Bank are not eligible to
participate in the Plan.
During 1997, approximately __ employees participated in the Plan.
CONTRIBUTIONS UNDER THE PLAN
PARTICIPANT CONTRIBUTIONS. Each Participant in the Plan is permitted to
elect to reduce such Participant's Compensation (as defined below) pursuant to a
salary reduction agreement and have that amount contributed to the Plan on such
Participant's behalf. Such amounts are credited to the
S-4
<PAGE>
Participant's deferral contributions account. For purposes of the Plan,
"Compensation" means a Participant's total amount of earnings reportable W-2 for
federal income tax withholding purposes plus a Participant's elective deferrals
pursuant to a salary reduction agreement under the Plan or any elective
deferrals to a Section 125 plan. Due to recent statutory changes, the annual
Compensation of each Participant taken into account under the Plan is limited to
$160,000 (as adjusted under applicable Code provisions). A Participant may elect
to modify the amount contributed to the Plan under the participant's salary
reduction agreement during the Plan Year. Deferral contributions are generally
transferred by the Savings Bank to the Trustee of the Plan on a periodic basis.
EMPLOYER CONTRIBUTIONS. The Savings Bank currently matches 50% of a
Participant's monthly deferral contributions to a maximum of 4% of Compensation.
LIMITATIONS ON CONTRIBUTIONS
LIMITATIONS ON ANNUAL ADDITIONS AND BENEFITS. Pursuant to the requirements
of the Code, the Plan provides that the amount of contributions allocated to
each Participant's Account during any Plan Year may not exceed the lesser of 25%
of the Participant's "Section 415 Compensation" for the Plan Year or $30,000 (as
adjusted periodically under applicable Code provisions). A Participant's
"Section 415 Compensation" is a Participant's Compensation, excluding any amount
contributed to the Plan under a salary reduction agreement or any employer
contribution to the Plan or to any other plan or deferred compensation or any
distributions from a plan of deferred compensation. In addition, annual
additions are limited to the extent necessary to prevent the limitations for the
combined plans of the Savings Bank from being exceeded. To the extent that these
limitations would be exceeded by reason of excess annual additions to the Plan
with respect to a Participant, the excess must be reallocated to the remaining
Participants who are eligible for an allocation of Employer contributions for
the Plan Year.
LIMITATION ON 401(K) PLAN CONTRIBUTIONS. The annual amount of deferred
compensation of a Participant (when aggregated with any elective deferrals of
the Participant under any other employer plan, a simplified employee pension
plan or a tax-deferred annuity) may not exceed $9,500 (as adjusted periodically
under applicable Code provisions). Contributions in excess of this limitation
("excess deferrals") will be included in the Participant's gross federal income
tax purposes in the year they are made. In addition, any such excess deferral
will again be subject to federal income tax when distributed by the Plan to the
Participant, unless the excess deferral (together with any income allocable
thereto) is distributed to the Participant not later than the first April 15th
following the close of the taxable year in which the excess deferral is made.
Any income on the excess deferral that is distributed not later than such date
shall be treated, for federal income tax purposes, as earned and received by the
Participant in the taxable year in which the excess deferral is made.
LIMITATION ON PLAN CONTRIBUTIONS FOR HIGHLY COMPENSATED EMPLOYEES. Sections
401(k) and 401(m) of the Code limit the amount of deferred compensation
contributed to the Plan in any
S-5
<PAGE>
Plan Year on behalf of Highly Compensated Employees (defined below) in relation
to the amount of deferred compensation contributed by or on behalf of all other
employees eligible to participate in the Plan. Specifically, the actual deferral
percentage for a Plan Year (i.e., the average of the ratios, calculated
----
separately for each eligible employee in each group, by dividing the amount of
salary reduction contributions credited to the salary reduction contribution
account of such eligible employee by such employee's compensation for the Plan
Year) of the Highly Compensated Employees may not exceed the greater of (a) 125%
of the actual deferred percentage of all other eligible employees, or (b) the
lesser of (i) 200% of the actual deferred percentage of all other eligible
employees, or (ii) the actual deferral percentage of all other eligible
employees plus two percentage points. In addition, the actual contribution
percentage for a Plan Year (i.e., the average of the ratios calculated
----
separately for each eligible employee in each group, by dividing the amount of
employer contributions credited to the Matching contributions account of such
eligible employee by each eligible employee's compensation for the Plan Year) of
the Highly Compensated Employees may not exceed the greater of (a) 125% of the
actual contribution percentage of all other eligible employees, or (b) the
lesser of (i) 200% of the actual contributions percentage of all other eligible
employees, or (ii) the actual contribution percentage of all other eligible
employees plus two percentage points.
In general, a Highly Compensated Employee includes any employee who, during
the Plan Year or the preceding Plan Year, (1) was at any time a 5% owner (i.e.,
----
owns directly or indirectly more than 5% of the stock of the Employer, or stock
possessing more than 5% of the total combines voting power of all stock of the
Employer) or, (2) during the preceding Plan Year, received Section 415
Compensation in excess of $80,000 (as adjusted periodically under applicable
Code provisions) and, if elected by the Savings Bank, was in the top paid group
of employees for such Plan Year.
In order to prevent disqualification of the Plan, any amounts contributed
by Highly Compensated Employees that exceed the average deferral limitation in
any Plan Year ("excess contributions"), together with any income allocable
thereto, must be distributed to such Highly Compensated Employees before the
close of the following Plan Year. However, the Savings Bank will be subject to a
10% excise tax on any excess contributions unless such excess contributions,
together with any income allocable thereto, either are recharacterized or are
distributed before the close of the first 2 1/2 months following the Plan Year
to which such excess contributions relate. In addition, in order to avoid
disqualification of the Plan, any contributions by Highly Compensated Employees
that exceed the average contribution limitation in any Plan Year ("excess
aggregate contributions") together with any income allocable thereto, must be
distributed to such Highly Compensated Employees before the close of the
following Plan Year. However, the 10% excise tax will be imposed on the Savings
Bank with respect to any excess aggregate contributions, unless such amounts,
plus any income allocable thereto, are distributed within 2 1/2 months following
the close of the Plan Year in which they arose.
TOP-HEAVY PLAN REQUIREMENTS. If, for any Plan Year, the Plan is a Top-
Heavy Plan (as defined below), then (i) the Savings Bank may be required to make
certain minimum contributions to the Plan on behalf of non-key employees (as
defined below), and (ii) certain additional restrictions
S-6
<PAGE>
would apply with respect to the combination of annual additions to the Plan and
projected annual benefits under any defined plan maintained by the Savings Bank.
In general, the Plan will be regarded as a "Top-Heavy Plan" for any Plan
Year, if as of the last day of the preceding Plan Year, the aggregate balance of
the accounts of all Participants who are key Employees exceeds 60% of the
aggregate balance of the Accounts of the Participants. "Key Employees"
generally include any employee, who at any time during the Plan Year or any
other the four preceding Plan Years, if (1) an officer of the Savings Bank
having annual compensation in excess of $60,000 who is in an administrative or
policy-making capacity, (2) one of the ten employees having annual compensation
in excess of $30,000 and owing, directly or indirectly, the largest interest in
the employer, (3) a 5% owner of the employer (i.e., owns directly or indirectly
----
more than 5% of the stock of the employer, or stock possessing more than 5% of
the total combined voting power of all stock of the employer), or (4) a 1% of
owner of the employer having compensation in excess of $150,000.
INVESTMENT OF CONTRIBUTIONS
All amounts credited to Participant's Accounts under the Plan are held in
the Trust which is administered by the Trustee. The Trustee is appointed by the
Savings Bank's Board of Directors. The Plan provides that a Participant may
direct the Trustee to invest all or a portion of his or her Accounts in various
managed investment portfolios, as described below. A Participant may
periodically elect to change his or her investment directions with respect to
both past contributions and for more additions to the Participant's accounts
invested in these investment alternatives.
Under the Plan, the Accounts of Participant held in the Trust will be
invested by the Trustee at the direction of the Participant in the following
managed portfolios:
Investment Fund A - A passively managed, diversified equity portfolio with the
objective of simulating the performance of the Standard &
Poor's Composite Index of 500 stocks. An investment in Fund
A provides an opportunity for investment growth generally
consistent with that of widely traded common stocks, but
with a corresponding risk of decline in value.
Investment Fund B - A portfolio of fixed income contracts with the objective of
maximizing income at minimum risk of capital. Contributions
are invested in fixed income instruments including but not
limited to group annuity contracts issued by insurance
companies.
Investment Fund C - A passively managed, diversified portfolio of stock with the
objective of replicating the performance of the S & P MidCap
Index. An investment return generally consistent with that
of smaller to medium sized company stocks, with an above
average potential for increase or decrease in value.
S-7
<PAGE>
Investment Fund D - A government instrument fund with the objective of
maximizing income at minimum risk of capital with underlying
investments in obligations issued or guaranteed by the
United States government or agencies or instrumentalities
thereof.
Investment Fund E - A portfolio of high quality treasury, agency, corporate and
asset/mortgage-backed securities with the objective of
replicating the total performance of the Lehman Brothers
Aggregate Bond index.
Investment Fund F - A diversified fund of a broad range of stable value
securities which reduces short-term risk, and invests among
a broad range of large U.S. and international companies to
capture growth potential.
Investment Fund G - A diversified fund of U.S. and international stocks, U.S.
bonds, and stable value investments which pursues long-term
appreciation and short-term stability and takes advantage of
market opportunities with a small flexible component.
Investment Fund H - A diversified fund of a broad range of domestic and
international stocks which takes advantage of market
opportunities with a large flexible component.
Investment Fund I - A fund which invests in over 1,000 foreign stocks in 20
countries of companies based in Europe, Australia, and the
Far East. Its goal is to approximate the performance of the
Morgan Stanley Capital International index by investing in
most of the same stocks as the index. The Fund limits its
investment in Japanese stocks to no more than 25% of the
Fund's overall portfolio.
A Participant may also invest all or a portion of his or her Accounts in
the portfolios described above and in Fund J, described below:
Investment Fund J - The Employer Stock Fund which invests in common stock of the
Holding Company.
A Participant may elect to have both prior contributions and additions to
the Participant's Account invested either in the Employer Stock Fund or in any
of the other managed portfolios listed above. Any amounts credited to a
Participant's Accounts for which investment directions are not given will be
invested in Investment Fund D.
The net gain (or loss) in the Accounts from investments (including interest
payments, dividends, realized and unrealized gains and losses on securities, and
expenses paid from the Trust)
S-8
<PAGE>
are determined monthly on a quarterly basis. For purposes of such allocation,
all assets of the Trust are valued at their fair market value.
THE EMPLOYER STOCK FUND
The Employer Stock Fund consists of investments in Common Stock. In
connection with the Conversion Offerings, pursuant to the attached Investment
Form, Participants will be able to change their investments at a time other than
the normal election intervals. Any cash dividends paid on Common Stock held in
the Employer Stock Fund will be credited to a cash dividend subaccount for each
Participant investing in the Employer Stock Fund. To the extent practicable, all
amounts held in the Employer Stock Fund (except the amounts credited to cash
dividend subaccounts) will be used to purchase shares of Common Stock. It is
expected that all purchases will be made at prevailing market prices. Pending
investment in Common Stock, assets held in the Employer Stock Fund will be
placed in bank deposits and other short-term investments.
When Common Stock is purchased or sold, the cost or net proceeds are
charged or credited to the Accounts of Participants affected by the purchase or
sale. A Participant's Account will be adjusted to reflect changes in the value
of shares of Common Stock resulting from stock dividends, stock splits and
similar changes.
To the extent dividends are not paid on Common Stock held in the Employer
Stock Fund, the return on any investment in the Employer Stock Fund will consist
only of the market value appreciation of the Common Stock subsequent to its
purchase.
INVESTMENTS IN THE EMPLOYER STOCK FUND MAY INVOLVE CERTAIN RISK FACTORS
ASSOCIATED WITH INVESTMENTS IN COMMON STOCK OF THE HOLDING COMPANY. FOR A
DISCUSSION OF THESE RISK FACTORS, SEE "RISK FACTORS" IN THE PROSPECTUS.
BENEFITS UNDER THE PLAN
VESTING. A Participant, has at all times a fully vested, nonforfeitable
interest in all of his or her deferred contributions and the earnings thereon
under the Plan. A Participant vests in his or her matching contributions
account a the rate of 25% per year of employment with 100% vesting after four
years of employment.
WITHDRAWALS AND DISTRIBUTIONS FROM THE PLAN
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS OR HER
BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59 1/2
UNLESS A PARTICIPANT RETIRES AS PERMITTED UNDER THE PLAN REGARDLESS OF WHETHER
SUCH A
S-9
<PAGE>
WITHDRAWAL OCCURS DURING HIS OR HER EMPLOYMENT WITH THE SAVINGS BANK.
DISTRIBUTION UPON RETIREMENT, DISABILITY OR TERMINATION OF EMPLOYMENT.
Payment of benefits to a Participant who retires, incurs a disability, or
otherwise terminates employment generally shall be made in a lump sum cash
payment. At the request of the Participant, the distribution may include an in-
kind distribution of Common Stock of the Holding Company credited to the
Participant's Account. A Participant whose total vested account balance equals
or exceeds $3,500 at the time of termination, may elect, in lieu of a lump sum
payments, to be paid in annual installments over a period not exceeding the life
expectancy of the Participant or the joint life expectancies of the Participant
and his or her designated beneficiary. Benefits payments ordinarily shall be
made not later than 60 days following the end of the Plan Year in which occurs
later of the Participant's: (i) termination of employment; (ii) attainment of
age 65; or (iii) tenth anniversary of commencement of participation in the Plan;
but in no event later than April 1 following the calendar year in which the
Participant attains age 70 1/2 (if the Participant is retired). However, if the
vested portion of the Participant's Account balances exceeds $3,500, no
distribution shall be made from the Plan prior to the Participant's attaining
age 65 unless the Participant consents to an earlier distribution. Special rules
may apply to the distribution of Common Stock of the Holding Company to those
Participants who are executive officers, directors and principal shareholders of
the Holding Company who are subject to the provisions of Section 16(b) of the
Exchange Act.
DISTRIBUTION UPON DEATH. A Participant who dies prior to the benefit
commencement date for retirement, disability or termination of employment, and
who has a surviving spouse, shall have his or her benefits paid to the surviving
spouse in a lump sum, or if the payment of his or her benefits had commenced
before his or her death, in accordance with the distribution method in effect at
his or her death. With respect to an unmarried Participant, and in the case of a
married Participant with spousal consent to the designation of another
beneficiary, payment of benefits to the beneficiary, payments of benefits to the
beneficiary of a deceased Participant shall be made in the form of a lump sum
payment in cash or in Common Stock, or if the payment of his or her benefit had
commenced before his or her death, in accordance with the distribution method if
effect at death.
NONALIENATION OF BENEFITS. Except with respect to federal income tax
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to
benefits payable under the Plan shall be void.
ADMINISTRATION OF THE PLAN
TRUSTEE. The Trustee with respect to Plan assets, other than the Employer
Stock Fund, is currently Bank of New York. Bank of New York also serves as
custodian of the Employer Stock Fund assets. Members of the Board of Directors
of the Savings Bank serve as trustees with respect
S-10
<PAGE>
to the Employer Stock Fund. Except as otherwise indicated by the context,
references in this Prospectus Supplement to the Trustee refer to Bank of New
York.
Pursuant to the terms of the Plan, the Trustee receives and holds
contributions to the Plan in trust and has exclusive authority and discretion to
manage and control the assets of the Plan pursuant to the terms of the Plan and
to manage, invest and reinvest the Trust and income therefrom. The Trustee has
the authority to invest and reinvest the Trust and may sell or otherwise dispose
of Trust investments at any time and may hold trust funds uninvested. The
Trustee has authority to invest the assets of the Trust in "any type of
property, investment or security" as defined under ERISA.
The Trustee has full power to vote any corporate securities in the Trust in
person or by proxy; provided, however, that the Participants will direct the
Trustee as to voting and tendering of all Common Stock held in the Employer
Stock Fund.
The Trustee is entitled to reasonable compensation for its services and is
also entitled to reimbursement for expenses properly and actually incurred in
the administration of the Trust. The expenses of the Trustee and the
compensation of the persons so employed is paid out of the Trust except to the
extent such expenses and compensation are paid by the Savings Bank.
The Trustee must render at least annual reports to the Savings Bank and to
the Participants in such form and containing information that the Trustee deems
necessary.
REPORTS TO PLAN PARTICIPANTS
The administrator will furnish to each Participant a statement at least
semiannually showing (i) the balance in the Participant's Account as of the end
of that period, (ii) the amount of contributions allocated to such Participant's
Account for that period, and (iii) the adjustments to such Participant's Account
to reflect earnings or losses (if any).
PLAN ADMINISTRATOR
The Savings Bank currently serves as the Plan Administrator. The Plan
Administrator is responsible for the administration of the Plan, interpretation
of the provisions of the Plan, prescribing procedures for filing applications
for benefits, preparation and distribution of information explaining the Plan,
maintenance of plan records, books of account and all other data necessary for
the proper administration of the Plan, and preparation and filing of all returns
and reports relating to the Plan which are required to be filed with the U.S.
Department of Labor and the IRS, and for all disclosures required to be made to
Participants, beneficiaries and others under Sections 104 and 105 of ERISA.
AMENDMENT AND TERMINATION
The Savings Bank may terminate the Plan at any time. If the Plan is
terminated in whole or in part, then regardless of other provisions in the Plan,
each employee who ceases to be a Participant
S-11
<PAGE>
shall have a fully vested interest in his or her Account. The Savings Bank
reserves the right to make, from time to time, any amendment or amendments to
the Plan which do not cause any part of the Trust to be used for, or diverted
to, any purpose other than the exclusive benefit of the Participants or their
beneficiaries.
MERGER, CONSOLIDATION OR TRANSFER
In the event of the merger or consolidation of the Plan with another plan,
or the transfer of the Trust to another plan, the Plan requires that each
Participant (if either the Plan or the other plan then terminated) receive a
benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he or she would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).
FEDERAL INCOME TAX CONSEQUENCES
THE FOLLOWING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN. THE
SUMMARY IS NECESSARILY GENERAL IN NATURE AND DOES NOT PURPORT TO BE COMPLETE.
MOREOVER, STATUTORY PROVISIONS ARE SUBJECT TO CHANGE, AS ARE THEIR
INTERPRETATIONS, AND THEIR APPLICATION MAY VARY IN INDIVIDUAL CIRCUMSTANCES.
FINALLY, THE CONSEQUENCES UNDER APPLICABLE STATE AND LOCAL INCOME TAX LAWS MAY
NOT BE THE SAME AS UNDER THE FEDERAL INCOME TAX LAWS.
PARTICIPANTS ARE URGED TO CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY
DISTRIBUTION FROM THE PLAN AND TRANSACTIONS INVOLVING THE PLAN.
The Plan has received a determination from the IRS that it is qualified
under Section 401(a) and 401(k) of the Code, and that the related Trust is
exempt from tax under Section 501(a) of the Code. A plan that is "qualified"
under these sections of the Code is afforded special tax treatment which include
the following: (1) the sponsoring employer is allowed an immediate tax deduction
for the amount contributed to the Plan of each year; (2) Participants pay no
current income tax on amounts contributed by the employer on their behalf; and
(3) earnings of the Plan are tax-exempt thereby permitting the tax-free
accumulation of income and gains on investments. The Plan will be administered
to comply in operation with the requirements of the Code as of the applicable
effective date of any change in the law. The Savings Bank expects to timely
adopt any amendments to the Plan that may be necessary to maintain the qualified
status of the Plan under the Code. Following such an amendment, the Plan will be
submitted to the IRS for a determination that the Plan, as amended, continues to
qualify under Sections 401(a) and 501(a) of the Code and that it continues to
satisfy the requirements for a qualified cash or deferred arrangement under
Section 401(k) of the Code.
S-12
<PAGE>
Assuming that the Plan is administered in accordance with the requirements
of the Code, participation in the Plan under existing federal income tax laws
will have the following effects:
(a) Amounts contributed to a Participant's 401(k) account and the
investment earnings are actually distributed or withdrawn from the Plan.
Special tax treatment may apply to the taxable portion of any distribution that
includes Common Stock or qualified as a "Lump Sum Distribution" (as described
below).
(b) Income earned on assets held by the Trust will not be taxable to the
Trust.
LUMP SUM DISTRIBUTION. A distribution from the Plan to a Participant or the
beneficiary of a Participant will qualify as a "Lump Sum Distribution" if it is
made: (i) within a single taxable year of the Participant or beneficiary; (ii)
on account of the Participant's death or separation from service, or after the
Participant attains age 59 1/2; and (iii) consists of the balance to the credits
of the Participant under the Plan and all other profit sharing plans, if any,
maintained by the Savings Bank. The portion of any Lump Sum Distribution that is
required to be included in the Participant's or beneficiary's taxable income for
federal income tax purposes ("total taxable amount") consists of the entire
amount of such Lump Sum Distribution less the amount of after-tax contributions,
if any, made by the Participant to any other profit sharing plans maintained by
the Savings Bank which is included in such distribution.
AVERAGING RULES. The portion of the total taxable amount of a Lump Sum
Distribution ("ordinary income portion") will be taxable generally as ordinary
income for federal income tax purposes. However, for distributions occurring
prior to January 1, 2000, a Participant who has completed at least five years of
participation in the Plan before the taxable year in which the distribution is
made, or a beneficiary who receives a Lump Sum Distribution on account of the
Participant's death (regardless of the period of the Participant's participation
in the Plan or any other profit sharing plan maintained by the Employer), may
elect to have the ordinary income portion of such Lump Sum Distribution taxed
according to a special averaging rule ("five-year averaging"). The election of
the special averaging rules may apply only to one Lump Sum Distribution received
by the Participant or beneficiary, provided such amount is received on or after
the Participant turns 59 1/2 and the recipient elects to have any other Lump Sum
Distribution from a qualified plan received in the same taxable year taxed under
the special averaging rule. The special five-year averaging rule has been
repealed for distributions occurring after December 31, 1999. Under a special
grandfather rule, individuals who turned 50 by 1986 may elect to have their Lump
Sum Distribution taxed under either the five-year averaging rule (if available)
or the prior law ten-year averaging rule. Such individuals also may elect to
have that portion of the Lump Sum Distribution attributable to the Participant's
pre-1974 participation in the Plan taxed at a flat 20% rate as gain from the
sale of a capital asset.
COMMON STOCK INCLUDED IN LUMP SUM DISTRIBUTION. If a Lump Sum Distribution
includes Common Stock, the distribution generally will be taxed in the manner
described above, except that the total taxable amount will be reduced by the
amount of any net unrealized appreciation
S-13
<PAGE>
with respect to such Common Stock, i.e., the excess of the value of such Common
----
Stock at the time of the distribution over its cost to the Plan. The tax basis
of such Common Stock to the Participant or beneficiary for purposes of computing
gain or loss on its subsequent sale will be the value of the Common Stock at the
time of distribution less the amount of net unrealized appreciation. Any gain on
a subsequent sale or other taxable disposition of such Common Stock, to the
extent of the amount of net unrealized appreciation at the time of distribution,
will be considered long-term capital gain regardless of the holding period of
such Common Stock. Any gain on a subsequent sale or other taxable disposition of
the Common Stock in excess of the amount of net unrealized appreciation at the
time of distribution will be considered either short-term capital gain or long-
term capital gain depending upon the length of the holding period of the Common
Stock. The recipient of a distribution may elect to include the amount of any
net unrealized appreciation in the total taxable amount of such distribution to
the extent allowed by the regulations by the IRS.
DISTRIBUTIONS: ROLLOVERS AND DIRECT TRANSFERS TO ANOTHER QUALIFIED PLAN OR
TO AN IRA. Pursuant to a change in the law, effective January 1, 1993, virtually
all distributions from the Plan may be rolled over to another qualified Plan or
to an individual retirement account ("IRA") without regard to whether the
distribution is a Lump Sum Distribution or Partial Distribution. Effective
January 1, 1993, Participants have the right to elect to have the Trustee
transfer all or any portion of an "eligible rollover distribution" directly to
another plan qualified under Section 401(a) of the Code or to an IRA. If the
Participant does not elect to have an "eligible rollover distribution"
transferred directly to another qualified plan of to an IRA, the distribution
will be subject to a mandatory federal withholding tax equal to 20% of the
taxable distribution. An "eligible rollover distribution" means any amount
distributed from the Plan except: (1) a distribution that is (a) one of a series
of substantially equal periodic payments made (not less frequently than
annually) over the Participant's life of the joint life of the Participant and
the Participant's designated beneficiary, or (b) for a specified period of ten
years or more; (2) any amount that is required to be distributed under the
minimum distribution rules; and (3) any other distributions excepted under
applicable federal law. The tax law change described above did not modify the
special tax treatment of Lump Sum Distributions, that are not rolled over or
transferred, i.e., forward averaging, capital gains tax treatment and the
----
nonrecognition of net unrealized appreciation, discussed earlier.
ADDITIONAL TAX ON EARLY DISTRIBUTIONS. A Participant who receives a
distribution from the Plan prior to attaining age 59 1/2 will be subject to an
additional income tax equal to 10% of the taxable amount of the distribution.
The 10% additional income tax will not apply, however, to the extent the
distribution is rolled over into an IRA or another qualified plan or the
distribution is (i) made to a beneficiary (or to the estate of a Participant) on
or after the death of the Participant, (ii) attributable to the Participant's
being disabled within the meaning of Section 72(m)(7) of the Code, (iii) part of
a series of substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the Participant or the joint
lives (or joint life expectancies) of the Participant and his or her
beneficiary, (iv) made to the Participant after separation from service on
account of early retirement under the Plan after attainment of age 55, (v) made
to pay medical expenses to the extent deductible for federal income tax
purposes, (vi) pursuant to a qualified
S-14
<PAGE>
domestic relations order, or (vii) made to effect the distribution of excess
contributions or excess deferrals.
THE FOREGOING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.
RESTRICTIONS ON RESALE
Any person receiving shares of the Common Stock under the Plan who is an
"affiliate" of the Savings Bank or the Holding Company as the term "affiliate"
is used in Rules 144 and 405 under the Securities Act of 1933, as amended
("Securities Act") (e.g., directors, officers and substantial shareholders of
the Savings Bank) may reoffer or resell such shares only pursuant to a
registration statement filed under the Securities Act (the Holding Company and
the Savings Bank having no obligation to file such registration statement) or,
assuming the availability thereof, pursuant to Rule 144 or some other exemption
from the registration requirements of the Securities Act. Any person who may be
an "affiliate" of the Savings Bank or the Holding Company may wish to consult
with counsel before transferring any Common Stock owned by him or her. In
addition, Participants are advised to consult with counsel as to the
applicability of the reporting and short-swing profit liability rules of Section
16 of the Exchange Act which may affect the purchase and sale of the Common
Stock where acquired or sold under the Plan or otherwise.
LEGAL OPINIONS
The validity of the issuance of the Common Stock will be passed upon by
Breyer & Aguggia LLP, Washington, D.C., which firm is acting as special counsel
for the Holding Company in connection with the Savings Bank's Conversion and
Reorganization from the mutual holding company form of organization to a wholly-
owned subsidiary of the Holding Company.
S-15
<PAGE>
Investment Form
(Employer Stock Fund)
PULASKI BANK, A FEDERAL SAVINGS BANK
EMPLOYEES' SAVINGS AND PROFIT SHARING PLAN
Name of Participant:_________________________
Social Security Number:______________________
1. Instructions. In connection with the proposed reorganization of
Pulaski Bank, A Federal Savings Bank ("Savings Bank") from the mutual holding
form of organization to a wholly-owned subsidiary of a savings and loan holding
company ("Conversion and Reorganization"), participants in the Pulaski Bank, A
Federal Savings Bank Employees' Savings and Profit Sharing Plan ("Plan") may
elect to direct the investment of up to 100% of their account balances into the
Employer Stock Fund ("Employer Stock Fund"). Amounts transferred at the
direction of Participants into the Employer Stock Fund will be used to purchase
shares of the common stock of Pulaski Financial Corp. ("Common Stock"), the
proposed holding company for the Savings Bank. A PARTICIPANT'S ELIGIBILITY TO
PURCHASE SHARES OF COMMON STOCK IS SUBJECT TO THE PARTICIPANT'S GENERAL
ELIGIBILITY TO PURCHASE SHARES OF COMMON STOCK IN THE CONVERSION OFFERINGS AND
THE MAXIMUM AND MINIMUM LIMITATIONS SET FORTH IN THE PLAN OF CONVERSION. SEE THE
PROSPECTUS FOR ADDITIONAL INFORMATION.
You may use this form to direct a transfer of funds credited to your
account to the Employer Stock Fund, to purchase Common Stock in the Conversion
Offerings. To direct such a transfer to the Employer Stock Fund, you should
complete this form and return it to ___________ at the Savings Bank, NO LATER
THAN THE CLOSE OF BUSINESS ON ___________, 1998. The Savings Bank will keep a
copy of this form and return a copy to you. (If you need assistance in
completing this form, please contact ___________.)
2. Transfer Direction. I hereby direct the Plan Administrator to transfer
$__________ (in increments of $10) to the Employer Stock Fund to be applied to
the purchase of Common Stock in the Conversion Offerings. Please transfer this
amount from the following investments as indicated:
_________________________________________________________.
3. Effectiveness of Direction. I understand that this Investment Form
shall be subject to all of the terms and conditions of the Plan and the terms
and conditions of the Conversion and Reorganization. I acknowledge that I have
received a copy of the Prospectus and the Prospectus Supplement.
____________________________ _____________________________________
Signature Date
* * * * *
4. Acknowledgement of Receipt. This Investment Form was received by the
Plan Administrator and will become effective on the date noted below.
____________________________ _____________________________________
Plan Administrator Date
S-16
<PAGE>
PROSPECTUS
PULASKI FINANCIAL CORP.
(PROPOSED HOLDING COMPANY FOR PULASKI BANK, A FEDERAL SAVINGS BANK)
BETWEEN 5,100,000 AND 7,935,000 SHARES OF COMMON STOCK
Pulaski Bank, A Federal Savings Bank is converting from the mutual holding
company form of organization to the stock holding company form of organization.
Pulaski Bancshares, M.H.C., which is a federally-chartered mutual holding
company, currently owns 69.81% of the outstanding common stock of Pulaski Bank.
As a result of the conversion, Pulaski Bancshares, M.H.C. will cease to exist
and Pulaski Bank will become a wholly-owned subsidiary of Pulaski Financial
Corp., a Delaware corporation that was formed in May 1998. Pulaski Financial
Corp. is offering its common stock to the public under the terms of a Plan of
Conversion which must be approved by the members of Pulaski Bancshares, M.H.C.
and by the stockholders of Pulaski Bank. The conversion will not go forward if
Pulaski Bancshares, M.H.C. and Pulaski Bank do not receive these approvals or if
Pulaski Financial Corp. does not sell at least the minimum number of shares.
Pursuant to the Plan of Conversion, Pulaski Financial Corp. will issue shares of
its common stock in this offering that will represent a 73.14% ownership
interest in Pulaski Financial Corp., which is based on the percentage ownership
that Pulaski Bancshares, M.H.C. currently maintains in Pulaski Bank, after
certain adjustments for waived dividends. Pulaski Financial Corp. will also
issue shares of its common stock to the public stockholders of Pulaski Bank in
exchange for their shares of Pulaski Bank's common stock pursuant to an exchange
ratio that will result in the public stockholders of Pulaski Bank owning in the
aggregate approximately 26.86% of Pulaski Financial Corp.
- --------------------------------------------------------------------------------
OFFERING SUMMARY
Price Per Share: $10.00
<TABLE>
<CAPTION>
Minimum Midpoint Maximum Maximum, as adjusted
------- -------- ------- --------------------
<S> <C> <C> <C> <C>
Number of shares: 5,100,000 6,000,000 6,900,000 7,935,000
Gross offering proceeds: $51,000,000 $60,000,000 $69,000,000 $79,350,000
Estimated offering expenses: $1,047,000 $1,114,000 $1,180,000 $1,256,000
Estimated net proceeds: $49,953,000 $58,886,000 $67,820,000 $78,094,000
Estimated net proceeds per share: $9.79 $9.81 $9.83 $9.84
</TABLE>
The amount of common stock being offered in the conversion is based on an
independent appraisal of the market value of Pulaski Bank and Pulaski
Bancshares, M.H.C. after giving effect to the conversion. The independent
appraiser has stated that as of May 29, 1998, the market value of the converted
Pulaski Bank and Pulaski Bancshares, M.H.C. ranged from $69,729,290 to
$94,339,630. Based on this valuation and the 73.14% ownership interest being
sold in this offering, the minimum of the offering range was set at $51,000,000
and the maximum was set at $69,000,000. Subject to approval of the Office of
Thrift Supervision, an additional 15% above the maximum number of shares may be
sold.
Charles Webb & Company, a Division of Keefe, Bruyette & Woods, Inc. ("Webb")
will use its best efforts to assist Pulaski Financial Corp. in selling at least
the minimum number of shares but does not guarantee that this number will be
sold. All funds received from subscribers will be held in an interest-bearing
savings account at Pulaski Bank until the completion or termination of the
conversion.
Pulaski Financial Corp. has received preliminary approval to have its common
stock quoted on the Nasdaq National Market under the symbol PULB.
The subscription offering will terminate at 12:00 Noon, Central Time, on
______________, 1998, unless extended for up to ___ days.
- --------------------------------------------------------------------------------
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT INSURED OR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
FOR A DISCUSSION OF CERTAIN RISKS THAT YOU SHOULD CONSIDER, SEE "RISK FACTORS"
BEGINNING ON PAGE __.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT
SUPERVISION, NOR ANY STATE SECURITIES REGULATOR HAS APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS ACCURATE OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
For additional information about the conversion, please refer to the more
detailed information in this prospectus. For assistance, please contact the
stock information center at (___)___________.
CHARLES WEBB & COMPANY, a Division
of Keefe, Bruyette & Woods, Inc.
The date of this prospectus is ___________, 1998
<PAGE>
FORWARD-LOOKING STATEMENTS
Certain of the statements contained herein that are not historical facts
are forward-looking statements within the meaning of Section 27A of the
Securities Act. These forward-looking statements include statements of goals,
intentions and expectations and involve risks and uncertainties including, but
not limited to, the following: changes in general economic conditions; the
performance of financial markets; interest rates; and competitive, regulatory,
legislative or tax changes that affect the cost of or demand for the Bank's
products. Because of these uncertainties, actual future results may differ
materially from those contemplated by such statements.
TABLE OF CONTENTS
PAGE
----
Summary........................................
Risk Factors...................................
Selected Financial Information................
Use of Proceeds................................
Dividend Policy................................
Market for Common Stock........................
Capitalization.................................
Historical and Pro Forma
Regulatory Capital Compliance................
Pro Forma Data.................................
Effect of the Conversion on the Bank's
Stockholders.................................
Subscriptions by Executive Officers and
Directors....................................
Pulaski Bank, A Federal Savings Bank and
Subsidiaries.................................
Consolidated Statements of Income............
Management's Discussion and
Analysis of Financial Condition
and Results of Operations....................
Business of the Holding Company................
Business of the Bank...........................
Management of the Holding Company..............
Management of the Bank.........................
Regulation.....................................
Taxation.......................................
The Conversion.................................
Comparison of Stockholders' Rights.............
Restrictions on Acquisition
of the Holding Company.......................
Description of Capital Stock
of the Holding Company ......................
Registration Requirements......................
Legal and Tax Opinions.........................
Experts........................................
Additional Information.........................
Index to Consolidated
Financial Statements.........................
Glossary....................................... G-1
[Map of St. Louis area showing branch locations]
<PAGE>
SUMMARY
The following summary explains the significant aspects of the conversion.
For additional information about the conversion and the stock offering please
refer to the more detailed information in this prospectus. Throughout this
prospectus, Pulaski Bank, A Federal Savings Bank is referred to as the "Bank",
Pulaski Bancshares, M.H.C. is referred to as the "MHC" and Pulaski Financial
Corp. is referred to as the "Holding Company." See the glossary at the back of
this prospectus for the definitions of certain terms that are printed in
boldface type the first time they appear in this prospectus.
PULASKI FINANCIAL CORP.
The Bank formed the Holding Company under Delaware law in May 1998 for the
purpose of owning all of the Bank's capital stock following completion of the
conversion. The Holding Company has received conditional approval of the OTS to
become a savings and loan holding company by acquiring the capital stock of the
Bank in the conversion. Before the completion of the conversion, the Holding
Company will not have any material assets or liabilities and it will not conduct
any business other than business related to the conversion. After the
conversion, the Holding Company's primary assets will be all of the capital
stock of the Bank, the loan that the Holding Company intends to make to the
Bank's ESOP and the net proceeds remaining from the sale of its common stock
after contributing 50% of the net proceeds to the Bank and funding the ESOP
loan. Initially, the primary activity of the Holding Company will be to direct,
plan and coordinate the Bank's business activities. In the future, the Holding
Company might become an operating company or acquire or organize other operating
subsidiaries, including other financial institutions, although it currently has
no specific plans or agreements to do so. The Holding Company's main office is
located at 12300 Olive Boulevard, St. Louis, Missouri 63141 and its telephone
number is (314) 878-2210.
PULASKI BANCSHARES, M.H.C.
The MHC is the federally-chartered mutual holding company of the Bank. The
MHC was formed in May 1994 as a result of the reorganization of the Bank into a
federally chartered mutual holding company. The members of the MHC consist of
depositors of the Bank and those current borrowers of the Bank who had loans
outstanding as of the consummation date of the MHC reorganization (May 11,
1994). The MHC's sole business activity is holding 1,470,000 shares of the
Bank's common stock, which represents 69.81% of the outstanding shares as of the
date of this prospectus. As part of the conversion, the MHC will merge into the
Bank, with the Bank as the surviving entity. As a result of this merger, the
MHC will cease to exist. The MHC's main office is located at 12300 Olive
Boulevard, St. Louis, Missouri 63141 and its telephone number is (314) 878-2210.
PULASKI BANK, A FEDERAL SAVINGS BANK
The Bank was founded in 1922 as a Missouri-chartered mutual savings and
loan association. In 1994, in connection with the formation of the MHC, the
Bank converted to a Missouri-chartered capital stock savings and loan
association. In 1995, the Bank converted to a federally chartered stock savings
bank and adopted the name Pulaski Bank, A Federal Savings Bank. Upon completion
of the conversion, the Bank will adopt the name Pulaski Bank. The Bank's main
office is located at 12300 Olive Boulevard, St. Louis, Missouri 63141 and its
telephone number is (314) 878-2210.
The Bank is regulated by the OTS and the FDIC. The Bank's deposits have
been federally-insured by the FDIC since 1947 and are currently insured by the
FDIC under the SAIF. The Bank has been a member of the FHLB-System since 1946.
The Bank's strategy is to operate as an independent, retail financial
institution dedicated to financing home ownership and other consumer needs in
St. Louis and the surrounding area. At March 31, 1998, the Bank operated five
offices in the St. Louis area and had total assets of $183.6 million, deposits
of $154.1 million and stockholders' equity
1
<PAGE>
of $24.6 million. At that date, $117.4 million, or 93.7%, of the Bank's loans
were residential mortgage loans and $7.3 million, or 5.8%, of the Bank's loans
were consumer loans. In recent years, as part of its asset/liability management
strategy, the Bank has sold most of the fixed-rate loans that it has originated.
Loan sales for the six months ended March 31, 1998 and the year ended September
30, 1997 totaled $51.6 million and $63.6 million, respectively. For a discussion
of the Bank's business strategy and recent results of operations, see
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS." For a discussion of the Bank's business activities, see "BUSINESS
OF THE BANK."
THE CONVERSION
The conversion is being undertaken pursuant to the PLAN OF CONVERSION that
was adopted by the Boards of Directors of the Bank and the MHC on April 15,
1998. Pursuant to the Plan of Conversion, (i) the MHC will merge into the Bank,
at which time the MHC will cease to exist and the outstanding shares of the
Bank's common stock held by the MHC will be canceled, and (ii) the Bank will
become a wholly-owned subsidiary of the Holding Company. As part of the
conversion, the Holding Company will sell shares of its common stock in this
offering that will represent an ownership interest in the Holding Company that
is based on the percentage ownership that the MHC currently maintains in the
Bank. The Holding Company will also issue shares of its common stock to the
public stockholders of the Bank in exchange for their shares of Bank common
stock pursuant to an exchange ratio that will result in the public stockholders
of the Bank owning in the aggregate approximately 26.86% of the Holding Company,
before giving effect to any (i) payment of cash in lieu of issuing fractional
shares and (ii) shares purchased by the stockholders of the Bank in the
offering.
The following diagram illustrates the current organizational structure and
ownership of the Bank:
------------------------------ ---------------------------
Pulaski Bancshares, MHC Public Stockholders
69.81% 30.19%
------------------------------ ---------------------------
------------------
Pulaski Bank
------------------
The following diagram reflects the post-conversion organizational structure
and ownership of the Holding Company and the Bank. The ownership interests
presented assume no fractional shares of the Holding Company's common stock are
issued and does not give effect to purchases of any shares in this offering by
the Bank's public stockholders or to the exercise of outstanding stock options.
As required by the OTS, the aggregate ownership interest of the Bank's public
stockholders has been adjusted downward to reflect assets held by the MHC and
the waiver by the MHC of certain dividends paid by the Bank.
2
<PAGE>
--------------------------- ----------------------------
PURCHASERS IN OFFERING FORMER BANK STOCKHOLDERS
73.14% 26.86%
--------------------------- ----------------------------
--------------------------------
PULASKI FINANCIAL CORP
100%
--------------------------------
-----------------
PULASKI BANK
-----------------
Completion of the conversion requires the following member and shareholder
approvals:
1. Approval by the holders of at least a majority of the total number of
votes eligible to be cast by the members of the MHC.
2. Approval by the holders of at least two-thirds of the outstanding
shares of the Bank's common stock (including those shares held by the
MHC).
3. Approval by the holders of at least a majority of the shares of the
Bank's common stock (not including those shares held by the MHC)
present in person or by proxy at a meeting of stockholders called for
the purpose of considering the Plan of Conversion.
The MHC has called a special meeting of its members to be held on
__________, 1998 for the purpose of considering the Plan of Conversion. The
Bank has called a special meeting of its stockholders also to be held on
__________, 1998 for the purpose of considering the Plan of Conversion. The MHC
intends to vote its shares of Bank Common Stock, which amounts to 69.81% of the
outstanding shares, in favor of the Plan of Conversion at the special meeting of
stockholders. As of March 31, 1998, directors (including directors emeritus)
and executive officers of the Bank and their associates beneficially owned
137,607 (not including shares that may be acquired through the exercise of stock
options), or 21.6%, of the outstanding shares of Bank common stock held by the
Bank's public shareholders (i.e. shareholders other than the MHC), which they
----
intend to vote in favor of the Plan of Conversion.
REASONS FOR THE CONVERSION
The Boards of Directors of the Holding Company, the MHC and the Bank
believe that the conversion is in the best interests of the MHC and its members,
the Bank and its stockholders, and the communities served by the MHC and the
Bank. In their decision to pursue the conversion, the Boards of Directors
considered the various regulatory uncertainties associated with the mutual
holding company structure, including the MHC's future ability to waive any
dividends from the Bank and the uncertain future of the federal thrift charter.
In addition, the Boards of Directors considered the various advantages of the
stock holding company form of organization, including: (i) the Holding Company's
ability to repurchase shares of its common stock without adverse tax
consequences; (ii) the Holding Company's greater flexibility under current law
and regulations relative to the MHC to acquire other financial institutions and
diversify operations; (iii) the larger capital base of the Holding Company that
will result from the sale of common stock in this offering; and (iv) the
potential increased liquidity in the Holding Company common stock relative to
the Bank common stock because of the larger number of shares to be outstanding
upon consummation of the conversion. Currently, the Boards of Directors of the
Holding Company and the Bank have no specific plans, arrangements or
understandings, written or oral, regarding any stock repurchases, acquisitions
or diversification of operations. See "THE CONVERSION -- Purposes of
Conversion."
3
<PAGE>
THE SUBSCRIPTION OFFERING AND THE DIRECT COMMUNITY OFFERING
The Holding Company is offering shares of its common stock in a
SUBSCRIPTION OFFERING to certain current and former depositor and borrower
customers of the Bank and to the Bank's ESOP. Pursuant to its Plan of
Conversion, the Bank has granted subscription rights in the following order of
priority in accordance with applicable regulatory requirements to:
1. "Eligible Account Holders" -- the Bank's depositors with $50 or more
on deposit as of March 31, 1997.
2. The Bank's ESOP.
3. "Supplemental Eligible Account Holders" -- the Bank's depositors with
$50 or more on deposit as of June 30, 1998.
4. "Other Members" -- the Bank's depositors as of __________, 1998 and
borrowers of the Bank as of May 11, 1994 whose loans continue to be
outstanding as of __________, 1998.
If the number of shares sold in the conversion is increased above the
maximum of the offering range the ESOP will have first priority to purchase any
such shares over the maximum of the offering range, up to a total of 8% of the
common stock sold in this offering.
IMPORTANT: Subscription rights are not transferable, and persons with
subscription rights may not subscribe for shares for the benefit of any
other person. If you violate this prohibition you may lose your right to
purchase shares in the conversion and may be subject to criminal
prosecution and/or other sanctions.
The Subscription Offering will expire at 12:00 Noon, Central Time, on the
EXPIRATION DATE of ________, 1998, unless extended by the Bank and the Holding
Company for up to __ days. In the event of an oversubscription, shares will be
allocated in accordance with the Plan of Conversion.
Concurrently with the Subscription Offering, shares will be offered to the
general public in a DIRECT COMMUNITY OFFERING. Public stockholders of the Bank
will have first preference to purchase shares in the Direct Community Offering
and natural persons and trusts of natural persons who are residents of the
Bank's LOCAL COMMUNITY will have second preference. The Direct Community
Offering will terminate on the Expiration Date unless extended with approval of
the OTS, if necessary. The Subscription Offering and the Direct Community
Offering are being managed by Webb. Webb is a registered broker-dealer and a
member of the NASD. Webb is not obligated to purchase any shares of common
stock in this offering. Shares not sold in the Subscription Offering or Direct
Community Offering may be offered for sale in a SYNDICATED COMMUNITY OFFERING,
which would be an offering to the general public on a best efforts basis by a
selling group of broker-dealers managed by Webb. See "THE CONVERSION -- The
Subscription, Direct Community and Syndicated Community Offerings."
EXCHANGE OF THE BANK'S COMMON STOCK
As part of the conversion, each share of Bank common stock held by the MHC
will be canceled and each share of Bank common stock held by the Bank's public
stockholders will be exchanged for shares of Holding Company common stock. The
number of shares of Holding Company common stock to be issued to the Bank's
public stockholders will be based on an EXCHANGE RATIO that will result in the
Bank's public stockholders owning in the aggregate approximately 26.86% of the
outstanding shares of Holding Company common stock before giving effect to any
(i) payment of cash in lieu of issuing fractional shares of Holding Company
common stock and (ii) shares purchased by the Bank's public stockholders in the
offering. As required by the OTS, the aggregate ownership interest of the
Bank's public stockholders has been adjusted downward from 30.19% to 26.86% to
reflect assets held by the MHC and the waiver by the MHC of certain dividends
paid by the Bank. THE FINAL EXCHANGE RATIO WILL BE BASED ON
4
<PAGE>
THE PERCENTAGE OWNERSHIP INTEREST OF THE BANK'S PUBLIC STOCKHOLDERS IN THE BANK
AND THE NUMBER OF SHARES SOLD IN THIS OFFERING AND NOT ON THE MARKET VALUE OF
BANK COMMON STOCK. ACCORDINGLY, THE VALUE OF THE SHARES OF HOLDING COMPANY
COMMON STOCK TO BE RECEIVED FOR EACH SHARE OF BANK COMMON STOCK MAY BE LESS THAN
THE MARKET VALUE OF BANK COMMON STOCK AT THE TIME OF EXCHANGE. See "-- Stock
Pricing and Number of Shares to be Issued in the Conversion."
Pursuant to OTS regulations, stockholders of the Bank do not have dissent
and appraisal rights with respect to the conversion because the Bank's common
stock is listed on The Nasdaq Stock Market. Accordingly, if the conversion is
approved, the exchange of each share of Bank common stock for shares of Holding
Company common stock will be mandatory. DO NOT SEND YOUR CERTIFICATES FOR
EXCHANGE AT THIS TIME. The Holding Company will mail to each stockholder of the
Bank exchange instructions and a transmittal letter after the consummation of
the conversion. See "THE CONVERSION -- Delivery and Exchange of Stock
Certificates -- Exchange Shares."
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED IN THE CONVERSION
Between 5,100,000 and 6,900,000 shares of the common stock will be sold in
this offering, all at a price of $10.00 per share. With the approval of the
OTS, the number of shares may be increased to 7,935,000. You will not pay a
commission to buy any shares in the conversion.
The amount of common stock being offered in the conversion is based on an
independent appraisal of the estimated pro forma market value of the Bank and
the MHC after giving effect to the conversion. RP FINANCIAL, the independent
appraiser, has estimated that, in its opinion, as of May 29, 1998, the aggregate
pro forma market value of the Bank and the MHC ranged between $69,729,290 and
$94,339,630 (with a midpoint of $82,034,460) ("Estimated Valuation Range"). The
pro forma market value is the market value of the Bank and the MHC after taking
into account the sale of shares in this offering and the formation of the
Holding Company. The appraisal was based in part on the Bank's financial
condition and operations and the effect of the additional capital raised by the
sale of common stock in this offering. Based on this valuation and the
approximate 73.14% ownership interest being sold in this offering, the Board of
Directors of the Holding Company and the Bank established an offering range of
$51,000,000 to $69,000,000. The independent appraisal will be updated prior to
the completion of the conversion. If the pro forma market value of the Bank and
the MHC changes to either below $69,729,290 or above $108,490,570 (the adjusted
maximum of the Estimated Valuation Range), you will be notified and provided
with the opportunity to modify or cancel your order. The $10.00 per share
purchase price was determined by the Boards of Directors of the Holding Company
and the Bank. See "THE CONVERSION -- Stock Pricing and Number of Shares to be
Issued."
Based on the 2,105,840 shares of Bank common stock outstanding at the date
of this Prospectus, and assuming a minimum of 5,100,000 and a maximum of
6,900,000 shares of Holding Company common stock are sold in the offering, the
Exchange Ratio is expected to range from approximately 2.9456 to 3.9852. The
final Exchange Ratio will be adjusted if any options to purchase shares of Bank
common stock are exercised after the date of this prospectus and before the
consummation of the conversion.
<TABLE>
<CAPTION>
<S>
Shares to be Sold Shares to be Exchanged Total Shares
in this for Bank of Common
Offering(1) Common Stock (1) Stock to be Exchange
----------------------------- -----------------------------
Amount Percent Amount Percent Outstanding(1) Ratio(1)
------ ------- ------ ------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
Minimum...... 5,100,000 73.14 1,872,929 26.86 6,972,929 2.9456
Midpoint..... 6,000,000 73.14 2,203,446 26.86 8,203,446 3.4654
Maximum...... 6,900,000 73.14 2,533,963 26.86 9,433,963 3.9852
15% above
Maximum..... 7,935,000 73.14 2,914,057 26.86 10,849,057 4.5830
</TABLE>
5
<PAGE>
______________
(1) Assumes that outstanding options to purchase 15,592 shares of Bank common
stock are not exercised before consummation of the conversion. If all
options are exercised, the percentages represented by the shares sold in
this offering and the shares issued in exchange for the Bank's common stock
would be 72.66% and 27.34%, respectively, and the Exchange Ratio would be
2.8751, 3.3825, 3.8898, and 4.4733, at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range, respectively.
PURCHASE LIMITATIONS
The minimum number of shares that you may purchase is 25. The Bank has
established the following additional purchase limitations:
1. No person (including all persons on a joint account) may purchase more
than 40,000 shares in the offering.
2. No person, either alone or together with associates or persons acting
in concert, may purchase shares in an amount that, when combined with
shares received in exchange for Bank common stock, exceeds 125,000
shares.
Because OTS policy requires that the maximum purchase limitation include
shares to be received in exchange for shares of Bank common stock, if you own
shares of Bank common stock you may be limited in your ability to subscribe for
and purchase shares in this offering.
For further discussion of the purchase limits and definitions of
"associate" and "acting in concert," see "THE CONVERSION -- Limitations on
Purchases of Shares."
PROCEDURE FOR PURCHASING COMMON STOCK
To subscribe for shares of common stock in the Subscription Offering, you
should send or deliver an original, signed stock order form together with full
payment (or appropriate instructions for withdrawal of full payment from
permitted deposit accounts, as described below) to the Bank in the postage-paid
envelope provided so that the stock order form is received before the end of the
Subscription Offering. You must also sign the certification that is part of the
stock order form. Payment for shares may be made in cash (if made in person) or
by check or money order. The Bank will pay interest at the rate it pays on
passbook accounts from the date funds are received until completion or
termination of the conversion. Subscribers who have deposit accounts with the
Bank may include instructions on the stock order form requesting withdrawal from
such deposit account(s) to purchase shares. Withdrawals from certificates of
deposit may be made without incurring an early withdrawal penalty. All funds
authorized for withdrawal from deposit accounts with the Bank will earn interest
at the applicable account rate, but a hold will be placed on such funds making
them unavailable until the completion of the conversion. After the Bank receives
your order, your order cannot be withdrawn or changed, except with the consent
of the Bank.
IMPORTANT: To ensure that your subscription rights are properly identified,
you must list all qualifying savings accounts and loans, as of the respective
qualifying dates, on the stock order form. Persons who do not list all
qualifying savings accounts and loans may be subject to reduction or rejection
of their subscription.
The Holding Company and the Bank have the discretion to accept or reject
orders received either through the Direct Community Offering or the Syndicated
Community Offering. If your order is rejected in part, you will not have the
right to cancel the remainder of the order.
Owners of self-directed IRAS may use the assets of their IRAs to purchase
shares of common stock in the conversion, provided that their IRAs are not
maintained on deposit with the Bank. If you want to use funds in a self-
directed IRA maintained by the Bank to purchase shares of common stock, you must
transfer your account to an unaffiliated institution or broker. If you are
interested in doing so, you should contact the stock information center at least
one week before the Expiration Date.
6
<PAGE>
For further information on how to purchase stock, see "THE CONVERSION --
Procedure for Purchasing Shares in the Subscription and Direct Community
Offerings."
USE OF PROCEEDS
The Holding Company will use the proceeds of the offering as follows:
. 50% of the net proceeds will be contributed to the Bank. The Bank will
use these funds to make loans and purchase investments similar to the
kinds it currently holds. The Bank may also use these funds to expand
its banking operations through the acquisition of additional branches
or other financial institutions.
. The remaining net proceeds will be kept for general corporate
purposes. These purposes may include, for example, paying dividends or
buying back shares of common stock. Funds may also be used for future
diversification or acquisition activities or may be contributed to the
Bank to support its growth.
. An amount equal to 8% of the gross proceeds will be loaned to the ESOP
to fund its purchase of common stock.
For further discussion, see "USE OF PROCEEDS."
PURCHASES BY OFFICERS AND DIRECTORS
The Bank expects its directors and executive officers (together with their
associates) to subscribe for 68,500 shares, which equals 1.1% of the shares
issued at the midpoint of the offering range. The purchase price paid by them
will be the same $10.00 per share price as that paid by all other persons who
purchase shares in the conversion. See "SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND
DIRECTORS."
BENEFITS OF THE CONVERSION TO MANAGEMENT
ESOP. The Bank's ESOP intends to purchase 8% of the shares of common stock
sold in this offering. If the ESOP's subscription is not filled in its
entirety, the ESOP may purchase shares in the open market or may purchase shares
directly from the Holding Company. If the number of shares sold in the
conversion is increased above the maximum of the offering range, the ESOP will
have a first priority to purchase any such shares over the maximum of the
offering range, up to a total of 8% of the common stock sold in the offering.
The Holding Company will recognize additional compensation expense as a result
of the adoption of the ESOP. For information about the ESOP, see "MANAGEMENT OF
THE BANK -- Benefits -- Employee Stock Ownership Plan." See also "RISK FACTORS
- -- Expenses Associated with ESOP and MRDP" and "PRO FORMA DATA."
MANAGEMENT RECOGNITION AND DEVELOPMENT PLAN. After the conversion, the
Holding Company expects to adopt the Pulaski Financial Corp. 1999 Management
Recognition and Development Plan ("1999 MRDP"). If the 1999 MRDP is implemented
within one year after the conversion, under current OTS regulations the plan
will be subject to approval by stockholders at a meeting which may be held no
earlier than six months after completion of the conversion. The 1999 MRDP will
reserve a number of shares equal to 4% of the number of shares sold in this
offering (276,000 shares at the maximum of the Estimated Valuation Range).
Pursuant to the 1999 MRDP, the Holding Company would be able to make awards of
shares of common stock to key employees and directors of the Holding Company and
the Bank at no cost to the recipient. All awards would be subject to vesting
over a period of years. The size of individual awards will be determined prior
to submitting the 1999 MRDP for stockholder approval, and disclosure of
anticipated awards will be included in the proxy materials for such meeting.
The Holding Company will recognize additional compensation expense as a result
of the adoption of the 1999 MRDP. For additional information about the 1999
MRDP, see "MANAGEMENT OF THE BANK -- Benefits -- Management Recognition and
Development Plans." See also "RISK FACTORS -- New Expenses Associated With ESOP
and 1999 MRDP" and "PRO FORMA DATA."
7
<PAGE>
STOCK OPTION PLAN. After the conversion, the Holding Company expects to
adopt the Pulaski Financial Corp. 1999 Stock Option Plan ("1999 Option Plan").
If the 1999 Option Plan is implemented within one year after the conversion,
under current OTS regulations the plan will be subject to approval by
stockholders at a meeting which may be held no earlier than six months after
completion of the conversion. The 1999 Option Plan will reserve a number of
shares equal to 10% of the number of shares sold in this offering. Pursuant to
the 1999 Option Plan, the Holding Company would be able to award options to
acquire shares of common stock to key employees and directors of the Holding
Company and the Bank at no cost to the recipient. The exercise price of such
options would be 100% of the fair market value of the common stock on the date
the option is granted. All awards would be subject to vesting over a period of
years. The size of individual awards will be determined prior to submitting the
1999 Option Plan for stockholder approval, and disclosure of anticipated awards
will be included in the proxy materials for such meeting. For additional
information about the 1999 Option Plan, see "MANAGEMENT OF THE BANK -- Benefits
- -- Stock Option Plans."
EMPLOYMENT AND SEVERANCE AGREEMENTS. The Holding Company and the Bank plan
to enter into employment agreements with William A. Donius, the Holding
Company's and the Bank's President and Chief Executive Officer, Thomas F. Hack,
the Holding Company's and the Bank's Chief Financial Officer, and Michael J.
Donius, the Holding Company's and the Bank's Chief Operating Officer, to replace
the employment agreements that each of these officers currently have with the
Bank. The new employment agreements will provide certain benefits to the
executive if he is terminated following a change in control of the Holding
Company or the Bank. If there is a change in control of the Holding Company or
the Bank, the executive will be entitled to a package of cash and/or benefits
with a maximum value equal to 2.99 times his average annual compensation during
the five-year period preceding the change in control. If a change in control
had occurred as of March 31, 1998, the aggregate value of the severance benefits
payable to the executives under the proposed employment agreements would have
been approximately $738,000. See "RISK FACTORS -- Provisions of Employment and
Severance Agreements" and "MANAGEMENT OF THE BANK -- Executive Compensation --
Employment Agreements."
The Holding Company and the Bank plan to enter into severance agreements
with two of the Bank's senior officers, neither of whom will be covered by an
employment agreement. The severance agreements provide certain benefits to the
officers if they are terminated following a change in control of the Holding
Company or the Bank. If there is a change in control of the Holding Company or
the Bank each officer would be entitled to a package of cash and/or benefits
with a maximum value equal to two times the officer's compensation during the
12-month period preceding the change in control. If a change in control had
occurred as of March 31, 1998, the total value of the severance benefits payable
to these senior officers under the proposed agreements would have been
approximately $374,000. See "RISK FACTORS -- Provisions of Employment and
Severance Agreements" and "MANAGEMENT OF THE BANK -- Executive Compensation --
Severance Agreements."
ASSUMPTION OF EXISTING BENEFIT PLANS. Upon consummation of the conversion,
the Holding Company will assume the Bank's 1994 Stock Option Plan ("1994 Option
Plan") and Management Recognition and Development Plan ("1994 MRDP"). All stock
options awarded pursuant to the 1994 Option Plan that are outstanding at the
consummation of the conversion will be converted into options to purchase shares
of Holding Company common stock, with the number of shares subject to the option
and the exercise price per share to be adjusted based upon the Exchange Ratio so
that the aggregate exercise price remains unchanged. The duration of the
options will also be unchanged. As of the date of this prospectus, there were
outstanding options to purchase 48,160 shares of Bank common stock at a
weighted-average exercise price of $14.79 per share. Shares of restricted stock
granted pursuant to the 1994 MRDP will be converted into shares of Holding
Company common stock based on the Exchange Ratio without any change in the
vesting or other terms of the awards. See "MANAGEMENT OF THE BANK - Benefits."
MARKET FOR COMMON STOCK
The Holding Company has obtained preliminary approval for its common stock
to be listed on the Nasdaq National Market under the symbol PULB. The Bank's
common stock, which currently trades on the Nasdaq SmallCap Market under the
symbol PULB, will continue to be listed until consummation of the conversion.
After shares of the
8
<PAGE>
Holding Company's common stock commence trading, interested investors may
contact a stock broker to buy or sell shares. The Holding Company cannot assure
you that there will be an active trading market for the common stock. See "RISK
FACTORS -- Absence of Prior Market for the Common Stock" and "MARKET FOR COMMON
STOCK."
DIVIDEND POLICY
Following consummation of the conversion, the Holding Company's Board of
Directors intends to pay cash dividends on the common stock at an initial
quarterly rate equal to $.275 per share divided by the final Exchange Ratio.
This formula will result in an initial quarterly dividend rate of $.095, $.08,
$.07 and $.06 per share at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively. Dividends will be
subject to determination and declaration by the Board of Directors, which will
take into account a number of factors, including the Holding Company's
consolidated operating results and financial condition, net worth and capital
requirements, as well as regulatory restrictions on the payment of dividends
from the Bank to the Holding Company (which would be a primary source of funds
for the Holding Company). The Holding Company cannot guarantee you that
dividends will in fact be paid or that if paid such dividends will not be
reduced or eliminated in the future. For further information about the payment
of dividends, see "DIVIDEND POLICY."
COMPARISON OF STOCKHOLDERS' RIGHTS
The Holding Company is a Delaware corporation subject to the provisions of
the Delaware General Corporation Law, and the Bank is a federally-chartered
savings bank subject to federal laws and OTS regulations. Upon consummation of
the conversion, the stockholders of the Bank will become stockholders of the
Holding Company and their rights as stockholders will be governed by the Holding
Company's Certificate of Incorporation and Bylaws and Delaware law, rather than
the Bank's Federal Stock Charter and Bylaws, federal law and OTS regulations.
For a discussion of certain material differences in the rights of stockholders
of the Holding Company and the Bank and an explanation of possible antitakeover
effects of certain provisions of the Holding Company's Certificate of
Incorporation and Bylaws, see "COMPARISON OF STOCKHOLDERS' RIGHTS" and
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY."
9
<PAGE>
RISK FACTORS
Before investing in the common stock please carefully consider the matters
discussed below. The common stock is not a savings account or deposit and is
not insured by the FDIC or any other government agency.
MORTGAGE LENDING AND RISKS ASSOCIATED WITH ARM LOANS
At March 31, 1998, approximately 63.9% of the Bank's assets consisted of
residential mortgage loans held for investment. Such loans represented 93.7% of
the total loan portfolio at that date. While generally considered to involve
less risk than other types of lending, such as commercial mortgage loans,
commercial business loans and consumer loans, residential mortgage loans provide
relatively lower yields. The Bank's loan portfolio also includes a significant
amount of loans with adjustable rates of interest. At March 31, 1998, $87.0
million, or 69.7%, of the Bank's total loans receivable (excluding loans held
for sale) had adjustable interest rates. Adjustable rate loans generally pose
the risk that as interest rates rise the underlying payments of the borrowers
rise, thereby increasing the potential for loan delinquencies and loan losses.
At the same time, the marketability of the underlying properties may be
adversely affected by higher interest rates. The Bank's adjustable rate loans
contain periodic and lifetime interest rate adjustment limits which, in a rising
interest rate environment, may prevent such loans from repricing to market
interest rates. Accordingly, the Bank has no assurance that yields on ARM LOANS
will be sufficient to offset increases in the Bank's cost of funds. Moreover,
the Bank's ability to originate ARM loans may be affected by changes in the
level of interest rates and by market acceptance of the terms of such loans. In
a relatively low interest rate environment, as currently exists, borrowers
generally tend to favor fixed-rate loans over ARM loans. For a discussion of
the Bank's loan portfolio, see "BUSINESS OF THE BANK -- Lending Activities."
FLUCTUATION IN INCOME FROM LOAN SALES
Changes in the level of interest rates and the condition of the local and
national economies affect the amount of loans originated by the Bank and
demanded by investors to whom the loans are sold. Generally, the Bank's loan
origination and sale activity and, therefore, its results of operations, may be
adversely affected by an increasing interest rate environment to the extent such
environment results in decreased loan demand by borrowers and/or investors.
Accordingly, the volume of loan originations and the profitability of this
activity can vary significantly from period to period. In addition, the Bank's
results of operations are affected by the amount of operating expenses
associated with loan origination and sale activities, such as compensation and
benefits, occupancy and equipment expenses, and other operating costs. During
periods of reduced loan demand, the Bank's results of operations may be
adversely affected to the extent that it is unable to reduce expenses
commensurate with the decline in loan originations.
INTEREST RATE RISK
Changes in interest rates can have significant effects on the Bank's
profitability. The Bank's ability to make a profit, like that of most financial
institutions, depends largely on its net interest income, which is the
difference between the interest income received from its interest-earning assets
(such as loans and investment securities) and the interest expense incurred in
connection with its interest-bearing liabilities (such as deposits and
borrowings). The Bank's net interest income and the market value of its assets
and liabilities could be significantly affected by changes in interest rates.
In both a rising and declining interest rate environment, the Bank anticipates
that its net interest income could be adversely affected. In addition, rising
interest rates may adversely affect the Bank's earnings because they may cause a
decrease in customer demand for loans. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Asset and Liability
Management."
Changes in interest rates also can affect the average life of loans and
mortgage-backed securities. During periods of declining interest rates, loans
and mortgage-backed securities prepay faster as loans are prepaid and refinanced
at lower interest rates. During such periods, the Bank generally will not be
able to reinvest the proceeds of any such prepayments at comparable yields.
Conversely, during periods of rising interest rates, the rate of prepayments
generally slows. Moreover, volatility in interest rates also can result in
disintermediation, or the flow of funds away
10
<PAGE>
from savings institutions into direct investments, such as U.S. Government and
corporate securities and other investment vehicles which, because of the absence
of federal insurance premiums and reserve requirements, generally pay higher
rates of return than savings institutions.
BELOW AVERAGE RETURN ON EQUITY AFTER CONVERSION
Return on equity (net income divided by average equity) is a ratio used by
many investors to compare the performance of a particular company with other
companies. The Holding Company's post-conversion return on equity will be below
the average return on equity for many publicly held savings associations and
banks. In addition, the expenses associated with the ESOP and 1999 MRDP, along
with other post-conversion expenses, will limit earnings growth levels. Over
time, the Holding Company intends to deploy the net proceeds from the conversion
to increase earnings per share and book value per share, without assuming undue
risk, with the goal of achieving a return on equity competitive with other
publicly traded savings associations. This goal could take a number of years to
achieve, and the Holding Company cannot assure you that this goal can be
attained. Consequently, you should not expect a competitive return on equity in
the near future. See "SELECTED FINANCIAL INFORMATION," "CAPITALIZATION" and
"PRO FORMA DATA."
EXPENSES ASSOCIATED WITH ESOP AND 1999 MRDP
If the ESOP and 1999 MRDP are implemented, the Bank will recognize
additional material employee compensation and benefit expenses that stem from
the shares purchased or granted to employees and executives under those plans.
The Bank cannot predict the actual amount of these new expenses because
applicable accounting practices require that they be based on the fair market
value of the shares of common stock when the expenses are recognized. Expenses
for the ESOP would be recognized when shares are committed to be released to
participants' accounts, and expenses for the 1999 MRDP would be recognized over
the vesting period of awards made to recipients. These expenses have been
reflected in the pro forma financial information under "PRO FORMA DATA" assuming
the $10.00 per share purchase price as fair market value. Actual expenses,
however, will be based on the fair market value of the common stock at the time
of recognition, which may be higher or lower than $10.00. For further
discussion of these plans, see "MANAGEMENT OF THE BANK -- Benefits -- Employee
Stock Ownership Plan" and "-- Benefits -- Management Recognition and Development
Plan."
POSSIBLE DILUTIVE EFFECT OF BENEFIT PROGRAMS
If the conversion is completed and stockholders approve the 1999 MRDP and
1999 Option Plan, the Holding Company intends to issue shares to its officers
and directors through these plans. If the shares for the 1999 MRDP are issued
from authorized but unissued stock, your ownership interest could be diluted by
up to approximately 2.8%. If the shares for the 1999 Option Plan are issued from
authorized but unissued stock, your ownership interest could be diluted by up to
approximately 7.0%. In either case, the issuance of additional shares would
decrease net income per share and stockholders' equity per share. If the ESOP is
not able to purchase 8% of the shares of common stock issued in the conversion,
the ESOP may purchase newly issued shares from the Holding Company. If this
occurs, your ownership interest would be diluted and net income per share and
stockholders' equity per share may be decreased. See "PRO FORMA DATA."
POSSIBLE VOTING CONTROL BY MANAGEMENT AND EMPLOYEES
The 68,500 shares of common stock expected to be purchased by the Bank's
directors and executive officers and their associates in the conversion,
combined with shares such persons will receive in exchange for their shares of
Bank common stock and the shares expected to be awarded or sold to plan
participants under the ESOP, the 1999 MRDP, the 1999 Option Plan and the 1994
Option Plan, could ultimately result in management and employees and their
associates controlling up to approximately 30.1% of the outstanding shares of
the common stock (assuming the sale of 6,900,000 shares in the conversion and
that the shares issued under the 1999 MRDP, the 1999 Option Plan and the 1994
Option Plan are repurchased treasury shares) and could permit management to
benefit from certain statutory and
11
<PAGE>
regulatory provisions, as well as certain provisions in the Holding Company's
Certificate of Incorporation and Bylaws, that tend to promote the continuity of
existing management. If these individuals were to act as a group or in concert
with each other they could have significant influence over the outcome of any
stockholder vote requiring a majority vote and in the election of directors and
could effectively exercise veto power in matters requiring the approval of
stockholders, such as certain business combinations. Management might thus have
the power to authorize actions that might be viewed as contrary to the best
interests of non-affiliated holders of the common stock and might have veto
power over actions that such holders might deem to be in their best interests.
See "SHARES TO BE PURCHASED BY MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS,"
"MANAGEMENT OF THE BANK --Executive Compensation" and "RESTRICTIONS ON
ACQUISITION OF THE HOLDING COMPANY."
ANTI-TAKEOVER PROVISIONS AND STATUTORY PROVISIONS THAT COULD DISCOURAGE HOSTILE
ACQUISITIONS OF CONTROL
Provisions in the Holding Company's Certificate of Incorporation and
Bylaws, the corporation law of the state of Delaware, and certain federal
regulations might make it difficult and expensive to pursue a tender offer,
change in control or takeover attempt that management opposes. As a result,
stockholders who might desire to participate in such a transaction might not
have an opportunity to do so. Such provisions will also make the removal of the
current board of directors or management of the Holding Company, or the
appointment of new directors, more difficult. These provisions include:
limitations on voting rights of beneficial owners of more than 10% of the
Holding Company's common stock; supermajority voting requirements for certain
business combinations; the election of directors to staggered terms of three
years; the elimination of cumulative voting for directors; and the removal of
directors without cause only upon the vote of holders of 80% of the outstanding
voting shares. The Certificate of Incorporation of the Holding Company also
contains provisions regarding the timing and content of stockholder proposals
and nominations and limiting the calling of special meetings. See "RESTRICTIONS
ON ACQUISITION OF THE HOLDING COMPANY."
POSSIBLE ANTI-TAKEOVER EFFECT OF EMPLOYMENT AND SEVERANCE AGREEMENTS
The employment and severance agreements of senior officers of the Holding
Company and the Bank provide for cash severance payments and/or the continuation
of health, life and disability benefits in the event of their termination of
employment following a change in control of the Holding Company or the Bank. If
a change in control had occurred at March 31, 1998, the aggregate value of the
severance benefits available to these executive officers under the employment
and severance agreements would have been approximately $1.2 million. These
arrangements may have the effect of increasing the costs of acquiring the
Holding Company, thereby discouraging future attempts to take over the Holding
Company or the Bank. For information about the proposed employment and
severance agreements, see "MANAGEMENT OF THE BANK -- Executive Compensation."
COMPETITION
The Bank faces intense competition both in making loans and attracting
deposits. Competition for loans principally comes from commercial banks,
savings associations, credit unions, mortgage banking companies and insurance
companies. Historically, commercial banks, savings associations and credit
unions have been the Bank's most direct competition for deposits. The Bank also
competes with short-term money market funds and with other financial
institutions, such as brokerage firms and insurance companies, for deposits. In
competing for loans, the Bank may be forced periodically to offer lower loan
interest rates. Conversely, in competing for deposits, the Bank may be forced
periodically to offer higher deposit interest rates. Either case or both cases
could adversely affect net interest income. See "BUSINESS OF THE BANK --
Competition."
ABSENCE OF PRIOR MARKET FOR THE COMMON STOCK
The Holding Company has never issued capital stock and, consequently, there
is no existing market for the common stock. Although the Holding Company has
received preliminary approval to list its common stock on the Nasdaq National
Market under the symbol PULB, the Holding Company cannot guarantee that an
active and liquid
12
<PAGE>
trading market for its common stock will develop, or if it does develop, that it
will continue. Furthermore, the Holding Company cannot guarantee that if you
purchase shares in the conversion you will be able to sell your shares at or
above the $10.00 purchase price. See "MARKET FOR COMMON STOCK."
POSSIBLE INCREASE IN ESTIMATED VALUATION RANGE AND NUMBER OF SHARES ISSUED
RP Financial may increase the Estimated Valuation Range up to 15% to
reflect material changes in the financial condition or results of operations of
the Bank or changes in market conditions or general financial, economic or
regulatory conditions following the commencement of the offering. If the
Estimated Valuation Range is increased, the Holding Company anticipates that it
would sell, without any additional notice, up to 7,935,000 shares of common
stock for an aggregate price of up to $79,350,000. This increase in the number
of shares would decrease pro forma net earnings per share and stockholders'
equity per share, increase the Holding Company's pro forma consolidated
stockholders' equity and net earnings, and increase the purchase price as a
percentage of pro forma stockholders' equity per share and net earnings per
share. See "PRO FORMA DATA."
RISK OF YEAR 2000 DATA PROCESSING PROBLEMS
Computer programs that use only two digits to identify a year could fail or
create erroneous results by or at the year 2000. All of the material data
processing of the Bank that could be affected by this problem is provided by a
third party service bureau. If the Bank's service bureau is unable to complete
its year 2000 adjustments in a timely fashion and the Bank is unable to find a
new service bureau, or if the Bank's service bureau does not successfully make
all the necessary year 2000 adjustments, resulting computer malfunctions could
interrupt the operations of the Bank and have a significant adverse impact on
the Bank's financial condition and results of operations. The Bank has
developed a plan and created a committee of the Board of Directors to analyze
how the year 2000 will impact its operations and to monitor the status of its
vendors. Currently, the total pre-tax costs associated with required
modifications and conversions is not expected to exceed $100,000. Such
estimate is based on assumptions regarding the continued availability of various
resources, third-party modification plans and other factors. Accordingly,
actual expenses may be different from estimates. See "MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Year 2000
Issues."
FINANCIAL INSTITUTION REGULATION AND THE FUTURE OF THE THRIFT INDUSTRY
The Bank is subject to extensive regulation, supervision and examination by
the OTS and the FDIC. The U.S. Congress is considering legislative proposals
that would modernize the financial services industry. Many of these proposals
would eliminate the federal savings association charter by requiring that all
federal thrifts convert to national banks or other banking charters. Likewise,
the unitary savings and loan holding company would be eliminated and all thrift
holding companies would become bank holding companies regulated by the Federal
Reserve Board. The Bank is a federal savings association and the Holding
Company, upon completion of the conversion, will be a unitary savings and loan
holding company. If federal legislation is enacted that eliminates the federal
savings association charter, the Bank would be required to change its charter.
No assurance can be given whether federal legislation will be enacted that
affects the federal savings association charter or unitary savings and loan
holding companies, or if such legislation is enacted, what form this legislation
might take. Accordingly, management of the Bank and the Holding Company cannot
predict what effect, if any, such legislation would have on the activities and
operations of the Bank and the Holding Company.
13
<PAGE>
SELECTED FINANCIAL INFORMATION
The following tables set forth certain information concerning the financial
position and results of operations of the Bank at the dates and for the periods
indicated. This information should be read in conjunction with the Financial
Statements and Notes thereto presented elsewhere in this prospectus. Results
for the six months ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the year ending September 30, 1998.
<TABLE>
<CAPTION>
At March 31, At September 30,
-----------------------------------------------------
1998 1997 1996 1995 1994 1993
------------ ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets.................................. $183,629 $179,419 $178,812 $183,095 $190,701 $184,332
Loans receivable, net......................... 124,734 130,359 134,044 148,551 157,724 128,950
Loans held for sale........................... 21,695 14,384 7,210 3,263 2,509 1,984
Bankers acceptances, investment securities
and FHLB stock.............................. 12,674 17,706 16,650 7,094 8,446 17,632
Mortgage-backed and related securities........ 6,120 6,362 7,424 9,443 11,680 14,960
Cash and cash equivalents..................... 14,028 6,248 9,022 10,882 6,937 17,786
Deposits...................................... 154,116 148,672 147,824 151,505 152,828 162,217
FHLB advances................................. 1,900 2,200 3,000 5,000 12,000 3,000
Stockholders' equity.......................... 24,649 23,858 22,504 22,096 21,328 14,846
</TABLE>
<TABLE>
<CAPTION>
Six Months
Ended March 31, Year Ended September 30,
---------------- ------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income............................... $ 6,848 $ 6,629 $ 13,498 $ 13,329 $ 12,823 $ 12,010 $12,739
Interest expense.............................. 3,546 3,473 6,985 7,071 6,882 6,034 6,783
-------- -------- -------- -------- -------- -------- -------
Net interest income........................... 3,302 3,156 6,513 6,258 5,941 5,976 5,956
Provision for loan losses..................... 69 18 169 65 151 274 158
-------- -------- -------- -------- -------- -------- -------
Net interest income after provision for loan
losses....................................... 3,233 3,138 6,344 6,193 5,790 5,702 5,798
Other income.................................. 587 393 887 729 815 736 1,071
Other expense................................. 2,309 2,174 4,284 5,669(1) 4,766 4,588 4,460
-------- -------- -------- -------- -------- -------- -------
Income before income taxes and cumulative
effect of a change in accounting principle... 1,510 1,357 2,947 1,253 1,839 1,850 2,409
Income taxes.................................. 534 463 1,024 370 614 584 801
Cumulative effect of change in
accounting principle......................... -- -- -- -- -- 40(2) --
-------- -------- -------- -------- -------- -------- -------
Net income.................................... $ 976 $ 894 $ 1,923 $ 883 $ 1,225 $ 1,306 $ 1,608
======== ======== ======== ======== ======== ======== =======
PER SHARE DATA (3)
Net income - basic............................ $0.47 $0.43 $0.92 $0.42 $0.59 $0.63 n/a
Net income - diluted.......................... 0.46 0.43 0.91 0.42 0.58 n/a n/a
Dividends(4).................................. 0.55 0.50 1.03 0.85 0.80 0.15 n/a
</TABLE>
_______________
(1) Includes one-time SAIF assessment of $1.0 million.
(2) Reflects adoption of SFAS No. 109, "Accounting for Income Taxes."
(3) Effective December 31, 1997, the Bank adopted SFAS basic earnings per share
and diluted earnings 128 relating to the computation of earnings per
share. Prior per share data have been share, which requires the
presentation of restated.
(4) The MHC has waived the receipt of all dividends declared and paid by the
Bank.
14
<PAGE>
<TABLE>
<CAPTION>
At At September 30,
-------------------------------------------
March 31, 1998 1997 1996 1995 1994 1993
-------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
SELECTED OTHER DATA:
Number of:
Real estate loans outstanding....................... 2,818 2,921 3,031 3,228 3,409 3,233
Deposit accounts.................................... 17,260 16,047 16,316 17,155 17,831 18,881
Full-service offices................................ 5 5 5 4 5 5
</TABLE>
<TABLE>
<CAPTION>
At or For
the Six Months At or For
Ended March 31, Year Ended September 30,
--------------- -------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL RATIOS:
Performance Ratios(1):
Return on average assets(2).......................... 1.07% 1.01% 1.08% 0.49% 0.66% 0.70% 0.88%
Return on average equity(3).......................... 7.88 7.82 8.28 3.90 5.66 7.46 11.44
Average equity as a percent of average total assets.. 13.64 12.85 12.98 12.60 11.71 9.37 7.67
Interest rate spread(4).............................. 3.10 3.00 3.07 2.97 2.79 2.95 3.10
Net interest margin(5)............................... 3.74 3.62 3.72 3.57 3.30 3.29 3.37
Average interest-earning assets to
average interest-bearing liabilities................ 115.87 115.62 116.26 114.96 113.31 110.27 107.11
Other expenses as a percent of average total assets.. 2.54 2.44 2.39 3.17 2.60 2.38 2.36
Dividend payout ratio(6)............................. 35.34 34.88 33.27 60.04 40.27 6.91 N/A
Capital Ratios:
Tangible............................................. 13.39 13.00 13.29 12.59 11.94 11.18 8.05
Core................................................. 13.39 13.00 13.29 12.59 11.94 11.18 8.05
Risk-based........................................... 26.27 30.08 28.74 29.41 26.92 25.19 20.22
Asset Quality Ratios:
Nonperforming loans as a percent
of total loans(7)................................... 0.97 0.52 0.86 0.50 0.56 1.15 0.48
Nonperforming assets as a
percent of total assets(8).......................... 0.80 0.45 0.70 0.47 0.65 1.03 0.40
Allowance for loan losses as a percent
of total loans...................................... 0.45 0.33 0.42 0.36 0.28 0.30 0.19
Allowance for loan losses as a
percent of nonperforming loans...................... 45.56 63.31 49.04 67.93 49.44 25.93 39.14
Net charge-offs as a percent of
average outstanding loans........................... 0.01 0.03 0.02 0.00 0.13 0.03 0.02
- ---------------------
</TABLE>
(1) Ratios for the six-month periods are annualized where appropriate.
(2) Net income divided by average total assets.
(3) Net income divided by average total equity.
(4) Difference between weighted average yield on interest-earning assets and
weighted average cost of interest-bearing liabilities.
(5) Net interest income as a percentage of average interest-earning assets.
(6) Dividends per share divided by net income per weighted average publicly
traded common share. The MHC has waived all dividends declared and paid by
the Bank.
(7) Nonperforming loans consist of loans accounted for on a nonaccrual basis
and accruing loans 90 days or more past due.
(8) Nonperforming assets consist of nonperforming loans, real estate acquired
in settlement of loans, and restructured loans. See "BUSINESS OF THE BANK
-- Lending Activities -- Nonperforming Assets and Delinquencies."
15
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the common stock offered hereby are
estimated to range from $50.0 million to $67.8 million. If the Estimated
Valuation Range is increased by 15%, net proceeds are estimated to be $78.1
million. See "PRO FORMA DATA" for the assumptions used to arrive at such
amounts. The Holding Company has received conditional OTS approval to
contribute 50% of the net proceeds of the offering to the Bank.
The following table presents the estimated net proceeds of the offering
based on the number of shares set forth below together with the amount to be
retained by the Holding Company and the amount to be contributed to the Bank.
<TABLE>
<CAPTION>
5,100,000 6,000,000 6,900,000 7,935,000
Shares at Shares at Shares at Shares at
$10.00 $10.00 $10.00 $10.00
Per Share Per Share Per Share Per Share
---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Gross proceeds................... $ 51,000 $ 60,000 $ 69,000 $ 79,350
Less expenses.................... 1,047 1,114 1,180 1,256
---------- ---------- ---------- ----------
Net proceeds..................... $ 49,953 $ 58,886 $ 67,820 $ 78,094
========== ========== ========== ==========
Amount to be retained by the
Holding Company................. $ 24,977 $ 29,443 $ 33,910 $ 39,047
Amount to be contributed to the
Bank............................ $ 24,977 $ 29,443 $ 33,910 $ 39,047
</TABLE>
Receipt of 50% of the net proceeds of the sale of the common stock will
increase the Bank's capital and will support the expansion of the Bank's
existing business activities. The Bank will use the funds contributed to it for
general corporate purposes, including, initially, lending and investment in
short-term U.S. Government and agency obligations. The Bank may also use these
funds to expand its banking operations through the acquisition of additional
branches or other financial institutions.
In connection with the conversion and the establishment of the ESOP, the
Holding Company intends to loan the ESOP the amount necessary to purchase 8% of
the shares of common stock sold in the conversion. The Holding Company's loan to
fund the ESOP may range from $4,080,000 to $5,520,000 based on the sale of
408,000 shares to the ESOP (at the minimum of the Estimated Valuation Range) and
552,000 shares (at the maximum of the Estimated Valuation Range), respectively,
at $10.00 per share. If 15% above the maximum of the Estimated Valuation Range,
or 7,935,000 shares, are sold in the conversion, the Holding Company's loan to
the ESOP would be approximately $6,348,000 (based on the sale of 634,800 shares
to the ESOP). It is anticipated that the ESOP loan will have a 15-year term with
interest payable at the prime rate as published in The Wall Street Journal on
the closing date of the conversion. The loan will be repaid principally from the
Bank's contributions to the ESOP and from any dividends paid on shares of common
stock held by the ESOP.
The remaining net proceeds retained by the Holding Company initially will
be invested primarily in short-term U.S. Government and agency obligations.
Such proceeds will be available for additional contributions to the Bank in the
form of debt or equity, to support future diversification or acquisition
activities, as a source of dividends to the stockholders of the Holding Company
and for future repurchases of common stock to the extent permitted under
Delaware law and federal regulations. The Holding Company will consider
exploring opportunities to use such funds to expand operations through acquiring
or establishing additional branch offices or acquiring other financial
institutions.
16
<PAGE>
Currently, there are no specific plans, arrangements, agreements or
understandings, written or oral, regarding any expansion activities.
Following consummation of the conversion, the Board of Directors will have
the authority to adopt plans for repurchases of common stock, subject to
statutory and regulatory requirements. Since the Holding Company has not yet
issued stock, there currently is insufficient information upon which an
intention to repurchase stock could be based. The facts and circumstances upon
which the Board of Directors may determine to repurchase stock in the future
would include but are not limited to: (i) market and economic factors such as
the price at which the stock is trading in the market, the volume of trading,
the attractiveness of other investment alternatives in terms of the rate of
return and risk involved in the investment, the ability to increase the book
value and/or earnings per share of the remaining outstanding shares, and the
ability to improve the Holding Company's return on equity; (ii) the avoidance of
dilution to stockholders by not having to issue additional shares to cover the
exercise of stock options or to fund employee stock benefit plans; and (iii) any
other circumstances in which repurchases would be in the best interests of the
Holding Company and its stockholders. Any stock repurchases will be subject to
a determination by the Board of Directors that both the Holding Company and the
Bank will be capitalized in excess of all applicable regulatory requirements
after any such repurchases and that capital will be adequate, taking into
account, among other things, the Bank's level of nonperforming and classified
assets, the Holding Company's and the Bank's current and projected results of
operations and asset/liability structure, the economic environment and tax and
other regulatory considerations. For a discussion of the regulatory limitations
applicable to stock repurchases, see "THE CONVERSION -- Restrictions on
Repurchase of Stock."
DIVIDEND POLICY
GENERAL
Since September 1994, the Bank has paid quarterly cash dividends on the
Bank's common stock. The MHC has waived receipt of all cash dividends paid by
the Bank. Upon completion of the conversion, the Holding Company's Board of
Directors will have the authority to declare dividends on the common stock,
subject to statutory and regulatory requirements. The Board of Directors of the
Holding Company intends to pay cash dividends on the common stock at an initial
quarterly rate equal to $0.275 per share divided by the final Exchange Ratio.
This formula will result in an initial quarterly dividend rate of $0.095, $0.08,
$0.07 and $0.06 per share at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively. By adjusting the
quarterly dividend in this fashion, the Holding Company intends to achieve
economic parity with the dividends currently paid on the Bank's common stock.
The first dividend payment on the Holding Company's common stock is expected
during the month following the end of the quarter in which the conversion is
consummated. In addition, the Board of Directors may determine to pay periodic
special cash dividends in addition to, or in lieu of, regular cash dividends.
Declarations or payments of any dividends (regular and special) will be subject
to determination by the Holding Company's Board of Directors, which will take
into account the amount of the net proceeds retained by the Holding Company, the
Holding Company's financial condition, results of operations, tax
considerations, capital requirements, industry standards, economic conditions
and other factors, including the regulatory restrictions that affect the payment
of dividends by the Bank to the Holding Company discussed below. Under Delaware
law, the Holding Company will be permitted to pay cash dividends after the
conversion either out of surplus or, if there is no surplus, out of net profits
for the fiscal year in which the dividend is declared and/or the preceding
fiscal year. In order to pay such cash dividends, however, the Holding Company
must have available cash either from the net proceeds raised in the conversion
and retained by the Holding Company, borrowings by the Holding Company,
dividends received from the Bank or earnings on Holding Company assets. No
assurances can be given that any dividends, either regular or special, will be
declared or, if declared, what the amount of dividends will be or whether such
dividends, if commenced, will continue.
17
<PAGE>
CURRENT RESTRICTIONS
Dividends from the Holding Company will depend, in part, upon receipt of
dividends from the Bank because the Holding Company initially will have no
source of income other than dividends from the Bank and earnings from the
investment of the net proceeds from the offering retained by the Holding
Company. OTS regulations require the Bank to give the OTS 30 days' advance
notice of any proposed declaration of dividends to the Holding Company, and the
OTS has the authority under its supervisory powers to prohibit the payment of
dividends to the Holding Company. The OTS imposes certain limitations on the
payment of dividends from the Bank to the Holding Company which utilize a three-
tiered approach that permits various levels of distributions based primarily
upon a savings association's capital level. The Bank currently meets the
criteria to be designated a Tier 1 association, as defined under "REGULATION --
Federal Regulation of Savings Associations -- Limitations on Capital
Distributions," and consequently could at its option (after prior notice to and
no objection made by the OTS) distribute up to 100% of its net income during the
calendar year plus 50% of its surplus capital ratio at the beginning of the
calendar year less any distributions previously paid during the year. In
addition, the Bank may not declare or pay a cash dividend on its capital stock
if the effect thereof would be to reduce the regulatory capital of the Bank
below the amount required for the liquidation account to be established pursuant
to the Bank Plan of Conversion. See "REGULATION -- Federal Regulation of
Savings Associations -- Limitations on Capital Distributions," "THE CONVERSION -
- - Effects of Conversion to Stock Form on Depositors and Borrowers of the Bank -
Liquidation Account" and Note 10 of the Notes to Consolidated Financial
Statements included elsewhere herein.
Additionally, in connection with the conversion, the Holding Company and
the Bank have committed to the OTS that during the one-year period following
consummation of the conversion, the Holding Company will not take any action to
declare an extraordinary dividend to stockholders that would be treated by
recipients as a tax-free return of capital for federal income tax purposes.
TAX CONSIDERATIONS
In addition to the foregoing, retained earnings of the Bank appropriated to
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 the payment of
federal income taxes by the Bank at the then current income tax rate on the
amount deemed distributed, which would include the amounts of any federal income
taxes attributable to the distribution. See "TAXATION - Federal Taxation" and
Note 9 of the Notes to Consolidated Financial Statements included elsewhere
herein. The Holding Company does not contemplate any distribution by the Bank
that would result in a recapture of the Bank's bad debt reserve or create the
above-mentioned federal tax liabilities.
MARKET FOR COMMON STOCK
The Holding Company has never issued capital stock and, consequently, there
is no existing market for the common stock. Although the Holding Company has
received preliminary approval to list the common stock on the Nasdaq National
Market under the symbol PULB, there can be no assurance that the Holding Company
will meet the Nasdaq National Market listing requirements, which include a
minimum market capitalization, at least three market makers and a minimum number
of record holders. Keefe, Bruyette & Woods, Inc. has agreed to make a market
for the common stock following consummation of the conversion, although it has
no obligation to do so, and will assist the Holding Company in seeking to
encourage at least two additional market makers to establish and maintain a
market in the common stock. Making a market involves maintaining bid and ask
quotations and being able, as principal, to effect transactions in reasonable
quantities at those quoted prices, subject to various securities laws and other
regulatory requirements. Based on the level of market making in the Bank's
common stock, the Holding Company anticipates that prior to the completion of
the conversion it will be able to obtain the commitment from at least two
additional broker-dealers to act as market maker for the common stock.
Additionally, the development of a liquid public market depends on the existence
of willing buyers and sellers, the presence of which is not within the control
of the Holding Company,
18
<PAGE>
the Bank or any market maker. There can be no assurance that an active and
liquid trading market for the common stock will develop or that, if developed,
it will continue. The number of active buyers and sellers of the common stock at
any particular time may be limited. Under such circumstances, investors in the
common stock could have difficulty disposing of their shares on short notice and
should not view the common stock as a short-term investment. Furthermore, there
can be no assurance that purchasers will be able to sell their shares at or
above the $10.00 purchase price or that quotations will be available on the
Nasdaq National Market as contemplated.
The Bank's common stock is listed on the Nasdaq SmallCap Market under the
same symbol PULB. At March 31, 1998, there were 486 record holders of the
Bank's common stock (not including holders in nominee or "street name") and
eight market makers in the Bank's common stock as reported by the Nasdaq Stock
Market. The following table sets forth the high and low trading prices, as
reported by Nasdaq, and cash dividends paid during the periods indicated.
<TABLE>
<CAPTION>
Cash Dividend
High Low Declared
---- --- --------
<S> <C> <C> <C>
Fiscal 1996
- -----------
Quarter Ended December 31, 1995... $16.50 $12.25 $ .20
Quarter Ended March 31, 1996...... 16.50 15.00 .20
Quarter Ended June 30, 1996....... 15.50 14.00 .20
Quarter Ended September 30, 1996.. 14.75 12.25 .25
Fiscal 1997
- -----------
Quarter Ended December 31, 1996... 14.75 13.75 .25
Quarter Ended March 31, 1997...... 20.00 14.00 .25
Quarter Ended June 30, 1997....... 19.63 17.38 .25
Quarter Ended September 30, 1997.. 27.88 24.75 .275
Fiscal 1998
- -----------
Quarter Ended December 31, 1997... 32.25 30.00 .275
Quarter Ended March 31, 1998...... 51.00 47.50 .275
Quarter Ended June 30, 1998.......
Quarter Ended September 30, 1998
(through _________, 1998)
</TABLE>
19
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the Bank at
March 31, 1998, and the pro forma consolidated capitalization of the Holding
Company after giving effect to the assumptions set forth under "PRO FORMA DATA,"
based on the sale of the number of shares of common stock at the minimum,
midpoint, maximum and maximum, as adjusted, of the Estimated Valuation Range.
The shares that would be issued at the maximum, as adjusted, of the Estimated
Valuation Range would be subject to receipt of OTS approval of an updated
appraisal confirming such valuation. A CHANGE IN THE NUMBER OF SHARES TO BE
ISSUED IN THE CONVERSION MAY MATERIALLY AFFECT PRO FORMA CONSOLIDATED
CAPITALIZATION.
<TABLE>
<CAPTION>
Holding Company
Pro Forma Consolidated Capitalization
Based Upon the Sale of
--------------------------------------------------------
Bank 5,100,000 6,000,000 6,900,000 7,935,000
Capitalization Shares at Shares at Shares at Shares at
as of $10.00 $10.00 $10.00 $10.00
March 31, 1998 Per Share(1) Per Share(1) Per Share(1) Per Share(2)
--------------- ------------ ------------ ------------ ------------
(in thousands)
<S> <C> <C> <C> <C> <C>
Deposits(3)............................ $154,116 $ 154,116 $ 154,116 $ 154,116 $ 154,116
FHLB advances.......................... 1,900 1,900 1,900 1,900 1,900
-------- ---------- ---------- ---------- ----------
Total deposits and borrowed funds...... $156,016 $ 156,016 $ 156,016 $ 156,016 $ 156,016
======== ========== ========== ========== ==========
Stockholders' equity:
Preferred stock:
1,000,000 shares, $.01 par value
per share, authorized; none issued
or outstanding...................... $ -- $ -- $ -- $ -- $ --
Common stock:
25,000,000 shares, $.01 par value
per share, authorized; specified
number of shares assumed to be
issued and outstanding(4)........... 2,106 70 82 94 108
Additional paid-in capital........... 5,255 57,244 66,165 75,087 85,347
Retained earnings(5)................. 17,389 17,603 17,603 17,603 17,603
Less:
Common stock acquired
by ESOP(6)......................... -- (4,080) (4,800) (5,520) (6,348)
Common stock acquired
by 1994 MRDP....................... (101) (101) (101) (101) (101)
Common stock to be acquired
by 1999 MRDP(7).................... -- (2,040) (2,400) (2,760) (3,174)
-------- ---------- ---------- ---------- ----------
Total stockholders' equity............ $ 24,649 $ 68,696 $ 76,549 $ 84,403 $ 93,435
======== ========== ========== ========== ==========
</TABLE>
(footnotes on following page)
20
<PAGE>
_____________
(1) Does not reflect the possible increase in the Estimated Valuation Range to
reflect material changes in the financial condition or results of operations
of the Bank or changes in market conditions or general financial, economic
and regulatory conditions, or the issuance of additional shares under the
1999 Option Plan.
(2) This column represents the pro forma capitalization of the Holding Company
in the event the aggregate number of shares of common stock issued in the
conversion is 15% above the maximum of the Estimated Valuation Range. See
"PRO FORMA DATA" and Footnote 1 thereto.
(3) Withdrawals from deposit accounts for the purchase of common stock are not
reflected. Such withdrawals will reduce pro forma deposits by the amounts
thereof.
(4) The Bank's authorized capital consists solely of 20,000,000 shares of common
stock, par value $1.00 per share, 1,000 shares of which will be issued to
the Holding Company, and 10,000,000 shares of preferred stock, no par value
per share, none of which will be issued in connection with the conversion.
(5) Pro forma retained income includes approximately $214,000 of retained
earnings of the MHC at March 31, 1998. Retained earnings are substantially
restricted by applicable regulatory capital requirements. Additionally, the
Bank will be prohibited from paying any dividend that would reduce its
regulatory capital below the amount in the liquidation account, which will
be established for the benefit of the Bank's Eligible Account Holders and
Supplemental Eligible Account Holders at the time of the conversion and
adjusted downward thereafter as such account holders reduce their balances
or cease to be depositors. See "THE CONVERSION -- Effects of Conversion to
Stock Form on Depositors and Borrowers of the Bank -- Liquidation Account."
(6) Assumes that 8% of the common stock sold in the conversion will be acquired
by the ESOP in the conversion with funds borrowed from the Holding Company.
Under GAAP, the amount of common stock to be purchased by the ESOP
represents unearned compensation and is, accordingly, reflected as a
reduction of capital. As shares are released to ESOP participants'
accounts, a corresponding reduction in the charge against capital will
occur. Since the funds are borrowed from the Holding Company, the borrowing
will be eliminated in consolidation and no liability or interest expense
will be reflected in the consolidated financial statements of the Holding
Company. See "MANAGEMENT OF THE BANK -- Benefits -- Employee Stock
Ownership Plan."
(7) Assumes the purchase in the open market at $10.00 per share, pursuant to the
proposed 1999 MRDP, of a number of shares equal to 4% of the shares of
common stock issued in the conversion at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range. The shares are
reflected as a reduction of stockholders' equity. See "RISK FACTORS --
Possible Dilutive Effect of Benefit Programs," "PRO FORMA DATA" and
"MANAGEMENT OF THE BANK -- Benefits -- Management Recognition Plan." The
1999 MRDP is subject to stockholder approval at a meeting following
consummation of the conversion.
21
<PAGE>
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
The following table presents the Bank's historical and pro forma capital
position relative to its capital requirements at March 31, 1998. The amount of
capital infused into the Bank for purposes of the following table is 50% of the
net proceeds of the offering. For purpose of the table below, the amount
expected to be borrowed by the ESOP and the cost of the shares expected to be
acquired by the MRDP are deducted from pro forma regulatory capital. For a
discussion of the assumptions underlying the pro forma capital calculations
presented below, see "USE OF PROCEEDS," "CAPITALIZATION" and "PRO FORMA DATA."
The definitions of the terms used in the table are those provided in the capital
regulations issued by the OTS. For a discussion of the capital standards
applicable to the Bank, see "REGULATION -- Federal Regulation of Savings
Associations -- Capital Requirements."
<TABLE>
<CAPTION>
PRO FORMA AT MARCH 31, 1998
-------------------------------------------------------------------
Minimum of Estimated Midpoint of Estimated Maximum of Estimated
Valuation Range Valuation Range Valuation Range
-------------------- --------------------- --------------------
5,100,000 Shares 6,000,000 Shares 6,900,000 Shares
March 31, 1998 at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share
-------------------- -------------------- --------------------- --------------------
Percent of Percent of Percent of Percent of
Adjusted Adjusted Adjusted Adjusted
Total Total Total Total
Amount Assets (1) Amount Assets (1) Amount Assets (1) Amount Assets (1)
------ ----------- ------ ----------- ------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP capital(2)............ $24,649 13.42% $37,600 18.74% $39,906 19.59% $42,213 20.42%
Tangible capital(2)........ $24,589 13.39% $37,540 18.71% $39,846 19.57% $42,153 20.40%
Tangible capital
requirement............... 2,754 1.50 3,009 1.50 3,054 1.50 3,100 1.50
------- --------- ------- ----- ------- ----- ------- -----
Excess..................... $21,835 11.89% $34,531 17.21% $36,792 18.07% $39,053 18.90%
======= ========= ======= ===== ======= ===== ======= =====
Core capital(2)............ $24,589 13.39% $37,540 18.71% $39,846 19.57% $42,153 20.40%
Core capital requirement(3) 5,507 3.00 6,018 3.00 6,109 3.00 6,200 3.00
------- --------- ------- ----- ------- ----- ------- -----
Excess..................... $19,082 10.39% $31,522 15.71% $33,732 16.57% $35,953 17.40%
======= ========= ======= ===== ======= ===== ======= =====
Total capital(4)........... $25,248 26.27% $38,199 36.37% $40,505 38.00% $42,812 39.57%
Risk-based
capital requirement....... 7,688 8.00 8,401 8.00 8,528 8.00 8,655 8.00
------- --------- ------- ----- ------- ----- ------- -----
Excess.................... $17,560 18.27% $29,798 26.37% $31,977 30.00% $34,157 31.57%
======= ========= ======= ===== ======= ===== ======= =====
<CAPTION>
---------------------
15% above
Maximum of Estimated
Valuation Range
--------------------
7,935,000 Shares
at $10.00 Per Share
--------------------
Percent of
Adjusted
Total
Amount Assets (1)
------ -----------
<S> <C> <C>
GAAP capital(2)............ $44,865 21.24%
Tangible capital(2)........ $44,805 21.32%
Tangible capital
requirement............... 3,152 1.50
------- -----
Excess..................... $41,653 19.82%
======= =====
Core capital(2)............ $44,805 21.32%
Core capital requirement(3) 6,304 3.00
------- -----
Excess..................... $38,501 18.32%
======= =====
Total capital(4)........... $45,464 41.33%
Risk-based
capital requirement....... 8,801 8.00
------- -----
Excess..................... $36,663 33.33%
======= =====
</TABLE>
________________
(1) Tangible capital levels and core capital levels are shown as a percentage of
adjusted total assets. Risk-based capital levels are shown as a percentage
of risk-weighted assets.
(2) Disallowed mortgage servicing assets account for the difference between GAAP
capital and each of tangible capital and core capital.
(3) The current OTS core capital requirement for savings associations is 3% of
total adjusted assets. The OTS has proposed core capital requirements which
would require a core capital ratio of 3% of total adjusted assets for
thrifts that receive the highest supervisory rating for safety and soundness
and a core capital ratio of 4% to 5% for all other thrifts.
(4) Percentage represents total core and supplementary capital divided by total
risk-weighted assets. Assumes net proceeds are invested in assets that carry
a 20% risk-weighting.
22
<PAGE>
PRO FORMA DATA
Pursuant to the Plan of Conversion, the amount of common stock being
offered in the conversion is based on an independent appraisal of the estimated
pro forma market value of the Bank and the MHC after giving effect to the
conversion. The Estimated Valuation Range as of May 29, 1998 is from a minimum
of $69.7 million to a maximum of $94.3 million with a midpoint of $82.0 million.
Based on this valuation and the approximate 73.14% ownership interest being sold
in this offering, the Board of Directors of the Holding Company and the Bank
established an offering range of $51.0 million to $69.0 million, with a midpoint
of $60.0 million. At a price per share of $10.00, this results in a minimum
number of shares of 5,100,000, a maximum number of shares of 6,900,000 and a
midpoint number of shares of 6,000,000. The actual net proceeds from the sale
of the common stock cannot be determined until the conversion is completed.
However, net proceeds set forth on the following table are based upon the
following assumptions: (i) Webb will receive fees of approximately $369,000,
$436,000, $502,000 and $578,000 at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Valuation Range, respectively (see "THE CONVERSION
- -- Plan of Distribution for the Subscription, Direct Community and Syndicated
Community Offerings); (ii) all of the common stock will be sold in the
Subscription and Direct Community Offerings; and (iii) conversion expenses,
excluding the fees paid to Webb, will total approximately $678,000 at each of
the minimum, midpoint, maximum and 15% above the Estimated Valuation Range.
Actual expenses may vary from this estimate, and the fees paid will depend upon
the percentages and total number of shares sold in the Subscription Offering,
Direct Community Offering and Syndicated Community Offering and other factors.
The following table summarizes the historical net income and retained
income of the Bank and the pro forma consolidated net income and stockholders'
equity of the Holding Company for the periods and at the dates indicated based
on the minimum, midpoint and maximum of the Estimated Valuation Range and based
on a 15% increase in the maximum of the Estimated Valuation Range. The pro
forma consolidated net income of the Bank for the six months ended March 31,
1998 and the year ended September 30, 1997 has been calculated as if the
conversion had been consummated at the beginning of each period and the
estimated net proceeds received by the Holding Company and the Bank had been
invested at 5.39% and 5.44% at the beginning of the period, respectively, which
represents the one-year U.S. Treasury Bill yield as of March 31, 1998 and
September 30, 1997. While OTS regulations provide for the use of a yield
representing the arithmetic average of the weighted average yield earned by the
Bank on its interest-earning assets and the rates paid on its deposits, the
Holding Company believes that the U.S. Treasury Bill yield represents a more
realistic yield on the investment of the conversion proceeds. As discussed
under "USE OF PROCEEDS," the Holding Company expects to retain 50% of the net
proceeds of the offering from which it will fund the ESOP loan. A pro forma
after-tax return of 3.40% and 3.43% is used for both the Holding Company and the
Bank for the six months ended March 31, 1998 and the year ended September 30,
1997, respectively, after giving effect to an incremental combined federal and
state income tax rate of 37.0%. Historical and pro forma per share amounts have
been calculated by dividing historical and pro forma amounts by the number of
shares of common stock indicated in the footnotes to the table. Per share
amounts have been computed as if the common stock had been outstanding at the
beginning of the respective periods, but without any adjustment of per share
historical or pro forma stockholders' equity to reflect the earnings on the
estimated net proceeds.
No effect has been given to: (i) the shares to be reserved for issuance
under the Holding Company's 1999 Stock Option Plan, which is expected to be
voted upon by stockholders at a meeting following consummation of the
conversion; (ii) withdrawals from deposit accounts for the purpose of purchasing
common stock in the conversion; (iii) the issuance of shares from authorized but
unissued shares to the 1999 MRDP, which is expected to be voted upon by
stockholders at a meeting following consummation of the conversion; or (iv) the
establishment of a liquidation account for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders. See "MANAGEMENT OF THE BANK
- -- Benefits -- Stock Option Plan" and "THE CONVERSION -- Stock Pricing and
Number of Shares to be Issued."
THE FOLLOWING PRO FORMA INFORMATION MAY NOT BE REPRESENTATIVE OF THE
FINANCIAL EFFECTS OF THE CONVERSION AT THE DATE ON WHICH THE CONVERSION ACTUALLY
OCCURS AND SHOULD NOT BE TAKEN AS INDICATIVE OF FUTURE RESULTS OF OPERATIONS.
STOCKHOLDERS' EQUITY REPRESENTS THE DIFFERENCE BETWEEN THE STATED AMOUNTS OF
CONSOLIDATED ASSETS AND LIABILITIES OF THE HOLDING COMPANY COMPUTED IN
ACCORDANCE WITH GAAP. STOCKHOLDERS' EQUITY HAS NOT BEEN
23
<PAGE>
INCREASED OR DECREASED TO REFLECT THE DIFFERENCE BETWEEN THE CARRYING VALUE OF
LOANS AND OTHER ASSETS AND MARKET VALUE. STOCKHOLDERS' EQUITY IS NOT INTENDED TO
REPRESENT FAIR MARKET VALUE NOR DOES IT REPRESENT AMOUNTS THAT WOULD BE
AVAILABLE FOR DISTRIBUTION TO STOCKHOLDERS IN THE EVENT OF LIQUIDATION.
<TABLE>
<CAPTION>
At or For the Six Months Ended March 31, 1998
-------------------------------------------------------------
Minimum of Midpoint of Maximum of 15% Above
Estimated Estimated Estimated Maximum of
Valuation Valuation Valuation Estimated
Range Range Range Valuation Range
---------- ----------- ---------- ---------------
5,100,000 6,000,000 6,900,000 7,935,000(1)
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
--------- --------- --------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds...................................... $ 51,000 $ 60,000 $ 69,000 $ 79,350
Less: estimated expenses............................ 1,047 1,114 1,180 1,256
---------- ---------- ---------- ----------
Estimated net proceeds.............................. 49,953 58,886 67,820 78,094
Less: Common stock acquired by ESOP................. (4,080) (4,800) (5,520) (6,348)
Less: Common stock to be acquired
by 1999 MRDP.................................... (2,040) (2,400) (2,760) (3,174)
---------- ---------- ---------- ----------
Net investable proceeds......................... $ 43,833 $ 51,686 $ 59,540 $ 68,572
========== ========== ========== ==========
Consolidated net income:
Historical......................................... $ 976 $ 976 $ 976 $ 976
Pro forma income on net proceeds(2)................ 744 878 1,011 1,164
Pro forma ESOP adjustments(3)...................... (86) (101) (116) (133)
Pro forma 1999 MRDP adjustments(4)................. (129) (151) (174) (200)
---------- ---------- ---------- ----------
Pro forma net income............................. $ 1,505 $ 1,602 $ 1,697 $ 1,807
========== ========== ========== ==========
Consolidated net income per share (5)(6):
Historical......................................... $ 0.15 $ 0.13 $ 0.11 $ 0.10
Pro forma income on net proceeds................... 0.11 0.11 0.11 0.11
Pro forma ESOP adjustments(3)...................... (0.01) (0.01) (0.01) (0.01)
Pro forma 1999 MRDP adjustments(4)................. (0.02) (0.02) (0.02) (0.02)
---------- ---------- ---------- ----------
Pro forma net income per share(7)................ $ 0.23 $ 0.21 $ 0.19 $ 0.18
========== ========== ========== ==========
Consolidated stockholders' equity (book value):
Historical......................................... $ 24,863 $ 24,863 $ 24,863 $ 24,863
Estimated net proceeds............................. 49,953 58,886 67,820 78,094
Less: Common stock acquired by ESOP................ (4,080) (4,800) (5,520) (6,348)
Less: Common stock to be acquired
by 1999 MRDP(4).................................. (2,040) (2,400) (2,760) (3,174)
---------- ---------- ---------- ----------
Pro forma stockholders' equity(8)................ $ 68,696 $ 76,549 $ 84,403 $ 93,435
========== ========== ========== ==========
Consolidated stockholders' equity per share(6)(9):
Historical(6)...................................... $ 3.57 $ 3.03 $ 2.64 $ 2.29
Estimated net proceeds............................. 7.16 7.18 7.19 7.20
Less: Common stock acquired by ESOP................ (0.59) (0.59) (0.59) (0.59)
Less: Common stock to be acquired
by 1999 MRDP(4).................................. (0.29) (0.29) (0.29) (0.29)
---------- ---------- ---------- ----------
Pro forma stockholders' equity per share(7)...... $ 9.85 $ 9.33 $ 8.95 $ 8.61
========== ========== ========== ==========
Purchase price as a percentage of pro forma
stockholders' equity per share..................... 101.52% 107.18% 111.73% 116.14%
Purchase price as a multiple of pro forma
net income per share (10).......................... 21.74x 23.81x 26.32x 27.78x
</TABLE>
(footnotes on following page)
24
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended September 30, 1997
-------------------------------------------------------
Minimum of Midpoint of Maximum of 15% Above
Estimated Estimated Estimated Maximum of
Valuation Valuation Valuation Estimated
Range Range Range Valuation Range
---------- ----------- ---------- ---------------
5,100,000 6,000,000 6,900,000 7,935,000(1)
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
---------- ----------- ---------- ---------------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds...................................... $ 51,000 $ 60,000 $ 69,000 $ 79,350
Less: estimated expenses............................ 1,047 1,114 1,180 1,256
---------- ---------- ---------- ----------
Estimated net proceeds.............................. 49,953 58,886 67,820 78,094
Less: Common stock acquired by ESOP................. (4,080) (4,800) (5,520) (6,348)
Less: Common stock to be acquired
by 1999 MRDP................................... (2,040) (2,400) (2,760) (3,174)
---------- ---------- ---------- ----------
Net investable proceeds........................ $ 43,833 $ 51,686 $ 59,540 $ 68,572
========== ========== ========== ==========
Consolidated net income:
Historical......................................... $ 1,923 $ 1,923 $ 1,923 $ 1,923
Pro forma income on net proceeds(2)................ 1,502 1,771 2,041 2,350
Pro forma ESOP adjustments(3)...................... (171) (202) (232) (267)
Pro forma 1999 MRDP adjustments(4)................. (257) (302) (348) (400)
---------- ---------- ---------- ----------
Pro forma net income............................. $ 2,997 $ 3,190 $ 3,384 $ 3,606
========== ========== ========== ==========
Consolidated net income per share (5)(6):
Historical......................................... $ 0.29 $ 0.25 $ 0.22 $ 0.19
Pro forma income on net proceeds................... 0.23 0.23 0.23 0.23
Pro forma ESOP adjustments(3)...................... (0.03) (0.03) (0.03) (0.03)
Pro forma 1999 MRDP adjustments(4)................. (0.04) (0.04) (0.04) (0.04)
---------- ---------- ---------- ----------
Pro forma net income per share(7)................ $ 0.45 $ 0.41 $ 0.38 $ 0.35
========== ========== ========== ==========
Consolidated stockholders' equity (book value):
Historical......................................... $ 24,072 $ 24,072 $ 24,072 $ 24,072
Estimated net proceeds............................. 49,953 58,886 67,820 78,094
Less: Common stock acquired by ESOP................ (4,080) (4,800) (5,520) (6,348)
Less: Common stock to be acquired
by 1999 MRDP(4).................................. (2,040) (2,400) (2,760) (3,174)
---------- ---------- ---------- ----------
Pro forma stockholders' equity(8)................ $ 67,905 $ 75,758 $ 83,612 $ 92,644
========== ========== ========== ==========
Consolidated stockholders' equity per share(6)(9):
Historical(6)...................................... $ 3.45 $ 2.93 $ 2.55 $ 2.22
Estimated net proceeds............................. 7.17 7.18 7.19 7.20
Less: Common stock acquired by ESOP................ (0.59) (0.59) (0.59) (0.59)
Less: Common stock to be acquired
by 1999 MRDP(4).................................. (0.29) (0.29) (0.29) (0.29)
---------- ---------- ---------- ----------
Pro forma stockholders' equity per share(7)...... $ 9.74 $ 9.23 $ 8.86 $ 8.54
========== ========== ========== ==========
Purchase price as a percentage of pro forma
stockholders' equity per share..................... 102.67% 108.34% 112.87% 117.10%
Purchase price as a multiple of pro forma
net income per share............................... 22.22x 24.39x 26.32x 28.57x
</TABLE>
______________
(1) Gives effect to the sale of an additional 1,035,000 shares in the
conversion, which may be issued to cover an increase in the pro forma
market value of the Holding Company and the Bank as converted, without the
resolicitation of subscribers or any right of cancellation. The issuance
of such additional shares will be conditioned on a determination by RP
Financial that such issuance is compatible with its determination of the
estimated pro forma market value of the Bank and the MHC as converted. See
"THE CONVERSION -- Stock Pricing and Number of Shares to be Issued."
25
<PAGE>
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing common stock in the conversion. Since funds on
deposit at the Bank may be withdrawn to purchase shares of common stock
(which will reduce deposits by the amount of such purchases), the net
amount of funds available to the Bank for investment following receipt of
the net proceeds of the conversion will be reduced by the amount of such
withdrawals.
(3) It is assumed that 8% of the shares of common stock sold in the offering
will be purchased by the ESOP. The funds used to acquire such shares will
be borrowed by the ESOP (at an interest rate equal to the prime rate as
published in The Wall Street Journal on the closing date of the conversion,
which rate is currently ____%) from the net proceeds from the offering
retained by the Holding Company. The amount of this borrowing has been
reflected as a reduction from gross proceeds to determine estimated net
investable proceeds. The Bank intends to make contributions to the ESOP in
amounts at least equal to the principal and interest requirement of the
debt. As the debt is paid down, stockholders' equity will be increased.
The Bank's payment of the ESOP debt is based upon equal installments of
principal over a 15-year period, assuming a combined federal and state
income tax rate of 37.0%. Interest income earned by the Holding Company on
the ESOP debt offsets the interest paid by the Bank on the ESOP loan. No
reinvestment is assumed on proceeds contributed to fund the ESOP.
Applicable accounting practices require that compensation expense for the
ESOP be based upon shares committed to be released and that unallocated
shares be excluded from earnings per share computations. The valuation of
shares committed to be released would be based upon the average market
value of the shares during the year, which, for purposes of this
calculation, was assumed to be equal to the $10.00 per share purchase
price. See "MANAGEMENT OF THE BANK -- Benefits -- Employee Stock Ownership
Plan."
(4) In calculating the pro forma effect of the 1999 MRDP, it is assumed that
the required stockholder approval has been received, that the shares were
acquired by the 1999 MRDP at the beginning of the period presented in open
market purchases at the $10.00 per share purchase price, that 20% of the
amount contributed was an amortized expense during such period, and that
the combined federal and state income tax rate is 37.0%. The issuance of
authorized but unissued shares of the common stock instead of open market
purchases would dilute the voting interests of existing stockholders by
approximately 2.8% and pro forma net income per share would be $0.23,
$0.21, $0.19 and $0.18 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively, for the six months
ended March 31, 1998, and $0.45, $0.41, $0.38 and $0.35 at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range, respectively, for the year ended September 30, 1997, and pro forma
stockholders' equity per share would be $9.86, $9.35, $8.98 and $8.65 at
the minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range, respectively, at March 31, 1998, and $9.75, $9.26, $8.90
and $8.58 at the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Valuation Range, respectively, at September 30, 1997. Shares
issued under the 1999 MRDP vest 20% per year and for purposes of this table
compensation expense is recognized on a straight-line basis over each
vesting period. In the event the fair market value per share is greater
than $10.00 per share on the date shares are awarded under the 1999 MRDP,
total 1999 MRDP expense would increase. No effect has been given to the
shares reserved for issuance under the proposed 1999 Option Plan.
(5) Per share amounts are based upon shares outstanding of 6,578,529,
7,739,446, 8,900,363 and 10,235,417 at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range, respectively, for
the six months ended March 31, 1998, and 6,592,129, 7,755,446, 8,918,763,
and 10,256,577 at the minimum, midpoint, maximum and 15% above the maximum
of the Estimated Valuation Range, respectively, for the year ended
September 30, 1997, which includes the shares of common stock issued in the
conversion less the number of shares assumed to be held by the ESOP not
committed to be released within the first year following the conversion.
(6) Historical per share amounts have been computed as if the shares of common
stock expected to be issued in the conversion had been outstanding at the
beginning of the period or on the date shown, but without any adjustment of
historical net income or historical retained earnings to reflect the
investment of the estimated net proceeds of the sale of shares in the
conversion, the additional ESOP expense or the proposed 1999 MRDP expense,
as described above.
(7) No effect has been given to the issuance of additional shares pursuant to
options to granted pursuant to the 1999 Option Plan or to existing stock
options. If stockholders approve the 1999 Option Plan following the
conversion,
26
<PAGE>
the Holding Company will have reserved for issuance under the 1999 Option
Plan authorized but unissued shares of common stock representing an amount
of shares equal to 10% of the shares sold in this offerings. If all of
these options were to be exercised utilizing authorized but unissued shares
rather than treasury shares which could be acquired, the voting interests
of existing stockholders would be diluted by approximately 7.0%. Assuming
stockholder approval of the 1999 Option Plan, and that all options under
the 1999 Option Plan were exercised at the end of the period at an exercise
price of $10.00 per share, pro forma net earnings per share would be $0.21,
$0.19, $0.18 and $0.16 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively, for the six months
ended March 31, 1998, and $0.42, $0.38, $0.35 and $0.33 at the minimum,
midpoint, maximum and 15% above the maximum of the Estimated Valuation
Range, respectively, for the year ended September 30, 1997, and pro forma
stockholders' equity per share would be $9.96, $9.38, $9.02 and $8.71 at
the minimum, midpoint, maximum and 15% above the maximum of the Estimated
Valuation Range, respectively, at March 31, 1998 and $9.76, $9.29, $8.94
and $8.66 at the minimum, midpoint, maximum and 15% above the maximum of
the Estimated Valuation Range, respectively, at September 30, 1997. See
"MANAGEMENT OF THE SAVINGS BANK -- Benefits -- Stock Option Plans" and
"RISK FACTORS -- Possible Dilutive Effect of Benefit Programs."
(8) "Book value" represents the difference between the stated amounts of the
Bank's assets and liabilities. The amounts shown do not reflect the
liquidation account which will be established for the benefit of Eligible
Account Holders 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 "TAXATION." The amounts shown for book value do
not represent fair market values or amounts distributable to stockholders
in the unlikely event of liquidation.
(9) Per share amounts are based upon shares outstanding of 5,100,000,
6,000,000, 6,900,000 and 7,935,000 at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Valuation Range, respectively.
(10) Annualized.
27
<PAGE>
EFFECT OF THE CONVERSION ON THE BANK'S STOCKHOLDERS
The following table illustrates the effect of the conversion on the public
stockholders of the Bank by setting forth selected comparative per share data
for the Bank on both an historical and a pro forma equivalent basisgiving effect
to the conversion, assuming that at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Valuation Range, one share of Bank common stock
will be exchanged for 2.9456, 3.4654, 3.9852 and 4.5830 shares of Holding
Company common stock, respectively. Pro forma equivalent book value per share
and pro forma equivalent net income per share represent the pro forma amounts
set forth in the tables under "PRO FORMA DATA" above multiplied by the foregoing
Exchange Ratios. Pro forma equivalent dividends per share represent the
intended dividend payment set forth under "DIVIDEND POLICY" above multiplied by
the foregoing Exchange Ratios. This table should be read in conjunction with
the consolidated financial statements of the Bank, including the notes thereto,
appearing elsewhere in this prospectus. The following information is not
necessarily indicative of the results of operations or the financial position
that would have resulted had the conversion been consummated at the beginning of
the periods indicated.
<TABLE>
<CAPTION>
At or For the At or For the
Six Months Ended Year Ended
March 31, 1998 September 30, 1997
---------------- ------------------
<S> <C> <C>
Book value per share
Historical............................................ $11.71 $11.39
Pro forma equivalent:
At minimum of Estimated Valuation Range............ 29.01 28.69
At midpoint of Estimated Valuation Range........... 32.33 31.99
At maximum of Estimated Valuation Range............ 35.67 35.31
At 15% above maximum of Estimated
Valuation Range.................................. 39.46 39.14
Basic net income per share
Historical............................................ $ 0.47 $ 0.92
Pro forma equivalent:
At minimum of Estimated Valuation Range............ 0.68 1.36
At midpoint of Estimated Valuation Range........... 0.73 1.46
At maximum of Estimated Valuation Range............ 0.76 1.51
At 15% above maximum of Estimated
Valuation Range.................................. 0.82 1.65
Dividends per share
Historical............................................ $ 0.55 $ 1.03
Pro forma equivalent:
At minimum of Estimated Valuation Range............ 0.56 1.12
At midpoint of Estimated Valuation Range........... 0.55 1.10
At maximum of Estimated Valuation Range............ 0.56 1.12
At 15% above maximum of Estimated Valuation Range.. 0.55 1.10
</TABLE>
28
<PAGE>
SUBSCRIPTIONS BY EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth, for each director and executive officer of
the Bank (and their associates) and for all of the directors and executive
officers as a group, (i) shares of Holding Company common stock to be received
in exchange for shares of Bank common stock based upon the number of shares
owned as of March 31, 1998, (ii) proposed purchases of common stock, assuming
shares available to satisfy their subscriptions, and (iii) total shares of
Holding Company common stock to be held upon consummation of the conversion, in
each case assuming that 6,000,000 shares are sold at the midpoint of the
Estimated Valuation Range. No individual has entered into a binding agreement
with respect to such intended purchases and, therefore, actual purchases could
be more or less than indicated below. Directors and executive officers and
their associates may not purchase in excess of 32% of the shares sold in the
conversion. Because OTS policy requires that the maximum purchase limitation
include shares to be received in exchange for shares of Bank common stock,
certain officers and directors of the Bank may be limited in their ability to
purchase shares in this offering.
<TABLE>
<CAPTION>
Number of
Shares Received Proposed Purchase of Total Common Stock
in Exchange Common Stock to be Held
for Bank
-------------------------------------------
Common Stock Number Number Percentage
(1)(2) Amounts of Shares of Shares of Total
--------------- --------- --------- --------- ----------
<S> <C> <C> <C> <C> <C>
Robert A. Ebel 84,902 $200,000 20,000 104,902 1.3%
Dr. Edward J. Howenstein 86,278 -- -- 86,278 1.1
William A. Donius 10,798 125,000 12,500 23,298 *
Michael J. Donius 12,530 100,000 10,000 22,530 *
E. Douglas Britt 44,637 50,000 5,000 49,637 *
Garland A. Dorn 13,632 25,000 2,500 16,132 *
Thomas F. Hack 35,451 -- -- 35,451 *
Other Officers (4 persons) 67,325 -- -- 67,325 *
------- -------- ------ -------
Total 355,553 $500,000 50,000 405,553 6.8
======= ======== ====== =======
</TABLE>
_______________________
(*) Less than 1%.
(1) Includes shares of Holding Company common stock received in exchange for
shares of Bank common stock awarded pursuant to the 1994 MRDP that remain
subject to vesting. Excludes shares which may be received upon the exercise
of outstanding stock options granted under the 1994 Option Plan. Based
upon the Exchange Ratio of 3.4654 at the midpoint of the Estimated
Valuation Range, the following persons named in the table would have
options to purchase common stock as follows: Mr. Ebel, 10,396 shares; Mr.
Howenstein, 10,396 shares; Mr. William Donius, 31,881 shares; Mr. Michael
Donius, 22,871 shares; Mr. Britt, 6,237 shares; Mr. Dorn, 3,465 shares; Mr.
Hack, 11,782 shares; and other officers, 39,921 shares.
(2) Does not include stock options that may be granted under the 1999 Option
Plan and shares that may be awarded under 1999 MRDP if such plans are
approved by stockholders. See "MANAGEMENT OF THE BANK -- Benefits."
29
<PAGE>
PULASKI BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of Pulaski Bank, A Federal
Savings Bank for the fiscal years ended September 30, 1997, 1996 and 1995 have
been audited by Deloitte & Touche LLP, independent auditors, whose report
thereon appears elsewhere in this prospectus. The Consolidated Statements of
Income for the six months ended March 31, 1998 and 1997 were not audited by
Deloitte & Touche LLP, but, in the opinion of management, reflect all
adjustments (none of which are other than normal recurring entries) necessary
for a fair presentation. The results of operations for the six months ended
March 31, 1998 are not necessarily indicative of the results of operations that
may be expected for the entire fiscal year. These statements should be read in
conjunction with the Consolidated Financial Statements and related Notes
included elsewhere herein.
<TABLE>
<CAPTION>
Six Months
Ended March 31, Years Ended September 30,
---------------- -------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans................................... $5,826,780 $5,539,557 $11,356,782 $11,480,242 $11,221,194
Investment securities................... 475,331 530,301 1,098,553 708,208 410,714
Mortgage-backed and related securities.. 257,776 292,334 570,691 674,999 839,084
Other................................... 288,310 267,059 471,697 465,887 352,184
---------- ---------- ----------- ----------- -----------
Total interest income................. 6,848,197 6,629,251 13,497,723 13,329,336 12,823,176
---------- ---------- ----------- ----------- -----------
INTEREST EXPENSE:
Deposit................................. 3,476,746 3,381,715 6,824,171 6,885,279 6,413,203
Advances from Federal Home Loan Bank.... 69,231 90,983 160,594 186,490 468,335
---------- ---------- ----------- ----------- -----------
Total interest expense................ 3,545,977 3,472,698 6,984,765 7,071,769 6,881,538
---------- ---------- ----------- ----------- -----------
NET INTEREST INCOME...................... 3,302,220 3,156,553 6,512,958 6,257,567 5,941,638
PROVISION FOR LOAN LOSSES................ 69,523 18,481 169,176 64,700 151,358
---------- ---------- ----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES......................... 3,232,697 3,138,072 6,343,782 6,192,867 5,790,280
---------- ---------- ----------- ----------- -----------
OTHER INCOME:
Service charges on deposit accounts..... 52,538 37,285 75,929 78,210 80,711
Gains on sales of loans................. 280,738 157,043 408,180 214,054 66,662
Insurance commissions................... 82,281 50,394 130,417 125,255 165,360
Other................................... 171,624 147,964 272,832 311,308 502,165
---------- ---------- ----------- ----------- -----------
Total other income.................... 587,181 392,686 887,358 728,827 814,898
---------- ---------- ----------- ----------- -----------
OTHER EXPENSES:
Salaries and employee benefits.......... 1,178,886 1,273,312 2,510,438 2,647,036 2,418,705
Occupancy and equipment expense......... 277,245 250,221 529,605 445,190 471,897
Federal insurance premiums.............. 48,667 93,704 142,034 355,935 361,553
SAIF premium assessment................. 1,010,105
Outside data processing................. 119,658 117,196 225,492 215,231 246,967
Advertising............................. 154,918 26,977 56,781 89,947 111,332
Professional services................... 175,899 92,963 175,875 193,362 255,843
Other................................... 354,118 319,139 643,438 711,452 899,911
---------- ---------- ----------- ----------- -----------
Total other expenses.................. 2,309,391 2,173,512 4,283,663 5,668,258 4,766,208
---------- ---------- ----------- ----------- -----------
INCOME BEFORE INCOME TAXES............... 1,510,487 1,357,246 2,947,477 1,253,436 1,838,970
INCOME TAXES............................. 533,934 462,833 1,024,586 369,974 613,480
---------- ---------- ----------- ----------- -----------
NET INCOME............................... $ 976,553 $ 894,413 $ 1,922,891 $ 883,462 $ 1,255,490
---------- ---------- =========== =========== ===========
BASIC EARNINGS PER SHARE................. $0.47 $0.43 $0.92 $0.42 $0.59
========== ========== =========== =========== ===========
DILUTED EARNINGS PER SHARE............... $0.46 $0.43 $0.91 $0.42 $0.58
========== ========== =========== =========== ===========
</TABLE>
30
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Bank. The information contained in this section
should be read in conjunction with the consolidated financial statements and
accompanying notes thereto contained in this prospectus.
OPERATING STRATEGY
The business of the Bank consists principally of attracting retail deposits
from the general public and using them to originate mortgage loans secured by
one- to four-family residences. The Bank's profitability depends primarily on
its net interest income, which is the difference between the interest income it
receives on its loan and investment portfolio and the interest it pays on
deposits and borrowings. The Bank's profitability is also affected by the level
of other income and expenses. Other income includes service charges, gains on
sales of loans and insurance commissions. Other expenses include salaries and
employee benefits, occupancy and equipment expenses, deposit insurance premiums,
and data processing. The Bank's profitability is also significantly affected by
general economic and competitive conditions, particularly changes in market
interest rates, government legislation and regulation, and monetary and fiscal
policies.
The Bank's strategy is to operate as an independent, retail financial
institution dedicated to financing home ownership and other consumer needs in
St. Louis and the surrounding area. During 1997 the Bank implemented certain
actions, outlined below, designed to further this strategy. In addition, when
Walter A. Donius retired as President and Chief Executive Officer of the Bank in
December 1997 after 42 years of service and William A. Donius, his son,
succeeded him, management of the Bank viewed this transition as an opportune
time to assess the Bank's competitive position and reevaluate its strategic
business plan. In February 1998, the Bank's senior management held a strategic
planning retreat to formulate a strategic plan through the year 2000 which was
subsequently discussed with and approved by the Bank's Board of Directors.
The Bank has recently taken and expects to take the following actions in
furtherance of its strategic business plan:
. In May 1998, the Bank hired M. Brad Condon, a mortgage banker with 20
years of experience, to supervise and manage its growing mortgage
lending activities. Mortgage loan originations have increased from
$17.5 million in fiscal 1991 to $91.9 million in fiscal 1997.
. In 1997, the Bank formed a consumer loan department and began offering
consumer loans, including automobile loans. Consumer loan originations
lave increased from $1.5 million in fiscal 1995 to $4.9 million for
the six months ended March 31, 1998. Later in 1998, the Bank will
introduce home equity lines of credit.
. The Bank is installing ATMs at its office facilities in August 1998.
. The Bank implemented a telephone banking system in May 1998, which
allows customers to check account balances, transfer funds and make
loan payments over the telephone.
. In January 1998, the Bank introduced its High Performance Checking
Account program, which expands the Bank's line of deposit products
while helping to reduce the Bank's cost of funds.
. In the fourth calendar quarter of 1998, the Bank will relocate its
North County office to a larger facility that will include three
drive-through lanes.
31
<PAGE>
. The Bank adopted an expansion plan for reaching new customers in the
St.Louis area that calls for opening one new branch in 1999 and
another new branch in 2000.
The Bank has also taken internal steps to improve its productivity. In
1997, the Bank purchased a master customer information file system that will
enable the Bank to monitor its customer relationships and allow it to better
cross-sell products. In May 1998 the Bank implemented a new company-wide
performance management system linked to compensation, that is intended to reward
high performance and provide motivation to achieve annual goals.
The conversion will increase the consolidated capital of the Holding
Company by the amount of the net proceeds, after deduction for the shares to be
sold to the ESOP. Funds withdrawn from deposit accounts will decrease interest-
bearing liabilities, and new funds used to purchase shares will increase
interest-earning assets. While the Holding Company expects these changes to
increase its net interest income, the Holding Company also expects that the
adoption of the ESOP and the 1999 MRDP will increase its non-interest expenses.
For additional information regarding the effects of this offering, see "PRO
FORMA DATA."
COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 1998 AND SEPTEMBER 30, 1997
Total assets increased $4.2 million to $183.6 million at March 31, 1998
from $179.4 million at September 30, 1997. The increase in total assets is
primarily attributable to increases in loans held for sale and cash and cash
equivalents offset by decreases in loans receivable and investment securities.
Loans held for sale totaled $21.7 million at March 31, 1998 compared with
$14.4 million at September 30, 1997. The increase was due to greater volume of
lending as low interest rates continued to attract refinancing of mortgage
loans. Cash equivalents increased as loan repayments and deposits were invested
in overnight funds. During the first six months of fiscal 1998, management
determined that the prevailing interest rate environment did not provide
sufficient incentive to warrant maturity extension of the investment portfolio.
Investments in debt securities decreased from $16.1 million at September 30,
1997 to $11.0 million at March 31, 1998. This decrease was due to maturity of
investments and redemption, prior to maturity, of callable securities that
resulted from the declining interest rate yield curve.
Loans receivable decreased from $130.4 million at September 30, 1997 to
$124.7 million at March 31, 1998. The decrease of $5.7 million was due to
repayment of loans exceeding portfolio originations and reflects the payoff of
the Bank's largest loan totaling approximately $1.2 million during the six month
period ended March 31, 1998. In the current rate environment, the majority of
the Bank's borrowers preferred fixed rate loans. As it is the Bank's strategy to
maintain mostly adjustable rate loans in its portfolio, fixed rate loans were
sold to correspondent lenders.
Total liabilities at March 31, 1998 were $159.0 million, an increase of
$3.4 million from $155.6 million at September 30, 1997. Deposits increased $5.4
million from $148.7 million at September 30, 1997 to $154.1 million at March 31,
1998. This growth was a result of the implementation of the High Performance
Checking Account program, which involves frequent direct mail advertisement and
gifts for new checking accounts. The number of new checking accounts has
increased almost 28% since September 30, 1997. The Bank also believes that it
has benefitted from the bank mergers and consolidations in the St. Louis market,
which have caused customers to leave larger institutions and obtain services
from smaller, locally-based financial institutions.
Offsetting the increase in deposits, advances from the FHLB-Des Moines
decreased $300,000 from $2.2 million at September 30, 1997 to $1.9 million at
March 31, 1998. The decrease was due to scheduled debt service payments.
Total stockholders' equity increased $791,000 to $24.6 million at March 31,
1998 from $23.9 million at September 30, 1997. The increase was attributable to
net income of $976,000 offset by dividends of $347,000 declared and paid to
minority stockholders. Also during the six months ended March 31, 1998, stock
options were exercised, which resulted in capital contributions totaling
approximately $134,000.
32
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1997 AND 1996
Total assets at September 30, 1997 were $179.4 million, an increase of
$600,000 from $178.8 million at September 30, 1996. Loans held for sale
increased $7.2 million and investment securities increased $1.1 million during
1997. These increases were offset by decreases in loans receivable of $3.7
million and cash equivalents of $2.8 million.
Loans receivable decreased as loan prepayments and amortization exceeded
portfolio loan originations. In fiscal 1997, the Bank's largest loan ($1.6
million) was repaid. During fiscal 1997, the majority of the Bank's borrowers
preferred fixed rate loans. As it is the Bank's strategy to maintain mostly
adjustable-rate mortgage loans in its portfolio, fixed rate loans were sold to
correspondent lenders, which resulted in increased balances of loans held for
sale. Proceeds were utilized to purchase investment-grade debt securities.
The mortgage banking activities of the Bank include sale of loans to MHDC,
for the purpose of providing subsidized loans to low-income and first-time
homeowners. Loans made under these programs are generally securitized into GNMA
mortgage-backed securities and sold ($10.2 million in fiscal 1997) to MHDC. In
April 1998, the Bank discontinued its historical practice of retaining servicing
on loans sold to MHDC due to a change in servicing policy by MHDC. Periodically,
the Bank may purchase qualifying loans from other mortgage lenders who may not
have sufficient volumes to fulfill commitment levels.
Total liabilities at September 30, 1997 were $155.6 million, a decrease of
$700,000 from $156.3 million at September 30, 1996. The decrease was due
primarily to an $800,000 reduction in FHLB advances and a net decrease of
$800,000 in other liabilities, primarily the result of payment in December 1996
of the special SAIF assessment premium which was accrued at September 30, 1996.
These decreases were offset by an increase in deposits of $900,000.
Total stockholders' equity at September 30, 1997 was $23.9 million, an
increase of $1.4 million over $22.5 million at September 30, 1996. The increase
is attributable to net income of $1.9 million, reduced by dividends paid to
minority shareholders of $640,000.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED MARCH 31, 1998 AND 1997
GENERAL. Net income for the six months ended March 31, 1998 was $977,000,
or $0.46 per share (diluted), compared to $894,000, or $0.43 per share
(diluted), for the six months ended March 31, 1997.
INTEREST INCOME. Interest income increased $219,000 for the six months
ended March 31, 1998 compared to the six months ended March 31, 1997. The
increase resulted primarily from an increase in interest on loans of $287,000,
offset by a decrease in interest on investment and mortgage-backed securities of
$90,000.
The increase in interest income on loans resulted from an increase in the
average balance of loans outstanding from $138.8 million in 1997 to $144.2
million in 1998. The average yield on loans increased 10 basis points to 8.08%.
The average balance of loans outstanding increased due to the significant
increase in lending volume resulting from the low interest rate environment for
fixed rate loans. As part of the Bank's interest rate risk policy, the majority
of fixed rate mortgage loans are sold with servicing released.
Interest on federal funds increased as a result of the increase in average
balance to $10.6 million in 1998 from $10.3 million in 1997, coupled with an
increase in the average interest rate from 5.20% to 5.44%. Excess liquidity was
invested in federal funds because management believed the prevailing interest
rate environment provided insufficient incentive for maturity extension.
The decrease in interest income on investment securities resulted from a
decrease in the average balance from $18.3 million in 1997 to $15.8 million in
1998 offset by an increase in the average yield on these investments from 5.80%
in 1997 to 6.01% in 1998. The average yield increased due to the increase in
short-term interest rates and a
33
<PAGE>
change in the portfolio to include callable instruments. The decrease in the
average balance is a reflection of the redemption, prior to maturity, of
callable securities and utilization of maturing securities to fund loan
closings. At March 31, 1998, the Bank's portfolio included $5.0 million of
callable securities with a weighted average rate of 6.01%. Callable securities
carry the risk that if called proceeds may be reinvested at lower rates or
longer terms. The decrease in interest income on mortgage-backed and related
securities resulted primarily from a decrease in the average balance while the
weighted average rate changed from 8.18% to 8.28% for the same period. The
average balance of mortgage-backed and related securities declined as principal
repayments were received. The average yield increased due to repayment and/or
amortization of lower-rate securities.
INTEREST EXPENSE. Interest expense increased $95,000 for the six months
ended March 31, 1998 compared to the six months ended March 31, 1997. The
increase resulted primarily from an increase in the average balance of deposits
from $147.9 million for the six months ended March 31, 1997 to $150.4 million
for the six months ended March 31, 1998. The increased deposit volume resulted
from the implementation of the High Performance Checking Account program, which
involves frequent direct mail advertisement and gifts for new checking accounts.
The Bank also believes that it has attracted new customers as a result of bank
mergers and consolidations in the St. Louis market. Interest on FHLB advances
declined $22,000 as a result of the decreased principal balance due to scheduled
debt service payments.
PROVISION FOR LOAN LOSSES. The provision for loan losses is determined by
management as the amount to be added to the allowance for loan losses after net
charge-offs have been deducted to bring the allowance to a level which is
considered adequate to absorb losses inherent in the loan portfolio. Because
management believes it adheres to strict loan underwriting guidelines focusing
on mortgage loans secured by one-to-four-family residences, the Bank's
historical loan loss experience has been low. No assurances, however, can be
given as to future loan loss experience.
The provision for loan losses for the six month periods ended March 31,
1998 and 1997 was $69,000 and $18,000, respectively. This increase reflects the
increase in the Bank's investment in consumer credit and non-conforming
residential real estate loans. Non-conforming residential real estate loans
represent credit issued which does not meet FANNIE MAE lending guidelines and
therefore may not be pooled and securitized with other loans. Management does
not believe that these loans contribute any significant credit risk to the
Bank's portfolio.
OTHER INCOME. Other income increased $194,000 for the six months ended
March 31, 1998 from the six months ended March 31, 1997. This fluctuation was
primarily due to an increase in gains on sales of loans. Year-to-date gains were
due to loan volumes being approximately 89% greater than last year. In addition,
commissions on sales of insurance products increased $32,000 and service charges
on deposit accounts increased $15,000.
OTHER EXPENSES. Other expenses increased $136,000 to $2.3 million for the
six months ended March 31, 1998. Aside from advertising expenses and
professional services, the other categories of other expenses remained
relatively constant. Advertising expense increased $128,000 from $27,000 for the
six months ended March 31, 1997 to $155,000 for the six months ended March 31,
1998. Advertising expenses for the six-month period consisted of $20,000 of
expenses related to the celebration of the Bank's seventy-fifth anniversary and
$92,000 associated with the commencement of the High Performance Checking
Account program. The checking account promotion has been designed to last a
minimum of three years. The Bank projects the first year promotional costs
(consisting primarily of marketing firm fees, postage and direct mailing
expenses, etc.) to be approximately $360,000 (including the costs incurred
during the six months ended March 31, 1998) with similar costs expected in each
of the subsequent two years if the promotion is continued. The goals of the
promotion are (i) to increase the percentage of transaction accounts to total
deposits, thereby decreasing the Bank's cost of funds, (ii) to increase other
income through insufficient funds charges, service charges and fees levied on
checking accounts and (iii) to increase cross-sell opportunities of other bank
products. Professional services increased $82,000 from $50,000 for the three
months ended March 31, 1997 to $132,000 for the three months ended March 31,
1998. This increase is attributable to certain consultative services provided to
Bank management, including fees related to the implementation of the checking
account program. Other consulting services included fees for the performance
management compensation system design as well as fees for development of a
strategic business and management development program.
34
<PAGE>
INCOME TAXES. The provision for income taxes increased to $534,000 for the
six months ended March 31, 1998 from $463,000 for the six months ended March 31,
1997. The increase is primarily attributable to increased levels of taxable
income and a slight increase in the Bank's effective tax rate.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1997 AND 1996
GENERAl. Net income for the year ended September 30, 1997 was $1.9 million,
or $.91 per share (diluted), compared to $883,000, or $.42 per share (diluted),
for the year ended September 30, 1996. The increase was primarily due to a $1.2
million decrease in FDIC insurance premiums. On September 30, 1996 the FDIC
imposed a special one-time assessment on each depository institution with SAIF-
assessable deposits to recapitalize the SAIF to a level commensurate with the
Bank Insurance Fund (BIF). The special assessment of approximately $1.0 million
was accrued by the Bank at September 30, 1996.
INTEREST INCOME. Interest income increased $169,000 from $13.3 million in
1996 to $13.5 million in 1997. The increase was due primarily to an increase in
interest on investments of $391,000, offset by a decrease of $123,000 of
interest on loans, and a $104,000 decline in interest on mortgage-backed
securities. The increase in interest on investment securities resulted from an
increase in the average balance from $12.2 million in 1996 to $18.5 million in
1997. The average yield increased from 5.80% to 5.93% over the same period of
time. The decrease in the interest on loans resulted from a decrease in the
average balance of loans, from $146.0 million in 1996 to $140.8 million in 1997.
The weighted average rate increased from 7.86% in 1996 to 8.07% in 1997. The
higher average yield on loans was the result of repricing on adjustable rate
loans. The reduced average balance of loans outstanding was due primarily to an
increase in principal repayments, including the payoff of the Bank's largest
loan, and refinancing of loans into lower fixed rates. As part of the Bank's
interest rate risk policy, the majority of fixed rate loans originated in 1997
were sold with servicing released. The decrease in interest income on
mortgage-backed and related securities resulted primarily from a decrease in the
average balance from $8.3 million in 1996 to $6.9 million in 1997. The average
rate changed from 8.12% in 1996 to 8.30% in 1997. The average balance of
mortgage-backed and related securities declined as principal repayments were
received. The average yield increased due to repayment and/or amortization of
lower-rate securities.
INTEREST EXPENSE. Interest expense decreased $87,000, from $7.1 million in
1996 to $7.0 million in 1997. The reduction resulted primarily from reduced
interest expense on interest-bearing deposits of $61,000, and reduced expense on
borrowing from the FHLB of $25,000. The decrease in interest expense on
deposits was the result of the decline of the average balance of deposits, from
$149.4 million in 1996 to $148.0 million in 1997. The average yield remained
the same at 4.61%. The reduced deposit volume has resulted primarily from
increased withdrawals and competition for funds from other financial
intermediaries. The decrease in interest on FHLB advances is the result of a
decline in the average balance, which was $3.0 million in 1996 compared to $2.6
million in 1997. The balance declined as a result of scheduled principal
payments. The average rate increased from 6.08% in 1996 to 6.20% in 1997.
PROVISION FOR LOAN LOSSES. The provision for loan losses increased
$104,000, from $65,000 in 1996 to $169,000 in 1997. Management deemed the
increase in the loan loss provision necessary as a result of an increase in non-
performing loans as well as an increase in consumer credit lines which are
inherently riskier than one- to four-family mortgage loans. Consumer loans
increased $2.4 million in 1997.
OTHER INCOME. Other income increased $158,000, from $729,000 in 1996 to
$887,000 in 1997. The increase was due primarily to an increase in the gains on
sales of loans, which were $214,000 in 1996, and $408,000 in 1997. These
additional gains were the result of a slight increase in volume and the
recording of mortgage servicing rights in accordance with SFAS No. 122 (see Note
1 of the Notes to Consolidated Financial Statements) for $10.2 million of loans
securitized and sold with servicing rights retained.
OTHER EXPENSES. Other expenses decreased from $5.7 million in 1996 to $4.3
million in 1997. The reduction was due primarily to a decrease in the Federal
deposit insurance expense of $1.2 million. In 1996, the FDIC imposed
35
<PAGE>
a special premium on the thrift industry to recapitalize the SAIF. The Bank's
share of the special premium amounted to $1.0 million. Compensation expense
decreased $137,000 in 1997 compared to 1996. In June 1996 the Board of Directors
approved a supplemental non-qualified retirement plan for the Bank's former
president. Offsetting these decreased expenses was an increase in office
occupancy expense of $85,000, up from $445,000 in 1996 to $530,000 in 1997. The
increase was due to higher depreciation expense, as a result of capital
improvements, and higher lease expense as a result of the opening of the Sunset
Hills branch office in August 1996.
INCOME TAXES. The provision for income taxes in 1997 increased $655,000 as
the result of additional taxable income. The effective tax rate increased from
29.5% to 34.8% as the result of changes in investment portfolio mix and related
taxable versus nontaxable investment yields.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
GENERAL. Net income for the year ended September 30, 1996 was $883,000, or
$.42 per share (diluted), compared to $1.2 million, or $.58 per share (diluted),
for the year ended September 30, 1995. The decline was primarily attributed to
a special FDIC insurance assessment to recapitalize the SAIF. The special
assessment of approximately $1.0 million was accrued by the Bank at September
30, 1996.
INTEREST INCOME. Interest income increased from $12.8 million for the year
ended September 30, 1995 to $13.3 million for the year ended September 30, 1996.
The increase of $506,000, or 4.0%, resulted from an increase in interest on
loans of $259,000, an increase in interest from investments of $297,000 and an
increase of $114,000 in interest on federal funds and overnight deposits, offset
by a decrease of $164,000 in the interest on mortgage-backed securities. The
average yield on loans increased from 7.18% in 1995 to 7.86% in 1996. The
higher average yield on loans is the result of an increase in market interest
rates. Additionally, a portion of the Bank's teaser rate mortgages repriced
into market rate adjustable mortgages. During the same period the average loan
balance decreased from $156.3 million in 1995 to $146.0 million in 1996. The
increased interest on investment securities resulted from an increase in the
average balance from $7.2 million in 1995 to $12.2 million in 1996. The average
balance on these investments increased as payments received on loans receivable
and mortgage-backed securities were reinvested. Additionally, the average yield
on investment securities increased from 5.73% in 1995 to 5.80% in 1996. The
decrease in interest income on mortgage-backed and related securities resulted
primarily from a decrease in the average balance from $10.6 million in 1995 to
$8.3 million in 1996. The average balance of mortgage-backed and related
securities declined as principal repayments were received. Management decided
to invest in U.S. Treasury and Agency securities due to insufficient yield
incentive for investment in long-term fixed rate mortgage-backed securities.
Interest on federal funds and overnight deposits increased due to an increase in
the average balance from $6.1 million in 1995 to $8.7 million in 1996. This,
offset with a decrease in the average yield from 5.76% to 5.38% during the same
time period, accounted for the $114,000 increase in interest income. The
average balance increased as a portion of net cash inflows from the loan
portfolio were invested in federal funds and overnight deposits. The decrease
in the average yield was due to the downturn in short-term interest rates.
INTEREST EXPENSE. Interest expense increased from $6.9 million for the year
ended September 30, 1995 to $7.1 million for the year ended September 30, 1996.
The increase of $189,000, or 2.8%, resulted primarily from increased interest
expense on deposits of $472,000 offset by reduced borrowing costs of $282,000 on
FHLB advances. The increase in interest expense on deposits resulted from an
increase in the average rate paid on deposits from 4.24% in 1995 to 4.61% in
1996. The increase in average rate paid on deposits resulted from an overall
increase in prevailing market interest rates and management's decision to offer
competitive rates on special term certificates to help reduce the decline in
savings growth. The average balance of deposits decreased from $151.2 million in
1995 to $149.4 million in 1996. A significant portion of the deposit loss was
associated with the closing of the Sappington office in 1995, and the opening of
a replacement office in Sunset Hills in July 1996. The residual effect of this
transition was a decrease in deposits of approximately $1.2 million. This
accounted for over 31% of the total savings loss experienced during 1996. The
decrease in interest on FHLB advances is a result of a decrease in the average
balance of advances, which was $7.8 million in 1995 contrasted to an average
balance of $3 million in 1996.
36
<PAGE>
PROVISION FOR LOAN LOSSES. The provision for loan losses decreased $86,000
from $151,000 for 1995 to $65,000 for 1996. Management considered the decline
in the balance of nonperforming loans from $848,000 at September 30, 1995 to
$702,000 at September 30, 1996, as well as the decline in total loan portfolio,
as the bases for the reduced addition to the allowance for loan losses.
OTHER INCOME. Other income decreased $86,000, from $815,000 in 1995 to
$729,000 in 1996. The decline was due primarily to reduced profits on the sale
of foreclosed properties, the absence of a $230,000 insurance claim settlement
on a commercial real estate property the Bank had acquired through foreclosure
and had sold during 1995 and a $40,000 decrease on commissions from annuity
sales due to lower sales volume. Offsetting these reduced amounts of other
income were increases in gains on the sales of loans servicing released of
$147,000 resulting from loan sale volume increasing from $34.5 million in 1995
to $49.7 million in 1996.
OTHER EXPENSES. Other expenses increased $902,000 from $4.7 million for the
year ended September 30, 1995 to $5.6 million for the year ended September 30,
1996. The increase was due primarily to the special FDIC premium imposed on the
thrift industry to recapitalize the SAIF. The Bank's share of this special
premium amounted to $1.0 million. Compensation expense increased $228,000, to
$2.6 million, in 1996, due primarily to the implementation of a non-qualified
supplemental retirement plan for the Bank's former president. The Bank
experienced a decline of $63,000 in professional fees and reduced data
processing costs of $32,000. The reduction in professional fees resulted from
lower legal expense in 1996, and the data processing costs were reduced as a
result of a new five year contract executed in May 1996. Additional expense
reduction was achieved through reduced loss provisions on real estate owned,
which were $50,000 in 1996, down $84,000 from $134,000 in 1995.
INCOME TAXES. The provision for income taxes in 1996 decreased $244,000 as
a result of a decrease in taxable income. The effective tax rate decreased from
33.4% to 29.5% which is primarily attributable to reduced levels of income
subject to federal and state tax.
37
<PAGE>
AVERAGE BALANCE SHEET
The following table sets forth for the periods indicated information
regarding average balances of assets and liabilities as well as the total dollar
amounts of interest income from average interest-earning assets and interest
expense on average interest-bearing liabilities and average yields and costs.
Such yields and costs for the periods indicated are derived by dividing income
or expense by the average balances of assets or liabilities, respectively, for
the periods presented. Average balances for the year ended September 30, 1995
were derived from month-end balances.
<TABLE>
<CAPTION>
Six Months Ended March 31,
---------------------------------------------------------------
1998 1997
---------------------------- -----------------------------
Interest Interest
Average and Yield/ Average and Yield
Balance Dividends Cost(1) Balance Dividends Cost(1)
-------- --------- ------- -------- --------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Net loans (2)............................... $144,160 $ 5,827 8.08% $138,766 $5,540 7.98%
Investment securities (3)................... 15,803 475 6.01 18,297 530 5.80
Mortgage-backed and related securities...... 6,233 258 8.28 7,144 292 8.18
Federal funds sold and overnight deposits... 10,579 288 5.44 10,263 267 5.20
-------- -------- -------- ------
Total interest-earning assets........... 176,775 6,848 7.75 174,470 6,629 7.60
Non-interest-earning assets.................. 4,999 3,491
-------- --------
Total assets............................ $181,774 $177,961
======== ========
Interest-bearing liabilities:
Deposits (4)................................ $150,359 3,477 4.62 147,901 3,382 4.57
FHLB advances............................... 2,196 69 6.28 2,996 91 6.07
-------- -------- -------- ------
Total interest-bearing liabilities...... 152,557 3,546 4.65 150,897 3,473 4.60
-------- ------
Non-interest bearing liabilities............. 4,417 4,192
Stockholders' equity......................... 24,800 22,872
-------- --------
Total liabilities and stockholders'
equity................................. $181,774 $177,961
======== ========
Net interest income.......................... $ 3,302 $ 3,156
======== ========
Interest rate spread (5)..................... 3.10% 3.00%
Net interest margin (6)...................... 3.74% 3.62%
Ratio of average interest-earning assets to
average interest-bearing liabilities........ 115.87% 115.62%
</TABLE>
___________________
(1) Amounts are annualized.
(2) Includes loans held for sale. Also includes non-accrual loans with an
average balance of $284,000 and $145,000 for the six months ended March 31,
1998 and 1997, respectively.
(3) Includes FHLB stock.
(4) Includes non-interest-bearing deposits with an average balance of $1.1
million and $738,000 for the six months ended March 31, 1998 and 1997,
respectively.
(5) Yield on interest-earning assets less cost of interest-bearing liabilities.
(6) Net interest income divided by average interest-earning assets.
38
<PAGE>
<TABLE>
<CAPTION>
Years Ended September 30,
-------------------------------------------------------------------------------------------
1997 1996 1995
----------------------------- ----------------------------- -----------------------------
Interest Interest Interest
Average and Yield/ Average and Yield/ Average and Yield/
Balance Dividends Cost Balance Dividends Cost Balance Dividends Cost
-------- ---------- ------- -------- ---------- ------- -------- ---------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Net loans (1)............... $140,827 $11,357 8.07% $146,012 $11,480 7.86% $156,291 $11,221 7.18%
Investment securities(2).... 18,520 1,098 5.93 12,217 708 5.80 7,169 411 5.73
Mortgage-backed and related
securities................. 6,876 571 8.30 8,316 675 8.12 10,565 839 7.94
Federal funds sold and
overnight deposits......... 8,868 472 5.32 8,663 466 5.38 6,116 352 5.76
-------- ------- -------- ------- -------- -------
Total
interest-earning
assets.............. 175,091 13,498 7.71 175,208 13,329 7.61 180,141 12,823 7.12
Non-interest-earning assets...... 3,728 4,263 4,793
-------- ------- -------
Total assets........ $178,819 $179,471 $184,934
======== ======== ========
Interest-bearing liabilities:
Deposits (3)................ $148,006 6,824 4.61 $149,355 6,885 4.61 $151,194 6,413 4.24
FHLB advances............... 2,597 161 6.20 3,057 187 6.08 7,786 469 6.01
-------- ------- -------- ------- -------- -------
Total
interest-bearing
liabilities......... 150,603 6,985 4.64 152,412 7,072 4.64 158,980 6,882 4.33
------- ------- -------
Non-interest bearing liabilities. 5,003 4,438 4,304
Stockholders' equity............. 23,213 22,621 21,650
-------- -------- --------
Total liabilities
and stockholders'
equity.............. $178,819 $179,471 $184,934
======== ======== ========
Net interest income.............. $6,513 $6,257 $5,941
====== ====== ======
Interest rate spread (4)......... 3.07% 2.97% 2.79%
Net interest margin (5).......... 3.72% 3.57% 3.30%
Ratio of average
interest-earning assets to
average interest-bearing 116.26% 114.96% 113.31%
liabilities................. ====== ======== ========
</TABLE>
______________________
(1) Includes loans held for sale. Also includes nonaccrual loans with an
average balance of $160,000, $111,000 and $414,000 for the years ended
September 30, 1997, 1996, and 1995, respectively.
(2) Includes FHLB stock.
(3) Includes non-interest-bearing deposits with an average balance of $759,000,
$457,000 and $428,000 for the years ended September 30, 1997, 1996, and
1995, respectively.
(4) Yield on interest-earning assets less cost of interest-bearing
liabilities.
(5) Net interest income divided by average interest-earning assets.
39
<PAGE>
YIELDS EARNED AND RATES PAID
The following table sets forth at the date and for the periods indicated
the weighted average yields earned on the Bank's assets and the weighted average
rates paid on the Bank's liabilities, together with the Bank's interest rate
spread and net interest margin.
<TABLE>
<CAPTION>
Six Months
At Ended
March 31, March 31, Years Ended September 30,
----------------- -------------------------
1998 1998 1997 1997 1996 1995
---------- ---- ---- ----- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Weighted average yield earned on:
Net loans...................................... 8.27% 8.08% 7.98% 8.07% 7.86% 7.18%
Investment securities (1)...................... 5.90 6.01 5.80 5.93 5.80 5.73
Mortgage-backed and related securities......... 8.23 8.28 8.18 8.30 8.12 7.94
Federal funds sold and overnight deposits...... 5.38 5.44 5.20 5.32 5.38 5.76
Total interest-earning assets................ 7.77 7.75 7.60 7.71 7.61 7.12
Weighted average rate paid on:
Deposits....................................... 4.59 4.62 4.57 4.61 4.61 4.24
FHLB advances.................................. 6.32 6.28 6.07 6.20 6.08 6.01
Total interest-bearing liabilities........... 4.66 4.65 4.60 4.64 4.64 4.33
Interest rate spread (spread between
weighted average rate earned on all interest-
earning assets and paid on all interest-
bearing liabilities)........................... 3.11 3.10 3.00 3.07 2.97 2.79
Net interest margin (net interest
income as a percentage of average
interest-earning assets)........................ N/A 3.74 3.62 3.72 3.57 3.30
</TABLE>
_______________
(1) Includes FHLB stock.
RATE/VOLUME ANALYSIS
The following table sets forth the effects of changing rates and volumes on
net interest income of the Bank. Information is provided with respect to (i)
effects on interest income attributable to changes in volume (changes in volume
multiplied by prior rate); (ii) effects on interest income attributable to
changes in rate (changes in rate multiplied by prior volume); (iii) changes in
rate/volume (change in rate multiplied by change in volume); and (iv) the net
change (the sum of the prior columns).
40
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended March 31, Year Ended September 30, Year Ended September 30,
1998 Compared to 1997 1997 Compared to 1996 1996 Compared to 1995
Increase (Decrease) Due to Increase (Decrease) Due to Increase (Decrease) Due to
----------------------------- ------------------------------- -------------------------------------
Rate/ Rate/ Rate/
Rate Volume Volume Net Rate Volume Volume Net Rate Volume Volume Net
----- ------- ------- ---- ----- ------- ------- ------ ------- ------- ------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Total net loans........... $ 69 $215 $ 3 $287 $296 $(409) $(11) $(124) $1,067 $(738) $(70) $ 259
Investment securities (1). 20 (72) (3) (55) 17 364 9 390 4 290 3 297
Mortgage-backed and
related securities....... 3 (37) -- (34) 16 (117) (3) (104) 19 (179) (4) (164)
Federal funds sold and
overnight deposits....... 13 8 -- 21 (5) 11 -- 6 (23) 147 (10) 114
---- ---- ------ ---- ---- ----- ---- ----- ------ ----- ---- -----
Total net change in
income on
interest-earning
assets.............. 105 114 -- 219 324 (151) (5) 168 1,067 (480) (81) 506
Interest-bearing
liabilities:
Interest-bearing deposits. 38 56 1 95 1 (62) -- (61) 557 (78) (7) 472
FHLB advances............. 3 (24) (1) (22) 3 (28) (1) (26) 6 (285) (3) (282)
---- ---- ------ ---- ---- ----- ---- ----- ------ ----- ---- -----
Total net change in
expense on
interest-bearing
liabilities........ 41 32 -- 73 4 (90) (1) (87) 563 (363) (10) 190
---- ---- ------ ---- ---- ----- ---- ----- ------ ----- ---- -----
Net change in net interest
income.................... $ 64 $ 82 $-- $146 $320 $ (61) $ (4) $ 255 $ 504 $(117) $(71) $ 316
==== ==== ====== ==== ==== ===== ==== ===== ====== ===== ==== =====
</TABLE>
_______________
(1) Includes FHLB stock.
41
<PAGE>
ASSET AND LIABILITY MANAGEMENT
QUANTITATIVE ASPECTS OF MARKET RISK. The Bank does not maintain a trading
account for any class of financial instrument nor does the Bank engage in
hedging activities or purchase high-risk derivative instruments. Furthermore,
the Bank is not subject to foreign currency exchange rate risk or commodity
price risk. For information regarding the sensitivity to interest rate risk of
the Bank's interest-earning assets and interest-bearing liabilities, see the
tables under "BUSINESS OF THE BANK -- Lending Activities -- Loan Maturity and
Repricing," "-- Investment Activities" and "-- Deposit Activities and Other
Sources of Funds -- Time Deposits by Maturities."
QUALITATIVE ASPECTS OF MARKET RISK. The Bank's principal financial
objective is to achieve long-term profitability while reducing its exposure to
fluctuating market interest rates. The Bank has sought to reduce the exposure of
its earnings to changes in market interest rates by attempting to manage the
mismatch between asset and liability maturities and interest rates. In order to
reduce the exposure to interest rate fluctuations, the Bank has developed
strategies to manage its liquidity, shorten its effective maturities of certain
interest-earning assets and increase the interest rate sensitivity of its asset
base. Management has sought to decrease the average maturity of its assets by
emphasizing the origination of adjustable-rate residential mortgage loans and
consumer loans, all of which are retained by the Bank for its portfolio. In
addition, long-term, fixed-rate single-family residential mortgage loans are
underwritten according to the guidelines of FANNIE MAE and FREDDIE MAC and
usually sold for cash in the secondary market. The Bank relies on retail
deposits as its primary source of funds. Management believes retail deposits,
compared to brokered deposits, reduce the effects of interest rate fluctuations
because they generally represent a more stable source of funds.
The Bank uses interest rate sensitivity analysis to measure its interest
rate risk by computing changes in NPV (net portfolio value) of its cash flows
from assets, liabilities and off-balance sheet items in the event of a range of
assumed changes in market interest rates. NPV represents the market value of
portfolio equity and is equal to the market value of assets minus the market
value of liabilities, with adjustments made for off-balance sheet items. This
analysis assesses the risk of loss in market risk sensitive instruments in the
event of a sudden and sustained 100 to 400 basis point increase or decrease in
market interest rates with no effect given to any steps that management might
take to counter the effect of that interest rate movement. Using data compiled
by the OTS, the Bank receives a report which measures interest rate risk by
modeling the change in NPV (net portfolio value) over a variety of interest rate
scenarios. This procedure for measuring interest rate risk was developed by the
OTS to replace the "gap" analysis (the difference between interest-earning
assets and interest-bearing liabilities that mature or reprice within a specific
time period).
The following table is provided by the OTS and sets forth the change in the
Bank's NPV at March 31, 1998, based on OTS assumptions, that would occur in the
event of an immediate change in interest rates, with no effect given to any
steps that management might take to counteract that change.
Basis Point ("bp") Estimated Change in
Change in Rates Net Portfolio Value
----------------- ---------------------------
(in thousands)
+400 (4,519)
+300 (2,627)
+200 (1,102)
+100 (138)
0 0
(100) (500)
(200) (1,410)
(300) (1,931)
(400) (1,779)
42
<PAGE>
The above table indicates that in the event of a sudden and sustained
increase in prevailing market interest rates, the Bank's NPV would be expected
to decrease, and that in the event of a sudden and sustained decrease in
prevailing market interest rates, the Bank's NPV would also be expected to
decrease.
Certain assumptions utilized by the OTS in assessing the interest rate risk
of savings associations within its region were utilized 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
differing interest rate scenarios, among others.
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as ARM loans, have features which restrict
changes in interest rates on a short-term basis and over the life of the asset.
Further, in the event of a change in interest rates, expected rates of
prepayments on loans and early withdrawals from certificates could deviate
significantly from those assumed in calculating the table.
LIQUIDITY AND CAPITAL RESOURCES
The Bank's principal sources of funds are proceeds from maturities of
investment securities, principal payments received on mortgage-backed and
related securities, loan repayments and deposits.
The primary investing activities of the Bank are originating and purchasing
loans and purchasing investments and mortgage-backed securities. Proceeds from
maturities of investment securities and principal payments received on mortgage-
backed and related securities provided $14.6 million of liquidity for the year
ended September 30, 1997, while loan repayments in excess of originations
provided $3.5 million. For the six months ended March 31, 1998, proceeds from
maturities of investment securities and principal payments received on mortgage-
backed and related securities totaled $13.8 million and loan repayments in
excess of originations totaled $5.4 million.
The Bank's most significant financing activities are deposit accounts, FHLB
borrowings, taxes and insurance on behalf of borrowers, and the payment of
dividends. The repayment of FHLB borrowings of $800,000 and dividend payments
totaling $640,000 were the primary uses of cash during 1997. These cash outflows
were offset by net increases in deposits and escrow balances totaling $927,000
during 1997. During the six months ended March 31, 1998, the Bank repaid
$300,000 of FHLB advances and paid dividends totaling $347,000, while the net
increase in deposits and escrow balances was $3.9 million.
Federal regulations require the Bank to maintain minimum levels of liquid
assets (i.e., cash and eligible investments). The required percentage has varied
from time to time based upon economic conditions and savings flows and is
currently 4% of the average daily balance of its net withdrawable savings
deposits and short-term borrowings. The Bank attempts to maintain levels of
liquidity at levels in excess of those required by regulation. Maintaining
levels of liquidity acts, in part, to reduce the Bank's balance sheet exposure
to interest rate risk. At March 31, 1998, the Bank's liquidity ratio (liquid
assets as a percentage of net withdrawable savings deposits and short-term
borrowings) was 20.0%.
The Bank must also maintain adequate levels of liquidity to ensure the
availability of funds to satisfy loan commitments and deposit withdrawals. At
March 31, 1998, the Bank had outstanding commitments to originate loans of $7.2
million and commitments to sell loans of $27.8 million. At the same time,
certificates of deposit which are scheduled to mature in one year or less
totaled $65.3 million. Based upon historical experience, management believes
the majority of maturing certificates of deposit will remain with the Bank. In
addition, management of the Bank believes that it can adjust the offering rates
of certificates of deposit to retain deposits in changing interest rate
environments. In the event that a significant portion of these deposits are not
retained by the Bank, the Bank would be able to utilize FHLB advances to fund
deposit withdrawals, which would result in an increase in interest expense to
the extent that the average rate paid on such advances exceeds the average rate
paid on deposits of similar duration.
43
<PAGE>
Management believes its ability to generate funds internally will satisfy
its liquidity requirements. If the Bank requires funds beyond its ability to
generate them internally, it has the ability to borrow funds from the FHLB under
a blanket agreement which assigns all investments in FHLB stock as well as
qualifying first mortgage loans equal to 150% of the outstanding advances as
collateral to secure the amounts borrowed. At March 31, 1998, the Bank had
approximately $72.2 million available to it under the above-mentioned borrowing
arrangement. At March 31, 1998, the Bank had $1.9 million in advances from the
FHLB.
The Bank is required to maintain specific amounts of capital pursuant to
OTS regulations on minimal capital standards. As of March 31, 1998, the Bank
complied with all regulatory capital requirements as of that date with tangible,
core and risk-based capital ratios of 13.39%, 13.39% and 26.27%, respectively.
For a detailed discussion of regulatory capital requirements, see"REGULATION --
Federal Regulation of Savings Associations -- Capital Requirements." See also
"HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE."
YEAR 2000 ISSUES
The Year 2000 issue exists because many computer systems and applications
use two-digit date fields to designate a year. As the century date change
occurs, date-sensitive systems may recognize the year 2000 as 1900, or not at
all. This inability to recognize or properly treat the year 2000 may cause
systems to process financial and operational information incorrectly.
All of the material data processing of the Bank that could be affected by
this problem is provided by a third party service bureau. The Bank's service
bureau informed the Bank that it intends to complete its year 2000 adjustments
by October 1998 and to make its systems available for testing in November 1998.
The Bank has developed a plan and created a committee of the Board of Directors
to analyze how the year 2000 will impact its operations and to monitor the
status of its vendors. The Bank will continue to monitor its status as well as
its service providers' status in their efforts to become year 2000 compliant The
Bank does not believe that the costs associated with its actions and those of
its vendors will be material to the Bank. The Bank's service bureau will make
available certain software that will allow the Bank to test its critical
applications. The Bank plans on purchasing this software at a cost of $25,000
and plans to complete testing and system modifications by April 1999. Other
internal costs are not expected to exceed $75,000 and will consist primarily of
accelerating various hardware and purchased software upgrades which generally
would have been incurred in the normal course of business. The costs for
accomplishing the Bank's plans to complete the year 2000 modifications and
testing processes are based on management's best estimates, which were derived
utilizing numerous assumptions of future events, including the continued
availability of various resources, third-party modification plans and other
factors. However, there can be no guarantee that these estimates will be
achieved, and actual results could differ from those plans. In the event the
Bank's service bureau is unable to fulfill its contractual obligations to the
Bank, it could have a significant adverse impact on the financial condition and
results of operations of the Bank.
IMPACT OF ACCOUNTING PRONOUNCEMENTS AND REGULATORY POLICIES
COMPREHENSIVE INCOME. SFAS No. 130, "Reporting Comprehensive Income,"
issued in July 1997, establishes standards for reporting and presentation of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. It 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
presented with the same prominence as other financial statements. SFAS No. 130
requires that companies (i) classify items of other comprehensive income by
their nature in a financial statement and (ii) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the statement of financial condition.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Comparative financial statements are required to be reclassified to reflect the
provisions of this statement.
SEGMENT INFORMATION. SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information" establishes standards for the way public
business enterprises report information about operating segments
44
<PAGE>
and establishes standards for related disclosures about products and services,
geographic areas and major customers. Operating segments are components of an
enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Information required to be
disclosed includes segment profit or loss, certain specific revenue and expense
items, segment assets and certain other information. This statement is effective
for the Holding Company for financial statements issued for the fiscal year
ending September 30, 1999.
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS.
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," issued in February 1998, standardizes disclosure requirements for
pensions and other postretirement benefits and requires additional disclosure on
changes in benefit obligations and fair values of plan assets in order to
facilitate financial analysis. SFAS No. 132 is effective for fiscal years
beginning after December 15, 1997, with earlier application encouraged.
EFFECT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related financial data presented
herein have been prepared in accordance with GAAP, which require the measurement
of financial position and operating results in terms of historical dollars,
without considering the change in the relative purchasing power of money over
time due to inflation. The impact of inflation is reflected in the increased
cost of the Bank's operations. Unlike most industrial companies, virtually all
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 do general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services.
BUSINESS OF THE HOLDING COMPANY
GENERAL
The Holding Company was organized as a Delaware business corporation at the
direction of the Bank in May 1998 for the purpose of becoming the holding
company for the Bank upon completion of the conversion. As a result of the
conversion, the Bank will be a wholly-owned subsidiary of the Holding Company
and all of the issued and outstanding capital stock of the Bank will be owned by
the Holding Company.
BUSINESS
Prior to the conversion, the Holding Company has not and will not engage in
any significant activities other than of an organizational nature. Upon
completion of the conversion, the Holding Company's sole business activity will
be the ownership of the outstanding capital stock of the Bank. The Holding
Company also will hold a note receivable from the ESOP. In the future, the
Holding Company may acquire or organize other operating subsidiaries, although
there are no current plans, arrangements, agreements or understandings, written
or oral, to do so.
Initially, the Holding Company will neither own nor lease any property but
will instead use the premises, equipment and furniture of the Bank with the
payment of appropriate rental fees, as required by applicable law and
regulations.
Since the Holding Company will only hold the outstanding capital stock of
the Bank upon consummation of the conversion, the competitive conditions
applicable to the Holding Company will be the same as those confronting the
Bank. See "BUSINESS OF THE BANK -- Competition."
45
<PAGE>
BUSINESS OF THE BANK
MARKET AREA
The Bank conducts its operations through five offices located throughout
the greater St. Louis area. Most of the Bank's depositors live in the areas
surrounding its branches and most of the Bank's loans are made to persons in
St. Louis, Missouri, St. Charles, Franklin, Jefferson and St. Louis Counties,
Missouri and Jersey, St. Clair, Monroe and Madison Counties, Illinois. The St.
Louis metropolitan statistical area is the 18th largest metropolitan area in the
United States and in December 1997 had a population of approximately 2.6
million.
Several major corporations are headquartered in the Bank's area, including
Anheuser-Busch, Brown Group, Edison Bros., Emerson Electric, A.G. Edwards,
General American Insurance Co., Kellwood, Laclede Gas, May Department Stores,
Monsanto, Solutia, Enterprise Leasing, Ralston Purina, Trans World Airlines,
Pulitzer Publishing and Ameren U.E.
The Bank faces intense competition for deposits and loan originations from
the many financial institutions conducting business within its market area. See
"-- Competition" and "RISK FACTORS -- Competition."
LENDING ACTIVITIES
GENERAL. At March 31, 1998, loans receivable totaled $124.7 million, which
was 67.9% of total assets. At such date, loans held for sale totaled $21.7
million. The principal lending activity of the Bank is the origination and sale
of mortgage loans for the purpose of purchasing or refinancing, one- to four-
family residential property. To a significantly lesser extent, the Bank also
originates mortgage loans secured by commercial and multi-family real estate and
consumer loans. Most of the Bank's borrowers and the properties securing its
loans are located in the greater St. Louis metropolitan area.
46
<PAGE>
LOAN PORTFOLIO ANALYSIS. The following table sets forth the composition of
the Bank's loan portfolio at the dates indicated.
<TABLE>
<CAPTION>
At March 31, At September 30,
--------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------- -------------------- ------------------ ------------------ ------------------
Amount Percent Amount Percent Amount Percent Amount Percent Amount Percent
--------- -------- -------- ---------- -------- -------- -------- -------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
Conventional -
residential and
multi-family (1)......... $107,973 86.22% $114,300 87.34% $117,584 87.42% $128,854 86.44% $136,520 86.19%
FHA and VA - residential
and multi-family (1)..... 9,399 7.51 10,745 8.21 11,845 8.81 14,912 10.00 16,031 10.12
Commercial................ 612 0.49 1,779 1.36 3,452 2.57 3,561 2.39 4,222 2.67
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total real estate loans. 117,984 94.21 126,824 96.91 132,881 98.79 147,327 98.83 156,773 98.98
Consumer and Other Loans:
Automobile loans.......... 6,307 5.04 3,352 2.56 1,115 0.83 1,205 0.81 1,166 0.73
Loans on savings accounts. 451 0.36 538 0.41 513 0.38 541 0.36 452 0.29
Other..................... 493 0.39 161 0.12 -- -- -- -- -- --
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total consumer and
other loans............ 7,251 5.79 4,051 3.09 1,628 1.21 1,746 1.17 1,618 1.02
-------- ------ -------- ------ -------- ------ -------- ------ -------- ------
Total loans.............. 125,235 100.00% 130,875 100.00% 134,509 100.00% 149,073 100.00% 158,391 100.00%
====== ====== ====== ====== ======
Less:
Loans in process........... 137 47 27 48 43
Unamortized loan
origination fees
(charges), net of direct
costs................... (300) (143) (41) 21 109
Unearned discounts......... -- -- -- 34 38
Allowance for loan losses.. 664 613 479 419 477
-------- -------- -------- -------- --------
Total loans
receivable, net...... $124,734 $130,358 $134,044 $148,551 $157,724
======== ======== ======== ======== ========
<CAPTION>
------------------
1993
------------------
Amount Percent
-------- --------
<S> <C> <C>
Real Estate Loans:
Conventional -
residential and
multi-family (1)......... $108,954 83.76%
FHA and VA - residential
and multi-family (1)..... 14,841 11.41
Commercial................ 4,539 3.49
-------- ------
Total real estate loans. 128,334 98.66
Consumer and Other Loans:
Automobile loans.......... 1,313 1.01
Loans on savings accounts. 429 0.33
Other..................... -- --
-------- ------
Total consumer and
other loans............ 1,742 1.34
-------- ------
Total loans.............. 130,076 100.00%
======
Less:
Loans in process........... 553
Unamortized loan
origination fees
(charges), net of direct
costs................... 278
Unearned discounts......... 50
Allowance for loan losses.. 245
--------
Total loans
receivable, net...... $128,950
========
</TABLE>
______________
(1) Aggregate conventional and FHA and VA multi-family loan balances were $1.5
million, $1.1 million, $1.4 million, $2.6 million, $2.7 million and $2.9
million at March 31, 1998 and September 30, 1997, 1996, 1995, 1994 and
1993, respectively.
47
<PAGE>
RESIDENTIAL REAL ESTATE LENDING. The primary lending activity of the Bank
is the origination of mortgage loans to enable borrowers to purchase existing
homes or to refinance existing mortgage loans. To a much lesser extent, the Bank
also originates loans secured by multi-family residential property (five units
or more). At March 31, 1998, $117.3 million, or 93.7%, of the Bank's total loan
portfolio consisted of loans secured by residential and multi-family real
estate. Of this amount, $1.5 million was secured by multi-family real estate. At
March 31, 1998, 73.9% of the Bank's residential real estate loans were subject
to periodic interest rate adjustments and 26.1% were fixed-rate loans.
The Bank is a direct endorsement lender with FHA. Consequently, the Bank's
FHA approved direct endorsement underwriters are authorized to approve or reject
FHA insured loans up to maximum amounts established by FHA. The Bank is also an
automatic lender with VA, which enables designated qualified Bank personnel to
approve or reject loans on behalf of VA. At March 31, 1998, the Bank had $9.4
million of FHA- or VA-insured loans. The Bank also participates in programs to
provide financing for low income housing through the MHDC.
The Bank offers a variety of ARM loan products at rates and terms
competitive with market conditions. The loan fees charged, interest rates and
other provisions of the Bank's ARM loans are determined by the Bank on the basis
of its own pricing criteria and market conditions. Interest rates and payments
on the Bank's ARM loans generally are adjusted annually to a rate typically
equal to 2.00% to 2.875% above the one-year constant maturity U.S. Treasury
index. The Bank currently offers ARM loans with initial rates below those which
would prevail under the foregoing computations, determined by the Bank based on
market factors and competitive rates for loans having similar features offered
by other lenders for such initial periods. The periodic interest rate cap (the
maximum amount by which the interest rate may be increased or decreased in a
given period) on the Bank's ARM loans is generally 2% per adjustment period and
the lifetime interest rate cap is generally 6% over the initial interest rate of
the loan. The Bank qualifies the borrower based on the borrower's ability to
repay the ARM loan based on the maximum interest rate at the first adjustment,
in the case of one-year ARM loans, and based on the initial interest rate in the
case of ARM loans that adjust after three or more years. The Bank does not
originate negative amortization loans. The terms and conditions of the ARM loans
offered by the Bank, including the index for interest rates, may vary from time
to time. The Bank believes that the annual adjustment feature of its ARM loans
also provides flexibility to meet competitive conditions as to initial rate
concessions while preserving the Bank's return on equity objectives by limiting
the duration of the initial rate concession.
The Bank also originates conventional fixed-rate mortgage loans on one- to
four- family residential properties. All fixed-rate products are underwritten
according to Freddie Mac and Fannie Mae standards so as to qualify for sale in
the secondary mortgage market. In recent years, as part of its asset/liability
management, the Bank has originated fixed-rate mortgage loans and sells these
loans through its correspondent relationships. If the Bank's future portfolio
needs change, the Bank may choose to retain more loans for its portfolio and/or
retaining servicing rights. Retaining fixed-rate loans in its portfolio would
subject the Bank to a higher degree of interest rate risk. See "RISK FACTORS -
Interest Rate Risk."
Occasionally, the Bank originates residential mortgage loans that do not
meet Freddie Mac and Fannie Mae standards for retention in its portfolio. The
Bank generally charges a higher interest rate to compensate for their non-
conforming features. At March 31, 1998, the Bank had approximately $5.7 million
of such loans. The Bank also offers fixed-rate second mortgage loans for terms
of up to 15 years.
Borrower demand for ARM loans versus fixed-rate mortgage loans is a
function of the level of interest rates, the expectations of changes in the
level of interest rates and the difference between the initial interest rates
and fees charged for each type of loan. The relative amount of fixed-rate
mortgage loans and ARM loans that can be originated at any time is largely
determined by the demand for each in a competitive environment.
The retention of ARM loans in the Bank's loan portfolio helps reduce the
Bank's exposure to changes in the interest rates. There are, however,
unquantifiable credit risks resulting from the potential of increased costs due
to changed rates to be paid by the customer. It is possible that, during periods
of rising interest rates, the risk of default on ARM loans may increase as a
result of repricing and the increased costs to the borrower. Furthermore,
because the
48
<PAGE>
ARM loans originated by the Bank generally provide, as a marketing incentive,
for initial rates of interest below the rates which would apply were the
adjustment index used for pricing initially (discounting), these loans are
subject to increased risks of default or delinquency. Another consideration is
that although ARM loans allow the Bank to increase the sensitivity of its asset
base to changes in interest rates, the extent of this interest sensitivity is
limited by the periodic and lifetime interest rate adjustment limits. Because of
these considerations, the Bank has no assurance that yields on ARM loans will be
sufficient to offset increases in the Bank's cost of funds.
While fixed-rate single-family residential real estate loans are normally
originated with 15- or 30-year terms, and the Bank permits its ARM loans to be
assumed by qualified borrowers, such loans typically remain outstanding for
substantially shorter periods. This is because borrowers often prepay their
loans in full upon sale of the property pledged as security or upon refinancing
the original loan. In addition, substantially all mortgage loans in the Bank's
loan portfolio contain due-on-sale clauses providing that the Bank may declare
the unpaid amount due and payable upon the sale of the property securing the
loan. The Bank enforces these due-on-sale clauses to the extent permitted by
law and as business judgment dictates. Thus, average loan maturity is a
function of, among other factors, the level of purchase and sale activity in the
real estate market, prevailing interest rates and the interest rates payable on
outstanding loans.
The Bank requires title insurance insuring the status of its lien on all of
the real estate secured loans and also requires that the fire and extended
coverage casualty insurance (and, if appropriate, flood insurance) be maintained
in an amount at least equal to the outstanding loan balance.
The Bank's lending policies generally limit the maximum loan-to-value ratio
on mortgage loans secured by owner-occupied properties to 80% of the lesser of
the appraisal value or the purchase price, with the condition that mortgage
insurance is required on loans with loan-to-value ratios greater than 80%. In
the cases of loans guaranteed by FHA or VA, the Bank offers loans on loan-to-
value ratios of up to 97% and 100%, respectively.
The maximum financing on refinance loans is limited to 95% of the appraised
value and such loans require mortgage insurance above 80% loan-to-value.
The Bank obtains appraisals on all its real estate loans from outside
appraisers, but, in limited instances (i.e. loan amounts less than $100,000 or
loan-to-value ratios less than 55%), may waive its outside appraisal
requirement.
COMMERCIAL REAL ESTATE LOANS. The Bank engages in a limited amount of
commercial real estate lending. At March 31, 1998, commercial real estate loans
in the Bank's portfolio totaled $612,000 and consisted of 7 loans.
Loans secured by commercial real estate generally are larger and involve
greater risks than one- to four- family residential mortgage loans. Payments on
loans secured by such properties are often dependent on successful operation or
management of the properties. Repayment of such loans may be subject to a
greater extent to adverse conditions in the real estate market or the economy.
The Bank seeks to minimize these risks in a variety of ways, including limiting
the size of such loans and strictly scrutinizing the financial condition of the
borrower, the quality of the collateral and the management of the property
securing the loan. The Bank also obtains loan guarantees from financially
capable parties. Substantially all of the properties securing the Bank's
commercial estate loans are inspected by the Bank's lending personnel before the
loan is made. The Bank also obtains appraisals on each property in accordance
with applicable regulations.
CONSUMER AND OTHER LOANS. Historically, the Bank offered consumer loans
only as an accommodation to existing customers. In the second quarter of fiscal
1997, the Bank formed a consumer loan department in order to increase its
consumer lending activities. The Bank determined to increase its consumer
lending in order to better serve its customers and because consumer loans
generally have shorter-terms to maturity or repricing and higher interest rates
than mortgage loans.
At March 31, 1998, the Bank's consumer and other loans totaled
approximately $7.3 million, or 5.8% of the Bank's total loans. The Bank's
consumer and other loans consist primarily of automobile loans and, to a lesser
degree,
49
<PAGE>
savings account loans. In early 1997, the Bank initiated relationships with
automobile dealers, piano dealers and other large purchase retailers located
primarily in the Bank's market area as a means of attracting consumer loans. The
Bank intends to expand its line of consumer loans by offering home equity lines
of credit beginning in the third calendar quarter of 1998.
The Bank originates automobile loans primarily through dealer referrals.
All automobile loans, however, are made on a direct basis. Automobile loans are
secured by both new and used cars and light trucks made to the purchase price or
wholesale value as published by National Automobile Research "Black Book," if
pre-owned. New cars are financed for a period of up to 60 months while pre-
owned cars are financed for 48 months or less depending on the year and model.
Collision and comprehensive insurance coverage is required on all automobile
loans. At March 31, 1998, automobile loans amounted to $6.3 million, or 5.0% of
the Bank's total loans.
The Bank may make savings account loans for up to 100% of the depositor's
account balance. The interest rate is normally 2.0% above the rate paid on the
certificate of deposit account, and the account must be pledged as collateral to
secure the loan. Savings account loans are payable in monthly payments of
principal and interest or in a single payment. At March 31, 1998, total loans on
savings accounts amounted to $451,000, or 0.4% of the Bank's total loans.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of consumer loans which are unsecured or secured by
rapidly depreciating 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. The remaining deficiency often does not warrant
further substantial collection efforts against the borrower beyond obtaining a
deficiency judgment. In addition, consumer loan collections are dependent on the
borrower's continuing financial stability, and thus are more likely to be
adversely affected by job loss, divorce, illness or personal bankruptcy.
Furthermore, the application of various Federal and state laws, including
Federal and state bankruptcy and insolvency laws, may limit the amount which can
be recovered on such loans. Such loans may also give rise to claims and defenses
by a consumer loan borrower against an assignee of such loans such as the Bank,
and a borrower may be able to assert against such assignee claims and defenses
that it has against the seller of the underlying collateral. At March 31, 1998,
the aggregate amount of consumer loans 90 days or more past due was $31,000,
which represents 0.43% of total consumer loans.
LOAN MATURITY AND REPRICING. The following table sets forth certain
information at March 31, 1998 regarding the dollar amount of loans maturing in
the Bank's portfolio based on their contractual terms to maturity, but does not
include scheduled payments or potential prepayments. Demand loans, loans having
no stated schedule of repayments and no stated maturity, and overdrafts are
reported as due in one year or less. Mortgage loans that have adjustable rates
are shown as maturing at their next repricing date. Loan balances are net of
loans-in-process.
<TABLE>
<CAPTION>
After After After
One Year 3 Years 5 Years
Within Through Through Through Beyond
One Year 3 Years 5 Years 10 Years 10 Years Total
-------- -------- ------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Residential real estate.. $66,015 $8,255 $ 8,917 $14,298 $19,750 $117,235
Commercial real estate... 382 -- 230 -- -- 612
Consumer and other....... 503 1,614 4,835 299 -- 7,251
------- ------ ------- ------- -------- --------
Total.................. $66,901 $9,869 $13,982 $14,597 $19,750 $125,098
======= ====== ======= ======= ======== ========
</TABLE>
50
<PAGE>
The following table sets forth, as of March 31, 1998, the dollar amount of
all loans due or repricing after March 31, 1999, which have fixed interest rates
and have floating or adjustable interest rates.
<TABLE>
<CAPTION>
Fixed- Floating- or
Rates Adjustable-Rates
------- ----------------
(in thousands)
<S> <C> <C>
Residential real estate.. $29,072 $22,148
Commercial real estate... 230 --
Consumer and other....... 6,748 --
------- -------
Total.................. $36,050 $22,148
======= =======
</TABLE>
Scheduled contractual principal repayments of loans and mortgage-backed
securities do not reflect the actual life of such assets. The average life of
loans and mortgage-backed securities is substantially less than their
contractual terms because of prepayments. In addition, due-on-sale clauses on
loans generally give the Bank the right to declare loans immediately due and
payable in the event, among other things, that the borrower sells the real
property subject to the mortgage and the loan is not repaid. The average life of
mortgage loans tends to increase, however, when current mortgage loan market
rates are substantially higher than rates on existing mortgage loans and,
conversely, decreases when rates on existing mortgage loans are substantially
higher than current mortgage loan market rates.
LOAN SOLICITATION AND PROCESSING. Loan applicants come through direct
solicitation by eight commissioned and two salaried loan representatives of the
Bank, as well as through referrals by realtors, financial planners, previous and
present customers and, to a far lesser extent, through print advertising
promotions. All types of loans may be originated in any of the Bank's offices,
though most loans are closed at the Bank's main office. Loans are serviced from
the Bank's main office.
Upon receipt of a loan application from a prospective borrower, a credit
report and other data are obtained to verify specific information relating to
the loan applicant's employment, income and credit standing. An appraisal of
the real estate offered as collateral generally is undertaken by a fee appraiser
approved by the Bank and licensed or certified by the State of Missouri.
Loans in the amount of $400,000 or less may be approved by any one member
of the Bank's Loan Committee, which consists of the Bank's President, Chief
Financial Officer/Treasurer and Chief Lending Officer, and the underwriting
staff. Loans in excess of $400,000 must be approved by the Bank's Executive
Committee, which consists of Directors W. Donius, Hack and M. Donius.
Loan applicants are promptly notified of the decision of the Bank.
Interest rates are subject to change if the approved loan is not closed within
the time of the commitment, which usually is 60 to 90 days.
LOAN ORIGINATIONS, SALES AND PURCHASES. During the six months ended March
31, 1998 and the years ended September 30, 1997 and 1996, the Bank's total gross
loan originations were $76.8 million, $95.7 million, and $74.9 million,
respectively.
In an effort to manage its interest rate risk position, the Bank generally
sells the fixed-rate mortgage loans that it originates. The sale of loans in
the secondary mortgage market reduces the Bank's risk that the interest rates
paid to depositors will increase while the Bank holds long-term, fixed-rate
loans in its portfolio. It also allows the Bank to continue to fund loans when
savings flows decline or funds are not otherwise available. Mortgage loans
generally have been sold with servicing released. Gains, net of origination
expense, from the sale of such loans are recorded at the time of sale.
Generally a loan is committed to be sold and a price for the loan is fixed at
the time the interest rate on
51
<PAGE>
the loan is fixed, which may be at the time the Bank issues a loan commitment or
at the time the loan closes. This eliminates the risk to the Bank that arise in
market interest rates will reduce the value of a mortgage before it can be sold.
Additionally, the Bank negotiates a best efforts delivery, which minimizes any
exposure from loans that do not close.
During the six months ended March 31, 1998, the Bank sold $44.5 million of
residential mortgage loans to correspondent lenders, servicing released,
compared to $23.4 million in the first six months of fiscal 1997. The Bank also
securitized and sold $7.1 million of "first time home buyer" loans to the MHDC,
with servicing retained, during the six months ended March 31, 1998. For the
same period last year loan sales to the MHDC totaled $4.1 million. Loan sales
increased in the first half of fiscal 1998 as a result of low mortgage interest
rates that stimulated both the purchase money and refinance markets.
During the year ended September 30, 1997, the Bank's loan sales totaled
$63.5 million, which included $10.2 million of "first time home buyer" loans
securitized and sold, servicing retained, to the MDHC, as compared to $55.9
million in loan sales during the year ended September 30, 1996. The loan sales
during 1996 consisted primarily of residential mortgage loans sold to
correspondent lenders, servicing released. The Bank attributes the increased
volume of loan sales during 1997 to its relationships with real estate brokers,
its perceived reputation for prompt service, and successful sales and marketing
strategies.
The Bank occasionally purchases real estate loans in the secondary market
subject to the Bank's underwriting standards. During the six months ended March
31, 1998 and the year ended September 30, 1997, the Bank purchased $0 and
$305,000 of loans, respectively. Loans and participations purchased and serviced
by others were approximately $3.4 million at March 31, 1998. The Bank's
purchases in the secondary market are dependent upon the demand for mortgage
credit in the local market area and the inflow of funds from deposits.
At March 31, 1998, the Bank was servicing loans for others (GNMA and MHDC)
amounting to approximately $34.4 million. Servicing loans for others generally
consists of collecting mortgage payments, maintaining escrow accounts,
disbursing payments to investors and foreclosure processing. Loan servicing
income is recorded on the accrual basis and includes servicing fees from
investors. In April 1998, the Bank discontinued its historical practice of
retaining servicing on loans sold to MHDC due to a change in servicing policy by
MHDC.
52
<PAGE>
The following table shows total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
Six Months
Ended March 31, Years Ended September 30,
------------------- -----------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C> <C>
Total gross loans, including loans held for sale,
at beginning of period................. $145,189 $142,316 $142,316 $152,323 $160,900
Loans originated:
Residential real estate................ 71,864 36,712 91,536 73,856 44,684
Commercial real estate................. -- 395 395 -- 1,150
Consumer and other..................... 4,918 509 3,748 1,027 1,254
-------- -------- -------- -------- --------
Total loans originated............... 76,782 37,616 95,679 74,883 47,088
-------- -------- -------- -------- --------
Loans purchased:
Residential real estate................ -- 305 305 1,015 261
-------- -------- -------- -------- --------
Loans sold:
Total whole loans sold.................. (44,322) (23,439) (53,307) (49,691) (36,094)
Loans securitized and sold.............. (7,007) (4,110) (10,189) (6,255) (1,587)
-------- -------- -------- -------- --------
Mortgage loan principal repayments....... (16,074) (11,061) (24,308) (22,210) (14,040)
--------
Consumer loan repayments and all other... (7,774) (2,815) (5,307) (7,749) (4,205)
-------- -------- -------- -------- --------
Net loan activity........................ 1,605 (3,504) 2,873 (10,007) (8,577)
-------- -------- -------- -------- --------
Total gross loans, including loans held
for sale, at end of period............. $146,794 $138,812 $145,189 $142,316 $152,323
======== ======== ======== ======== ========
</TABLE>
LOAN COMMITMENTS. The Bank issues commitments for fixed- and adjustable-
rate one- to four-family residential mortgage loans conditioned upon the
occurrence of certain events. Such commitments are made in writing on specified
terms and conditions and are honored for up to 60 to 90 days from the date of
loan approval. The Bank had outstanding loan commitments of approximately $7.3
million at March 31, 1998, $5.2 million and $2.1 million of which were at fixed
and variable rates, respectively. See Note 13 of Notes to Consolidated Financial
Statements.
LOAN ORIGINATION AND OTHER FEES. The Bank, in some instances, receives loan
origination fees and discount "points." Loan fees and points are a percentage of
the principal amount of the mortgage loan which are charged to the borrower for
funding the loan. The amount of points charged by the Bank varies, though the
range generally is between 0% and 2%. Current accounting standards require fees
received (net of certain loan origination costs) for originating loans to be
deferred and amortized into interest income over the contractual life of the
loan. Net deferred fees or charges associated with loans that are prepaid are
recognized as income adjustments at the time of prepayment. The Bank had
$300,000 of net deferred mortgage loan charges at March 31, 1998.
NONPERFORMING ASSETS AND DELINQUENCIES. When a mortgage loan borrower fails
to make a required payment when due, the Bank institutes collection procedures.
The first notice is mailed to the borrower 18 days after the payment due date
and, if necessary, a second written notice follows within 15 days thereafter.
Attempts to contact the borrower by telephone generally begin approximately 20
days after the payment due date. If a satisfactory response is not obtained,
continuous follow-up contacts are attempted until the loan has been brought
current. Before the 90th day of delinquency, attempts to interview the borrower,
preferably in person, are made to establish (i) the cause of the delinquency,
(ii) whether the cause is temporary, (iii) the attitude of the borrower toward
the debt, and (iv) a mutually satisfactory arrangement for curing the default.
Also, in the case of second mortgage loans, before the 60th day of
53
<PAGE>
delinquency, all superior lienholders are contacted to determine (a) the status
and unpaid principal balance of each superior lien, (b) whether any mortgage
constituting a superior lien has been sold to any investor, and (c) whether the
borrower is also delinquent under a superior lien and what the affected
lienholder intends to do to resolve the delinquency.
If the borrower cannot be reached and does not respond to collection
efforts, a personal collection visit or property inspection is made and a
photograph of the exterior is taken. The physical condition and occupancy status
of the property is determined before recommending further servicing action. Such
inspection normally takes place on or about the 75th day of delinquency.
Generally, after 60 days into the delinquency procedure, the Bank notifies the
borrower that home ownership counseling is available for eligible homeowners. In
most cases, delinquencies are cured promptly; however, if by the 91st day of
delinquency, or sooner if the borrower is chronically delinquent and all
reasonable means of obtaining payment on time have been exhausted, foreclosure,
according to the terms of the security instrument and applicable law, is
initiated.
When a consumer loan borrower fails to make a required payment on a
consumer loan by the payment due date, the Bank institutes collection
procedures. The first notice is mailed to the borrower 15 days following the
payment due date. A computer-generated collection report is received by the Bank
daily. The customer is contacted by telephone to ascertain the nature of the
delinquency. In most cases, delinquencies are cured promptly; however, if, by
the 45th day following the grace period of delinquency no progress has been
made, a written notice is mailed informing the borrowers of their right to cure
the delinquency within 20 days and of the Bank's intent to begin legal action if
the delinquency is not corrected. Depending on the type of property held as
collateral, the Bank either obtains a judgment in small claims court or takes
action to repossess the collateral.
Loans are placed on nonaccrual status when, in the opinion of management,
there is reasonable doubt as to the timely collectibility of interest or
principal. Nonaccrual loans are returned to accrual states when, in the opinion
of management, the financial position of the borrower indicates there is no
longer any reasonable doubt as to the timely collectibility of interest or
principal.
The Bank's Board of Directors is informed on a monthly basis as to the
status of all mortgage and consumer loans that are delinquent 30 days or more,
the status on all loans currently in foreclosure, and the status of all
foreclosed and repossessed property owned by the Bank.
54
<PAGE>
The following table sets forth information with respect to the Bank's
nonperforming assets at the dates indicated.
<TABLE>
<CAPTION>
At March 31, At September 30,
--------------------------------------------
1998 1997 1996 1995 1994 1993
------------ ----- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Loans accounted for on
a nonaccrual basis:
Residential real estate.......... $ 171 $ 214 $ 51 $ 214 $ 60 $ --
Commercial real estate........... 230 -- -- -- 1,303 --
Consumer and other............... 3 3 -- -- -- --
------ ------ ----- ------ ------ -----
Total........................ 404 217 51 214 1,363 --
------ ------ ----- ------ ------ -----
Accruing loans which are
contractually past due
90 days or more:
Residential real estate.......... 930 708 547 520 357 483
Commercial real estate........... -- 236 -- -- -- --
Consumer and other............... 31 20 22 14 -- --
------ ------ ----- ------ ------ -----
Total....................... 961 964 569 534 357 483
------ ------ ----- ------ ------ -----
Troubled debt restructurings....... 61 69 85 100 120 143
------ ------ ----- ------ ------ -----
Nonperforming loans(1)............. 1,426 1,250 705 848 1,840 626
Real estate owned (net)............ 52 -- 133 337 124 102
------ ------ ----- ------ ------ -----
Total nonperforming assets...... $1,478 $1,250 $ 838 $1,185 $1,964 $ 728
====== ====== ===== ====== ====== =====
Total loans delinquent 90 days or
more to net loans................ 0.66% 0.67% 0.40% 0.36% 0.22% 0.37%
Total loans delinquent 90 days or
more to total assets............. 0.52 0.54 0.32 0.29 0.19 0.26
Total nonperforming assets to
total assets..................... 0.80 0.70 0.47 0.65 1.03 0.40
</TABLE>
___________
(1) Includes $177,000 of FHA/VA loans at March 31, 1998, the principal and
interest payments on which are fully insured.
Interest income that would have been recorded for the six months ended
March 31, 1998 and the year ended September 30, 1997 had nonaccruing and
restructured loans been current in accordance with their original terms and the
amount of interest included in interest income on such loans during such periods
was not significant.
REAL ESTATE OWNED. 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 it is recorded at the lower of its
cost, which is the unpaid principal balance of the related loan plus foreclosure
costs, or fair market value. Subsequent to foreclosure, the property is carried
at the lower of the foreclosed amount or fair value. Upon receipt of a new
appraisal and market analysis, the carrying value is written down through a
charge to income, if appropriate. At March 31, 1998, the Bank had $52,000 of
real estate owned (net), which consisted of two single family homes.
ASSET CLASSIFICATION. The OTS has adopted various regulations regarding
problem assets of savings institutions. The regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, OTS examiners
have authority to identify problem
55
<PAGE>
assets and, if appropriate, require them to be classified. There are three
classifications for problem assets: substandard, doubtful and loss. Substandard
assets must have one or more defined weaknesses and are characterized by the
distinct possibility that the insured institution will sustain some loss if the
deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. An
asset classified loss is considered uncollectible and of such little value that
continuance as an asset of the institution without establishment of a specific
reserve is not warranted. If an asset or portion thereof is classified loss, the
insured institution establishes specific allowances for loan losses for the full
amount of the portion of the asset classified loss. A portion of general loan
loss allowances established to cover possible losses related to assets
classified substandard or doubtful may be included in determining an
institution's regulatory capital, while specific valuation allowances for loan
losses generally do not qualify as regulatory capital. OTS regulations also
require that assets that do not currently expose an institution to a sufficient
degree of risk to warrant classification as loss, doubtful or substandard but do
possess credit deficiencies or potential weakness deserving management's close
attention shall be designated "special mention" by either the institution or its
examiners.
The Bank's Chief Financial Officer/Treasurer, Executive Vice
President/Chief Operating Officer and collection department personnel meet
monthly to review all classified assets, to approve action plans developed to
resolve the problems associated with the assets and to review recommendations
for new classifications, any changes in classifications and recommendations for
reserves.
At March 31, 1998 and September 30, 1997, the aggregate amounts of the
Bank's classified assets were as follows:
<TABLE>
<CAPTION>
At March 31, 1998 At September 30, 1997
------------------ ---------------------
Real Real
Estate Estate
Loans Owned Loans Owned
------ ------ ----- ------
(in thousands)
<S> <C> <C> <C> <C>
Loss............ $ 5 $-- $ 4 $--
Doubtful........ -- -- -- --
Substandard..... 1,087 61 921 --
</TABLE>
At March 31, 1998, the Bank had no assets designated "special mention."
ALLOWANCE FOR LOAN LOSSES. In originating loans, the Bank recognizes that
losses will be experienced and that the risk of loss will vary with, among other
things, the type of loan being made, the creditworthiness of the borrower over
the term of the loan, general economic conditions and, in the case of a secured
loan, the quality of the security for the loan. The allowance method is used in
providing for loan losses: all loan losses are charged to the allowance and all
recoveries are credited to it. The allowance for loan losses is established
through a provision for loan losses charged to the Bank's income. The provision
for loan losses is based on management's periodic evaluation of the Bank's past
loan loss experience, known and inherent risks in the portfolio, adverse
situations which may affect the borrower's ability to repay, the estimated value
of any underlying collateral and current economic conditions.
At March 31, 1998, the Bank had an allowance for loan losses of $664,000,
which represented 0.45% of total loans. Management believes that the amount
maintained in the allowances will be adequate to absorb losses inherent in the
portfolio. Although management believes that it uses the best information
available to make such determinations, future adjustments to the allowance for
loan losses may be necessary and results of operations could be significantly
and adversely affected if circumstances differ substantially from the
assumptions used in making the determinations. While the Bank believes it has
established its existing allowance for loan losses in accordance with GAAP,
there can be no assurance that the Bank's regulators, in reviewing the Bank's
loan portfolio, will not request the Bank to increase significantly its
allowance for loan losses. In addition, because future events affecting
borrowers and collateral cannot be predicted with certainty, there can be no
assurance that the existing allowance for loan losses is adequate or that
56
<PAGE>
substantial increases will not be necessary should the quality of any loans
deteriorate as a result of the factors discussed above. Any material increase in
the allowance for loan losses may adversely affect the Bank's financial
condition and results of operations.
The following table sets forth an analysis of the Bank's allowance for loan
losses for the periods indicated.
<TABLE>
<CAPTION>
Six Months
Ended March 31, Year Ended September 30,
----------------- ----------------------------------------
1998 1997 1997 1996 1995 1994 1993
-------- ------- ---- ---- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance at beginning of period....... $ 613 $ 479 $ 479 $ 419 $ 477 $ 245 $ 113
Provision for loan losses.............. 70 18 169 65 152 274 158
Charge-offs:
Residential real estate loans......... 21 37 38 17 92 42 26
Commercial real estate loans.......... -- -- -- -- 166 2 --
Consumer and other loans.............. 2 5 5 -- -- -- --
------ ------ ------ ------ ------ ------ ------
Total charge-offs................... 23 42 43 17 258 44 26
Recoveries............................. 4 4 8 12 48 2 --
------ ------ ------ ------ ------ ------ ------
Net charge-offs........................ 19 38 35 5 210 42 26
------ ------ ------ ------ ------ ------ ------
Allowance at end of period............ $ 664 $ 459 $ 613 $ 479 $ 419 $ 477 $ 245
====== ====== ====== ====== ====== ====== ======
Ratio of allowance to total loans
outstanding at the end of the period.. 0.45% 0.33% 0.42% 0.36% 0.28% 0.30% 0.19%
Ratio of net charge-offs to
average loans outstanding
during the period..................... 0.01 0.03 0.02 -- 0.13 0.03 0.02
Allowance for loan losses to
nonperforming loans................... 46.56 63.31 49.04 67.93 49.44 25.93 39.14
</TABLE>
57
<PAGE>
The following table sets forth the breakdown of the allowance for loan
losses by loan category for the periods indicated.
<TABLE>
<CAPTION>
At March 31, At September 30,
---------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------- ------------------- ------------------ ------------------ --------------
% of % of % of % of % of
Loans Loans Loans Loans Loans
in Each in Each in Each in Each in Each
Category Category Category Category Category
to Total to Total to Total to Total to Total
Amount Loans Amount Loans Amount Loans Amount Loans Amount Loans
-------- --------- -------- --------- ------ ----- ------ ------- ------ -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Residential real estate
loans..................... $ 132 93.72% $ 98 95.54% $ 62 96.22% $ 78 96.42% $ 41 96.31%
Commercial real estate
loans..................... 34 0.49 37 1.36 -- 2.58 -- 2.40 197 2.67
Consumer and other loans... 93 5.79 94 3.10 6 1.20 8 1.18 6 1.02
Unallocated................ 405 N/A 384 N/A 411 N/A 333 N/A 233 N/A
----- ------ ----- ------ ----- ------ ---- ------ ---- ------
Total allowance for
loan losses............ $ 664 100.00% $ 613 100.00% $ 479 100.00% $419 100.00% $477 100.00%
===== ====== ===== ====== ===== ====== ==== ====== ==== ======
<CAPTION>
1993
----------------
% of
Loans
in Each
Category
to Total
Amount Loans
------ -----
<S> <C> <C>
Residential real estate
loans..................... $ 19 95.17%
Commercial real estate
loans..................... 39 3.49
Consumer and other loans... -- 1.34
Unallocated................ 187 N/A
---- ------
Total allowance for
loan losses............ $245 100.00%
==== ======
</TABLE>
58
<PAGE>
INVESTMENT ACTIVITIES
The Bank is permitted under applicable law to invest in various types of
liquid assets, including U.S. Treasury obligations, securities of various
federal agencies and of state and municipal governments, deposits at the FHLB-
Des Moines, certificates of deposit of federally insured institutions, certain
bankers' acceptances and federal funds. Subject to various restrictions,
savings institutions may also invest a portion of their assets in commercial
paper, corporate debt securities and mutual funds. Savings institutions like
the Bank are also required to maintain an investment in FHLB stock and a minimum
level of liquid assets. See "REGULATION" and "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Liquidity and
Capital Resources."
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires that investments be categorized as "held to maturity,"
"trading securities" or "available for sale," based on management's intent as to
the ultimate disposition of each security. SFAS No. 115 allows debt securities
to be classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold those securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity." Debt and equity securities held for current resale are classified
as "trading securities." Such securities are reported at fair value, and
unrealized gains and losses on such securities would be included in earnings.
The Bank does not currently use or maintain a trading account. Debt and equity
securities not classified as either "held to maturity" or "trading securities"
are classified as "available for sale." Such securities are reported at fair
value, and unrealized gains and losses on such securities are excluded from
earnings and reported as a net amount in a separate component of equity. All
investment and mortgage-backed securities are classified as held-to-maturity.
The Bank maintains a portfolio of mortgage-backed and related securities in
the form of GNMA and Freddie Mac participation certificates. GNMA certificates
are guaranteed as to principal and interest by the full faith and credit of the
United States, while Freddie Mac certificates are guaranteed by Freddie Mac.
Mortgage-backed securities generally entitle the Bank to receive a pro rata
portion of the cash flows from an identified pool of mortgages. The Bank has
also invested in collaterized mortgage obligations ("CMOs"), which are
securities issued by special purpose entities generally collateralized by pools
of mortgage-backed securities. The cash flows from such pools are segmented and
paid in accordance with a predetermined priority to various classes of
securities issued by the entity. The Bank's CMOs are short-maturity tranches.
See Note 3 of Notes to Consolidated Financial Statements.
The Investment Committee, comprised of the Bank's President and Chief
Financial Officer/Treasurer, determines appropriate investments in accordance
with the Board of Directors' approved investment policies and procedures.
Investments are made following certain considerations, which include the Bank's
liquidity position and anticipated cash needs and sources (which in turn include
outstanding commitments, upcoming maturities, estimated deposits and anticipated
loan amortization and repayments). Further, the effect that the proposed
investment would have on the Bank's credit and interest rate risk, and risk-
based capital is given consideration during the evaluation. The interest rate,
yield, settlement date and maturity are also reviewed. The Bank purchases
investment securities to provide necessary liquidity for day-to-day operations.
The Bank has not purchased any mortgage-backed securities for several years.
59
<PAGE>
The following table sets forth the Bank's investment and mortgage-backed
securities portfolio at the dates indicated.
<TABLE>
<CAPTION>
At March 31, At September 30,
-----------------------------
1998 1997 1996 1995
----------- ---- ---- ----
(dollars in thousands)
<S> <C> <C> <C> <C>
Investment securities:
U.S. Treasury and
agency obligations........... $11,036 $16,068 $14,521 $5,488
Bankers acceptances............ -- -- 491 --
------- ------- ------- ------
Total investment securities.. $11,036 $16,068 $15,012 $5,488
======= ======= ======= ======
Mortgage-backed and related
securities:
GNMA........................... $ 4,187 $ 4,308 $ 4,682 $5,310
FHLMC.......................... 885 998 1,232 1,601
CMOs........................... 1,048 1,056 1,498 2,516
Other.......................... -- -- 12 16
------- ------- ------- ------
Total mortgage-backed and
related securities......... $ 6,120 $ 6,362 $ 7,424 $9,443
======= ======= ======= ======
FHLB stock....................... $ 1,638 $ 1,638 $ 1,638 $1,606
======= ======= ======= ======
</TABLE>
The following table sets forth the maturities and weighted average yields
of the securities in the Bank's investment and mortgage-backed securities
portfolios at March 31, 1998. Expected maturities of mortgage-backed securities
will differ from contractual maturities due to scheduled repayments and because
borrowers may have the right to call or prepay obligations with or without
prepayment penalties. At March 31, 1998, the Bank's portfolio included $5.0
million of callable securities with a weighted average rate of 6.01%. The
following table does not take into consideration the effects of scheduled
repayments or the effects of possible prepayments.
<TABLE>
<CAPTION>
Less Than One to Five to Over Ten
One Year Five Years Ten Years Years
------------------ ---------------- ----------------- ----------------
Amount Yield Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ ----- ------ -----
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securities:
U.S. Treasury and
agency obligations.......... $4,737 5.57% $6,299 6.00% -- -- -- --
====== ======
Mortgage-backed and
related securities:
GNMA.......................... -- -- $ 16 11.00% $ -- --% $4,171 8.35%
FHLMC......................... -- -- 55 9.17 213 8.25 617 10.06
CMOs.......................... -- -- -- -- -- -- 1,048 6.57
------ ---- ------
Total mortgage-backed
and related securities.. -- -- $ 71 9.58 $213 8.25 $5,836 8.23
====== ==== ======
</TABLE>
60
<PAGE>
DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS
GENERAL. Deposits and loan repayments are the major sources of the Bank's
funds for lending and other investment purposes. Scheduled loan repayments are
a relatively stable source of funds, while deposit inflows and outflows and loan
prepayments are influenced significantly by general interest rates and money
market conditions. Borrowings from FHLB-Des Moines may be used to compensate
for reductions in the availability of funds from other sources. The Bank had no
other borrowing arrangements at March 31, 1998.
DEPOSIT ACCOUNTS. Substantially all of the Bank's depositors are residents
of the State of Missouri. Deposits are attracted from within the Bank's market
area through the offering of a broad selection of deposit instruments, including
checking accounts, negotiable order of withdrawal ("NOW") accounts, money market
deposit accounts, regular savings accounts, certificates of deposit and
retirement savings plans. Deposit account terms vary according to the minimum
balance required, the time periods the funds must remain on deposit and the
interest rate, among other factors. In determining the terms of its deposit
accounts, the Bank considers current market interest rates, profitability to the
Bank, matching deposit and loan products and its customer preferences and
concerns. The Bank generally reviews its deposit mix and pricing weekly.
In the unlikely event the Bank is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to the Holding Company as the sole stockholder of the Bank.
The following table sets forth information concerning the Bank's time
deposits and other interest-bearing deposits at March 31, 1998.
<TABLE>
<CAPTION>
Weighted
Average Percentage
Interest Minimum of Total
Rate Term Category Amount Balance Deposits
- -------- ---- -------- -------- -------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C>
- -- None Non-interest-bearing $ 100 $ 1,545 1.00%
1.75 None NOW accounts 100 9,947 6.45
3.82 None Money market deposit accounts 2,500 11,988 7.78
2.50 None Savings accounts 100 25,796 16.74
Certificates of Deposit
-----------------------
3.94 3 months Fixed-term, fixed-rate 2,500 378 0.25
4.78 6 months Fixed-term, fixed-rate 2,500 5,418 3.52
5.40 9 months Fixed-term, fixed-rate 2,500 11,640 7.55
5.13 12 months Fixed-term, fixed-rate 500 10,076 6.54
5.46 15 months Fixed-term, fixed-rate 500 4,038 2.62
5.66 18 months Fixed term, fixed-rate 500 11,756 7.63
5.38 24 months Fixed-term, fixed-rate 500 4,095 2.66
5.82 30 months Fixed-term, fixed-rate 500 13,070 8.48
5.37 36 months Fixed-term, fixed-rate 500 2,480 1.61
5.47 48 months Fixed-term, fixed-rate 500 4,938 3.20
5.98 60 months Fixed-term, fixed-rate 500 17,373 11.27
5.61 IRA 18 months 1,000 3,551 2.30
5.68 IRA 36 months Fixed-term, fixed-rate 1,000 225 0.15
5.94 IRA 60 months Fixed-term, fixed-rate 1,000 3,762 2.44
5.23 IRA 12 months Fixed-term, adjustable-rate 500 7,212 4.68
Various Jumbo certificates 100,000 4,828 3.13
-------- -------
$154,116 100.00%
======== =======
</TABLE>
61
<PAGE>
DEPOSIT FLOW. The following table sets forth the balances (inclusive
of interest credited) of deposits in the various types of accounts offered by
the Bank at the dates indicated.
<TABLE>
<CAPTION>
At March 31, At September 30,
----------------------------------------------------------------
1998 1997 1996
--------------------------------- --------------------------------- -----------------------------
Percent Percent Percent
of Increase of Increase of Increase
Amount Total (Decrease) Amount Total (Decrease) Amount Total (Decrease)
---------- --------- ---------- --------- ---------- ---------- -------- ------- ----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Non-interest-bearing....... $ 1,545 1.00% $ 529 $ 1,016 0.68% $ 567 $ 449 0.30% $ 76
NOW checking............... 9,947 6.45 1,375 8,572 5.77 (41) 8,613 5.83 (440)
Regular savings accounts... 25,796 16.74 (187) 25,983 17.48 (1,890) 27,873 18.86 (2,119)
Money market deposit....... 11,988 7.78 2,294 9,694 6.52 952 8,742 5.91 (259)
Certificates which mature:
Within 1 year............ 65,334 42.40 2,271 63,063 42.41 4,924 58,139 39.33 (1,636)
After 1 year, but within
3 years................. 34,952 22.68 (1,421) 36,373 24.47 3,799 32,574 22.04 3,904
Certificate maturing
thereafter.............. 4,554 2.95 583 3,971 2.67 (7,463) 11,434 7.73 (3,207)
-------- ------ ------- -------- ------ ------- -------- ------ -------
Total................. $154,116 100.00% $ 5,444 $148,672 100.00% $ 848 $147,824 100.00% $(3,681)
======== ====== ======= ======== ====== ======= ======== ====== =======
<CAPTION>
------------------
1995
------------------
Percent
of
Amount Total
-------- --------
<S> <C> <C>
Non-interest-bearing....... $ 373 0.25%
NOW checking............... 9,053 5.98
Regular savings accounts... 29,992 19.80
Money market deposit....... 9,001 5.94
Certificates which mature:
Within 1 year............ 59,775 39.45
After 1 year, but within
3 years................. 28,670 18.92
Certificate maturing
thereafter.............. 14,641 9.66
-------- ------
Total................. $151,505 100.00%
======== ======
</TABLE>
62
<PAGE>
The following table indicates the amount of the Bank's jumbo certificates
of deposit by time remaining until maturity as of March 31, 1998. Jumbo
certificates of deposit represent minimum deposits of $100,000 and are not
issued at premium interest rates.
<TABLE>
<CAPTION>
Maturity Period Amount
--------------- --------------
(in thousands)
<S> <C>
Three months or less............ $ 724
Over three through six months... 1,117
Over six through twelve months.. 1,801
Over twelve months.............. 1,186
------
Total...................... $4,828
======
</TABLE>
TIME DEPOSITS BY RATES. The following table sets forth the certificates of
deposits in the Bank classified by rates as of the dates indicated.
<TABLE>
<CAPTION>
At March 31, At September 30,
------------------------------------
1998 1997 1996 1995
------------ -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
3.00 - 3.99%..... $ 579 $ 578 $ 888 $ 2,731
4.00 - 4.99...... 5,911 7,062 10,839 19,218
5.00 - 5.99...... 82,196 81,184 72,103 54,210
6.00 - 6.99...... 11,392 9,795 13,371 21,553
7.00 - 7.99...... 4,762 4,788 4,930 5,230
8.00 - 8.99...... -- -- 16 127
9.00 - 9.99...... -- -- -- 16
-------- -------- -------- --------
Total..... $104,840 $103,407 $102,147 $103,085
======== ======== ======== ========
</TABLE>
TIME DEPOSITS BY MATURITIES. The following table sets forth the amount and
maturities of time deposits at March 31, 1998.
<TABLE>
<CAPTION>
Amount Due
-----------------------------------------------
Less Than 1-2 2-3 3-4 After
One Year Years Years Years 4 Years
--------- ----- ----- ----- -------
(in thousands)
<S> <C> <C> <C> <C> <C>
3.00 - 3.99%......... $ 579 $ -- $ -- $ -- $ --
4.00 - 4.99.......... 5,895 -- 16 -- --
5.00 - 5.99.......... 58,610 14,758 4,620 1,126 3,082
6.00 - 6.99.......... 244 7,037 3,903 139 69
7.00 - 7.99.......... 6 4,556 62 12 126
------- ------- ------ ------ ------
Total......... $65,334 $26,351 $8,601 $1,277 $3,277
======= ======= ====== ====== ======
</TABLE>
63
<PAGE>
DEPOSIT ACTIVITY. The following table sets forth the deposit activities of
the Bank for the periods indicated.
<TABLE>
<CAPTION>
Six Months Ended
March 31, Year Ended September 30,
------------------ -------------------------------
1998 1997 1997 1996 1995
-------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C>
Beginning balance.................... $148,672 $147,824 $147,824 $151,505 $152,828
-------- -------- -------- -------- --------
Net increase (decrease) before
interest credited................. 2,856 (658) (4,226) (8,712) (5,908)
Interest credited.................... 2,588 2,519 5,074 5,031 4,585
-------- -------- -------- -------- --------
Net increase (decrease) in deposits.. 5,444 1,861 848 (3,681) (1,323)
-------- -------- -------- -------- --------
Ending balance....................... $154,116 $149,685 $148,672 $147,824 $151,505
======== ======== ======== ======== ========
</TABLE>
The Bank, like many thrift institutions in the relatively low interest rate
environment, has had to compete for depositors' funds with non-traditional
deposit vehicles, such as annuities, mutual funds, municipal bonds and other
obligations. As a result of the higher yields available on such instruments,
there has been some disintermediation (i.e. an outflow of funds from the
institution) and, accordingly, a reduction in the Bank's deposits. During the
year ended September 30, 1997, the Bank used proceeds from maturing investment
securities, principal payments from mortgage-backed and related securities as
well as Federal funds sold and overnight deposits, rather than deposits and
other borrowings, in order to fund loans. Should disintermediation occur,
management believes that the Bank's borrowing capacity with the FHLB-Des Moines
at rates comparable to those associated with the outflow of funds should
preclude any significant negative impact on earnings.
BORROWINGS. The Bank has the ability to use advances from the FHLB-Des
Moines to supplement its supply of lendable funds and to meet deposit withdrawal
requirements. The FHLB-Des Moines functions as a central reserve bank providing
credit for savings and loan associations and certain other member financial
institutions. As a member, the Bank is required to own capital stock in the
FHLB-Des Moines and is authorized to apply for advances on the security of such
stock and certain of its mortgage loans and other assets (principally securities
which are obligations of, or guaranteed by, the U.S. Government) provided
certain creditworthiness standards have been met. Advances are made pursuant to
several different credit programs. Each credit program has its own interest
rate and range of maturities. Depending on the program, limitations on the
amount of advances are based on the financial condition of the member
institution and the adequacy of collateral pledged to secure the credit. At
March 31, 1998 had a borrowing capacity of $72.2 million based on available
collateral.
The following table sets forth certain information regarding the Bank's use
of FHLB advances during the periods indicated.
<TABLE>
<CAPTION>
Six Months Ended
March 31, Year Ended September 30,
---------------- -----------------------------
1998 1997 1997 1996 1995
------- ------- ------- ------- -------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Maximum balance at any month end.. $2,200 $3,000 $3,000 $3,500 $9,000
Average balance................... 2,198 2,996 2,597 3,057 7,786
Period end balance................ 1,900 2,200 2,200 3,000 5,000
Weighted average interest rate:
At end of period................ 6.32% 6.22% 6.22% 6.00% 6.29%
During the period............... 6.28 6.07 6.20 6.08 6.01
</TABLE>
64
<PAGE>
COMPETITION
The Bank faces intense competition in the attraction of savings deposits
(its primary source of lendable funds) and in the origination of loans. Its
most direct competition for savings deposits has historically come from other
thrift institutions, credit unions and from commercial banks located in its
market area. Particularly in times of high interest rates, the Bank has faced
additional significant competition for investors' funds from short-term money
market securities and other corporate and government securities. The Bank's
competition for loans comes principally from other thrift institutions,
commercial banks, mortgage banking companies and mortgage brokers.
PERSONNEL
As of March 31, 1998, the Bank had 72 full-time and 20 part-time employees
and eight commissioned loan representatives. The employees are not represented
by a collective bargaining unit and the Bank believes its relationship with its
employees is good.
SUBSIDIARY ACTIVITIES
The Bank has one subsidiary, Pulaski Service Corporation, which sells
insurance products and annuities. Federal savings associations generally may
invest up to 3% of their assets in service corporations, provided that any
amount in excess of 2% is used primarily for community, inner-city and community
development projects. At March 31, 1998, the Savings Bank's equity investment in
its subsidiary was $476,000, or 0.26% of total assets.
PROPERTIES
The following table sets forth the Bank's offices, as well as certain
additional information relating to these offices, as of March 31, 1998.
<TABLE>
<CAPTION>
Year Approximate
Location Opened Net Book Value (1) Owned/Leased Square Footage
- --------- ------ ------------------ ------------- --------------
(in thousands)
<S> <C> <C> <C> <C>
Main Office
- -----------
12300 Olive Boulevard 1978 $1,323 Owned 29,000 (4)
St. Louis, Missouri 63141-6434
Branch Offices
- --------------
6955 Parker Road at Highway 367 1968 32 Leased (2) 2,000
Florissant, Missouri 63033-5398
3760 South Grand Avenue 1967 213 Owned 3,500
St. Louis, Missouri 63118-3487
4225 Bayless Road 1971 47 Leased (3) 2,000
Marian Heights Plaza
St. Louis, Missouri 63123-7500
10756 Sunset Hills Plaza 1996 118 Leased (5) 2,400
St. Louis, Missouri 63127-1207
</TABLE>
- ----------------------------------
(1) Represents the net book value of land, buildings, furniture, fixtures and
equipment owned by the Bank.
65
<PAGE>
(2) Lease expires on November 30, 1998. OTS approval to relocate this office as
discussed under "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS -- Operating Strategy" is pending.
(3) Lease expires on May 31, 2002.
(4) 6,888 square feet of which is leased to outside tenants.
(5) Lease expires on June 9, 2001.
LEGAL PROCEEDINGS
Periodically, there have been various claims and lawsuits involving the
Bank, such as claims to enforce liens, condemnation proceedings on properties in
which the Bank holds security interests, claims involving the making and
servicing of real property loans and other issues incident to the Bank's
business. In the opinion of management, after consultation with the Bank's legal
counsel, no significant loss is expected from any of such pending claims or
lawsuits. Aside from such pending claims and lawsuits which are incident to the
conduct of the Bank's ordinary business, the Bank is not a party to any material
pending legal proceedings.
66
<PAGE>
MANAGEMENT OF THE HOLDING COMPANY
Directors will be elected by the stockholders of the Holding Company for
staggered three-year terms, or until their successors are elected and qualified.
The Holding Company's Board of Directors currently consists of seven persons
divided into three classes, each of which contains approximately one third of
the Board. One class, consisting of Messrs. William A. Donius and Robert A.
Ebel, has a term of office expiring at the first annual meeting of stockholders;
a second class, consisting of Messrs. Michael J. Donius, E. Douglas Britt and
Garland A. Dorn, has a term of office expiring at the second annual meeting of
stockholders; and a third class, consisting of Messrs. Thomas F. Hack and Dr.
Edward J. Howenstein, has a term of office expiring at the third annual meeting
of stockholders. If the Holding Company decides to implement the 1999 Option
Plan and the 1999 MRDP prior to the first anniversary of the conversion, the
Holding Company will not hold its first annual meeting of stockholders until at
least six months following consummation of the conversion so that it may obtain
approval of such plans in accordance with OTS regulations.
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 executive
officers of the Holding Company are:
Name Position
---- --------
William A. Donius President and Chief Executive Officer
Michael J. Donius Executive Vice President, Chief Operating Officer
and Secretary
Thomas F. Hack Chief Financial Officer and Treasurer
Since the formation of the Holding Company, none of the executive officers,
directors or other personnel has received remuneration from the Holding Company.
Initially, no separate compensation will be paid for service as an executive
officer of the Holding Company. For information concerning the principal
occupations, employment and compensation of the directors and executive officers
of the Holding Company during the past five years, see "MANAGEMENT OF THE BANK -
- - Biographical Information."
MANAGEMENT OF THE BANK
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Bank is presently composed of seven members
who are elected for terms of three years, approximately one-third of whom are
elected annually in accordance with the Bylaws of the Bank. The executive
officers of the Bank are elected annually by the Board of Directors and serve at
the Board's discretion. The following table sets forth information with respect
to the directors and executive officers of the Bank, all of whom will continue
to serve as directors and executive officers of the Bank and the Holding
Company.
67
<PAGE>
DIRECTORS
<TABLE>
<CAPTION>
Current
Director Term
Name Age (1) Position Since Expires
- ---- ------- -------- ----- -------
<S> <C> <C> <C> <C>
E. Douglas Britt 71 Director 1993 1999
William A. Donius 39 President, Chief Executive 1997 1998
Officer and Director
Michael J. Donius 38 Executive Vice President, 1993 1999
Chief Operating Officer
and Director
Garland A. Dorn 66 Director 1995 1999
Robert A. Ebel 67 Director 1979 1998
Thomas F. Hack 54 Chief Financial Officer, 1985 2000
Treasurer and Director
Dr. Edward J. Howenstein 71 Director 1973 2000
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Name Age (1) Position
- ---- ------- --------
Beverly M. Kelley 56 Senior Vice President
Michael G. Flaton 49 Vice President
Victoria A. Konopka 52 Vice President
M. Brad Condon 48 Chief Lending Officer
</TABLE>
______________________
(1) As of March 31, 1998.
DIRECTOR EMERITUS
Walter A. Donius serves as Director Emeritus of the Holding Company and the
Bank. Mr. Donius served as President of the Bank from 1971 until his retirement
on December 1, 1997 and as a director from 1955 until his retirement.
BIOGRAPHICAL INFORMATION
Set forth below is certain information regarding the directors and
executive officers of the Bank. Unless otherwise stated, each director and
executive officer has held his or her current occupation for the last five
years. There are no family relationships among the directors or executive
officers except that William and Michael Donius are brothers.
E. Douglas Britt served as an officer and director of Prudential Savings
and Loan Association, St. Louis, Missouri from its inception in 1950 until 1982,
at which time he was elected Executive Vice President and director of St. Louis
Federal Savings and Loan Association, St. Louis, Missouri (the successor to
Prudential Savings and Loan Association following a merger). He served in those
capacities until his retirement in 1986. Mr. Britt served as President of the
Greater St. Louis Savings and Loan League and has been active in numerous
community and professional organizations. He also is a retired officer in the
U.S. Air Force.
68
<PAGE>
William A. Donius has served as President of the Bank since December 1,
1997. He previously served as Senior Vice President from February 1997 to
December 1997, as Vice President from April 1995 to February 1997, and as
Director of Marketing from July 1992 to April 1995.
Michael J. Donius joined the Bank in 1988 and has served as Executive Vice
President and Chief Operating Officer since 1993 and as Secretary since 1994.
Prior to assuming his current positions, Mr. Donius served the Bank in various
capacities, including Vice President in charge of compliance and CRA.
Garland A. Dorn is President and Chief Executive Officer of Diagnostic
Rehabilitation Systems, Inc., St. Louis, Missouri, a medical equipment supplier.
Robert A. Ebel is Chairman of the Board and Chief Executive Officer of
Universal Printing Co., a commercial printer in St. Louis, Missouri.
Thomas F. Hack joined the Bank in 1967 and has served as the Treasurer
since 1974 and the Chief Financial Officer since 1993.
Dr. Edward J. Howenstein is a retired dentist.
Beverly M. Kelley joined the Bank in 1966 and became Senior Vice President
in 1977.
Michael G. Flaton joined the Bank in 1975 and has served as Vice President
of Savings since 1985.
Victoria A. Konopka joined the Bank on 1969 and has served as Vice
President of Human Resources since 1994.
M. Brad Condon joined the Bank in 1998 as Chief Lending Officer. From 1985
until joining the Bank, he served as Senior Vice President of Magna Group, Inc.
BENEFICIAL OWNERSHIP OF BANK COMMON STOCK BY DIRECTORS AND EXECUTIVE OFFICERS
Persons and groups who beneficially own in excess of 5% of the Bank's
common stock are required to file certain reports disclosing such ownership
pursuant to the Securities Exchange Act of 1934, as amended ("Exchange Act").
Based on such reports, the following table sets forth, as of March 31, 1998,
certain information as to those persons who were beneficial owners of more than
5% of the outstanding shares of Bank common stock. To the Bank's knowledge, no
other person or entity beneficially owned more than 5% of the Bank's outstanding
common stock at March 31, 1998.
The following table also sets forth, as of March 31, 1998, information as
to the shares of Bank common stock beneficially owned by (a) each director and
(b) all executive officers and directors of the Bank as a group. For
information regarding proposed non-binding purchases of Holding Company common
stock by the directors and officers and their anticipated stock ownership upon
consummation of the conversion, see "SHARES TO BE PURCHASED BY MANAGEMENT
PURSUANT TO SUBSCRIPTION RIGHTS."
69
<PAGE>
<TABLE>
<CAPTION>
Number of Shares Percent of Shares
Name Beneficially Owned (1) Outstanding
- ---- ---------------------- -----------------
<S> <C> <C>
Beneficial Owners of More Than 5%
Pulaski Bancshares, M.H.C. 1,470,000 69.9%
Directors
E. Douglas Britt 13,961 (2) *
William A. Donius (3) 3,116 *
Michael J. Donius (4) 7,576 *
Garland A. Dorn 3,934 (5) *
Robert A. Ebel 24,500 (6) 1.1
Thomas F. Hack (7) 10,270 (8) *
Dr. Edward J. Howenstein 26,697 (9) 1.3
All executive officers and 112,622 5.3
directors as a group (10 persons)
</TABLE>
__________________
* Less than 1%.
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to
be the beneficial owner, for purposes of this table, of any shares of Bank
common stock if he or she has voting and/or investment power with respect to
such security. The table includes shares owned by spouses, other immediate
family members in trust, shares held in retirement accounts or funds for the
benefit of the named individuals, and other forms of ownership, over which
shares the persons named in the table may possess voting and/or investment
power. Shares of unvested restricted stock granted under the Bank's 1994 MRDP,
as to which the holders have voting power but not investment power, are included
as follows: E. Douglas Britt, 360 shares; Michael J. Donius, 1,308 shares;
Robert A. Ebel, 480 shares; Thomas F. Hack, 1,692 shares; Dr. Edward J.
Howenstein, 480 shares; and all executive officers and directors as a group,
7,228 shares. The amounts shown also include the following amounts of shares
which the indicated individuals have the right to acquire within 60 days of
March 31, 1998 through the exercise of stock options granted pursuant to the
Bank's 1994 Option Plan: E. Douglas Britt, 1,080 shares; Michael J. Donius,
3,960 shares; Robert A. Ebel, 1,800 shares; Thomas F. Hack, 40 shares; Dr.
Edward J. Howenstein, 1,800 shares; and all executive officers and directors as
a group, 15,592 shares.
(2) Includes 5,982 shares held by a trust of which Mr. Britt is a co-trustee.
(3) William A. Donius is also the President and Chief Executive Officer of the
Bank. On September 17, 1997, in connection with his appointment as President
and Chief Executive Officer, Mr. Donius was awarded options to acquire 9,200
shares of Bank common stock at an exercise price of $26.00 per share. Such
options vest ratably over a five-year period.
(4) Michael J. Donius is also Executive Vice President, Chief Operating Officer
and Secretary of the Bank.
(5) On September 17, 1997, Mr. Dorn was awarded options to acquire 1,000 shares
of Bank common stock at an exercise price of $26.00 per shares. Such options
vest ratably over a five-year period.
(6) Includes 20,000 shares held by a trust of which Mr. Ebel is a co-trustee
with his spouse and 1,500 shares held by his wife as joint tenant with their
children.
(7) Mr. Hack is also the Chief Financial Officer and Treasurer of the Bank.
(8) Includes 7,588 shares owned by Mr. Hack and his wife as joint tenants.
(9) Includes 2,499 shares held by a trust of which Dr. Howenstein is a co-
trustee with his spouse and 18,769 shares owned by his wife.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business of the Bank is conducted through meetings and activities of
its Board of Directors and its committees. During the fiscal year ended
September 30, 1997, the Board of Directors held 12 regular meetings and no
70
<PAGE>
director attended fewer than 75% of the total meetings of the Board of Directors
of the Bank and committees on which such director served.
The Bank has standing Executive, Audit, Nominating and Salary Committees,
among others.
The Executive Committee of the Board of Directors, which currently consists
of Directors W. Donius, Hack and M. Donius, meets as necessary, but at least
twice monthly, between meetings of the full Board of Directors. All significant
actions of the Executive Committee must be ratified by the full Board of
Directors. The Executive Committee met 30 times during the fiscal year ended
September 30, 1997.
The entire Board of Directors serves as the Audit Committee, and in that
capacity is responsible for developing and monitoring the Bank's audit program.
The Board selects the Bank's outside auditor and meets with them to discuss the
results of the annual audit and any related matters. The Board also receives
and reviews the reports and findings and other information presented to them by
the Bank's officers regarding financial reporting policies and practices. The
Board of Directors met once in its capacity as the Audit Committee during the
fiscal year ended September 30, 1997.
The full Board of Directors acts as the Nominating Committee for nomination
of members of the Board of Directors. The Board of Directors met once in its
capacity as the Nominating Committee during the fiscal year ended September 30,
1997 to select the nominees for election at the Annual Meeting held in January
1998.
The Salary Committee, currently consisting of Directors W. Donius, Ebel and
Howenstein, recommends annual salary levels for senior officers and compensation
for members of the Board of Directors. The Salary Committee met once during the
fiscal year ended September 30, 1997.
DIRECTORS' COMPENSATION
Directors receive a fee of $1,150 per month plus $275 for each board
meeting attended. A fee of $275 per committee meeting is paid to non-officer
directors.
Directors also participate in the Bank's 1994 Option Plan and MRDP. All
options granted under the 1994 Option Plan and shares awarded under the 1994
MRDP vest ratably over a five year period.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following information is furnished for the
former Chief Executive Officer of the Bank and for each executive officer of the
Bank who received salary and bonus in excess of $100,000 during the year ended
September 30, 1997.
<TABLE>
<CAPTION>
Long-Term Compensation
-----------------------
Annual Compensation Awards
-------------------------- -----------------------
Restricted Securities
Name and Fiscal Other Annual Stock Underlying All Other
Position Year Salary(1) Bonus Compensation Award Options(#) Compensation
- -------- ------ --------- ------------ ------------ ------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Walter A. Donius(2) 1997 $177,000 $11,271 -- $ -- -- $18,600(3)
Former Chief 1996 173,400 10,000 -- -- -- 17,700
Executive Officer, 1995 170,000 11,500 -- 59,730 9,600 17,400
President and
Chairman of the Board
Thomas F. Hack 1997 97,400 6,136 -- -- -- 18,600(3)
Chief Financial 1996 94,400 6,500 -- -- -- 17,700
Officer and Treasurer 1995 89,200 7,500 -- 46,530 8,400 17,400
</TABLE>
______________
(1) Includes remuneration from Pulaski Service Corporation, the Bank's wholly-
owned subsidiary.
71
<PAGE>
(2) Walter A. Donius retired from the positions of Chief Executive Officer,
President and Chairman of the Board of the Bank effective December 1, 1997.
The table does not reflect compensation received by the Bank's current
President and Chief Executive Officer, Mr. William A. Donius, since his
compensation did not exceed $100,000 during the year ended September 30,
1997.
(3) Includes directors' fees from the Bank and Pulaski Service Corporation.
Does not include certain additional benefits, the aggregate amounts of
which do not exceed the lesser of $50,000 or 10% of salary and bonus for
the named executive officers.
OPTION EXERCISE/VALUE TABLE. The following information is presented for
the year ended September 30, 1997 for the executive officers named in the
summary compensation table.
<TABLE>
<CAPTION>
Number of Value of Unexercised
Shares Number of Securities In-the-Money Options
Acquired on Dollar Value Underlying Unexercised Options at Fiscal Year End($)
------------------------------ -----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Walter A. Donius 800 $12,500 3,040 5,760 $47,500 $102,500
Thomas F. Hack -- -- 3,360 5,040 52,500 78,750
</TABLE>
EMPLOYMENT AGREEMENTS. The MHC and the Bank currently maintain employment
agreements with Messrs. W. Donius, M. Donius and Hack. In connection with the
conversion, the Holding Company and the Bank (collectively, the "Employers")
will enter into three-year employment agreements with these same individuals,
which have substantially the same terms as and will replace the existing
agreements.
Under the employment agreements, the initial salary levels for Messrs. W.
Donius, M. Donius and Hack will be $135,000, $107,000 and $105,000,
respectively, which amounts will be paid by the Bank and may be increased at the
discretion of the Board of Directors. On each anniversary of the commencement
date of the employment agreements, the term of each agreement may be extended
for an additional year at the discretion of the Board. The agreement is
terminable by the Employers at any time, by the executive if the executive is
assigned duties inconsistent with his initial position, duties, responsibilities
and status, or upon the occurrence of certain events specified by federal
regulations. In the event that an executive's employment is terminated without
cause or upon the executive's voluntary termination in certain circumstances,
the Bank would be required to honor the terms of the agreement through the
expiration of the then current term, including payment of current cash
compensation and continuation of employee benefits.
The employment agreements also provide for severance payments and other
benefits in the event of involuntary termination of employment in connection
with any change in control of the Employers. Severance payments also will be
provided on a similar basis in connection with a voluntary termination of
employment where, subsequent to a change in control, an executive is assigned
duties inconsistent with his position, duties, responsibilities and status
immediately prior to such change in control. The term "change in control" is
defined in the agreement as having occurred when, among other things, (a) a
person other than the Holding Company purchases shares of the Holding Company's
common stock pursuant to a tender or exchange offer for such shares, (b) any
person (as such term is used in Sections 13(d) and 14(d)(2) of the Exchange Act)
is or becomes the beneficial owner, directly or indirectly, of securities of the
Holding Company representing 25% or more of the combined voting power of the
Holding Company's then outstanding securities, (c) the membership of the Board
of Directors changes as the result of a contested election, or (d) stockholders
of the Holding Company approve a merger, consolidation, sale or disposition of
all or substantially all of the Holding Company's assets, or a plan of partial
or complete liquidation.
The maximum value of the severance benefits under the employment agreements
is 2.99 times the executive's average annual compensation during the five-year
period preceding the effective date of the change in control (the "base
amount"). The employment agreements provide that the value of the maximum
benefit may be distributed, at the
72
<PAGE>
executive's election, (i) in the form of a lump sum cash payment equal to 2.99
times the executive's base amount or (ii) a combination of a cash payment and
continued coverage under the Employers' health, life and disability programs for
a 36-month period following the change in control, the total present value of
which does not exceed 2.99 times the executive's base amount. Assuming that a
change in control had occurred at March 31, 1998 and that each executive elected
to receive a lump sum cash payment, Messrs. W. Donius, M. Donius and Hack would
be entitled to payments of approximately $261,000, $240,000 and $296,000,
respectively. Section 280G of the Internal Revenue Code provides that severance
payments that equal or exceed three times the individual's base amount are
deemed to be "excess parachute payments" if they are contingent upon a change in
control. Individuals receiving excess parachute payments are subject to a 20%
excise tax on the amount of such excess payments, and the Employers would not be
entitled to deduct the amount of such excess payments.
The employment agreements restrict the executive's right to compete against
the Employers for a period of one year from the date of termination of the
agreement if an executive's employment is terminated without cause, except if
such termination occurs after a change in control.
SEVERANCE AGREEMENTS. The MHC and the Bank currently maintain severance
agreements with M. Brad Condon, Chief Lending Officer of the Bank, and Beverly
M. Kelley, Senior Vice President of the Bank. In connection with the
conversion, the Holding Company and the Bank will enter into new severance
agreements with these individuals on substantially the same terms as the
existing agreements, which will be replaced by the new agreements.
The new severance agreements will have an initial term of two years. On
each anniversary of the commencement date of the severance agreements, the term
of each agreement may be extended for an additional year at the discretion of
the Board of the Bank. The severance agreements will provide for severance
payments and continuation of insured employee welfare benefits in the event of
involuntary termination of employment in connection with any change in control
of the Employers in the same manner as provided for in the employment
agreements. Severance payments and benefits also will be provided on a similar
basis in connection with a voluntary termination of employment where, subsequent
to a change in control, an officer is assigned duties inconsistent with his
position, duties, responsibilities and status immediately prior to such change
in control. The term "change in control" is defined in the agreement as having
occurred when, among other things, (a) a person other than the Holding Company
purchases shares of the Holding Company's common stock pursuant to a tender or
exchange offer for such shares, (b) any person (as such term is used in Sections
13(d) and 14(d)(2) of the Exchange Act) is or becomes the beneficial owner,
directly or indirectly, of securities of the Holding Company representing 25% or
more of the combined voting power of the Holding Company's then outstanding
securities, (c) the membership of the Board changes as the result of a contested
election, or (d) stockholders of the Holding Company approve a merger,
consolidation, sale or disposition of all or substantially all of the Holding
Company's assets, or a plan of partial or complete liquidation.
Assuming that a change in control had occurred at March 31, 1998, and
excluding any other benefits due under the severance agreements, the aggregate
value of the severance benefits payable to the two officers would have been
approximately $374,000.
BENEFITS
INSURANCE. Full-time employees are provided, with minimal contribution or
expense to them, with group plan insurance that covers hospitalization,
dependent coverage, long-term disability and life insurance. This insurance is
available generally and on the same basis to all full-time employees.
RETIREMENT PLAN. The Bank is a participant in the Financial Institutions
Retirement Fund, a multi-employer, non-contributory defined benefit retirement
plan ("Plan"). The following table indicates the annual retirement benefits
that would be payable under the Plan upon retirement at age 65 to a participant
electing to receive his retirement benefit in the standard form of benefit,
assuming various specified levels of plan compensation and various specified
years of
73
<PAGE>
credited service. Under the Internal Revenue Code, maximum annual benefits under
the Plan are limited to $125,000 per year for the 1998 calendar year.
<TABLE>
<CAPTION>
High-5
Average
Compensation Years of Service
------------ -------------------------------------------
15 20 25 30 35
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$ 10,000 $ 2,250 $ 3,000 $ 3,750 $ 4,500 $ 5,250
20,000 4,500 6,000 7,500 9,000 10,500
30,000 6,750 9,000 11,250 13,500 15,750
40,000 9,000 12,000 15,000 18,000 21,000
50,000 11,250 15,000 18,750 22,500 26,250
60,000 13,500 18,000 22,500 27,000 31,500
70,000 15,750 21,000 26,250 31,500 36,750
80,000 18,000 24,000 30,000 36,000 42,000
90,000 20,250 27,000 33,750 40,500 47,250
100,000 22,500 30,000 37,500 45,000 52,500
110,000 24,750 33,000 41,250 49,500 57,750
</TABLE>
The Plan is a non-contributory, defined benefit plan which provides for
monthly payments to, or on behalf of, each covered employee. All full-time
employees are eligible to participate in the Plan after completion of one year
of service to the Bank (at least 1,000 hours of service in 12 consecutive
months) and the attainment of age 21. Benefits are based upon years of service
and salary excluding bonuses, fees, commissions, etc. Employees terminating
employment before they are 100% vested will have benefits reduced accordingly
based on the percentage they are vested. As of September 30, 1997, retired
President Walter Donius and Mr. Hack had 42 and 28 years of credited service,
respectively, under the Plan.
The normal retirement age is 65 and the early retirement age is before age
65, but after age 45. Normal retirement benefits are equal to the sum of (i)
1.5% multiplied by the years of service to the Bank and by the employees's
average base salary for the five highest consecutive years preceding retirement
up to the covered compensation level and (2) 2% multiplied by the years of
service to the Bank and by the employees's average base salary above the covered
compensation level for the five highest consecutive years preceding retirement.
If an employee elects early retirement, but defers the receipt of benefits until
age 65, the formula for computation of early retirement benefits is the same as
if the employee had retired at the normal retirement age. However, if the
employee elects early retirement benefits payable under the Plan the benefits
are equal to the benefits payable assuming retirement at age 65 reduced by
applying an early retirement factor based on age and vesting service when
payments begin. Payment may also be deferred to any time up to age 70, in which
case the retirement allowance payable at age 65 will be increased by .8% for
each month of deferment after age 65 (to a maximum increase of 48%). Under the
Plan, the Bank makes annual contributions to fund the benefits computed on an
actuarial basis.
Upon retirement, the regular form of benefit under the Plan is an annuity
payable in equal monthly installments for the life of the employee. Optional
annuity benefit forms may also be elected by the employee. Benefits under the
Plan are integrated with social security.
At July 1, 1997 (the date of the most recent Plan statement), the Plan was
over-funded by approximately $498,600.
401(K) PLAN. The Bank maintains the Employees' Savings & Profit Sharing
Plan (the "401(k) Plan") for the benefit of eligible employees of the Bank. The
401(k) Plan is intended to be a tax-qualified plan under Sections 401(a) and
401(k) of the Code. Employees of the Bank who have completed 1,000 hours of
service during 12 consecutive months and who have attained age 21 are eligible
to participate in the 401(k) Plan. Participants may contribute up to
74
<PAGE>
15% of their annual compensation to the 401(k) Plan through a salary reduction
election. The Bank matches 50% of participant contributions to a maximum of 4%
of the participant's salary. In addition to employer matching contributions, the
Bank may contribute a discretionary amount to the 401(k) Plan in any plan year
which is allocated to individual participants in the proportion that their
annual compensation bears to the total compensation of all participants during
the plan year. To be eligible to receive a discretionary employer contribution,
the participant must complete 1,000 hours of service during the plan year and
remain employed by the Bank on the last day of the plan year. Participants are
at all times 100% vested in their 401(k) Plan accounts. For the year ended
September 30, 1997, the Bank incurred total contribution-related expenses of
approximately $37,500 in connection with the 401(k) Plan.
Generally, the investment of 401(k) Plan assets is directed by plan
participants. In connection with the conversion the participants will be able
to direct the investment of their 401(k) Plan account balance to purchase shares
of common stock. A participant in the 401(k) Plan who elects to purchase common
stock in the conversion through the 401(k) Plan will receive the same
subscription priority and will be subject to the same individual purchase
limitations as if the participant had elected to make such purchase using other
funds. See "THE CONVERSION -- Limitations on Purchases of Conversion Shares."
EMPLOYEE STOCK OWNERSHIP PLAN. The Board of Directors has authorized the
adoption by the Bank of an ESOP for employees of the Bank to become effective
upon the completion of the conversion. The ESOP is intended to satisfy the
requirements for an employee stock ownership plan under the Internal Revenue
Code and the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Full-time employees of the Holding Company and the Bank who have
been credited with at least 1,000 hours of service during a 12-month period and
who have attained age 20-1/2 will be eligible to participate in the ESOP.
In order to fund the purchase of up to 8% of the common stock to be sold in
the conversion, it is anticipated that the ESOP will borrow funds from the
Holding Company. Such loan will equal 100% of the aggregate purchase price of
the common stock. The loan to the ESOP will be repaid principally from the
Bank's contributions to the ESOP and dividends payable on common stock held by
the ESOP over the anticipated 15-year term of the loan. The interest rate for
the ESOP loan is expected to be the prime rate as published in The Wall Street
Journal on the closing date of the conversion. See "PRO FORMA DATA." To the
extent that the ESOP is unable to acquire 8% of the common stock sold in the
offering, it is anticipated that such additional shares may be acquired
following the conversion through open market purchases.
In any plan year, the Bank may make additional discretionary contributions
to the ESOP for the benefit of plan participants in either cash or shares of
common stock, which may be acquired through the purchase of outstanding shares
in the market or from individual stockholders or which constitute authorized but
unissued shares or shares held in treasury by Holding Company. The timing,
amount, and manner of such discretionary contributions will be affected by
several factors, including applicable regulatory policies, the requirements of
applicable laws and regulations, and market conditions.
Shares purchased by the ESOP with the proceeds of the loan will be held in
a suspense account and released on a pro rata basis as the loan is repaid.
Discretionary contributions to the ESOP and shares released from the suspense
account will be allocated among participants on the basis of each participant's
proportional share of total compensation. Forfeitures will be reallocated among
the remaining plan participants.
Participants will vest in their accrued benefits under the ESOP at the rate
of 20% per year, beginning upon the completion of two years of service. A
participant is fully vested at retirement, in the event of disability or upon
termination of the ESOP. Benefits are distributable upon a participant's
retirement, early retirement, death, disability, or termination of employment.
The Bank's contributions to the ESOP are not fixed, so benefits payable under
the ESOP cannot be estimated.
It is anticipated that members of the Bank's Board of Directors will serve
as trustees of the ESOP. Under the ESOP, the trustees must vote all allocated
shares held in the ESOP in accordance with the instructions of plan
75
<PAGE>
participants and unallocated shares and allocated shares for which no
instructions are received must be voted in the same ratio on any matter as those
shares for which instructions are given.
Pursuant to Statement of Position 93-6, compensation expense for a
leveraged ESOP is recorded at the fair market value of the ESOP shares when
committed to be released to participants' accounts. See "PRO FORMA DATA."
If the ESOP purchases newly issued shares from the Holding Company, total
stockholders' equity would neither increase nor decrease. However, on a per
share basis, stockholders' equity and per share net earnings would decrease
because of the increase in the number of outstanding shares.
The ESOP will be subject to the requirements of ERISA and the regulations
of the IRS and the Department of Labor issued thereunder. The Bank intends to
request a determination letter from the IRS regarding the tax-qualified status
of the ESOP. Although no assurance can be given that a favorable determination
letter will be issued, the Bank expects that a favorable determination letter
will be received by the ESOP.
STOCK OPTION PLANS. Following its conversion to stock form, the Bank
adopted the 1994 Option Plan for the benefit of key employees and nonemployee
directors, pursuant to which 60,000 shares of Bank common stock were reserved
for issuance upon the exercise of stock options awarded thereunder. As of March
31, 1998, stock options have been awarded with respect to all shares reserved
under the 1994 Stock Option Plan. The Holding Company will assume the 1994
Stock Option Plan in connection with the conversion, and appropriate adjustments
to the exercise price and the number of shares subject to stock options
outstanding under each plan will be made in accordance with the final Exchange
Ratio.
Following the conversion, the Holding Company's Board of Director intends
to adopt the 1999 Option Plan in order to attract and retain qualified
management personnel and nonemployee directors, to provide such key employees
and nonemployee directors with a proprietary interest in the Holding Company as
an incentive to contribute to the success of the Holding Company and the Bank,
and to reward officers and key employees for outstanding performance. The 1999
Option Plan will provide for the grant of incentive stock options ("ISOs")
intended to comply with the requirements of Section 422 of the Code and for
nonqualified stock options ("NQOs"). Upon receipt of stockholder approval of
the 1999 Option Plan, stock options may be granted to nonemployee directors and
key employees of the Holding Company and its subsidiaries. Unless sooner
terminated, the 1999 Option Plan will continue in effect for a period of ten
years from the date the 1999 Option Plan is approved by stockholders. Under
current OTS regulations, the approval of a majority vote of the Holding
Company's outstanding shares is required prior to the implementation of the 1999
Option Plan within one year of the consummation of the conversion.
A number of authorized shares of common stock equal to 10% of the number of
shares sold in connection with the conversion will be reserved for future
issuance under the 1999 Option Plan (690,000 shares based on the issuance of
6,900,000 shares at the maximum of the Estimated Valuation Range). Shares
acquired upon exercise of options will be authorized but unissued shares or
treasury shares. In the event of a stock split, reverse stock split, stock
dividend, or similar event, the number of shares of common stock under the 1999
Option Plan, the number of shares to which any award relates and the exercise
price per share under any option may be adjusted by the Committee (as defined
below) to reflect the increase or decrease in the total number of shares of
common stock outstanding.
The 1999 Option Plan will be administered and interpreted by the Board of
Directors. Subject to applicable OTS regulations, the Board will determine which
nonemployee directors and key employees will be granted options, whether, in the
case of officers and employees, such options will be ISOs or NQOs, the number of
shares subject to each option, and the exercisability of such options. All
options granted to nonemployee directors will be NQOs. The per share exercise
price of all options will equal at least 100% of the fair market value of a
share of common stock on the date the option is granted.
It is anticipated that all options granted under the 1999 Option Plan will
be granted subject to a vesting schedule whereby the options become exercisable
over a specified period following the date of grant. Under OTS regulations,
76
<PAGE>
if the 1999 Option Plan is implemented within the first year following
consummation of the conversion the minimum vesting period will be five years.
All unvested options will be immediately exercisable in the event of the
recipient's death or disability. Unvested options also will be exercisable
following a change in control (as defined in the 1999 Option Plan) of the
Holding Company or the Bank to the extent authorized or not prohibited by
applicable law or regulations. OTS regulations currently provide that, if the
1999 Option Plan is implemented prior to the first anniversary of the
conversion, vesting may not be accelerated upon a change in control of the
Holding Company or the Bank.
Each stock option that is awarded to an officer or key employee will remain
exercisable at any time on or after the date it vests through the earlier to
occur of the tenth anniversary of the date of grant or three months after the
date on which the optionee terminates employment (one year in the event of the
optionee's termination by reason of death or disability), unless such period is
extended by the Board. Each stock option that is awarded to a nonemployee
director will remain exercisable through the earlier to occur of the tenth
anniversary of the date of grant or one year (two years in the event of a
nonemployee director's death or disability) following the termination of a
nonemployee director's service on the Board. Except as authorized by the Board,
all stock options are nontransferable except by will or the laws of descent or
distribution.
Under current provisions of the Internal Revenue Code, the federal tax
treatment of ISOs and NQOs is different. With respect to ISOs, an optionee who
satisfies certain holding period requirements will not recognize income at the
time the option is granted or at the time the option is exercised. If the
holding period requirements are satisfied, the optionee will generally recognize
capital gain or loss upon a subsequent disposition of the shares of common stock
received upon the exercise of a stock option. If the holding period
requirements are not satisfied, the difference between the fair market value of
the common stock on the date of grant and the option exercise price, if any,
will be taxable to the optionee at ordinary income tax rates. A federal income
tax deduction generally will not be available to the Holding Company as a result
of the grant or exercise of an ISO, unless the optionee fails to satisfy the
holding period requirements. With respect to NQOs, the grant of an NQO
generally is not a taxable event for the optionee and no tax deduction will be
available to the Holding Company. However, upon the exercise of an NQO, the
difference between the fair market value of the common stock on the date of
exercise and the option exercise price generally will be treated as compensation
to the optionee upon exercise, and the Holding Company will be entitled to a
compensation expense deduction in the amount of income realized by the optionee.
Although no specific award determinations have been made at this time, the
Holding Company and the Bank anticipate that if stockholder approval is obtained
it would provide awards to its directors and key employees to the extent and
under terms and conditions permitted by applicable regulations. Under current
OTS regulations, if the 1999 Option Plan is implemented within one year of the
consummation of the conversion, (i) no officer or employee may receive an award
of options covering in excess of 25%, (ii) no nonemployee director could receive
in excess of 5% and (iii) nonemployee directors, as a group, may not receive in
excess of 30% of the number of shares reserved for issuance under the 1999
Option Plan.
MANAGEMENT RECOGNITION AND DEVELOPMENT PLANS. Following its conversion to
stock form, the Bank adopted the 1994 MRDP for the benefit of key employees,
pursuant to which 24,000 shares of Bank Common Stock were reserved for issuance
in the form of restricted stock. As of September 30, 1997, all shares under the
1994 MRDP have been awarded, and such shares (including unvested shares) will be
converted into shares of Holding Company common stock based on the final
Exchange Ratio in the same manner as shares held by other public stockholders.
The Holding Company will assume and continue the 1994 MRDP in connection with
the conversion.
Following the conversion, the Holding Company's Board of Directors intends
to adopt the 1999 MRDP for non-employee directors, officers and employees of the
Holding Company and the Bank. The Board of Directors believes that adoption of
the 1999 MRDP is important to the Bank's overall compensation strategy, which
emphasizes providing appropriate incentives to attract and retain capable
employees. Specifically, the adoption of the 1999 MRDP will enable the Holding
Company to provide participants with a proprietary interest in the Holding
Company as an incentive to contribute to the success of the Holding Company.
77
<PAGE>
The 1999 MRDP will be submitted to stockholders for approval at a meeting
following consummation of the conversion. The approval of a majority vote of
the Holding Company's stockholders is required prior to implementation of the
1999 MRDP within one year of the consummation of the conversion. The 1999 MRDP
expects to acquire a number of shares of common stock equal to 4% of the shares
sold in the offering (276,000 shares based on the sale of 6,900,000 shares at
the maximum of the Estimated Valuation Range). Such shares will be acquired on
the open market, if available, with funds contributed by the Bank to a trust
which the Holding Company may establish in conjunction with the 1999 MRDP ("1999
MRDP Trust") or from authorized but unissued shares or treasury shares of the
Holding Company.
The Board of Directors will administer the 1999 MRDP, members of which will
also serve as trustees of the 1999 MRDP Trust, if formed. The trustees will be
responsible for the investment of all funds contributed by the Bank to the 1999
MRDP Trust.
It is anticipated that shares of common stock granted pursuant to the 1999
MRDP will be in the form of restricted stock payable ratably over a five-year
period following the date of grant. During the period of restriction, all
shares will be held in escrow by the Holding Company or by the 1999 MRDP Trust.
If a recipient terminates employment for reasons other than death or disability,
the recipient will forfeit all rights to allocated shares that are then subject
to restriction. In the event of the recipient's death or disability, all
restrictions will expire and all allocated shares will become unrestricted. In
addition, all allocated shares will become unrestricted in the event of a change
in control (as defined in the 1999 MRDP) of the Holding Company to the extent
authorized or not prohibited by applicable law or regulations. Current OTS
regulations, however, do not permit accelerated vesting of 1999 MRDP awards in
the event of a change in control. Compensation expense in the amount of the
fair market value of the common stock at the date of the grant to the recipient
will be recognized during the years in which the shares vest.
The Board of Directors may terminate the 1999 MRDP at any time and, upon
termination, all unallocated shares of common stock will revert to the Holding
Company.
A recipient of a 1999 MRDP award in the form of restricted stock generally
will not recognize income upon an award of shares of common stock, and the
Holding Company will not be entitled to a federal income tax deduction, until
the termination of the restrictions. Upon such termination, the recipient will
recognize ordinary income in an amount equal to the fair market value of the
common stock at the time and the Holding Company will be entitled to a deduction
in the same amount after satisfying federal income tax withholding requirements.
However, the recipient may elect to recognize ordinary income in the year the
restricted stock is granted in an amount equal to the fair market value of the
shares at that time, determined without regard to the restrictions. In that
event, the Holding Company will be entitled to a deduction in such year and in
the same amount. Any gain or loss recognized by the recipient upon subsequent
disposition of the stock will be either a capital gain or capital loss.
Although no specific award determinations have been made, the Bank
anticipates that if stockholder approval is obtained it would provide awards to
its key employees to the extent permitted by applicable regulations. OTS
regulations currently provide that no individual officer or employee may receive
more than 25% and no individual non-employee director may receive more than 5%
(30% in the aggregate) of the shares reserved for issuance under any stock
compensation plan.
TRANSACTIONS WITH THE BANK
Federal regulations require that all loans or extensions of credit by the
Bank to executive officers and directors must generally be made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons (unless the loan or
extension of credit is made under a benefit program generally available to all
other employees and does not give preference to any insider over any other
employee) and must not involve more than the normal risk of repayment or present
other unfavorable features. The Bank's policy is not to make any new loans or
extensions of credit to the Bank's executive officers and directors at different
rates or terms than those offered to the general public. In addition, loans
made to a director or executive officer in an amount
78
<PAGE>
that, when aggregated with the amount of all other loans to such person and his
or her related interests, are in excess of the greater of $25,000, or 5% of the
Bank's capital and surplus (up to a maximum of $500,000) must be approved in
advance by a majority of the disinterested members of the Board of Directors.
See "REGULATION -- Federal Regulation of the Bank -- Transactions with
Affiliates." The aggregate amount of loans by the Bank to its executive officers
and directors and their associates was $442,000 at March 31, 1998, or
approximately 0.5% of the Holding Company's pro forma stockholders' equity
(based on the issuance of shares at the maximum of the Estimated Valuation
Range).
REGULATION
GENERAL
The Bank is subject to extensive regulation, examination and supervision by
the OTS as its chartering agency, and the FDIC, as the insurer of its deposits.
The activities of federal savings institutions are governed by the Home Owners'
Loan Act, as amended (the "HOLA") and, in certain respects, the Federal Deposit
Insurance Act ("FDIA") and the regulations issued by the OTS and the FDIC to
implement these statutes. These laws and regulations delineate the nature and
extent of the activities in which federal savings associations may engage.
Lending activities and other investments must comply with various statutory and
regulatory capital requirements. In addition, the Bank's relationship with its
depositors and borrowers is also regulated to a great extent, especially in such
matters as the ownership of deposit accounts and the form and content of the
Bank's mortgage documents. The Bank must file reports with the OTS and the FDIC
concerning its activities and financial condition in addition to obtaining
regulatory approvals prior to entering into certain transactions such as mergers
with, or acquisitions of, other financial institutions. There are periodic
examinations by the OTS and the FDIC to review the Bank's compliance with
various regulatory requirements. The regulatory structure also gives the
regulatory authorities extensive discretion in connection with their supervisory
and enforcement activities and examination policies, including policies with
respect to the classification of assets and the establishment of adequate loan
loss reserves for regulatory purposes. Any change in such policies, whether by
the OTS, the FDIC or Congress, could have a material adverse impact on the Bank
and its operations.
FEDERAL REGULATION OF SAVINGS ASSOCIATIONS
OFFICE OF THRIFT SUPERVISION. The OTS is an office in the Department of
the Treasury subject to the general oversight of the Secretary of the Treasury.
The OTS generally possesses the supervisory and regulatory duties and
responsibilities formerly vested in the Federal Home Loan Bank Board. Among
other functions, the OTS issues and enforces regulations affecting federally
insured savings associations and regularly examines these institutions.
FEDERAL HOME LOAN BANK SYSTEM. The FHLB System, consisting of 12 FHLBs, is
under the jurisdiction of the Federal Housing Finance Board ("FHFB"). The
designated duties of the FHFB are to supervise the FHLBs, to ensure that the
FHLBs carry out their housing finance mission, to ensure that the FHLBs remain
adequately capitalized and able to raise funds in the capital markets, and to
ensure that the FHLBs operate in a safe and sound manner. The Bank, as a member
of the FHLB-Des Moines, is required to acquire and hold shares of capital stock
in the FHLB-Des Moines in an amount equal to the greater of (i) 1.0% of the
aggregate outstanding principal amount of residential mortgage loans, home
purchase contracts and similar obligations at the beginning of each year, or
(ii) 1/20 of its advances (i.e., borrowings) from the FHLB-Des Moines. The Bank
is in compliance with this requirement with an investment in FHLB-Des Moines
stock of $1.6 million at March 31, 1998. Among other benefits, the FHLB-Des
Moines provides a central credit facility primarily for member institutions. It
is funded primarily from proceeds derived from the sale of consolidated
obligations of the FHLB System. It makes advances to members in accordance with
policies and procedures established by the FHFB and the Board of Directors of
the FHLB-Des Moines.
FEDERAL DEPOSIT INSURANCE CORPORATION. The FDIC is an independent federal
agency that insures the deposits, up to prescribed statutory limits, of
depository institutions. The FDIC currently maintains two separate
79
<PAGE>
insurance funds: the Bank Insurance Fund ("BIF") and the SAIF. As insurer of the
Bank's deposits, the FDIC has examination, supervisory and enforcement authority
over the Bank.
The Bank's accounts are insured by the SAIF to the maximum extent permitted
by law. The Bank pays deposit insurance premiums based on a risk-based
assessment system established by the FDIC. Under applicable regulations,
institutions are assigned to one of three capital groups that are based solely
on the level of an institution's capital -- "well capitalized," "adequately
capitalized," and "undercapitalized" -- which are defined in the same manner as
the regulations establishing the prompt corrective action system, as discussed
below. These three groups are then divided into three subgroups which reflect
varying levels of supervisory concern, from those which are considered to be
healthy to those which are considered to be of substantial supervisory concern.
The matrix so created results in nine assessment risk classifications, with
rates that until September 30, 1996 ranged from 0.23% for well capitalized,
financially sound institutions with only a few minor weaknesses to 0.31% for
undercapitalized institutions that pose a substantial risk of loss to the SAIF
unless effective corrective action is taken.
Pursuant to the Deposit Insurance Funds Act ("DIF Act"), which was enacted
on September 30, 1996, the FDIC imposed a special assessment on each depository
institution with SAIF-assessable deposits which resulted in the SAIF achieving
its designated reserve ratio. In connection therewith, the FDIC reduced the
assessment schedule for SAIF members, effective January 1, 1997, to a range of
0% to 0.27%, with most institutions, including the Bank, paying 0%. This
assessment schedule is the same as that for the BIF, which reached its
designated reserve ratio in 1995. In addition, since January 1, 1997, SAIF
members are charged an assessment of .065% of SAIF-assessable deposits for the
purpose of paying interest on the obligations issued by the Financing
Corporation ("FICO") in the 1980s to help fund the thrift industry cleanup.
BIF-assessable deposits will be charged an assessment to help pay interest on
the FICO bonds at a rate of approximately .013% until the earlier of December
31, 1999 or the date upon which the last savings association ceases to exist,
after which time the assessment will be the same for all insured deposits.
The DIF Act provides for the merger of the BIF and the SAIF into the
Deposit Insurance Fund on January 1, 1999, but only if no insured depository
institution is a savings association on that date. The DIF Act contemplates the
development of a common charter for all federally chartered depository
institutions and the abolition of separate charters for national banks and
federal savings associations. It is not known what form the common charter may
take and what effect, if any, the adoption of a new charter would have on the
operation of the Bank.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC. It also may suspend
deposit insurance temporarily during the hearing process for the permanent
termination of insurance, if the institution has no tangible capital. If
insurance of accounts is terminated, the accounts at the institution at the time
of termination, less subsequent withdrawals, shall continue to be insured for a
period of six months to two years, as determined by the FDIC. Management is
aware of no existing circumstances that could result in termination of the
deposit insurance of the Bank.
LIQUIDITY REQUIREMENTS. Under OTS regulations, each savings institution is
required to maintain an average daily balance of liquid assets (cash, certain
time deposits and savings accounts, bankers' acceptances, and specified U.S.
Government, state or federal agency obligations and certain other investments)
equal to a monthly average of not less than a specified percentage (currently
4.0%) of its net withdrawable accounts plus short-term borrowings. Monetary
penalties may be imposed for failure to meet liquidity requirements. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
PROMPT CORRECTIVE ACTION. Under the FDIA, each federal banking agency is
required to implement a system of prompt corrective action for institutions that
it regulates. The federal banking agencies have promulgated substantially
similar regulations to implement this system of prompt corrective action. Under
the regulations, an institution shall be deemed to be (i) "well capitalized" if
it has a total risk-based capital ratio of 10.0% or more, has a Tier I risk-
based capital ratio of 6.0% or more, has a leverage ratio of 5.0% or more and is
not subject to specified
80
<PAGE>
requirements to meet and maintain a specific capital level for any capital
measure; (ii) "adequately capitalized" if it has a total risk-based capital
ratio of 8.0% or more, has a Tier I risk-based capital ratio of 4.0% or more,
has a leverage ratio of 4.0% or more (3.0% under certain circumstances) and does
not meet the definition of "well capitalized;" (iii) "undercapitalized" if it
has a total risk-based capital ratio that is less than 8.0%, has a Tier I risk-
based capital ratio that is less than 4.0% or has a leverage ratio that is less
than 4.0% (3.0% under certain circumstances); (iv) "significantly
undercapitalized" if it has a total risk-based capital ratio that is less than
6.0%, has a Tier I risk-based capital ratio that is less than 3.0% or has a
leverage ratio that is less than 3.0%; and (v) "critically undercapitalized" if
it has a ratio of tangible equity to total assets that is equal to or less than
2.0%.
A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has received
in its most recent examination, and has not corrected, a less than satisfactory
rating for asset quality, management, earnings or liquidity. (The OTS may not,
however, reclassify a significantly undercapitalized institution as critically
undercapitalized.)
An institution generally must file a written capital restoration plan that
meets specified requirements, as well as a performance guaranty by each company
that controls the institution, with the appropriate federal banking agency
within 45 days of the date that the institution receives notice or is deemed to
have notice that it is undercapitalized, significantly undercapitalized or
critically undercapitalized. Immediately upon becoming undercapitalized, an
institution shall become subject to various mandatory and discretionary
restrictions on its operations.
At March 31, 1998, the Bank was categorized as "well capitalized" under the
prompt corrective action regulations of the OTS.
STANDARDS FOR SAFETY AND SOUNDNESS. The federal banking regulatory
agencies have prescribed, by regulation, standards for all insured depository
institutions relating to: (i) internal controls, information systems and
internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv)
interest rate risk exposure; (v) asset growth; (vi) asset quality; (vii)
earnings; and (viii) compensation, fees and benefits ("Guidelines"). The
Guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired. If the OTS determines that the Bank fails to
meet any standard prescribed by the Guidelines, the agency may require the Bank
to submit to the agency an acceptable plan to achieve compliance with the
standard. OTS regulations establish deadlines for the submission and review of
such safety and soundness compliance plans.
QUALIFIED THRIFT LENDER TEST. All savings associations are required to
meet a qualified thrift lender ("QTL") test to avoid certain restrictions on
their operations. A savings institution that fails to become or remain a QTL
shall either convert to a national bank charter or be subject to the following
restrictions on its operations: (i) the Bank may not make any new investment or
engage in activities that would not be permissible for national banks; (ii) the
Bank may not establish any new branch office where a national bank located in
the savings institution's home state would not be able to establish a branch
office; (iii) the Bank shall be ineligible to obtain new advances from any FHLB;
and (iv) the payment of dividends by the Bank shall be subject to the rules
regarding the statutory and regulatory dividend restrictions applicable to
national banks. Also, beginning three years after the date on which the savings
institution ceases to be a QTL, the savings institution would be prohibited from
retaining any investment or engaging in any activity not permissible for a
national bank and would be required to repay any outstanding advances to any
FHLB. In addition, within one year of the date on which a savings association
controlled by a company ceases to be a QTL, the company must register as a bank
holding company and become subject to the rules applicable to such companies. A
savings institution may requalify as a QTL if it thereafter complies with the
QTL test.
Currently, the QTL test requires that either an institution qualify as a
domestic building and loan association under the Internal Revenue Code or that
65% of an institution's "portfolio assets" (as defined) consist of certain
housing and consumer-related assets on a monthly average basis in nine out of
every 12 months. Assets that qualify without
81
<PAGE>
limit for inclusion as part of the 65% requirement are loans made to purchase,
refinance, construct, improve or repair domestic residential housing and
manufactured housing; home equity loans; mortgage-backed securities (where the
mortgages are secured by domestic residential housing or manufactured housing);
FHLB stock; direct or indirect obligations of the FDIC; and loans for
educational purposes, loans to small businesses and loans made through credit
cards. In addition, the following assets, among others, may be included in
meeting the test subject to an overall limit of 20% of the savings institution's
portfolio assets: 50% of residential mortgage loans originated and sold within
90 days of origination; 100% of consumer loans; and stock issued by Freddie Mac
or Fannie Mae. Portfolio assets consist of total assets minus the sum of (i)
goodwill and other intangible assets, (ii) property used by the savings
institution to conduct its business, and (iii) liquid assets up to 20% of the
institution's total assets. At March 31, 1998, the Bank was in compliance with
the QTL test.
CAPITAL REQUIREMENTS. Under OTS regulations a savings association must
satisfy three minimum capital requirements: core capital, tangible capital and
risk-based capital. Savings associations must meet all of the standards in
order to comply with the capital requirements.
OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets). Core capital
is defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less (i) any intangible assets, except
for certain qualifying intangible assets; (ii) certain mortgage servicing
rights; and (iii) equity and debt investments in subsidiaries that are not
"includable subsidiaries," which is defined as subsidiaries engaged solely in
activities not impermissible for a national bank, engaged in activities
impermissible for a national bank but only as an agent for its customers, or
engaged solely in mortgage-banking activities. In calculating adjusted total
assets, adjustments are made to total assets to give effect to the exclusion of
certain assets from capital and to account appropriately for the investments in
and assets of both includable and non-includable subsidiaries. Institutions
that fail to meet the core capital requirement would be required to file with
the OTS a capital plan that details the steps they will take to reach
compliance. In addition, the OTS's prompt corrective action regulation provides
that a savings institution that has a leverage ratio of less than 4% (3% for
institutions receiving the highest CAMEL examination rating) will be deemed to
be "undercapitalized" and may be subject to certain restrictions. See "--
Federal Regulation of Savings Associations -- Prompt Corrective Action."
Savings associations also must maintain "tangible capital" not less than
1.5% of adjusted total assets. "Tangible capital" is defined, generally, as core
capital minus any "intangible assets" other than purchased mortgage servicing
rights.
Savings associations must maintain total risk-based capital equal to at
least 8% of risk-weighted assets. Total risk-based capital consists of the sum
of core and supplementary capital, provided that supplementary capital cannot
exceed core capital, as previously defined. Supplementary capital includes (i)
permanent capital instruments such as cumulative perpetual preferred stock,
perpetual subordinated debt and mandatory convertible subordinated debt, (ii)
maturing capital instruments such as subordinated debt, intermediate-term
preferred stock and mandatory convertible subordinated debt, subject to an
amortization schedule, and (iii) general valuation loan and lease loss
allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held by
a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not
included for purposes of calculating capital are not included in calculating
risk-weighted assets. The categories range from 0% for cash and securities that
are backed by the full faith and credit of the U.S. Government to 100% for
repossessed assets or assets more than 90 days past due. Qualifying residential
mortgage loans (including multi-family mortgage loans) are assigned a 50% risk
weight. Consumer, commercial, home equity and residential construction loans
are assigned a 100% risk weight, as are nonqualifying residential mortgage loans
and that portion of land loans and nonresidential construction loans that do not
exceed an 80% loan-to-value ratio. The book value of assets in each category is
multiplied by the weighing factor (from 0% to 100%) assigned to that category.
These products are then totaled to arrive at total risk-weighted assets. Off-
balance sheet items are included in risk-weighted assets by converting them to
an
82
<PAGE>
approximate balance sheet "credit equivalent amount" based on a conversion
schedule. These credit equivalent amounts are then assigned to risk categories
in the same manner as balance sheet assets and included risk-weighted assets.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
----
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates divided by the estimated economic value of the
Bank's assets, as calculated in accordance with guidelines set forth by the OTS.
A savings association whose measured interest rate risk exposure exceeds 2% must
deduct an interest rate risk component in calculating its total capital under
the risk-based capital rule. The interest rate risk component is an amount
equal to one-half of the difference between the institution's measured interest
rate risk and 2%, multiplied by the estimated economic value of the Bank's
assets. That dollar amount is deducted from an association's total capital in
calculating compliance with its risk-based capital requirement. Under the rule,
there is a two quarter lag between the reporting date of an institution's
financial data and the effective date for the new capital requirement based on
that data. A savings association with assets of less than $300 million and
risk-based capital ratios in excess of 12% is not subject to the interest rate
risk component, unless the OTS determines otherwise. The rule also provides
that the Director of the OTS may waive or defer an association's interest rate
risk component on a case-by-case basis. Under certain circumstances, a savings
association may request an adjustment to its interest rate risk component if it
believes that the OTS-calculated interest rate risk component overstates its
interest rate risk exposure. In addition, certain "well-capitalized"
institutions may obtain authorization to use their own interest rate risk model
to calculate their interest rate risk component in lieu of the OTS-calculated
amount. The OTS has postponed the date that the component will first be
deducted from an institution's total capital.
See "HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE" for a table
that sets forth in terms of dollars and percentages the OTS tangible, core and
risk-based capital requirements, the Bank's historical amounts and percentages
at March 31, 1998 and pro forma amounts and percentages based upon the
assumptions stated therein.
LIMITATIONS ON CAPITAL DISTRIBUTIONS. OTS regulations impose uniform
limitations on the ability of all savings associations to engage in various
distributions of capital such as dividends, stock repurchases and cash-out
mergers. In addition, OTS regulations require the Bank to give the OTS 30 days'
advance notice of any proposed declaration of dividends, and the OTS has the
authority under its supervisory powers to prohibit the payment of dividends.
The regulation utilizes a three-tiered approach which permits various levels of
distributions based primarily upon a savings association's capital level.
A Tier 1 savings association has capital in excess of its capital
requirement (both before and after the proposed capital distribution). A Tier 1
savings association may make (without application but upon prior notice to, and
no objection made by, the OTS) capital distributions during a calendar year up
to 100% of its net income to date during the calendar year plus one-half its
surplus capital ratio (i.e., the amount of capital in excess of its requirement)
----
at the beginning of the calendar year or the amount authorized for a Tier 2
association. Capital distributions in excess of such amount require advance
notice to the OTS. A Tier 2 savings association has capital equal to or in
excess of its minimum capital requirement but below its requirement (both before
and after the proposed capital distribution). Such an association may make
(without application) capital distributions up to an amount equal to 75% of its
net income during the previous four quarters depending on how close the Bank is
to meeting its capital requirement. Capital distributions exceeding this amount
require prior OTS approval. Tier 3 associations are savings associations with
capital below the minimum capital requirement (either before or after the
proposed capital distribution). Tier 3 associations may not make any capital
distributions without prior approval from the OTS.
The Bank currently meets the criteria to be designated a Tier 1 association
and, consequently, could at its option (after prior notice to, and no objection
made by, the OTS) distribute up to 100% of its net income during the calendar
83
<PAGE>
year plus 50% of its surplus capital ratio at the beginning of the calendar year
less any distributions previously paid during the year.
LOANS TO ONE BORROWER. Under the HOLA, savings institutions are generally
subject to the national bank limit on loans to one borrower. Generally, this
limit is 15% of the Bank's unimpaired capital and surplus, plus an additional
10% of unimpaired capital and surplus, if such loan is secured by readily-
marketable collateral, which is defined to include certain financial instruments
and bullion. The OTS by regulation has amended the loans to one borrower rule
to permit savings associations meeting certain requirements, including capital
requirements, to extend loans to one borrower in additional amounts under
circumstances limited essentially to loans to develop or complete residential
housing units. At March 31, 1998, the Bank's regulatory limit on loans to one
borrower was $3.7 million. At March 31, 1998, the Bank's largest aggregate
amount of loans to one borrower was $544,000.
ACTIVITIES OF ASSOCIATIONS AND THEIR SUBSIDIARIES. A savings association
may establish operating subsidiaries to engage in any activity that the savings
association may conduct directly and may establish service corporation
subsidiaries to engage in certain preapproved activities or, with approval of
the OTS, other activities reasonably related to the activities of financial
institutions. When a savings association establishes or acquires a subsidiary
or elects to conduct any new activity through a subsidiary that the Bank
controls, the savings association must notify the FDIC and the OTS 30 days in
advance and provide the information each agency may, by regulation, require.
Savings associations also must conduct the activities of subsidiaries in
accordance with existing regulations and orders.
The OTS may determine that the continuation by a savings association of its
ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the Bank or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary. The FDIC
also may determine by regulation or order that any specific activity poses a
serious threat to the SAIF. If so, it may require that no SAIF member engage in
that activity directly.
TRANSACTIONS WITH AFFILIATES. Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act relative to transactions with
affiliates in the same manner and to the same extent as if the savings
association were a Federal Reserve member bank. A savings and loan holding
company, its subsidiaries and any other company under common control are
considered affiliates of the subsidiary savings association under the HOLA.
Generally, Sections 23A and 23B: (i) limit the extent to which the insured
association or its subsidiaries may engage in certain covered transactions with
an affiliate to an amount equal to 10% of such institution's capital and surplus
and place an aggregate limit on all such transactions with affiliates to an
amount equal to 20% of such capital and surplus, and (ii) require that all such
transactions be on terms substantially the same, or at least as favorable to the
institution or subsidiary, as those provided to a non-affiliate. The term
"covered transaction" includes the making of loans, the purchase of assets, the
issuance of a guarantee and similar types of transactions. Any loan or
extension of credit by the Bank to an affiliate must be secured by collateral in
accordance with Section 23A.
Three additional rules apply to savings associations: (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies; (ii) a savings association may not purchase or invest in securities
issued by an affiliate (other than securities of a subsidiary); and (iii) the
OTS may, for reasons of safety and soundness, impose more stringent restrictions
on savings associations but may not exempt transactions from or otherwise
abridge Section 23A or 23B. Exemptions from Section 23A or 23B may be granted
only by the Federal Reserve, as is currently the case with respect to all FDIC-
insured banks.
The Bank's authority to extend credit to executive officers, directors and
10% shareholders, as well as entities controlled by such persons, is currently
governed by Sections 22(g) and 22(h) of the Federal Reserve Act, and Regulation
O thereunder. Among other things, these regulations require that such loans be
made on terms and conditions substantially the same as those offered to
unaffiliated individuals and not involve more than the normal risk of repayment.
Regulation O also places individual and aggregate limits on the amount of loans
the Bank may make to
84
<PAGE>
such persons based, in part, on the Bank's capital position, and requires
certain board approval procedures to be followed. The OTS regulations, with
certain minor variances, apply Regulation O to savings institutions.
COMMUNITY REINVESTMENT ACT. Savings associations are also subject to the
provisions of the Community Reinvestment Act of 1977, which requires the
appropriate federal bank regulatory agency, in connection with its regular
examination of a savings association, to assess the saving association's record
in meeting the credit needs of the community serviced by the savings
association, including low and moderate income neighborhoods. The regulatory
agency's assessment of the savings association's record is made available to the
public. Further, such assessment is required of any savings association which
has applied, among other things, to establish a new branch office that will
accept deposits, relocate an existing office or merge or consolidate with, or
acquire the assets or assume the liabilities of, a federally regulated financial
institution.
SAVINGS AND LOAN HOLDING COMPANY REGULATIONS
HOLDING COMPANY ACQUISITIONS. The HOLA and OTS regulations issued
thereunder generally prohibit a savings and loan holding company, without prior
OTS approval, from acquiring more than 5% of the voting stock of any other
savings association or savings and loan holding company or controlling the
assets thereof. They also prohibit, among other things, any director or officer
of a savings and loan holding company, or any individual who owns or controls
more than 25% of the voting shares of such holding company, from acquiring
control of any savings association not a subsidiary of such savings and loan
holding company, unless the acquisition is approved by the OTS.
HOLDING COMPANY ACTIVITIES. As a unitary savings and loan holding company,
the Holding Company generally is not subject to activity restrictions under the
HOLA. If the Holding Company acquires control of another savings association as
a separate subsidiary other than in a supervisory acquisition, it would become a
multiple savings and loan holding company. There generally are more
restrictions on the activities of a multiple savings and loan holding company
than on those of a unitary savings and loan holding company. The HOLA provides
that, among other things, no multiple savings and loan holding company or
subsidiary thereof which is not an insured association shall commence or
continue for more than two years after becoming a multiple savings and loan
association holding company or subsidiary thereof, any business activity other
than: (i) furnishing or performing management services for a subsidiary insured
institution, (ii) conducting an insurance agency or escrow business, (iii)
holding, managing, or liquidating assets owned by or acquired from a subsidiary
insured institution, (iv) holding or managing properties used or occupied by a
subsidiary insured institution, (v) acting as trustee under deeds of trust, (vi)
those activities previously directly authorized by regulation as of March 5,
1987 to be engaged in by multiple holding companies or (vii) those activities
authorized by the Federal Reserve Board as permissible for bank holding
companies, unless the OTS by regulation, prohibits or limits such activities for
savings and loan holding companies. Those activities described in (vii) above
also must be approved by the OTS prior to being engaged in by a multiple savings
and loan holding company.
QUALIFIED THRIFT LENDER TEST. The HOLA provides that any savings and loan
holding company that controls a savings association that fails the QTL test, as
explained under "-- Federal Regulation of Savings Associations -- Qualified
Thrift Lender Test," must, within one year after the date on which the Bank
ceases to be a QTL, register as and be deemed a bank holding company subject to
all applicable laws and regulations.
TAXATION
FEDERAL TAXATION
GENERAL. Upon consummation of the conversion, the Holding Company and the
Bank will report their income on a fiscal year basis using the accrual method of
accounting and will be subject to federal income taxation in the same manner as
other corporations with some exceptions, including particularly the Bank's
reserve for bad debts discussed below. The following discussion of tax matters
is intended only as a summary and does not purport to be a
85
<PAGE>
comprehensive description of the tax rules applicable to the Bank or the Holding
Company. For additional information regarding income taxes, see Note 9 of Notes
to Consolidated Financial Statements.
BAD DEBT RESERVE. Historically, savings institutions such as the Bank
which met certain definitional tests primarily related to their assets and the
nature of their business ("qualifying thrift") were permitted to establish a
reserve for bad debts and to make annual additions thereto, which may have been
deducted in arriving at their taxable income. The Bank's deductions with
respect to "qualifying real property loans," which are generally loans secured
by certain interest in real property, were computed using an amount based on the
Bank's actual loss experience, or a percentage equal to 8% of the Bank's taxable
income, computed with certain modifications and reduced by the amount of any
permitted additions to the non-qualifying reserve. Due to the Bank's loss
experience, the Bank generally recognized a bad debt deduction equal to 8% of
taxable income.
The thrift bad debt rules were revised by Congress in 1996. The new rules
eliminated the percentage of taxable income method for deducting additions to
the tax bad debt reserves for all thrifts for tax years beginning after December
31, 1995. These rules also required that all institutions recapture all or a
portion of their bad debt reserves added since the base year (last taxable year
beginning before January 1, 1988). For taxable years beginning after December
31, 1995, the Bank's bad debt deduction must be determined under the experience
method using a formula based on actual bad debt experience over a period of
years or, if the Bank is a "large" association (assets in excess of $500
million) on the basis of net charge-offs during the taxable year. The new rules
allowed an institution to suspend bad debt reserve recapture for the 1996 and
1997 tax years if the institution's lending activity for those years is equal to
or greater than the institutions average mortgage lending activity for the six
taxable years preceding 1996 adjusted for inflation. For this purpose, only
home purchase or home improvement loans are included and the institution can
elect to have the tax years with the highest and lowest lending activity removed
from the average calculation. If an institution is permitted to postpone the
reserve recapture, it must begin its six year recapture no later than the 1998
tax year. The unrecaptured base year reserves will not be subject to recapture
as long as the institution continues to carry on the business of banking. In
addition, the balance of the pre-1988 bad debt reserves continues to be subject
to provisions of present law referred to below that require recapture of the
pre-1988 bad debt reserve in the case of certain excess distributions to
shareholders.
DISTRIBUTIONS. To the extent that the Bank makes "nondividend
distributions" to the Holding Company, such distributions will be considered to
result in distributions from the balance of its bad debt reserve as of December
31, 1987 (or a lesser amount if the Bank's loan portfolio decreased since
December 31, 1987) and then from the supplemental reserve for losses on loans
("Excess Distributions"), and an amount based on the Excess Distributions will
be included in the Bank's taxable income. Nondividend distributions include
distributions in excess of the Bank's current and accumulated earnings and
profits, distributions in redemption of stock and distributions in partial or
complete liquidation. However, dividends paid out of the Bank's current or
accumulated earnings and profits, as calculated for federal income tax purposes,
will not be considered to result in a distribution from the Bank's bad debt
reserve. The amount of additional taxable income created from an Excess
Distribution is an amount that, when reduced by the tax attributable to the
income, is equal to the amount of the distribution. Thus, if, after the
Conversion, the Bank makes a "nondividend distribution," then approximately one
and one-half times the Excess Distribution would be includable in gross income
for federal income tax purposes, assuming a 34% corporate income tax rate
(exclusive of state and local taxes). See "REGULATION" and "DIVIDEND POLICY"
for limits on the payment of dividends by the Bank. The Bank does not intend to
pay dividends that would result in a recapture of any portion of its tax bad
debt reserve.
CORPORATE ALTERNATIVE MINIMUM TAX. The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%. The excess of the tax bad
debt reserve deduction using the percentage of taxable income method over the
deduction that would have been allowable under the experience method is treated
as a preference item for purposes of computing the AMTI. In addition, only 90%
of AMTI can be offset by net operating loss carryovers. AMTI is increased by an
amount equal to 75% of the amount by which the Bank's adjusted current earnings
exceeds its AMTI (determined without regard to this preference and prior to
reduction for net operating losses). For taxable years beginning after December
31, 1986, and before January 1, 1996, an environmental tax of 0.12% of the
excess of
86
<PAGE>
AMTI (with certain modification) over $2.0 million is imposed on corporations,
including the Bank, whether or not an Alternative Minimum Tax is paid.
DIVIDENDS-RECEIVED DEDUCTION. The Holding Company may exclude from its
income 100% of dividends received from the Bank as a member of the same
affiliated group of corporations. The corporate dividends-received deduction is
generally 70% in the case of dividends received from unaffiliated corporations
with which the Holding Company and the Bank will not file a consolidated tax
return, except that if the Holding Company or the Bank owns more than 20% of the
stock of a corporation distributing a dividend, then 80% of any dividends
received may be deducted.
AUDITS. The Bank's federal income tax returns have been audited through
the tax year ended September 30, 1994 without material adjustment.
STATE TAXATION
MISSOURI TAXATION. Missouri-based thrift institutions, such as the Bank,
are subject to a special financial institutions tax, based on net income without
regard to net operating loss carryforwards, at the rate of 7% of net income.
This tax is in lieu of certain other state taxes on thrift institutions, on
their property, capital or income, except taxes on tangible personal property
owned by the Bank and held for lease or rental to others and on real estate,
contributions paid pursuant to the Unemployment Compensation Law of Missouri,
social security taxes, sales taxes and use taxes. In addition, the Bank is
entitled to credit against this tax all taxes paid to the State of Missouri or
any political subdivision, except taxes on tangible personal property owned by
the Bank and held for lease or rental to others and on real estate,
contributions paid pursuant to the Unemployment Compensation Law of Missouri,
social security taxes, sales and use taxes, and taxes imposed by the Missouri
Financial Institutions Tax Law. Missouri thrift institutions are not subject to
the regular corporate income tax.
The Bank's state income tax returns havebeen audited through the tax year
ended September 30, 1994 without material adjustment.
DELAWARE. As a Delaware holding company not earning income in Delaware, the
Holding Company is exempt from Delaware corporate income tax, but is required to
file an annual report with and pay an annual franchise tax to the State of
Delaware.
87
<PAGE>
THE CONVERSION
THE OTS HAS APPROVED THE PLAN OF CONVERSION SUBJECT TO ITS APPROVAL BY THE
MEMBERS OF THE MHC AND THE STOCKHOLDERS OF THE BANK ENTITLED TO VOTE THEREON AND
TO THE SATISFACTION OF CERTAIN OTHER CONDITIONS IMPOSED BY THE OTS IN ITS
APPROVAL. OTS APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF
THE PLAN OF CONVERSION.
GENERAL
On April 15, 1998, the Boards of Directors of the MHC and the Bank
unanimously adopted the Plan of Conversion, pursuant to which the Bank will
convert from the mutual holding company form of organization to the stock
holding company form of organization. THE FOLLOWING DISCUSSION OF THE PLAN OF
CONVERSION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PLAN OF CONVERSION,
WHICH IS ATTACHED AS EXHIBIT A TO BOTH THE MHC'S PROXY STATEMENT AND THE BANK'S
PROXY STATEMENT, AND WHICH IS AVAILABLE TO BOTH MEMBERS OF THE MHC AND
STOCKHOLDERS OF THE BANK UPON REQUEST. The Plan of Conversion is also filed as
an exhibit to the Registration Statement. See "ADDITIONAL INFORMATION." The
OTS has approved the Plan of Conversion, subject to its approval by the members
of the MHC and the stockholders of the Bank and to the satisfaction of certain
other conditions.
Pursuant to the Plan of Conversion, (i) the MHC will convert from a
federally-chartered mutual holding company to a federally-chartered interim
stock savings bank (Interim A) and simultaneously merge with and into the Bank
and (ii) an interim federal stock savings bank (Interim B) will be formed as a
wholly-owned subsidiary of the Holding Company and Interim B will merge with and
into the Bank. As a result of the merger of Interim A with and into the Bank,
the MHC will cease to exist and the shares of Bank common stock held by the MHC
will be canceled. As a result of the merger of Interim B with and into the
Bank, the Bank will become a wholly owned subsidiary of the Holding Company and
the common stock of the Bank will be converted into common stock of the Holding
Company pursuant to the Exchange Ratio, which will result in the holders of such
shares owning in the aggregate approximately the same percentage of the Holding
Company common stock to be outstanding upon the completion of the conversion as
the percentage of the Bank common stock owned by them in the aggregate
immediately prior to consummation of the conversion, but before giving effect to
(a) the payment of cash in lieu of issuing fractional shares and (b) any shares
of common stock purchased by the Bank's stockholders in this offering.
As part of the conversion, the Holding Company is offering shares of its
common stock in the Subscription Offering to holders of subscription rights in
the following order of priority: (i) Eligible Account Holders (depositors of the
Bank with $50.00 or more on deposit as of the close of business on March 31,
1997); (ii) Supplemental Eligible Account Holders (depositors of the Bank with
$50.00 or more on deposit as of the close of business on June 30, 1998); and
(iii) Other Members (depositors of the Bank as of the close of business on
________________ and borrowers of the Bank with loans outstanding as of the
close of business on May 11, 1994, which continue to be outstanding as of the
close of business on ________________).
Concurrently with the Subscription Offering, any shares of common stock not
subscribed for in the Subscription Offering may be offered for sale in the
Direct Community Offering to members of the general public, with priority being
given first to stockholders of the Bank as of the close of business on the
Voting Record Date (who are not Eligible Account Holders, Supplemental Eligible
Account Holders or Other Members) and then to natural persons and trusts of
natural persons residing in the Local Community. Shares of common stock not
sold in the Subscription Offering and the Direct Community Offering may be
offered in the Syndicated Community Offering. Regulations require that the
Direct Community Offering and the Syndicated Community Offering be completed
within 45 days after completion of the fully extended Subscription Offering
unless extended by the Bank or the Holding Company with the approval of the
regulatory authorities. If the Syndicated Community Offering is determined not
to be feasible because of market conditions or otherwise, the Board of Directors
of the Bank will consult with the regulatory authorities to determine an
appropriate alternative method for selling the unsubscribed shares of common
stock. The Plan of Conversion provides that the conversion must be completed
within 24 months after the date of the approval of the Plan of Conversion by the
members of the MHC.
88
<PAGE>
No sales of common stock may be completed, either in the Subscription
Offering, Direct Community Offering or Syndicated Community Offering unless the
Plan of Conversion is approved by the members of the MHC and the stockholders of
the Bank. The completion of this offering, however, is subject to market
conditions and other factors beyond the Bank's control. No assurance can be
given as to the length of time after approval of the Plan of Conversion by the
members of the MHC and the stockholders of the Bank that will be required to
complete the Direct Community Offering or Syndicated Community Offering or other
sale of the shares of common stock. If delays are experienced, significant
changes may occur in the estimated pro forma market value of the MHC and the
Bank, as converted, together with corresponding changes in the net proceeds
realized by the Holding Company from the sale of its common stock.
Orders for shares of common stock will not be filled until at least
$51,000,000 of common stock has been subscribed for or sold and the OTS approves
the final valuation and the conversion closes. If the conversion is not
completed within 45 days after the last day of the fully extended Subscription
Offering and the OTS consents to an extension of time to complete the
conversion, subscribers will be given the right to increase, decrease or rescind
their subscriptions. Unless an affirmative indication is received from
subscribers that they wish to continue to subscribe for shares, the funds will
be returned promptly, together with accrued interest at the Bank's passbook rate
from the date payment is received until the funds are returned to the
subscriber. If such period is not extended, or, in any event, if the conversion
is not completed, all withdrawal authorizations will be terminated and all funds
received will be promptly returned together with accrued interest at the Bank's
passbook rate from the date payment is received until the conversion is
terminated.
PURPOSES OF CONVERSION
The MHC, as a federally chartered mutual holding company, does not have
stockholders and has no authority to issue capital stock. As a result of the
conversion, the Holding Company will be structured in the form used by holding
companies of commercial banks, most business entities and a growing number of
savings institutions. The holding company form of organization will provide the
Holding Company with the ability to diversify the Holding Company's and the
Bank's business activities through acquisition of or mergers with both stock
savings institutions and commercial banks, as well as other companies. Although
there are no current arrangements, understandings or agreements regarding any
such opportunities, the Holding Company will be in a position after the
conversion, subject to regulatory limitations and the Holding Company's
financial position, to take advantage of any such opportunities that may arise.
In their decision to pursue the conversion, the Boards of Directors of the
MHC and the Bank considered various regulatory uncertainties associated with the
mutual holding company structure including the ability to waive dividends in the
future as well as the general uncertainty regarding a possible elimination of
the federal savings association charter.
The conversion will be important to the future growth and performance of
the holding company organization by providing a larger capital base to support
the operations of the Bank and Holding Company and by enhancing their future
access to capital markets, their ability to diversify into other financial
services related activities, and their ability to provide services to the
public.
The conversion also will result in a larger number of shares of Holding
Company common stock to be outstanding as compared to the number of outstanding
shares of Bank common stock, which will increase the likelihood of the
development of an active and liquid trading market for the common stock. See
"MARKET FOR COMMON STOCK." In addition, the conversion will permit the Holding
Company to engage in stock repurchases without adverse federal income tax
consequences. The Bank cannot repurchase its common stock without triggering
adverse federal income tax consequences. Currently, the Holding Company has no
specific plans regarding any stock repurchases.
An additional benefit of the conversion will be an increase in the
accumulated earnings and profits of the Bank for federal income tax purposes.
When the Bank (as a mutual institution) transferred substantially all of its
assets and liabilities to its stock savings bank successor in the MHC
reorganization, its accumulated earnings and profits tax attribute was not able
to be transferred to the Bank because no tax-free reorganization was involved.
Accordingly, this tax attribute was retained by the Bank when it converted its
charter to that of the MHC, even though the underlying
89
<PAGE>
retained earnings were transferred to the Bank. The conversion has been
structured to re-unite the accumulated earnings and profits tax attribute
retained by the MHC in the MHC reorganization with the retained earnings of the
Bank by merging the MHC with and into the Bank in a tax-free reorganization.
This transaction will increase the Bank's ability to pay dividends to the
Holding Company in the future. See "DIVIDEND POLICY."
If the Bank had undertaken a standard conversion involving the formation of
a stock holding company in 1994, applicable OTS regulations would have required
a greater amount of common stock to be sold than the amount sold in the MHC
reorganization. Management believed that it was advisable to profitably invest
the proceeds raised in the MHC reorganization prior to raising the larger amount
of capital that would have been raised at one time in a standard conversion. A
standard conversion in 1994 also would have immediately eliminated all aspects
of the mutual form of organization.
In light of the foregoing, the Boards of Directors of the MHC and the Bank
believe that the conversion is in the best interests of the MHC and the Bank,
their respective members and stockholders, and the communities served by the
Bank.
EFFECTS OF CONVERSION ON DEPOSITORS AND BORROWERS OF THE BANK
GENERAL. Prior to the conversion, each depositor in the Bank has both a
deposit account in the institution and a pro rata ownership interest in the net
worth of the MHC based upon the balance in his or her account, which interest
may only be realized in the event of a liquidation of the MHC. However, this
ownership interest is tied to the depositor's account and has no tangible market
value separate from such deposit account. A depositor who reduces or closes his
or her account receives a portion or all of the balance in the account but
nothing for his or her ownership interest in the net worth of the MHC, which is
lost to the extent that the balance in the account is reduced.
Consequently, the depositors of the Bank normally have no way to realize
the value of their ownership interest in the MHC, which has realizable value
only in the unlikely event that the MHC is liquidated. In such event, the
depositors of record at that time, as owners, would share pro rata in any
residual surplus and reserves of the MHC after other claims are paid.
Upon consummation of the conversion, permanent nonwithdrawable capital
stock will be created to represent the ownership of the net worth of the Holding
Company. The common stock is separate and apart from deposit accounts and
cannot be and is not insured by the FDIC or any other governmental agency.
Certificates are issued to evidence ownership of the permanent stock. The stock
certificates are transferable, and therefore the stock may be sold or traded if
a purchaser is available with no effect on any deposit and/or loan account(s)
the seller may hold in the Bank.
CONTINUITY. The conversion will not interrupt the Bank's normal business
of accepting deposits and making loans. The Bank will continue to be subject to
regulation by the OTS and the FDIC. After the conversion, the Bank will
continue to provide services for depositors and borrowers under current policies
by its present management and staff.
The directors and officers of the Bank at the time of the conversion will
continue to serve as directors and officers of the Bank after the conversion.
The directors and officers of the Holding Company consist of individuals
currently serving as directors and officers of the MHC and the Bank, and they
will retain their positions in the Holding Company after the conversion.
EFFECT ON THE BANK'S COMMON STOCK. Under the Plan of Conversion, upon
consummation of the conversion, each share of the Bank's common stock held by
the Bank's public stockholders will be converted into shares of Holding Company
common stock based upon the Exchange Ratio without any further action on the
part of the holder thereof. Upon surrender of certificates representing shares
of Bank common stock, Holding Company common stock will be issued in exchange
for such shares. See "-- Delivery and Exchange of Stock Certificates."
90
<PAGE>
Upon consummation of the conversion, the public stockholders of the Bank
will become stockholders of the Holding Company. For a description of certain
changes in the rights of stockholders as a result of the conversion, see
"COMPARISON OF STOCKHOLDERS' RIGHTS."
VOTING RIGHTS. Presently, depositors and borrowers of the Bank are members
of, and have voting rights in, the MHC as to all matters requiring membership
action. Upon completion of the conversion, the MHC will cease to exist and all
voting rights in the Bank will be vested in the Holding Company as the sole
stockholder of the Bank. Exclusive voting rights with respect to the Holding
Company will be vested in the holders of the Holding Company's common stock.
Depositors and borrowers of the Bank will not have voting rights in the Holding
Company after the conversion, except to the extent that they become stockholders
of the Holding Company.
SAVINGS ACCOUNTS AND LOANS. The Bank's savings accounts, account balances
and existing FDIC insurance coverage of savings accounts will not be affected by
the conversion. Furthermore, the conversion will not affect the loan accounts,
loan balances or obligations of borrowers under their individual contractual
arrangements with the Bank.
TAX EFFECTS. The Bank has received an opinion from Breyer & Aguggia LLP,
Washington, D.C., that the conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(A) of the Internal Revenue Code. Among
other things, the opinion provides that:
(i) the conversion of the MHC from a mutual holding company to a
federally-chartered interim stock savings bank (Interim A) and its
simultaneous merger with and into the Bank, with the Bank as the
surviving entity, will qualify as a reorganization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code;
(ii) no gain or loss will be recognized by the Bank upon the receipt of
the assets of the MHC in such merger;
(iii) the merger of Interim B with and into the Bank, with the Bank as the
surviving entity, will qualify as a reorganization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code;
(iv) no gain or loss will be recognized by Interim B upon the transfer of
its assets to the Bank;
(v) no gain or loss will be recognized by the Bank upon the receipt of
the assets of Interim B;
(vi) no gain or loss will be recognized by the Holding Company upon the
receipt of Bank common stock solely in exchange for Holding Company
common stock;
(vii) no gain or loss will be recognized by the Public Stockholders upon
the receipt of shares of the Holding Company's common stock in
exchange for their shares of Bank common stock;
(viii) the basis of the shares of common stock of the Holding Company to be
received by the Bank's public stockholders will be the same as the
basis of the shares of common stock of the Bank surrendered in
exchange therefor, before giving effect to any payment of cash in
lieu of fractional shares;
(ix) the holding period of the shares of Holding Company common stock to
be received by the Bank's public stockholders will include the
holding period of the Bank common stock, provided that the shares of
Bank common stock were held as a capital asset on the date of the
exchange;
(x) no gain or loss will be recognized by the Holding Company upon the
sale of shares of its common stock in this offering;
91
<PAGE>
(xi) the Eligible Account Holders, Supplemental Eligible Account Holders
and Other Members will recognize gain, if any, upon the issuance to
them of withdrawable savings accounts in the Bank following the
conversion, interests in the liquidation account and nontransferable
subscription rights to purchase common stock, but only to the extent
of the value, if any, of the subscription rights; and
(xii) the tax basis to the holders of shares of common stock purchased in
this offering will be the amount paid therefor, and the holding
period for the shares of common stock will begin on the date of
consummation of this offering, if purchased through the exercise of
Subscription Rights, and on the day after the date of purchase, if
purchased in the Direct Community Offering or the Syndicated
Community Offering.
Unlike a private letter ruling issued by the IRS, an opinion of counsel is
not binding on the IRS and the IRS could disagree with the conclusions reached
therein. In the event of such disagreement, no assurance can be given that the
conclusions reached in an opinion of counsel would be sustained by a court if
contested by the IRS.
Based upon past rulings issued by the IRS, the opinion provides that the
receipt of subscription rights by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members under the Plan of Conversion will be
taxable to the extent, if any, that the subscription rights are deemed to have a
fair market value. RP Financial, a financial consulting firm retained by the
Bank, whose findings are not binding on the IRS, has issued a letter indicating
that the subscription rights do not have any value, based on the fact that such
rights are acquired by the recipients without cost, are nontransferable and of
short duration and afford the recipients the right only to purchase shares of
the common stock at a price equal to its estimated fair market value, which will
be the same price paid by purchasers in the Direct Community Offering for
unsubscribed shares of common stock. If the subscription rights are deemed to
have a fair market value, the receipt of such rights may only be taxable to
those Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members who exercise their subscription rights. The Bank could also recognize a
gain on the distribution of such subscription rights. Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members are encouraged to
consult with their own tax advisors as to the tax consequences in the event the
subscription rights are deemed to have a fair market value.
The Bank has also received an opinion from Breyer & Aguggia LLP, that,
assuming the conversion does not result in any federal income tax liability to
the Bank, its account holders, or the Holding Company, implementation of the
Plan of Conversion will not result in any Missouri tax liability to such
entities or persons.
The opinion of Breyer & Aguggia LLP and the letter from RP Financial are
filed as exhibits to the Registration Statement. See "ADDITIONAL INFORMATION."
THE PRECEDING DISCUSSION SUMMARIZES THE MATERIAL TAX CONSEQUENCES OF THE
CONVERSION. PROSPECTIVE INVESTORS, HOWEVER, ARE URGED TO CONSULT WITH THEIR OWN
TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO
THEM.
LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of
the MHC, each depositor of the Bank would receive his or her pro rata share of
any assets of the MHC remaining after payment of claims of all creditors. Each
depositor's pro rata share of such remaining assets would be in the same
proportion as the value of his or her deposit account was to the total value of
all deposit accounts in the Bank at the time of liquidation. After the
conversion, each depositor, in the event of a complete liquidation of the Bank,
would have a claim as a creditor of the same general priority as the claims of
all other general creditors of the Bank. However, except as described below,
his or her claim would be solely in the amount of the balance in his or her
deposit account plus accrued interest. Each stockholder would not have an
interest in the value or assets of the Bank or the Holding Company above that
amount.
The Plan of Conversion provides for the establishment, upon the completion
of the conversion, of a special "liquidation account" for the benefit of
Eligible Account Holders and Supplemental Eligible Account Holders in an
92
<PAGE>
amount equal to the amount of any dividends waived by the MHC plus the greater
of (i) the Bank's retained earnings of $15.2 million at December 31, 1993, the
date of the latest statement of financial condition contained in the final
offering circular utilized in the MHC reorganization, or (ii) _____% of the
Bank's total stockholders' equity as reflected in its latest statement of
financial condition contained in the final Prospectus utilized in this offering.
As of the date of this Prospectus, the initial balance of the liquidation
account would be $____ million. Each Eligible Account Holder and Supplemental
Eligible Account Holder, if he or she were to continue to maintain his or her
deposit account at the Bank, would be entitled, upon a complete liquidation of
the Bank after the conversion to an interest in the liquidation account prior to
any payment to the Holding Company as the sole stockholder of the Bank. Each
Eligible Account Holder and Supplemental Eligible Account Holder would have an
initial interest in such liquidation account for each deposit account, including
passbook accounts, transaction accounts such as checking accounts, money market
deposit accounts and certificates of deposit, held in the Bank at the close of
business on March 31, 1997 or June 30, 1998, as the case may be. Each Eligible
Account Holder and Supplemental Eligible Account Holder will have a pro rata
interest in the total liquidation account for each of his or her deposit
accounts based on the proportion that the balance of each such deposit account
on the Eligibility Record Date (March 31, 1997) or the Supplemental Eligibility
Record Date (June 30, 1998), as the case may be, bore to the balance of all
deposit accounts in the Bank on such date.
If, however, on any September 30 annual closing date of the Bank,
commencing September 30, 1998, the amount in any deposit account is less than
the amount in such deposit account on March 31, 1997 or June 30, 1998, as the
case may be, or any other annual closing date, then the interest in the
liquidation account relating to such deposit account would be reduced by the
proportion of any such reduction, and such interest will cease to exist if such
deposit account is closed. In addition, no interest in the liquidation account
would ever be increased despite any subsequent increase in the related deposit
account. Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders are satisfied would be
distributed to the Holding Company as the sole stockholder of the Bank.
EXCHANGE OF BANK COMMON STOCK
As part of the conversion, each share of Bank common stock held by the MHC
(1,470,000 shares, or 69.81% of the outstanding shares, as of the date of this
prospectus) will be canceled and each share of Bank common stock held by the
Bank's public stockholders (635,840 shares, or 30.19% of the outstanding shares,
as of the date of this Prospectus) will be exchanged for shares of Holding
Company common stock. The number of shares of Holding Company common stock to
be issued to the Bank's public stockholders will be based on an Exchange Ratio
that will result in the Bank's public stockholders owning in the aggregate
approximately 26.86% of the outstanding shares of Holding Company common stock
before giving effect to any (i) payment of cash in lieu of issuing fractional
shares of Holding Company common stock and (ii) shares purchased by the Bank's
public stockholders in the offering. As required by the OTS, the aggregate
ownership interest of the Bank's public stockholders has been adjusted downward
to reflect assets held by the MHC and the waiver of certain dividends by the
MHC. The final Exchange Ratio will be based on the percentage ownership
interest of the Bank's public stockholders in the Bank and the number of shares
sold in this offering and not on the market value of Bank common stock.
Accordingly, the value of the shares of Holding Company common stock to be
received for each share of Bank common stock may be less than the market value
of Bank common stock at the time of exchange. See "-- Stock Pricing and Number
of Shares to be Issued in the Conversion."
Pursuant to OTS regulations, holders of Bank common stock do not have
dissent and appraisal rights with respect to the conversion because the Bank's
common stock is listed on The Nasdaq Stock Market. Accordingly, the exchange of
each share of Bank common stock for shares of Holding Company common stock is
mandatory. DO NOT SEND YOUR CERTIFICATES FOR EXCHANGE AT THIS TIME. The
Holding Company will mail exchange instructions and a transmittal letter to each
stockholder of the Bank to his or her address of record after the consummation
of the conversion. See "-- Delivery and Exchange of Stock Certificates --
Shares Issued in Exchange for Bank Common Stock."
93
<PAGE>
THE SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED COMMUNITY OFFERINGS
SUBSCRIPTION OFFERING. In accordance with the Plan of Conversion,
nontransferable subscription rights to purchase shares of common stock have been
issued to persons and entities entitled to purchase the common stock in the
Subscription Offering. The amount of the common stock which these parties may
purchase will be subject to the availability of the common stock for purchase
under the categories set forth in the Plan of Conversion. Subscription
priorities have been established for the allocation of stock to the extent that
the common stock is available. These priorities are as follows:
Category 1: Eligible Account Holders. Each depositor with $50.00 or more
on deposit at the Bank as of the close of business on March 31, 1997 will
receive nontransferable Subscription Rights to subscribe for up to the greater
of 40,000 shares of common stock, one-tenth of one percent of the total offering
of common stock 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 qualifying deposit of the
Eligible Account Holder and the denominator is the total amount of qualifying
deposits of all Eligible Account Holders. If the exercise of subscription
rights in this category results in an oversubscription, shares of common stock
will be allocated among subscribing Eligible Account Holders so as to permit
each Eligible Account Holder, to the extent possible, to purchase a number of
shares sufficient to make such person's total allocation equal 100 shares or the
number of shares actually subscribed for, whichever is less. Thereafter,
unallocated shares will be allocated among subscribing Eligible Account Holders
proportionately, based on the amount of their respective qualifying deposits as
compared to total qualifying deposits of all subscribing Eligible Account
Holders. Subscription rights received by officers and directors in this
category based on their increased deposits in the Bank in the one year period
preceding March 31, 1997 are subordinated to the subscription rights of other
Eligible Account Holders.
Category 2: ESOP. The Plan of Conversion provides that the ESOP shall
receive nontransferable subscription rights to purchase up to 8% of the shares
of common stock sold in the conversion. The ESOP intends to purchase 8% of the
shares of common stock sold in the conversion. In the event the number of
shares offered in the conversion is increased above the maximum of the Estimated
Valuation Range, the ESOP shall have a priority right to purchase any such
shares exceeding the maximum of the Estimated Valuation Range up to an aggregate
of 8% of the common stock sold in the conversion. If the ESOP's subscription is
not filled in its entirety, the ESOP may purchase shares in the open market or
may purchase shares directly from the Holding Company.
Category 3: Supplemental Eligible Account Holders. Each depositor with
$50.00 or more on deposit as of the close of business on June 30, 1998 will
receive nontransferable subscription rights to subscribe for up to the greater
of 40,000 shares of common stock, one-tenth of one percent of the total offering
of common stock 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 qualifying deposits of the
Supplemental Eligible Account Holder and the denominator is the total amount of
qualifying deposits of all Supplemental Eligible Account Holders. If the
exercise of Subscription Rights in this category results in an oversubscription,
shares of common stock will be allocated among subscribing Supplemental Eligible
Account Holders so as to permit each Supplemental Eligible Account Holder, to
the extent possible, to purchase a number of shares sufficient to make his or
her total allocation equal 100 shares or the number of shares actually
subscribed for, whichever is less. Thereafter, unallocated shares will be
allocated among subscribing Supplemental Eligible Account Holders
proportionately, based on the amount of their respective qualifying deposits as
compared to total qualifying deposits of all subscribing Supplemental Eligible
Account Holders.
Category 4: Other Members. Each depositor of the Bank as of the close of
business on the Voting Record Date (__________, 1998) and each borrower with a
loan outstanding as of the close of business on May 11, 1994, which continues to
be outstanding as of the close of business on the Voting Record Date, will
receive nontransferable subscription rights to purchase up 40,000 shares of
common stock or one-tenth of one percent of the total offering of common stock
to the extent shares are available following subscriptions by Eligible Account
Holders and Supplemental
94
<PAGE>
Eligible Account Holders. In the event of an oversubscription in this category,
the available shares will be allocated proportionately based on the amount of
the respective subscriptions.
SUBSCRIPTION RIGHTS ARE NONTRANSFERABLE. PERSONS SELLING OR OTHERWISE
TRANSFERRING THEIR RIGHTS TO SUBSCRIBE FOR COMMON STOCK IN THE SUBSCRIPTION
OFFERING OR SUBSCRIBING FOR COMMON STOCK ON BEHALF OF ANOTHER PERSON WILL BE
SUBJECT TO FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND
PENALTIES IMPOSED BY THE OTS OR ANOTHER AGENCY OF THE U.S. GOVERNMENT. EACH
PERSON EXERCISING SUBSCRIPTION RIGHTS WILL BE REQUIRED TO CERTIFY THAT HE OR SHE
IS PURCHASING SUCH SHARES SOLELY FOR HIS OR HER OWN ACCOUNT AND THAT HE OR SHE
HAS NO AGREEMENT OR UNDERSTANDING WITH ANY OTHER PERSON FOR THE SALE OR TRANSFER
OF SUCH SHARES. ONCE TENDERED, SUBSCRIPTION ORDERS CANNOT BE REVOKED WITHOUT
THE CONSENT OF THE BANK AND THE HOLDING COMPANY.
The Holding Company and the Bank will make reasonable attempts to provide a
prospectus and related offering materials to holders of subscription rights.
However, the Subscription Offering and all subscription rights under the Plan of
Conversion will expire at 12:00 Noon, Eastern Time, on the Expiration Date,
whether or not the Bank has been able to locate each person entitled to such
subscription rights. ORDERS FOR COMMON STOCK IN THE SUBSCRIPTION OFFERING
RECEIVED IN HAND BY THE BANK AFTER THE EXPIRATION DATE WILL NOT BE ACCEPTED.
The Subscription Offering may be extended by the Holding Company and the Bank up
to _____, 1998 without the OTS's approval. OTS regulations require that the
Holding Company complete the sale of common stock within 45 days after the close
of the Subscription Offering, unless extended by the OTS. If the Direct
Community Offering and the Syndicated Community Offerings are not completed
within such period all funds received will be promptly returned with interest at
the Bank's passbook rate and all withdrawal authorizations will be canceled. If
regulatory approval of an extension of the time period has been granted, all
subscribers will be notified of such extension and of the duration of any
extension that has been granted, and will be given the right to increase,
decrease or rescind their orders. If an affirmative response to any
resolicitation is not received by the Holding Company from a subscriber, the
subscriber's order will be rescinded and all funds received will be promptly
returned with interest (or withdrawal authorizations will be canceled). No
single extension can exceed 90 days.
DIRECT COMMUNITY OFFERING. Concurrently with the Subscription Offering,
the common stock will be offered by the Holding Company to certain members of
the general public in a Direct Community Offering, with preference given first
to the Bank's public stockholders as of the close of business on the Voting
Record Date (who are not eligible to subscribe for shares of common stock in the
Subscription Offering) and then to natural persons and trusts of natural persons
residing in the Local Community. Purchasers in the Direct Community Offering
are eligible to purchase up to 40,000 shares of common stock. In the event an
insufficient number of shares are available to fill orders in the Direct
Community Offering, the available shares will be allocated on a pro rata basis
determined by the amount of the respective orders. The Direct Community
Offering will terminate on the Expiration Date, unless extended by the Holding
Company and the Bank, with approval of the OTS if necessary. If regulatory
approval of an extension beyond 45 days after the close of the Subscription
Offering has been granted, all subscribers will be notified of such extension
and of the duration of any extension that has been granted, and will be given
the right to increase, decrease or rescind their orders. If an affirmative
response to any resolicitation is not received by the Holding Company from a
subscriber, the subscriber's order will be rescinded and all funds received will
be promptly returned with interest. THE RIGHT OF ANY PERSON TO PURCHASE SHARES
IN THE DIRECT COMMUNITY OFFERING IS SUBJECT TO THE ABSOLUTE RIGHT OF THE HOLDING
COMPANY AND THE BANK TO ACCEPT OR REJECT SUCH PURCHASES IN WHOLE OR IN PART. IF
AN ORDER IS REJECTED IN PART, THE PURCHASER DOES NOT HAVE THE RIGHT TO CANCEL
THE REMAINDER OF THE ORDER. THE HOLDING COMPANY PRESENTLY INTENDS TO TERMINATE
THE DIRECT COMMUNITY OFFERING AS SOON AS IT HAS RECEIVED ORDERS FOR ALL SHARES
AVAILABLE FOR PURCHASE IN THE CONVERSION.
If all of the common stock offered in the Subscription Offering is
subscribed for, no common stock will be available for purchase in the Direct
Community Offering and all funds submitted pursuant to the Direct Community
Offering will be promptly refunded with interest.
95
<PAGE>
SYNDICATED COMMUNITY OFFERING. The Plan of Conversion provides that, if
necessary, all shares of common stock not purchased in the Subscription Offering
and Direct Community Offering, if any, may be offered for sale to certain
members of the general public in a Syndicated Community Offering through a
syndicate of registered broker-dealers to be formed and managed by Webb acting
as agent of the Holding Company. THE HOLDING COMPANY AND THE BANK HAVE THE
RIGHT TO REJECT ORDERS, IN WHOLE OR IN PART, IN THEIR SOLE DISCRETION IN THE
SYNDICATED COMMUNITY OFFERING. Neither Webb nor any registered broker-dealer
shall have any obligation to take or purchase any shares of the common stock in
the Syndicated Community Offering; however, Webb has agreed to use its best
efforts in the sale of shares in the Syndicated Community Offering.
Shares of common stock sold in the Syndicated Community Offering also will
be sold at the $10.00 purchase price. See "-- Stock Pricing, Exchange Ratio and
Number of Shares to be Issued." No person will be permitted to subscribe for
more than 40,000 shares of common stock in the Syndicated Community Offering.
See "-- Plan of Distribution and Selling Commissions" for a description of the
commission to be paid to the selected dealers and to Webb.
Webb may enter into agreements with selected dealers to assist in the sale
of shares in the Syndicated Community Offering. During the Syndicated Community
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 common stock. When and if Webb and the
Holding Company believe that enough indications of interest and orders have been
received in the Subscription Offering, the Direct Community Offering and the
Syndicated Community Offering to consummate the conversion, Webb 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 confirmations to such customers on the next business day after
the Order Date. Selected dealers may debit the accounts of their customers on a
date which will be three business days from the Order Date ("Settlement Date").
Customers who authorize selected dealers to debit their brokerage accounts are
required to have the funds for payment in their account on but not before the
Settlement Date. On the Settlement 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 by the FDIC up to the
applicable $100,000 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 this offering. At the completion of the
conversion, the funds received in this offering will be used to purchase the
shares of common stock ordered. The shares issued in the conversion cannot and
will not be insured by the FDIC or any other government agency. 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 accounts.
The Syndicated Community Offering may terminate no more than 45 days after
the close of the Subscription Offering, unless extended by the Holding Company
and the Bank, with approval of the OTS.
In the event the Bank is unable to find purchasers from the general public
for all unsubscribed shares, other purchase arrangements will be made by the
Board of Directors of the Bank, if feasible. Such other arrangements will be
subject to the approval of the OTS. The OTS may grant one or more extensions of
this offering period, provided that (i) no single extension exceeds 90 days,
(ii) subscribers are given the right to increase, decrease or rescind their
subscriptions during the extension period, and (iii) the extensions do not go
more than two years beyond the date on which the members approved the Plan of
Conversion. If the conversion is not completed within 45 days after the close
of the Subscription Offering, either all funds received will be returned with
interest (and withdrawal authorizations canceled) or, if the OTS has granted an
extension of time, all subscribers will be given the right to increase, decrease
or rescind their subscriptions at any time prior to 20 days before the end of
the extension period. If an extension of time is obtained, all subscribers will
be notified of such extension and of their rights to modify their orders. If an
affirmative response to any resolicitation is not received by the Holding
Company from a subscriber, the subscriber's order will be rescinded and all
funds received will be promptly returned with interest (or withdrawal
authorizations will be canceled).
96
<PAGE>
If purchasers cannot be found for an insignificant residue of unsubscribed
shares from the general public, other purchase arrangements will be made by the
Boards of Directors of the Bank and the Holding Company, if possible. Such
other purchase arrangements will be subject to the approval of the OTS and may
provide for purchases for investment purposes by directors, officers, their
associates and other persons in excess of the limitations provided in the Plan
of Conversion and in excess of the proposed director purchases set forth herein,
although no such purchases are currently intended. If such other purchase
arrangements cannot be made, the Plan of Conversion will terminate.
PERSONS IN NON-QUALIFIED STATES. 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 stock pursuant to the
Plan of Conversion reside. However, the Holding Company and the Bank are not
required to offer stock in the Subscription Offering to any person who resides
in a foreign country or resides in a state of the United States with respect to
which (i) a small number of persons otherwise eligible to subscribe for shares
of common stock reside in such state or (ii) the Holding Company or the Bank
determines that compliance with the securities laws of such state would be
impracticable for reasons of cost or otherwise, including but not limited to a
request or requirement that the Holding Company and the Bank or their officers,
directors or trustees register as a broker, dealer, salesman or selling agent,
under the securities laws of such state, or a request or requirement to register
or otherwise qualify the Subscription Rights or common stock for sale or submit
any filing with respect thereto in such state. Where the number of persons
eligible to subscribe for shares in one state is small, the Holding Company and
the Bank will base their decision as to whether or not to offer the common stock
in such state on a number of factors, including the size of accounts held by
account holders in the state, the cost of reviewing the registration and
qualification requirements of the state (and of actually registering or
qualifying the shares) or the need to register the Holding Company, its
officers, directors or employees as brokers, dealers or salesmen.
PLAN OF DISTRIBUTION AND SELLING COMMISSIONS
The Holding Company and the Bank have retained Webb to consult with and to
advise the Bank and the Holding Company, and to assist the Holding Company on a
best efforts basis, in the distribution of the common stock in the Subscription
Offering and Direct Community Offering. The services that Webb will provide
include, but are not limited to (i) training the employees of the Bank who will
perform certain ministerial functions in the Subscription Offering and the
Direct Community Offering regarding the mechanics and regulatory requirements of
the stock offering process, (ii) managing the Bank's stock information center by
assisting interested stock subscribers and by keeping records of all stock
orders, (iii) preparing marketing materials, and (iv) assisting in the
solicitation of proxies from the MHC's members and the stockholders of the Bank.
For its services, Webb will receive a management fee of $40,000 and a success
fee of 0.8% of the aggregate purchase price of the shares sold in the
Subscription Offering and the Direct Community Offering, excluding shares
purchased by the ESOP and officers, directors and employees of the Bank, or
members of their immediate families. The management fee will be applied to the
success fee. If selected broker-dealers are used to assist in the sale of the
common stock in the Syndicated Community Offering, Webb will be paid a fee of up
to 5.5% of the aggregate purchase price of the shares sold by such broker-
dealers and Webb will pay to such broker-dealers an amount competitive with
gross underwriting commissions then charged for comparable amounts of stock sold
at a comparable price per share in a similar market environment. The Holding
Company and the Bank have agreed to reimburse Webb for its out-of-pocket
expenses up to $10,000 and its legal fees up to $35,000. The Holding Company
and the Bank have also agreed to indemnify Webb against certain claims and
liabilities under the federal securities laws, including those in connection
with material misstatements or omissions from this prospectus or otherwise
arising from the use of this prospectus (except for claims and liabilities
arising out of Webb's bad faith or gross negligence), and will contribute to
payments Webb may be required to make in connection with any such claims or
liabilities.
DESCRIPTION OF SALES ACTIVITIES
The Common Stock will be offered in the Subscription Offering and Direct
Community Offering principally by the distribution of this prospectus and
through activities conducted at the Bank's stock information center at its main
office facility. The stock information center is expected to operate during
normal business hours throughout the Subscription Offering and Direct Community
Offering. It is expected that at any particular time one or more Webb
97
<PAGE>
employees will be working at the stock information center. Stock information
center personnel will be responsible for mailing materials relating to the
offering, responding to questions regarding the conversion and the offering and
processing stock orders.
The management and employees of the Holding Company and the Bank may
participate in this offering in clerical capacities, providing administrative
support in effecting sales transactions or answering questions of a mechanical
nature relating to the proper execution of the order form. Management of the
Holding Company and the Bank may answer questions regarding the respective
businesses of the Holding Company and the Bank. Other questions of prospective
purchasers, including questions as to the advisability or nature of the
investment, will be directed to registered representatives. The management and
employees of the Holding Company and the Bank have been instructed not to
solicit offers to purchase common stock or to provide advice regarding the
purchase of common stock. None of the employees or directors who participate in
this offering will receive any special compensation or other remuneration for
such activities.
None of the Holding Company and Bank personnel participating in the
Subscription and Direct Community Offering are registered or licensed as a
broker or dealer or an agent of a broker or dealer. Holding Company and Bank
personnel will assist in the above-described sales activities pursuant to an
exemption from registration as a broker or dealer provided by Rule 3a4-1
promulgated under the Exchange Act. Rule 3a4-1 generally provides that an
"associated person of an issuer" of securities shall not be deemed a broker
solely by reason of participation in the sale of securities of such issuer if
the associated person meets certain conditions. Such conditions include, but
are not limited to, that the associated person participating in the sale of an
issuer's securities not be compensated in connection therewith at the time of
participation, that such person not be associated with a broker or dealer and
that such person observe certain limitations on his participation in the sale of
securities. For purposes of this exemption, "associated person of an issuer" is
defined to include any person who is a director, officer or employee of the
issuer or a company that controls, is controlled by or is under common control
with the issuer.
PROCEDURE FOR PURCHASING SHARES IN THE SUBSCRIPTION AND DIRECT COMMUNITY
OFFERINGS
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. The Bank is not
obligated to accept orders submitted on photocopied or telecopied order forms.
ORDERS CANNOT AND WILL NOT BE ACCEPTED WITHOUT THE EXECUTION OF THE
CERTIFICATION APPEARING ON THE REVERSE SIDE OF THE ORDER FORM.
To purchase shares in the Subscription Offering, an executed order form
with the required full payment for each share subscribed for, or with
appropriate authorization for withdrawal of full payment from the subscriber's
deposit account with the Bank (which may be given by completing the appropriate
blanks in the order form), must be received by the Bank by 12:00 Noon, Central
Time, on the Expiration Date. Order forms which are not received by such time
or are executed defectively or are received without full payment (or without
appropriate withdrawal instructions) are not required to be accepted. The
Holding Company and the Bank have the right to waive or permit the correction of
incomplete or improperly executed order forms, but do not represent that they
will do so. Pursuant to the Plan of Conversion, the interpretation by the
Holding Company and the Bank of the terms and conditions of the Plan of
Conversion and of the order form will be final. In order to purchase shares in
the Direct Community Offering, the order form, accompanied by the required
payment for each share subscribed for, must be received by the Bank prior to the
time the Direct Community Offering terminates, which is expected to be at 12:00
Noon on the Expiration Date. Once received, an executed order form may not be
modified, amended or rescinded without the consent of the Bank unless the
conversion has not been completed within 45 days after the end of the
Subscription Offering, unless such period has been extended.
98
<PAGE>
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 close of business on the Eligibility
Record Date (March 31, 1997) and/or the Supplemental Eligibility Record Date
(June 30, 1998) and/or the Voting Record Date (__________, 1998) must list all
accounts on the order form giving all names in each account, the account number
and the approximate account balance as of such date. Failure to list an account
could result in fewer shares being allocated in the event of an oversubscription
than if all accounts had been disclosed.
Full payment for subscriptions may be made (i) in cash if delivered in
person at the Bank's stock information center, (ii) by check, bank draft, or
money order, or (iii) by authorization of withdrawal from deposit accounts
maintained with the Bank. Appropriate means by which such withdrawals may be
authorized are provided on the order form. No wire transfers will be accepted.
Interest will be paid on payments made by cash, check, bank draft or money order
at the Bank's passbook rate from the date payment is received until the
completion or termination of the conversion. If payment is made by
authorization of withdrawal from deposit accounts, the funds authorized to be
withdrawn from a deposit account will continue to accrue interest at the
contractual rates until completion or termination of the conversion (unless the
certificate matures after the date of receipt of the order form but prior to
closing, in which case funds will earn interest at the passbook rate from the
date of maturity until consummation of the conversion), but a hold will be
placed on such funds, thereby making them unavailable to the depositor until
completion or termination of the conversion. At the completion of the
conversion, the funds received in this offering will be used to purchase the
shares of common stock ordered. THE SHARES OF COMMON STOCK ISSUED IN THE
CONVERSION CANNOT AND WILL NOT BE INSURED BY THE FDIC OR ANY OTHER GOVERNMENT
AGENCY. If the conversion is not consummated for any reason, all funds
submitted will be promptly refunded with interest as described above.
If a subscriber authorizes the Bank to withdraw the amount of the aggregate
purchase price from his or her deposit account, the Bank will do so as of the
effective date of the conversion, though the account must contain the full
amount necessary for payment at the time the subscription order is received.
The Bank will waive any applicable penalties for early withdrawal from
certificate accounts. If the remaining balance in a certificate account is
reduced below the applicable minimum balance requirement at the time that the
funds actually are transferred under the authorization the certificate will be
canceled at the time of the withdrawal, without penalty, and the remaining
balance will earn interest at the Bank's passbook rate.
The ESOP will not be required to pay for the shares subscribed for at the
time it subscribes, but rather may pay for such shares of common stock
subscribed for at the $10.00 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 from an unrelated financial institution or the Holding
Company to lend to the ESOP, at such time, the aggregate purchase price of the
shares for which it subscribed.
IRAs maintained in the Bank do not permit investment in the common stock.
A depositor interested in using his or her IRA funds to purchase common stock
must do so through a self-directed IRA. Since the Bank does not offer such
accounts, it will allow such a depositor to make a trustee-to-trustee transfer
of the IRA funds to a trustee offering a self-directed IRA program with the
agreement that such funds will be used to purchase the Holding Company's common
stock in the offering. There will be no early withdrawal or IRS interest
penalties for such transfers. The new trustee would hold the common stock in a
self-directed account in the same manner as the Bank now holds the depositor's
IRA funds. An annual administrative fee may be payable to the new trustee.
Depositors interested in using funds in a Bank IRA to purchase common stock
should contact the stock information center as soon as possible so that the
necessary forms may be forwarded for execution and returned prior to the
Expiration Date. In addition, the provisions of ERISA and IRS regulations
require that officers, directors and 10% shareholders who use self-directed IRA
funds to purchase shares of common stock in the Subscription Offering, make such
purchases for the exclusive benefit of IRAs.
99
<PAGE>
STOCK PRICING, EXCHANGE RATIO AND NUMBER OF SHARES TO BE ISSUED
Federal regulations and the Plan of Conversion require that the purchase
price of the common stock be based on the appraised pro forma market value of
the MHC and the Bank, as converted (i.e., taking into account the expected
----
receipt of proceeds from the sale of securities in the conversion), as
determined on the basis of an independent valuation. The Bank has retained RP
Financial to make such valuation. For its services in making such appraisal and
any expenses incurred in connection therewith, RP Financial will receive a fee
of $35,000 plus out-of-pocket expenses, together with a fee of $7,500 plus out-
of-pocket expenses for the preparation of a business plan and other services
performed in connection with the Holding Company's holding company application
to the OTS. The Bank has agreed to indemnify RP Financial and its employees and
affiliates against certain losses (including any losses in connection with
claims under the federal securities laws) arising out of its services as
appraiser, except where RP Financial's liability results from its negligence or
bad faith.
The appraisal has been prepared by RP Financial in reliance upon the
information contained in this prospectus, including the Consolidated Financial
Statements. RP Financial also considered the following factors, among others:
the present and projected operating results and financial condition of the
Holding Company, the Bank and the MHC and the economic and demographic
conditions in the Bank's existing market area; certain historical, financial and
other information relating to the Bank; a comparative evaluation of the
operating and financial statistics of the Bank with those of other similarly
situated publicly-traded companies located in Missouri and other regions of the
United States; the aggregate size of this offering of the Holding Company's
common stock; the impact of the conversion on the Bank's capital and earnings
potential; the proposed dividend policy of the Holding Company and the Bank; and
the trading market for the Bank common stock and securities of comparable
companies and general conditions in the market for such securities.
On the basis of the foregoing, RP Financial has advised the Holding
Company, the Bank and the MHC that, in its opinion, as of May 29, 1998 the
estimated pro forma market value of the MHC and the Bank, as converted, ranged
from $69,729,290 to $94,339,630. Because the Bank's public stockholders will
continue to hold approximately the same aggregate percentage ownership interest
in the Holding Company as they currently hold in the Bank (before giving effect
to the payment of cash in lieu of issuing fractional shares and any shares of
common stock purchased in this offering by the Bank's stockholders), the
appraisal was multiplied by 73.14%, which represents the MHC's percentage
interest in the Bank adjusted upward for assets held by the MHC and the waiver
by the MHC of $__ million of dividends out of total waived dividends of $__
million. The resulting amount represents an offering range of $51,000,000 to
$69,000,000. Based on such valuation, the Boards of Directors of the Holding
Company and the Bank determined that the shares of common stock would be sold at
$10.00 per share, resulting in a range of 5,100,000 to 6,900,000 shares of
common stock being offered and a range of 1,872,929 to 2,533,963 shares being
issued in exchange for the shares of the Bank's common stock. Upon consummation
of the conversion, the shares sold in this offering and the shares issued in
exchange for Bank common stock will represent approximately 73.14% and 26.86%,
respectively, of the Holding Company's total outstanding shares. The aggregate
ownership interest of the Bank's public stockholders was adjusted downward
because the OTS determined that a portion of the dividends waived by the MHC are
excess and should dilute the public stockholders' ownership interest.
The Boards of Directors of the Holding Company, the Bank and the MHC
reviewed RP Financial's appraisal report, including the methodology and the
assumptions used by RP Financial, and determined that the Estimated Valuation
Range was reasonable and adequate. The Boards of Directors of the Holding
Company, the Bank and the MHC also established the formula for determining the
Exchange Ratio. Based upon such formula and the Estimated Valuation Range, the
Exchange Ratio will range from a minimum of 2.9456 to a maximum of 3.9852, with
a midpoint of 3.4654. Based upon these Exchange Ratios, the Holding Company
expects to issue between 1,872,929 and 2,533,963 shares of Holding Company
common stock to the holders of Bank common stock at the consummation of the
conversion. The Estimated Valuation Range and the Exchange Ratio may be amended
with the approval of the OTS, if required, or if necessitated by subsequent
developments in the financial condition of any of the Holding Company, the Bank
and the MHC or market conditions generally. If the appraisal is updated to
below $69,729,290 or above
100
<PAGE>
$108,490,570 (the maximum of the Estimated Valuation Range, as adjusted by 15%),
such appraisal will be filed with the SEC by post-effective amendment.
If, upon completion of the Subscription and Direct Community Offerings, at
least the minimum number of shares are subscribed for, RP Financial, 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
MHC as converted, as of the close of the Subscription Offering and Direct
Community Offering.
No sale of the shares will take place unless prior thereto RP Financial
confirms to the OTS that, to the best of RP Financial's knowledge and judgment,
nothing of a material nature has occurred that would cause it to conclude that
the actual total purchase price on an aggregate basis was incompatible with its
estimate of the total pro forma market value of the Bank and the MHC 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 and price per share set and new Subscription, Direct Community and
Syndicated Community Offerings held. Under such circumstances, subscribers
would have the right to modify or rescind their subscriptions and to have their
subscription funds returned promptly with interest and holds on funds authorized
for withdrawal from deposit accounts would be released or reduced.
Depending upon market and financial conditions, the number of shares sold
may be more or less than the range in number of shares discussed herein. In the
event the total amount of shares sold is less than 5,100,000 or more than
7,935,000 (15% above the maximum of the Estimated Valuation Range), for
aggregate gross proceeds of less than $51,000,000 or more than $79,350,000,
subscription funds will be returned promptly with interest to each subscriber
unless he indicates otherwise. In the event a new valuation range is
established by RP Financial, such new range will be subject to approval by the
OTS.
In formulating its appraisal, RP Financial relied upon the truthfulness,
accuracy and completeness of all documents the Bank furnished to it. RP
Financial also considered financial and other information from regulatory
agencies, other financial institutions, and other public sources, as
appropriate. While RP Financial believes this information to be reliable, RP
Financial does not guarantee the accuracy or 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 BY RP
FINANCIAL 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 PLAN
OF CONVERSION OR OF PURCHASING SHARES OF COMMON STOCK. MOREOVER, BECAUSE THE
APPRAISAL IS NECESSARILY BASED ON MANY FACTORS WHICH CHANGE FROM TIME TO TIME,
THERE IS NO ASSURANCE THAT PERSONS WHO PURCHASE SUCH SHARES IN THE CONVERSION
WILL LATER BE ABLE TO SELL SHARES THEREAFTER AT PRICES AT OR ABOVE THE PURCHASE
PRICE.
The appraisal report of RP Financial has been filed as an exhibit to this
Registration Statement and Application for Conversion of which this prospectus
is a part and is available for inspection in the manner set forth under
"ADDITIONAL INFORMATION."
LIMITATIONS ON PURCHASES OF SHARES OF COMMON STOCK
The Plan of Conversion provides for certain limitations to be placed upon
the purchase of common stock by eligible subscribers and others in the
conversion. Each subscriber must subscribe for a minimum of 25 shares of common
stock. The Plan of Conversion provides for the following purchase limitations:
(i) No person may purchase in either the Subscription Offering, Direct
Community Offering or Syndicated Community Offering more than 40,000
shares of common stock; and
(ii) The maximum number of shares of common stock which may be subscribed
for or purchased in all categories in the conversion by any person,
together with any associate or any group of persons acting
101
<PAGE>
in concert, when combined with any shares received in exchange for
Bank common stock, shall not exceed 125,000 shares.
For purposes of the Plan of Conversion, the directors are not deemed to be
acting in concert solely by reason of their Board membership. Pro rata
reductions within each subscription rights category will be made in allocating
shares to the extent that the maximum purchase limitations are exceeded.
BECAUSE OTS POLICY REQUIRES THE MAXIMUM PURCHASE LIMITATION TO INCLUDE
SHARES TO BE ISSUED TO THE BANK'S PUBLIC STOCKHOLDERS IN EXCHANGE FOR THEIR BANK
COMMON STOCK, CERTAIN OF THE BANK'S STOCKHOLDERS MAY BE LIMITED IN THEIR ABILITY
TO PURCHASE SHARES IN THIS OFFERING, OR MAY EVEN BE PREVENTED FROM PURCHASING
SHARES OF COMMON STOCK.
The Boards of Directors of the Bank and the MHC may, in their sole
discretion, increase the maximum purchase limitation set forth above up to 9.99%
of the shares of common stock sold in the conversion, provided that orders for
shares which exceed 5% of the shares of common stock sold in the conversion may
not exceed, in the aggregate, 10% of the shares sold in the conversion. The
Bank and the MHC do not intend to increase the maximum purchase limitation
unless market conditions are such that an increase in the maximum purchase
limitation is necessary to sell a number of shares in excess of the minimum of
the Estimated Valuation Range. If the Boards of Directors decide to increase
the purchase limitation above, persons who subscribed for the maximum number of
shares of common stock will be, and other large subscribers in the discretion of
the Holding Company and the Bank may be, given the opportunity to increase their
subscriptions accordingly, subject to the rights and preferences of any person
who has priority subscription rights.
The term "acting in concert" is defined in the Plan of Conversion to mean
(i) knowing participation in a joint activity or interdependent conscious
parallel action towards a common goal whether or not pursuant to an express
agreement; or (ii) a combination or pooling of voting or other interests in the
securities of an issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement or other arrangement, whether written or
otherwise. In general, a person who acts in concert with another party shall
also be deemed to be acting in concert with any person who is also acting in
concert with that other party.
The term "associate" of a person is defined in the Plan of Conversion to
mean (i) any corporation or organization (other than the Bank or a majority-
owned subsidiary of the Bank) of which such person is an officer or partner or
is, directly or indirectly, the beneficial owner of 10% 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 (excluding tax-qualified employee plans); and
(iii) any relative or spouse of such person, or any relative of such spouse, who
either has the same home as such person or who is a director or officer of the
Bank or any of its parents or subsidiaries. For example, a corporation of which
a person serves as an officer would be an associate of such person and,
therefore, all shares purchased by such corporation would be included with the
number of shares which such person could purchase individually under the above
limitations.
The term "officer" is defined in the Plan of Conversion to mean an
executive officer of the Holding Company, the Bank or the MHC, including its
Chief Executive Officer, President, Executive Vice Presidents, Senior Vice
Presidents, Vice Presidents in charge of principal business functions, Secretary
and Controller.
Shares purchased in the conversion will be freely transferable, except for
shares purchased by directors and officers of the Bank and the Holding Company
and by NASD members. See "-- Restrictions on Transferability by Directors and
Officers and NASD Members."
102
<PAGE>
DELIVERY AND EXCHANGE OF STOCK CERTIFICATES
SHARES PURCHASED IN THIS OFFERING. Certificates representing shares of
Holding Company common stock will be mailed by the Holding Company's transfer
agent to the persons entitled thereto at the addresses of such persons appearing
on the order form as soon as practicable following the consummation of the
conversion. Any undeliverable certificates will be held by the Holding Company
until claimed by persons legally entitled thereto or otherwise disposed of
according to applicable law. Purchasers of shares of Holding Company common
stock may be unable to sell such shares until certificates are available and
delivered to them.
SHARES ISSUED IN EXCHANGE FOR BANK COMMON STOCK. After the consummation of
the conversion, each holder of a certificate(s) theretofore evidencing issued
and outstanding shares of Bank common stock (other than the MHC), upon surrender
of the same to an agent, duly appointed by the Holding Company, which is
anticipated to be the transfer agent for the common stock ("Exchange Agent"),
shall be entitled to receive in exchange therefor a certificate(s) representing
the number of full shares of Holding Company common stock into which such shares
have been converted based on the Exchange Ratio, and cash in lieu of any
fractional shares. The Exchange Agent shall mail a form of letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to such certificate shall pass, only upon delivery of such
certificate to the Exchange Agent) advising such holder of the terms of the
exchange offering and the procedure for surrendering to the Exchange Agent such
certificates in exchange for a certificate(s) evidencing Holding Company common
stock and cash in lieu of any fractional shares. YOU SHOULD NOT FORWARD
CERTIFICATES FOR BANK COMMON STOCK TO THE BANK OR THE EXCHANGE AGENT UNTIL YOU
HAVE RECEIVED THE TRANSMITTAL LETTER.
No holder of a certificate theretofore representing shares of the Bank
common stock shall be entitled to receive any dividends on the Holding Company
common stock until the certificate representing such shares is surrendered in
exchange for certificates representing shares of Holding Company common stock.
In the event that dividends are declared and paid by the Holding Company in
respect of common stock after the consummation of the conversion, but before
surrender of certificates representing shares of Bank common stock, dividends
payable in respect of shares of common stock not then issued shall accrue
(without interest). Any such dividends shall be paid (without interest) upon
surrender of the certificates representing such shares of Bank common stock.
After the consummation of the conversion, the Holding Company shall be entitled
to treat certificates representing shares of Bank common stock as evidencing
ownership of the number of full shares of common stock into which the shares of
Bank common stock represented by such certificates shall have been converted,
notwithstanding the failure on the part of the holder thereof to surrender such
certificates.
The Holding Company shall not be obligated to deliver a certificate(s)
representing shares of common stock to which a holder of Bank common stock would
otherwise be entitled as a result of the conversion until such holder surrenders
the certificate(s) representing the shares of Bank common stock for exchange as
provided above, or, in default thereof, an appropriate affidavit of loss and
indemnity agreement and/or a bond as may be required in each case by the Holding
Company. If any certificate evidencing shares of common stock is to be issued
in a name other than that in which the certificate evidencing Bank common stock
surrendered in exchange therefor is registered, it shall be a condition of the
issuance thereof that the certificate so surrendered shall be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange pay to the Exchange Agent any transfer or other tax required by reason
of the issuance of a certificate for shares of common stock in any name other
than that of the registered holder of the certificate surrendered or otherwise
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not payable.
RESTRICTIONS ON REPURCHASE OF STOCK
Pursuant to OTS regulations, OTS-regulated savings associations (and their
holding companies) may not for a period of three years from the date of an
institution's mutual-to-stock conversion repurchase any of its common stock from
any person, except in the event of (i) an offer made to all of its stockholders
to repurchase the common stock on a pro rata basis, approved by the OTS; or (ii)
the repurchase of qualifying shares of a director; or (iii) a purchase in the
open market by a tax-qualified or non-tax-qualified employee stock benefit plan
in an amount reasonable and
103
<PAGE>
appropriate to fund the plan. Furthermore, repurchases of any common stock are
prohibited if the effect thereof would cause the association's regulatory
capital to be reduced below (a) the amount required for the liquidation account
or (b) the regulatory capital requirements imposed by the OTS. Repurchases are
generally prohibited during the first year following conversion. Upon ten days'
written notice to the OTS, and if the OTS does not object, an institution may
make open market repurchases of its outstanding common stock during years two
and three following the conversion, provided that certain regulatory conditions
are met and that the repurchase would not adversely affect the financial
condition of the association. Any repurchases of common stock by the Holding
Company, therefore, would be subject to these regulatory restrictions unless the
OTS would provide otherwise.
RESTRICTIONS ON TRANSFERABILITY BY DIRECTORS AND OFFICERS AND NASD MEMBERS
Shares of common stock purchased in this offering by directors and officers
of the Holding Company may not be sold for a period of one year following
consummation of the conversion, except in the event of the death of the
stockholder or in any exchange of the common stock in connection with a merger
or acquisition of the Holding Company. Shares of common stock received by
directors or officers through the ESOP or the 1999 MRDP or upon exercise of
options issued pursuant to the exercise of stock options or purchased subsequent
to the conversion are not subject to this restriction. Accordingly, shares of
common stock issued by the Holding Company to directors and officers shall bear
a legend giving appropriate notice of the restriction and, in addition, the
Holding Company will give appropriate instructions to the transfer agent for the
Holding Company's common stock with respect to the restriction on transfers.
Any shares issued to directors and officers as a stock dividend, stock split or
otherwise with respect to restricted common stock shall be subject to the same
restrictions.
Purchases of outstanding shares of common stock of the Holding Company by
directors, executive officers (or any person who was an executive officer or
director of the Bank after adoption of the Plan of Conversion ) and their
associates during the three-year period following the conversion may be made
only through a broker or dealer registered with the SEC, except with the prior
written approval of the OTS. This restriction does not apply, however, to
negotiated transactions involving more than 1% of the Holding Company's
outstanding common stock or to the purchase of stock pursuant to the exercise of
stock options.
The Holding Company has filed with the SEC a registration statement under
the Securities Act for the registration of the common stock to be issued
pursuant to the conversion. This registration does not cover the resale of such
shares. Shares of common stock purchased by persons who are not affiliates of
the Holding Company may be resold without registration. Shares purchased by an
affiliate of the Holding Company will be subject to the resale restrictions of
Rule 144 under the Securities Act. If the Holding Company meets the current
public information requirements of Rule 144 under the Securities Act, each
affiliate of the Holding Company who complies with the other conditions of Rule
144 (including those that require the affiliate's sale to be aggregated with
those of certain other persons) would be able to sell in the public market,
without registration, a number of shares not to exceed, in any three-month
period, the greater of (i) 1% of the outstanding shares of the Holding Company
or (ii) the average weekly volume of trading in such shares during the preceding
four calendar weeks. Provision may be made in the future by the Holding Company
to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.
Under guidelines of the NASD, members of the NASD and their associates are
subject to certain restrictions on the transfer of securities purchased in
accordance with subscription rights and to certain reporting requirements upon
purchase of such securities.
COMPARISON OF STOCKHOLDERS' RIGHTS
As a result of the conversion, stockholders of the Bank will become
stockholders of the Holding Company, a Delaware corporation. There are certain
differences in stockholder rights arising from distinctions between the Bank's
Federal Stock Charter and Bylaws and the Holding Company's Certificate of
Incorporation and Bylaws and from distinctions between laws with respect to
federally chartered savings institutions and Delaware law.
104
<PAGE>
The discussion herein is not intended to be a complete statement of the
differences affecting the rights of stockholders, but rather summarizes the
material differences affecting the rights of stockholders. The discussion
herein is qualified in its entirety by reference to the Certificate of
Incorporation and Bylaws of the Holding Company and the Delaware law. See
"ADDITIONAL INFORMATION" for procedures for obtaining a copy of the Holding
Company's Certificate of Incorporation and Bylaws.
ISSUANCE OF CAPITAL STOCK. Pursuant to applicable laws and regulations,
the MHC is required to own not less than a majority of the outstanding Bank
common stock. There will be no such restriction applicable to the Holding
Company following consummation of the conversion.
The Holding Company's Certificate of Incorporation does not contain
restrictions on the issuance of shares of capital stock to directors, officers
or controlling persons of the Holding Company, whereas the Bank's Federal Stock
Charter restricts such issuance to general public offerings, or if qualifying
shares, to directors, unless the share issuance or the plan under which they
would be issued has been approved by a majority of the total votes eligible to
be cast at a legal stockholders' meeting. Thus, stock-related compensation
plans, such as stock option plans, could be adopted by the Holding Company
without stockholder approval and shares of Holding Company capital stock could
be issued directly to directors or officers without stockholder approval. The
Bylaws of the NASD, however, generally require corporations with securities
which are quoted on the Nasdaq National Market to obtain stockholder approval of
most stock compensation plans for directors, officers and key employees of the
corporation. Moreover, although generally not required, stockholder approval of
stock related compensation plans may be sought in certain instances in order to
qualify such plans for favorable federal income tax and securities law treatment
under current laws and regulations. The Holding Company plans to submit the
stock compensation plans discussed herein to its stockholders for approval.
VOTING RIGHTS. Neither the Bank's Federal Stock Charter or Bylaws nor the
Holding Company's Certificate of Incorporation or Bylaws currently provide for
cumulative voting in elections of directors. For additional information
regarding voting rights, see "RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
- -- Anti-takeover Provisions -- Limitation on Voting Rights" below.
PAYMENT OF DIVIDENDS. The ability of the Bank to pay dividends on its
capital stock is restricted by OTS regulations and by federal income tax
considerations related to savings institutions such as the Bank. See
"REGULATION -- Federal Regulation of the Bank -- Capital Requirements" and
"TAXATION." Although the Holding Company is not subject to these restrictions as
a Delaware corporation, such restrictions will indirectly affect the Holding
Company because dividends from the Bank will be a primary source of funds of the
Holding Company for the payment of dividends to stockholders of the Holding
Company.
Certain restrictions generally imposed on Delaware corporations may also
have an impact on the Holding Company's ability to pay dividends. Delaware law
generally provides that the Holding Company is limited to paying dividends in an
amount equal to the excess of its net assets (total assets minus total
liabilities) over its statutory capital or, if no such excess exists, equal to
its net profits for the current year and/or the immediately preceding fiscal
year.
BOARD OF DIRECTORS. The Bank's Federal Stock Charter and Bylaws and the
Holding Company's Certificate of Incorporation and Bylaws each require the Board
of Directors of the Bank and the Holding Company to be divided into three
classes as nearly equal in number as possible and that the members of each class
shall be elected for a term of three years and until their successors are
elected and qualified, with one class being elected annually.
Under the Bank's Bylaws, any vacancies in the Board of Directors of the
Bank may be filled by the affirmative vote of a majority of the remaining
directors although less than a quorum of the Board of Directors. Persons
elected by the directors of the Bank to fill vacancies may only serve until the
next annual meeting of stockholders. Under the Holding Company's Certificate of
Incorporation, any vacancy occurring in the Board of Directors of the Holding
Company, including any vacancy created by reason of an increase in the number of
directors, may be filled by the remaining directors, and any director so chosen
shall hold office for the remainder of the term to which the director has been
elected and until his or her successor is elected and qualified.
105
<PAGE>
Under the Bank's Bylaws, any director may be removed for cause by the
holders of a majority of the outstanding voting shares. The Holding Company's
Certificate of Incorporation provides that any director may be removed for cause
by the holders of at least 80% of the outstanding voting shares of the Holding
Company.
LIMITATIONS ON LIABILITY. The Holding Company's Certificate of
Incorporation provides that the directors of the Holding Company shall not be
personally liable for monetary damages to the Holding Company for actions as
directors, except for liabilities that involve a breach of the director's duty
of loyalty to the Holding Company or its stockholders, acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, or authorization of unlawful payment of dividends or unlawful stock
purchase or redemption. This provision might, in certain instances, discourage
or deter shareholders or management from bringing a lawsuit against directors
for a breach of their duties even though such an action, if successful, might
have benefitted the Holding Company.
Currently, federal law does not permit federally chartered savings
institutions such as the Bank to limit the personal liability of directors in
the manner provided by Delaware law and the laws of many other states.
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS. The Bank's
Federal Stock Charter and Bylaws do not contain any provision relating to
indemnification of directors and officers of the Bank. Under current OTS
regulations, however, the Bank will indemnify its directors, officers and
employees for any costs incurred in connection with any litigation involving any
such person's activities as a director, officer or employee if such person
obtains a final judgment on the merits in his or her favor. In addition,
indemnification is permitted in the case of a settlement, a final judgment
against such person or final judgment other than on the merits, if a majority of
disinterested directors determine that such person was acting in good faith
within the scope of his or her employment as he or she could reasonably have
perceived it under the circumstances and for a purpose he or she could
reasonably have believed under the circumstances was in the best interest of the
Bank or its stockholders. The Bank also is permitted to pay ongoing expenses
incurred by a director, officer or employee if a majority of disinterested
directors concludes that such person may ultimately be entitled to
indemnification. Before making any indemnification payment, the Bank is
required to notify the OTS of its intention and such payment cannot be made if
the OTS objects thereto.
The officers, directors, agents and employees of the Holding Company are
indemnified with respect to certain actions pursuant to the Holding Company's
Certificate of Incorporation, which complies with Delaware law regarding
indemnification. Delaware law allows the Holding Company to indemnify the
aforementioned persons for expenses, settlements, judgments and fines in suits
in which such person has made a party by reason of the fact that he or she is or
was an agent of the Holding Company. No such indemnification may be given if
the acts or omissions of the person are adjudged to be in violation of law, if
such person is liable to the corporation for an unlawful distribution, or if
such person personally received a benefit to which he or she was not entitled.
SPECIAL MEETINGS OF STOCKHOLDERS. The Holding Company's Certificate of
Incorporation provides that special meetings of the stockholders of the Holding
Company may be called only by the board of directors or an authorized committee
thereof. The Bank's Federal Stock Charter provides that, until May 11, 1999
(i.e., five years after the consummation of the MHC reorganization), special
- -----
meetings of the Bank's stockholders may only be called by the Board of
Directors. Thereafter, special meetings may be called by the Chairman,
President, a majority of the Board of Directors or the holders of not less than
a majority of the outstanding capital stock of the Bank entitled to vote at the
meeting.
STOCKHOLDER NOMINATIONS AND PROPOSALS. The Bank's Bylaws generally provide
that stockholders may submit nominations for election as director at an annual
meeting of stockholders and any new business to be taken up at such a meeting by
filing such in writing with the Bank at least thirty days before the date of any
such meeting.
The Holding Company's Bylaws generally provide that any stockholder
desiring to make a nomination for the election of directors or a proposal for
new business at a meeting of stockholders must submit written notice to the
Holding Company at least 30 days and not more than 60 days in advance of the
meeting, together with certain information relating to the nomination or new
business. However, if less than 31 days notice of the meeting is given,
106
<PAGE>
stockholders must submit such written notice no later than the tenth day
following the date on which notice of the meeting is mailed to stockholders.
Failure to comply with these advance notice requirements will preclude such
nominations or new business from being considered at the meeting.
STOCKHOLDER ACTION WITHOUT A MEETING. The Bylaws of the Bank provide that
any action to be taken or which may be taken at any annual or special meeting of
stockholders may be taken if a consent in writing, setting forth the actions so
taken, is given by the holders of all outstanding shares entitled to vote. The
Holding Company's Certificate of Incorporation specifically denies the authority
of stockholders to act without a meeting.
STOCKHOLDER'S RIGHT TO EXAMINE BOOKS AND RECORDS. A federal regulation
which is applicable to the Bank provides that stockholders may inspect and copy
specified books and records of a federally chartered savings institution after
proper written notice for a proper purpose. Delaware law similarly provides
that a stockholder may inspect books and records upon written demand stating the
purpose of the inspection, if such purpose is reasonably related to such
person's interest as a stockholder.
LIMITATIONS ON ACQUISITIONS OF VOTING STOCK AND VOTING RIGHTS. The Bank's
Federal Stock Charter provides that until May 11, 1999 no person shall directly
or indirectly offer to acquire or acquire the beneficial ownership of more than
10% of the issued and outstanding shares of any class of an equity security of
the Bank. In the event that shares are acquired in violation of this
restriction, all shares beneficially owned by any person in excess of 10% shall
not be counted as shares entitled to vote and shall not be voted by any person
or counted as voting shares in connection with any matters submitted to
stockholders for a vote. The Holding Company's Certificate of Incorporation
provides certain limitations on the ability of a person who owns in excess of
10% of the Holding Company's outstanding shares of common stock to vote shares
in excess of such limit. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING
COMPANY -- Anti-takeover Provisions -- Limitation on Voting Rights."
MERGERS, CONSOLIDATIONS AND SALES OF ASSETS. A federal regulation requires
the approval of two-thirds of the Board of Directors of the Bank and the holders
of two-thirds of the outstanding stock of the Bank entitled to vote thereon for
mergers, consolidations and sales of all or substantially all of the Bank's
assets. Such regulation permits the Bank to merge with another corporation
without obtaining the approval of its stockholders if: (i) it does not involve
an interim savings institution; (ii) the Bank's Federal Stock Charter is not
changed; (iii) each share of the Bank's stock outstanding immediately prior to
the effective date of the transaction is to be an identical outstanding share or
a treasury share of the Bank after such effective date; and (iv) either: (A) no
shares of voting stock of the Bank and no securities convertible into such stock
are to be issued or delivered under the plan of combination or (B) the
authorized unissued shares or the treasury shares of voting stock of the Bank to
be issued or delivered under the plan of combination, plus those initially
issuable upon conversion of any securities to be issued or delivered under such
plan, do not exceed 15% of the total shares of voting stock of the Bank
outstanding immediately prior to the effective date of the transaction.
The Holding Company's Certificate of Incorporation requires the approval of
the holders of at least 80% of the Holding Company's outstanding shares of
voting stock to approve certain "Business Combinations" (as defined therein)
involving a "Related Person" (as defined therein) except in cases where the
proposed transaction has been approved in advance by a majority of those members
of the Holding Company's Board of Directors who are unaffiliated with the
Related Person and were directors prior to the time when the Related Person
became a Related Person. Under Delaware law, absent this provision, business
combinations, including mergers, consolidations and sales of substantially all
of the assets of a corporation must, subject to certain exceptions, be approved
by the vote of the holders of a majority of the outstanding shares of common
stock of the Holding Company and any other affected class of stock. One
exception under Delaware law to the majority approval requirement applies to
stockholders owning 15% or more of the common stock of a corporation for a
period of less than three years. See "RESTRICTIONS ON ACQUISITION OF THE
HOLDING COMPANY -- Anti-takeover Provisions -- Stockholder Vote Required to
Approve Certain Business Combinations."
The Holding Company's Certificate of Incorporation requires the Holding
Company's Board of Directors to consider certain factors in addition to the
amount of consideration to be paid when evaluating certain business
107
<PAGE>
combinations or a tender or exchange offer. These additional factors include:
(i) the social and economic effects of the transaction; (ii) the business and
financial condition and earnings prospects of the acquiring person or entity;
and (iii) the competence, experience, and integrity of the acquiring person or
entity and its management.
DISSENTERS' RIGHTS OF APPRAISAL. OTS regulations generally provide that a
stockholder of a federally chartered savings institution that engages in a
merger, consolidation or sale of all or substantially all of its assets shall
have the right to demand from such institution payment of the fair or appraised
value of his or her stock in the institution, subject to specified procedural
requirements. This regulation also provides, however, that the stockholders of
a federally chartered savings institution with stock which is listed on a
national securities exchange or quoted on The Nasdaq Stock Market are not
entitled to dissenters' rights in connection with a merger involving such
savings institution if the stockholder is required to accept only "qualified
consideration" for his or her stock, which is defined to include cash, shares of
stock of any institution or corporation which at the effective date of the
merger will be listed on a national securities exchange or quoted on the Nasdaq
National Market or any combination of such shares of stock and cash.
Under Delaware law, appraisal rights are available for the shares of any
class or series of stock of a corporation that is a party to a merger or
consolidation, other than a merger of a parent corporation and a 90% or more
owned subsidiary. However, stockholders generally will not have appraisal
rights if the corporation's stock is listed on a national securities exchange or
the Nasdaq National Market or is held of record by more than 2,000 holders, or
if stockholder approval is not required by Delaware law for the corporate
action.
AMENDMENT OF GOVERNING INSTRUMENTS. No amendment of the Bank's Federal
Stock Charter may be made unless it is first proposed by the Board of Directors
of the Bank, then preliminarily approved by the OTS, and thereafter approved by
the holders of a majority of the total votes eligible to be cast at a legal
meeting. The Holding Company's Certificate of Incorporation may be amended by
the vote of the holders of a majority of the outstanding shares of Holding
Company Common stock, except that the provisions of the Certificate of
Incorporation governing certain matters may not be repealed, altered, amended or
rescinded except by the vote of the holders of at least 80% of the outstanding
shares of the Holding Company. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING
COMPANY -- Anti-takeover Provisions -- Amendment of Certificate of Incorporation
and Bylaws."
The Bylaws of the Bank may be amended by a majority vote of the full Board
of Directors of the Bank or by a majority vote of the votes cast by the
stockholders of the Bank at any legal meeting. The Holding Company's Bylaws may
only be amended by a majority vote of the Board of Directors of the Holding
Company or by the holders of at least 80% of the outstanding stock by the
Holding Company.
RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
The following discussion is a summary of certain provisions of federal law
and regulations and Delaware corporate law, as well as the Certificate of
Incorporation and Bylaws of the Holding Company, relating to stock ownership and
transfers, the Board of Directors and business combinations, all of which may be
deemed to have "anti-takeover" effects. The description of these provisions is
necessarily general and reference should be made to the actual law and
regulations and to the Certificate of Incorporation and Bylaws of the Holding
Company contained in the Registration Statement filed with the SEC. See
"ADDITIONAL INFORMATION" as to how to obtain a copy of these documents.
CONVERSION REGULATIONS
OTS regulations prohibit any person from making an offer, announcing an
intent to make an offer or participating in any other arrangement to purchase
stock or acquiring stock or subscription rights in a converting institution (or
its holding company) from another person prior to completion of its conversion.
Further, without the prior written approval of the OTS, no person may make such
an offer or announcement of an offer to purchase shares or actually acquire
shares in the converting institution (or its holding company) for a period of
three years from the date
108
<PAGE>
of the completion of the conversion if, upon the completion of such offer,
announcement or acquisition, that person would become the beneficial owner of
more than 10% of the outstanding stock of the institution (or its holding
company). The OTS has defined "person" to include any individual, group acting
in concert, corporation, partnership, association, joint stock company, trust,
unincorporated organization or similar company, a syndicate or any other group
formed for the purpose of acquiring, holding or disposing of securities of an
insured institution. However, offers made exclusively to an association (or its
holding company) or an underwriter or member of a selling group acting on the
converting institution's (or its holding company's) behalf for resale to the
general public are excepted. The regulation also provides civil penalties for
willful violation or assistance in any such violation of the regulation by any
person connected with the management of the converting institution (or its
holding company) or who controls more than 10% of the outstanding shares or
voting rights of a converting or converted institution (or its holding company).
CHANGE OF CONTROL REGULATIONS
Under the Change in Bank Control Act, no person may acquire control of an
insured federal savings and loan association or its parent holding company
unless the OTS has been given 60 days' prior written notice and has not issued a
notice disapproving the proposed acquisition. In addition, OTS regulations
provide that no company may acquire control of a savings association without the
prior approval of the OTS. Any company that acquires such control becomes a
"savings and loan holding company" subject to registration, examination and
regulation by the OTS.
Control, as defined under federal law, 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 the 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% 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 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 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 form 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. There are also rebuttable presumptions in
the regulations concerning whether a group "acting in concert" exists, including
presumed action in concert among members of an "immediate family."
The OTS may prohibit an acquisition of control if it finds, among other
things, that (i) the acquisition would result in a monopoly or substantially
lessen competition, (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the institution, or (iii) the competence,
experience or integrity of the acquiring person indicates that it would not be
in the interest of the depositors or the public to permit the acquisition of
control by such person.
ANTI-TAKEOVER PROVISIONS
A number of provisions of the Holding Company's Certificate of
Incorporation and Bylaws deal with matters of corporate governance and certain
rights of stockholders. The following discussion is a general summary of
certain provisions of the Holding Company's Certificate of Incorporation and
Bylaws and regulatory provisions relating to stock ownership and transfers, the
Board of Directors and business combinations, which might be deemed to have a
potential "anti-takeover" effect. These provisions may have the effect of
discouraging a future takeover attempt which is not approved by the Board of
Directors but which individual Holding Company stockholders may deem to be in
their best interests or in which stockholders may receive a substantial premium
for their shares over then current market prices. As a result, stockholders who
might desire to participate in such a transaction may not have an opportunity to
do so. Such provisions will also render the removal of the incumbent Board of
Directors or management of the Holding
109
<PAGE>
Company more difficult. The following description of certain of the provisions
of the Certificate of Incorporation and Bylaws of the Holding Company is
necessarily general and reference should be made in each case to such
Certificate of Incorporation and Bylaws, which are incorporated herein by
reference. See "ADDITIONAL INFORMATION" as to where to obtain a copy of these
documents.
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, unless permitted by a resolution adopted
by a majority of the board of directors. Beneficial ownership is determined
pursuant to Rule 13d-3 of the General Rules and Regulations of the Exchange Act
and includes shares beneficially owned by such person or any of his or her
affiliates (as defined in the Certificate of Incorporation), shares which such
person or his or her affiliates have the right to acquire upon the exercise of
conversion rights or options and shares as to which such person and his or her
affiliates have or share investment or voting power, but shall not include
shares beneficially owned by the ESOP or directors, officers and employees of
the Bank or Holding Company or shares that are subject to a revocable proxy and
that are not otherwise beneficially, or deemed by the Holding Company to be
beneficially, owned by such person and his or her affiliates.
BOARD OF DIRECTORS. The Board of Directors of the Holding Company is
divided into three classes, each of which shall contain approximately one-third
of the whole number of the members of the Board. The members of each class
shall be elected for a term of three years, with the terms of office of all
members of one class expiring each year so that approximately one-third of the
total number of directors are elected each year. The Certificate of
Incorporation provides that any vacancy occurring in the Board, including a
vacancy created by an increase in the number of directors, shall be filled by a
vote of two-thirds of the directors then in office and any director so chosen
shall hold office for a term expiring at the annual meeting of stockholders at
which the term of the class to which the director has been chosen expires. The
classified Board is intended to provide for continuity of the Board of Directors
and to make it more difficult and time consuming for a stockholder group to
fully use its voting power to gain control of the Board of Directors without the
consent of the incumbent Board of Directors of the Holding Company. The
Certificate of Incorporation of the Holding Company provides that a director may
be removed from the Board of Directors prior to the expiration of his or her
term only for cause and only upon the vote of 80% of the outstanding shares of
voting stock. In the absence of this provision, the vote of the holders of a
majority of the shares could remove the entire Board, but only with cause, and
replace it with persons of such holders' choice.
CUMULATIVE VOTING, SPECIAL MEETINGS AND ACTION BY WRITTEN CONSENT. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, the Certificate of Incorporation provides that special
meetings of stockholders of the Holding Company may be called only by the Board
of Directors of the Holding Company and that stockholders may take action only
at a meeting and not by written consent.
AUTHORIZED SHARES. The Certificate of Incorporation authorizes the
issuance of 25,000,000 shares of common stock and 1,000,000 shares of preferred
stock. The shares of common stock and preferred stock were authorized in an
amount greater than that to be issued in the conversion to provide the Holding
Company's Board of Directors with as much flexibility as possible to effect,
among other transactions, financings, acquisitions, stock dividends, stock
splits, restricted stock grants and the exercise of stock options. However,
these additional authorized shares may also be used by the Board of Directors,
consistent with fiduciary duties, to deter future attempts to gain control of
the Holding Company. The Board of Directors also has sole authority to
determine the terms of any one or more series of preferred stock, including
voting rights, conversion rates, and liquidation preferences. As a result of
the ability to fix voting rights for a series of preferred stock, the Board has
the power, to the extent consistent with its fiduciary duty, to issue a series
of preferred stock to persons friendly to management in order to attempt to
block a tender offer, merger or other transaction by which a third party seeks
control of the Holding Company, and thereby assist members of management to
retain their positions. The Holding Company's Board currently has no plans for
the issuance of additional shares, other than the issuance of shares of common
stock in connection with its stock benefit plans.
110
<PAGE>
STOCKHOLDER VOTE REQUIRED TO APPROVE CERTAIN BUSINESS COMBINATIONS. The
Certificate of Incorporation requires the approval of the holders of at least
80% of the Holding Company's outstanding shares of voting stock to approve
certain "Business Combinations" (as defined therein) involving a "Related
Person" (as defined therein) except in cases where the proposed transaction has
been approved in advance by a majority of those members of the Holding Company's
Board of Directors who are unaffiliated with the Related Person and were
directors prior to the time when the Related Person became a Related Person.
The term "Related Person" is defined to include any individual, corporation,
partnership or other entity (other than the Holding Company or its subsidiary)
which owns beneficially or controls, directly or indirectly, 10% or more of the
outstanding shares of voting stock of the Holding Company or an affiliate of
such person or entity. This provision of the Certificate of Incorporation
applies to any "Business Combination," which is defined to include: (i) any
merger or consolidation of the Holding Company with or into any Related Person;
(ii) any sale, lease, exchange, mortgage, transfer, or other disposition of 25%
or more of the assets of the Holding Company or combined assets of the Holding
Company and its subsidiaries to a Related Person; (iii) any merger or
consolidation of a Related Person with or into the Holding Company or a
subsidiary of the Holding Company; (iv) any sale, lease, exchange, transfer, or
other disposition of 25% or more of the assets of a Related Person to the
Holding Company or a subsidiary of the Holding Company; (v) the issuance of any
securities of the Holding Company or a subsidiary of the Holding Company to a
Related Person; (vi) the acquisition by the Holding Company or a subsidiary of
the Holding Company of any securities of a Related Person; (vii) any
reclassification of common stock of the Holding Company or any recapitalization
involving the common stock of the Holding Company; or (viii) any agreement or
other arrangement providing for any of the foregoing.
Under Delaware law, absent this provision, business combinations, including
mergers, consolidations and sales of substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of a majority of the outstanding shares of common stock of the Holding
Company and any other affected class of stock. One exception under Delaware law
to the majority approval requirement applies to stockholders owning 15% or more
of the common stock of a corporation for a period of less than three years.
Such 15% stockholder, in order to obtain approval of a business combination,
must obtain the approval of two-thirds of the outstanding stock, excluding the
stock owned by such 15% stockholder, or satisfy other requirements under
Delaware law relating to board of director approval of his or her acquisition of
the shares of the Holding Company. The increased stockholder vote required to
approve a business combination may have the effect of foreclosing mergers and
other business combinations which a majority of stockholders deem desirable and
placing the power to prevent such a merger or combination in the hands of a
minority of stockholders.
AMENDMENT OF CERTIFICATE OF INCORPORATION AND BYLAWS. Amendments to the
Holding Company's Certificate of Incorporation must be approved by a majority
vote of its Board of Directors and also by a majority of the outstanding shares
of its voting stock, provided, however, that an affirmative vote of at least 80%
of the outstanding voting stock entitled to vote (after giving effect to the
provision limiting voting rights) is required to amend or repeal certain
provisions of the Certificate of Incorporation, including the provision limiting
voting rights, the provisions relating to approval of certain business
combinations, calling special meetings, the number and classification of
directors, director and officer indemnification by the Holding Company and
amendment of the Holding Company's Bylaws and Certificate of Incorporation. The
Holding Company's Bylaws may be amended by its Board of Directors, or by a vote
of 80% of the total votes eligible to be voted at a duly constituted meeting of
stockholders.
STOCKHOLDER NOMINATIONS AND PROPOSALS. The Certificate of Incorporation of
the Holding Company requires a stockholder who intends to nominate a candidate
for election to the Board of Directors, or to raise new business at a
stockholder meeting to give not less than 30 nor more than 60 days' advance
notice to the Secretary of the Holding Company. The notice provision requires a
stockholder who desires to raise new business to provide certain information to
the Holding Company concerning the nature of the new business, the stockholder
and the stockholder's interest in the business matter. Similarly, a stockholder
wishing to nominate any person for election as a director must provide the
Holding Company with certain information concerning the nominee and the
proposing stockholder.
PURPOSE AND TAKEOVER DEFENSIVE EFFECTS OF THE HOLDING COMPANY'S CERTIFICATE
OF INCORPORATION AND BYLAWS. The Board of Directors of the Association believes
that the provisions described above are prudent and will
111
<PAGE>
reduce the Holding Company's vulnerability to takeover attempts and certain
other transactions that have not been negotiated with and approved by its Board
of Directors. These provisions will also assist the Holding Company and the
Association 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 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 interest 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 a price reflective of the true value
of the Holding Company and that is in the best interest of all stockholders.
Attempts to acquire control of financial institutions and their holding
companies have recently become increasingly common. Takeover attempts that have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms that may be less favorable than
might otherwise be available. A transaction that 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 of the Holding
Company for 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 the 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
that 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 benefits of certain protective
provisions of the Exchange Act, if the number of beneficial owners became less
than 300, thereby allowing for deregistration under the Exchange Act.
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 that 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,
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 of Directors of the Bank and the Holding Company, however, have concluded
that the potential benefits outweigh the possible disadvantages.
Following the conversion, pursuant to applicable law and, if required,
following the approval by stockholders, the Holding Company may adopt additional
anti-takeover charter provisions or other devices regarding the acquisition of
its equity securities that would be permitted for a Delaware business
corporation.
The cumulative effect of the restriction on acquisition of the Holding
Company contained in the Certificate of Incorporation and Bylaws of the Holding
Company and in Federal and Delaware law may be to discourage potential takeover
attempts and perpetuate incumbent management, even though certain stockholders
of the Holding Company may deem a potential acquisition to be in their best
interests, or deem existing management not to be acting in their best interests.
112
<PAGE>
DESCRIPTION OF CAPITAL STOCK OF THE HOLDING COMPANY
GENERAL
The Holding Company is authorized to issue 25,000,000 shares of common
stock having a par value of $.01 per share and 1,000,000 shares of preferred
stock having a par value of $.01 per share. Each share of the Holding Company's
common stock will have the same relative rights as, and will be identical in all
respects with, each other share of common stock. Upon payment of the purchase
price for the common stock, in accordance with the Plan of Conversion, all such
stock will be duly authorized, fully paid and nonassessable.
THE COMMON STOCK OF THE HOLDING COMPANY WILL REPRESENT NONWITHDRAWABLE
CAPITAL, WILL NOT BE AN ACCOUNT OF ANY TYPE, AND WILL NOT BE INSURED BY THE FDIC
OR ANY OTHER GOVERNMENT AGENCY.
COMMON STOCK
DIVIDENDS. The Holding Company can pay dividends out of statutory surplus
or from certain net profits if, as and when declared by its Board of Directors.
The payment of dividends by the Holding Company is subject to limitations which
are imposed by law and applicable regulation. See "DIVIDEND POLICY" and
"REGULATION." The holders of common stock of the Holding Company will be
entitled to receive and share equally in such dividends as may be declared by
the Board of Directors of the Holding Company out of funds legally available
therefor. If the Holding Company issues preferred stock, the holders thereof
may have a priority over the holders of the common stock with respect to
dividends.
STOCK REPURCHASES. The Plan of Conversion and OTS regulations place
certain limitations on the repurchase of the Holding Company's capital stock.
See "THE CONVERSION -- Restrictions on Repurchase of Stock" and "USE OF
PROCEEDS."
VOTING RIGHTS. The holders of common stock of the Holding Company will
possess exclusive voting rights in the Holding Company. They will elect the
Holding Company's Board of Directors and act on such other matters as are
required to be presented to them under Federal law or as are otherwise presented
to them by the Board of Directors. Except as discussed in "RESTRICTIONS ON
ACQUISITION OF THE HOLDING COMPANY," each holder of common stock will be
entitled to one vote per share and will not have any right to cumulate votes in
the election of directors. If the Holding Company issues preferred stock,
holders of preferred stock may also possess voting rights. Certain matters
require a vote of 80% of the outstanding shares entitled to vote thereon. See
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY."
As a federal stock savings bank, corporate powers and control of the Bank
are vested in the Board of Directors, who elect the officers of the Bank and who
fill any vacancies on the Board of Directors as it exists upon conversion.
Subsequent to conversion, voting rights will be vested exclusively in the owners
of the shares of capital stock of the Bank, all of which will be owned by the
Holding Company, and voted at the direction of the Holding Company's Board of
Directors. Consequently, the holders of the Holding Company's common stock will
not have direct control of the Bank.
LIQUIDATION. In the event of any liquidation, dissolution or winding up of
the Bank, the Holding Company, as holder of the Bank's capital stock would be
entitled to receive, after payment or provision for payment of all debts and
liabilities of the Bank (including all deposit accounts and accrued interest
thereon) and after distribution of the balance in the special liquidation
account to Eligible Account Holders and Supplemental Eligible Account Holders
(see "THE CONVERSION"), 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. If the Holding Company issues
preferred stock, the holders thereof may have a priority over the holders of the
common stock in the event of liquidation or dissolution.
113
<PAGE>
PREEMPTIVE RIGHTS. Holders of the common stock of the Holding Company will
not be entitled to preemptive rights with respect to any shares that may be
issued. The common stock is not subject to redemption.
PREFERRED STOCK
Preferred stock may be issued with such designations, powers, preferences
and rights as the Board of Directors may from time to time determine. The Board
of Directors can, without stockholder approval, issue preferred stock with
voting, dividend, liquidation and conversion rights that could dilute the voting
strength of the holders of the common stock and may assist management in
impeding an unfriendly takeover or attempted change in control. None of the
shares of the authorized preferred stock will be issued in the conversion and
there are no plans to issue preferred stock.
RESTRICTIONS ON ACQUISITION
Acquisitions of the Holding Company are restricted by provisions in its
Certificate of Incorporation and Bylaws and by the rules and regulations of
various regulatory agencies. See "REGULATION" and "RESTRICTIONS ON ACQUISITION
OF THE HOLDING COMPANY."
EFFECT OF RECEIVERSHIP ON THE COMMON STOCK
In the event of the receivership of the Bank, the FDIC, as receiver, shall,
by operation of law, succeed to, among other things, all the rights, titles,
powers and privileges of the Bank and its stockholder, the Holding Company. As
provided by the procedures and priorities applicable to receiverships of the
Savings institutions, the holders of the common stock would be entitled to
receive any funds remaining after all depositors, creditors, other claimants
(other than holders of stock ranking junior to or on a parity with the common
stock) and administrative expenses are paid.
TRANSFER AGENT AND REGISTRAR
Registrar and Transfer Company is the transfer agent and registrar for
shares of the Common stock.
REGISTRATION REQUIREMENTS
The Holding Company has registered the common stock with the SEC pursuant
to Section 12(g) of the Exchange Act and will not deregister its common stock
for a period of at least three years following the completion of the conversion.
As a result of such registration, the proxy solicitation and tender offer rules,
insider trading reporting and restrictions, annual and periodic reporting and
other requirements of the Exchange Act will apply.
LEGAL AND TAX OPINIONS
The legality of the common stock has been passed upon for the Holding
Company by Breyer & Aguggia LLP, Washington, D.C. The federal and Missouri tax
consequences of the conversion have been opined upon by Breyer & Aguggia LLP.
Breyer & Aguggia LLP has consented to the references herein to its opinions.
Certain legal matters will be passed upon for Webb by Armstrong, Teasdale,
Schlafly & Davis, St. Louis, Missouri.
EXPERTS
The consolidated financial statements of the Bank as of September 30, 1997
and 1996 and for each of the years in the three-year period ended September 30,
1997 have been included herein and in the Registration Statement in reliance
upon the report of Deloitte & Touche LLP, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
114
<PAGE>
RP Financial has consented to the publication herein of the summary of its
report to the Bank setting forth its opinion as to the estimated pro forma
market value of the MHC and the Bank, as converted, and its letter with respect
to subscription rights and to the use of its name and statements with respect to
it appearing herein.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration Statement on Form
S-1 (File No. 333-_____) under the Securities Act with respect to the common
stock offered in the conversion. This prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. You may read
and copy such information at the SEC's public reference room in Washington, D.C.
You can request copies of those documents, upon payment of a duplicating fee, by
writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. The Registration
Statement also is available through the SEC's World Wide Web site on the
Internet (http://www.sec.gov).
The MHC has filed with the OTS an Application for Approval of Conversion,
which includes proxy materials for the special meetings of the members of the
MHC and the stockholders of the Bank. This prospectus omits certain information
contained in such Application. The Application, including the proxy materials,
exhibits and certain other information that are a part thereof, may be
inspected, without charge, at the offices of the OTS, 1700 G Street, N.W.,
Washington, D.C. 20552 and at the office of the Regional Director of the OTS at
the OTS Midwest Regional Office, 122 W. John Carpenter Freeway, Suite 600,
Irving, Texas 75039.
115
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PULASKI BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report........................................... F-1
Consolidated Balance Sheets as of
March 31, 1998 (unaudited) and September 30, 1997 and 1996............ F-2
Consolidated Statements of Operations for the
Six Months Ended March 31, 1998 and 1997 (unaudited) and the
Years Ended September 30, 1997, 1996 and 1995......................... 30
Consolidated Statements of Stockholders' Equity
Six Months Ended March 31, 1998 (unaudited) and the
Years Ended September 30, 1997, 1996 and 1995......................... F-3
Consolidated Statements of Cash Flows for the
Six Months Ended March 31, 1998 and 1997 (unaudited) and the
Years Ended September 30, 1997, 1996 and 1995......................... F-4
Notes to Consolidated Financial Statements............................. F-6
</TABLE>
* * *
All schedules are omitted as the required information either is not
applicable or is included in the Consolidated Financial Statements or related
Notes.
Separate financial statements for the MHC have not been included herein
because the MHC has no material assets other than shares of Bank common stock
(which will be canceled as part of the conversion) and no significant
liabilities (contingent or otherwise), revenues or expenses, and has not engaged
in any significant activities to date.
Separate financial statements for the Holding Company have not been
included herein because the Holding Company, which has engaged in only
organizational activities to date, has no significant assets, liabilities
(contingent or otherwise), revenues or expenses.
116
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Pulaski Bank, A Federal Savings Bank:
We have audited the accompanying consolidated balance sheets of Pulaski Bank, A
Federal Savings Bank and subsidiaries (the "Bank") as of September 30, 1997 and
1996, and the related consolidated statements of income, stockholders' equity
and cash flows for each of the three years in the period ended September 30,
1997. These financial statements are the responsibility of the Bank's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Bank as of September 30, 1997
and 1996, and the results of its operations and its cash flows for each of the
three years in the period ended September 30, 1997, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Bank
changed its method of accounting for mortgage servicing rights, effective
October 1, 1996, to conform with Statement of Financial Accounting Standards
No. 122.
/s/ DELOITTE & TOUCHE LLP
St. Louis, Missouri
November 7, 1997
F-1
<PAGE>
PULASKI BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1998 (UNAUDITED) AND SEPTEMBER 30, 1997 AND 1996
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
March 31, SEPTEMBER 30,
1998 --------------------------------
ASSETS (Unaudited) 1997 1996
<S> <C> <C> <C>
Cash and amounts due from depository institutions $ 2,028,113 $ 1,248,294 $ 2,022,158
Federal funds sold and overnight deposits 12,000,000 5,000,000 7,000,000
------------ ------------ ------------
Total cash and cash equivalents 14,028,113 6,248,294 9,022,158
Investment securities (market value $11,043,506, $16,071,484 and
$14,966,800, respectively) (Note 2) 11,035,768 16,068,191 15,011,923
Mortgage-backed and related securities - at cost (market value
$6,408,547, $6,647,107 and $7,645,805, respectively) (Note 3) 6,119,764 6,361,708 7,424,060
Loans held for sale 21,695,321 14,384,480 7,209,570
Loans receivable, net of allowance for loan losses of $664,422,
$612,852 and $478,804, respectively (Notes 4 and 8) 124,734,487 130,358,537 134,044,087
Federal Home Loan Bank stock - at cost 1,638,000 1,638,000 1,638,000
Real estate acquired in settlement of loans, net of allowance
for losses of $9,221, $-0- and $38,725, respectively (Note 5) 52,251 133,436
Premises and equipment - net (Note 6) 1,733,323 1,808,809 1,700,064
Accrued interest receivable:
Investment securities 80,198 140,225 110,005
Mortgage-backed securities 46,834 49,468 58,696
Loans 871,845 925,708 884,198
Other 1,883 882 1,767
Other assets 1,591,098 1,434,430 1,574,303
------------ ------------ ------------
TOTAL $183,628,885 $179,418,732 $178,812,267
============ ============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits (Note 7) $154,115,542 $148,672,221 $147,824,430
Advances from Federal Home Loan Bank of Des Moines (Note 8) 1,900,000 2,200,000 3,000,000
Advance payments by borrowers for taxes and insurance (Note 4) 1,552,170 3,113,093 3,055,223
Accrued interest payable 258,732 262,833 261,462
Other liabilities 1,153,491 1,312,695 2,166,745
------------ ------------ ------------
Total liabilities 158,979,935 155,560,842 156,307,860
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 12 and 13)
STOCKHOLDERS' EQUITY:
Preferred stock - $1.00 par value per share, authorized 10,000,000
shares; none issued or outstanding
Common stock - $1.00 par value per share, authorized 20,000,000
shares; 2,105,840, 2,094,800 shares and 2,094,000 shares
issued and outstanding, respectively 2,105,840 2,094,800 2,094,000
Additional paid-in capital 5,255,358 5,132,238 5,117,826
Unearned MRDP shares (Note 11) (101,200) (128,800) (184,000)
Retained earnings, substantially restricted (Note 10) 17,388,952 16,759,652 15,476,581
------------ ------------ ------------
Total stockholders' equity 24,648,950 23,857,890 22,504,407
------------ ------------ ------------
TOTAL $183,628,885 $179,418,732 $178,812,267
============ ============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
F-2
<PAGE>
PULASKI BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
SIX MONTHS ENDED MARCH 31, 1998 (UNAUDITED) AND YEARS ENDED
SEPTEMBER 30, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNEARNED
MANAGEMENT
RECOGNITION
NUMBER OF ADDITIONAL AND
SHARES COMMON PAID-IN DEVELOPMENT RETAINED
OUTSTANDING STOCK CAPITAL PLAN SHARES EARNINGS TOTAL
<S> <C> <C> <C> <C> <C> <C>
BALANCE,
OCTOBER 1, 1994 2,070,000 $2,070,000 $4,865,826 $ - $14,392,429 $21,328,255
Award of Management
Recognition and Development
Plan shares 24,000 24,000 252,000 (276,000)
Amortization of Management
Recognition and Development
Plan shares 36,800 36,800
Dividends ($.80 per share)* (494,400) (494,400)
Net income 1,225,490 1,225,490
----------- ----------- ----------- ----------- ------------ -----------
BALANCE,
SEPTEMBER 30, 1995 2,094,000 2,094,000 5,117,826 (239,200) 15,123,519 22,096,145
Amortization of Management
Recognition and Development
Plan shares 55,200 55,200
Dividends ($0.85 per share)* (530,400) (530,400)
Net income 883,462 883,462
----------- ----------- ----------- ----------- ------------ -----------
BALANCE,
SEPTEMBER 30, 1996 2,094,000 2,094,000 5,117,826 (184,000) 15,476,581 22,504,407
Stock option exercised 800 800 14,412 15,212
Amortization of Management
Recognition and Development
Plan shares 55,200 55,200
Dividends ($1.03 per share)* (639,820) (639,820)
Net income 1,922,891 1,922,891
----------- ----------- ----------- ----------- ------------ -----------
BALANCE,
SEPTEMBER 30, 1997 2,094,800 2,094,800 5,132,238 (128,800) 16,759,652 23,857,890
Dividends ($.55 per share)* (347,254) (347,254)
Stock options exercised 11,040 11,040 123,120 134,160
Amortization of management
recognition and development
plan shares 27,600 27,600
Net income 976,553 976,553
----------- ----------- ----------- ----------- ------------ -----------
BALANCE, MARCH 31, 1998 2,105,840 $2,105,840 $5,255,358 $(101,200) $17,388,951 $24,648,949
=========== =========== =========== =========== ============ ===========
</TABLE>
*Pulaski Bancshares, M.H.C. ("Holding Company"), which owns 1,470,000 shares of
stock in the Bank, waived receipt thereby reducing the actual dividend payment
to the amounts shown above.
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PULASKI BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED) AND YEARS ENDED
SEPTEMBER 30, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
--------------------------- ----------------------------------------
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 976,553 $ 894,413 $ 1,922,891 $ 883,462 $ 1,225,490
------------ ------------ ------------ ------------ ------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation, amortization and accretion:
Premises and equipment 141,055 125,315 270,254 206,205 233,911
Management Recognition and Development Plan
stock awards 27,600 27,600 55,200 55,200 36,800
Loan fees, discounts and premiums - net (58,337) (110,177) (228,781) (236,288) (27,355)
Provision for loan losses 69,523 18,481 169,176 64,700 151,358
Provision for losses on real estate acquired in
settlement of loans 15,998 14,723 14,653 50,023 133,627
Gains on sales of real estate acquired in
settlement
of loans (15,676) (4,694) (44,447) (24,745)
Originations of loans for sale to
correspondent lenders (58,639,358) (29,537,786) (70,365,167) (59,795,458) (36,848,195)
Proceeds from sales of loans to
correspondent lenders 51,609,255 27,450,555 63,598,438 56,063,054 36,160,662
Gains on sales of loans (280,738) (157,043) (408,180) (214,054) (66,662)
Deferred taxes 11,526 241,787 435,066 (562,061) (37,244)
Changes in other assets and liabilities (215,976) (1,239,455) (1,231,160) 1,132,706 (577,729)
------------ ------------ ------------ ------------ ------------
Net adjustments (7,319,452) (3,181,676) (7,695,195) (3,280,420) (865,572)
------------ ------------ ------------ ------------ ------------
Net cash (used in) provided by
operating activities (6,342,899) (2,287,263) (5,772,304) (2,396,958) 359,918
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities 13,545,000 7,500,000 13,500,000 5,997,700 3,000,000
Purchases of investment securities and Federal (8,412,722) (11,023,826)
Home Loan Bank stock (14,333,318) (15,320,866) (1,658,600)
Principal payments received on mortgage-backed
and related securities 242,998 556,831 1,070,115 2,022,252 2,244,310
Loan purchases (261,000)
Loan repayments - net 5,397,604 5,047,984 3,511,481 14,164,754 7,888,888
Proceeds from sales of real estate acquired in
settlement of loans 46,103 58,936 126,436 475,479 1,333,000
Net additions to premises and equipment (65,569) (199,140) (378,999) (392,410) (83,891)
------------ ------------ ------------ ------------ ------------
Net cash provided by investing activities 10,753,414 1,940,785 3,495,715 6,946,909 12,462,707
------------ ------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits $ 5,443,321 1,860,270 847,891 (3,680,444) (1,323,191)
Proceeds from Federal Home Loan Bank advances 1,000,000
Repayment of Federal Home Loan Bank advances (300,000) (800,000) (800,000) (2,000,000) (8,000,000)
Net increase (decrease) in advance payments by
borrowers for taxes and insurance (1,560,923) (1,642,189) 79,442 (198,698) (60,331)
Common stock issued under Stock Option Plan and
related tax benefit 134,160 15,212
Dividends declared on common stock (347,254) (312,000) (639,820) (530,400) (494,400)
------------ ------------ ------------ ------------ ------------
Net cash used in financing activities 3,369,304 (893,919) (497,275) (6,409,542) (8,877,922)
------------ ------------ ------------ ------------ ------------
(Continued)
</TABLE>
F-4
<PAGE>
PULASKI BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED) AND YEARS ENDED
SEPTEMBER 30, 1997, 1996 AND 1995
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
--------------------------- ----------------------------------------
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS $ 7,779,819 $ (1,240,397) $ (2,773,864) $ (1,859,591) $ 3,944,703
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR 6,248,294 9,022,158 9,022,158 10,881,749 6,937,046
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 14,028,113 $ 7,781,761 $ 6,248,294 $ 9,022,158 $ 10,881,749
============ ============ ============ ============ ============
ADDITIONAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest on deposits $ 3,480,848 $ 3,396,361 $ 6,822,800 $ 6,884,066 $ 6,352,107
Interest on advances from the
Federal Home Loan Bank 69,230 90,983 160,594 187,239 468,983
Income taxes 690,814 106,190 486,190 930,000 537,472
NONCASH INVESTING ACTIVITIES:
Real estate acquired in settlement of loans 114,352 5,138 2,959 277,590 1,425,003
Loans securitized 7,006,517 4,091,086 10,188,257 6,220,945 1,587,396
Award of Management Recognition and Development
Plan shares 276,000
(Concluded)
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
PULASKI BANK, A FEDERAL SAVINGS BANK AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MARCH 31, 1998 AND 1997 (UNAUDITED) AND
YEARS ENDED SEPTEMBER 30, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pulaski Bank, A Federal Savings Bank (the "Bank") was founded in 1922 as a
Missouri chartered savings and loan association and is headquartered in St.
Louis County, Missouri. Pursuant to a Plan of Reorganization and Stock
Issuance in Connection with Formation of a Mutual Holding Company adopted by
the Bank's Board of Directors on November 17, 1993, and subsequently amended,
the Bank reorganized as the Missouri chartered capital stock savings and loan
association subsidiary of Pulaski Bancshares, M.H.C. ("Holding Company"), a
Federally-chartered mutual holding company ("Reorganization"). The
Reorganization was completed on May 11, 1994 through the issuance by the Bank
of 2,070,000 shares of common stock, of which 1,470,000 shares were issued to
the Holding Company and 600,000 shares were issued to depositors and
borrowers of the Bank.
On May 10, 1995, the Bank received conditional approval from the Office of
Thrift Supervision ("OTS") to convert from a Missouri-chartered stock savings
and loan association to a Federally-chartered stock savings bank. The
charter conversion was conditioned upon the approval of the Bank's minority
stockholders (other than Pulaski Bancshares, M.H.C.). At a special meeting
of Stockholders held June 19, 1995, the charter conversion was approved by
the stockholders and became effective. The Bank changed its name to "Pulaski
Bank, A Federal Savings Bank" as part of the charter conversion.
The accounting and reporting policies and practices of the Bank and
subsidiaries conform to generally accepted accounting principles and to
prevailing practices within the thrift industry. A summary of the Bank's
significant accounting policies follows:
UNAUDITED INTERIM FINANCIAL STATEMENTS - The interim consolidated financial
statements as of March 31, 1998 and for the six months ended March 31, 1998
and 1997 and the related footnote information are unaudited. Such unaudited
interim financial statements have been prepared in accordance with the
requirements for presentation of interim financial statements and are in
accordance with generally accepted accounting principles. In the opinion of
management, the accompanying unaudited consolidated financial statements
contain all adjustments (consisting of only normal recurring adjustments)
necessary to present fairly the financial position as of March 31, 1998 and
the results of operations and cash flows for the six month periods ended
March 31, 1998 and 1997. The results of operations for the six months ended
March 31, 1998 are not necessarily indicative of results that may be expected
for any other interim period or for the full year.
NATURE OF OPERATIONS - The Bank is a community-oriented financial institution
that provides traditional financial services through the operation of five
full service branches within St. Louis City and County. The Bank is engaged
primarily in the business of attracting deposits from the general public and
using these and other funds to originate one- to four-family residential
mortgage loans within the Bank's lending market area. The Bank is an
approved lender/servicer for the Federal Housing Administration ("FHA") and
the Veterans Administration ("VA"), as well as for the Missouri Housing
Development Commission (a government agency established to provide home
buying opportunities for lower income
F-6
<PAGE>
first time home buyers) ("MHDC"). The Bank is also an approved
seller/servicer for the Government National Mortgage Association ("GNMA").
PRINCIPLES OF CONSOLIDATION - The accompanying consolidated financial
statements include the accounts of Pulaski Bank, A Federal Savings Bank, its
wholly-owned subsidiary Pulaski Service Corporation and Pulaski Service
Corporation's wholly-owned subsidiary Pulaski Real Estate Co. All
significant intercompany balances and transactions have been eliminated.
Pulaski Real Estate Co. was liquidated and dissolved during the year ended
September 30, 1997. This transaction did not have a significant impact on
the consolidated financial statements.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS - The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and that
affect the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. The provision for
loan losses is a significant estimate reported within the financial
statements.
CASH EQUIVALENTS - For purposes of reporting cash flows, cash and cash
equivalents include cash and amounts due from depository institutions,
federal funds sold, and overnight deposits. Generally, federal funds are
sold for a one-day period.
INVESTMENT AND MORTGAGE-BACKED AND RELATED SECURITIES - Investment and
mortgage-backed and related securities are classified as held-to-maturity and
are stated at cost, adjusted for amortization of premiums and accretion of
discounts, as management has both the intent and ability to hold them to
maturity. Such premiums and discounts are amortized and accreted utilizing
the level yield method. Gains and losses from sales are determined on a
specific identification method. Effective October 1, 1994, the Bank adopted
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Debt and Equity Securities. All investments and mortgage-backed securities
were classified as held-to-maturity.
LOANS HELD FOR SALE - Loans held for sale are covered by investor commitments
and generally sold servicing released. Accordingly, market values for such
loans are based on commitment prices. Gains or losses on loan sales are
recognized at the time of sale and are determined by the difference between
net sales proceeds and the principal balance of the loans sold, adjusted for
net deferred loan fees. Loan origination and commitment fees, net of certain
direct loan origination costs, are deferred until the sale of the loan.
LOANS - Loans are stated at the principal amounts outstanding adjusted for
premiums and discounts. Premiums and discounts are amortized and accreted
using the level yield method.
Interest on loans is accrued based upon the principal amounts outstanding.
The Bank's policy is to discontinue the accrual of interest income on any
loan when, in the opinion of management, there is reasonable doubt as to the
timely collectibility of interest or principal. Non-accrual loans are
returned to accrual status when, in the opinion of management, the financial
position of the borrower indicates there is no longer any reasonable doubt as
to the timely collectibility of interest or principal.
Loan origination and commitment fees, net of certain direct loan origination
costs, are deferred and amortized to interest income using the level yield
method.
F-7
<PAGE>
ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is increased by
charges to income and decreased by charge-offs (net of recoveries).
Management's periodic evaluation of the adequacy of the allowance is based on
the Bank's past loan loss experience, known and inherent risks in the
portfolio, adverse situations which may affect the borrower's ability to
repay, the estimated value of any underlying collateral and current economic
conditions.
REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS - Real estate acquired in
settlement of loans is initially recorded on an individual asset basis at the
lower of (1) fair value minus estimated cost to sell or (2) cost, with any
writedown charged to the allowance for loan losses. If, subsequent to
foreclosure, the fair value of the real estate acquired through foreclosure
is determined to have declined based upon periodic evaluations by management,
valuation allowances are established through a charge to income. Subsequent
increases in the fair value are recorded through a reversal of the valuation
allowance, but not below zero. Costs relating to the development or
improvement of real estate owned are capitalized, whereas those relating to
holding and maintaining the property are charged to expense.
PREMISES AND EQUIPMENT - Premises and equipment are stated at cost, less
accumulated depreciation. Depreciation charged to operations is primarily
computed utilizing the straight-line method over the estimated useful lives
of the related assets. Estimated lives range from 3 to 45 years for
buildings and improvements and 5 to l0 years for furniture and equipment.
INCOME TAXES - Deferred income taxes are determined using an asset or
liability approach that requires the recognition of deferred tax assets or
liabilities based upon temporary differences in the tax basis of an asset or
liability and its related financial statement balance. The deferred tax
asset or liability is calculated using the enacted tax rates expected to
apply in the period in which the deferred asset or liability is expected to
be settled or realized.
EARNINGS PER SHARE - Basic earnings per share are determined by dividing net
income for the period by the weighted average number of common shares.
Diluted earnings per share considers the effects of dilution of earnings
after consideration of the stock options outstanding under the Bank's Stock
Option Plan.
A summary of the weighted average number of shares and weighted average
number of shares and common equivalent shares follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED MARCH 31, YEARS ENDED SEPTEMBER 30,
---------------------- ----------------------------------
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Weighted average
number of shares 2,097,509 2,094,092 2,094,092 2,094,000 2,086,833
Common equivalent
shares 33,444 11,475 16,860 8,874 9,218
--------- --------- --------- --------- ---------
Weighted average
number of shares
and common
equivalent shares 2,130,953 2,105,567 2,110,860 2,102,874 2,096,051
========= ========= ========= ========= =========
</TABLE>
MORTGAGE SERVICING RIGHTS - On October 1, 1996, the Bank adopted the
provisions of Statement of Financial Accounting Standards No. 122, Accounting
for Mortgage Servicing Rights ("SFAS 122"). Effective December 31, 1996,
SFAS 122 was superseded by Statement of Financial Accounting
F-8
<PAGE>
Standards No. 125, Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities ("SFAS 125"). SFAS 125 did not materially
change the accounting of mortgage servicing rights under SFAS 122 but
provided a broader umbrella on the accounting and reporting standards for
transfers and servicing of financial assets and extinguishments of
liabilities.
For the six months ended March 31, 1998 and 1997 and for the year ended
September 30, 1997, approximately $119,000, $92,000 and $194,000 of mortgage
servicing rights were capitalized, respectively. The fair value of the
mortgage servicing rights were based upon the present value of estimated
expected future cash flows valuation technique and in some instances fair
value. The discount rate utilized was commensurate with the risks inherent
in the portfolio and the average portfolio life was based upon relative
industry statistics and the Bank's historic prepayment rate. The cost of
mortgage servicing rights is amortized in proportion to, and over the period
of estimated net servicing revenues. Impairment of mortgage servicing rights
is assessed based on the fair value of the rights. A valuation allowance has
not been established as the amortized cost approximates fair value.
RECLASSIFICATIONS - Certain amounts included in the 1995, 1996 and 1997
consolidated financial statements have been reclassified to conform to the
1998 presentation.
2. INVESTMENT SECURITIES
Investment securities are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998 (UNAUDITED)
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Government and Agency
debt obligations $11,035,768 $18,985 $(11,247) $11,043,506
============ ======== ======== ============
Weighted average rate at end
of period 5.81%
============
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
U.S. Government and Agency debt
obligations $16,068,191 $27,288 $(23,995) $16,071,484
============ ======== ========== ============
Weighted average rate at end of
period 5.88%
============
</TABLE>
F-9
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Bankers acceptances $ 490,725 $ - $ - $ 490,725
U.S. Government and Agency debt
obligations 14,521,198 2,381 (47,504) 14,476,075
----------- ------- --------- -----------
$15,011,923 $2,381 $(47,504) $14,966,800
=========== ======= ========= ===========
Weighted average rate at end of
period 5.74%
===========
</TABLE>
The amortized cost and market values of debt securities by contractual
maturity, are as follows:
<TABLE>
<CAPTION>
AT MARCH 31, 1998 AT SEPTEMBER 30, 1997
-------------------------- ---------------------------
AMORTIZED MARKET AMORTIZED MARKET
TERM TO MATURITY COST VALUE COST VALUE
<S> <C> <C> <C> <C>
Less than 1 year $ 4,736,533 $ 4,732,881 $ 9,403,409 $ 9,383,935
1 year - 5 years 6,299,235 6,310,625 6,664,782 6,687,549
----------- ----------- ----------- -----------
Total $11,035,768 $11,043,506 $16,068,191 $16,071,484
=========== =========== =========== ===========
</TABLE>
3. MORTGAGE-BACKED AND RELATED SECURITIES
Mortgage-backed and related securities are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, 1998 (UNAUDITED)
----------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage
Corporation pass-through
certificates $ 884,471 $ 59,922 $ - $ 944,393
Government National Mortgage
Association pass-through
securities 4,187,394 203,073 4,390,467
Collateralized mortgage obligations 1,047,899 25,788 1,073,687
---------- -------- ------ ----------
Total $6,119,764 $288,783 $ - $6,408,547
========== ======== ====== ==========
Weighted average rate at end of period 8.23%
==========
</TABLE>
At March 31, 1998, the Federal Home Loan Mortgage Corporation pass-through
certificates were all fixed rate with a weighted average yield of 9.57%. The
Government National Mortgage Association pass-through securities consisted of
$3,601,784 at fixed rates and $585,610 at variable rates with a weighted
average yield of 8.36%. The collateralized mortgage obligations consisted of
$1,047,899 at variable rates with a weighted average yield of 6.57% with
weighted average lives of 4.35 years.
F-10
<PAGE>
<TABLE>
<CAPTION>
SEPTEMBER 30, 1997
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage
Corporation pass-through
certificates $ 997,968 $ 63,756 $ - $1,061,724
Government National Mortgage
Association pass-through
securities 4,308,192 193,812 4,502,004
Collateralized mortgage obligations 1,055,548 28,125 (294) 1,083,379
---------- -------- ----- ----------
Total $6,361,708 $285,693 $(294) $6,647,107
========== ======== ===== ==========
Weighted average rate at end of period 8.24%
==========
</TABLE>
At September 30, 1997, the Federal Home Loan Mortgage Corporation pass-
through certificates were all fixed rate with a weighted average yield of
9.56%. The Government National Mortgage Association pass-through securities
consisted of $3,680,894 at fixed rates and $627,298 at variable rates with a
weighted average yield of 8.35%. The collateralized mortgage obligations
consisted of $1,055,548 at variable rates with a weighted average yield of
6.53% with weighted average lives of 5.22 years.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1996
---------------------------------------------------
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
<S> <C> <C> <C> <C>
Federal Home Loan Mortgage
Corporation pass-through
certificates $1,231,675 $ 74,737 $ - $1,306,412
Government National Mortgage
Association pass-through
securities 4,682,284 130,772 (8,819) 4,804,237
Collateralized mortgage obligations 1,498,015 26,259 (1,204) 1,523,070
Other 12,086 12,086
---------- -------- -------- ----------
Total $7,424,060 $231,768 $(10,023) $7,645,805
========== ======== ======== ==========
Weighted average rate at end of period 8.17%
==========
</TABLE>
F-11
<PAGE>
4. LOANS RECEIVABLE
Loans receivable are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
MARCH 31, 1998 -----------------------------
(UNAUDITED) 1997 1996
<S> <C> <C> <C>
Loans secured by residential real estate:
Conventional $107,972,923 $113,959,269 $117,583,928
FHA/VA 9,398,869 10,745,031 11,844,879
------------ ------------ ------------
117,371,792 124,704,300 129,428,807
Commercial real estate loans 612,096 2,120,129 3,452,282
Consumer loans 7,251,034 4,051,414 1,627,524
------------ ------------ ------------
125,234,922 130,875,843 134,508,613
Less:
Deferred loan (costs) fees (300,692) (142,768) (41,406)
Loans-in-process 136,705 47,222 27,128
Allowance for loan losses 664,422 612,852 478,804
------------ ------------ ------------
Total $124,734,487 $130,358,537 $134,044,087
============ ============ ============
Weighted average rate at end of period 8.27% 8.34% 8.02%
============ ============ ============
</TABLE>
The adjustable rate loans have interest rate adjustment limitations and are
generally indexed to the one year Constant Maturity U.S. Treasury rate.
Future market factors may affect the correlation of the interest rate
adjustment with the rates the Bank pays on the short-term deposits that have
been primarily utilized to fund these loans.
The Bank has granted loans to officers, directors and employees. Changes in
loans to officers, directors and employees are summarized as follows:
<TABLE>
<S> <C>
Balance, October 1, 1995 $ 970,533
Additions 80,825
Repayments and reclassifications (389,314)
----------
Balance, September 30, 1996 662,044
Additions 657,242
Repayments and reclassifications (316,420)
----------
Balance, September 30, 1997 1,002,866
Additions 560,315
Repayments and reclassifications (268,383)
----------
Balance, March 31, 1998 $1,294,798
==========
</TABLE>
F-12
<PAGE>
Activity in the allowance for loan losses for the six months ended March 31,
1998 and 1997 and for the years ended September 30, 1997, 1996 and 1995
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31, YEARS ENDED SEPTEMBER 30,
----------------------------- ---------------------------------------------
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $612,852 $478,804 $478,804 $418,968 $ 477,319
Provision charged to expense 69,523 18,481 169,176 64,700 151,358
Charge-offs (23,180) (42,487) (43,915) (17,057) (257,980)
Recoveries 5,227 4,000 8,787 12,193 48,271
-------- -------- -------- -------- ---------
Balance, end of period $664,422 $458,798 $612,852 $478,804 $ 418,968
======== ======== ======== ======== =========
</TABLE>
Nonaccrual loans for which interest has been reduced totaled approximately
$404,000, $217,000, $51,000 and $214,000 at March 31, 1998 and September 30,
1997, 1996 and 1995, respectively. Interest income recognized on impaired
loans was not significant for the six months ended March 31, 1998 and 1997 or
for the years ended September 30, 1997, 1996 and 1995. Similarly, the
difference between interest that would have been recognized under the
original terms of nonaccrual and renegotiated loans and interest actually
recognized on such loans were not significant.
At March 31, 1998, the Bank was servicing loans for others amounting to
approximately $34,400,000. At September 30, 1997, 1996 and 1995, such loans
approximated $28,972,000, $20,659,000 and $16,286,000, respectively.
Servicing loans for others generally consists of collecting mortgage
payments, maintaining escrow accounts, disbursing payments to investors and
foreclosure processing. Loan servicing income is recorded on the accrual
basis and includes servicing fees from investors and certain charges
collected from borrowers. In connection with these loans serviced for
others, the Bank held borrowers' escrow balances of $394,000, $294,000 and
$247,000 at September 30, 1997, 1996 and 1995, respectively. Escrow balances
at March 31, 1998 totaled $177,000.
The Bank originates certain loans for resale to correspondent lenders. Loans
sold to correspondent lenders during the six months ended March 31, 1998 and
1997 totaled $44.5 million and $23.4 million, respectively. During 1997,
1996 and 1995, the Bank sold whole loans to correspondent lenders totaling
$53.4 million, $49.8 million and $34.6 million, respectively. The Bank also
originates loans for sale to the MHDC. These loans are then pooled and
securitized as GNMA mortgaged-backed securities and sold to MHDC. The Bank
retains servicing of these loans. During the six months ended March 31, 1998
and 1997, the Bank securitized and sold loans to MHDC totaling $7.1 million
and $4.1 million, respectively. During 1997, 1996 and 1995, the Bank
securitized and sold loans to MHDC totaling $10.2 million, $6.3 million and
$1.6 million.
5. REAL ESTATE ACQUIRED IN SETTLEMENT OF LOANS
Real estate acquired in settlement of loans is summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
MARCH 31, ------------------
1998 1997 1996
<S> <C> <C> <C>
Acquired in settlement of loans $61,472 $ - $172,161
Allowance for losses (9,221) (38,725)
------- -------- --------
Total $52,251 $ - $133,436
======= ======== ========
</TABLE>
F-13
<PAGE>
Activity in the allowance for losses on real estate owned is summarized as
follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
--------------------------- -------------------------------------------
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ - $ 38,725 $ 38,725 $ 59,453 $ 21,843
Provision charged to expense 15,998 14,723 14,653 50,023 133,627
Charge-offs (6,777) (41,038) (53,378) (70,751) (96,017)
------- -------- -------- -------- --------
Balance, end of period $ 9,221 $ 12,410 $ - $ 38,725 $ 59,453
======= ======== ======== ======== ========
</TABLE>
6. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
----------- -----------------------------------
1998 1997 1996
<S> <C> <C> <C>
Land $ 439,886 $ 439,886 $ 439,886
Office buildings and improvements 2,368,182 2,358,188 2,223,748
Furniture and equipment 1,188,499 1,311,090 1,365,059
----------- ----------- -----------
3,996,567 4,109,164 4,028,693
Less accumulated depreciation (2,263,244) (2,300,355) (2,328,629)
----------- ----------- -----------
Total $ 1,733,323 $ 1,808,809 $ 1,700,064
=========== =========== ===========
</TABLE>
F-14
<PAGE>
7. DEPOSITS
Deposits are summarized as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------------------------------------
MARCH 31, 1998 1997 1996
------------------------ ---------------------------------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
INTEREST INTEREST INTEREST
AMOUNT RATE AMOUNT RATE AMOUNT RATE
<S> <C> <C> <C> <C> <C> <C>
Transaction accounts:
Noninterest-bearing checking $ 1,544,784 - % $ 1,015,942 - % $ 448,721 - %
Interest-bearing checking 9,946,781 1.75 8,571,965 2.00 8,612,773 2.00
Money market 11,988,306 3.82 9,693,561 3.78 8,742,290 3.60
------------ ------------ ------------
Total transaction accounts 23,479,871 2.69 19,281,468 2.79 17,803,784 2.74
------------ ------------ ------------
Passbook savings account 25,795,849 2.50 25,983,346 2.50 27,873,378 2.50
------------ ------------ ------------
Certificates of deposit:
3.00% to 3.99% 578,927 3.94 577,558 3.94 888,009 3.95
4.00% to 4.99% 5,910,820 4.78 7,062,476 4.78 10,839,013 4.68
5.00% to 5.99% 82,196,282 5.42 81,184,023 5.43 72,102,875 5.36
6.00% to 6.99% 11,391,636 6.22 9,794,905 6.26 13,371,658 6.42
7.00% to 7.99% 4,762,157 7.03 4,788,445 7.03 4,930,052 7.07
8.00% to 8.99% 15,661 8.02
------------ ------------ ------------
Total certificates of deposit 104,839,822 5.54 103,407,407 5.53 102,147,268 5.50
------------ ------------ ------------
Total $154,115,542 4.59 $148,672,221 4.64 $147,824,430 4.60
============ ============ ============
</TABLE>
The aggregate amount of jumbo certificates of deposit with a minimum
principal amount of $100,000 was approximately $4,828,000, $4,974,000 and
$4,670,000 at March 31, 1998, September 30, 1997 and 1996, respectively.
Jumbo certificates of deposit are not issued at premium rates.
The scheduled maturities of certificates of deposit follows:
<TABLE>
<CAPTION>
MARCH 31, 1998 SEPTEMBER 30, 1997
------------------------------ ---------------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
MATURE WITHIN AMOUNT RATE AMOUNT RATE
<S> <C> <C> <C> <C>
One year $ 65,334,551 5.31 % $ 63,063,243 5.29 %
Two years 26,350,592 5.97 22,632,981 5.66
Three years 8,601,016 5.81 13,739,992 6.34
Four years 1,276,633 5.37 2,510,930 5.52
Five years 3,141,486 5.76 1,240,020 5.77
Thereafter 135,544 7.08 220,241 6.93
------------ ------------
Total $104,839,822 5.54 % $103,407,407 5.53 %
============ ============
</TABLE>
F-15
<PAGE>
8. ADVANCES FROM FEDERAL HOME LOAN BANK OF DES MOINES
Advances from the Federal Home Loan Bank of Des Moines ("FHLB") at September
30, 1997 are summarized as follows:
<TABLE>
<CAPTION>
INTEREST
MATURITY DATE AMOUNT RATE
<S> <C> <C>
March 31, 1998 $ 300,000 5.60 %
March 31, 1999 300,000 5.93
March 31, 2000 300,000 6.15
March 30, 2001 300,000 6.35
March 29, 2002 500,000 6.40
March 31, 2003 500,000 6.57
----------
$2,200,000
==========
</TABLE>
The Bank has the ability to borrow funds from the FHLB under a blanket
agreement which assigns all investments in FHLB stock as well as qualifying
first mortgage loans equal to 150% of the outstanding balance as collateral
to secure the amounts borrowed. At March 31, 1998 and at September 30, 1997,
the Bank had approximately $72,000,000 and $78,000,000, respectively, in
borrowing capacity available to it under the above-mentioned borrowing
arrangement.
9. INCOME TAXES
Income tax (benefits) expense is summarized as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31, YEARS ENDED SEPTEMBER 30,
----------------------------- ---------------------------------------------
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C>
Current $545,460 $ 704,620 $ 589,520 $ 932,035 $650,724
Deferred (11,526) (241,787) 435,066 (562,061) (37,244)
-------- --------- ---------- --------- --------
Total $533,934 $ 462,833 $1,024,586 $ 369,974 $613,480
======== ========= ========== ========= ========
</TABLE>
Income tax expense for the years ended September 30, 1997, 1996 and 1995 and
March 31, 1997 and 1998 differs from that computed at the Federal statutory
rate of 34 percent as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- ------------------------- ------------------------
AMOUNT % AMOUNT % Amount %
<S> <C> <C> <C> <C> <C> <C>
Tax at statutory Federal
income tax rate $1,002,142 34.0 % $426,168 34.0 % $625,250 34.0 %
Increase (decrease)
resulting from:
State taxes 94,606 3.2 29,462 2.4 73,279 4.0
Other (72,162) (2.4) (85,656) (6.9) (85,049) (4.6)
---------- ----- -------- ----- -------- -----
Total $1,024,586 34.8 % $369,974 29.5 % $613,480 33.4 %
========== ===== ======== ===== ======== =====
</TABLE>
F-16
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS ENDED MARCH 31,
----------------------------------------------------------
1998 1997
-------------------------- --------------------------
AMOUNT % AMOUNT %
<S> <C> <C> <C> <C>
Tax at statutory Federal income tax rate $513,566 34.0 % $461,464 34.0 %
Increase (decrease) resulting from:
State taxes 42,294 2.8 42,414 3.2
Other (21,926) (1.5) (41,045) (3.1)
-------- ----- -------- -----
Total $533,934 35.3 % $462,833 34.1 %
======== ===== ======== =====
</TABLE>
The components of deferred tax assets and liabilities follows:
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
---------- --------------------------------
1998 1997 1996
<S> <C> <C> <C>
Deferred tax assets:
Bad debt reserve $255,450 $223,756 $ 141,783
Deferred loan fees 48,212 61,732 88,769
Premises and equipment 322,972 312,269 333,502
Management Recognition and Development
Plan stock awards 37,720 37,720 37,720
SAIF recapitalization 414,143
Supplemental retirement plan 108,379 103,412 95,948
Other 31,004 31,130 15,967
-------- -------- ----------
Total deferred tax assets 803,737 770,019 1,127,832
Deferred tax liabilities:
FHLB stock dividends 166,431 166,431 166,431
Mortgage servicing rights 122,497 77,253
-------- -------- ----------
Total deferred tax liabilities 288,928 243,684 166,431
-------- -------- ----------
Net deferred tax assets $514,809 $526,335 $ 961,401
======== ======== ==========
</TABLE>
10. REGULATORY CAPITAL REQUIREMENTS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory - and possibly additional
discretionary - actions by regulators that, if undertaken, could have a
direct material effect on the Bank's financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve
quantitative measures of the Bank's assets, liabilities, and certain off-
balance-sheet items as calculated under regulatory accounting practices. The
Bank's capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures that have been established by regulation to ensure
capital adequacy require the Bank to maintain minimum capital amounts and
ratios (set forth in the table below). The Bank's primary regulatory agency,
the OTS, requires that the Bank maintain minimum ratios of tangible capital
(as defined in the regulations) of 1.5%, core capital (as defined) of 3%, and
total risk-based capital (as
F-17
<PAGE>
defined) of 8%. The Bank is also subject to prompt corrective action capital
requirement regulations set forth by the FDIC. The FDIC requires the Bank to
maintain minimum of total and Tier I capital (as defined in the regulations)
to risk-weighted assets (as defined), and of Tier I capital (as defined) to
average assets (as defined). Management believes, as of March 31, 1998 and
September 30, 1997, that the Bank meets all capital adequacy requirements to
which it is subject.
As of March 31, 1998 and September 30, 1997 and 1996, the most recent
notification from the OTS categorized the Bank as "well capitalized" under
the regulatory framework for prompt corrective action. To be categorized as
"well capitalized" the Bank must maintain minimum total risk-based, Tier I
risk-based, Tier I leverage ratios as set forth in the table. There are no
conditions or events since that notification that management believes have
changed the Bank's category.
<TABLE>
<CAPTION>
TO BE CATEGORIZED AS
"WELL CAPITALIZED"
UNDER PROMPT
FOR CAPITAL CORRECTIVE ACTION
ACTUAL ADEQUACY PURPOSES PROVISIONS
-------------------------- ------------------------ --------------------------
(DOLLARS IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
AS OF MARCH 31, 1998:
Tangible capital (to total assets) $24,589 13.39 % $2,754 1.50 % N/A N/A
Core capital (to total assets) 24,589 13.39 % 5,507 3.00 % N/A N/A
Total risk-based capital (to risk-
weighted assets) 25,248 26.27 % 7,608 8.00 % $9,610 10.00 %
Tier I risk-based capital (to risk-
weighted assets) 24,589 25.59 % N/A N/A 5,766 6.00 %
Tier I leverage capital (to average
assets) 24,589 13.49 % N/A N/A 9,112 5.00 %
AS OF SEPTEMBER 30, 1997:
Tangible capital (to total assets) 23,839 13.29 % 2,691 1.50 % N/A N/A
Core capital (to total assets) 23,839 13.29 % 5,382 3.00 % N/A N/A
Total risk-based capital (to risk-
weighted assets) 24,448 28.74 % 6,804 8.00 % $8,506 10.00 %
Tier I risk-based capital (to risk-
weighted assets) 23,839 28.03 % N/A N/A 5,103 6.00 %
Tier I leverage capital (to average
assets) 23,839 13.33 % N/A N/A 8,941 5.00 %
AS OF SEPTEMBER 30, 1996:
Tangible capital (to total assets) 22,504 12.59 % 2,682 1.50 % N/A N/A
Core capital (to total assets) 22,504 12.59 % 5,364 3.00 % N/A N/A
Total risk-based capital (to risk-
weighted assets) 22,976 29.41 % 6,249 8.00 % 7,811 10.00 %
Tier I risk-based capital (to risk-
weighted assets) 22,504 28.81 % N/A N/A 4,687 6.00 %
Tier I leverage capital (to average
assets) 22,504 12.54 % N/A N/A 8,974 5.00 %
</TABLE>
F-18
<PAGE>
A reconciliation of stockholders' equity and regulatory risk-based capital
follows (dollars in thousands):
<TABLE>
<CAPTION>
MARCH 31, SEPTEMBER 30,
--------- ------------------------
1998 1997 1996
<S> <C> <C> <C>
Stockholders' equity $24,649 $23,858 $22,504
Less disallowed mortgage servicing rights (60) (19) -
------- ------- -------
Tangible capital 24,589 23,839 22,504
General valuation allowances 659 609 472
------- ------- -------
Regulatory risk-based capital $25,248 $24,448 $22,976
======= ======= =======
</TABLE>
The OTS has issued a final regulation adding an interest rate risk component
to the risk-based capital standards (the "final IRR rule"). Institutions
with a greater than normal interest rate exposure must take a deduction from
the total capital available to meet their risk-based capital requirement.
That deduction is equal to one-half of the difference between the
institution's actual measured exposure and the normal level of exposure as
defined by the regulation. Savings institutions such as the Bank, with less
than $300,000,000 in assets and risk-based capital in excess of 12% are not
subject to the final IRR rule.
OTS regulations permit the Holding Company to waive receipt of dividends from
the Bank with prior OTS approval. Under the provisions of the notice of
intent to waive dividends approved by the OTS, the cumulative amount of such
waived dividends constitutes restricted retained earnings and is available
for declaration as a dividend solely to the Holding Company. Such dividends
must be considered as having been paid by the Bank in evaluating any proposed
dividend under OTS capital distribution regulations. In the event that the
Holding Company undertakes a mutual-to-stock conversion, the appraisal
submitted in connection with the conversion application must take into
account the amount of dividends waived by the Holding Company. As of March
31, 1998 and September 30, 1997, the cumulative amount of dividends waived by
the Holding Company and restricted by the above provisions was approximately
$4,961,250 and $4,152,750, respectively. The Bank cannot pay cash dividends
in excess of the higher of (i) net income to date during the calendar year
plus one-half of surplus capital over regulatory capital or amounts which
would result in the Bank not maintaining adequate capital requirements
imposed by the OTS or (ii) 75% of net income over the most recent four-
quarter period.
On September 30, 1996, the Deposit Insurance Fund Act ("DIF Act") was enacted
into law. Among other things, the DIF Act authorizes the FDIC to impose a
special one-time assessment on each depository institution with SAIF-
assessable deposits so that the SAIF may achieve its designated reserve
ratio. The Bank's assessment was $1,010,105 on a pre-tax basis and is
reflected in the accompanying statement of income for the year ended
September 30, 1996. In addition, the DIF Act provides for the merger of the
BIF and the SAIF on January 1, 1999, but only if no insured depository
institution is a savings association on that date. The DIF Act contemplates
the development of a common charter for all federally chartered depository
institutions and the abolition of separate charters for national banks and
federal savings associations. It is not known what form the common charter
may take and what effect, if any, the adoption of a new charter would have on
the financial condition or results of operations of the Bank.
F-19
<PAGE>
11. EMPLOYEE BENEFITS
The 1994 Management Recognition and Development Plan ("MRDP") was adopted on
January 18, 1995. The MRDP is administered by the Board of Directors of the
Bank. Collectively, the Board reserved 24,000 shares of the Bank's common
stock for award pursuant to the MRDP, all of which have been awarded and will
vest over a five-year period beginning on January 18, 1995. The value of the
common stock contributed to the MRDP is being amortized to compensation
expense over the vesting period. Such compensation expense amounted to
$27,600 for the six months ended March 31, 1998 and 1997 and $55,200, $55,200
and $38,600 during the years ended September 30, 1997, 1996 and 1995,
respectively.
During 1996, the Bank executed a Supplemental Retirement Benefit agreement
for its then chief executive officer. Under the terms of the agreement, the
officer is to receive $2,473 monthly, commencing upon retirement, for a total
of 15 years. The net present value of these payments is reflected in other
liabilities and totaled $264,300, $252,000 and $234,000 at March 31, 1998 and
September 30, 1997 and 1996, respectively. Compensation expense under this
plan totaled $19,500 and $8,915 for the six months ended March 31, 1998 and
1997, respectively, and $18,200 and $234,000 for the years ended September
31, 1997 and 1996, respectively.
Substantially all full-time salaried employees are included in a trusteed,
defined benefit pension plan. The benefits contemplated by the plan are
funded through payments to the Financial Institutions Retirement Fund, which
operates as a multiemployer plan. Statement of Financial Accounting
Standards No. 87 ("SFAS 87") Employers Accounting for Pensions requires that
an employer participating in a multiemployer plan recognize as net pension
cost the amount of the required contribution for the period and as a
liability the amount of any contributions which are due and unpaid. During
the six months ended March 31, 1998 and 1997 and during the years ended
September 30, 1997, 1996 and 1995, the Bank was not required to make any
contributions to the plan because it was fully funded and accordingly, no
pension expense was required to be recorded. At March 30, 1998 and at
September 30, 1997 and 1996, the Bank had no liability for contributions due
and unpaid.
Effective July 1, 1995, the Bank established a 401(k) savings plan for
eligible employees. The Bank has historically matched 50% of each
participant's contribution up to a maximum of 4%. The Bank's contributions
to this plan approximated $17,400 for the six months ended March 31, 1998 and
1997 and $37,476, $36,700 and $7,859 for the years ended September 30, 1997,
1996 and 1995, respectively.
In connection with the Plan of Reorganization, the Bank has entered into
three year employment agreements with certain members of management. Under
the agreements, the Bank will pay the members their initial base salaries
which may be increased at the discretion of the Board of Directors.
Additionally, the agreements provide for severance payments if employment is
terminated following a change in control. These payments will be equal to
2.99 times their average annual compensation paid during the five years
immediately preceding the change in control.
Effective October 1, 1996, the Bank adopted Statement of Financial Accounting
Standard No. 123, Accounting for Stock-Based Compensation. As permitted by
the standard, the Bank has elected to continue following the guidance of
Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to
Employees, for measurement and recognition of stock-based transactions with
employees.
On January 18, 1995, the Board of Directors established the Stock Option Plan
(the "Plan") and reserved 60,000 shares of the Bank's common stock to be
awarded under the Plan. On January 25,
F-20
<PAGE>
1995, the Board granted 49,800 shares to certain officers, employees and
directors at an exercise price of $11.88 per share. The remaining shares
were granted on October 15, 1997 at an exercise price of $25.63. The options
vest 20% each year from the date of grant and expire no later than ten years
from the date of grant. Had compensation cost for the Bank's stock-based
compensation been determined based on fair value at the grant dates for the
awards, the Bank's net income and earnings per share would not be materially
different than that which has been reported.
A summary of the status of the Bank's Stock Option Plan follows:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE REMAINING
EXERCISE CONTRACTUAL EXERCISABLE OUTSTANDING
PRICE LIFE SHARES SHARES
<S> <C> <C> <C> <C>
October 1, 1994:
Granted $11.88 - - 49,800
Exercised -
-------
September 30, 1995 11.88 9.33 49,800
Granted -
Exercised -
-------
September 30, 1996 11.88 8.33 9,960 49,800
Granted -
Exercised 11.88 (800)
-------
September 30, 1997 11.88 7.33 19,120 49,000
Granted 25.63 10,200
Exercised 11.88 (11,040)
-------
March 31, 1998 14.79 6.83 13,860 48,160
=======
</TABLE>
12. CONTINGENCIES
The Bank is a defendant in legal actions arising from normal business
activities. Management, after consultation with general counsel, believes
that the resolution of these actions will not have any material adverse
effect on the Bank's consolidated financial statements.
Legislation is proposed periodically providing for a comprehensive reform of
the banking and thrift industries, and has included provisions that would (i)
require federal savings associations to convert to a national bank or a
state-chartered bank or thrift, (ii) require all savings and loan holding
companies to become bank holding companies and (iii) abolish the OTS.
Included in such proposed legislation may be provisions imposing material
limitations on the non-banking activities of federal savings associations.
It is uncertain when or if any of this type of legislation will be passed,
and, if passed, in what form the legislation would be passed. As a result,
management cannot accurately predict the possible impact of such legislation
on the Bank.
F-21
<PAGE>
13. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT 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 in
the way of commitments to extend credit. Commitments to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a
fee. The Bank evaluates each customer's creditworthiness on a case-by-case
basis.
At September 30, 1997 and 1996, the Bank had commitments net of noncash
portion of refinanced loans to originate loans of approximately $4,982,000
and $4,620,000, respectively, of which approximately $2,772,000 and
$1,931,000 were at fixed rates. Such commitments at March 31, 1998 totaled
$7,276,000 of which approximately $5,216,000 were at fixed rates.
Substantially all of the Bank's loans are to borrowers located in St. Louis,
Missouri and the surrounding counties.
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of SFAS No. 107, Disclosures
About Fair Value of Financial Instruments. The estimated fair value amounts
have been determined by the Bank using available market information and
appropriate valuation methodologies. However, considerable judgment is
necessarily required to interpret market data to develop the estimates of
fair value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts the Bank could realize in a current market
exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
Approximate carrying values and estimated fair values are summarized as
follows:
<TABLE>
<CAPTION>
MARCH 31, 1998 SEPTEMBER 30, 1997 SEPTEMBER 30, 1996
------------------------- -------------------------- ----------------------------
APPROXIMATE ESTIMATED APPROXIMATE ESTIMATED APPROXIMATE ESTIMATED
CARRYING FAIR CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE VALUE VALUE
<S> <C> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents $ 14,028,000 14,028,000 $ 6,284,000 $ 6,284,000 $ 9,022,000 $ 9,022,000
Bankers Acceptances 491,000 491,000
Investment securities 11,036,000 11,043,000 16,068,000 16,071,000 14,521,000 14,476,000
Mortgage-backed and related securities 6,120,000 6,409,000 6,362,000 6,647,000 7,424,000 7,646,000
Loans:
Loans held for sale 21,695,000 21,934,000 14,384,000 14,559,000 7,209,000 7,355,000
Loans receivable (net of allowance for
loan losses of $664,422, $612,852 and
$478,804, respectively) 124,734,000 127,154,000 130,359,000 133,476,000 134,044,000 136,752,000
Mortgage servicing rights 299,000 299,000 188,000 188,000
LIABILITIES:
Transaction accounts 23,480,000 23,480,000 19,281,000 19,281,000 17,804,000 17,804,000
Passbook savings accounts 25,796,000 25,796,000 25,983,000 25,983,000 27,873,000 27,873,000
Certificates of deposit 104,840,000 104,708,000 103,407,000 103,232,000 102,147,000 101,594,000
Advances from Federal Home Loan Bank 1,900,000 1,900,000 2,200,000 2,188,000 3,000,000 2,950,000
</TABLE>
Cash and cash equivalents, bankers acceptances, mortgage servicing rights,
transaction accounts and passbook savings are shown at their face value.
F-22
<PAGE>
The fair value of investment and mortgage-backed and related securities is
based on quoted market prices and prices obtained from independent pricing
services. The fair value of loans and advances from Federal Home Loan Bank
is estimated based on present values using applicable risk-adjusted spreads
to the U.S. Treasury curve to approximate current interest rates applicable
to each category of such financial instruments. The fair value of loans held
for sale is estimated using current investor commitment prices.
No adjustment was made to the interest rates for changes in credit of
performing loans for there are no known credit concerns. Management
segregates loans in appropriate risk categories. Management believes that
the risk factor embedded in the interest rates along with the general
reserves applicable to the performing loan portfolio results in a fair
valuation of such loans.
The fair value estimates presented herein are based on pertinent information
available to management. Although management is not aware of any factors
that would significantly affect the estimated fair value amounts, such
amounts have not been comprehensively revalued for purposes of these
financial statements and, therefore, current estimates of fair value may
differ significantly from the amounts presented herein.
15. PROSPECTIVE IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 130, Reporting of Comprehensive Income and SFAS No. 131,
Disclosures About Segments of an Enterprise and Related Information. Both
statements are effective for financial statements for periods beginning after
December 15, 1997. Statement No. 130 establishes standards for reporting and
display of comprehensive income in a full set of general purpose financial
statements. An enterprise shall continue to display an amount for net income
but will also be required to display other comprehensive income, which
includes other changes in equity. Statement No. 131 establishes standards
for the way that public business enterprises report information about
operating segments in annual financial statements. It also establishes
standards for related disclosures about products and services, geographic
areas, and major customers.
SFAS No. 132, Employers' Disclosures about Pensions and Other Postretirement
Benefits, was issued in February 1998. This statement standardizes
disclosure requirements for pensions and other postretirement benefits and
requires additional disclosure on changes in benefit obligations and fair
values of plan assets in order to facilitate financial analysis. SFAS No.
132 is effective for fiscal years beginning after December 15, 1997, with
earlier application encouraged.
Adoption of these statements is not anticipated to have a significant effect
upon the presentation of the Company's financial statements.
16. PLAN OF CONVERSION AND STOCK ISSUANCE - SUBSEQUENT EVENT (UNAUDITED)
On April 15, 1998, the Board of Directors adopted a Plan of Conversion and
Agreement and Plan of Reorganization (the "Plan") to convert Pulaski
Bancshares, M.H.C. from a federal mutual holding company to a Delaware
corporation to become the parent company of the Bank. The new Delaware
corporation will exchange certain shares of its common stock for the
outstanding common stock of the Bank and will issue and offer for sale
certain additional shares of its common stock. The additional shares of
common stock of the new Delaware corporation will be offered to eligible
account holders of the Bank as of March 31, 1997, who will receive
nontransferable subscription rights to purchase these
F-23
<PAGE>
shares, as well as certain other persons as provided for in the Plan. The
amount and pricing of the proposed stock offering will be based on an
independent appraisal of the Bank.
In connection with the proposed transaction, an application will be filed
with the Office of Thrift Supervision and a registration statement with the
U.S. Securities and Exchange Commission with respect to the reorganization
and common stock offering. After receipt of the required regulatory
approvals, the Plan will be submitted to the members of Pulaski Bancshares,
M.H.C. for approval by at least a majority of the votes eligible to be cast
at a special meeting and will also be submitted to Bank's stockholders for
approval at a special meeting. The transaction is expected to be completed
during the fourth quarter of fiscal 1998. Costs related to the conversion
will be deferred and, upon conversion, such costs and any additional costs
will be charged against the proceeds from the sale of the stock. As of March
31, 1998, deferred costs relating to the conversion were not material. If
the conversion is terminated, these deferred costs will be expensed to
operations.
* * * * * *
F-24
<PAGE>
GLOSSARY
ARM loans Adjustable-rate mortgage loans.
Direct Community Offering The offering of shares of the common stock to
the general public with preference given
first to the public stockholders of the Bank
and second to natural persons and trusts of
natural persons who are residents of the
Bank's Local Community.
Eligible Account Holders Holders of savings accounts at the Bank with
balances of at least $50 as of March 31,
1997.
ESOP Employee Stock Ownership Plan to be
implemented by the Bank in the conversion.
Exchange Act The Securities Exchange Act of 1934, as
amended.
Expiration Date _________, 1998, the date on which the
Subscription Offering ends.
FASB Financial Accounting Standards Board.
FDIC Federal Deposit Insurance Corporation.
FHLB Federal Home Loan Bank.
Fannie Mae Federal National Mortgage Association.
Freddie Mac Federal Home Loan Mortgage Corporation.
GAAP Generally accepted accounting principles.
GNMA Government National Mortgage Association.
IRA Individual Retirement Account.
IRS Internal Revenue Service.
Local Community St. Louis, Missouri; St. Charles, Jefferson,
Franklin and St. Louis Counties, Missouri;
and Jersey, St. Clair, Monroe and Madison
Counties, Illinois.
MHDC Missouri Housing Development Commission.
NASD National Association of Securities Dealers,
Inc.
Other Members Depositors of the Bank as of __________, 1998
and borrowers of the Bank as of May 11, 1994
whose loans continue to be outstanding as of
________, 1998.
G-1
<PAGE>
OTS Office of Thrift Supervision of the United
States Department of the Treasury.
Plan of Conversion The plan of conversion adopted by the Bank,
pursuant to which the conversion is being
undertaken.
RP Financial RP Financial, LC., the firm the Bank engaged
to prepare the appraisal of its estimated pro
forma market value in the conversion and to
advise the Bank about its business plan.
SAIF Savings Association Insurance Fund.
SEC Securities and Exchange Commission.
Securities Act The Securities Act of 1933, as amended.
SFAS Statement of Financial Accounting Standards.
Subscription Offering The offering of shares of the common stock,
in order to priority, to Eligible Account
Holders, the ESOP, Supplemental Eligible
Account Holders and Other Members.
Supplemental Eligible Account
Holders Holders of accounts at the Bank with balances
of at least $50 as of June 30, 1998.
Syndicated Community Offering The offering of shares of the common stock to
the general public by a group of selected
dealers.
VA Veteran's Administration
G-2
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by Pulaski Financial Corp. or Pulaski Bank, A Federal Savings 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 or 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 Pulaski Financial Corp. or Pulaski Bank, A Federal
Savings Bank since any of the dates as of which information is furnished herein
or since the date hereof.
[Logo for Pulaski Financial Corp.]
(Proposed Holding Company for
Pulaski Bank, A Federal Savings Bank)
5,100,000 to 7,935,000 Shares of
Common Stock
________________
PROSPECTUS
________________
CHARLES WEBB & COMPANY,
a Division of Keefe, Bruyette & Woods, Inc.
______ __, 1998
UNTIL THE LATER OF _______, 1998, OR 25 DAYS AFTER COMMENCEMENT OF THE
SYNDICATED COMMUNITY OFFERING OF COMMON STOCK, IF ANY, ALL DEALERS THAT BUY,
SELL OR TRADE THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING,
MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS'
OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution*
<TABLE>
<S> <C>
Legal fees and expenses..................... $210,000
Securities marketing firm legal fees........ 35,000
Securities marketing firm expenses.......... 10,000
EDGAR, printing, copying, postage, mailing.. 150,000
Appraisal/business plan fees and expenses... 45,000
Accounting fees............................. 150,000
Data processing fees and expenses........... 10,000
SEC filing fee.............................. 32,000
OTS filing fee.............................. 8,400
Blue sky legal fees and expenses............ 2,000
Other....................................... 25,600
--------
Total.................................. $678,000
========
</TABLE>
*Estimated.
In addition to the above expenses, Charles Webb & Company will receive a
fee of 0.80% of the aggregate purchase price of the shares of common stock sold
in the Subscription Offering and the Direct Community Offering, excluding shares
purchased by the ESOP and by officers and directors of the Bank and their
associates. See "THE CONVERSION AND REORGANIZATION -- Plan of Distribution and
Selling Commissions."
Item 14. Indemnification of Officers and Directors
Article XVI of the Certificate of Incorporation of Pulaski Financial Corp.
requires indemnification of directors, officers and employees to the fullest
extent permitted by Delaware law.
Section 145 of the Delaware General Corporation Law sets forth
circumstances under which directors, officers, employees and agents may be
insured or indemnified against liability which they may incur in their
capacities:
145 INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS;
INSURANCE.--(a) A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the corporation) by reason of the
fact that he is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding if he acted
in good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the corporation, and, with respect to any criminal action
or proceeding, had no reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
(b) A corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action or
suit by or in the right of the corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at
II-1
<PAGE>
the request of the corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
(c) To the extent that a director, officer, employee or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit or proceeding referred to in subsections (a) and (b) of this
section, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection therewith.
(d) Any indemnification under subsections (a) and (b) of this section
(unless ordered by a court) shall be made by the corporation only as authorized
in the specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he has met the
applicable standard of conduct set forth in subsections (a) and (b) of this
section. Such determination shall be made (1) by the board of directors by a
majority vote of a quorum consisting of directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
(e) Expenses (including attorneys' fees) incurred by an officer or
director in defending any civil, criminal, administrative or investigative
action, suit or proceeding may be paid by the corporation in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the corporation as authorized in this section. Such expenses (including
attorneys' fees) incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the board of directors deems appropriate.
(f) The indemnification and advancement of expenses provided by, or
granted pursuant to, the other subsections of this section shall not be deemed
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
(g) A corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
incurred by him any such capacity, or arising out of his status as such, whether
or not the corporation would have the power to indemnify him against such
liability under this section.
(h) For purposes of this section, references to "the corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agents, so that any
person who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
this section with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence had
continued.
II-2
<PAGE>
(i) For purposes of this section, references to "other enterprises" shall
include employee benefit plans; references to "fines" shall include any excise
taxes assessed on a person with respect to any employee benefit plan; and
references to "serving at the request of the corporation" shall include any
service as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer, employee, or
agent with respect to an employee benefit plan, its participants or
beneficiaries; and a person who acted in good faith and in a manner he
reasonably believed to be in the interest of the participants and beneficiaries
of an employee benefit plan shall be deemed to have acted in a manner "not
opposed to the best interests of the corporation" as referred to in this
section.
(j) The indemnification and advancement of expenses provided by, or
granted pursuant to, this section shall, unless otherwise provided when
authorized or ratified, continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Item 15. Recent Sales of Unregistered Securities.
Not Applicable
Item 16. Exhibits and Financial Statement Schedules
The exhibits filed as part of this Registration Statement are as
follows:
(a) List of Exhibits
1.1 - Form of proposed Agency Agreement among Pulaski Finanancial Corp.,
Pulaski Bank, a Federal Savings Pulaski Bancshares, M.H.C. and
Charles Webb & Company
1.2 - Engagement Letter with Pulaski Bank, A Federal Savings Bank and
Charles Webb & Company
2 - Plan of Conversion and Agreement and Plan of Reorganization of
Pulaski Bancshares, M.H.C. and Pulaski Bank, A Federal Savings
Bank
3.1 - Certificate of Incorporation of Pulaski Financial Corp.
3.2 - Bylaws of Pulaski Financial Corp.
4 - Form of Certificate for Common Stock
5 - Opinion of Breyer & Aguggia LLP regarding legality of securities
registered. (a)
8.1 - Tax Opinion of Breyer & Aguggia LLP (a)
8.2 - Opinion of RP Financial, LC. as to the value of subscription
rights
10.1 - Proposed Form of Employment Agreement for Executive Officers
10.2 - Proposed Form of Severance Agreement for Senior Officers
10.3 - Pulaski Bank, A Federal Savings Bank 401(k) Plan (a)
II-3
<PAGE>
10.4 - Proposed Form of Employee Stock Ownership Plan
21 - Subsidiaries of Pulaski Financial Corp.
23.1 - Consent of Deloitte & Touche LLP
23.2 - Consent of Breyer & Aguggia LLP as to its Tax Opinion (a)
23.3 - Consent of RP Financial, LC.
23.4 - Consent of Breyer & Aguggia LLP (a)
24 - Power of Attorney (included in signature page)
99.1 - Order Form
99.2 - Solicitation and Marketing Materials
99.3 - Appraisal Agreement with RP Financial, LC.
99.4 - Appraisal Report of RP Financial, LC. (a)
99.5 - Proxy Statement for Special Meeting of Members of Pulaski
Bancshares, M.H.C.
99.6 - Proxy Statement for Special Meeting of Stockholders of Pulaski
Bank, A Federal Savings Bank
______________
(a) To be filed by amendment.
Item 17. Undertakings
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which it offers or sells
securities, a post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act of 1933, as amended ("Securities Act");
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in the information in
the registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any deviation
from the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering price set forth in
the "Calculation of Registration Fee" table in the effective registration
statement.
(iii) Include any additional or changed material information on
the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time shall be the initial
bona fide offering.
II-4
<PAGE>
(3) File a post-effective amendment to remove from registration any of the
securities that remain unsold at the end of the offering.
(4) The undersigned registrant hereby undertakes to provide the
underwriter at the closing specified in the underwriting agreement, certificates
in such denominations and registered in such names as required by the
underwriter to permit prompt delivery to each purchaser.
(5) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the small business issuer pursuant to the foregoing provisions, or otherwise,
the small business issuer has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act, and is therefore, unenforceable. In the event
that a claim for indemnification against liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in St. Louis, Missouri on
the 9th day of June 1998.
PULASKI FINANCIAL CORP.
By: /s/ William A. Donius
---------------------------------------
William A. Donius
President and Chief Executive Officer
We, the undersigned directors and officers of Pulaski Financial Corp., do
hereby severally constitute and appoint William A. Donius and Thomas F. Hack,
our true and lawful attorney and agent, to do any and all things and acts in our
names in the capacities indicated below and to execute all instruments for us
and in our names in the capacities indicated below which said William A. Donius
and Thomas F. Hack may deem necessary or advisable to enable Pulaski Financial
Corp. to comply with the Securities Act of 1933, as amended, and any rules,
regulations and requirements of the Securities and Exchange Commission, in
connection with the Registration Statement on Form S-1 relating to the offering
of Pulaski Financial Corp.'s Common Stock, including specifically but not
limited to, power and authority to sign for us or any of us in our names in the
capacities indicated below the Registration Statement and any and all amendments
(including post-effective amendments) thereto; and we hereby ratify and confirm
all that William A. Donius and Thomas F. Hack shall do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
Signatures Title Date
- ---------- ----- ----
/s/ William A. Donius President, Chief Executive Officer June 9, 1998
- ------------------------
William A. Donius and Director (Principal Executive
Officer)
/s/ Thomas F. Hack Chief Financial Officer,Treasurer June 9, 1998
- ------------------------
Thomas F. Hack and Director (Principal Financial and
Accounting Officer)
/s/ Michael J. Donius Executive Vice President, June 9, 1998
- ------------------------
Michael J. Donius Chief Operating Officer and Director
<PAGE>
/s/ Robert A. Ebel Director June 9, 1998
- ------------------------
Robert A. Ebel
/s/ E. Douglas Britt Director June 9, 1998
- ------------------------
E. Douglas Britt
/s/ Garland A. Dorn Director June 9, 1998
- ------------------------
Garland A. Dorn
/s/ Dr. Edward J. Howenstein Director June 9, 1998
- ----------------------------
Dr. Edward J. Howenstein
<PAGE>
INDEX TO EXHIBITS
1.1 -- Form of proposed Agency Agreement among Pulaski Financial Corp.,
Pulaski Bank, A Federal Savings Bank, Pulaski Bancshares, M.H.C.
and Charles Webb & Company
1.2 -- Engagement Letter between Pulaski Bank, A Federal Savings Bank and
Charles Webb & Company
2 -- Plan of Conversion and Agreement and Plan of Reorganization of
Pulaski Bank, A Federal Savings Bank and Pulaski Bancshares,
M.H.C.
3.1 -- Certificate of Incorporation of Pulaski Financial Corp.
3.2 -- Bylaws of Pulaski Financial Corp.
4 -- Form of Certificate for Common Stock
5 -- Opinion of Breyer & Aguggia LLP regarding legality of securities
registered (a)
8.1 -- Tax Opinion of Breyer & Aguggia LLP (a)
8.2 -- Opinion of RP Financial, LC. as to the value of subscription
rights
10.1 -- Proposed Form of Employment Agreement for Executive Officers
10.2 -- Proposed Form of Severance Agreement for Senior Officers
10.3 -- Pulaski Bank, A Federal Savings Bank 401(k) Plan (a)
10.4 -- Proposed Form of Employee Stock Ownership Plan
21 -- Subsidiaries of Pulaski Financial Corp.
23.1 -- Consent of Deloitte & Touche LLP
23.2 -- Consent of Breyer & Aguggia LLP as to its Federal Tax Opinion (a)
23.3 -- Consent of RP Financial, LC.
23.4 -- Consent of Breyer & Aguggia (a)
24 -- Power of Attorney (included in signature page)
99.1 -- Order Form
99.2 -- Solicitation and Marketing Materials
99.3 -- Appraisal Agreement with RP Financial, LC.
99.4 -- Appraisal Report of RP Financial, LC. (a)
99.5 -- Proxy Statement for Special Meeting of Members of Pulaski
Bancshares, M.H.C.
99.6 -- Proxy Statement for Annual Meeting of Stockholders of Pulaski
Bank, A Federal Savings Bank
________________________
(a) To be filed by amendment.
<PAGE>
Exhibit 1.1
PULASKI FINANCIAL CORP.
Up to 6,900,000 Shares of Common Stock
$.01 Par Value
Purchase Price $10.00 Per Share
AGENCY AGREEMENT
----------------
______________, 1998
Charles Webb & Company
211 Bradenton Avenue
Dublin, Ohio 43017-5034
Ladies and Gentlemen:
Pulaski Bancshares M.H.C., a federally chartered mutual holding company
(the "MHC"), Pulaski Bank, a Federal Savings Bank, St. Louis, Missouri (the
"Savings Bank"), a federally chartered savings bank with 69.81% of its
outstanding common stock owned by the MHC and with its deposit accounts insured
by the Savings Association Insurance Fund (the "SAIF") administered by the
Federal Deposit Insurance Corporation (the "FDIC"), and Pulaski Financial Corp.,
St. Louis, Missouri, a Delaware corporation (the "Company") (the MHC, the
Savings Bank and the Company being sometimes referred to together herein as the
"Constituent Entities"), hereby confirm their agreement with Keefe, Bruyette &
Woods, Inc., doing business through its division Charles Webb & Company (the
"Agent"), as follows:
SECTION 1. THE OFFERING. The Savings Bank, in accordance with a plan of
------------
conversion (the "Plan"), adopted by its Board of Directors, intends to convert
from the mutual holding company form of organization to the stock holding
company form of organization and to issue all of its outstanding capital stock
to the Company.
Pursuant to the Plan, the Company will offer and sell up to 6,900,000
(subject to adjustment up to 7,935,000) shares of its common stock, with a par
value of $.01 per share (the "Shares" or "Common Stock"), in a subscription
offering (the "Subscription Offering") to (i) Eligible Account Holders, (ii) the
Savings Bank's ESOP, (iii) Supplemental Eligible Account Holders and (iv) Other
Members, as those terms are defined in the Plan. The Company shall offer any
Shares not subscribed for in the Subscription Offering for sale in a community
offering (the "Direct Community Offering" and, when referred to together with
the Subscription Offering, the "Subscription and Direct Community Offering") to
certain members of the general public to whom a copy of the Prospectus (as
hereinafter defined) is delivered, with preference given first to public
stockholders of the Savings Bank and second to natural persons and trusts of
natural persons who reside in St. Louis, Missouri; St. Charles, Jefferson,
Franklin or St. Louis Counties, Missouri; or Jersey, St. Clair, Monroe or
Madison Counties, Illinois. If any
<PAGE>
Charles Webb & Company
Page 2
________________, 1998
Shares are not subscribed for or purchased in the Subscription and Direct
Community Offering, the Agent, at the request of the Company and the Savings
Bank, shall seek to form a syndicate of selected registered broker-dealers to
assist in the sale of such Shares on a best efforts basis in a syndicated
community offering (the "Syndicated Community Offering"). It is acknowledged
that the purchase of the Shares is subject to the purchase limitations described
in the Plan and that the Company and the Savings Bank may reject, in whole or in
part, any orders received in the Direct Community Offering or the Syndicated
Community Offering. The Subscription Offering, Direct Community Offering and
Syndicated Community Offering are collectively referred to as the "Offering."
Collectively, the Offering and the other activities described in the Plan are
referred to herein as the "Conversion."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (File No. 333-___________),
including exhibits (the "Registration Statement"), containing a prospectus
relating to the Offering, for the registration of the Shares under the
Securities Act of 1933 (the "1933 Act"), and has filed such amendments and
supplements thereto, if any, and such amended prospectuses and supplemented
prospectuses as may have been required to the date hereof. The prospectus, as
amended, on file with the Commission at the time the Registration Statement
initially becomes effective is hereinafter called the "Prospectus," except that
if any prospectus is filed by the Company pursuant to Rule 424(b) or (c) of the
rules and regulations of the Commission under the 1933 Act (the "1933 Act
Regulations") differing from the prospectus on file at the time the Registration
Statement initially becomes effective, the term "Prospectus" shall refer to the
prospectus filed pursuant to Rule 424(b) or (c) from and after the time said
prospectus is filed with the Commission.
The Savings Bank has filed with the Office of Thrift Supervision (the
"OTS") an Application for Approval of Conversion, including exhibits (the
"Conversion Application"), including the Prospectus contained therein, and has
filed such amendments or supplements thereto, if any, as may have been required
pursuant to the Home Owners' Loan Act, as amended (the "HOLA"), and 12 C.F.R.
Part 563b (the "Conversion Regulations"). In addition, the Company has filed
with the OTS an application on Form H-(e)1-S, including exhibits (the "Holding
Company Application'), and has filed such amendments or supplements thereto, if
any, as may have been required to become a registered savings and loan holding
company under the HOLA.
SECTION 2. RETENTION OF AGENT; COMPENSATION AND EXPENSES; SALE AND
-------------------------------------------------------
DELIVERY OF THE SHARES. Subject to the terms and conditions herein set forth,
- ----------------------
the Constituent Entities hereby appoint the Agent as their exclusive financial
advisor and marketing agent to utilize its best efforts to solicit subscriptions
for the Shares and to advise and assist them with respect to the sale of the
Shares in the Offering.
On the basis of the representations and warranties and the agreements
herein, but subject to the terms and conditions herein, the Agent accepts such
appointment and agrees to consult
<PAGE>
Charles Webb & Company
Page 3
________________, 1998
with and advise the Constituent Entities as to the matters set forth in the
letter agreement dated March 25, 1998 (the "Letter Agreement"), between the
Savings Bank and the Agent. The Agent shall not be required to purchase any
Shares or take any action inconsistent with all applicable laws, regulations,
decisions or orders. In the event of the Syndicated Community Offering, the
Agent shall seek to assemble and manage a selling group of selected registered
broker-dealers which are members of the National Association of Securities
Dealers, Inc. (the "NASD") to participate in the solicitation of purchase orders
for shares under a selected dealers' agreement in the form attached hereto as
Exhibit A.
The obligations of the Agent pursuant to this Agreement shall terminate
upon the completion, termination or abandonment of the Plan by the Savings Bank
or upon termination of the Offering, but in no event later than _____________,
1998 (the "End Date"), unless otherwise specifically provided in this Agreement.
All unpaid fees and expenses due to the Agent shall be payable in next day funds
at the earlier of the Closing Date (as hereinafter defined) or the End Date. In
the event the Offering is extended beyond the End Date, the Company, the Savings
Bank and the Agent may agree to renew this Agreement under mutually acceptable
terms.
In the event the Company is unable to sell a minimum of 5,100,000 Shares
within the period herein provided, this Agreement shall terminate and the
Company shall refund to all persons who have subscribed for any of the Shares,
the full amount of their subscriptions plus accrued interest as set forth in the
Prospectus, and none of the parties to this Agreement shall have any obligation
to the other parties hereunder, except as set forth in this Section 2 and in
Sections 8, 9, and 10 hereof.
In the event the Offering is terminated for any reason not attributable to
the action or inaction of the Agent, the Agent shall have earned and be entitled
to be paid the fees and expenses accruing to the date of such termination
pursuant to this Section 2.
If all conditions precedent to the consummation of the Conversion are
satisfied, including without limitation the receipt of subscriptions for the
minimum number of Shares permitted to be sold in the Conversion on the basis of
the most recent updated appraisal report and compliance by the Constituent
Entities with the conditions set forth in Section 7 hereof to the reasonable
satisfaction of the Agent and its counsel, the Company agrees to issue, or have
issued, the Shares sold in the Offering and release for delivery certificates
for such Shares on the Closing Date (as hereinafter defined) against payment to
the Company by any means authorized by the Plan. The release of Shares against
payment therefor shall be made at a time, date and place mutually acceptable to
the Company, the Savings Bank and the Agent. Certificates for Shares shall be
delivered directly to the purchasers in accordance with their directions. The
date upon which the Company shall release or deliver the Shares sold in the
Offering, in accordance with the terms herein, is called the "Closing Date."
The Agent shall receive the following compensation for its services
hereunder:
<PAGE>
Charles Webb & Company
Page 4
________________, 1998
(a) A management fee of $40,000, payable in four consecutive monthly
installments, of which $_______ has been paid.
(b) A success fee equal to (i) 0.8% of the aggregate purchase price of the
Shares sold in the Subscription and Direct Community Offering,
excluding Shares subscribed or purchased by the Savings Bank's
officers, directors or employees (or their immediate family members)
or by the ESOP or any tax-qualified or stock-based compensation plans
(except Individual Retirement Accounts) or similar plan created by the
Savings Bank for some or all of its directors or employees. The
management fee described in the paragraph (a) will be applied against
the success fee.
(c) For Shares sold in the Syndicated Community Offering by selected
broker-dealers, the Agent shall receive a fee not to exceed 5.5% of
the aggregate purchase price of the Shares sold by such selected
broker-dealers, and the Agent shall pass on to such selected broker-
dealers an amount competitive with gross underwriting discounts
charged at such time for comparable amounts of stock sold at a
comparable price per share in a similar market environment. [IN THE
EVENT ANY FEES ARE PAID PURSUANT TO THIS SUBSECTION (C), SUCH FEES
SHALL BE IN LIEU OF, AND NOT IN ADDITION TO, THE FEES PAID PURSUANT TO
SUBSECTION (B) ABOVE.] Fees with respect to purchases effected with
the assistance of broker-dealers other than the Agent shall be
transmitted by the Agent to such broker-dealer.
Whether or not the Conversion is completed or the sale of the Shares by the
Company is consummated, the Constituent Entities jointly and severally agree to
pay or reimburse the Agent, from time to time upon the Agent's request, for its
reasonable out-of-pocket expenses (not to exceed $10,000) without prior approval
by the Company and the Savings Bank, including costs of travel, meals and
lodging, photocopying, telephone facsimile and couriers and the reasonable legal
fees and expenses of its counsel. Such reimbursement of legal fees will not
exceed $35,000.
The Company and the Savings Bank shall bear the expenses of the Offering
customarily borne by issuers including, without limitation, OTS, Commission,
"Blue Sky," and NASD filing and registration fees; the fees of the Savings
Bank's accountants, attorneys, appraiser, transfer agent and registrar, and
other agent fees and expenses; any stock issue or transfer taxes; printing,
mailing and marketing and syndicate expenses associated with the Conversion.
Full payment of the Agent's fees and expenses, as described above, shall be
made in next day funds on the earlier of the Closing Date or the End Date.
The Agent further agrees to provide financial advisory assistance to the
Company and the Savings Bank for a period of one year following completion of
the Conversion, including formation of a dividend policy and share repurchase
program, assistance with shareholder
<PAGE>
Charles Webb & Company
Page 5
________________, 1998
reporting and shareholder relations matters, general advice on mergers and
acquisitions and other related financial matters, without the payment by the
Company and the Savings Bank of any fees in addition to these set forth in this
Section 2.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND ASSOCIATION.
-------------------------------------------------------------
The Constituent Entities jointly and severally represent and warrant to the
Agent as follows:
(a) The Registration Statement has been declared effective by the
Commission; at the time the Registration Statement, including the Prospectus
contained therein, became effective, the Registration Statement, including the
Prospectus contained therein, complied as to form in all material respects with
the requirements of the 1933 Act and the 1933 Act Regulations, and the
Registration Statement, including the Prospectus contained therein, and any
information regarding any of the Constituent Entities contained in Sales
Information (as such term is defined in Section 8 hereof) authorized by the
Company or the Savings Bank for use in connection with the Offering, did not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; and at
the time any Rule 424(b) or (c) Prospectus was filed with the Commission, the
Registration Statement, including the Prospectus contained therein (including
any amendment or supplement thereto), and any information regarding any of the
Constituent Entities contained in Sales Information (as such term is defined in
Section 8 hereof) authorized by the Company or the Savings Bank for use in
connection with the Offering, did not contain an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that the representations and warranties in this
Section 3(a) shall not apply to statements or omissions made in reliance upon
and in conformity with written information furnished to the Company or the
Savings Bank by the Agent expressly regarding the Agent for use in the
Prospectus under the captions "Market for Common Stock" and "The Conversion--
Plan of Distribution and Selling Commissions."
(b) The Conversion Application has been approved by the OTS, and the
related Prospectus and the proxy statement of the Savings Bank relating to the
special meeting of shareholders at which the Plan shall be considered for
approval by the Savings Bank's eligible shareholders have been authorized for
use by the OTS; at the time of the approval of the Conversion Application,
including the Prospectus contained therein, and as of the date of this
Agreement, the Conversion Application, including the Prospectus, complied as to
form in all material respects with the Conversion Regulations. At the time of
the approval of the Conversion Application, including the Prospectus contained
therein, and as of the date of this Agreement, the Conversion Application,
including the Prospectus contained therein, did not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this Section 3(b) shall not apply to
statements or omissions made in reliance upon
<PAGE>
Charles Webb & Company
Page 6
________________, 1998
and in conformity with written information furnished to the Company or the
Savings Bank by the Agent expressly regarding the Agent for use in the
Prospectus under the captions "Market for Common Stock" and "The Conversion."
(c) The Holding Company Application has been approved by the OTS. At the
time of the approval of the Holding Company Application and as of the date of
this Agreement, the Holding Company Application complied as to form in all
material respects with all applicable regulations.
(d) No order has been issued by the OTS, the Commission or any other
governmental agency preventing or suspending the use of the Prospectus, and no
action by or before any governmental entity to revoke any approval,
authorization or order of effectiveness related to the Conversion is pending or,
to the best knowledge of the Company and the Savings Bank, threatened.
(e) The Plan complies with the Conversion Regulations, and all action
required by the Conversion Regulations to be taken by the Boards of Directors of
the Constituent Entities to adopt and approve the implementation of the Plan has
been duly taken.
(f) To the best knowledge of the Constituent Entities, no person has sought
to obtain review of the final action of the OTS in approving the Plan or in
approving the Conversion Application or the Holding Company Application pursuant
to the HOLA, the Conversion Regulations, state securities laws and regulations
(collectively, the "Blue Sky Laws"), or any other statute or regulation.
(g) The MHC is organized and is validly existing as a federally chartered
mutual holding company in good standing under the laws of the United States and
is duly authorized to conduct its business and own its property as described in
the Registration Statement and the Prospectus; the MHC has obtained all
licenses, permits and other governmental authorizations required for the conduct
of its business except where the failure to obtain such licenses, permits or
other governmental authorizations would not materially adversely affect the
financial condition, earnings, capital, assets or properties of the MHC and the
Savings Bank taken as a whole; all such licenses, permits and governmental
authorizations are in full force and effect and the MHC is complying therewith
in all material respects; the MHC is duly qualified as a foreign corporation to
transact business in each jurisdiction in which the failure to be so qualified
in one or more of such jurisdictions would have a material adverse effect on the
financial condition, earnings, capital, assets properties or business of the MHC
and the Savings Bank taken as a whole.
(h) The Savings Bank is organized and is validly existing as a federally
chartered savings bank in good standing under the laws of the United States and
is duly authorized to conduct its business and own its property as described in
the Registration Statement and the Prospectus; the Savings Bank has obtained all
licenses, permits and other governmental
<PAGE>
Charles Webb & Company
Page 7
________________, 1998
authorizations required for the conduct of its business except where the failure
to obtain such licenses, permits or other governmental authorizations would not
materially adversely affect the financial condition, earnings, capital, assets
or properties of the Constituent Entities taken as a whole and considered as one
enterprise; all such licenses, permits and governmental authorizations are in
full force and effect and the Savings Bank is complying therewith in all
material respects; the Savings Bank is duly qualified as a foreign corporation
to transact business in each jurisdiction in which the failure to be so
qualified in one or more of such jurisdictions would have a material adverse
effect on the financial condition, earnings, capital, assets properties or
business of the Savings Bank.
(i) The Savings Bank does not own any equity securities or any equity
interest in any business enterprise except as described in the Prospectus.
(j) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, with
corporate power and authority to own, lease and operate its properties and to
conduct its business as described in the Registration Statement and the
Prospectus; the Company is qualified to do business as a foreign corporation in
Missouri and in each jurisdiction in which the conduct of its business as
contemplated to be conducted following the Conversion requires such
qualification, except where the failure to so qualify would not have a material
adverse effect on the financial condition, earnings, capital, assets, properties
or the business of the Company; the Company has obtained all licenses, permits
and other governmental authorizations currently required for the conduct of its
business except where the failure to obtain such licenses, permits or other
governmental authorizations would not materially adversely affect the financial
condition, earnings, capital, assets or properties of the Company and the
Savings Bank considered as one enterprise; and all such licenses, permits and
governmental authorizations are in full force and effect, and the Company is
complying in all material respects therewith.
(k) The Savings Bank is a member of the Federal Home Loan Bank of Des
Moines (the "FHLB-Des Moines"); the deposit accounts of the Savings Bank are
insured by the FDIC under the SAIF up to applicable legal limits; and no
proceedings for the termination or revocation of such membership or insurance
are pending or, to the best knowledge of the Savings Bank, threatened.
(l) The Constituent Entities have good and marketable title to all real
property and good title to all other assets material to their business and to
those properties and assets described in the Registration Statement and
Prospectus as owned by them, free and clear of all liens, charges, encumbrances
or restrictions, except as described therein or are not material to their
business, considered as one enterprise; and all of the leases and subleases
material to the business of the Constituent Entities, including those described
in the Registration Statement and Prospectus, are in full force and effect and
the Constituent Entities are complying therewith in all material respects.
<PAGE>
Charles Webb & Company
Page 8
________________, 1998
(m) The Company and the Savings Bank have received an opinion of Breyer &
Aguggia, Washington, D.C., with respect to the federal and Missouri income tax
consequences of the Conversion as described in the Registration Statement and
Prospectus; and the facts and representations upon which such opinions are based
are true, accurate and complete, and none of the Constituent Entities has taken
any action inconsistent therewith.
(n) The Constituent Entities have all such power, authority,
authorizations, approvals and orders, except approval or confirmation of the
final appraisal of the Savings Bank, as may be required to enter into this
Agreement, to carry out the provisions and conditions hereof and (i) to carry
out the Conversion as contemplated by the Plan, (ii) to convert the stock of the
Savings Bank held by public shareholders of the Savings Bank into Common Stock,
and (iii) to issue and sell the Shares to be sold by the Company as provided
herein and as described in the Prospectus; the consummation of the Conversion,
the execution, delivery and performance of this Agreement and the consummation
of the transactions herein contemplated have been duly and validly authorized by
all necessary corporate action on the part of the Constituent Entities, and this
Agreement has been validly executed and delivered by the Constituent Entities
and is the valid, legal and binding Agreement of each of them enforceable in
accordance with its terms, except as the enforceability thereof may be limited
by (i) bankruptcy, insolvency, moratorium, reorganization, conservatorship,
receivership or other similar laws relating to or affecting the enforcement or
creditors' rights generally or the rights of creditors of insured financial
institutions and their holding companies, the accounts of whose subsidiaries are
insured by the FDIC or (ii) general equity principles regardless of whether such
enforceability is considered in a proceeding in equity or at law and except to
the extent, if any, that the provisions of Sections 8 and 9 hereof may be
unenforceable as against public policy.
(o) The execution, delivery and performance of this Agreement by the
Constituent Entities will not: (i) conflict with or constitute a breach of, or
default under, the certificate of incorporation and bylaws of the Company or the
charter and bylaws of the MHC or the Savings Bank, or any material contract,
lease or other instrument to which any of the Constituent Entities is a party,
or any applicable law, rule, regulation or order; (ii) violate any
authorization, approval, judgment, decree, order, statute, rule or regulation
applicable to the Constituent Entities, except for such violation which would
not have a material adverse effect on the financial condition and results of
operations of the Constituent Entities, considered as one enterprise; or (iii)
with the exception of the liquidation account established in the Conversion,
result in the creation of any material lien, charge or encumbrance upon any
property of the Constituent Entities.
(p) Upon consummation of the Conversion, the authorized, issued and
outstanding equity capital of the Company will be within the range set forth in
the Prospectus under the caption "Capitalization," and no shares of Common Stock
have been or will be issued and outstanding prior to the Closing Date referred
to in Section 2 (other than in connection with the incorporation of the
Company); the Shares have been duly and validly authorized for issuance and,
when issued and delivered by the Company pursuant to the Plan against payment of
the
<PAGE>
Charles Webb & Company
Page 9
________________, 1998
consideration calculated as set forth in the Plan and in the Prospectus, will be
duly and validly issued, fully paid and nonassessable, except that Shares
purchased by the ESOP with funds borrowed from the Company will not be fully
paid to the extent payment therefor in cash has not been received by the
Company; no preemptive rights exist with respect to the Shares (except for
Subscription Rights granted pursuant to the Plan); and the terms and provisions
of the Shares will conform in all material respects to the description thereof
contained in the Registration Statement and the Prospectus. To the best
knowledge of the Constituent Entities, upon the issuance of the Shares, good
title to the Shares will be transferred from the Company to the purchasers
thereof against payment therefor, subject to such claims as may be asserted
against the purchasers thereof by third-party claimants.
(q) The Constituent Entities are not in violation of any directive from the
OTS, FDIC or any other governmental agency to make any material change in the
method of conducting their businesses so as to comply in all material respects
with all applicable statutes and regulations and, except as set forth in the
Registration Statement and the Prospectus, there is no suit, proceeding, charge
or action before or by any court, regulatory authority or governmental agency or
body, pending or, to the best knowledge of the Constituent Entities, threatened,
which might materially and adversely affect the Conversion, the performance of
this Agreement, the consummation of the transactions contemplated by the Plan
and as described in the Registration Statement and the Prospectus or which might
have a material adverse effect on the financial condition, earnings, capital,
properties, assets or business of the Constituent Entities, considered as one
enterprise.
(r) The financial statements of the Savings Bank which are included in the
Registration Statement, the Conversion Application and the Prospectus present
fairly the financial condition, results of operations, retained earnings and
cash flows of the Savings Bank at the respective dates thereof and for the
respective periods covered thereby, and comply as to form in all material
respects with the applicable accounting requirements of the Conversion
Regulations, Regulation S-X of the Commission, and generally accepted accounting
principles ("GAAP") consistently applied through the periods involved (except as
noted therein). Such financial statements are consistent with the most recent
financial statements and other reports filed by the Savings Bank with the OTS,
except that accounting principles employed in such regulatory filings conform to
the requirements of such authorities and not necessarily to GAAP. The other
financial, statistical and pro forma information and related notes included in
the Prospectus present fairly the information shown therein on a basis
consistent with the audited and unaudited financial statements of the Savings
Bank included in the Registration Statement and the Prospectus, and as to the
pro forma adjustments, the adjustments made therein have been properly applied
on the bases described therein.
(s) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, except as may otherwise be stated
therein: (i) there has not been any material adverse change in the financial
condition, earnings, capital, properties or business of the Constituent
Entities, considered as one enterprise, whether or not arising in the ordinary
<PAGE>
Charles Webb & Company
Page 10
________________, 1998
course of business; (ii) there has not been any material increase in loans past
due 90 days or more or in real estate acquired by foreclosure, by deed-in-lieu
of foreclosure, or deemed in-substance foreclosure, (iii) there has not been any
material decrease in surplus and reserves or total assets of the Savings Bank,
(iv) none of the Constituent Entities has issued any securities or incurred any
liability or obligation for borrowing other than in the ordinary course of
business; (v) there have not been any transactions entered into by the
Constituent Entities, except with respect to those transactions entered into in
the ordinary course of business; (vi) the properties and businesses of the
Constituent Entities conform in all material respects to the descriptions
thereof contained in the Prospectus; and (vii) none of the Constituent Entities
has any material contingent liabilities except as disclosed in the Prospectus.
(t) None of the Constituent Entities is in violation of its certificate of
incorporation or charter, as applicable, or its bylaws, or in default in the
performance or observance of any obligation, agreement, covenant, or condition
contained in any contract, lease, loan agreement, indenture or other instrument
to which it is a party or by which it or any of its property may be bound, which
would result in a material adverse effect on the financial condition, earnings,
capital, assets, properties or business of the Constituent Entities, considered
as one enterprise.
(u) No default exists, and no event has occurred which with notice or lapse
of time, or both, would constitute a default on the part of any of the
Constituent Entities in the due performance and observance of any term, covenant
or condition of any indenture, mortgage, deed of trust, note, bank loan or
credit agreement or any other instrument or agreement to which it is a party or
by which any of the Constituent Entities or any of their property is bound or
affected, except such defaults which would not have a material adverse effect on
the financial condition, earnings, capital, assets, properties or business of
the Constituent Entities, considered as one enterprise; and such agreements are
in full force and effect and no other party to any such agreements has
instituted or, to the best knowledge of the Constituent Entities, threatened any
action or proceeding wherein any of the Constituent Entities might be alleged to
be in default thereunder under circumstances where such action or proceeding, if
determined adversely to such entity, would have a material adverse effect on the
financial condition, earnings, capital, assets, properties or business of the
Constituent Entities, considered as one enterprise.
(v) No approval of any regulatory or supervisory or other public authority
is required in connection with the execution and delivery of this Agreement or
the issuance of the Shares, except for the approvals of the OTS and the
Commission, and any necessary qualification, notification, registration or
exemption under the Blue Sky Laws of the various jurisdictions in which the
Shares are to be offered.
(w) Deloitte & Touche LLP, which has certified the financial statements of
the Savings Bank contained in the Registration Statement, Conversion
Application, and the Prospectus, are, with respect to the Constituent Entities,
independent public accountants within the meaning of the Code of Professional
Ethics of the American Institute of Certified Public Accountants, the Conversion
Regulations, and the 1933 Act Regulations.
<PAGE>
Charles Webb & Company
Page 11
________________, 1998
(x) RP Financial, L.C., which has prepared the Conversion Valuation
Appraisal Report as of _____________, 1998, as amended or supplemented, if so
amended or supplemented (the "Appraisal"), is independent of the Constituent
Entities within the meaning of the Conversion Regulations.
(y) The Constituent Entities have timely filed all required federal, state
and local tax returns and paid all taxes due and payable in respect of such
returns, except where permitted to be extended, and have made adequate reserves
for similar future tax liabilities and no deficiency has been asserted with
respect thereto by any taxing authority.
(z) The Savings Bank complies in all material respects with the applicable
financial recordkeeping and reporting requirements of the Currency and Foreign
Transactions Reporting Act of 1970, as amended, and the regulations and rules
thereunder.
(aa) To the knowledge of the Constituent Entities, none of the Constituent
Entities has lent any funds for the purchase of Shares or has made any other
payment of funds prohibited by law, and no funds have been set aside to be used
for any payment prohibited by law.
(bb) None of the Constituent Entities has: (i) issued any securities within
the last 18 months (except for notes to evidence bank loans or other liabilities
in the ordinary course of business or as described in the Prospectus); (ii) had
any dealings within the immediate prior 12 months with any NASD member, or any
person related to or associated with such member, other than discussions and
meetings relating to the Offering and purchases and sales of United States
government and agency and other securities in the ordinary course of business;
(iii) entered into a financial or management consulting agreement except as
contemplated hereunder and except for the Letter Agreement; and (iv) engaged any
intermediary other than the Agent in connection with the Offering, and no person
is being compensated in any manner for such service.
(cc) The Constituent Entities have not relied upon the Agent or the Agent's
counsel for any legal, tax or accounting advice in connection with the
Conversion.
(dd) All documents delivered by the Constituent Entities or their
representatives in connection with the issuance and sale of the Common Stock and
the Agent's exercise of due diligence, were, on the dates on which they were
delivered, accurate and complete in all material respects or were amended in
writing to be accurate and complete in all material respects.
(ee) The records of Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members are accurate and complete in all material respects.
(ff) To the best knowledge of the Constituent Entities, each of them
complies with all laws, rules and regulations relating to environmental
protection, and none of the Constituent Entities has been notified or is
otherwise aware that any of them is potentially liable, or is considered
potentially liable, under the Comprehensive Environmental Response, Compensation
<PAGE>
Charles Webb & Company
Page 12
________________, 1998
and Liability Act of 1980, as amended, or any other federal, state or local
environmental laws and regulations; no action, suit, regulatory investigation or
other proceeding is pending, or to the best knowledge of the Constituent
Entities, threatened against any of the Constituent Entities relating to
environmental protection, nor do the Constituent Entities have any reason to
believe that any such proceedings may be brought against any of them; and to the
best knowledge of the Constituent Entities, no disposal, release or discharge of
hazardous or toxic substances, pollutants or contaminants, including petroleum
and gas products, as any of such terms may be defined under federal, state or
local law, has occurred on, in, at or about any facilities or properties owned
or leased by any of the Constituent Entities or in which the Savings Bank has a
security interest.
Any certificate signed by an officer of any of the Constituent Entities
pursuant to the conditions of this Agreement and delivered to the Agent or its
counsel that refers to this Agreement shall be deemed to be a representation and
warranty by the Constituent Entities to the Agent as to the matters covered
thereby with the same effect as if such representation and warranty were set
forth herein,
SECTION 4. REPRESENTATIONS AND WARRANTIES OF THE AGENT. The Agent
-------------------------------------------
represents and warrants to the Constituent Entities that:
(a) Keefe, Bruyette & Woods, Inc. is a corporation in good standing under
the laws of the State of New York with full power and authority to provide the
services to be furnished to the Constituent Entities hereunder; Charles Webb &
Company is an unincorporated division of Keefe, Bruyette & Woods, Inc.
(b) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action on the part of the Agent, and this Agreement has
been duly and validly executed and delivered by the Agent and is the legal,
valid and binding agreement of the Agent, enforceable in accordance with its
terms, except as the enforceability thereof may be limited by (i) bankruptcy,
insolvency, moratorium, reorganization, conservatorship, receivership or other
similar laws relating to or affecting the enforcement or creditors' rights
generally, or (ii) general equity principles regardless of whether such
enforceability is considered in a proceeding in equity or at law.
(c) The execution and delivery of this Agreement by the Agent, the
consummation of the transactions contemplated hereby and compliance with the
terms and provisions hereof shall not conflict with, or result in a breach of,
any of the terms, provision or conditions of, or constitute a default (or event
which with notice or lapse of time or both would constitute a default) under,
the articles of incorporation of Keefe, Bruyette & Woods, Inc. or any material
agreement, indenture or other instrument to which the Agent is a party or by
which it or its property is bound.
<PAGE>
Charles Webb & Company
Page 13
________________, 1998
(d) The Agent and its employees, and to the best knowledge of the Agent,
its agents and representatives, who shall perform any of the services hereunder
shall be duly authorized and empowered, and shall have all licenses, approvals
and permits necessary to perform such services.
(e) No approval of any regulatory, supervisory or other public authority
other than the NASD is required in connection with the Agent's execution and
delivery of this Agreement, and the approval of the NASD has been received.
(f) There is no suit, proceeding, charge, or action before or by any court,
regulatory authority or government agency or body pending or, to the best
knowledge of the Agent, threatened, which might materially and adversely affect
the Agent's performance of this Agreement.
SECTION 5. COVENANTS OF THE COMPANY AND THE SAVINGS BANK. The Constituent
---------------------------------------------
Entities hereby jointly and severally covenant with the Agent as follows:
(a) The Company will not file any amendment or supplement to the
Registration Statement without providing the Agent and its counsel an
opportunity to review such amendment or supplement, and will not file any
amendment or supplement to which the Agent or its counsel shall reasonably
object.
(b) The Savings Bank will not file any amendment or supplement to the
Conversion Application without providing the Agent and its counsel an
opportunity to review such amendment or supplement, and will not file any
amendment or supplement to which the Agent or its counsel shall reasonably
object.
(c) At any time after the Holding Company Application is approved by the
OTS, the Company will not file any amendment or supplement to the Holding
Company Application without providing the Agent and its counsel an opportunity
to review such amendment or supplement, and will not file any amendment or
supplement to which the Agent or its counsel may reasonably object.
(d) The Constituent Entities shall notify the Agent in writing of any
violation of its certificate of incorporation or bylaws, in the case of the
Company, and their respective charters and bylaws, in the case of the MHC and
the Savings Bank, at any time after the date hereof and prior to the Closing
Date. Unless waived in writing by the Agent, which waiver shall not be
unreasonably withheld, the Company shall not be in violation of its certificate
of incorporation or bylaws, and the MHC and Savings Bank shall not be in
violation of their respective charters or bylaws, at any time after the date
hereof and prior to the Closing Date.
(e) The Company and the Savings Bank shall use their best efforts to cause
any post-effective amendment to the Registration Statement to be declared
effective by the Commission
<PAGE>
Charles Webb & Company
Page 14
________________, 1998
and any post-approval amendment to the Conversion Application or the Holding
Company Application to be approved by the OTS, and shall immediately notify the
Agent upon receipt of any information concerning any of the following events:
(i) when any post-effective amendment to the Registration Statement has become
effective; (ii) when any post-approval amendment to the Conversion Application
has been approved; (iii) when any post-approval amendment to the Holding Company
Application has been approved; (iv) when any comments from the Commission, the
OTS, or any other governmental entity are issued with respect to the
Registration Statement, Conversion Application, Holding Company Application, or
the transactions contemplated by this Agreement; (v) when any request is made by
the Commission, the OTS or any other governmental entity for any amendment or
supplement to the Registration Statement, the Conversion Application or the
Holding Company Application, or for any other additional information; (vi) when
the Commission, the OTS or any other governmental entity issues any order or
takes or threatens any action to suspend the Offering, the effectiveness of the
Registration Statement, or the use of the Prospectus or any other filing of the
Company or the Savings Bank under the Conversion Regulations, or other
applicable law; (vii) the issuance by the Commission, the OTS or any other
governmental authority of any stop order suspending the effectiveness of the
Registration Statement or the approval of the Conversion Application or the
Holding Company Application, or of the initiation or threat of initiation of any
proceedings for any such purpose; or (viii) the occurrence of any event
mentioned in paragraph (j) below; and the Company and the Savings Bank shall
make every reasonable effort to prevent the issuance by the Commission, the OTS
or any state authority of any order referred to in (vi) and (vii) above, and if
any such order shall at any time be issued, to obtain the lifting thereof at the
earliest possible time.
(f) As of the Closing Date, the Savings Bank shall have all approvals and
authority to issue and sell the capital stock of the Savings Bank to the Company
and the Company shall have such approvals and orders to issue and sell the
Shares as provided for herein and as described in the Prospectus.
(g) The Company and the Savings Bank shall deliver to the Agent and to its
counsel two conformed copies of the Registration Statement, the Conversion
Application and the Holding Company Application, as originally filed and of each
amendment or supplement thereto, including all exhibits. The Company and the
Savings Bank shall also deliver such additional copies of the foregoing
documents to counsel to the Agent as may be required for any NASD filings.
(h) The Company shall furnish to the Agent, from time to time during the
period when the Prospectus is required to be delivered under the 1933 Act or the
Securities Exchange Act of 1934 (the "1934 Act"), such number of copies of such
Prospectus as the Agent may reasonably request for the purposes contemplated by
the 1933 Act, the 1933 Act Regulations, the 1934 Act or the rules and
regulations promulgated under the 1934 Act (the "1934 Act Regulations"); and the
Company authorizes the Agent to use the Prospectus in any lawful manner
contemplated by the Plan in connection with the sale of the Shares.
<PAGE>
Charles Webb & Company
Page 15
________________, 1998
(i) The Constituent Entities shall comply with any and all terms,
conditions, requirements and provisions with respect to the Conversion and the
transactions contemplated thereby imposed by the Commission and the OTS and by
the 1933 Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act
Regulations, to be complied with subsequent to the Closing Date; and when the
Prospectus is required to be delivered, the Company and the Savings Bank shall
comply, at their own expense, with all requirements imposed upon them by the
Commission and the OTS, and by the 1933 Act, the 1933 Act Regulations, the 1934
Act and the 1934 Act Regulations, in each case as from time to time in force, so
far as necessary to permit the continuance of sales or dealing in shares of
Common Stock during such period in accordance with the provisions hereof and the
Prospectus.
(j) If, at any time during the period when the Prospectus is required to be
delivered, any event relating to or affecting the Constituent Entities shall
occur, as a result of which it is necessary or appropriate, in the opinion of
counsel for the Constituent Entities or in the opinion of the Agent's counsel,
to amend or supplement the Registration Statement or Prospectus in order to make
the Registration Statement or Prospectus not misleading in light of the
circumstances existing at the time the Prospectus is delivered, the Company and
the Savings Bank shall, at their own expense, prepare and file with the
Commission and the OTS and furnish to the Agent a reasonable number of copies of
an amendment or amendments of, or a supplement or supplements to, the
Registration Statement or Prospectus (in form and substance satisfactory to the
Agent and its counsel after a reasonable time for review) which shall amend or
supplement the Registration Statement or Prospectus, so that as amended or
supplemented the Registration Statement and the Prospectus shall not contain an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances existing
at the time the Prospectus is delivered to a purchaser, not misleading.
(k) The Constituent Entities shall conduct the Conversion, including the
offer and sale of the Shares, in all material respects in accordance with the
Plan and the Conversion Regulations and all other applicable laws, regulations,
decisions and orders, including all terms, conditions, requirements and
provisions precedent to the Conversion imposed upon the Constituent Entities by
the Commission, the OTS or any other regulatory authority and in the manner
described in the Prospectus.
(l) The Constituent Entities shall each timely furnish to the Agent such
information with respect to them as the Agent may from time to time reasonably
request.
(m) The Company shall take all necessary action required to register the
Shares for offering and sale by the Company or to exempt such Shares from
registration and to exempt the Company as a broker-dealer and its officers,
directors and employees as broker-dealers or agents under the Blue Sky Laws of
such jurisdictions in which the Agent and the Company and the Savings Bank may
reasonably agree upon; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify to do
business in any jurisdiction in which it is not so qualified; and in each
jurisdiction where any of the Shares shall
<PAGE>
Charles Webb & Company
Page 16
________________, 1998
have been qualified or registered the Company shall prepare and file, at its own
expense, such statements and reports as may be required by the laws of such
jurisdiction.
(n) The Savings Bank shall duly establish and maintain the liquidation
account for the benefit of Eligible Account Holders and Supplemental Eligible
Account Holders in accordance with the Conversion Regulations.
(o) The Company and the Savings Bank shall not sell or issue, contract to
sell or otherwise dispose of, for a period of 180 days after the Closing Date,
without the prior written consent of the Agent, any shares of Common Stock other
than in connection with any plan or arrangement described in the Prospectus.
(p) The Common Stock shall be the subject of an effective registration
statement under Section 12(g) of the 1934 Act as of the Closing Date and the
Company shall maintain the effectiveness of such registration for not less than
two years.
(q) During the period during which the Common Stock is registered under the
1934 Act or for two years from the Closing Date, whichever period is greater,
the Company shall furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report in accordance with Rule 14a-3(b) of the
1934 Act Regulations.
(r) During the period of two years from the Closing Date, the Company shall
furnish to the Agent: (i) as soon as practicable after such information is
publicly available, a copy of each report of the Company furnished to or filed
with the Commission under the 1934 Act or any national securities exchange or
system on which any class of securities of the Company is listed or quoted
(including, but not limited to, reports on Forms 10-K, 10-Q and 8-K and all
proxy statements and annual reports to stockholders), (ii) a copy of each other
non-confidential report of the Company mailed to its stockholders or filed with
the Commission, the OTS or any other supervisory or regulatory authority or any
national securities exchange or system on which any class of securities of the
Company is listed or quoted, each press release and material news items and
additional documents and information with respect to the Company or the Savings
Bank as the Agent may reasonably request; and (iii) from time to time, such
other non-confidential information concerning the Company or the Savings Bank as
the Agent may reasonably request.
(s) The Company and the Savings Bank shall use the net proceeds from the
sale of the Shares in the manner set forth in the Prospectus under the caption
"Use of Proceeds."
(t) The Company will not distribute any prospectus (as defined in Section
2(10) of the 1933 Act) other than the Prospectus and the Sales Information (as
defined in Section 8 hereof) in connection with the offer and sale of the Shares
without first notifying the Agent.
<PAGE>
Charles Webb & Company
Page 17
________________, 1998
(u) The Company shall use its best efforts to (i) encourage and assist
three market makers to establish and maintain a market for the Shares and (ii)
list the Shares on The Nasdaq Stock Market effective on or prior to the Closing
Date.
(v) The Savings Bank shall maintain appropriate arrangements for depositing
all funds received from persons mailing subscriptions for or orders to purchase
Shares in the Offering on an interest bearing basis at the rate described in the
Prospectus until the Closing Date and satisfaction of all conditions precedent
to the release of the Savings Bank's obligation to refund payments received from
persons subscribing for or ordering Shares in the Offering in accordance with
the Plan and as described in the Prospectus or until refunds of such funds have
been made to the persons entitled thereto or withdrawal authorizations cancelled
in accordance with the Plan and as described in the Prospectus. The Savings
Bank shall maintain such records of all funds received to permit the funds of
each subscriber to be separately insured by the FDIC (to the maximum extent
allowable) and to enable the Savings Bank to make the appropriate refunds of
such funds in the event that such refunds are required to be made in accordance
with the Plan and as described in the Prospectus.
(w) The Company shall register as a savings and loan holding company under
the HOLA within 90 days of the Closing Date.
(x) The Company and the Savings Bank shall take such actions and furnish
such information as are reasonably requested by the Agent in order for the Agent
to ensure compliance with the NASD's "Interpretation Relating to Free Riding and
Withholding."
(y) The Savings Bank will not amend the Plan of Conversion without
notifying the Agent prior thereto.
(z) The Company and the Savings Bank shall assist the Agent, if necessary,
in connection with the allocation of the Shares in the event of an
oversubscription and shall provide the Agent with any information necessary in
allocating the Shares in such event.
(aa) The Company and the Savings Bank shall comply with the provisions of
Rule 158 of the 1933 Act Regulations.
(bb) The Company shall report the use of proceeds of the Offering pursuant
to Rule 463 of the 1933 Act Regulations.
(cc) The Constituent Entities shall use all reasonable efforts to satisfy,
or cause to be satisfied, the conditions precedent to the several obligations of
the Agent specified in Section 7 hereof.
(dd) Until the Closing Date, the Constituent Entities shall conduct their
businesses in material compliance with all applicable federal and state laws,
rules, regulations, decisions,
<PAGE>
Charles Webb & Company
Page 18
________________, 1998
directives and orders, including all decisions, directives and orders of the
Commission, the OTS and the FDIC.
(ee) Upon completion of the sale by the Company of the Shares contemplated
by the Prospectus, (i) all of the authorized and outstanding capital stock of
the Savings Bank shall be owned by the Company, (ii) the Company shall have no
direct subsidiaries other than the Savings Bank, and (iii) the Conversion shall
have been effected in accordance with all applicable statutes, regulations,
decisions and orders; and all terms, conditions, requirements and provisions
with respect to the Conversion (except those that are conditions subsequent)
imposed by the Commission, the OTS or any other governmental agency, if any,
shall have been complied with by the Constituent Entities in all material
respects or appropriate waivers shall have been obtained and all notice and
waiting periods shall have been satisfied, waived or elapsed.
SECTION 6. COVENANTS OF THE AGENT. The Agent hereby covenants with the
----------------------
Company and the Savings Bank as follows:
(a) During the Offering, the Agent shall comply, in all material respects,
with all requirements imposed upon it by the OTS and, to the extent applicable,
by the 1933 Act, the 1933 Act Regulations, the 1934 Act and the 1934 Act
Regulations.
(b) The Agent shall distribute the Prospectus in connection with the sales
of the Common Stock in accordance with the Conversion Regulations, the 1933 Act
and the 1933 Act Regulations.
SECTION 7. CONDITIONS TO THE AGENT'S OBLIGATIONS. The Agent's obligations
-------------------------------------
hereunder are subject, to the extent not waived in writing by the Agent, to the
condition that all representations and warranties of the Constituent Entities
herein are, at and as of the commencement of the Offering and at and as of the
Closing Date, true and correct in all material respects, the condition that the
Constituent Entities shall have performed all of their obligations hereunder to
be performed on or before such dates, and to the following further conditions:
(a) At the Closing Date, the Constituent Entities shall have conducted the
Conversion in all material respects accordance with the Plan, the Conversion
Regulations, and all other applicable laws, regulations, decisions and orders,
including all terms, conditions, requirements and provisions precedent to the
Conversion imposed upon them by the OTS, the FDIC, the Commission and any state
securities agency.
(b) The Registration Statement shall have been declared effective by the
Commission, the Conversion Application approved by the OTS, and the Holding
Company Application approved by the OTS, not later than 5:30 p.m. on the date of
this Agreement or with the Agent's consent at a later time and date; and at the
Closing Date, no stop order suspending the effectiveness of the Registration
Statement shall have been issued under the 1933 Act or proceedings therefore
initiated or threatened by the Commission, or any state authority and no
<PAGE>
Charles Webb & Company
Page 19
________________, 1998
order or other action suspending the authorization of the Prospectus or the
consummation of the Conversion shall have been issued or proceedings therefore
initiated or, to the knowledge of the Constituent Entities, threatened by the
Commission, the OTS or any other federal or state authority.
(c) At the Closing Date, the Agent shall have received:
(1) The favorable opinion, dated as of the Closing Date and addressed
to the Agent for their benefit, of Breyer & Aguggia, counsel for the
Company and the Savings Bank, in form and substance to the effect that:
(i) The Company has been duly incorporated and is validly
existing and in good standing under the laws of the State of Delaware
and has corporate power and authority to own, lease and operate its
properties and to conduct its business as described in the
Registration Statement and the Prospectus; and the Company is duly
qualified to do business and in good standing as a foreign corporation
in Missouri.
(ii) The Savings Bank is and upon consummation of the
Conversion will remain a validly existing federal savings bank in the
capital stock form of organization under the laws of the United States
of America with full corporate power and authority to conduct its
business and own its property as described in the Registration
Statement and Prospectus; and upon consummation of the Conversion, all
of the issued and outstanding capital the stock of the Savings Bank
shall be duly authorized, validly issued, fully paid and non-
assessable, and all such capital stock shall be owned of record and,
to such counsel's knowledge, shall be owned beneficially by the
Company free and clear of any liens, encumbrances or claims.
(iii) The Savings Bank is a member of the FHLB-Des Moines; the
deposit accounts of the Savings Bank are insured by the FDIC under the
SAIF up to the maximum amount allowed under law; and, to such
counsel's knowledge, no proceedings for the termination or revocation
of such membership or insurance are pending or threatened.
(iv) Upon consummation of the Conversion, the authorized,
issued and outstanding capital stock of the Company shall be within
the range set forth in the Prospectus under the caption
"Capitalization," and except for shares issued upon incorporation of
the Company, no shares of Common Stock have been issued prior to the
Closing Date; upon consummation of the Conversion, the Shares issued
to public shareholders of the Savings Bank and the Shares subscribed
for pursuant to the Offering have been duly and validly authorized for
issuance and, when issued and delivered by the Company pursuant to the
Plan against payment
<PAGE>
Charles Webb & Company
Page 20
________________, 1998
of the consideration calculated as set forth in the Plan and the
Prospectus (in the case of the Shares subscribed for pursuant to the
Offering), shall be duly and validly issued, fully paid and non-
assessable, except that Shares purchased by the ESOP with funds
borrowed from the Company are not fully paid to the extent payment
therefor in cash has not been received by the Company; except for
subscription rights granted pursuant to the Plan, the issuance of the
Shares is not subject to preemptive rights; the terms and provisions
of the Shares conform to the description thereof contained in the
Prospectus; and the form of certificate used to evidence the Common
Stock complies with applicable law. To such counsel's knowledge, upon
the issuance of the Shares, good title to the Shares will be
transferred from the Company to the purchasers thereof against payment
therefor, subject to such claims as may be asserted against the
purchasers thereof by third-party claimants.
(v) The Conversion Application and the Holding Company
Application have been approved by the OTS, and the Prospectus and the
proxy statement of the Savings Bank have been authorized for use by
the OTS; and no action is pending or, to such counsel's knowledge,
threatened to revoke any such authorizations or approvals.
(vi) The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly
and validly authorized by all necessary action on the part of the
Constituent Entities; and this Agreement is a valid and binding
obligation of the Constituent Entities, enforceable against them in
accordance with its terms, except as the enforceability thereof may be
limited (a) by bankruptcy, insolvency, moratorium, reorganization,
conservatorship, receivership or other similar laws now or hereafter
in effect relating to or affecting the enforcement of creditors'
rights generally or the rights of creditors of savings institutions
and their holding companies, (b) by general equitable principles,
regardless of whether such enforceability is considered in a
proceeding in equity or at law, (c) by laws relating to the safety and
soundness of insured depository institutions or (d) by applicable law
or public policy with respect to the indemnification and contribution
provisions contained herein, including without limitation the
provisions of Sections 23A and 23B of the Federal Reserve Act.
(vii) The execution and delivery of this Agreement and the
incurrence and performance of the obligations set forth herein by the
Constituent Entities do not (a) result in any violation of any
applicable law or regulation (except that no opinion need be rendered
with respect to the Blue Sky Laws of various jurisdictions), (b)
conflict with or violate the certificate of incorporation and bylaws
of the Company or the respective charters and bylaws of the MHC and
the Savings Bank, or (c) to such counsel's knowledge, constitute a
breach of, or
<PAGE>
Charles Webb & Company
Page 21
________________, 1998
default under (or an event which, with notice or lapse of time or
both, would constitute a default under), or result in the creation or
imposition of any lien, charge or encumbrance upon any property or
assets of the Savings Bank or the Company pursuant to any contract,
indenture, mortgage, loan agreement, note, lease or other instrument
to which any of the Constituent Entities is a party or by which any of
them may be bound, or to which any of the property or assets of the
Constituent Entities is subject that, individually or in the aggregate
would have a material adverse effect on the financial condition,
results of operations or business of the Company and the Savings Bank,
considered as one enterprise.
(viii) The Plan has been duly adopted by the votes of the
directors of the Constituent entities required by the Conversion
Regulations and, based upon the certificate of the inspectors of
election, approved by the eligible shareholders of the Savings Bank
and by the eligible voting members of the MHC in accordance with the
Conversion Regulations and the respective charters and bylaws of the
MHC and the Savings Bank.
(ix) Subject to the satisfaction of the conditions to the OTS
approval of the Conversion, no further approval, registration,
authorization, consent or other order of or notice to any governmental
agency is required in connection with the execution and delivery of
this Agreement, the issuance of the Shares and the consummation of the
Conversion, except as may be required under the Blue Sky Laws of
various jurisdictions or the rules and regulations of the NASD (as to
which no opinion need be rendered).
(x) The Registration Statement has been declared effective
under the 1933 Act and no stop order suspending the effectiveness has
been issued or proceedings therefor initiated or, to such counsel's
knowledge, threatened by the Commission.
(xi) At the time the Conversion Application, including the
Prospectus contained therein, was approved by the OTS, the Conversion
Application, including the Prospectus contained therein (other than
the financial statements, the notes thereto, financial tables, and
other financial, statistical and appraisal data included therein, as
to which no opinion need be rendered), complied as to form in all
material respects with the requirements of the Conversion Regulations.
(xii) At the time that the Registration Statement became
effective, the Registration Statement, including the Prospectus (other
than the financial statements, the notes thereto, financial tables,
financial, statistical and appraisal data included therein, as to
which no opinion need be rendered) complied as to form in all material
respects with the requirements of the 1933 Act and the 1933 Act
Regulations.
<PAGE>
Charles Webb & Company
Page 22
________________, 1998
(xiii) To such counsel's knowledge, there are no legal or
governmental proceedings pending or threatened against any of the
Constituent Entities or their principals that are required to be
disclosed in the Registration Statement and the Prospectus other than
those disclosed therein .
(xiv) To such counsel's knowledge, there are no contracts,
indentures, mortgages, loan agreements, notes, leases or other
instruments required to be described or referred to in the Conversion
Application, the Registration Statement or the Prospectus or required
to be filed as exhibits to the Registration Statement or the
Conversion Application other than those described or referred to
therein or filed as exhibits thereto; the descriptions in the
Conversion Application, the Registration Statement and the Prospectus
of the contracts, indentures, mortgages, loan agreements, notes,
leases or other instruments filed as exhibits thereto are accurate in
all material respects and fairly present the information required to
be shown.
(xv) The Plan complies with the HOLA and the Conversion
Regulations; no order has been issued by the OTS, the Commission or
any state authority to suspend the Offering or the use of the
Prospectus, and no action for such purposes has been instituted or, to
such counsel's knowledge, threatened; and, to such counsel's
knowledge, no person has sought to obtain regulatory or judicial
review of the final action of the OTS approving the Plan, the
Conversion Application, the Holding Company Application or the
Prospectus.
(xvi) To such counsel's knowledge, the Constituent Entities
have obtained all licenses, permits and other governmental
authorizations currently required for the conduct of their respective
businesses as described in the Registration Statement and Prospectus,
except for licenses, approvals or authorizations the failure of which
to have would not result in a material adverse change in the financial
condition, results of operation or the business of the Company and the
Savings Bank, considered as one enterprise, and, to such counsel's
knowledge, all such licenses, permits and other governmental
authorizations are in full force and effect, and, to such counsel's
knowledge, the Constituent Entities are in all material respects
complying therewith.
(xvii) To such counsel's knowledge, none of the Constituent
Entities is in violation of its certificate of incorporation and
bylaws, or charter and bylaws, as the case may be, nor, to such
counsel's knowledge, in default (nor has any event occurred which,
with notice or lapse of time or both, would constitute a default) in
the performance or observance of any obligation, agreement, covenant
or condition contained in any material contract, indenture, mortgage,
loan agreement, note, lease or other instrument to which any of the
Constituent Entities is a party or by which any of the Constituent
Entities or any of their
<PAGE>
Charles Webb & Company
Page 23
________________, 1998
property may be bound in any respect that would have a material
adverse effect upon the financial condition, results of operations or
business of the Company and the Savings Bank, considered as one
enterprise.
(xviii) To such counsel's knowledge, none of the Constituent
Entities is in violation of any directive from the OTS or the FDIC to
make any material change in the method of conducting its business.
(xix) The information in the Prospectus under the captions
"Regulation, "The Conversion," "Restrictions on Acquisition of the
Holding Company," "Taxation," and "Description of Capital Stock of the
Holding Company," to the extent that such information constitutes
matters of law, summaries of legal matters, documents or proceedings,
or legal conclusions, has been reviewed by such counsel and is
accurate and complete in all material respects.
In giving such opinion, such counsel may rely as to all matters of
fact on certificates of officers or directors of the Constituent Entities
and certificates of public officials. Such opinion may specify that it
shall be limited to matters of federal and Delaware law. All references to
such counsel's "knowledge" in such opinion shall refer to the actual and
conscious awareness of facts or other information of the individual Breyer
& Aguggia attorneys who have been actively involved in the transactions
contemplated by this Agreement or the preparation of such opinion. For
purposes of such opinion, no proceedings shall be deemed to be pending, no
order or stop order shall be deemed to be issued, and no action shall be
deemed to be instituted unless, in each case, a director or executive
officer of one of the Constituent Entities, or its counsel, shall have
received a copy of such proceedings, order, stop order or action, and such
counsel need not regard any litigation or governmental proceeding to be
"threatened" unless the potential litigant or governmental authority has
manifested to the management of one of the Constituent Entities. or to its
counsel, a present intention to initiate such litigation or proceeding.
Such counsel may assume that any agreement is the valid and binding
obligation of any parties to such agreement other than the Constituent
Entities.
In addition, such counsel shall provide a letter stating that during
the preparation of the Registration Statement, Conversion Application and
the Prospectus, such counsel participated in conferences with certain
officers and other representatives of the Constituent Entities,
representatives of the Agent, counsel to the Agent and representatives of
the independent public accountants for the Constituent Entities at which
the contents of the Registration Statement, the Conversion Application and
the Prospectus and related matters were discussed and, although they are
not passing upon and do not assume the responsibility for the accuracy,
completeness or fairness of the statements contained in the Registration
Statement, the Conversion Application and Prospectus, on the basis of the
foregoing (relying as to factual matters on certificates of officers and
other factual representations by the Constituent Entities), nothing has
come to such
<PAGE>
Charles Webb & Company
Page 24
________________, 1998
counsel's attention that caused them to believe that the Registration
Statement at the time it was declared effective by the SEC or the
Prospectus as of its date and as of the Closing Date, contained or contains
any untrue statement of a material fact or omitted or omits to state any
material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading (it being understood that such counsel shall express
no comment or opinion with respect to the financial statements, schedules
and other financial information and statistical and stock valuation data
included, or statistical methodology employed, in the Registration
Statement, Conversion Application and Prospectus).
(2) The favorable opinion, dated as of the Closing Date, of Armstrong,
Teasdale, Schlafly & Davis, St. Louis, Missouri, counsel to the Agent, with
respect to such matters as the Agent may reasonably require. Such opinion
may rely, as to matters of fact, upon certificates of officers and
directors of the Company and the Savings Bank delivered pursuant hereto or
as such counsel shall reasonably request.
(d) At the Closing Date, the Agent shall receive certificates of the Chief
Executive Officer and the Chief Financial Officer of each of the Constituent
Entities, each dated as of the Closing Date, stating that: (i) they have
reviewed the Prospectus and, at the time the Prospectus became authorized for
final use, the Prospectus did not contain any untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; (ii) since the respective dates as of which information is given in
the Registration Statement and the Prospectus and as of the Closing Date, no
material adverse change in the financial condition or in the earnings, capital,
properties or business of the Constituent Entities, considered as one
enterprise, has occurred and no other event has occurred which should have been
set forth in an amendment or supplement to the Prospectus which has not been so
set forth, and the conditions set forth in this Section 7 have been satisfied;
(iii) the representations and warranties in Section 3 are true and correct with
the same force and effect as though expressly made at and as of the Closing
Date; (iv) the Constituent Entities have complied with all agreements and
satisfied all conditions on their part to be performed or satisfied at or prior
to the Closing Date and will comply in all material respects with all
obligations to be satisfied by them after the Closing Date; (v) no stop order
suspending the effectiveness of the Registration Statement is pending or, to the
knowledge of the Constituent Entities, threatened by the Commission or any state
authority; (vi) no order suspending the Offering, the Conversion, or the
effectiveness of the Prospectus has been issued and no proceedings for that
purpose are pending or, to the knowledge of the Constituent Entities, threatened
by the OTS, the Commission, or any other authority; and (vii) to the knowledge
of the Constituent Entities, no person has sought to obtain review of the action
of the OTS approving the Plan.
(e) Prior to and at the Closing Date: (i) in the reasonable opinion of the
Agent, there shall have been no material adverse change in the financial
condition, or in the earnings or business of the Constituent Entities,
considered as one enterprise, from that as of the latest dates
<PAGE>
Charles Webb & Company
Page 25
________________, 1998
as of which such condition is set forth in the Prospectus other than
transactions referred to or contemplated therein; (ii) the Constituent Entities
shall not have received any directive from the OTS or the FDIC to make any
material change in the method of conducting their business with which it has not
complied (which directive, if any, shall have been disclosed to the Agent) or
which materially and adversely would affect their business, operations or
financial condition or income, considered as one enterprise; (iii) the
Constituent Entities shall not have been in default (nor shall an event have
occurred which, with notice or lapse of time or both, would constitute a
default) under any provision of any agreement or instrument relating to any
outstanding indebtedness; (iv) no action, suit or proceedings, at law or in
equity or before or by any federal or state commission, board or other
administrative agency, shall be pending or, to the knowledge of the Constituent
Entities, threatened against the Constituent Entities or affecting any of their
properties wherein an unfavorable decision, ruling or finding would materially
and adversely affect the business operations, financial condition or income of
the Constituent Entities, considered as one enterprise; and (v) where required,
the Shares have been qualified or registered for offering and sale under the
Blue Sky Laws of the jurisdictions in which the Shares have been offered for
sale.
(f) Concurrently with the execution of this Agreement, the Agent shall
receive a letter from Deloitte & Touche LLP dated the date hereof and addressed
to the Agent: (i) confirming that Deloitte & Touche LLP are independent public
accountants within the meaning of the 1933 Act, the 1933 Act Regulations, 12 CFR
Section 571.2(c)(3) and the Code of Professional Ethics of the American
Institute of Certified Public Accountants, and stating in effect that in their
opinion the financial statements of the Savings Bank as of March 31, 1998 and
1997 and for the years ended September 30, 1997, 1996 and 1995 included in the
Registration Statement and the Prospectus and covered by their opinion included
therein, comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act, the 1933 Act Regulations, the
Conversion Regulations, and GAAP applied consistently; (ii) stating in effect
that, on the basis of certain agreed upon procedures (but not an audit
examination in accordance with generally accepted auditing standards) consisting
of a reading of the latest available unaudited interim financial statements of
the Savings Bank prepared by the Savings Bank, a reading of the minutes of the
meetings of the Boards of Directors of the Savings Bank and the MHC and the
members of the Savings Bank, and consultations with officers of the Savings Bank
responsible for financial and accounting matters, nothing came to its attention
which caused it to believe that: (A) the unaudited financial statements of the
Savings Bank included in the Prospectus are not in conformity with GAAP applied
on a basis substantially consistent with that of the audited financial
statements included in the Prospectus; and (B) during the period from the date
of the latest audited financial statements included in the Prospectus to a
specified date not more than three business days prior to the date hereof, there
was any increase in borrowings or in non-performing assets by the Company or the
Savings Bank; and (C) except as otherwise discussed in the Prospectus, there was
any decrease in retained earnings of the Savings Bank at the date of such letter
as compared with amounts shown in the latest audited statement of condition
included in the Prospectus or there was any decrease in net income or net
interest income of the Savings Bank for the number of full months commencing
immediately after the period covered
<PAGE>
Charles Webb & Company
Page 26
________________, 1998
by the latest audited income statement included in the Prospectus and ended on
the latest month end prior to the date of the Prospectus or in such letter as
compared to the corresponding period in the preceding year; and (iii) stating
that, in addition to the audit referred to in its opinion included in the
Prospectus and the performance of the procedures referred to in clause (ii) of
this subsection (f), it has compared with the general accounting records of the
Company and/or the Savings Bank, as applicable, which are subject to the
internal controls of the Company's and/or the Savings Bank's, as applicable,
accounting system and other data prepared by the Company and/or the Savings
Bank, as applicable, directly from such accounting records, to the extent
specified in such letter, such amounts and/or percentages set forth in the
Prospectus as the Agent may reasonably request, and they have found such amounts
and percentages to be in agreement therewith.
(g) At the Closing Date, the Agent shall receive a letter from Deloitte &
Touche LLP dated the Closing Date, addressed to the Agent, confirming the
statements made by them in the letter delivered by them pursuant to subsection
(f) of this Section 7, the "specified date" referred to in clause (ii) of
subsection (f) thereof to be a date specified in such letter, which shall not be
more than three business days prior to the Closing Date.
(h) At the Closing Date, the Agent shall receive a letter from RP
Financial, L.C., dated the Closing Date and addressed to the Agent, (i)
confirming that said firm is independent of the Constituent Entities and is
experienced and expert in the area of corporate appraisals within the meaning of
the Conversion Regulations, (ii) stating in effect that the Appraisal prepared
by such firm complies in all material respects with the applicable requirements
of the Conversion Regulations, and (iii) further stating that its opinion of the
aggregate pro forma market value of the Company and the Savings Bank expressed
in the appraisal as most recently updated, remains in effect.
(i) The Constituent Entities shall not have sustained since the date of the
latest audited financial statements included in the Prospectus any material loss
or interference with their businesses from fire, explosion, flood or other
calamity, whether or not covered by insurance, or from any labor dispute or
court or governmental action, order or decree, otherwise than as set forth or
contemplated in the Registration Statement and Prospectus.
(j) At or prior to the Closing Date, the Agent shall receive: (i) a copy of
the letters from the OTS approving the Conversion Application and the Holding
Company Application and authorizing the use of the Prospectus; (ii) a copy of
the order from the Commission declaring the Registration Statement effective;
(iii) a certificate from the OTS evidencing the existence of the Savings Bank;
(iv) a certificate from the OTS evidencing the existence of the MHC; (v) a
certificate of good standing from the State of Delaware evidencing the good
standing of the Company; (vi) a certificate from the FDIC evidencing the Savings
Bank's insurance of accounts; (vii) a certificate of the FHLB-Des Moines
evidencing the Savings Bank's membership therein, and (viii) any other documents
that the Agent shall reasonably request.
<PAGE>
Charles Webb & Company
Page 27
________________, 1998
(k) Subsequent to the date hereof, there shall not have occurred any of the
following: (i) a suspension or limitation in trading in securities generally on
the New York Stock Exchange or in the over-the-counter market, or quotations
halted generally on The Nasdaq Stock Market, or minimum or maximum prices for
trading have been fixed, or maximum ranges for prices for securities have been
required by either of such exchanges or The Nasdaq Stock Market or by order of
the Commission or any other governmental authority; (ii) a general moratorium on
the operations of commercial banks, Missouri or federal savings and loan
associations or a general moratorium on the withdrawal of deposits from
commercial banks, Missouri or federal savings and loan associations declared by
federal or state authorities; (iii) the engagement by the United States in
hostilities which have resulted in the declaration, on or after the date hereof,
of a national emergency or war; or (iv) a material decline in the price of
equity or debt securities in the effect of any of items (i) through (iii) above
in the Agent's reasonable judgment, makes it impracticable or inadvisable to
proceed with the Offering or the delivery of the Shares on the terms and in the
manner contemplated in the Registration Statement and Prospectus.
SECTION 8. INDEMNIFICATION.
---------------
(a) The Constituent Entities jointly and severally agree to indemnify and
hold harmless the Agent, its officers, directors, agents, servants and employees
and each person, if any, who controls the Agent within the meaning of Section 15
of the 1933 Act or Section 20(a) of the 1934 Act, against any and all loss,
liability, claim, damage or expense whatsoever (including but not limited to
settlement expenses), joint or several, that the Agent or any of them may suffer
or to which the Agent and any such persons may become subject under all
applicable federal or state laws or otherwise, and to promptly reimburse the
Agent and any such persons upon written demand for any expenses (including
reasonable fees and disbursements of counsel) incurred by the Agent or any of
them in connection with investigating, preparing to defend or defending any
actions, proceedings or claims (whether commenced or threatened) to the extent
such losses, claims, damages, liabilities or actions: (i) arise out of or are
related to the Conversion or any action taken by the Agent where acting as agent
of the Constituent Entities, including without limitation the denial or
reduction of a subscription or order to purchase Common Stock based upon the
deposit records of the Savings Bank or otherwise; (ii) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (or any amendment or supplement
thereto), Prospectus (or any amendment or supplement thereto), the Conversion
Application (or any amendment or supplement thereto), the Holding Company
Application (or any amendment or supplement thereto), or any blue sky
application or other instrument or document executed by any of the Constituent
Entities or based upon written information supplied by any of the Constituent
Entities filed in any state or jurisdiction to register or qualify any or all of
the Shares or to claim an exemption therefrom, or provided to any state or
jurisdiction to exempt the Company as a broker-dealer or its officers, directors
and employees as broker-dealers or agents, under the securities laws thereof
(collectively, the "Blue Sky Application"), or any application or other
document, advertisement, oral statement or communication ("Sales Information")
prepared, made or executed by or on behalf of any of the Constituent Entities
based upon written or oral
<PAGE>
Charles Webb & Company
Page 28
________________, 1998
information furnished by or on behalf of the Company or the Savings Bank,
whether or not filed in any jurisdiction, in order to qualify or register the
Shares or to claim an exemption therefrom under the securities laws thereof;
(iii) arise out of or based upon the omission or alleged omission to state in
any of the foregoing documents or information, a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; or (iv) arise from any
theory of liability whatsoever relating to or arising from or based upon the
Registration Statement (or any amendment or supplement thereto), Prospectus (or
any amendment or supplement thereto), the Conversion Application (or any
amendment or supplement thereto), the Holding Company Application (or any
amendment or supplement thereto), any Blue Sky Application or Sales Information
or other documentation distributed in connection with the Conversion; provided,
however, that no indemnification is required under this paragraph (a) to the
extent such losses, claims, damages, liabilities or actions arise out of or are
based upon any untrue material statement or alleged untrue material statements
in, or material omission or alleged material omission from, the Registration
Statement (or any amendment or supplement thereto), Prospectus (or any amendment
or supplement thereto), the Conversion Application (or any amendment or
supplement thereto), the Holding Company Application (or any amendment or
supplement thereto), any Blue Sky Application or Sales Information made in
reliance upon and in conformity with information furnished in writing to the
Constituent Entities by the Agent regarding the Agent; and provided further,
however, that the Constituent Entities shall not be liable under the foregoing
indemnification provision to the extent that any loss, claim, damage, liability
or action is found in a final judgment by a court of competent jurisdiction to
have resulted from the Agent's bad faith or gross negligence.
(b) The Agent agrees to indemnify and hold harmless the Constituent
Entities, their directors and officers and each person, if any, who controls any
of the Constituent Entities within the meaning of Section 15 of the 1933 Act or
Section 20(a) of the 1934 Act against any and all loss, liability, claim, damage
or expense whatsoever (including but not limited to settlement expenses), joint
or several, which they, or any of them, may suffer or to which they, or any of
them may become subject under all applicable federal and state laws or
otherwise, and to promptly reimburse the Constituent Entities and any such
persons upon written demand for any expenses (including reasonable fees and
disbursements of counsel) incurred by them, or any of them, in connection with
investigating, preparing to defend or defending any actions, proceedings or
claims (whether commenced or threatened) to the extent such losses, claims,
damages, liabilities or actions arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (or any amendment or supplement thereto), the Conversion
Application (or any amendment or supplement thereto) or the Prospectus (or any
amendment or supplement thereto), or are based upon the omission or alleged
omission to state in any of the foregoing documents a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that the Agent's obligations under this Section 8(b) shall exist only if and
only to the extent (i) that such untrue statement or alleged untrue statement
was made in, or such material fact or alleged material fact was omitted from,
<PAGE>
Charles Webb & Company
Page 29
________________, 1998
the Registration Statement (or any amendment or supplement thereto), the
Prospectus (or any amendment or supplement thereto) or the Conversion
Application (or any amendment or supplement thereto), and Blue Sky Application
or Sales Information in reliance upon and in conformity with information
furnished in writing to the Constituent Entities by the Agent regarding the
Agent.
(c) Each indemnified party shall give prompt written notice to each
indemnifying party of any action, proceeding, claim (whether commenced or
threatened), or suit instituted against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve it from any liability which it may have on account of this Section 8 or
otherwise. An indemnifying party may participate at its own expense in the
defense of such action. In addition, if it so elects within a reasonable time
after receipt of such notice, an indemnifying party, jointly with any other
indemnifying parties receiving such notice, may assume defense of such action
with counsel chosen by it and approved by the indemnified parties that are
defendants in such action, unless such indemnified parties reasonably object to
such assumption on the ground that there may be legal defenses available to them
that are different from or in addition to those available to such indemnifying
party. If an indemnifying party assumes the defense of such action, the
indemnifying parties shall not be liable for any fees and expenses of counsel
for the indemnified parties incurred thereafter in connection with such action,
proceeding or claim, other than reasonable costs of investigation. In no event
shall the indemnifying parties be liable for the fees and expenses of more than
one separate firm of attorneys (and any special counsel that said firm may
retain) for each indemnified party in connection with any one action, proceeding
or claim or separate but similar or related actions, proceedings or claims in
the same jurisdiction arising out of the same general allegations or
circumstances.
(d) The agreements in this Section 8 and in Section 9 hereof and the
representations and warranties of the Constituent Entities set forth in this
Agreement shall remain operative and in full force and effect regardless of: (i)
any investigation made by or on behalf of the Agent or their officers, directors
or controlling persons, agents or employees or by or on behalf of the Company or
the Savings Bank or any officers, directors or controlling persons, agents or
employees of any of the Constituent Entities; (ii) delivery of and payment
hereunder for the Shares; or (iii) any termination of this Agreement.
SECTION 9. CONTRIBUTION. In order to provide for just and equitable
------------
contribution in circumstances in which the indemnification provided for in
Section 8 is due in accordance with its terms but is for any reason held by a
court to be unavailable from the Constituent Entities or the Agent, as the case
may be, the Constituent Entities and the Agent shall contribute to the aggregate
losses, claims, damages and liabilities (including any investigation, legal and
other expenses incurred in connection with, and any amount paid in settlement
of, any action, suit or proceeding of any claims asserted, but after deducting
any contribution received by the Constituent Entities or the Agent from persons
other than the other party thereto, who may also be liable for contribution) in
such proportion so that the Agent is responsible for that portion
<PAGE>
Charles Webb & Company
Page 30
________________, 1998
represented by the percentage that the fees and expenses paid to the Agent
pursuant to Section 2 of this Agreement bears to the gross proceeds received by
the Company from the sale of the Shares in the Offering, and the Constituent
Entities shall be responsible for the balance. If, however, the allocation
provided above is not permitted by applicable law or if the indemnified party
failed to give the notice required under Section 8 above, then each indemnifying
party shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative fault of
the Constituent Entities, on the one hand, and the Agent, on the other, in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions, proceedings or claims in respect
thereto), but also the relative benefits received by the Constituent Entities,
on the one hand, and the Agent, on the other, from the Offering (before
deducting expenses). The relative benefits received by the Constituent
Entities, on the one hand, and the Agent, on the other, shall be deemed to be in
the same proportion as the gross proceeds from the Offering received by the
Company bear to the total fees and expenses received by the Agent. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission alleged
omission to state a material fact relates to information supplied by the
Constituent Entities, on the one hand, or the Agent, on the other, and the
parties' relative intent, good faith, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The Constituent
Entities and the Agent agree that it would not be just and equitable if
contribution pursuant to this Section 9 were determined by pro-rata allocation
or by any other method of allocation which does not take into account the
equitable considerations referred to above in this Section 9. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions, proceedings or claims in respect thereof) referred to
above in this Section 9 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action, proceeding or claim. It is expressly agreed that
the Agent shall not be required to contribute any amount which in the aggregate
exceeds the amount paid (excluding reimbursable expenses) to the Agent under
this Agreement. It is understood that the above stated limitation on the
Agent's liability is essential to the Agent and that the Agent would not have
entered into this Agreement if such limitation had not been agreed to by the
parties to this Agreement. No person found guilty of any fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any person who was not found guilty of such
fraudulent misrepresentation. The obligations of the Constituent Entities under
this Section 9 and under Section 8 shall be in addition to any liability which
the Constituent Entities may otherwise have. For purposes of this Section 9,
each of the Agent's or any of the Constituent Entities' officers and directors
and each person, if any, who controls the Agent or any of the Constituent
Entities within the meaning of the 1933 Act and the 1934 Act shall have the same
rights to contribution as the Agent or the Constituent Entities. Any party
entitled to contribution, promptly after receipt of notice of commencement of
any action, suit, claim or proceeding against such party in respect of which a
claim for contribution may be made against another party under this Section 9,
shall notify such party from whom contribution may be sought, but the omission
to so notify such party shall not relieve the party from whom contribution may
be sought from any other obligation it may have hereunder or
<PAGE>
Charles Webb & Company
Page 31
________________, 1998
otherwise than under this Section 9. To the extent applicable, the Constituent
Entities' and the Agent's obligations under this Section 9 are subject to and
limited by public policy and the provisions of applicable law.
SECTION 10. SURVIVAL OF AGREEMENTS, REPRESENTATIONS AND INDEMNITIES. The
-------------------------------------------------------
respective indemnities of the Constituent Entities and the Agent, and the
representations and warranties and other statements of the Constituent Entities
and the Agent set forth in or made pursuant to this Agreement, shall remain in
full force and effect, regardless of any termination or cancellation of this
Agreement or any investigation made by or on behalf of the Agent, the
Constituent Entities or any controlling person referred to in Section 8 hereof,
and shall survive the issuance of the Shares, and any legal representative,
successor or assign of the Agent, any of the Constituent Entities and any such
controlling person shall be entitled to the benefit of the respective
agreements, indemnities, warranties and representations.
SECTION 11. TERMINATION. (a) The Agent may terminate its obligations under
-----------
this Agreement by giving the notice indicated below in subsection (b) at any
time after this Agreement becomes effective as follows:
(i) In the event the Company fails to sell the required minimum
number of Shares by the End Date, and in accordance with the provisions of
the Plan or as required by the Conversion Regulations, and applicable law,
this Agreement shall terminate upon refund by the Savings Bank to each
person who has subscribed for or ordered any of the Shares the full amount
which it may have received from such person, together with interest as
provided in the Prospectus, and no party to this Agreement shall have any
obligation to the other hereunder, except as set forth in Sections 2, 8, 9
and 10 hereof.
(ii) If any of the conditions specified in Section 7 shall not have
been fulfilled when and as required by this Agreement unless waived in
writing, or by the Closing Date, this Agreement and all of the Agent's
obligations hereunder may be canceled by the Agent by notifying the Company
and the Savings Bank of such cancellation as provided in Section 12 hereof
in writing or at any time at or prior to the Closing Date, and any such
cancellation shall be without liability of any party to any other party
except as otherwise provided in Sections 2, 8, 9 and 10 hereof.
(iii) In the event any of the Constituent Entities is in material
breach of the representation and warranties or covenants contained in
Sections 3 and 5 and such breach has not been cured after the Agent has
provided the Company and the Savings Bank with notice of such breach.
(b) If the Agent elects to terminate this Agreement with respect to it as
provided in this Section 11, the Company and the Savings Bank shall be notified
promptly by telephone, confirmed by letter.
<PAGE>
Charles Webb & Company
Page 32
________________, 1998
(c) The Constituent Entities may terminate this Agreement with respect to
the Agent in the event the Agent is in material breach of the representations
and warranties or covenants contained in Sections 4 and 6 and such breach has
not been cured after the Company and the Savings Bank have provided the Agent
with notice of such breach.
(d) This Agreement may also be terminated by mutual written consent of the
parties hereto.
SECTION 12. NOTICES. Except as herein otherwise specifically provided, in
-------
order to be effective all notices or other communications provided for hereunder
shall be in writing and mailed or delivered by courier as follows: if to the
Agent, to Charles Webb & Company, 211 Bradenton, Dublin, Ohio 43017-5034,
Attention: Patricia A. McJoynt (with a copy to Armstrong, Teasdale, Schlafly &
Davis, One Metropolitan Square, St. Louis, Missouri 63102, Attention: John L.
Gillis, Jr., Esq.); or if to any one or more of the Constituent Entities, to the
Company and the Savings Bank at 12300 Olive Boulevard, St. Louis, Missouri
63141, Attention: William A. Donius, President (with a copy to Breyer & Aguggia,
Suite 470 East, 1300 I Street, N.W., Washington, D.C. 20005, Attention: Paul M.
Aguggia, Esq.). Notices shall be effective upon delivery to the recipient's
address as specified herein. Notices may also be given by facsimile
transmission to a fax number provided by a party for such purpose, and shall be
deemed delivered upon electronic confirmation to the sender of a successful
transmission.
SECTION 13. PARTIES. The Constituent Entities shall be entitled to act
-------
and rely on any request, notice, consent, waiver or agreement given on behalf of
the Agent when the same shall have been given by the undersigned. The Agent
shall be entitled to act and rely on any request, notice, consent, waiver or
agreement purportedly given on behalf of the Constituent Entities when the same
shall have been given by the undersigned or any other officer of the Constituent
Entities. This Agreement shall inure solely to the benefit of, and shall be
binding upon, the Agent, the Constituent Entities, and their respective
successors, legal representatives and assigns, and no other person shall have or
be construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provision herein contained.
SECTION 14. ENTIRE AGREEMENT. It is understood and agreed that this
----------------
Agreement is the exclusive agreement among the paries hereto, and supersedes any
prior agreement among the parties (except for specific references herein to the
Letter Agreement) and may not be varied except in writing signed by all the
parties.
SECTION 15. PARTIAL INVALIDITY. In the event that any term, provision or
------------------
covenant herein or the application thereof to any circumstance or situation
shall be invalid or unenforceable, in whole or in part, the remainder hereof and
the application of said term, provision or covenant to any other circumstances
or situation shall not be affected thereby, and each term, provision or covenant
herein shall be valid and enforceable to the full extent permitted by law.
<PAGE>
Charles Webb & Company
Page 33
________________, 1998
SECTION 16. CONSTRUCTION. This Agreement shall be construed in accordance
------------
with the laws of the State of New York, except to the extent that federal law
shall apply.
SECTION 17. COUNTERPARTS. This Agreement may be executed in separate
------------
counterparts, each of which so executed and delivered shall be an original, but
all of which together shall constitute but one and the same instrument.
If the foregoing correctly sets forth the arrangement among the Constituent
Entities and the Agent, please indicate acceptance thereof in the space provided
below for that purpose, whereupon this letter and the Agent's acceptance shall
constitute a binding agreement among the parties.
Very truly yours,
PULASKI BANCSHARES M.H.C. PULASKI BANK, A FEDERAL
SAVINGS BANK
By: By:
---------------------------- ----------------------------
William A. Donius William A. Donius
President President
PULASKI FINANCIAL CORP.
By:
----------------------------
William A. Donius
President
Accepted as of the date first above written:
KEEFE, BRUYETTE & WOODS, INC.
Through Its Division,
CHARLES WEBB & COMPANY
By:
----------------------------
Patricia A. McJoynt
Executive Vice President
<PAGE>
EXHIBIT 1.2
CHARLES WEBB & COMPANY
A Division of
[LOGO] KEEFE, BRUYETTE & WOODS, INC.
March 25, 1998
Mr. William A. Donius
President
Pulaski Bank, A Federal Savings Bank
12300 Olive Boulevard
St. Louis, MO 63141-6434
Dear Mr. Donius:
This proposal is in connection with Pulaski Bancshares, M.H.C. (MHC) and Pulaski
Bank, A Federal Savings Bank's (the "Bank") intention to have its parent mutual
holding company convert from a mutual to a capital stock form of organization
(the "Conversion"). In order to effect the Conversion, it is contemplated that
all of MHC's common stock to be outstanding pursuant to the Conversion will be
issued to a new holding company (the "Company") to be formed pursuant to the
Conversion, and that the Company will offer and sell shares of its common stock
first to eligible persons (pursuant to the Plan of Reorganization) in a
Subscription and Community Offering, (MHC, the Bank and the Company will
collectively be known as "Client".)
Charles Webb & Company, a Division of Keefe, Bruyette & Woods, Inc. ("KBW"),
will act as the Client's exclusive financial advisor and marketing agent in
connection with the Conversion. This letter sets forth selected terms and
conditions of our engagement.
1. Advisory/Conversion Services. As the financial advisor and marketing
----------------------------
agent, KBW will provide the Client with a comprehensive program of conversion
services designed to promote an orderly, efficient, cost-effective and long-term
stock distribution. KBW will provide financial and logistical advice to the
Client concerning the offering and related issues. KBW will assist in providing
conversion enhancement services intended to maximize stock sales in the
Subscription Offering and to residents of the Client's market area, if
necessary, in the Community Offering.
KBW shall provide financial advisory services to the Client which are typical in
connection with an equity offering and include, but are not limited to, overall
financial analysis of the Client with a focus on identifying factors which
impact the valuation of the common stock and provide the appropriate
recommendations for the betterment of the equity valuation.
________________ Investment Bankers and Financial Advisors___________________
211 Bradenton * Dublin, Ohio 43017-3541 * 614-766-8400 * Fax: 614-766-8406
<PAGE>
Mr. William A. Donius
March 25, 1998
Page 2 of 5
Additionally, post conversion financial advisory services will include advice on
shareholder relations, NASDAQ listing, dividend policy (for both regular and
special dividends), stock repurchase strategy and communication with market
makers. Prior to the closing of the offering, KBW shall furnish to client a
Post-Conversion reference manual which will include specifics relative to these
items. (The nature of the services to be provided by KBW as the Client's
financial advisor and marketing agent are further described in Exhibit A
attached hereto.)
2. Preparation of Offering Documents. The Client and their counsel will draft
---------------------------------
the Registration Statement, Application for Conversion, Prospectus and other
documents to be used in connection with the Conversion. KBW will attend
meetings to review these documents and advise you on their form and content. KBW
and its counsel will draft appropriate agency agreement and related documents as
well as marketing materials other than the Prospectus.
3. Due Diligence Review. Prior to filing the Registration Statement,
--------------------
Application for Conversion or any offering or other documents naming KBW as the
Client's financial advisor and marketing agent, KBW and their representatives
will undertake substantial investigations to learn about the Client's business
and operations ("due diligence review") in order to confirm information provided
to us and to evaluate information to be contained in the Client's offering
documents. The Client agrees that it will make available to KBW all relevant
information, whether or not publicly available, which KBW reasonably requests,
and will permit KBW to discuss with management the operations and prospects of
the Client. KBW will treat all material non-public information as confidential.
The Client acknowledges that KBW will rely upon the accuracy and completeness of
all information received from the Client, its officers, directors, employees,
agents and representatives, accountants and counsel including this letter to
serve as the Client's financial advisor and marketing agent.
4. Regulatory Filings. The Client will cause appropriate offering documents
------------------
to be filed with all regulatory agencies including, the Securities and Exchange
Commission ("SEC"), the National Association of Securities Dealers ("NASD"),
Office of Thrift Supervision ("OTS") and such state securities commissioners as
may be determined by the Client.
5. Agency Agreement. The specific terms of the conversion services,
----------------
conversion offering enhancement and syndicated offering services contemplated in
this letter shall be set forth in an Agency Agreement between KBW and the Client
to be executed prior to commencement of the offering, and dated the date that
the Client's Prospectus is declared effective and/or authorized to be
disseminated by the appropriate regulatory agencies, the SEC, the NASD, the OTS
and such state securities commissioners and other regulatory agencies as
required by applicable law.
<PAGE>
Mr. William A. Donius
March 25, 1998
Page 3 of 5
6. Representations, Warranties and Covenants. The Agency Agreement will
-----------------------------------------
provide for customary representations, warranties and covenants by the Client
and KBW, and for the Client to indemnify KBW and their controlling persons (and,
if applicable, the members of the selling group and their controlling persons),
and for KBW to indemnify the Client against certain liabilities, including,
without limitation, liabilities under the Securities Act of 1933.
7. Fees. For the services hereunder, the Client shall pay the following fees
----
to KBW at closing unless stated otherwise:
(a) Management Fee:
A Management Fee of $40,000 payable in four consecutive monthly
installments of $10,000 commencing with the signing of this letter.
Such fees shall be deemed to have been earned when due. Should the
Conversion be terminated for any reason not attributable to the action
or inaction of KBW, KBW shall have earned and be entitled to be paid
fees accruing through the stage at which point the termination
occurred. This Management Fee shall be applied against the Success Fee
described below.
(b) Success Fee:
A Success Fee of 0.80% of the aggregate Purchase Price of Common Stock
sold in the Subscription Offering and Community Offering excluding
shares purchased by the Client's officers, directors, or employees (or
members of their immediate families) plus any ESOP, tax-qualified or
stock based compensation plans (except IRA's) or similar plan created
by the Bank for some or all of its directors or employees.
8. Additional Services. KBW further agrees to provide financial advisory
--------------------
assistance to the Client for a period of one year following completion of the
Conversion (conversion closing date), including formation of a dividend policy
and share repurchase program, assistance with shareholder reporting and
shareholder relations matters, general advice on mergers and acquisitions and
other related financial matters, without the payment by the Client of any fees
in addition to those set forth in Section 7 hereof. Nothing in this Agreement
shall require the Client to obtain such services from KBW. Following this
initial one year term, if both parties wish to continue the relationship, a fee
will be negotiated and an agreement entered into at that time.
9. Expenses. The Client will bear those expenses of the proposed offering
--------
customarily borne by issuers, including without limitation, regulatory filing
fees, SEC, "Blue Sky," and NASD filing
<PAGE>
Mr. William A. Donius
March 25, 1998
Page 4 of 5
and registration fees; the fees of the Client's accountants, attorneys,
appraiser, transfer agent and registrar, printing, mailing and marketing and
syndicate expenses associated with the Conversion; the fees set forth in Section
7; and fees for "Blue Sky" legal work. If KBW incurs expenses on behalf of
Client, Client will reimburse KBW for such expenses.
The Client will reimburse KBW's reasonable out-of-pocket expenses (not to exceed
$10,000 without prior approval of Client), including costs of travel, meals and
lodging, photocopying, telephone, facsimile and couriers, and reasonable fees
and expenses of counsel not to exceed $35,000. The selection of such counsel
will be done by KBW, with the approval of the Client.
10. Conditions. KBW's willingness and obligation to proceed hereunder shall be
----------
subject to, among other things, satisfaction of the following conditions in
KBW's opinion, which opinion shall have been formed in good faith by KBW after
reasonable determination and consideration of all relevant factors: (a) full and
satisfactory disclosure of all relevant material, financial and other
information in the disclosure documents and a determination by KBW, in its sole
discretion, that the sale of stock on the terms proposed is reasonable given
such disclosures; (b) no material adverse change in the condition or operations
of the Client subsequent to the execution of the agreement; and (c) no adverse
market conditions at the time of offering which in KBW's opinion make the sale
of the shares by the Company inadvisable.
11. Benefit. This Agreement shall inure to the benefit of the parties hereto
-------
and their respective successors and the parties indemnified pursuant to the
terms and conditions of the Agency Agreement and their successors, and the
obligations and liabilities assumed hereunder by the parties hereto shall be
binding upon their respective successors provided, however, that this Agreement
shall not be assignable by KBW.
12. Definitive Agreement. This letter reflects KBW's present intention of
--------------------
proceeding to work with the Bank on its proposed conversion. It does not create
a binding obligation on the part of the Client or KBW except as to the agreement
to maintain the confidentiality of non-public information set forth in Section
3, the payment of certain fees as set forth in Section 7(a) and 7(b) and the
assumption of expenses as set forth in Section 9, all of which shall constitute
the binding obligations of the parties hereto and which shall survive the
termination of this Agreement or the completion of the services furnished
hereunder and shall remain operative and in full force and effect. You further
acknowledge that any report or analysis rendered by KBW pursuant to this
engagement is rendered for use solely by the management of the Client and its
agents in connection with the Conversion. Accordingly, you agree that you will
not provide any such information to any other person without our prior written
consent.
KBW acknowledges that in offering the Client's stock no person will be
authorized to give any information or to make any representation not contained
in the offering prospectus and related
<PAGE>
Mr. William A. Donius
March 25, 1998
Page 5 of 5
offering materials filed as part of a registration statement to be declared
effective in connection with the offering. Accordingly, KBW agrees that in
connection with the offering it will not give any unauthorized information or
make any unauthorized representation. We will be pleased to elaborate on any of
the matters discussed in this letter at your convenience.
If the foregoing correctly sets forth our mutual understanding, please so
indicate by signing and returning the original copy of this letter to the
undersigned.
Very truly yours,
CHARLES WEBB & COMPANY
a DIVISION OF KEEFE, BRUYETTE & WOODS, INC.
/s/ Pat McJoynt
Patricia A. McJoynt
Executive Vice President
PULASKI BANK, A FEDERAL SAVINGS BANK
By: /s/ William A. Donius President and CEO
---------------------- ------------------
<PAGE>
EXHIBIT A
---------
CONVERSION SERVICES PROPOSAL
TO PULASKI BANK, A FEDERAL SAVINGS BANK
KBW provides thrift institutions reorganizing from a mutual holding company to a
full stock form of ownership with a comprehensive program of conversion services
designed to promote an orderly, efficient, cost-effective and long-term stock
distribution. The following list is representative of the conversion services,
if appropriate, we propose to perform on behalf of the Bank.
General Services
- ----------------
Assist management and legal counsel with the design of the transaction
structure.
Analyze and make recommendations on bids from printing, transfer agent, and
appraisal firms.
Assist officers and directors in obtaining bank loans to purchase stock, if
requested.
Assist in drafting and distribution of press releases as required or
appropriate.
Conversion Offering Enhancement Services
- ----------------------------------------
Establish and manage Stock Information Center at the Bank. Stock Information
Center personnel will track prospective investors; record stock orders; mail
order confirmations; provide the Bank's senior management with daily reports;
answer customer inquiries; and handle special situations as they arise.
Assign KBW's personnel to be at the Bank through completion of the Subscription
and Community Offerings to manage the Stock Information Center, meet with
prospective shareholders at individual and community information meetings,
solicit local investor interest through a tele-marketing campaign, answer
inquiries, and otherwise assist in the sale of stock in the Subscription and
Community Offerings. This effort will be lead by a Principal of KBW.
Create target investor list based upon review of the Bank's depositor base.
Provide intensive financial and marketing input for drafting of the prospectus.
<PAGE>
Conversion Offering Enhancement Services - Continued
- ----------------------------------------------------
Prepare other marketing materials, including prospecting letters and brochures,
and media advertisements.
Arrange logistics of community information meeting(s) as required.
Prepare audio-visual presentation by senior management for community information
meeting(s).
Prepare management for question-and-answer period at community information
meeting(s).
Attend and address community information meeting(s) and be available to answer
questions.
Broker-Assisted Sales Services.
- ------------------------------
Arrange for broker information meeting(s) as required.
Prepare audio-visual presentation for broker information meeting(s).
Prepare script for presentation by senior management at broker information
meeting(s).
Prepare management for question-and-answer period at broker information
meeting(s).
Attend and address broker information meeting(s) and be available to answer
questions.
Produce confidential broker memorandum to assist participating brokers in
selling the Bank's common stock.
Aftermarket Support Services
- ----------------------------
KBW will use their best efforts to secure market making and on-going research
commitment from at least three NASD firms.
Post-Conversion Financial Advisory Services
- -------------------------------------------
KBW will assist Client with shareholder enhancement efforts post conversion.
Such efforts will include assistance with dividend policy, share repurchases,
and general merger and acquisition advisory services.
<PAGE>
EXHIBIT 2
PULASKI BANCSHARES, M.H.C.
PULASKI BANK, A FEDERAL SAVINGS BANK
PLAN OF CONVERSION FROM MUTUAL HOLDING
COMPANY TO STOCK HOLDING COMPANY AND
AGREEMENT AND PLAN OF REORGANIZATION
I. General
-------
For purposes of this section, all capitalized terms have the meanings
ascribed to them in Section II unless otherwise defined herein.
Pulaski Bancshares, M.H.C., St. Louis, Missouri ("MHC") was formed on May
11, 1994 to act as the federally chartered mutual holding company for Pulaski
Bank, A Savings Bank, St. Louis, Missouri ("Savings Bank"), a Missouri chartered
stock savings and loan association. The Savings Bank subsequently converted to
a federally chartered stock savings bank and changed its name to Pulaski Bank, A
Federal Savings Bank. As of the date hereof, the MHC beneficially and of record
owns 1,470,000 shares of common stock, par value $1.00 per share, of the Savings
Bank ("Savings Bank Common Stock"), representing approximately 69.87% of the
outstanding voting stock of the Savings Bank, and the remaining 633,840 shares
of Savings Bank Common Stock, or 30.13%, are owned by persons other than the MHC
("Public Stockholders").
This Plan of Conversion from Mutual Holding Company to Stock Holding
Company and Agreement and Plan of Reorganization ("Plan") provides for the
conversion of the MHC to the stock form of organization and the reorganization
of the Savings Bank as a wholly owned subsidiary of a newly formed stock holding
company (collectively, "Conversion and Reorganization"). The Boards of
Directors of the MHC and the Savings Bank believe that the Conversion and
Reorganization is in the best interests of the MHC, the members of the MHC, the
Savings Bank and its stockholders. As a result of the Conversion and
Reorganization, the Savings Bank will be wholly owned by a stock holding
company, which is a more common structure and form of ownership than a mutual
holding company. The Board of Directors determined that the Plan equitably
provides for the interests of Members through the granting of subscription
rights and the establishment of a liquidation account and that consummation of
the Conversion and Reorganization would not adversely impact the stockholders'
equity of the Savings Bank.
The Conversion and Reorganization will provide the Savings Bank with a
larger capital base which will enhance its ability to pursue lending and
investment opportunities, as well as opportunities for growth and expansion. The
Conversion and Reorganization also will provide a more flexible operating
structure, which will enable the Savings Bank to compete more effectively with
other financial institutions. In addition, the Conversion and Reorganization
will raise additional equity capital for the Savings Bank. Finally, the
Conversion and Reorganization has been structured to reunite the accumulated
earnings and profits retained by the MHC with the retained earnings of the
Savings Bank through a tax-free reorganization.
Pursuant to the Plan, the Savings Bank will form a new first-tier
subsidiary which will be incorporated under state law as a stock corporation
("Holding Company"). The Holding Company will then form an interim federal
stock savings bank ("Interim B") as a wholly owned subsidiary. As described in
greater detail herein, simultaneously with the conversion of the MHC to an
interim federal stock savings bank ("Interim A"), the Savings Bank, MHC and
Holding Company will undergo a reorganization in which Interim A will merge with
and into the Savings Bank, Interim B will merge with and into the Savings Bank,
the Holding Company will become the parent company of the Savings Bank, and the
Holding Company will issue and sell its Conversion Stock pursuant to this Plan.
1
<PAGE>
On April 15, 1998, after careful study and consideration, the Boards of
Directors of the MHC and the Savings Bank adopted this Plan. The Plan must be
approved by the affirmative vote of a majority of the total number of votes
eligible to be cast by Members of the MHC at a special meeting to be called for
that purpose and by the holders of at least two-thirds of the shares of
outstanding Savings Bank Common Stock eligible to vote at an annual meeting of
the Savings Bank Stockholders, or at a special meeting of the Savings Bank
Stockholders called for the purpose of submitting the Plan for approval. Prior
to the submission of the Plan to the Members and the Public Stockholders for
consideration, the Plan must be approved by the Office of Thrift Supervision
("OTS").
II. Definitions
-----------
For the purposes of this Plan, the following terms have the following
meanings:
A. Acting in Concert: (i) Knowing participation in a joint activity or
-----------------
interdependent conscious parallel action towards a common goal whether or not
pursuant to an express agreement; or (ii) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangement,
whether written or otherwise. A Person (as defined herein) who acts in concert
with another Person ("other party") shall also be deemed to be acting in concert
with any Person who is also acting in concert with that other party, except that
any Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting in
concert with its trustee or a Person who serves in a similar capacity solely for
the purpose of determining whether stock held by the trustee and stock held by
the Tax-Qualified Employee Benefit Plan will be aggregated.
B. Associate: When used to indicate a relationship with any Person,
---------
means (i) any corporation or organization (other than the Primary Parties or a
majority-owned subsidiary of either thereof) 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, except that it does not
include a Tax-Qualified Employee Stock Benefit Plan and (iii) any relative or
spouse of such Person, or any relative of such spouse, who has the same home as
such Person or who is a director or officer of any of the MHC, Savings Bank or
Holding Company or any of their subsidiaries.
C. Capital Stock: Any and all authorized capital stock of the Savings
-------------
Bank.
D. Common Stock: Collectively, Conversion Stock and Exchange Stock.
------------
E. Conversion and Reorganization: Collectively, (i) the conversion of the
-----------------------------
MHC into an interim federal stock savings bank ("Interim A") and the
simultaneous merger of Interim A with and into the Savings Bank, with the
Savings Bank being the surviving institution; (ii) the merger of an interim
federal stock savings bank subsidiary of the Holding Company ("Interim B") with
and into the Savings Bank, with the Savings Bank being the surviving institution
and becoming a wholly owned subsidiary of the Holding Company; (iii) the
exchange of shares of Savings Bank Common Stock (other than those held by the
MHC which shall be canceled) for shares of Holding Company Common Stock; and
(iv) the issuance of Conversion Stock by the Holding Company as provided for in
this Plan.
F. Conversion Stock: Holding Company Common Stock offered and issued by
----------------
the Holding Company in the Offerings pursuant to this Plan.
G. Direct Community Offering: The offering of Conversion Stock for sale
-------------------------
to the public.
H. Eligibility Record Date: March 31, 1997.
-----------------------
I. Eligible Account Holder: Holder of a Qualifying Deposit on the
-----------------------
Eligibility Record Date.
2
<PAGE>
J. Exchange Ratio: The ratio (rounded to the nearest ten-thousandth) at
--------------
which shares of Holding Company Common Stock will be exchanged for shares of
Savings Bank Common Stock held by the Public Stockholders upon consummation of
the Conversion and Reorganization. The exact rate shall be determined by the MHC
and the Savings Bank at the time the Purchase Price (as defined in Section
XI.B.) is determined and shall equal the rate that will result in the Public
Stockholders owning in the aggregate approximately the same percentage of shares
of common stock of the Holding Company to be outstanding upon completion of the
Conversion and Reorganization as the percentage of Savings Bank Common Stock
owned by them in the aggregate immediately prior to consummation of the
Conversion and Reorganization, subject to any adjustments required by the OTS
and before giving effect to (i) the payment of cash in lieu of issuing
fractional shares of Holding Company Common Stock, and (ii) any shares of
Conversion Stock purchased by Public Stockholders or any Tax-Qualified Employee
Stock Benefit Plans.
K. Exchange Stock: Holding Company Common Stock issued to the Public
--------------
Stockholders in exchange for Savings Bank Common Stock.
L. FDIC: Federal Deposit Insurance Corporation.
----
M. Form AC Application: The application submitted by the MHC to the OTS
-------------------
on OTS Form AC for approval of the Conversion and Reorganization.
N. H-(e)1 Application: The application submitted to the OTS on OTS Form
------------------
H-(e)1 or, if applicable, OTS Form H-(e)1-S, for approval of the Holding Company
acquisition of all of the Capital Stock.
O. Holding Company: The corporation to be formed by the Savings Bank
---------------
under state law initially as a first tier, wholly owned subsidiary of the
Savings Bank. Upon completion of the Conversion, the Holding Company shall hold
all of the outstanding capital stock of the Savings Bank.
P. Holding Company Common Stock: The common stock, $0.01 par value per
----------------------------
share, of the Holding Company.
Q. Interim A: "Pulaski Interim "A" Bank, A Federal Savings Bank," which
---------
will be the interim federal stock savings bank resulting from the conversion of
the MHC to stock form immediately prior to the merger of Interim B into the
Savings Bank.
R. Interim B: "Pulaski Interim "B" Bank, A Federal Savings Bank," which
---------
will be formed as a wholly owned interim federal stock savings bank subsidiary
of the Holding Company, which will merge with and into the Savings Bank
immediately after the merger of Interim A into the Savings Bank.
S. Local Community: St. Louis, Missouri, St. Charles, Jefferson, Franklin
---------------
and St. Louis Counties, Missouri, and Jersey, St. Clair, Monroe and Madison
Counties, Illinois.
T. 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,
competitive bid and offer quotations in a recognized inter-dealer quotation
system or furnishes bona fide competitive bid and offer quotations on request
and (ii) is ready, willing and able to effect transactions in reasonable
quantities at its quoted prices with other brokers or dealers.
U. Member: Any Person qualifying as a member of the MHC pursuant to its
------
charter and bylaws.
V. MHC: Pulaski Bancshares, M.H.C., St. Louis, Missouri.
---
3
<PAGE>
W. Offerings: Collectively, the Subscription Offering, Direct Community
---------
Offering and Syndicated Community Offering.
X. Officer: An executive officer of any or all of the Primary Parties,
-------
which includes the Chief Executive Officer, President, Executive Vice President,
Senior Vice Presidents, Vice Presidents in charge of principal business
functions, Secretary, Controller, and any Person performing functions similar to
those performed by the foregoing persons.
Y. Order Form(s): Form(s) to be used to purchase Conversion Stock sent to
-------------
Eligible Account Holders and other parties eligible to purchase Conversion Stock
in the Subscription Offering.
Z. Other Member: A Member (other than an Eligible Account Holder or
------------
Supplemental Eligible Account Holder) at the close of business on the Voting
Record Date.
AA. Person: An individual, a corporation, a partnership, an association, a
------
joint-stock company, a trust (including Individual Retirement Accounts and KEOGH
Accounts), any unincorporated organization, a government or political
subdivision thereof or any other entity.
BB. Plan: This Plan of Conversion from Mutual Holding Company to Stock
----
Holding Company and Agreement and Plan of Reorganization, as originally adopted
by the Boards of Directors of the MHC and the Savings Bank, or as amended in
accordance with its terms.
CC. Primary Parties: Collectively, the MHC, the Savings Bank and the
---------------
Holding Company.
DD. Public Stockholder: Any Person who owns Savings Bank Common Stock,
------------------
other than the MHC, as of the Voting Record Date.
EE. Qualifying Deposit: The deposit balance in any Savings Account as of
------------------
the close of business on the Eligibility Record Date or the Supplemental
Eligibility Record Date, as applicable; provided, however, that no Savings
Account with a deposit balance of less than $50.00 shall constitute a Qualifying
Deposit.
FF. Registration Statement: The registration statement on SEC Form S-1,
----------------------
or similar form, filed by the Holding Company with the SEC for the purpose of
registering the Conversion Stock under the Securities Act of 1933, as amended.
GG. Savings Account(s): Withdrawable deposit(s) in the Savings Bank,
------------------
including certificates of deposit, demand deposit accounts and non-interest-
bearing deposit accounts.
HH. Savings Bank: Pulaski Bank, A Federal Savings Bank, St. Louis,
------------
Missouri.
II. Savings Bank Common Stock: The common stock of the Savings Bank, par
-------------------------
value $1.00 per share.
JJ. SEC: Securities and Exchange Commission.
---
KK. Special Meeting of Members: The special meeting of the Members, and
--------------------------
any adjournments thereof, held to consider and vote upon the Plan.
LL. Meeting of Stockholders: The meeting of the stockholders of the
-----------------------
Savings Bank, and any adjournments thereof, to be called and held for the
purpose of submitting the Plan for their approval. Such meeting may either be
an annual or special meeting.
4
<PAGE>
MM. Subscription Offering: The offering of Conversion Stock to Eligible
---------------------
Account Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental
Eligible Account Holders and Other Members under the Plan.
NN. Subscription Rights: Nontransferable, non-negotiable, personal rights
-------------------
of Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans,
Supplemental Eligible Account Holders and Other Members to purchase Conversion
Stock.
OO. Supplemental Eligibility Record Date: The last day of the calendar
------------------------------------
quarter preceding the approval of the Plan by the OTS.
PP. Supplemental Eligible Account Holder: Holder of a Qualifying Deposit
------------------------------------
in the Savings Bank (other than an Officer or director of the Savings Bank or
their Associates) on the Supplemental Eligibility Record Date.
QQ. Syndicated Community Offering: The offering for sale by a syndicate
-----------------------------
of broker-dealers to the general public of shares of Conversion Stock not
purchased in the Subscription Offering and the Direct Community Offering.
RR. Tax-Qualified Employee Stock Benefit Plan: Any defined benefit plan or
-----------------------------------------
defined contribution plan of the Savings Bank or Holding Company, such as an
employee stock ownership plan, bonus plan, profit-sharing plan or other plan,
which, with its related trust, meets the requirements to be "qualified" under
section 401 of the Internal Revenue Code. A "non-tax-qualified employee stock
benefit plan" is any defined benefit plan or defined contribution plan that is
not so qualified.
SS. Voting Record Date(s): The date(s) fixed by the Boards of Directors
---------------------
of the MHC and the Savings Bank according to OTS regulations for determining
eligibility to vote at the Special Meeting of Members and at the Meeting of
Stockholders.
III. General Procedure for Conversion and Reorganization
---------------------------------------------------
A. Conversion of MHC to an Interim Federal Stock Savings Bank and Merger
---------------------------------------------------------------------
of Such Interim Into the Savings Bank. The MHC will convert into Pulaski
- -------------------------------------
Interim "A" Bank, a Federal Savings Bank (i.e. "Interim A") and Interim A will
simultaneously merge with and into the Savings Bank, with the Savings Bank as
the surviving entity ("MHC Merger") pursuant to the Plan of Merger attached
hereto as Annex A. As a result of the MHC Merger, the Savings Bank Common Stock
held by the MHC will be canceled and Eligible Account Holders and Supplemental
Eligible Account Holders will be granted ratable interests in a liquidation
account, to be established in accordance with the procedures set forth in
Section XIV hereof.
B. Merger of a Second Interim Federal Stock Savings Bank into Savings
------------------------------------------------------------------
Bank and Exchange of Shares. Immediately after the MHC Merger, Pulaski Interim
- ---------------------------
"B" Bank, A Federal Savings Bank (i.e., Interim B) will merge with and into the
Savings Bank pursuant to the Plan of Reorganization attached hereto as Annex B,
and the separate existence of Interim B will cease ("Savings Bank Merger"). The
shares of the Holding Company Common Stock held by the Bank will be canceled.
The shares of common stock of Interim B held by the Holding Company will be
converted, on a one-to-one basis, into shares of Savings Bank Common Stock,
which will result in the Savings Bank becoming a wholly-owned subsidiary of the
Holding Company. The Public Stockholders will exchange their shares of Savings
Bank Common Stock for shares of Holding Company Common Stock based upon the
Exchange Ratio. In addition, all options to purchase shares of Savings Bank
Common Stock which are outstanding immediately prior to consummation of the
Conversion and Reorganization shall be converted to options to purchase shares
of Holding Company Common Stock, with the number of shares subject to the option
and the exercise price per share to be adjusted based upon the Exchange Ratio so
that the aggregate exercise price remains unchanged, and with the duration of
the option remaining unchanged. Upon consummation of the Conversion and
Reorganization, all of the Savings Bank Common Stock will be owned by the
Holding Company and the Public Stockholders will own the same percentage of the
Holding Company Common Stock as the percentage of the Savings Bank Common Stock
owned by them prior to the Conversion and Stock as the percentage of the Savings
Bank Common Stock owned by them prior to the Conversion and
5
<PAGE>
Reorganization, before giving effect to cash paid in lieu of any fractional
interests of Savings Bank Common Stock and any shares of Conversion Stock
purchased by the Public Stockholders in the Offering or by the Tax-Qualified
Employee Stock Benefit Plans thereafter. The Holding Company will then sell the
Conversion Stock in the Offerings in accordance with this Plan.
Following consummation of the Conversion and Reorganization, voting rights
with respect to the Savings Bank shall be held and exercised exclusively by the
Holding Company as holder of the outstanding Savings Bank Common Stock. Voting
rights with respect to the Holding Company shall be held and exercised
exclusively by holders of the Holding Company Common Stock. As a result of the
MHC Merger, the separate existence of the MHC and the voting rights of Members
will cease.
IV. Steps Prior to Submission of the Plan to the Members and the Savings Bank
-------------------------------------------------------------------------
Stockholders for Approval
- -------------------------
Prior to submission of the Plan to the Members and to the stockholders of
the Savings Bank for approval, the Plan must be approved by the OTS. Prior to
such regulatory approval:
A. The Boards of Directors of the MHC and the Savings Bank each shall
adopt the Plan by a vote of not less than two-thirds of their entire membership.
B. The MHC shall publish legal notice of the adoption of the Plan in a
newspaper having a general circulation in each community in which the MHC and
the Savings Bank maintains an office.
C. A press release relating to the proposed Conversion and Reorganization
may be submitted to the local media.
D. Copies of the Plan as adopted by the Boards of Directors of the MHC
and the Savings Bank shall be made available for inspection at each office of
the MHC and the Savings Bank.
E. The Savings Bank shall cause the Holding Company to be incorporated
under state law and the Board of Directors of the Holding Company shall concur
in the Plan by at least a two-thirds vote.
F. As soon as practicable following the adoption of this Plan, the MHC
shall file the Form AC Application, and the Holding Company shall file the
Registration Statement and the H-(e)1 Application. In addition, an application
to merge the MHC (following its conversion into an interim federal stock savings
bank) and the Savings Bank and an application to merge Interim B and the Savings
Bank shall both be filed with the OTS, either as exhibits to the H-(e)1
Application, or separately. Upon filing the Form AC Application, the MHC shall
publish legal notice thereof in a newspaper having a general circulation in each
community in which the MHC and the Savings Bank maintains an office and/or by
mailing a letter to each Member, and also shall publish such other notices of
the Conversion and Reorganization as may be required in connection with the H-
(e)1 Application and by the regulations and policies of the OTS.
G. The MHC and the Savings Bank shall obtain an opinion of their tax
advisors or a favorable ruling from the U.S. Internal Revenue Service which
shall state that the Conversion and Reorganization shall not result in any gain
or loss for federal income tax purposes to the Primary Parties or to Eligible
Account Holders, Supplemental Eligible Account Holders and Other Members.
Receipt of a favorable opinion or ruling is a condition precedent to completion
of the Conversion and Reorganization.
V. Special Meeting of Members
--------------------------
Subsequent to the approval of the Plan by the OTS, the Special Meeting
shall be scheduled in accordance with the MHC's Bylaws. Promptly after receipt
of approval and at least 20 days but not more than 45 days prior to the
6
<PAGE>
Special Meeting, the MHC shall distribute proxy solicitation materials to all
Members and beneficial owners of accounts held in fiduciary capacities where the
beneficial owners possess voting rights, as of the Voting Record Date. The proxy
solicitation materials shall include a copy of the proxy statement to be used in
connection with such solicitation and other documents authorized for use by the
regulatory authorities and may also include a copy of the Plan and/or a
prospectus ("Prospectus") as provided in Section VIII below. The MHC shall also
advise each Eligible Account Holder and Supplemental Eligible Account Holder not
entitled to vote at the Special Meeting of the proposed Conversion and
Reorganization and the scheduled Special Meeting, and provide a postage prepaid
card on which to indicate whether he wishes to receive a Prospectus, if the
Subscription Offering is not held concurrently with the proxy solicitation.
Pursuant to OTS regulations, an affirmative vote of not less than a
majority of the total outstanding votes of the Members is required for approval
of the Plan. Voting may be in person or by proxy at the Special Meeting of
Members. The OTS shall be notified promptly of the actions of the Members at
the Special Meeting of Members.
VI. Meeting of Stockholders
-----------------------
Subsequent to the approval of the Plan by the OTS, the Meeting of
Stockholders shall be scheduled in accordance with the Savings Bank's Bylaws at
which the Plan will be considered for approval. Promptly after receipt of
approval and at least 20 days but not more than 45 days prior to such meeting,
the Savings Bank shall distribute proxy solicitation materials to Savings Bank
stockholders and beneficial owners of Savings Bank Common Stock held in
fiduciary capacities where the beneficial owners possess voting rights, as of
the Voting Record Date. The proxy solicitation materials shall include a copy of
the proxy statement to be used in connection with such solicitation and other
documents authorized for use by the regulatory authorities and may also include
a copy of the Plan and/or a Prospectus as provided in Paragraph VIII below. The
Savings Bank shall also advise each holder of Savings Bank Common Stock entitled
to vote at the meeting of the proposed Conversion and Reorganization and the
scheduled meeting, and provide a postage prepaid card on which to indicate
whether he wishes to receive the Prospectus, if the Subscription Offering is not
held concurrently with the proxy solicitation.
Pursuant to OTS regulations, an affirmative vote of not less than two-
thirds of the total outstanding votes of the stockholders of the Savings Bank is
required for approval of the Plan. Furthermore, pursuant to OTS policy, the
affirmative vote of not less than a majority of the total outstanding votes of
the stockholders of the Savings Bank (except the MHC) present in person or by
proxy is required for approval of the Plan. Voting may be in person or by proxy
at the Meeting of Stockholders. The OTS shall be notified promptly of the
actions of the stockholders of the Savings Bank at the Meeting of Stockholders.
VII. Summary Proxy Statements
------------------------
The Proxy Statements furnished to Members and to stockholders of the
Savings Bank may be in summary form; provided that a statement is made in bold-
face type that a more detailed description of the proposed transaction may be
obtained by returning an enclosed postage prepaid card or other written
communication requesting supplemental information. Without prior approval of
the OTS, the Special Meeting and the meeting of the stockholders of the Savings
Bank shall not be held less than 20 days after the last day on which the
supplemental information statement is mailed to requesting Members or requesting
stockholder of the Savings Bank. The supplemental information statement may be
combined with the Prospectus if the Subscription Offering is commenced
concurrently with or during the proxy solicitation of Members for the Special
Meeting or of the stockholders of the Savings Bank for the Meeting of
Stockholders.
VIII. Offering Documents
------------------
The Holding Company may commence the Subscription Offering and, provided
that the Subscription Offering has commenced, may commence the Direct Community
Offering concurrently with or during the proxy solicitation relating to the
Special Meeting of Members and the Meeting of Stockholders. The Holding Company
may close the
7
<PAGE>
Subscription Offering before such meetings, provided that the offer and sale of
the Conversion Stock shall be conditioned upon approval of the Plan by the
Members at the Special Meeting and by the stockholders of the Savings Bank at
the Meeting of Stockholders. The MHC's and the Savings Bank's proxy solicitation
materials may require Eligible Account Holders, Supplemental Eligible Account
Holders, Other Members and the Savings Bank Stockholder to return to the Savings
Bank by a reasonable certain date a postage prepaid card or other written
communication requesting receipt of a Prospectus with respect to the
Subscription Offering, provided that if the Prospectus is not mailed
concurrently with the proxy solicitation materials, the Subscription Offering
shall not be closed until the expiration of 30 days after the mailing of the
proxy solicitation materials. If the Subscription Offering is not commenced
within 45 days after the Special Meeting, the Savings Bank may transmit, not
more than 30 days prior to the commencement of the Subscription Offering, to
each Eligible Account Holder, Supplemental Eligible Account Holder and other
eligible subscribers who had been furnished with proxy solicitation materials a
notice which shall state that the Savings Bank is not required to furnish a
Prospectus to them unless they return by a reasonable date certain a postage
prepaid card or other written communication requesting the receipt of the
Prospectus.
Prior to commencement of the Subscription Offering, the Direct Community
Offering and the Syndicated Community Offering, the Holding Company shall file
the Registration Statement. The Holding Company shall not distribute the final
Prospectus until the Registration Statement containing same has been declared
effective by the SEC and the Prospectus has been declared effective by the OTS.
IX. Combined Subscription and Direct Community Offering
---------------------------------------------------
Instead of a separate Subscription Offering, all Subscription Rights may be
exercised by delivery of properly completed and executed Order Forms to the
Savings Bank or selling group utilized in connection with the Direct Community
Offering and the Syndicated Community Offering. If a separate Subscription
Offering is not held, orders for Conversion Stock in the Direct Community
Offering shall first be filled pursuant to the priorities and limitations stated
in Paragraph XI.C. below.
X. Consummation of the Conversion and Reorganization
-------------------------------------------------
The effective date of the Conversion and Reorganization shall be the date
upon which the last of the following actions occurs: (i) the filing of Articles
of Combination with the OTS with respect to the MHC Merger, (ii) the filing of
Articles of Combination with the OTS with respect to the Savings Bank Merger and
(iii) the closing of the issuance of the shares of Conversion Stock in the
Offerings. The filing of Articles of Combination relating to the MHC Merger and
the Savings Bank Merger and the closing of the issuance of shares of Conversion
Stock in the Offerings shall not occur until all requisite regulatory, Member
approval and approval of the stockholders of the Savings Bank have been
obtained, all applicable waiting periods have expired and sufficient
subscriptions and orders for the Conversion Stock have been received. It is
intended that the closing of the MHC Merger, the Savings Bank Merger and the
sale of shares of Conversion Stock in the Offerings shall occur consecutively
and substantially simultaneously.
After the Conversion and Reorganization, the Savings Bank will succeed to
all the rights, interests, duties and obligations of the Savings Bank before the
Conversion and Reorganization, including but not limited to all rights and
interests of the Savings Bank in and to its assets and properties, whether real,
personal or mixed. The Savings Bank will continue to be a member of the Federal
Home Loan Bank System and all its insured savings deposits will continue to be
insured by the FDIC to the extent provided by applicable law.
XI. Conversion Stock Offering
-------------------------
A. Number of Shares
----------------
The number of shares of Conversion Stock to be offered pursuant to the Plan
shall be determined initially by the Boards of Directors of the Primary Parties
in conjunction with the determination of the Purchase Price (as defined
8
<PAGE>
in Section XI.B. below). The number of shares to be offered may be subsequently
adjusted by the Board of Directors prior to completion of the Offerings.
B. Independent Evaluation and Purchase Price of Conversion Stock
-------------------------------------------------------------
All shares of Conversion Stock sold in the Conversion and Reorganization,
including shares sold in any Direct Community Offering, shall be sold at a
uniform price per share, and referred to herein as the "Purchase Price." The
Purchase Price shall be determined by the Board of Directors of the Primary
Parties immediately prior to the simultaneous completion of all such sales
contemplated by this Plan on the basis of the estimated pro forma market value
of the MHC, as converted, and the Savings Bank at such time. Such estimated pro
forma market value shall be determined for such purpose by an independent
appraiser on the basis of such appropriate factors not inconsistent with the
regulations of the OTS. Immediately prior to the Subscription Offering, a
subscription price range shall be established which shall vary from 15% above
to 15% below the average of the minimum and maximum of the estimated price
range. The maximum subscription price (i.e., the per share amount to be
----
remitted when subscribing for shares of Conversion Stock) shall then be
determined within the subscription price range by the Board of Directors of the
Primary Parties. The subscription price range and the number of shares to be
offered may be revised after the completion of the Subscription Offering with
OTS approval without a resolicitation of proxies or Order Forms or both.
C. Method of Offering Shares
-------------------------
Subscription Rights shall be issued at no cost to Eligible Account Holders,
Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible Account
Holders and Other Members pursuant to priorities established by this Plan and
the regulations of the OTS. In order to effect the Conversion and
Reorganization, all shares of Conversion Stock proposed to be issued in
connection with the Conversion and Reorganization must be sold and, to the
extent that shares are available, no subscriber shall be allowed to purchase
less than 25 shares; provided, however, that if the purchase price is greater
than $20.00 per share, the minimum number of shares which must be subscribed for
shall be adjusted so that the aggregate actual purchase price required to be
paid for such minimum number of shares does not exceed $500.00. The priorities
established for the purchase of shares are as follows:
1. Category 1: Eligible Account Holders
-------------------------------------
a. Each Eligible Account Holder shall receive, without payment,
Subscription Rights entitling such Eligible Account Holder to purchase
that number of shares of Conversion Stock which is equal to the
greater of the maximum purchase limitation established for the Direct
Community Offering, one-tenth of one percent of the total offering or
15 times the product (rounded down to the next whole number) obtained
by multiplying the total number of shares of Conversion Stock to be
issued by a fraction of which the numerator is the amount of the
Qualifying Deposit of the Eligible Account Holder and the denominator
is the total amount of Qualifying Deposits of all Eligible Account
Holders. If the allocation made in this paragraph results in an
oversubscription, shares of Conversion Stock shall be allocated among
subscribing Eligible Account Holders so as to permit each such account
holder, to the extent possible, to purchase a number of shares of
Conversion Stock sufficient to make his total allocation equal to 100
shares of Conversion Stock or the total amount of his subscription,
whichever is less. Any shares of Conversion Stock not so allocated
shall be allocated among the subscribing Eligible Account Holders on
an equitable basis, related to the amounts of their respective
Qualifying Deposits as compared to the total Qualifying Deposits of
all subscribing Eligible Account Holders.
b. Subscription Rights received by Officers and directors of
the Primary Parties and their Associates, as Eligible Account Holders,
based on their increased deposits in the Savings Bank in the one-year
period preceding the Eligibility Record Date shall be subordinated to
all other subscriptions involving the exercise of Subscription Rights
pursuant to this Category.
9
<PAGE>
2. Category 2: Tax-Qualified Employee Stock Benefit Plans
------------------------------------------------------
a. Tax-Qualified Employee Stock Benefit Plans shall receive, without
payment, nontransferable Subscription Rights to purchase in the aggregate
up to 8% of the Conversion Stock, including shares of Conversion Stock to
be issued in the Conversion as result of an increase in the estimated price
range after commencement of the Subscription Offering and prior to the
completion of the Conversion. The Subscription Rights granted to Tax-
Qualified Stock Benefit Plans shall be subject to the availability of
shares of Conversion Stock after taking into account the shares of
Conversion Stock purchased by Eligible Account Holders; provided, however,
that in the event the number of shares offered in the Conversion is
increased to an amount greater than the maximum of the estimated price
range as set forth in the Prospectus ("Maximum Shares"), the Tax-Qualified
Employee Stock Benefit Plans shall have a priority right to purchase any
such shares exceeding the Maximum Shares up to an aggregate of 8% of the
Conversion Stock. Tax-Qualified Employee Stock Benefit Plans may use funds
contributed or borrowed by the Holding Company or the Association and/or
borrowed from an independent financial institution to exercise such
Subscription Rights, and the Holding Company and the Association may make
scheduled discretionary contributions thereto, provided that such
contributions do not cause the Holding Company or the Association to fail
to meet any applicable capital requirements.
3. Category 3: Supplemental Eligible Account Holders
--------------------------------------------------
a. In the event that the Eligibility Record Date is more than 15
months prior to the date of the latest amendment to the Form AC Application
filed prior to OTS approval, then, and only in that event, each
Supplemental Eligible Account Holder shall receive, without payment,
Subscription Rights entitling such Supplemental Eligible Account Holder to
purchase that number of shares of Conversion Stock which is equal to the
greater of the maximum purchase limitation established for the Direct
Community Offering, one-tenth of one percent of the total offering or 15
times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion Stock to be issued by
a fraction of which the numerator is the amount of the Qualifying Deposit
of the Supplemental Eligible Account Holder and the denominator is the
total amount of the Qualifying Deposits of all Supplemental Eligible
Account Holders.
b. Subscription Rights received pursuant to this category shall be
subordinated to Subscription Rights granted to Eligible Account Holders and
Tax-Qualified Employee Stock Benefit Plans.
c. Any Subscription Rights to purchase shares of Conversion Stock
received by an Eligible Account Holder in accordance with Category 1 shall
reduce to the extent thereof the Subscription Rights to be distributed
pursuant to this Category.
d. In the event of an oversubscription for shares of Conversion
Stock pursuant to this Category, shares of Conversion Stock shall be
allocated among the subscribing Supplemental Eligible Account Holders as
follows:
(1) Shares of Conversion Stock shall be allocated so as to
permit each such Supplemental Eligible Account Holder, to the extent
possible, to purchase a number of shares of Conversion Stock
sufficient to make his total allocation (including the number of
shares of Conversion Stock, if any, allocated in accordance with
Category Number 1) equal to 100 shares of Conversion Stock or the
total amount of his subscription, whichever is less.
10
<PAGE>
(2) Any shares of Conversion Stock not allocated in
accordance with subparagraph (1) above shall be allocated among
the subscribing Supplemental Eligible Account Holders on an
equitable basis, related to the amounts of their respective
Qualifying Deposits as compared to the total Qualifying Deposits
of all subscribing Supplemental Eligible Account Holders.
4. Category 4: Other Members
--------------------------
a. Other Members shall receive, without payment, Subscription
Rights to purchase shares of Conversion Stock, after satisfying the
subscriptions of Eligible Account Holders, Tax-Qualified Employee
Stock Benefit Plans and Supplemental Eligible Account Holders pursuant
to Category Nos. l, 2 and 3 above, subject to the following
conditions:
(1) Each such Other Member shall be entitled to subscribe
for the greater of the maximum purchase limitation established
for the Direct Community Offering or one-tenth of one percent of
the total offering.
(2) In the event of an oversubscription for shares of
Conversion Stock pursuant to Category 4, the shares of Conversion
Stock available shall be allocated among the subscribing Other
Members pro rata on the basis of the amounts of their respective
subscriptions.
D. Direct Community Offering and Syndicated Community Offering
-----------------------------------------------------------
1. Any shares of Conversion Stock not purchased through the exercise
of Subscription Rights set forth in Category Nos. 1 through 4 above may be
sold by the Holding Company to Persons under such terms and conditions as
may be established by the Savings Bank's Board of Directors with the
concurrence of the OTS. The Direct Community Offering may commence
concurrently with or as soon as possible after the completion of the
Subscription Offering and must be completed within 45 days after completion
of the Subscription Offering, unless extended with the approval of the OTS.
No Person may purchase in the Direct Community Offering more than 40,000
shares of Conversion Stock. The right to purchase shares of Conversion
Stock under this Category is subject to the right of the Savings Bank or
the Holding Company to accept or reject such orders in whole or in part. In
the event of an oversubscription for shares in this Category, the shares
available shall be allocated among prospective purchasers pro rata on the
basis of the amounts of their respective orders. The offering price for
which such shares are sold to the general public in the Direct Community
Offering shall be the Purchase Price.
2. Orders received in the Direct Community Offering first shall be
filled up to a maximum of 2% of the Conversion Stock and thereafter
remaining shares shall be allocated on an equal number of shares basis per
order until all orders have been filled.
3. The Conversion Stock offered in the Direct Community Offering
shall be offered and sold in a manner that will achieve the widest
distribution thereof. Preference shall be given in the Direct Community
Offering first to the Public Stockholders (who are not Eligible Account
Holders, Supplemental Eligible Account Holders or Other Members) and then
to natural Persons and trusts of natural Persons residing in the Local
Community.
4. Subject to such terms, conditions and procedures as may be
determined by the Savings Bank and the Holding Company, all shares of
Conversion Stock not subscribed for in the Subscription Offering or ordered
in the Direct Community Offering may be sold by a syndicate of broker-
dealers to the general public in a Syndicated Community Offering. No Person
may purchase in the Syndicated Community Offering more
11
<PAGE>
than 40,000 shares of Conversion Stock. Each order for Conversion Stock in
the Syndicated Community Offering shall be subject to the absolute right of
the Savings Bank and the Holding Company to accept or reject any such order
in whole or in part either at the time of receipt of an order or as soon as
practicable after completion of the Syndicated Community Offering. The
Savings Bank and the Holding Company may commence the Syndicated Community
Offering concurrently with, at any time during, or as soon as practicable
after the end of the Subscription Offering and/or Direct Community
Offering, provided that the Syndicated Community Offering must be completed
within 45 days after the completion of the Subscription Offering, unless
extended by the Savings Bank and the Holding Company with the approval of
the OTS.
5. If for any reason a Syndicated Community Offering of shares of
Conversion Stock not sold in the Subscription Offering and the Direct
Community Offering cannot be effected, or in the event that any
insignificant residue of shares of Conversion Stock is not sold in the
Subscription Offering, Direct Community Offering or Syndicated Community
Offering, the Savings Bank and the Holding Company shall use their best
efforts to obtain other purchasers for such shares in such manner and upon
such conditions as may be satisfactory to the OTS.
6. In the event a Direct Community Offering or Syndicated Community
Offering do not appear feasible, the Savings Bank will immediately consult
with the OTS to determine the most viable alternative available to effect
the completion of the Conversion. Should no viable alternative exist, the
Savings Bank may terminate the Conversion with the concurrence of the OTS.
E. Limitations Upon Purchases
--------------------------
The following additional limitations and exceptions shall be imposed upon
purchases of shares of Conversion Stock:
1. No Person may purchase more than 40,000 shares of Conversion
Stock in the Conversion and Reorganization, including purchases in the
Direct Community Offering and the Syndicated Community Offering, except
that Tax-Qualified Employee Stock Benefit Plans may purchase up to 8% of
the total Conversion Stock issued in the Conversion and Reorganization and
shares to be held by the Tax-Qualified Employee Stock Benefit Plans and
attributable to a Person shall not be aggregated with other shares
purchased directly by or otherwise attributable to such Person.
2. The maximum number of shares of Conversion Stock which may be
subscribed for or purchased in all categories in the Conversion and
Reorganization by any Person together with any Associate or any group or
Persons Acting in Concert, when combined with any Exchange Stock received,
shall not exceed 125,000 shares of Common Stock, except that Tax-Qualified
Employee Stock Benefit Plans may purchase up to 8% of the total Conversion
Stock issued in the Conversion and Reorganization and shares held or to be
held by the Tax-Qualified Employee Stock Benefit Plans and attributable to
a Person shall not be aggregated with other shares purchased directly by or
otherwise attributable to such Person.
3. Officers and directors of the Primary Parties and Associates
thereof may not purchase in the aggregate more than 32% of the shares
issued in the Conversion and Reorganization, including any Exchange Stock
received.
4. The Boards of Directors of the Primary Parties will not be deemed
to be Associates or a group of Persons Acting in Concert with other
directors or trustees solely as a result of membership on the Board of
Directors.
5. The Boards of Directors of the Primary Parties, with the approval
of the OTS and without further approval of Members or stockholders of the
Savings Bank, may, as a result of market conditions and
12
<PAGE>
other factors, increase or decrease the purchase limitation described
herein or the number of shares of Conversion Stock to be sold in the
Conversion and Reorganization. The Boards of Directors of the Primary
Parties may, in their sole discretion, increase the maximum purchase
limitation set forth above up to 9.99% of the Conversion Shares sold in the
Conversion and Reorganization, provided that orders for shares which exceed
5% of the Conversion Shares sold in the Conversion and Reorganization may
not exceed, in the aggregate, 10% of the shares sold in the Conversion and
Reorganization. If the Primary Parties increase the maximum purchase
limitations or the number of shares of Conversion Stock to be sold in the
Conversion and Reorganization, the Primary Parties are only required to
resolicit Persons who subscribed for the maximum purchase amount and may,
in the sole discretion of the Primary Parties, resolicit certain other
large subscribers. If the Primary Parties decrease the maximum purchase
limitations or the number of shares of Conversion Stock to be sold in the
Conversion and Reorganization, the orders of any Person who subscribed for
the maximum purchase amount shall be decreased by the minimum amount
necessary so that such Person shall be in compliance with the then maximum
number of shares permitted to be subscribed for by such Person.
Notwithstanding anything to the contrary contained in this Plan, and except
as may be required by the OTS, Public Stockholders will not be required to sell
or divest any Holding Company Common Stock or be limited in receiving Exchange
Stock even if their percentage ownership of the Savings Bank Common Stock when
converted into Exchange Stock would exceed an applicable purchase limitation.
Each Person purchasing Conversion Stock in the Conversion and
Reorganization shall be deemed to confirm that such purchase does not conflict
with the purchase limitations under the Plan or otherwise imposed by law, rule
or regulation. In the event that such purchase limitations are violated by any
Person (including any Associate or group of Persons affiliated or otherwise
Acting in Concert with such Person), the Holding Company shall have the right to
purchase from such Person at the actual Purchase Price per share all shares
acquired by such Person in excess of such purchase limitations or, if such
excess shares have been sold by such Person, to receive from such Person the
difference between the actual Purchase Price per share paid for such excess
shares and the price at which such excess shares were sold by such Person. This
right of the Holding Company to purchase such excess shares shall be assignable
by the Holding Company.
F. Restrictions On and Other Characteristics of the Conversion Stock
-----------------------------------------------------------------
1. Transferability. Conversion Stock purchased by Officers and
---------------
directors of the Primary Parties shall not be sold or otherwise disposed of
for value for a period of one year from the effective date of Conversion
and Reorganization, except for any disposition (i) following the death of
the original purchaser or (ii) resulting from an exchange of securities in
a merger or acquisition approved by the regulatory authorities having
jurisdiction.
The Conversion Stock issued by the Holding Company to such Officers
and directors shall bear a legend giving appropriate notice of the one-year
holding period restriction. Said legend shall state as follows:
"The shares evidenced by this certificate are restricted as
to transfer for a period of one year from the date of this
certificate pursuant to Part 563b of the Rules and
Regulations of the Office of Thrift Supervision. These
shares may not be transferred prior thereto without a legal
opinion of counsel that said transfer is permissible under
the provisions of applicable laws and regulations."
In addition, the Holding Company shall give appropriate instructions
to the transfer agent of the Holding Company Common Stock with respect to
the foregoing restrictions. Any shares of Holding Company Common Stock
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 such Persons as may be then applicable to such
restricted stock.
13
<PAGE>
2. Subsequent Purchases by Officers and Directors. Without prior
----------------------------------------------
approval of the OTS, if applicable, Officers and directors of the Savings
Bank and officers and directors of the Holding Company, and their
Associates, shall be prohibited for a period of three years following
completion of the Conversion and Reorganization from purchasing outstanding
shares of Holding Company Common Stock, except from a broker or dealer
registered with the SEC. Notwithstanding this restriction, purchases
involving more than 1% of the total outstanding shares of Holding Company
Stock and purchases made and shares held by a Tax-Qualified or non-Tax-
Qualified Employee Stock Benefit Plan which may be attributable to such
directors and Officers may be made in negotiated transactions without OTS
permission or the use of a broker or dealer.
3. Repurchase and Dividend Rights. For a period of three years
------------------------------
following the consummation of the Conversion and Reorganization, any
repurchases of Holding Company Stock by the Holding Company from any Person
shall be subject to the then applicable rules and regulations and policies
of the OTS. The Savings Bank may not declare or pay a cash dividend on or
repurchase any of its Capital Stock if the result thereof would be to
reduce the regulatory capital of the Savings Bank below the amount required
for the liquidation account described in Paragraph XIV. Further, any
dividend declared or paid on the Capital Stock shall comply with the then
applicable rules and regulations of the OTS.
4. Voting Rights. After the Conversion and Reorganization, holders
-------------
of Savings Accounts in and obligors on loans of the Savings Bank will not
have voting rights in the MHC. Exclusive voting rights with respect to the
Holding Company shall be vested in the holders of Holding Company Stock;
holders of Savings Accounts in and obligors on loans of the Savings Bank
will not have any voting rights in the Holding Company except and to the
extent that such Persons become stockholders of the Holding Company, and
the Holding Company will have exclusive voting rights with respect to the
Savings Bank's Capital Stock.
G. Mailing of Offering Materials and Collation of Subscriptions
------------------------------------------------------------
The sale of all shares of Conversion Stock offered pursuant to the Plan
must be completed within 24 months after approval of the Plan at the Special
Meeting. After approval of the Plan by the OTS and the declaration of the
effectiveness of the Prospectus, the Holding Company shall distribute
Prospectuses and Order Forms for the purchase of shares of Conversion Stock in
accordance with the terms of the Plan.
The recipient of an Order Form shall be provided not less than 20 days nor
more than 45 days from the date of mailing, unless extended, properly to
complete, execute and return the Order Form to the Holding Company or the
Savings Bank. Self-addressed, postage prepaid, return envelopes shall accompany
all Order Forms when they are mailed. Failure of any eligible subscriber to
return a properly completed and executed Order Form within the prescribed time
limits shall be deemed a waiver and a release by such eligible subscriber of any
rights to purchase shares of Conversion Stock under the Plan.
The sale of all shares of Conversion Stock proposed to be issued in
connection with the Conversion and Reorganization must be completed within 45
days after the last day of the Subscription Offering, unless extended by the
Holding Company with the approval of the OTS.
H. Method of Payment
-----------------
Payment for all shares of Conversion Stock may be made in cash, by check or
by money order, or if a subscriber has a Savings Account(s), such subscriber may
authorize the Savings Bank to charge the subscriber's Savings Account(s). The
Savings Bank shall pay interest at not less than the passbook rate on all
amounts paid in cash or by check or money order to purchase shares of Conversion
Stock in the Subscription Offering from the date payment is received until the
Conversion and Reorganization is completed or terminated. The Savings Bank is
not permitted knowingly to loan funds or otherwise extend any credit to any
Person for the purpose of purchasing Conversion Stock.
14
<PAGE>
If a subscriber authorizes the Savings Bank to charge the subscriber's
Savings Account(s), the funds shall remain in the subscriber's Savings
Account(s) and shall continue to earn interest, but may not be used by such
subscriber until the Conversion and Reorganization is completed or terminated,
whichever is earlier. The withdrawal shall be given effect only concurrently
with the sale of all shares of Conversion Stock proposed to be sold in the
Conversion and Reorganization and only to the extent necessary to satisfy the
subscription at a price equal to the aggregate Purchase Price. The Savings Bank
shall allow subscribers to purchase shares of Conversion Stock by withdrawing
funds from certificate accounts held with the Savings Bank without the
assessment of early withdrawal penalties. 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 that event, the remaining balance shall earn
interest at the passbook rate.
I. Undelivered, Defective or Late Order Forms; Insufficient Payment
----------------------------------------------------------------
If an Order Form (i) is not delivered and is returned to the Holding
Company or the Savings Bank by the United States Postal Service (or the Holding
Company or Savings Bank is unable to locate the addressee); (ii) is not returned
to the Holding Company or Savings Bank, or is returned to the Holding Company or
Savings Bank after expiration of the date specified thereon; (iii) is
defectively completed or executed; or (iv) is not accompanied by the total
required payment for the shares of Conversion Stock subscribed for (including
cases in which the subscribers' Savings Accounts are insufficient to cover the
authorized withdrawal for the required payment), the Subscription Rights of the
Person to whom such rights have been granted shall not be honored and shall be
treated as though such Person failed to return the completed Order Form within
the time period specified therein. Alternatively, the Holding Company or
Savings Bank may, but shall not be required to, waive any irregularity relating
to any Order Form or require the submission of a corrected Order Form or the
remittance of full payment for the shares of Conversion Stock subscribed for by
such date as the Holding Company or Savings Bank may specify. Subscription
orders, once tendered, shall not be revocable. The Holding Company's and
Savings Bank's interpretation of the terms and conditions of the Plan and of the
Order Forms shall be final.
J. Members in Non-Qualified States or in Foreign Countries
-------------------------------------------------------
The Primary Parties will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons entitled to
subscribe for stock pursuant to the Plan reside. However, the Primary Parties
are not required to offer stock in the Subscription Offering to any person who
resides in a foreign country or resides in a state of the United States with
respect to which (i) a small number of persons otherwise eligible to subscribe
for shares of Common Stock reside in such state; or (ii) the Primary Parties
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
request or requirement that the Primary Parties or their officers, directors or
trustees register as a broker, dealer, salesman or selling agent, under the
securities laws of such state, or a request or requirement to register or
otherwise qualify the Subscription Rights or Common Stock for sale or submit any
filing with respect thereto in such state. Where the number of persons eligible
to subscribe for shares in one state is small relative to other states, the
Primary Parties will base their decision as to whether or not to offer the
Common Stock in such state on a number of factors, including the size of
accounts held by account holders in the state, the cost of reviewing the
registration and qualification requirements of the state (and of actually
registering or qualifying the shares) or the need to register the Holding
Company, its officers, directors or employees as brokers, dealers or salesmen.
XII. Post Conversion and Reorganization Filing and Market Making
-----------------------------------------------------------
In connection with the Conversion and Reorganization, the Holding Company
shall register the Common Stock with the SEC pursuant to the Securities Exchange
Act of 1934, as amended, and shall undertake not to deregister such Conversion
Stock for a period of three years thereafter.
15
<PAGE>
The Holding Company shall use its best efforts to encourage and assist
Market Makers to establish and maintain a market for the shares of its stock.
The Holding Company shall also use its best efforts to list its stock on The
Nasdaq Stock Market or on a national or regional securities exchange.
XIII. Status of Savings Accounts and Loans Subsequent to Conversion and
-----------------------------------------------------------------
Reorganization
- --------------
All Savings Accounts shall retain the same status after Conversion and
Reorganization as these accounts had prior to Conversion and Reorganization.
Each Savings Account holder shall retain, without payment, a withdrawable
Savings Account(s) after the Conversion and Reorganization, equal in amount to
the withdrawable value of such holder's Savings Account(s) prior to Conversion
and Reorganization. All Savings Accounts will continue to be insured by the
Savings Association Insurance Fund of the FDIC up to the applicable limits of
insurance coverage. All loans granted by the Savings Bank shall retain the same
status after the Conversion and Reorganization as they had prior to the
Conversion and Reorganization. See Paragraph III.B. with respect to the
termination of voting rights of Members.
XIV. Liquidation Account
-------------------
After the Conversion and Reorganization, holders of Savings Accounts
shall not be entitled to share in any residual assets in the event of
liquidation of the Savings Bank. However, the Savings Bank shall, at the time of
the Conversion and Reorganization, establish a liquidation account in an amount
equal to the amount of dividends with respect to the Savings Bank Common Stock
waived by the MHC plus the greater of (i) the Savings Bank's total retained
earnings as of the date of the latest statement of financial condition contained
in the final offering circular used in connection with the Savings Bank's
reorganization as a majority owned subsidiary of the MHC, or (ii) 69.87% of the
Savings Bank's total stockholders' equity as of the date of the latest statement
of financial condition contained in the final Prospectus used in connection with
the Conversion and Reorganization. The function of the liquidation account shall
be to establish a priority on liquidation and, except as provided in Section
XI.F.3. above, the existence of the liquidation account shall not operate to
restrict the use or application of any of the net worth accounts of the Savings
Bank.
The liquidation account shall be maintained by the Savings Bank
subsequent to the Conversion and reorganization for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders who retain their
Savings Accounts in the Savings Bank. Each Eligible Account Holder and
Supplemental Eligible Account Holder shall, with respect to each Savings Account
held, have a related inchoate interest in a portion of the liquidation account
balance ("subaccount").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder and/or a 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 such holder's Qualifying Deposit in the
Savings Account and the denominator is the total amount of the Qualifying
Deposits of all Eligible Account Holders and Supplemental Eligible Account
Holders. Such initial subaccount balance shall not be increased, and it shall
be subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account
Holder or Supplemental Eligible Account Holder at the close of business on any
annual closing date subsequent to the Eligibility Record Date is less than the
lesser of (i) the deposit balance in such Savings 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 Savings Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, then the subaccount balance for such
Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of a
downward adjustment, such subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Savings Account. If any such Savings Account is closed, the related subaccount
balance shall be reduced to zero.
16
<PAGE>
In the event of a complete liquidation of the Savings Bank, 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 balance(s) for Savings Account(s) then held
by such holder before any liquidation tion distribution may be made to
stockholders. No merger, consolidation, bulk purchase of assets with assumptions
of Savings Accounts and other liabilities or similar transactions with another
Federally-insured institution in which the Savings Bank is not the surviving
institution shall be considered to be a complete liquidation. In any such
transaction, the liquidation account shall be assumed by the surviving
institution.
XV. Regulatory Restrictions on Acquisition of Holding Company
---------------------------------------------------------
A. OTS regulations provide that for a period of three years following
completion of the Conversion and Reorganization, no Person (i.e, individual, a
group Acting in Concert, a corporation, a partnership, an association, a joint
stock company, a trust, or any unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding or
disposing of securities of an insured institution or its holding company) shall
directly, or indirectly, offer to purchase or actually acquire the beneficial
ownership of more than 10% of any class of equity security of the Holding
Company without the prior approval of the OTS. However, approval is not required
for purchases directly from the Holding Company or the underwriters or selling
group acting on its behalf with a view towards public resale, or for purchases
not exceeding 1% per annum of the shares outstanding. Civil penalties may be
imposed by the OTS for willful violation or assistance of any violation. Where
any Person, directly or indirectly, acquires beneficial ownership of more than
10% of any class of equity security of the Holding Company within such three-
year period, without the prior approval of the OTS, stock of the Holding Company
beneficially owned by such Person in excess of 10% shall not be counted as
shares entitled to vote and shall not be voted by any Person or counted as
voting shares in connection with any matter submitted to the stockholders for a
vote. The provisions of this regulation shall not apply to the acquisition of
securities by Tax-Qualified Employee Stock Benefit Plans provided that such
plans do not have beneficial ownership of more than 25% of any class of equity
security of the Holding Company.
B. The Holding Company may provide in its articles of incorporation, or
similar document, a provision that, for a specified period of up to five years
following the date of the completion of the Conversion and Reorganization, no
Person shall directly or indirectly offer to acquire or actually acquire the
beneficial ownership of more than 10% of any class of equity security of the
Holding Company. Such provisions would not apply to acquisition of securities
by Tax-Qualified Employee Stock Benefit Plans provided that such plans do not
have beneficial ownership of more than 25% of any class of equity security of
the Holding Company. The Holding Company may provide in its articles of
incorporation, or similar document, for such other provisions affecting the
acquisition of its stock as shall be determined by its Board of Directors.
XVI. Directors and Officers of the Savings Bank
------------------------------------------
The Conversion and Reorganization is not intended to result in any change
in the directors or Officers of the Savings Bank. Each Person serving as a
director of the Savings Bank at the time of Conversion and Reorganization shall
continue to serve as a member of the Savings Bank's Board of Directors, subject
to the Savings Bank's Federal Stock Charter and Bylaws. The Persons serving as
Officers immediately prior to the Conversion and Reorganization will continue to
serve at the discretion of the Board of Directors in their respective capacities
as Officers of the Savings Bank. In connection with the Conversion and
Reorganization, the Savings Bank and the Holding Company may enter into
employment agreements on such terms and with such officers as shall be
determined by the Boards of Directors of the Savings Bank and the Holding
Company.
XVII. Executive Compensation
----------------------
The Savings Bank and the Holding Company may adopt, subject to any
required approvals, executive compensation or other benefit programs, including
but not limited to compensation plans involving stock options, stock
appreciation rights, restricted stock grants, employee recognition programs and
the like.
17
<PAGE>
XVIII. Amendment or Termination of Plan
--------------------------------
If necessary or desirable, the Plan may be amended by a two-thirds vote
of the Savings Bank's Board of Directors or the MHC's Board of Directors, at any
time prior to the Special Meeting of Members and the Meeting of Stockholders. At
any time thereafter, the Plan may be amended by a two-thirds vote of the
respective Boards of Directors only with the concurrence of the OTS. The Plan
may be terminated by a two-thirds vote of the Board of Directors at any time
prior to the Special Meeting of Members or the Meeting of Stockholders, and at
any time following such meetings with the concurrence of the OTS. In its
discretion, the Boards of Directors of the MHC and the Savings Bank may modify
or terminate the Plan upon the order of the regulatory authorities without a
resolicitation of proxies or another Special Meeting of Members or Meeting of
Stockholders.
In the event that mandatory new regulations pertaining to conversions
are adopted by the OTS prior to the completion of the Conversion and
Reorganization, the Plan shall be amended to conform to the new mandatory
regulations without a resolicitation of proxies or another Special Meeting of
Members or another Meeting of Stockholders. In the event that new conversion
regulations adopted by the OTS prior to completion of the Conversion and
Reorganization contain optional provisions, the Plan may be amended to utilize
such optional provisions at the discretion of the Board of Directors without a
resolicitation of proxies or another Special Meeting of Members or another
Meeting of Stockholders.
By adoption of the Plan, the Members and the Savings Bank stockholders
authorize the Boards of Directors of the MHC and the Savings Bank to amend
and/or terminate the Plan under the circumstances set forth above.
XIX. Expenses of the Conversion and Reorganization
---------------------------------------------
The Primary Parties shall use their best efforts to assure that expenses
incurred in connection with the Conversion and Reorganization are reasonable.
XX. Contributions to Tax-Qualified Plans
------------------------------------
The Holding Company and/or the Savings Bank may make discretionary
contributions to the Tax-Qualified Employee Stock Benefit Plans, provided such
contributions do not cause the Savings Bank to fail to meet its regulatory
capital requirements.
* * *
18
<PAGE>
ANNEX A
-------
PLAN OF MERGER
This Plan of Merger, dated as of __________ ___, 1998, is made by and
between Pulaski Bancshares, M.H.C. ("MHC"), a federally chartered mutual holding
company, and Pulaski Bank, A Federal Savings Bank ("Savings Bank" or "Surviving
Corporation"), a federally chartered savings bank (collectively, the
"Constituent Corporations").
WITNESSETH:
WHEREAS, the MHC and the Savings Bank have adopted a Plan of Conversion
from Mutual Holding Company to Stock Holding Company and Agreement and Plan of
Reorganization ("Plan of Conversion") pursuant to which (i) the MHC will convert
to a federally-chartered interim stock savings bank and simultaneously merge
with and into the Savings Bank, with the Savings Bank as the surviving entity
("MHC Merger"), (ii) the Savings Bank and a newly-formed interim federal savings
bank will merge, pursuant to which the Savings Bank will become a wholly-owned
subsidiary of a newly formed stock corporation ("Holding Company") ("Savings
Bank Merger"), and (iii) the Holding Company will offer shares of its common
stock in the manner set forth in the Plan of Conversion (collectively, the
"Conversion and Reorganization"); and
WHEREAS, the MHC and the Savings Bank desire to provide for the terms and
conditions of the MHC Merger;
NOW, THEREFORE, the MHC and the Savings Bank hereby agree as follows:
1. EFFECTIVE DATE. The MHC Merger shall become effective on the date
specified in the endorsement of the Articles of Combination relating to the MHC
Merger by the Secretary of the Office of Thrift Supervision ("OTS") pursuant to
12 C.F.R. 552.13(k), or any successor thereto ("Effective Date").
2. THE MHC MERGER AND EFFECT THEREOF. Subject to the terms and conditions
set forth herein and the prior approval of the OTS of the Conversion and
Reorganization, as defined in the Plan of Conversion, and the expiration of all
applicable waiting periods, the MHC shall convert from the mutual form to a
federal interim stock savings bank and simultaneously merge with and into the
Savings Bank, which shall be the Surviving Corporation. Upon consummation of the
MHC Merger, the Surviving Corporation shall be considered the same business and
corporate entity as each of the Constituent Corporations and the Surviving
Corporation shall be subject to and be deemed to have assumed all of the
property, rights, privileges, powers, franchises, debts, liabilities,
obligations, duties and relationships of each of the Constituent Corporations
and shall have succeeded to all of each of their relationships, fiduciary or
otherwise, as fully and to the same extent as if such property, rights,
privileges, powers, franchises, debts, obligations, duties and relationships had
been originally acquired, incurred or entered into by the Surviving Corporation.
In addition, any reference to either of the Constituent Corporations in any
contract or document, whether executed or taking effect before or after the
Effective Date, shall be considered a reference to the Surviving Corporation if
not inconsistent with the other provisions of the contract or document; and any
pending action or other judicial proceeding to which either of the Constituent
Corporations is a party shall not be deemed to have abated or to have been
discontinued by reason of the MHC Merger, but may be prosecuted to final
judgment, order or decree in the same manner as if the MHC Merger had not
occurred or the Surviving Corporation may be substituted as a party to such
action or proceeding, and any judgment, order or decree may be rendered for or
against it that might have been rendered for or against either of the
Constituent Corporations if the MHC Merger had not occurred.
3. CANCELLATION OF SAVINGS BANK COMMON STOCK HELD BY THE MUTUAL HOLDING
COMPANY AND MEMBER INTERESTS; LIQUIDATION ACCOUNT.
Annex A-1
<PAGE>
(a) On the Effective Date: (i) each share of common stock, $1.00 par value
per share, of the Savings Bank ("Savings Bank Common Stock") issued and
outstanding immediately prior to the Effective Date and held by the MHC shall,
by virtue of the MHC Merger and without any action on the part of the holder
thereof, be canceled, (ii) the interests in the MHC of any person, firm or
entity who or which qualified as a member of the MHC in accordance with its
mutual charter and bylaws and the laws of the United States prior to the MHC's
conversion from mutual to stock form ("Members") shall, by virtue of the MHC
Merger and without any action on the part of any Member, be canceled, and (iii)
the Savings Bank shall establish a liquidation account on behalf of each
depositor member of the MHC as provided for in the Plan of Conversion.
(b) At or after the Effective Date and prior to the Savings Bank Merger,
each certificate or certificates theretofore, evidencing issued and outstanding
shares of Savings Bank Common Stock, other than any such certificate or
certificates held by the MHC, which shall be canceled, shall continue to
represent issued and outstanding shares of Savings Bank Common Stock.
4. RIGHTS OF DISSENT AND APPRAISAL ABSENT. No holder of Savings Bank
Common Stock shall have any dissenter or appraisal rights in connection with the
MHC Merger.
5. NAME OF SURVIVING CORPORATION. The name of the Surviving Corporation
shall be "Pulaski Bank, A Federal Savings Bank."
6. DIRECTORS OF THE SURVIVING CORPORATION. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Corporation and applicable law, the number of directors of the Surviving
Corporation shall be seven. The names of those persons who, upon and after the
Effective Date, shall be directors of the Surviving Corporation are set forth
below. Each such director shall serve for the term which expires at the annual
meeting of stockholders of the Surviving Corporation in the year set forth after
his respective name, and until a successor is elected and qualified.
<TABLE>
<CAPTION>
Name Term Expires
- ---- ------------
<S> <C>
William A. Donius 1998
Robert A. Ebel 1998
Michael J. Donius 1999
E. Douglas Britt 1999
Garland A. Dorn 1999
Thomas F. Hack 2000
Dr. Edward J. Howenstein 2000
</TABLE>
The address of each director is 12300 Olive
Boulevard, St. Louis, Missouri 63141.
7. OFFICERS OF THE SURVIVING CORPORATION. Upon and after the Effective
Date, until changed in accordance with the Federal Stock Charter and Bylaws of
the Surviving Corporation and applicable law, the officers of the Savings Bank
immediately prior to the Effective Date shall be the officers of the Surviving
Corporation.
8. OFFICES. Upon the Effective Date, all offices of the Savings Bank
shall be offices of the Surviving Corporation. As of the Effective Date, the
home office of the Surviving Corporation shall remain at 12300 Olive Boulevard,
St. Louis, Missouri, and the locations of the branch offices of the Surviving
Corporation shall be as follows:
4225 Bayless, St. Louis, Missouri 63123
6955 Parker Road, Florissant, Missouri 63033
3760 S. Grand, St. Louis, Missouri 63118
10756 Sunset Hills Plaza, St. Louis, Missouri 63127
Annex A-2
<PAGE>
9. CHARTER AND BYLAWS. On and after the Effective Date, the Charter of
the Savings Bank as in effect immediately prior to the Effective Date shall be
the Federal Stock Charter of the Surviving Corporation until amended in
accordance with the terms thereof and applicable law, except that the Federal
Stock Charter shall be amended to provide for the establishment of a liquidation
account in accordance with applicable the Plan of Conversion. On and after the
Effective Date, the Bylaws of the Savings Bank as in effect immediately prior to
the Effective Date shall be the Bylaws of the Surviving Corporation until
amended in accordance with the terms thereof and applicable law.
10. STOCKHOLDER AND MEMBER APPROVALS. The affirmative votes of the holders
of Savings Bank Common Stock and of the Members as set forth in the Plan of
Conversion shall be required to approve the Plan of Conversion, of which this
Plan of Merger is a part, on behalf of the Savings Bank and the MHC,
respectively.
11. ABANDONMENT OF PLAN. This Plan of Merger may be abandoned by either
the MHC or the Savings Bank at any time before the Effective Date in the manner
set forth in the Plan of Conversion.
12. AMENDMENTS. This Plan of Merger may be amended in the manner set
forth in the Plan of Conversion by a subsequent writing signed by the parties
hereto upon the approval of the Boards of Directors of the Constituent
Corporations.
13. SUCCESSORS. This Agreement shall be binding on the successors of the
Constituent Corporations.
14. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Missouri, except to the extent
superseded by the laws of the United States.
IN WITNESS WHEREOF, the MHC and the Savings Bank have caused this Plan of
Merger to be executed by their duly authorized officers as of the day and year
first above written.
Attest: PULASKI BANCSHARES, M.H.C.
__________________________ By: ___________________________
Corporate Secretary President
Attest: PULASKI BANK,
A FEDERAL SAVINGS BANK
__________________________ By: __________________________
Corporate Secretary President
Annex A-3
<PAGE>
ANNEX B
-------
PLAN OF REORGANIZATION
This Plan of Reorganization, dated as of _____________ ___, 1998, is made
by and among Pulaski Bank, A Federal Savings Bank ("Savings Bank" or the
"Surviving Corporation"), a federally chartered savings bank and majority owned
subsidiary of Pulaski Bancshares, M.H.C. ("MHC"), a federally chartered mutual
holding company; _______ _______________ ("Holding Company"), a Delaware
corporation organized by the Savings Bank; and Pulaski Interim "B" Bank, A
Federal Savings Bank ("Interim B"); a to-be formed interim federal stock savings
bank.
WITNESSETH:
WHEREAS, the Savings Bank has organized the Holding Company as a first-
tier, wholly owned subsidiary for the purpose of becoming the stock holding
company of the Savings Bank upon completion of the Conversion and Reorganization
as defined in the Plan of Conversion from Mutual Holding Company to Stock
Holding Company and Agreement and Plan of Reorganization ("Plan of Conversion")
adopted by the Boards of Directors of the MHC and the Savings Bank; and
WHEREAS, the MHC owns as of the date hereof _____% of the outstanding
common stock of the Savings Bank, par value $1.00 per share ("Savings Bank
Common Stock), will convert to a federally-chartered interim stock savings bank
and simultaneously merge with and into the Savings Bank pursuant to the Plan of
Conversion and the Plan of Merger included as Annex A thereto ("MHC Merger"),
pursuant to which all shares of Savings Bank Common Stock held by the MHC will
be canceled; and
WHEREAS, the formation of a stock holding company by the Savings Bank will
be facilitated by causing the Holding Company to become the sole stockholder of
a newly-formed interim stock savings bank ("Interim B") and then merge Interim B
with and into the Savings Bank, pursuant to which the Savings Bank will
reorganize as a wholly-owned subsidiary of the Holding Company
("Reorganization") and, in connection therewith, all outstanding shares of
Savings Bank Common Stock will be converted automatically into and become shares
of common stock of the Holding Company, par value $0.01 per share ("Holding
Company Common Stock"); and
WHEREAS, Interim B is being organized by the officers of the Savings Bank
as an interim Federal stock savings bank with the Holding Company as its sole
stockholder in order to effect the Reorganization; and
WHEREAS, the Savings Bank and Interim B ("Constituent Corporations") and
the Holding Company desire to provide for the terms and conditions of the
Reorganization.
NOW, THEREFORE, the Savings Bank, Interim B and the Holding Company hereby
agree as follows:
1. EFFECTIVE DATE. The Reorganization shall become effective on the date
specified in the endorsement of the articles of combination relating to the
Reorganization by the Office of Thrift Supervision ("OTS") pursuant to 12 C.F.R.
(S)552.13(k), or any successor thereto ("Effective Date").
2. THE MERGER AND EFFECT THEREOF. Subject to the terms and conditions
set forth herein and the prior approval of the OTS of the Conversion and the
Reorganization, as defined in the Plan of Conversion, and the expiration of all
applicable waiting periods, Interim B shall merge with and into the Savings
Bank, with the Savings Bank as the Surviving Corporation. Upon consummation of
the Reorganization, the Surviving Corporation shall be considered the same
business and corporate entity as each of the Constituent Corporations and
thereupon and thereafter all the property, rights, powers and franchises of each
of the Constituent Corporations shall vest in the Surviving Corporation and the
Surviving Corporation shall be subject to and be deemed to have assumed all of
the property, rights, privileges, powers, franchises, debts, liabilities,
obligations and duties of each of the Constituent Corporations and shall
Annex B-1
<PAGE>
have succeeded to all of each of their relationships, fiduciary or otherwise,
fully and to the same extent as if such property, rights, privileges, powers,
franchises, debts, obligations, duties and relationships had been (originally
acquired, incurred or entered into by the Surviving Corporation. In addition
any reference to either of the Constituent Corporations in any contract or
document, whether executed or taking effect before or after the Effective Date,
shall be considered a reference to the Savings Bank if not inconsistent with
the other provisions of the contract or document; and any pending action or
other judicial proceeding of which either of the Constituent Corporations is a
party shall not be deemed to have abated or to have been discontinued by reason
of the Reorganization, but may be prosecuted to final judgment, order or decree
in the same manner as if the Reorganization had not occurred or the Surviving
Corporation may be substituted as a party to such action or proceeding, and any
judgment, order or decree may be rendered for or against it that might have
been rendered for or against either of the Constituent Corporations if the
Reorganization had not occurred.
3. CONVERSION OF STOCK.
(a) On the Effective Date, (i) each share of Savings Bank Common Stock
issued and outstanding immediately prior to the Effective Date shall, by virtue
of the Reorganization and without any action on the part of the holder thereof,
be converted into the right to receive Holding Company Common Stock based on the
Exchange Ratio, as defined in the Plan of Conversion, plus the right to receive
cash in lieu of any fractional share interest, as determined in accordance with
Section 3(c) hereof, (ii) each share of common stock, par value $1.00 per share,
of Interim B ("Interim B Common Stock") issued and outstanding immediately prior
to the Effective Date shall, by virtue of the Reorganization and without any
action on the part of the holder thereof, be converted into one share of Savings
Bank Common Stock, and (ii) each share of Holding Company Common Stock issued
and outstanding immediately prior to the Effective Date shall, by virtue of the
Reorganization and without any action on the part of the holder thereof, be
canceled. By voting in favor of this Plan of Reorganization, the Holding
Company, as the sole stockholder of Interim B, shall have agreed (i) to issue
shares of Holding Company Common Stock in accordance with the terms hereof and
(ii) to cancel all previously issued and outstanding shares of Holding Company
Common Stock upon the effectiveness of the Reorganization.
(b) On and after the Effective Date, there shall be no registrations of
transfers on the stock transfer books of Interim B or the Savings Bank of shares
of Interim B Common Stock or Savings Bank Common Stock which were outstanding
immediately prior to the Effective Date.
(c) Notwithstanding any other provision hereof, no fractional shares of
Holding Company Common Stock shall be issued to holders of Savings Bank Common
Stock. In lieu thereof, the holder of shares of Savings Bank Common Stock
entitled to a fraction of a share of Holding Company Common Stock shall, at the
time of surrender of the certificate or certificates representing such holder
shares, receive an amount of cash equal to the product arrived at by multiplying
such fraction of a share of Holding Company Common Stock by the Purchase Price,
as defined in the Plan of Conversion. No such holder shall be entitled to
dividends, voting rights or any other rights in respect of any fractional share.
4. EXCHANGE OF SHARES.
(a) At or after the Effective Date, each holder of a certificate or
certificates theretofore evidencing issued and outstanding shares of Savings
Bank Common Stock, upon surrender of the same to an agent, duly appointed by the
Holding Company ("Exchange Agent"), shall be entitled to receive in exchange
therefor certificate(s) representing the number full shares of Holding Company
Common Stock for which the shares of Savings Bank Common Stock theretofore
represented by the certificate or certificates so surrendered shall have been
converted as provided in Section 3(a) hereof. The Exchange Agent shall mail to
each holder of record of an outstanding certificate which immediately prior to
the Effective Date evidenced shares of Savings Bank Common Stock, and which is
to be exchanged for Holding Company Common Stock as provided in Section 3(a)
hereof, a form of letter of transmittal which shall specify that delivery shall
be effected, and risk of loss and title to such certificate shall pass, only
upon delivery of such certificate
Annex B-2
<PAGE>
to the Exchange Agent advising such holder of the terms of the exchange effected
by the Reorganization and of the procedure for surrendering to the Exchange
Agent such certificate in exchange for certificate or certificates evidencing
Holding Company Common Stock.
(b) No holder of a certificate theretofore represent shares of Savings
Bank Common Stock shall be entitled to receive any dividends in respect of the
Holding Company Common Stock into which such shares shall have been converted by
virtue of the Bank Merger until the certificate representing such shares of
Savings Bank Common Stock is surrendered in exchange for certificates
representing shares of Holding Company Common Stock. In the event that dividends
are declared and paid by the Holding Company in respect of Holding Company
Common Stock after the Effective Date but prior to surrender of certificates
representing shares of Savings Bank Common Stock, dividends payable in respect
of shares of Holding Company Common Stock not then issued shall accrue (without
interest). Any such dividends shall be paid (without interest) upon surrender of
the certificates representing such shares of Savings Bank Common Stock. The
Holding Company shall be entitled, after the Effective Date, to treat
certificates representing shares of Savings Bank Common Stock as evidencing
ownership of the number of full shares of Holding Company Common Stock into
which the shares of Savings Bank Common Stock represented by such certificates
shall have been converted, notwithstanding the failure on the part of the holder
thereof to surrender such certificates.
(c) The Holding Company shall not be obligated to deliver a certificate or
certificates representing shares of Holding Company Common Stock to which a
holder of Savings Bank Common Stock would otherwise be entitled as a result of
the Reorganization until such holder surrenders the certificate or certificates
representing the shares of Savings Bank Common Stock for exchange as provided in
this Section 4, or, in default thereof, an appropriate Affidavit of Loss and
Indemnification Agreement and/or an indemnity bond as may be required in each
case by the Holding Company. If any certificate evidencing shares of Holding
Company Common Stock is to be issued in a name other than that in which the
Certificate evidencing Savings Bank Common Stock surrendered in exchanged
therefor is registered, it shall be a condition of the issuance thereof that the
certificate so surrendered shall be properly endorsed and otherwise in proper
form for transfer and that the person requesting such exchange pay to the
Exchange Agent any transfer or other tax required by reason of the issuance of a
certificate for shares of Holding Company Common Stock in any name other than
that of the registered holder of the certificate surrendered or otherwise
establish to the satisfaction of the Exchange Agent that such tax has been paid
or is not payable.
(d) If, between the date hereof and the Effective Date, the shares of
Savings Bank Common Stock shall be changed into a different number or class of
shares by reason of any reclassification, recapitalization, split-up,
combination, exchange of shares or readjustment or a stock dividend thereon
shall be declared with a record date within said period, the Exchange Ratio
specified in Section 3(a) hereof shall be adjusted accordingly.
5. RIGHTS OF DISSENT AND APPRAISAL ABSENT. No holders of Savings Bank
Common Stock shall have any dissenter or appraisal rights in connection with the
Reorganization.
6. NAME OF SURVIVING CORPORATION. The name of the Surviving Corporation
shall be "Pulaski Bank, A Federal Savings Bank."
7. DIRECTORS OF THE SURVIVING CORPORATION. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Corporation and applicable law, the number of directors of the Surviving
Corporation shall be seven. The names of those persons who, upon and after the
Effective Date, shall be directors of the Surviving Corporation are set forth
below. Each such director shall serve for the term which expires at the annual
meeting of stockholders of the Surviving Corporation in the year set forth after
his respective name, and until a successor is elected and qualified.
Annex B-3
<PAGE>
<TABLE>
<CAPTION>
Name Term Expires
---- ------------
<S> <C>
William A. Donius 1998
Robert A. Ebel 1998
Michael J. Donius 1999
E. Douglas Britt 1999
Garland A. Dorn 1999
Thomas F. Hack 2000
Dr. Edward J. Howenstein 2000
</TABLE>
The address of each director is 12300 Olive Boulevard, St. Louis, Missouri
63141.
8. OFFICERS OF THE SURVIVING CORPORATION. Upon and after the Effective
Date, until changed in accordance with the Charter and Bylaws of the Surviving
Corporation and applicable law, the officers of the Savings Bank immediately
prior to the Effective Date shall be the officers of the Surviving Corporation.
9. OFFICES. Upon the Effective Date, all offices of the Savings Bank
shall be offices of the Surviving Corporation. As of the Effective Date, the
home office of the Surviving Corporation shall remain at 12300 Olive Street, St.
Louis, Missouri, and the locations of the branch offices of the Surviving
Corporation shall be as follows:
4225 Bayless, St. Louis, Missouri 63123
6955 Parker Road, Florissant, Missouri 63033
3760 S. Grand, St. Louis, Missouri 63118
10756 Sunset Hills Plaza, St. Louis, Missouri 63127
10. CHARTER AND BYLAWS. On and after the Effective Date, the Charter and
Bylaws of the Savings Bank as in effect immediately prior to the Effective Date
shall be the Charter and Bylaws of the Surviving Corporation until amended in
accordance with the terms thereof and applicable law.
11. SAVINGS ACCOUNTS. Upon the Effective Date, any savings accounts of
Interim, without reissue, shall be and become savings accounts of the Surviving
Corporation without change in their respective terms, including, without
limitation, maturity minimum required balances or withdrawal value.
12. STOCK COMPENSATION PLANS. By voting in favor of this Agreement, the
Holding Company shall have approved adoption of the Savings Bank's 1994 Stock
Option Plan and 1994 Management Development and Recognition Plan (collectively,
the "Plans") as plans of the Holding Company and shall have agreed to issue
Holding Company Common Stock in lieu of Savings Bank Common Stock pursuant to
the terms of such Plans. As of the Effective Date, rights outstanding under the
Plans shall be assumed by the Holding Company and thereafter shall be rights
only for shares of Holding Company Common Stock, with each such right being for
a number of shares of Holding Company Common Stock equal to the number of shares
of Savings Bank Common Stack that were available thereunder immediately prior to
the Effective Date times the Exchange Ratio, as defined in the plan of
conversion, and the price of each such right shall be adjusted to reflect the
Exchange Ratio and so that the aggregate purchase price of the right is
unaffected, but with no change in any other term or condition of such right. The
Holding Company shall make appropriate amendments to the Plans to reflect the
adoption of the Plans by the Holding Company without adverse effect upon the
rights outstanding thereunder.
13. STOCKHOLDER APPROVAL. The affirmative votes of the holders of Savings
Bank Common Stock set forth in the Plan of Conversion shall be required to
approve the Plan of Conversion and Agreement and Plan of Reorganization, of
which this Plan of Reorganization is a part, on behalf of the Savings Bank. The
approval of the Holding Company, as the sole holder of the Interim B Common
Stock, shall be required to approve the Plan of Conversion, of which this Plan
of Reorganization is a part, on behalf of Interim B.
Annex B-4
<PAGE>
14. REGISTRATION; OTHER APPROVALS. In addition to the approvals set forth
in Sections 1 and 13 hereof and in the Plan of Conversion, the obligations of
the parties hereto to consummate the Reorganization shall be subject to the
Holding Company Common Stock to be issued hereunder in exchange for Savings Bank
Common Stock being registered under the Securities Act of 1933, as amended, and
registered or qualified under applicable state securities laws, as well as the
receipt of all other approvals, consents or waivers as the parties may deem
necessary or advisable.
15. ABANDONMENT OF PLAN. This Plan of Reorganization may be abandoned by
either the Savings Bank or Interim B at any time before the Effective Date in
the manner set forth in the Plan of Conversion.
16. AMENDMENTS. This Plan of Reorganization may be amended in the manner
set forth in the Plan of Conversion by a subsequent writing signed by the
parties hereto upon the approval of the Board of Directors of each of the
parties hereto.
17. SUCCESSORS. This Plan of Reorganization shall be binding on the
successors of the parties hereto.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Missouri, except to the extent
superseded by the laws of the United States.
IN WITNESS WHEREOF, the Parties hereto have cause this Plan of
Reorganization to be duly executed on its behalf by its officers thereunto duly
authorized, all as of the date first above written.
Attest: PULASKI BANK, A FEDERAL SAVINGS BANK
________________________ By: _________________________
Corporate Secretary President
Attest: PULASKI FINANCIAL CORP.
__________________________ By: _________________________
Corporate Secretary President
Attest: PULASKI INTERIM "B" BANK,
A FEDERAL SAVINGS BANK
__________________________ By: _________________________
Corporate Secretary President
Annex B-5
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
PULASKI FINANCIAL CORP.
ARTICLE I
NAME
The name of the corporation is Pulaski Financial Corp. (herein the
"Corporation").
ARTICLE II
REGISTERED OFFICE
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, Corporation Trust Center, in the City of Wilmington,
County of New Castle. The name of the Corporation's registered agent at such
address is The Corporation Trust Company.
ARTICLE III
POWERS
The purpose for which the Corporation is organized is to engage in any
lawful act or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware. The Corporation shall have all the
powers of a corporation organized under the General Corporation Law of the State
of Delaware.
ARTICLE IV
TERM
The Corporation is to have perpetual existence.
ARTICLE V
INCORPORATORS
The name and mailing address of the incorporator are:
Name Mailing Address
---- ---------------
William A. Donius 12300 Olive Boulevard
St. Louis, MO 63141
ARTICLE VI
INITIAL DIRECTORS
The number of directors constituting the initial board of directors of the
Corporation is seven, and the names and addresses of the persons who are to
serve as the initial directors until their successors are elected and qualified,
together with the classes of directorships to which such persons have been
assigned, are:
<PAGE>
Name Address Class
- ---- ------- -----
William A. Donius 12300 Olive Boulevard I
St. Louis, Missouri 63141
Robert A. Ebel 12300 Olive Boulevard I
St. Louis, Missouri 63141
Michael J. Donius 12300 Olive Boulevard II
St. Louis, Missouri 63141
E. Douglas Britt 12300 Olive Boulevard II
St. Louis, Missouri 63141
Garland A. Dorn 12300 Olive Boulevard II
St. Louis, Missouri 63141
Thomas F. Hack 12300 Olive Boulevard III
St. Louis, Missouri 63141
Dr. Edward J. Howenstein 12300 Olive Boulevard III
St. Louis, Missouri 63141
ARTICLE VII
CAPITAL STOCK
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is 26,000,000 consisting of:
1. 1,000,000 shares of Preferred Stock, par value one cent ($.01)
per share ("Preferred Stock"); and
2. 25,000,000 shares of Common Stock, par value one cent ($.01) per
share ("Common Stock").
B. The board of directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred Stock
in series, and by filing a certificate pursuant to the applicable law of the
State of Delaware (such certificate being hereinafter referred to as a
"Preferred Stock Designation"), to establish from time to time the number of
shares to be included in each such series, and to fix the designation, powers,
preferences, and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of authorized
shares of Preferred Stock may be increased or decreased (but not below the
number of shares thereof then outstanding) by the affirmative vote of the
holders of a majority of the Common Stock, without a vote of the holders of the
Preferred Stock, or of any series thereof, unless a vote of any such holders is
required pursuant to the terms of any Preferred Stock Designation.
C. 1. Notwithstanding any other provision of this Certificate, 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
2
<PAGE>
excess of the Limit, unless a majority of the Whole Board (as hereinafter
defined) shall have by resolution granted in advance such entitlement or
permission. The number of votes which may be cast by any record owner by virtue
of the provisions hereof in respect of common stock beneficially owned by such
person owning shares in excess of the Limit shall be a number equal to the total
number of votes which a single record owner of all common stock owned by such
person would be entitled to cast, multiplied by a fraction, the numerator of
which is the number of shares of such class or series which are both
beneficially owned by such person and owned of record by such record owner and
the 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 VII.
(a) "Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the Securities Exchange Act of
1934, as in effect on the date of filing of this Certificate.
(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 provision thereto,
pursuant to said Rule 13d-3 as in effect on the date of filing of this
Certificate; provided, however, that a person shall, in any event, also be
-------- -------
deemed the "beneficial owner" of any common stock:
(i) which such person or any of its affiliates
beneficially owns, directly or indirectly; or
(ii) which such person or any of its affiliates has (A) 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 subparagraphs
A(1)(a) through (h) of Article XIV or upon the exercise of conversion rights,
exchange rights, warrants, or options or otherwise, or (B) 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
(iii) which are beneficially owned, directly or indirectly,
by any other person with which such first mentioned person or any of its
affiliates acts as a partnership, limited partnership, syndicate or other group
pursuant to any agreement, arrangement or understanding for the purpose of
acquiring, holding, voting or disposing of any shares of capital stock of this
Corporation; and provided further, however, that (i) 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 of 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 (ii) neither any employee stock ownership or similar
plan of this Corporation or any subsidiary of this Corporation, nor any trustee
with respect thereto or any Affiliate of such trustee (solely by reason of such
capacity of such trustee), shall be deemed, for any purposes hereof, to
beneficially own any common stock held under any such plan. For purposes of
computing the percentage beneficial ownership of common stock of a person, the
outstanding common stock shall include shares deemed owned by such person
through application of this subsection but shall not include any other common
stock which may be issuable by this 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.
3
<PAGE>
(c) A "person" shall mean any individual, firm, corporation, or
other entity.
(d) "Whole Board" shall mean the total number of directors which
the Corporation would have if there were no vacancies on the board of directors.
3. The board of directors shall have the power to construe and apply
the provisions of this Section and to make all determinations necessary or
desirable to implement such provisions, including but not limited to matters
with respect to (i) the number of shares of common stock beneficially owned by
any person, (ii) whether a person is an affiliate of another, (iii) whether a
person has an agreement, arrangement, or understanding with another as to the
matters referred to in the definition of beneficial ownership, (iv) the
application of any other definition or operative provision of this Section to
the given facts, or (v) any other matter relating to the applicability or effect
of this Section.
4. The board of directors shall have the right to demand that any
person who is reasonably believed to beneficially own common stock in excess of
the Limit (or holds of record common stock beneficially owned by any person in
excess of the Limit) supply the Corporation with complete information as to (i)
the record owner(s) of all shares beneficially owned by such person who is
reasonably believed to own shares in excess of the Limit, and (ii) any other
factual matter relating to the applicability or effect of this section as may
reasonably be required of such person.
5. Except as otherwise provided by law or expressly provided in this
Section C, the presence, in person or by proxy, of the holders of record of
shares of capital stock of the Corporation entitling the holders thereof to cast
a majority of the votes (after giving effect, if required, to the provisions of
this Section C) entitled to be cast by the holders of shares of capital stock of
the Corporation entitled to vote shall constitute a quorum at all meetings of
the stockholders, and every reference in this Certificate to a majority or other
proportion of capital stock (or the holders thereof) for purposes of determining
any quorum requirement or any requirement for stockholder consent or approval
shall be deemed to refer to such majority or other proportion of the votes (or
the holders thereof) then entitled to be cast in respect of such capital stock.
6. Any constructions, applications, or determinations made by the
board of directors pursuant to this Section in good faith and on the basis of
such information and assistance as was then reasonably available for such
purpose shall be conclusive and binding upon the Corporation and its
stockholders.
7. In the event any provision (or portion thereof) of this Section C
shall be found to be invalid, prohibited or unenforceable for any reason, the
remaining provisions (or portions thereof) of this Section shall remain in full
force and effect, and shall be construed as if such invalid, prohibited or
unenforceable provision had been stricken herefrom or otherwise rendered
inapplicable, it being the intent of this Corporation and its stockholders that
each such remaining provision (or portion thereof) of this Section C remain, to
the fullest extent permitted by law, applicable and enforceable as to all
stockholders, including stockholders owning an amount of stock over the Limit,
notwithstanding any such finding.
ARTICLE VIII
PREEMPTIVE RIGHTS
No holder of any of the shares of any class or series of stock or of
options, warrants or other rights to purchase shares of any class or series of
stock or of other securities of the Corporation shall have any preemptive right
to purchase or subscribe for any unissued stock of any class or series, or any
unissued bonds, certificates of indebtedness, debentures or other securities
convertible into or exchangeable for stock of any class or series or carrying
any right to purchase stock of any class or series; but any such unissued stock,
bonds, certificates of indebtedness, debentures or other securities convertible
into or exchangeable for stock or carrying any right to purchase stock may be
issued pursuant to
4
<PAGE>
resolution of the board of directors of the Corporation to such persons, firms,
corporations or associations, whether or not holders thereof, and upon such
terms as may be deemed advisable by the board of directors in the exercise of
its sole discretion.
ARTICLE IX
REPURCHASE OF SHARES
The Corporation may from time to time, pursuant to authorization by the
board of directors of the Corporation and without action by the stockholders,
purchase or otherwise acquire shares of any class, bonds, debentures, notes,
scrip, warrants, obligations, evidences of indebtedness, or other securities of
the Corporation in such manner, upon such terms, and in such amounts as the
board of directors shall determine; subject, however, to such limitations or
restrictions, if any, as are contained in the express terms of any class of
shares of the Corporation outstanding at the time of the purchase or acquisition
in question or as are imposed by law.
ARTICLE X
MEETINGS OF STOCKHOLDERS; CUMULATIVE VOTING
A. Notwithstanding any other provision of this Certificate or the Bylaws
of the Corporation, no action required to be taken or which may be taken at any
annual or special meeting of stockholders of the Corporation may be taken
without a meeting, and the power of stockholders to consent in writing, without
a meeting, to the taking of any action is specifically denied.
B. Special meetings of the stockholders of the Corporation for any
purpose or purposes may be called at any time by the board of directors of the
Corporation, or by a committee of the board of directors which has been duly
designated by the board of directors and whose powers and authorities, as
provided in a resolution of the board of directors or in the Bylaws of the
Corporation, include the power and authority to call such meetings, but such
special meetings may not be called by any other person or persons.
C. There shall be no cumulative voting by stockholders of any class or
series in the election of directors of the Corporation.
D. Meetings of stockholders may be held at such place as the Bylaws may
provide.
ARTICLE XI
NOTICE FOR NOMINATIONS AND PROPOSALS
A. Nominations for the election of directors and proposals for any new
business to be taken up at any annual or special meeting of stockholders may be
made by the board of directors of the Corporation or by any stockholder of the
Corporation entitled to vote generally in the election of directors. In order
for a stockholder of the Corporation to make any such nominations and/or
proposals, he or she shall give notice thereof in writing, delivered or mailed
by first class United States mail, postage prepaid, to the Secretary of the
Corporation not less than thirty days nor more than sixty days prior to any such
meeting; provided, however, that if less than thirty-one days' notice of the
meeting is given to stockholders, such written notice shall be delivered or
mailed, as prescribed, to the Secretary of the Corporation not later than the
close of the tenth day following the day on which notice of the meeting was
mailed to stockholders. Each such notice given by a stockholder with respect to
nominations for election of directors shall set forth (i) the name, age,
business address and, if known, residence address of each nominee proposed in
such notice, (ii) the principal occupation or employment of each such nominees,
(iii) the number of shares of stock of the Corporation which are beneficially
owned by each such nominee, (iv) such other information as would be required to
be included
5
<PAGE>
in a proxy statement soliciting proxies for the election of the proposed nominee
pursuant to Regulation 14A of the Securities Exchange Act of 1934, as amended,
including, without limitation, such person's written consent to being named in
the proxy statement as a nominee and to serving as a director, if elected, and
(v) as to the stockholder giving such notice (a) his name and address as they
appear on the Corporation's books and (b) the class and number of shares of the
Corporation which are beneficially owned by such stockholder. In addition, the
stockholder making such nomination shall promptly provide any other information
reasonably requested by the Corporation.
B. Each such notice given by a stockholder to the Secretary with respect
to business proposals to bring before a meeting shall set forth in writing as to
each matter: (i) a brief description of the business desired to be brought
before the meeting and the reasons for conducting such business at the meeting;
(ii) the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business; (iii) the class and number of shares of the
Corporation which are beneficially owned by the stockholder; and (iv) any
material interest of the stockholder in such business. Notwithstanding anything
in this Certificate to the contrary, no business shall be conducted at the
meeting except in accordance with the procedures set forth in this Article.
C. The Chairman of the annual or special meeting of stockholders may, if
the facts warrant, determine and declare to the meeting that a nomination or
proposal was not made in accordance with the foregoing procedure, and, if the
Chairman should so determine, the Chairman shall so declare to the meeting and
the defective nomination or proposal shall be disregarded and laid over for
action at the next succeeding adjourned, special or annual meeting of the
stockholders taking place thirty days or more thereafter. This provision shall
not require the holding of any adjourned or special meeting of stockholders for
the purpose of considering such defective nomination or proposal.
ARTICLE XII
DIRECTORS
A. Number; Vacancies. The number of directors of the Corporation shall
-----------------
be such number, not less than 5 nor more than 15 (exclusive of directors, if
any, to be elected by holders of preferred stock of the Corporation, voting
separately as a class), as shall be provided from time to time in or in
accordance with the Bylaws; provided, however, that no decrease in the number of
directors shall have the effect of shortening the term of any incumbent
director, and provided further, that no action shall be taken to decrease or
increase the number of directors from time to time unless at least two-thirds of
the directors then in office shall concur in said action. Vacancies in the
board of directors of the Corporation, however caused, and newly created
directorships may be filled only by a vote of two-thirds of the directors then
in office, whether or not a quorum, and any director so chosen shall hold office
for a term expiring at the annual meeting of stockholders at which the term of
the class to which the director has been chosen expires and when the director's
successor is elected and qualified.
B. Classified Board. The board of directors of the Corporation shall be
----------------
divided into three classes of directors which shall be designated Class I, Class
II and Class III. The members of each class shall be elected for a term of
three years and until their successors are elected and qualified. Such classes
shall be as nearly equal in number as the then total number of directors
constituting the entire board of directors shall permit, with the terms of
office of all members of one class expiring each year. At the first annual
meeting of stockholders, directors in Class I shall be elected to hold office
for a term expiring at the third succeeding annual meeting thereafter. At the
second annual meeting of stockholders, directors of Class II shall be elected to
hold office for a term expiring at the third succeeding meeting thereafter. At
the third annual meeting of stockholders, directors of Class III shall be
elected to hold office for a term expiring at the third succeeding meeting
thereafter. Thereafter, at each succeeding annual meeting, directors of each
class shall be elected for three year terms. Notwithstanding the foregoing, the
director whose term shall expire at any annual meeting shall continue to serve
until such time as his successor shall have been duly elected and shall have
qualified unless his position on the board of directors shall have been
abolished by action taken to reduce the size of the board of directors prior to
said meeting.
6
<PAGE>
Should the number of directors of the Corporation be reduced, the
directorship(s) eliminated shall be allocated among classes as appropriate so
that the number of directors in each class is as nearly as equal as possible.
The board of directors shall designate, by the name of the incumbent(s), the
position(s) to be abolished. Notwithstanding the foregoing, no decrease in the
number of directors shall have the effect of shortening the term of any
incumbent director. Should the number of directors of the Corporation be
increased, the additional directorships shall be allocated among classes as
appropriate so that the number of directors in each class is as nearly as equal
as possible.
Whenever the holders of any one or more series of preferred stock of the
Corporation shall have the right, voting separately as a class, to elect one or
more directors of the Corporation, the board of directors shall consist of said
directors so elected in addition to the number of directors fixed as provided
above in this Article XII. Notwithstanding the foregoing, and except as
otherwise may be required by law, whenever the holders of any one or more series
of preferred stock of the Corporation shall have the right, voting separately as
a class, to elect one or more directors of the Corporation, the terms of the
director or directors elected by such holders shall expire at the next
succeeding annual meeting of stockholders.
ARTICLE XIII
REMOVAL OF DIRECTORS
Notwithstanding any other provision of this Certificate or the Bylaws of
the Corporation, any director or the entire board of directors of the
Corporation may be removed, at any time, but only for cause and only by the
affirmative vote of the holders of at least 80% of the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors (considered for this purpose as one class) cast at a meeting of the
stockholders called for that purpose. Notwithstanding the foregoing, whenever
the holders of any one or more series of preferred stock of the Corporation
shall have the right, voting separately as a class, to elect one or more
directors of the Corporation, the preceding provisions of this Article XIII
shall not apply with respect to the director or directors elected by such
holders of preferred stock.
ARTICLE XIV
APPROVAL OF CERTAIN BUSINESS COMBINATIONS
The stockholder vote required to approve Business Combinations (as
hereinafter defined) shall be as set forth in this section.
A. 1. Except as otherwise expressly provided in this Article XIV, the
affirmative vote of the holders of (i) at least 80% of the outstanding shares
entitled to vote thereon (and, if any class or series of shares is entitled to
vote thereon separately, the affirmative vote of the holders of at least 80% of
the outstanding shares of each such class or series), and (ii) at least a
majority of the outstanding shares entitled to vote thereon, not including
shares deemed beneficially owned by a Related Person (as hereinafter defined),
shall be required in order to authorize any of the following:
(a) any merger or consolidation of the Corporation with or into
a Related Person (as hereinafter defined);
(b) any sale, lease, exchange, transfer or other disposition,
including without limitation, a mortgage, or any other security device, of all
or any Substantial Part (as hereinafter defined) of the assets of the
Corporation (including without limitation any voting securities of a subsidiary)
or of a subsidiary, to a Related Person;
(c) any merger or consolidation of a Related Person with or into
the Corporation or a subsidiary of the Corporation;
7
<PAGE>
(d) any sale, lease, exchange, transfer or other disposition of
all or any Substantial Part of the assets of a Related Person to the Corporation
or a subsidiary of the Corporation;
(e) the issuance of any securities of the Corporation or a
subsidiary of the Corporation to a Related Person;
(f) the acquisition by the Corporation or a subsidiary of the
Corporation of any securities of a Related Person;
(g) any reclassification of the common stock of the Corporation,
or any recapitalization involving the common stock of the Corporation; and
(h) any agreement, contract or other arrangement providing for
any of the transactions described in this Article.
2. Such affirmative vote shall be required notwithstanding any other
provision of this Certificate, any provision of law, or any agreement with any
regulatory agency or national securities exchange which might otherwise permit a
lesser vote or no vote.
3. The term "Business Combination" as used in this Article XIV shall
mean any transaction which is referred to in any one or more of subparagraphs
A(1)(a) through (h) above.
B. The provisions of paragraph A shall not be applicable to any
particular Business Combination, and such Business Combination shall require
only such affirmative vote as is required by any other provision of this
Certificate, any provision of law, or any agreement with any regulatory agency
or national securities exchange, if the Business Combination shall have been
approved by a two-thirds vote of the Continuing Directors (as hereinafter
defined); provided, however, that such approval shall only be effective if
obtained at a meeting at which a Continuing Director Quorum (as hereinafter
defined) is present.
C. For the purposes of this Article XIV the following definitions apply:
1. The term "Related Person" shall mean and include (a) any
individual, corporation, partnership or other person or entity which together
with its "affiliates" (as that term is defined in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934, as amended),
"beneficially owns" (as that term is defined in Rule 13d-3 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as amended) in the
aggregate 10% or more of the outstanding shares of the common stock of the
Corporation; and (b) any "affiliate" (as that term is defined in Rule 12b-2
under the Securities Exchange Act of 1934, as amended) of any such individual,
corporation, partnership or other person or entity. Without limitation, any
shares of the common stock of the Corporation which any Related Person has the
right to acquire pursuant to any agreement, or upon exercise or conversion
rights, warrants or options, or otherwise, shall be deemed "beneficially owned"
by such Related Person.
2. The term "Substantial Part" shall mean more than 25% of the total
assets of the Corporation, as of the end of its most recent fiscal year ending
prior to the time the determination is made.
3. The term "Continuing Director" shall mean any member of the board
of directors of the Corporation who is unaffiliated with the Related Person and
was a member of the board prior to the time that the Related Person became a
Related Person, and any successor of a Continuing Director who is unaffiliated
with the Related Person and is recommended to succeed a Continuing Director by a
majority of Continuing Directors then on the board.
4. The term "Continuing Director Quorum" shall mean two-thirds of
the Continuing Directors capable of exercising the powers conferred on them.
8
<PAGE>
ARTICLE XV
EVALUATION OF BUSINESS COMBINATIONS
In connection with the exercise of its judgment in determining what is in
the best interests of the Corporation and of the stockholders, when evaluating a
Business Combination (as defined in Article XIV) or a tender or exchange offer,
the board of directors of the Corporation shall, in addition to considering the
adequacy of the amount to be paid in connection with any such transaction,
consider all of the following factors and any other factors which it deems
relevant; (i) the social and economic effects of the transaction on the
Corporation and its subsidiaries, employees, depositors, loan and other
customers, creditors and other elements of the communities in which the
Corporation and its subsidiaries operate or are located; (ii) the business and
financial condition and earnings prospects of the acquiring person or entity,
including, but not limited to, debt service and other existing financial
obligations, financial obligations to be incurred in connection with the
acquisition and other likely financial obligations of the acquiring person or
entity and the possible effect of such conditions upon the Corporation and its
subsidiaries and the other elements of the communities in which the Corporation
and its subsidiaries operate or are located; and (iii) the competence,
experience, and integrity of the acquiring person or entity and its or their
management.
ARTICLE XVI
INDEMNIFICATION
A. Persons. The Corporation shall indemnify, to the extent provided in
-------
paragraphs B, D or F:
1. any person who is or was a director or officer of the
Corporation; and
2. any person who serves or served at the Corporation's request as a
director, officer, employee, agent, partner or trustee of another corporation,
partnership, joint venture, trust or other enterprise.
B. Extent -- Derivative Suits. In case of a threatened, pending or
--------------------------
completed action or suit by or in the right of the Corporation against a person
named in paragraph A by reason of his holding a position named in paragraph A,
the Corporation shall indemnify such person if such person satisfies the
standard in paragraph C, for expenses (including attorneys' fees but excluding
amounts paid in settlement) actually and reasonably incurred by such person in
connection with the defense or settlement of the action or suit.
C. Standard -- Derivative Suits. In case of a threatened, pending or
----------------------------
completed action or suit by or in the right of the Corporation, a person named
in paragraph A shall be indemnified only if:
1. such person is successful on the merits or otherwise; or
2. such person acted in good faith in the transaction which is the
subject of the suit or action, and in a manner such person reasonably believed
to be in, or not opposed to, the best interest of the Corporation, including,
but not limited to, the taking of any and all actions in connection with the
Corporation's response to any tender offer or any offer or proposal of another
party to engage in a Business Combination (as defined in Article XIV) not
approved by the board of directors. However, such person shall not be
indemnified in respect of any claim, issue or matter as to which such person has
been adjudged liable to the Corporation unless (and only to the extent that) the
court in which the suit was brought shall determine, upon application, that
despite the adjudication but in view of all the circumstances, such person is
fairly and reasonably entitled to indemnity for such expenses as the court shall
deem proper.
D. Extent -- Nonderivative Suits. In case of a threatened, pending or
-----------------------------
completed suit, action or proceeding (whether civil, criminal, administrative or
investigative), other than a suit by or in the right of the Corporation,
together
9
<PAGE>
hereafter referred to as a nonderivative suit, against a person named in
paragraph A by reason of his holding a position named in paragraph A, the
Corporation shall indemnify such person if such person satisfies the standard in
paragraph E, for amounts actually and reasonably incurred by such person in
connection with the defense or settlement of the nonderivative suit, including,
but not limited to (i) expenses (including attorneys' fees), (ii) amounts paid
in settlement, (iii) judgments, and (iv) fines.
E. Standard -- Nonderivative Suits. In case of a nonderivative suit, a
-------------------------------
person named in paragraph A shall be indemnified only if:
1. such person is successful on the merits or otherwise; or
2. such person acted in good faith in the transaction which is the
subject of the nonderivative suit and in a manner such person reasonably
believed to be in, or not opposed to, the best interests of the Corporation,
including, but not limited to, the taking of any and all actions in connection
with the Corporation's response to any tender offer or any offer or proposal of
another party to engage in a Business Combination (as defined in Article XIV of
this Certificate) not approved by the board of directors and, with respect to
any criminal action or proceeding, such person had no reasonable cause to
believe his conduct was unlawful. The termination of a nonderivative suit by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
---------------
its equivalent shall not, in itself, create a presumption that the person failed
to satisfy the standard of this paragraph E.2.
F. Determination That Standard Has Been Met. A determination that the
----------------------------------------
standard of paragraph C or E has been satisfied may be made by a court or,
except as stated in paragraph C.2 (second sentence), the determination may be
made by:
1. a majority vote of the directors of the Corporation who are not
parties to the action, suit or proceeding, even though less than a quorum; or
2. independent legal counsel (appointed by a majority of the
disinterested directors of the Corporation, whether or not a quorum) in a
written opinion; or
3. the stockholders of the Corporation.
G. Proration. Anyone making a determination under paragraph F may
---------
determine that a person has met the standard as to some matters but not as to
others, and may reasonably prorate amounts to be indemnified.
H. Advance Payment. The Corporation may pay in advance any expenses
---------------
(including attorneys' fees) which may become subject to indemnification under
paragraphs A through G if (i) the board of directors authorizes the specific
payment and (ii) the person receiving the payment undertakes in writing to repay
the same if it is ultimately determined that such person is not entitled to
indemnification by the Corporation under paragraphs A through G.
I. Nonexclusive. The indemnification and advance of expenses provided by
------------
paragraphs A through H shall not be exclusive of any other rights to which a
person may be entitled by law, bylaw, agreement, vote of stockholders or
disinterested directors, or otherwise.
J. Continuation. The indemnification provided by this Article XVI shall
------------
be deemed to be a contract between the Corporation and the persons entitled to
indemnification thereunder, and any repeal or modification of this Article XVI
shall not affect any rights or obligations then existing with respect to any
state of facts then or theretofore existing or any action, suit or proceeding
theretofore or thereafter brought based in whole or in part upon any such state
of facts. The indemnification and advance payment provided by paragraphs A
through H shall continue as to a person who has ceased to hold a position named
in paragraph A and shall inure to such person's heirs, executors and
administrators.
10
<PAGE>
K. Insurance. The Corporation may purchase and maintain insurance on
---------
behalf of any director, officer, employee or agent of the Corporation or
subsidiary or affiliate or another corporation, partnership, joint venture,
trust or other enterprise, against any liability incurred by such person in any
such position, or arising out of such person's status as such, whether or not
the Corporation would have power to indemnify such person against such liability
under paragraphs A through H.
L. Savings Clause. If this Article XVI or any portion hereof shall be
--------------
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director, officer, employee, and
agent of the Corporation as to costs, charges, and expenses (including
attorneys' fees), judgments, fines, and amounts paid in settlement with respect
to any action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, including an action by or in the right of the Corporation to the
full extent permitted by any applicable portion of this Article XVI that shall
not have been invalidated and to the full extent permitted by applicable law.
ARTICLE XVII
ELIMINATION OF DIRECTORS' LIABILITY
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except: (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
made in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the General Corporation Law of the
State of Delaware, or (iv) for any transaction from which a director derived an
improper personal benefit. If the General Corporation Law of the State of
Delaware is amended after the date of filing of this Certificate 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 General Corporation Law of the State of Delaware, 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.
ARTICLE XVIII
AMENDMENT OF BYLAWS
In furtherance and not in limitation of the powers conferred by statute,
the board of directors of the Corporation is expressly authorized to make,
repeal, alter, amend and rescind the Bylaws of the Corporation by a two-thirds
vote of the board. Notwithstanding any other provision of this Certificate or
the Bylaws of the Corporation (and notwithstanding the fact that some lesser
percentage may be specified by law), the Bylaws shall not be adopted, repealed,
altered, amended or rescinded by the stockholders of the Corporation except by
the vote of the holders of not less than 80% of the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors (considered for this purpose as one class) cast at a meeting of the
stockholders called for that purpose (provided that notice of such proposed
adoption, repeal, alteration, amendment or rescission is included in the notice
of such meeting), or, as set forth above, by the board of directors.
ARTICLE XIX
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right to repeal, alter, amend or rescind any
provision contained in this Certificate in the manner now or hereafter
prescribed by law, and all rights conferred on stockholders herein are granted
subject to this reservation. Notwithstanding the foregoing, the provisions set
forth in Articles X, XI, XII, XIII, XIV, XV, XVI,
11
<PAGE>
XVII, XVIII and this Article XIX may not be repealed, altered, amended or
rescinded in any respect unless the same is approved by the affirmative vote of
the holders of not less than 80% of the outstanding shares of capital stock of
the Corporation entitled to vote generally in the election of directors
(considered for this purpose as a single class) cast at a meeting of the
stockholders called for that purpose (provided that notice of such proposed
adoption, repeal, alteration, amendment or rescission is included in the notice
of such meeting).
* * *
12
<PAGE>
THE UNDERSIGNED, being the incorporator hereinbefore named, for the purpose
of forming a corporation pursuant to the General Corporation Law of the State of
Delaware, do make this Certificate, hereby declaring and certifying that this is
my act and deed and the facts herein stated are true, and accordingly have
hereunto set my hand this ____ day of ___________ 1998.
____________________________________
William A. Donius
Incorporator
13
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
PULASKI FINANCIAL CORP.
ARTICLE I
STOCKHOLDERS
SECTION 1. Place of Meetings. All annual and special meetings of
-----------------
stockholders shall be held at such place as the board of directors may determine
and as designated in the notice of such meeting.
SECTION 2. Annual Meeting. A meeting of the stockholders of the
--------------
Corporation for the election of directors and for the transaction of any other
business of the Corporation shall be held annually at such date and time as the
board of directors may determine.
SECTION 3. Special Meetings. Special meetings of the stockholders
----------------
for any purpose or purposes may be called at any time by the majority of the
board of directors or by a committee of the board of directors in accordance
with the provisions of the Corporation's Certificate of Incorporation.
SECTION 4. Conduct of Meetings. Annual and special meetings shall be
-------------------
conducted in accordance with the rules and procedures established by the board
of directors. The board of directors shall designate, when present, either the
chairman of the board or president to preside at such meetings.
SECTION 5. Notice of Meetings. Written notice stating the place,
------------------
date and time of the meeting and, in the case of a special meeting, the purpose
or purposes for which the meeting is called shall be given not less than ten nor
more than sixty days before the meeting to each stockholder of record entitled
to vote at such meeting. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, postage prepaid, addressed to the
stockholder at the address of the stockholder as it appears on the records of
the Corporation. If a stockholder be present at a meeting, or in writing waives
notice thereof before or after the meeting, notice of the meeting to such
stockholder shall be unnecessary. When any stockholders' meeting, either annual
or special, is adjourned for more than thirty days, 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
thirty days or less or of the business to be transacted at such adjourned
meeting, other than an announcement at the meeting at which such adjournment is
taken.
SECTION 6. Voting Lists. A complete list of stockholders entitled to
------------
vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the number
of shares registered in his or her name, shall be open to the examination of any
such stockholder, for any purpose germane to the meeting, during ordinary
business hours for a period of at least ten days prior to the meeting, either at
a place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting, or if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof, and may be
inspected by any stockholder who is present.
SECTION 7. Quorum. A majority of the outstanding shares of the
------
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than a majority of
the outstanding shares are 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 stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
<PAGE>
SECTION 8. Proxies. At all meetings of stockholders, a stockholder
-------
may vote by proxy executed in writing by the stockholder or by his or her duly
authorized attorney in fact. 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 unless
otherwise provided in the proxy.
SECTION 9. Voting. Unless otherwise provided in the Corporation's
------
Certificate of Incorporation, each stockholder shall be entitled to one vote for
each share of stock having voting power held by such stockholder. Directors
shall be elected by a plurality of the votes of the shares present in person or
represented by proxy and entitled to vote at the meeting on the election of
directors. In all matters other than the election of directors, the affirmative
vote of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote and voting thereon shall be the act of the
stockholders, unless the question is one upon which, by express provision of the
applicable statute, the Corporation's Certificate of Incorporation or these
Bylaws, a different vote is required in which case such express provision shall
govern and control the decision of the question.
SECTION 10. Voting of Shares in the Name of Two or More Persons. When
---------------------------------------------------
ownership of stock stands in the name of two or more persons, in the absence of
written directions to the Corporation to the contrary, at any meeting of the
stockholders of the Corporation any one or more of such stockholders 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 name shares of stock stand, the vote or votes to
which these 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,
either in person or by proxy, without a transfer of such shares into his name.
Shares standing in the name of a trustee may be voted by him, either in person
or by proxy, but no trustee shall be entitled to vote shares held by him without
a transfer of such shares into his name. Shares standing in the name of a
receiver may be voted by such receiver, and shares held by or under the control
of a receiver may be voted by such receiver without the transfer thereof into
his name if authority to do so is contained in an appropriate order of the court
or other public authority by which such receiver was appointed.
A stockholder 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 Corporation, 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
Corporation, 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. Inspectors of Election. In advance of any meeting of
----------------------
stockholders, the board of directors may appoint any persons, other than
nominees for office, as inspectors of election to act at such meeting or any
adjournment thereof. The number of inspectors shall be either one or three. If
the board of directors so appoints either one or three inspectors, that
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 make such
appointment at the meeting. 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.
The inspectors shall: ascertain the number of shares outstanding and the
voting power of each; determine the shares represented at the meeting and the
validity of proxies and ballots; count all votes and ballots; determine and
2
<PAGE>
retain for a reasonable period a record of the disposition of any challenges
made to any determination by the inspectors; and certify their determination of
the number of shares represented at the meeting, and their count of all votes
and ballots.
SECTION 13. Director Nominations. No nominations for directors except
--------------------
those made by the board of directors or an authorized committee thereof shall be
voted upon at the annual meeting unless other nominations by stockholders are
made in writing and delivered to the secretary of the Corporation in accordance
with the provisions of the Corporation's Certificate of Incorporation.
SECTION 14. New Business. Any new business to be taken up at the annual
------------
meeting shall be stated in writing and filed with the secretary of the
Corporation in accordance with the provisions of the Corporation's Certificate
of Incorporation. This provision shall not prevent the consideration and
approval or disapproval at the annual meeting of reports of officers, directors
and committees, but in connection with such reports no new business shall be
acted upon at such annual meeting unless stated and filed as provided in the
Corporation's Certificate of Incorporation.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. General Powers. The business and affairs of the Corporation
--------------
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board from among its members who shall,
when present, preside at its meetings.
SECTION 2. Number, Term and Election. The number of directors shall
-------------------------
be fixed from time to time exclusively by a resolution adopted by a majority of
the total number of the Corporation's directors. The board of directors 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 or qualified. One class shall be elected by ballot
annually. The board of directors shall be classified in accordance with the
provisions of the Corporation's Certificate of Incorporation.
SECTION 3. Qualification. Each director shall at all times be the
-------------
beneficial owner of not less than 100 shares of capital stock of the
Corporation.
SECTION 4. 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 stockholders. The board of
directors may provide, by resolution, the time and place for the holding of
additional regular meetings without other notice than such resolution.
SECTION 5. Special Meetings. Special meetings of the board of
----------------
directors may be called by or at the request of the chairman of the board or the
president, or by one-third of the directors. The persons authorized to call
special meetings of the board of directors may fix any place in the State of
Missouri as the place for holding any special meeting of the board of directors
called by such persons. Written notice of any special meeting shall be given to
each director at least two days previous thereto delivered personally or by
telecopier or telegram or at least five days previous thereto 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 United States mail so
addressed, with postage thereon prepaid if mailed or when delivered by
telecopier. 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.
3
<PAGE>
SECTION 6. Participation in Meetings By Conference Telephone. Members
-------------------------------------------------
of the board of directors, or 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. Such participation shall constitute presence in
person at 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 without notice other than announcement at
the meeting.
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 these Bylaws, the
Certificate of Incorporation, or the General Corporation Law of the State of
Delaware.
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 administrative office of the
Corporation addressed to the chairman of the board or the president. Unless
otherwise specified herein, such resignation shall take effect upon receipt
thereof by the chairman of the board or the president.
SECTION 11. Vacancies. Any vacancy occurring in the board of directors
---------
shall be filled in accordance with the provisions of the Corporation's
Certificate of Incorporation. The term of such director shall be in accordance
with the provisions of the Corporation's Certificate of Incorporation.
SECTION 12. Removal of Directors. Any director or the entire board
--------------------
of directors may be removed only in accordance with the provisions of the
Corporation's Certificate of Incorporation.
SECTION 13. Compensation. Directors, as such, may receive a stated
------------
fee for their services. By resolution of the board of directors, a reasonable
fixed sum, and reasonable expenses of attendance, if any, may be allowed for
actual attendance at each regular or special meeting of the board of directors.
Members of either standing or special committees may be allowed such
compensation for actual attendance at committee meetings as the board of
directors may determine. Nothing herein shall be construed to preclude any
director from serving the Corporation in any other capacity and receiving
remuneration therefor.
SECTION 14. Presumption of Assent. A director of the Corporation who
---------------------
is present at a meeting of the board of directors at which action on any
corporate matter is taken shall be presumed to have assented to the action taken
unless his dissent or abstention shall be entered in the minutes of the meeting
or unless he shall file his 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 Corporation
immediately after the adjournment of the meeting. Such right to dissent shall
not apply to a director who votes in favor of such action.
SECTION 15. Advisory Directors. The board of directors may by
------------------
resolution appoint advisory directors or directors emeriti to the board, and
shall have such authority and receive such compensation and reimbursement as the
board of directors shall provide. Advisory directors or directors emeriti shall
not have the authority to participate by vote in the transaction of business.
4
<PAGE>
ARTICLE III
COMMITTEES OF THE BOARD OF DIRECTORS
SECTION 1. Appointment. The board of directors may, by resolution
-----------
adopted by a majority of the full board, designate one or more committees, each
consisting of two or more directors, to serve at the pleasure of the board of
directors. The board of directors may designate one or more directors as
alternate members of any committee, who may replace any absent member at any
meeting of any such committee.
SECTION 2. Authority. Any such committee shall have all the authority
---------
of the board of directors, except to the extent, if any, that such authority
shall be limited by the resolution appointing the committee; and except also
that no committee shall have the authority of the board of directors with
reference to: the declaration of dividends; the amendment of the charter or
bylaws of the Corporation, 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 Corporation otherwise than
in the usual and regular course of its business; a voluntary dissolution of the
Corporation; a revocation of any of the foregoing; the approval of a transaction
in which any member of the committee, directly or indirectly, has any material
beneficial interest; the filling of vacancies on the board of directors or in
any committee; or the appointment of other committees of the board of directors
or members thereof.
SECTION 3. Tenure. Subject to the provisions of Section 8 of this
------
Article III, each member of a 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 committee.
SECTION 4. Meetings. Unless the board of directors shall otherwise
--------
provide, regular meetings of any committee appointed pursuant to this Article
III shall be at such times and places as are determined by the board of
directors, or by any such committee. Special meetings of any such committee may
be held at the principal executive office of the Corporation, or at any place
which has been designated from time to time by resolution of such committee or
by written consent of all members thereof, and may be called by any member
thereof upon not less than one day's notice stating the place, date, and hour of
the meeting, which notice shall been given in the manner provided for the giving
of notice to members of the board of directors of the time and place of special
meetings of the board of directors.
SECTION 5. Quorum. A majority of the members of any committee shall
------
constitute a quorum for the transaction of business at any meeting thereof.
SECTION 6. Action Without a Meeting. Any action required or permitted
------------------------
to be taken by any 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 any such committee.
SECTION 7. Resignations and Removal. Any member of any 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 any committee may resign from any
such committee at any time by giving written notice to the president or
secretary of the Corporation. 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 8. Procedure. Unless the board of directors otherwise
---------
provides, each 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.
5
<PAGE>
ARTICLE IV
OFFICERS
SECTION 1. Positions. The officers of the Corporation shall be a
---------
president, one or more vice presidents, a secretary and a treasurer, each of
whom shall be elected by the board of directors. The board of directors may
also designate the chairman of the board as an officer. The president 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 Corporation. The offices of the secretary and treasurer may be
held by the same person and a vice president may also be either the secretary or
the treasurer. The board of directors may designate one or more vice presidents
as executive vice president or senior vice president. The board of directors
may also elect or authorize the appointment of such other officers as the
business of the Corporation 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
---------------------------
Corporation shall be elected annually by the board of directors at the first
meeting of the board of directors held after each annual meeting of the
shareholders. If the election of officers is not held at such meeting, such
election shall be held as soon thereafter as possible. Each officer shall hold
office until his successor shall have been duly elected and qualified or until
his death or until he shall resign or shall have been removed in the manner
hereinafter provided. Election or appointment of an officer, employee or agent
shall not of itself create contract rights. The board of directors may
authorize the Corporation to enter into an employment contract with any officer
in accordance with state law; 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 IV.
SECTION 3. Removal. Any officer may be removed by vote of two-thirds
-------
of the board of directors whenever, in its judgment, the best interests of the
Corporation will be served thereby, but such removal, other than for cause,
shall be without prejudice to the contract 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 and no officer shall be
prevented from receiving such salary by reason of the fact that he is also a
director of the Corporation.
ARTICLE V
CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 1. Contracts. To the extent permitted by applicable law, and
---------
except as otherwise prescribed by the Corporation's Certificate of Incorporation
or these Bylaws with respect to certificates for shares, the board of directors
may authorize any officer, employee, or agent of the Corporation to enter into
any contract or execute and deliver any instrument in the name of and on behalf
of the Corporation. Such authority may be general or confined to specific
instances.
SECTION 2. Loans. No loans shall be contracted on behalf of the
-----
Corporation 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.
6
<PAGE>
SECTION 3. Checks, Drafts, Etc. All checks, drafts or other orders for
-------------------
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by one or more officers, employees or
agents of the Corporation in such manner as shall from time to time be
determined by resolution of the board of directors.
SECTION 4. Deposits. All funds of the Corporation not otherwise
--------
employed shall be deposited from time to time to the credit of the Corporation
in any of its duly authorized depositories as the board of directors may select.
ARTICLE VI
CERTIFICATES FOR SHARES AND THEIR TRANSFER, ETC.
SECTION 1. Certificates for Shares. The shares of the Corporation
-----------------------
shall be represented by certificates signed by the chairman of the board of
directors or by the president or a vice president and by the treasurer or by the
secretary of the Corporation, and may be sealed with the seal of the Corporation
or a facsimile thereof. Any or all of the signatures upon a certificate may be
facsimiles if the certificate is countersigned by a transfer agent, or
registered by a registrar, other than the Corporation itself or an employee of
the Corporation. If any officer who has signed or whose facsimile signature has
been placed upon such certificate shall have ceased to be such officer before
the certificate is issued, it may be issued by the Corporation with the same
effect as if he were such officer at the date of its issue.
SECTION 2. Form of Share Certificates. Stock certificates of the
--------------------------
Corporation shall be in such form as approved by the board of directors.
SECTION 3. Payment for Shares. No certificate shall be issued for
------------------
any shares until such share is fully paid.
SECTION 4. Form of Payment for Shares. The consideration for the
--------------------------
issuance of shares shall be paid in accordance with the provisions of the
Corporation's Certificate of Incorporation.
SECTION 5. Transfer of Shares. Transfer of shares of capital stock
------------------
of the Corporation shall be made only on its stock transfer books. Authority
for such transfer shall be given only by the holder of record thereof or by his
legal representative, who shall furnish proper evidence of such authority, or by
his attorney thereunto authorized by power of attorney duly executed and filed
with the Corporation. 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 Corporation shall be deemed by
the Corporation to be the owner thereof for all purposes.
SECTION 6. Stock Ledger. The stock ledger of the Corporation shall
------------
be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by Section 6 of Article I or the books of the
Corporation, or to vote in person or by proxy at any meeting of stockholders.
SECTION 7. Determination of Stockholders of Record.
---------------------------------------
(a) Meetings of Stockholders. In order that the Corporation may determine
------------------------
the stockholders entitled to notice of or to vote at any meeting of stockholders
or any adjournment thereof, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors, and which record date shall
not be more than sixty nor less than ten days before the date of such meeting.
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
7
<PAGE>
on which notice is given, or, if notice is waived, at the close of business on
the day next proceeding the day on which the meeting is held. 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 unless the board of
directors fixes a new record date for the adjourned meeting.
(b) Dividends. In order that the Corporation may determine the
---------
stockholders entitled to receive payment of any dividend or other distribution
or allotment of any rights or the stockholders entitled 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 upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty days
prior to such action. If no record date is fixed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the board of directors adopts the resolution relating
thereto.
SECTION 8. Lost Certificates. The board of directors may direct a
-----------------
new certificate to be issued in place of any certificate theretofore issued by
the Corporation alleged to have been lost, stolen, or destroyed, upon the making
of an affidavit of that fact by the person claiming the certificate of stock to
be lost, stolen, or destroyed. When authorizing such issue of a new
certificate, the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen, or
destroyed certificate, or his legal representative, to give the Corporation a
bond in such sum as it may direct as indemnity against any claim that may be
made against the Corporation with respect to the certificate alleged to have
been lost, stolen, or destroyed.
SECTION 9. Beneficial Owners. The Corporation shall be entitled to
-----------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner, and shall not be
bound to recognize any equitable or other claim to or interest in such shares on
the part of any other person, whether or not the Corporation shall have express
or other notice thereof, except as otherwise provided by law.
ARTICLE VIII
FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Corporation shall end on the 30th day of September
of each year. The Corporation shall be subject to an annual audit as of the end
of its fiscal year by independent public accountants appointed by and
responsible to the board of directors.
ARTICLE IX
DIVIDENDS
Subject to the provisions of the Certificate of Incorporation and
applicable law, the board of directors may, at any regular or special meeting,
declare dividends on the Corporation's outstanding capital stock. Dividends may
be paid in cash, in property or in the Corporation's own stock.
ARTICLE X
CORPORATE SEAL
The corporate seal of the Corporation shall be in such form as the board
of directors shall prescribe.
8
<PAGE>
ARTICLE XI
AMENDMENTS
In accordance with the Corporation's Certificate of Incorporation, these
Bylaws may be repealed, altered, amended or rescinded by the stockholders of the
Corporation only by vote of not less than 80% of the outstanding shares of
capital stock of the Corporation entitled to vote generally in the election of
directors (considered for this purpose as one class) cast at a meeting of the
stockholders called for that purpose (provided that notice of such proposed
repeal, alteration, amendment or rescission is included in the notice of such
meeting). In addition, the board of directors may repeal, alter, amend or
rescind these Bylaws by vote of two-thirds of the board of directors at a legal
meeting held in accordance with the provisions of these Bylaws.
* * *
9
<PAGE>
EXHIBIT 4
PULASKI FINANCIAL CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
COMMON STOCK CUSIP
See Reverse For
Certain Definitions
THIS CERTIFIES THAT
is the owner of
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, $.01 PAR VALUE PER SHARE,
OF
Pulaski Financial Corp., a stock corporation incorporated under the laws of the
State of Delaware. 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. Such shares are non-
withdrawable and not insurable. Such shares are not insured by the Federal
government. The Certificate and shares represented hereby are issued and shall
be held subject to all provisions of the Certificate of Incorporation and Bylaws
of the Corporation and any amendments thereto (copies of which are on file with
the Transfer Agent), to all of which provisions the holder by acceptance hereof,
assents.
IN WITNESS WHEREOF, Pulaski Financial Corp. 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.
CORPORATE SECRETARY PRESIDENT
TRANSFER AGENT
[SEAL]
<PAGE>
Pulaski Financial Corp.
The shares represented by this Certificate are issued subject to all the
provisions of the Certificate of Incorporation and Bylaws of Pulaski Financial
Corp. ("Corporation") as from time to time amended (copies of which are on file
with the Transfer Agent and at the principal executive offices of the
Corporation).
The shares represented by this Certificate are subject to a limitation
contained in the Certificate of Incorporation to the effect that in no event
shall any record owner of any outstanding common stock which is beneficially
owned, directly or indirectly, by a person who beneficially owns in excess of
10% of the outstanding shares of common stock (the "Limit") be entitled or
permitted to vote in respect of the shares held in excess of the Limit, unless a
majority of the whole Board of Directors, as defined, shall have by resolution
granted in advance such entitlement or permission.
The Board of Directors of the Corporation is authorized by resolution(s),
from time to time adopted, to provide for the issuance of preferred stock in
series and to fix and state the powers, designations, preferences and relative,
participating, optional or other special rights of the shares of each such
series and the qualifications, limitations and restrictions thereof. The
Corporation will furnish to any shareholder upon request and without charge a
full description of each class of stock and any series thereof.
The shares represented by this Certificate may not be cumulatively voted on
any matter. The affirmative vote of the holders of at least 80% of the voting
stock of the Corporation, voting together as a single class, shall be required
to approve certain business combinations and other transactions, pursuant to the
Certificate of Incorporation, or to amend certain provisions of the Certificate
of Incorporation.
The following abbreviations, when used in the inscription on the face of
this Certificate, shall be construed as through they were written out in full
according to applicable laws or regulations.
TEN COM -as tenants in common
TEN ENT -as tenants by the entireties
JT TEN -as joint tenants with right of survivorship and
not as tenants in common
UNIF GIFT MIN ACT -______Custodian_______ under Uniform Gifts
(Cust) (Minor)
to Minors Act _________
(State)
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 postal zip code, of
assignee
________________________________________________________________________________
_________________________________________________________________________ shares
of the Common Stock evidenced by this Certificate, and do hereby irrevocably
constitute and appoint _______________ Attorney, to transfer the said shares on
the books of the within named Corporation, with full power of substitution.
Dated _________________
_________________________________
Signature
_________________________________
Signature
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.
<PAGE>
EXHIBIT 8.2
RP FINANCIAL, LC.
- ---------------------------------------------
Financial Services Industry Consultants
June 8, 1998
Board of Directors
Pulaski Bancshares, M.H.C.
Pulaski Bank, A Federal Savings Bank
12300 Olive Boulevard
St. Louis, Missouri 63141
Re: Plan of Conversion: Subscription Rights
----------------------------------------
Gentlemen:
All capitalized terms not otherwise defined in this letter have the
meanings given such terms in the Plan of Conversion (the "Plan") adopted by the
Boards of Directors of Pulaski Bank, A Federal Savings Bank (the "Bank") and
Pulaski Bancshares, M.H.C. (the "Mutual Holding Company"). Pursuant to the Plan,
Pulaski Financial Corp. (the "Holding Company") will offer shares of its common
stock.
We understand that "Subscription Rights" to purchase shares of the Holding
Company's common stock are to be issued to: (i) Eligible Account Holders; (ii)
the Bank's ESOP; (iii) Supplemental Eligible Account Holders; and (iv) Other
Members, collectively referred to as the "Recipients". Based solely upon our
observation that the Subscription Rights will be available to such Recipients
without cost, will be legally non-transferable and of short duration, and will
afford the Recipients the right only to purchase shares of the Holding Company's
common stock at the same price as will be paid by members of the general public
in the Direct Community Offering, but without undertaking any independent
investigation of state or federal law or the position of the Internal Revenue
Service with respect to this issue, we are of the belief that, as a factual
matter:
(1) the Subscription Rights will have no ascertainable market value; and,
(2) the price at which the Subscription Rights are exercisable will not be
more or less than the pro forma market value of the shares upon
issuance.
Changes in the local and national economy, the legislative and regulatory
environment, the stock market, interest rates, and other external forces (such
as natural disasters or significant world events) may occur from time to time,
often with great unpredictability and may materially impact the value of thrift
stocks as a whole or the Holding Company's value alone. Accordingly, no
assurance can be given that persons who subscribe to shares of the Holding
Company's common stock in the conversion will thereafter be able to buy or sell
such shares at the same price paid in the Subscription Offering.
Sincerely,
/s/ Gregory E. Dunn
Gregory E. Dunn
Senior Vice President
- --------------------------------------------------------------------------------
WASHINGTON HEADQUARTERS
Rosslyn Center
1700 North Moore Street, Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
<PAGE>
EXHIBIT 10.1
FORM OF EMPLOYMENT AGREEMENT FOR EXECUTIVE OFFICERS
THIS AGREEMENT is made effective as of ________________, 1998, by and
between PULASKI BANK, A FEDERAL SAVINGS BANK (the "BANK"), PULASKI FINANCIAL
CORP. (the "COMPANY"), a Delaware corporation; and _______________
("EXECUTIVE").
WHEREAS, EXECUTIVE serves in a position of substantial responsibility;
WHEREAS, the BANK wishes to assure itself of the services of EXECUTIVE for
the period provided in this Agreement; and
WHEREAS, EXECUTIVE is willing to serve in the employ of the BANK on a full-
time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, EXECUTIVE agrees to serve as
________________ of the BANK. During said period, EXECUTIVE also agrees to
serve, if elected, as an officer and director of the COMPANY or any subsidiary
or affiliate of the COMPANY or the BANK. Executive shall render administrative
and management duties to the BANK such as are customarily performed by persons
situated in a similar executive capacity.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for a period of thirty-six (36) full
calendar months thereafter. Commencing on the first anniversary date, and
continuing at each anniversary date thereafter, the Board of Directors of the
BANK (the "Board") may extend the Agreement for an additional year. Prior to the
extension of the Agreement as provided herein, the Board of Directors of the
BANK will conduct a formal performance evaluation of EXECUTIVE for purposes of
determining whether to extend the Agreement, and the results thereof shall be
included in the minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, EXECUTIVE shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the BANK; provided, however, that, with the approval
of the Board, as evidenced by a resolution of such Board, from time to time,
EXECUTIVE may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations, which, in
such Board's judgment, will not present any conflict of interest with the BANK,
or materially affect the performance of EXECUTIVE's duties pursuant to this
Agreement.
<PAGE>
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the
salary and benefits paid for the duties described in Sections 1 and 2. The BANK
shall pay EXECUTIVE as compensation a salary of $_________ per year ("Base
Salary"). Such Base Salary shall be payable in accordance with the customary
payroll practices of the BANK. During the period of this Agreement, EXECUTIVE's
Base Salary shall be reviewed at least annually; the first such review will be
made no later than one year from the date of this Agreement. Such review shall
be conducted by a Committee designated by the Board, and the Board may increase
EXECUTIVE's Base Salary. In addition to the Base Salary provided in this Section
3(a), the BANK shall provide EXECUTIVE at no cost to EXECUTIVE with all such
other benefits as are provided uniformly to permanent full-time employees of the
BANK.
(b) The BANK will provide EXECUTIVE with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
EXECUTIVE was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the BANK will not, without
EXECUTIVE's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect EXECUTIVE's rights or benefits
thereunder. Without limiting the generality of the foregoing provisions of this
Subsection (b), EXECUTIVE will be entitled to participate in or receive benefits
under any employee benefit plans including, but not limited to, retirement
plans, supplemental retirement plans, pension plans, profit-sharing plans,
health-and-accident plan, medical coverage or any other employee benefit plan or
arrangement made available by the BANK in the future to its senior executives
and key management employees, subject to, and on a basis consistent with, the
terms, conditions and overall administration of such plans and arrangements.
EXECUTIVE will be entitled to incentive compensation and bonuses as provided in
any plan, or pursuant to any arrangement of the BANK, in which EXECUTIVE is
eligible to participate. Nothing paid to EXECUTIVE under any such plan or
arrangement will be deemed to be in lieu of other compensation to which
EXECUTIVE is entitled under this Agreement, except as provided under Section
5(e).
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the BANK shall pay or reimburse EXECUTIVE for all reasonable travel
and other obligations under this Agreement and may provide such additional
compensation in such form and such amounts as the Board may from time to time
determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during EXECUTIVE's term of employment under this Agreement, the provisions of
this Section shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following: (i) the termination by
the BANK of EXECUTIVE's full-time employment hereunder for any reason other than
a Change in Control, as defined in Section 5(a) hereof; disability, as defined
in Section 6(a) hereof; death; retirement, as defined in Section 7 hereof; or
Termination for
2
<PAGE>
Cause, as defined in Section 8 hereof; (ii) EXECUTIVE's resignation from the
BANK's employ, upon (A) unless consented to by EXECUTIVE, a material change in
EXECUTIVE's function, duties, or responsibilities, which change would cause
EXECUTIVE's position to become one of lesser responsibility, importance, or
scope from the position and attributes thereof described in Sections 1 and 2,
above (any such material change shall be deemed a continuing breach of this
Agreement), (B) a relocation of EXECUTIVE's principal place of employment by
more than 25 miles from its location at the effective date of this Agreement, or
a material reduction in the benefits and perquisites to EXECUTIVE from those
being provided as of the effective date of this Agreement, (C) the liquidation
or dissolution of the BANK, or (D) any material breach of this Agreement by the
BANK. Upon the occurrence of any event described in clauses (A), (B), (C) or
(D), above, EXECUTIVE shall have the right to elect to terminate his employment
under this Agreement by resignation upon not less than sixty (60) days prior
written notice given within a reasonable period of time not to exceed, except in
case of a continuing breach, four (4) calendar months after the event giving
rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, the BANK shall pay
EXECUTIVE, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the payments due to EXECUTIVE for the remaining
term of the Agreement, including Base Salary, bonuses, and any other cash or
deferred compensation paid or to be paid (including the value of employer
contributions that would have been made on EXECUTIVE's behalf over the remaining
term of the agreement to any tax-qualified retirement plan sponsored by the BANK
as of the Date of Termination), to EXECUTIVE for the term of the Agreement
provided, however, that if the BANK is not in compliance with its minimum
capital requirements or if such payments would cause the BANK's capital to be
reduced below its minimum capital requirements, such payments shall be deferred
until such time as the BANK is in capital compliance. All payments made pursuant
to this Section 4(b) shall be paid in substantially equal monthly installments
over the remaining term of this Agreement following EXECUTIVE's termination;
provided, however, that if the remaining term of the Agreement is less than one
(1) year (determined as of EXECUTIVE's Date of Termination), such payments and
benefits shall be paid to EXECUTIVE in a lump sum within thirty (30) days of the
Date of Termination.
(c) Upon the occurrence of an Event of Termination, the BANK will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the BANK for EXECUTIVE prior to his
termination. Such coverage shall cease upon the expiration of the remaining term
of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be paid under this Section 5 unless there shall have
occurred a Change in Control of the COMPANY or the BANK. For purposes of this
Agreement, a "Change in Control" of the COMPANY or the BANK shall be deemed to
occur if and when (a) there occurs a change in control of the BANK or the
COMPANY within the meaning of the Home Owners Loan
3
<PAGE>
Act of 1933 and 12 C.F.R. Part 574, (b) any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes the beneficial
owner, directly or indirectly, of securities of the COMPANY or the BANK
representing twenty-five percent (25%) or more of the combined voting power of
the COMPANY's or the BANK's then outstanding securities, (c) the membership of
the board of directors of the COMPANY or the BANK changes as the result of a
contested election, such that individuals who were directors at the beginning of
any twenty-four (24) month period (whether commencing before or after the date
of adoption of this Agreement) do not constitute a majority of the Board at the
end of such period, or (d) shareholders of the COMPANY or the BANK approve a
merger, consolidation, sale or disposition of all or substantially all of the
COMPANY's or the BANK's assets, or a plan of partial or complete liquidation.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board of the BANK or the COMPANY has
reasonably determined that a Change in Control (as defined herein) has occurred,
EXECUTIVE shall be entitled to the benefits provided in paragraphs (c), (d) and
(e) of this Section 5 upon his subsequent involuntary termination following the
effective date of a Change in Control (or voluntary termination within twelve
(12) months of the effective date of a Change in Control following any material
demotion, loss of title, office or significant authority, material reduction in
his annual compensation or benefits (other than a reduction affecting the BANK's
personnel generally), or the relocation of his principal place of employment by
more than 25 miles from its location immediately prior to the Change in
Control), unless such termination is because of his death, retirement as
provided in Section 7, termination for Cause, or termination for Disability.
(c) Upon the occurrence of a Change in Control followed by EXECUTIVE's
termination of employment, the BANK shall pay EXECUTIVE, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay or liquidated damages, or both, a sum equal to 2.99
times EXECUTIVE's "base amount," within the meaning of (S)280G(b)(3) of the
Internal Revenue Code of 1986 ("Code"), as amended. Such payment shall be made
in a lump sum paid within ten (10) days of EXECUTIVE's Date of Termination.
(d) Upon the occurrence of a Change in Control followed by EXECUTIVE's
termination of employment, the BANK will cause to be continued life, medical,
dental and disability coverage substantially identical to the coverage
maintained by the BANK for EXECUTIVE prior to his severance. In addition,
EXECUTIVE shall be entitled to receive the value of employer contributions that
would have been made on EXECUTIVE's behalf over the remaining term of the
agreement to any tax-qualified retirement plan sponsored by the BANK as of the
Date of Termination. Such coverage and payments shall cease upon the expiration
of thirty-six (36) months.
(e) Upon the occurrence of a Change in Control, EXECUTIVE shall be
entitled to receive benefits due him under, or contributed by the COMPANY or the
BANK on his behalf, pursuant to any retirement, incentive, profit sharing,
bonus, performance, disability or other employee benefit plan maintained by the
BANK or the COMPANY on EXECUTIVE's behalf to the extent that such benefits are
not otherwise paid to EXECUTIVE upon a Change in Control.
4
<PAGE>
(f) Notwithstanding the preceding paragraphs of this Section 5, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in Control,
would be deemed to include an "excess parachute payment" under (S)280G of the
Code, then, at the election of EXECUTIVE, (i) such payments or benefits shall be
payable or provided to EXECUTIVE over the minimum period necessary to reduce the
present value of such payments or benefits to an amount which is one dollar
($1.00) less than three (3) times EXECUTIVE's "base amount" under (S)280G(b)(3)
of the Code or (ii) the payments or benefits to be provided under this Section 5
shall be reduced to the extent necessary to avoid treatment as an excess
parachute payment with the allocation of the reduction among such payments and
benefits to be determined by EXECUTIVE.
6. TERMINATION FOR DISABILITY.
(a) If EXECUTIVE shall become disabled as defined in the BANK's then
current disability plan (or, if no such plan is then in effect, if EXECUTIVE is
permanently and totally disabled within the meaning of Section 22(e)(3) of the
Code as determined by a physician designated by the Board), the BANK may
terminate EXECUTIVE's employment for "Disability."
(b) Upon EXECUTIVE's termination of employment for Disability, the BANK
will pay EXECUTIVE, as disability pay, a bi-weekly payment equal to three-
quarters (3/4) of EXECUTIVE's bi-weekly rate of Base Salary on the effective
date of such termination. These disability payments shall commence on the
effective date of EXECUTIVE's termination and will end on the earlier of (i) the
date EXECUTIVE returns to the full-time employment of the BANK in the same
capacity as he was employed prior to his termination for Disability and pursuant
to an employment agreement between EXECUTIVE and the BANK; (ii) EXECUTIVE's
full-time employment by another employer; (iii) EXECUTIVE attaining the age of
sixty-five (65); or (iv) EXECUTIVE's death; or (v) the expiration of the term of
this Agreement. The disability pay shall be reduced by the amount, if any, paid
to EXECUTIVE under any plan of the BANK providing disability benefits to
EXECUTIVE.
(c) The BANK will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
BANK for EXECUTIVE prior to his termination for Disability. This coverage and
payments shall cease upon the earlier of (i) the date EXECUTIVE returns to the
full-time employment of the BANK, in the same capacity as he was employed prior
to his termination for Disability and pursuant to an employment agreement
between EXECUTIVE and the BANK; (ii) EXECUTIVE's full-time employment by another
employer; (iii) EXECUTIVE's attaining the age of sixty-five (65); (iv)
EXECUTIVE's death; or (v) the expiration of the term of this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to EXECUTIVE during any period during which
EXECUTIVE is incapable of performing his duties hereunder by reason of temporary
disability.
5
<PAGE>
7. TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE; RESIGNATION
Termination by the BANK of EXECUTIVE based on "Retirement" shall mean
retirement at or after attaining age sixty-five (65) or in accordance with any
retirement arrangement established with EXECUTIVE's consent with respect to him.
Upon termination of EXECUTIVE upon Retirement, EXECUTIVE shall be entitled to
all benefits under any retirement plan of the BANK or the COMPANY and other
plans to which EXECUTIVE is a party. Upon the death of EXECUTIVE during the term
of this Agreement, the BANK shall pay to EXECUTIVE's estate the compensation due
to EXECUTIVE through the last day of the calendar month in which his death
occurred. Upon the voluntary resignation of EXECUTIVE during the term of this
Agreement, other than in connection with an Event of Termination, the BANK shall
pay to EXECUTIVE the compensation due to EXECUTIVE through his Date of
Termination.
8. TERMINATION FOR CAUSE.
For purposes of this Agreement, "Termination for Cause" shall include
termination because of EXECUTIVE's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, or
regulation (other than traffic violations or similar offenses) or final cease-
and-desist order, or material breach of any provision of this Agreement.
Notwithstanding the foregoing, EXECUTIVE shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths (3/4) of the members of the Board at a meeting of the Board called
and held for that purpose (after reasonable notice to EXECUTIVE and an
opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, EXECUTIVE was guilty of
conduct justifying termination for Cause and specifying the reasons thereof.
EXECUTIVE shall not have the right to receive compensation or other benefits for
any period after termination for Cause. Any stock options granted to EXECUTIVE
under any stock option plan or any unvested awards granted under any other stock
benefit plan of the BANK, the COMPANY, or any subsidiary or affiliate thereof,
shall become null and void effective upon EXECUTIVE's receipt of Notice of
Termination for Cause pursuant to Section 10 hereof, and shall not be
exercisable by EXECUTIVE at any time subsequent to such Termination for Cause.
9. REQUIRED PROVISIONS.
(a) The BOARD may terminate EXECUTIVE's employment at any time, but any
termination by the BOARD, other than Termination for Cause, shall not prejudice
EXECUTIVE's right to compensation or other benefits under this Agreement.
EXECUTIVE shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 8 herein.
(b) If EXECUTIVE 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 Federal
6
<PAGE>
Deposit Insurance Act ("FDIA") (12 U.S.C. 1818(e)(3) and (g)(1)), the BANK's
obligations under the Agreement shall be suspended as of the date of service,
unless stayed by appropriate proceedings. If the charges in the notice are
dismissed, the BANK may, in its discretion, (i) pay EXECUTIVE all or part of the
compensation withheld while its contract obligations were suspended and (ii)
reinstate (in whole or in part) any of its obligations that were suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the BANK's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the BANK under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the BANK is in default (as defined in Section 3(x)(1) of the FDIA),
all obligations under this Agreement shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement shall be terminated (except to
the extent determined that continuation of the Agreement is necessary for the
continued operation of the BANK): (i) by the Director of the Office of Thrift
Supervision (the "Director") or his 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
(ii) by the Director, or his designee at the time the Director or such designee
approves a supervisory merger to resolve problems related to operation of the
BANK or when the BANK is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
(f) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any regulations promulgated thereunder.
10. NOTICE.
(a) Any purported termination by the BANK or by EXECUTIVE shall be
communicated by Notice of Termination to the other party hereto. For purposes of
this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of EXECUTIVE's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if EXECUTIVE's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, other than Termination for
Cause, the date
7
<PAGE>
specified in the Notice of Termination. In the event of EXECUTIVE's Termination
for Cause, the Date of Termination shall be the same as the date of the Notice
of Termination.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by EXECUTIVE in which case the Date
of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal there from having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
11. NON-COMPETITION.
(a) Upon any termination of EXECUTIVE's employment hereunder pursuant to
an Event of Termination as provided in Section 4 hereof, EXECUTIVE agrees not to
compete with the BANK and/or the COMPANY for a period of one (1) year following
such termination in any city, town or county in which the BANK and/or the
COMPANY has an office or has filed an application for regulatory approval to
establish an office, determined as of the effective date of such termination.
EXECUTIVE agrees that during such period and within said cities, towns and
counties, EXECUTIVE shall not work for or advise, consult or otherwise serve
with, directly or indirectly, any entity whose business materially competes with
the depository, lending or other business activities of the BANK and/or the
COMPANY. The parties hereto, recognizing that irreparable injury will result to
the BANK and/or the COMPANY, its business and property in the event of
EXECUTIVE's breach of this Subsection 11(a) agree that in the event of any such
breach by EXECUTIVE, the BANK and/or the COMPANY will be entitled, in addition
to any other remedies and damages available, to an injunction to restrain the
violation hereof by EXECUTIVE, EXECUTIVE's partners, agents, servants,
employers, employees and all persons acting for or with EXECUTIVE. EXECUTIVE
represents and admits that in the event of the termination of his employment
pursuant to Section 4 hereof, EXECUTIVE's experience and capabilities are such
that EXECUTIVE can obtain employment in a business engaged in other lines and/or
of a different nature than the BANK and/or the COMPANY, and that the enforcement
of a remedy by way of injunction will not prevent EXECUTIVE from earning a
livelihood. Nothing herein will be construed as prohibiting the BANK and/or the
COMPANY from pursuing any other remedies available to the BANK and/or the
COMPANY for such breach or threatened breach, including the recovery of damages
from EXECUTIVE.
(b) EXECUTIVE recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the BANK and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the BANK. EXECUTIVE will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned
8
<PAGE>
or considered business activities of the BANK or affiliates thereof to any
person, firm, corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, EXECUTIVE may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas which are not solely and
exclusively derived from the business plans and activities of the BANK. In the
event of a breach or threatened breach by EXECUTIVE of the provisions of this
Section, the BANK will be entitled to an injunction restraining EXECUTIVE from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the BANK or affiliates thereof, or from
rendering any services to any person, firm, corporation, other entity to whom
such knowledge, in whole or in part, has been disclosed or is threatened to be
disclosed. Nothing herein will be construed as prohibiting the BANK from
pursuing any other remedies available to the BANK for such breach or threatened
breach, including the recovery of damages from EXECUTIVE.
12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the BANK. The COMPANY, however, guarantees all
payments and the provision of all amounts and benefits due hereunder to
EXECUTIVE and, if such payments are not timely paid or provided by the BANK,
such amounts and benefits shall be paid or provided by the COMPANY.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the BANK or any
predecessor of the BANK and EXECUTIVE, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to EXECUTIVE of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that EXECUTIVE is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the BANK, the COMPANY and their respective successors and assigns.
9
<PAGE>
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Missouri,
unless otherwise specified herein; provided, however, that in the event of a
conflict between the terms of this Agreement and any applicable federal or state
law or regulation, the provisions of such law or regulation shall prevail.
19. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
miles from the location of the BANK, in accordance with the rules of the
American Arbitration Association then in effect. Judgment may be entered on the
arbitrator's award in any court having jurisdiction; provided, however, that
EXECUTIVE shall be entitled to seek specific performance of his right to be paid
until the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
10
<PAGE>
20. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by EXECUTIVE pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the BANK, if EXECUTIVE is successful pursuant to a legal
judgment, arbitration or settlement.
21. INDEMNIFICATION.
The BANK shall provide EXECUTIVE (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
EXECUTIVE (and his heirs, executors and administrators) to the fullest extent
permitted under law against all expenses and liabilities reasonably incurred by
him in connection with or arising out of any action, suit or proceeding in which
he may be involved by reason of his having been a director or officer of the
BANK (whether or not he continues to be a directors or officer at the time of
incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgment, court costs and attorneys' fees and
the cost of reasonable settlements. The provisions of 12 C.F.R. 545.121 shall
apply to the BANK's obligations under this Section 21.
22. SUCCESSOR TO THE BANK OR THE COMPANY.
The BANK and the COMPANY shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the BANK or the COMPANY, expressly
and unconditionally to assume and agree to perform the BANK's or the COMPANY's
obligations under this Agreement, in the same manner and to the same extent that
the BANK or the COMPANY would be required to perform if no such succession or
assignment had taken place.
11
<PAGE>
IN WITNESS WHEREOF, the BANK and the COMPANY have caused this Agreement to
be executed and their seal to be affixed hereunto by a duly authorized officer,
and EXECUTIVE has signed this Agreement, all on the ____ day of _____________,
1998.
ATTEST: PULASKI BANK, A FEDERAL SAVINGS BANK
_______________________________ BY:_______________________________________
[SEAL]
ATTEST: PULASKI FINANCIAL CORP.
_______________________________ BY:_______________________________________
[SEAL]
WITNESS:
_______________________________ __________________________________________
EXECUTIVE
12
<PAGE>
EXHIBIT 10.2
FORM OF SEVERANCE AGREEMENT FOR SENIOR OFFICERS
This AGREEMENT is made effective as of ___________________, 1998 by and
between PULASKI BANK, A FEDERAL SAVINGS BANK (the "BANK"); PULASKI FINANCIAL
CORP. ("COMPANY"), a Delaware corporation; and ________________ ("EXECUTIVE").
WHEREAS, the BANK recognizes the substantial contribution EXECUTIVE has
made to the BANK and wishes to protect his position therewith for the period
provided in this Agreement in the event of a Change in Control (as defined
herein); and
NOW, THEREFORE, in consideration of the foregoing and upon the other terms
and conditions hereinafter provided, the parties hereto agree as follows:
1. TERM OF AGREEMENT
The term of this Agreement shall be deemed to have commenced as of the date
first above written and shall continue for a period of twenty-four (24) full
calendar months thereafter. Commencing on the first anniversary date of this
Agreement and continuing at each anniversary date thereafter, the Board of
Directors of the BANK ("Board") may extend the Agreement for an additional year.
The Board will conduct a performance evaluation of EXECUTIVE for purposes of
determining whether to extend the Agreement, and the results thereof shall be
included in the minutes of the Board's meeting.
2. PAYMENTS TO EXECUTIVE UPON CHANGE IN CONTROL.
(a) Upon the occurrence of a Change in Control (as herein defined)
followed within twelve (12) months of the effective date of the Change in
Control by the voluntary or involuntary termination of EXECUTIVE's employment,
other than for Cause, as defined in Section 2(c) hereof, the provisions of
Section 3 shall apply. For purposes of this Agreement, "voluntary termination"
shall be limited to the circumstances in which EXECUTIVE elects to voluntarily
terminate his employment within twelve (12) months of the effective date of a
Change in Control following any material demotion, loss of title, office or
significant authority, material reduction in his annual compensation or benefits
(other than a reduction affecting the Bank's personnel generally), or the
relocation of his principal place of employment by more than 25 miles from its
location immediately prior to the Change in Control.
(b) A "Change in Control" of the COMPANY or the BANK shall be deemed to
occur if and when (a) there occurs a change in control of the BANK or the
COMPANY within the meaning of the Home Owners Loan Act of 1933 and 12 C.F.R.
Part 574, (b) any person (as such term is used in Sections 13(d) and 14(d)(2) of
the Exchange Act) is or becomes the beneficial owner, directly or indirectly, of
securities of the COMPANY or the BANK representing twenty-five percent (25%) or
more of the combined voting power of the COMPANY's or the BANK's then
outstanding securities, (c) the membership of the board of directors of the
COMPANY or the BANK changes as the result of a contested election, such that
individuals who were directors at the beginning of any twenty-four (24) month
period (whether commencing before or after the date of adoption of this
Agreement) do
<PAGE>
not constitute a majority of the Board at the end of such period, or (d)
shareholders of the COMPANY or the BANK approve a merger, consolidation, sale or
disposition of all or substantially all of the COMPANY's or the BANK's assets,
or a plan of partial or complete liquidation.
(c) EXECUTIVE shall not have the right to receive termination benefits
pursuant to Section 3 hereof upon Termination for Cause. The term "Termination
for Cause" shall mean termination because of EXECUTIVE's intentional failure to
perform stated duties, personal dishonesty, incompetence, willful misconduct,
any breach of fiduciary duty involving personal profit, willful violation of any
law, rule, regulation (other than traffic violations or similar offenses) or
final cease and desist order, or any material breach of any material provision
of this Agreement. In determining incompetence, the acts or omissions shall be
measured against standards generally prevailing in the savings institution
industry. Notwithstanding the foregoing, EXECUTIVE shall not be deemed to have
been terminated for Cause unless and until there shall have been delivered to
him a copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to EXECUTIVE and an opportunity
for him, together with counsel, to be heard before the Board), finding that in
the good faith opinion of the Board, EXECUTIVE was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail.
EXECUTIVE shall not have the right to receive compensation or other benefits for
any period after Termination for Cause.
3. TERMINATION
(a) Upon the occurrence of a Change in Control, followed within twelve
(12) months of the effective date of a Change in Control by the voluntary or
involuntary termination of EXECUTIVE's employment other than Termination for
Cause, the BANK shall be obligated to pay EXECUTIVE, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay, a sum equal to two (2) times Executive's annual
compensation. For purposes of this Agreement, "annual compensation" shall mean
and include all wages, salary, bonus, and other compensation, if any, paid
(including accrued amounts) by the Company or the Bank as consideration for
EXECUTIVE's service during the twelve (12) month period ending on the last day
of the month preceding the effective date of a Change in Control, which is or
would be includable in the gross income of the EXECUTIVE receiving the same for
federal income tax purposes. Such amount shall be paid to EXECUTIVE in a lump
sum no later than thirty (30) days after the date of his termination.
(b) Upon the occurrence of a Change in Control of the BANK followed within
twelve (12) months of the effective date of a Change in Control by EXECUTIVE's
voluntary or involuntary termination of employment, other than Termination for
Cause, the BANK shall cause to be continued life, medical, dental and disability
coverage substantially identical to the coverage maintained by the BANK for
EXECUTIVE prior to his severance. Such coverage and payments shall cease upon
expiration of twelve (12) months from the date of EXECUTIVE's termination.
2
<PAGE>
(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that the aggregate payments or benefits to be made or afforded to under
this Section, together with any other payments or benefits received or to be
received by EXECUTIVE in connection with a Change in Control, would be deemed to
include an "excess parachute payment" under (S)280G of the Code, then, at the
election of EXECUTIVE, (i) such payments or benefits shall be payable or
provided to EXECUTIVE over the minimum period necessary to reduce the present
value of such payments or benefits to an amount which is one dollar ($1.00) less
than three (3) times EXECUTIVE's "base amount" under (S)280G(b)(3) of the Code
or (ii) the payments or benefits to be provided under this Section 3 shall be
reduced to the extent necessary to avoid treatment as an excess parachute
payment with the allocation of the reduction among such payments and benefits to
be determined by EXECUTIVE.
(d) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any regulations promulgated thereunder.
4. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFIT PLANS
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior agreement between the BANK and EXECUTIVE, except that
this Agreement shall not affect or operate to reduce any benefit or compensation
inuring to EXECUTIVE of a kind elsewhere provided. No provision of this
Agreement shall be interpreted to mean that EXECUTIVE is subject to receiving
fewer benefits than those available to him without reference to this Agreement.
5. NO ATTACHMENT
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the COMPANY, the BANK and their respective successors and assigns.
3
<PAGE>
6. MODIFICATION AND WAIVER
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by an estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
7. REQUIRED PROVISIONS
(a) The BOARD may terminate EXECUTIVE's employment at any time, but any
termination by the BOARD, other than Termination for Cause, shall not prejudice
EXECUTIVE's right to compensation or other benefits under this Agreement.
EXECUTIVE shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 2(c) herein.
(b) If EXECUTIVE 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 Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the BANK's obligations under the Agreement shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the BANK may, in its
discretion, (i) pay EXECUTIVE all or part of the compensation withheld while its
contract obligations were suspended and (ii) reinstate (in whole or in part) any
of its obligations that were suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the BANK's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the BANK under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the BANK is in default (as defined in Section 3(x)(1) of the FDIA),
all obligations under this Agreement shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement may be terminated: (except to the
extent determined that continuation of the Agreement is necessary for the
continued operation of the BANK): (i) 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 and (ii) by the Director, or his or her designee at the time the Director
or such designee approves a
4
<PAGE>
supervisory merger to resolve problems related to operation of the BANK or when
the BANK is determined by the Director to be in an unsafe or unsound condition.
Any rights of the parties that have already vested, however, shall not be
affected by such action.
8. SEVERABILITY
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
9. HEADINGS FOR REFERENCE ONLY
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
10. GOVERNING LAW
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Missouri, unless
preempted by Federal law as now or hereafter in effect.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the employee within fifty
(50) miles from the location of the BANK, in accordance with the rules of the
American Arbitration Association then in effect.
11. SOURCE OF PAYMENTS
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the BANK. The COMPANY, however, guarantees all
payments and the provision of all amounts and benefits due hereunder to
EXECUTIVE and, if such payments are not timely paid or provided by the BANK,
such amounts and benefits shall be paid or provided by the COMPANY.
12. PAYMENT OF LEGAL FEES
All reasonable legal fees paid or incurred by EXECUTIVE pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the BANK if EXECUTIVE is successful on the merits pursuant to a
legal judgment, arbitration or settlement.
5
<PAGE>
13. SUCCESSOR TO THE BANK OR THE COMPANY
The BANK and the COMPANY shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the BANK or the COMPANY, expressly
and unconditionally to assume and agree to perform the BANK's or the COMPANY's
obligations under this Agreement, in the same manner and to the same extent that
the BANK or the COMPANY would be required to perform if no such succession or
assignment had taken place.
14. SIGNATURES
IN WITNESS WHEREOF, the BANK and the COMPANY have caused this Agreement to
be executed and their seal to be affixed hereunto by a duly authorized officer,
and EXECUTIVE has signed this Agreement, all on the ____ day of _____________,
1998.
ATTEST: PULASKI BANK, A FEDERAL SAVINGS BANK
____________________________ BY:_______________________________________
[SEAL]
ATTEST: PULASKI FINANCIAL CORP.
____________________________ BY:_______________________________________
[SEAL]
WITNESS:
____________________________ __________________________________________
EXECUTIVE
6
<PAGE>
EXHIBIT 10.4
PULASKI BANK, A FEDERAL SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN
(Effective as of January 1, 1998)
<PAGE>
PULASKI BANK, A FEDERAL SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
PREAMBLE.............................................................................................. 1
ARTICLE I
DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions.................................................................................. 2
1.2 Plurals and Gender........................................................................... 7
1.3 Incorporation of Trust Agreement............................................................. 7
1.4 Headings..................................................................................... 7
1.5 Severability................................................................................. 7
1.6 References to Governmental Regulations....................................................... 8
ARTICLE II
PARTICIPATION
2.1 Commencement of Participation................................................................ 9
2.2 Termination of Participation................................................................. 9
2.3 Resumption of Participation.................................................................. 9
2.4 Determination of Eligibility................................................................. 10
ARTICLE III
CREDITED SERVICE
3.1 Service Counted for Eligibility Purposes..................................................... 11
3.2 Service Counted for Vesting Purposes......................................................... 11
3.3 Credit for Pre-Break Service................................................................. 11
3.4 Service Credit During Authorized Leaves...................................................... 11
3.5 Service Credit During Maternity or Paternity Leave........................................... 12
3.6 Ineligible Employees......................................................................... 12
ARTICLE IV
CONTRIBUTIONS
4.1 Employee Stock Ownership Contributions....................................................... 13
4.2 Time and Manner of Employee Stock Ownership Contributions.................................... 13
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
4.3 Records of Contributions..................................................................... 14
4.4 Erroneous Contributions...................................................................... 14
ARTICLE V
ACCOUNTS, ALLOCATIONS AND INVESTMENTS
5.1 Establishment of Separate Participant Accounts............................................... 16
5.2 Establishment of Suspense Account............................................................ 16
5.3 Allocation of Earnings, Losses and Expenses.................................................. 17
5.4 Allocation of Forfeitures.................................................................... 17
5.5 Allocation of Annual Employee Stock Ownership Contributions.................................. 17
5.6 Limitation on Annual Additions............................................................... 18
5.7 Erroneous Allocations........................................................................ 21
5.8 Value of Participant's Interest in Fund...................................................... 22
5.9 Investment of Account Balances............................................................... 22
ARTICLE VI
RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY
6.1 Normal Retirement............................................................................ 23
6.2 Early Retirement............................................................................. 23
6.3 Disability Retirement........................................................................ 23
6.4 Death Benefits............................................................................... 23
6.5 Designation of Death Beneficiary and Manner of Payment....................................... 24
ARTICLE VII
VESTING AND FORFEITURES
7.1 Vesting on Death, Disability, Retirement, Change in Control.................................. 25
7.2 Vesting on Termination of Participation...................................................... 25
7.3 Disposition of Forfeitures................................................................... 26
ARTICLE VIII
EMPLOYEE STOCK OWNERSHIP RULES
8.1 Right to Demand Employer Securities.......................................................... 27
8.2 Voting Rights................................................................................ 27
8.3 Nondiscrimination in Employee Stock Ownership Contributions.................................. 27
8.4 Dividends.................................................................................... 28
8.5 Exempt Loans................................................................................. 28
8.6 Exempt Loan Payments......................................................................... 29
8.7 Put Option................................................................................... 30
8.8 Diversification Requirements................................................................. 31
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
8.9 Independent Appraiser........................................................................ 31
8.10 Limitation on Allocation..................................................................... 31
ARTICLE IX
PAYMENTS AND DISTRIBUTIONS
9.1 Payments on Termination of Service -- In General............................................. 33
9.2 Commencement of Payments..................................................................... 33
9.3 Mandatory Commencement of Benefits........................................................... 33
9.4 Required Beginning Date...................................................................... 36
9.5 Form of Payment.............................................................................. 36
9.6 Payments Upon Termination of Plan............................................................ 36
9.7 Distribution Pursuant to Qualified Domestic Relations Orders................................. 37
9.8 Cash-Out Distributions....................................................................... 37
9.9 ESOP Distribution Rule....................................................................... 38
9.10 Withholding.................................................................................. 38
9.11 Waiver of 30-day Notice...................................................................... 39
ARTICLE X
PROVISIONS RELATING TO TOP-HEAVY PLANS
10.1 Top-Heavy Rules to Control................................................................... 40
10.2 Top-Heavy Plan Definitions................................................................... 40
10.3 Calculation of Accrued Benefits.............................................................. 42
10.4 Determination of Top-Heavy Status............................................................ 43
10.5 Determination of Super Top-Heavy Status...................................................... 44
10.6 Minimum Contribution......................................................................... 44
10.7 Maximum Benefit Limitation................................................................... 45
ARTICLE XI
ADMINISTRATION
11.1 Appointment of Administrator................................................................. 46
11.2 Resignation or Removal of Administrator...................................................... 46
11.3 Appointment of Successors: Terms of Office, Etc.............................................. 46
11.4 Powers and Duties of Administrator........................................................... 46
11.5 Action by Administrator...................................................................... 47
11.6 Participation by Administrators.............................................................. 48
11.7 Agents....................................................................................... 48
11.8 Allocation of Duties......................................................................... 48
11.9 Delegation of Duties......................................................................... 48
11.10 Administrator's Action Conclusive............................................................ 48
11.11 Compensation and Expenses of Administrator................................................... 49
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
11.12 Records and Reports.......................................................................... 49
11.13 Reports of Fund Open to Participants......................................................... 49
11.14 Named Fiduciary.............................................................................. 49
11.15 Information from Employer.................................................................... 49
11.16 Reservation of Rights by Employer............................................................ 50
11.17 Liability and Indemnification................................................................ 50
11.18 Service as Trustee and Administrator......................................................... 50
ARTICLE XII
CLAIMS PROCEDURE
12.1 Notice of Denial............................................................................. 51
12.2 Right to Reconsideration..................................................................... 51
12.3 Review of Documents.......................................................................... 51
12.4 Decision by Administrator.................................................................... 51
12.5 Notice by Administrator...................................................................... 51
ARTICLE XIII
AMENDMENTS, TERMINATION AND MERGER
13.1 Amendments................................................................................... 52
13.2 Consolidation, Merger or Other Transactions of Employer...................................... 52
13.3 Consolidation or Merger of Trust............................................................. 53
13.4 Bankruptcy or Insolvency of Employer......................................................... 53
13.5 Voluntary Termination........................................................................ 54
13.6 Partial Termination of Plan or Permanent Discontinuance of Contributions..................... 54
ARTICLE XIV
MISCELLANEOUS
14.1 No Diversion of Funds........................................................................ 55
14.2 Liability Limited............................................................................ 55
14.3 Incapacity................................................................................... 55
14.4 Spendthrift Clause........................................................................... 55
14.5 Benefits Limited to Fund..................................................................... 56
14.6 Cooperation of Parties....................................................................... 56
14.7 Payments Due Missing Persons................................................................. 56
14.8 Governing Law................................................................................ 56
14.9 Nonguarantee of Employment................................................................... 57
14.10 Counsel...................................................................................... 58
</TABLE>
iv
<PAGE>
PULASKI BANK, A FEDERAL SAVINGS BANK
EMPLOYEE STOCK OWNERSHIP PLAN
PREAMBLE
Effective as of January 1, 1998, Pulaski Bank, A Federal Savings Bank (the
"Sponsor"), a federally chartered stock savings bank (the "Sponsor"), has
adopted the Pulaski Bank, A Federal Savings Bank Employee Stock Ownership Plan
in order to enable Participants to share in the growth and prosperity of the
Sponsor, and to provide Participants with an opportunity to accumulate capital
for their future economic security by accumulating funds to provide retirement,
death and disability benefits. The Plan is a stock bonus plan 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 ERISA. The primary purpose of
the employee stock ownership plan is to invest in employer securities. The
Sponsor intends that the Plan will qualify under Sections 401(a) and 501(a) of
the Code and will comply with the provisions of ERISA.
The terms of this Plan shall apply only with respect to Employees of the
Employer on and after January 1, 1998.
<PAGE>
ARTICLE I
DEFINITION OF TERMS AND CONSTRUCTION
1.1 Definitions.
Unless a different meaning is plainly implied by the context, the following
terms as used in this Plan shall have the following meanings:
(a) "Act" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, or any successor statute.
(b) "Administrator" shall mean the administrative committee provided for in
Article XI.
(c) "Annual Additions" shall mean, with respect to each Participant, the
sum of those amounts allocated to the Participant's accounts under this Plan and
under any other qualified defined contribution plan to which the Employer
contributes for any Limitation Year, consisting of the following:
(1) Employer contributions;
(2) Forfeitures; and
(3) Voluntary contributions (if any).
(d) "Authorized Leave of Absence" shall mean an absence from Service with
respect to which the Employee may or may not be entitled to Compensation and
which meets any one of the following requirements:
(1) Service in any of the armed forces of the United States for up to
36 months, provided that the Employee resumes Service within 90
days after discharge, or such longer period of time during which
such Employee's employment rights are protected by law; or
(2) Any other absence or leave expressly approved and granted by the
Employer which does not exceed 24 months, provided that the
Employee resumes Service at or before the end of such approved
leave period. In approving such leaves of absence, the Employer
shall treat all Employees on a uniform and nondiscriminatory
basis.
(e) "Beneficiary" shall mean such persons as may be designated by the
Participant to receive benefits after the death of the Participant, or such
persons designated by the Administrator to receive benefits after the death of
the Participant, all as provided in Section 6.5.
2
<PAGE>
(f) "Board of Directors" shall mean the Board of Directors of the Sponsor.
(g) "Break" shall mean a Plan Year during which an Employee fails to
complete more than 500 Hours of Service.
(h) "Code" shall mean the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute.
(i) "Compensation" shall mean the amount of remuneration paid to an
Employee by the Employer, after the date on which the Employee becomes a
Participant, for services rendered to the Employer during a Plan Year, including
base salary, bonuses, overtime and commissions, and any amount of compensation
contributed pursuant to a salary reduction election under Code Section 401(k)
and any amount of compensation contributed to a cafeteria plan described at
Section 125 of the Code, but excluding amounts paid by the Employer or accrued
with respect to this Plan or any other qualified or non-qualified unfunded plan
of deferred compensation or other employee welfare plan to which the Employer
contributes, payments for group insurance, medical benefits, reimbursement for
expenses, and other forms of extraordinary pay, and excluding amounts accrued
for a prior year. Notwithstanding anything herein to the contrary, the annual
Compensation of each Participant taken into account under the Plan (including
for purposes of Section 5.6(b)) for any Plan Year shall not exceed $160,000, as
adjusted from time to time in accordance with Section 401(a)(17) of the Code.
If a determination period consists of fewer than 12 months, the limitation
referred to in the preceding sentence shall be prorated accordingly.
(j) "Date of Hire" shall mean the date on which a person shall perform his
first Hour of Service. Notwithstanding the foregoing, in the event a person
incurs one or more consecutive Breaks after his initial Date of Hire which
results in the forfeiture of his pre-Break Service pursuant to Section 3.3, his
"Date of Hire" shall thereafter be the date on which he completes his first Hour
of Service after such Break or Breaks.
(k) "Disability" shall mean a physical or mental impairment which prohibits
a Participant from engaging in any occupation for wages or profit and which has
caused the Social Security Administration to classify the individual as
"disabled" for purposes of Social Security.
(l) "Disability Retirement Date" shall mean the first day of the month
after which a Participant incurs a Disability.
(m) "Early Retirement Date" shall mean the first day of the month
coincident with or next following the date on which a Participant attains age 55
and completes ten Years of Service.
(n) "Effective Date" shall mean January 1, 1998.
(o) "Eligibility Period" shall mean the period of 12 consecutive months
commencing on an Employee's Date of Hire. Succeeding eligibility computation
periods after the initial eligibility
3
<PAGE>
computation period shall be based on Plan Years which include the first
anniversary of an Employee's Date of Hire.
(p) "Employee" shall mean any person employed by the Employer, including
officers but excluding directors in their capacity as such; provided, however,
that the term "Employee" shall not include leased employees, employees regularly
employed outside the employer's own offices in connection with the operation and
maintenance of buildings or other properties acquired through foreclosure or
deed, and any employee included in a unit of employees covered by a collective-
bargaining agreement with the Employer that does not expressly provide for
participation of such employees in this Plan, where there has been good-faith
bargaining between the Employer and employees' representatives on the subject of
retirement benefits.
(q) "Employer" shall mean Pulaski Bank, A Federal Savings Bank, a federally
chartered stock savings bank, or any successors to the aforesaid by merger,
consolidation or otherwise, which may agree to continue this Plan, or any
affiliated or subsidiary corporation or business organization of any Employer
which, with the consent of the Sponsor, shall agree to become a party to this
Plan.
(r) "Employer Securities" shall mean the common stock issued by Pulaski
Financial Corp., a Delaware corporation, or any employer security within the
meaning of Section 4975(c)(8) of the Code and Section 407(d)(1) of ERISA.
(s) "Entry Date" shall mean the first day of the month following the date
on which an Employee satisfies the requirement of Section 2.1.
(t) "Exempt Loan" shall mean a loan described at Section 4975(d)(1) of the
Code to the Trustee to purchase Employer Securities for the Plan, made or
guaranteed by a disqualified person, as defined at Section 4975(e)(2) of the
Code, including, but not limited to, a direct loan of cash, a purchase money
transaction, an assumption of an obligation of the Trustee, an unsecured
guarantee or the use of assets of such disqualified person as collateral for
such a loan.
(u) "Former Participant" shall mean any previous Participant whose
participation has terminated but who has a vested interest in the Plan which has
not been distributed in full.
(v) "Fund" shall mean the Fund maintained by the Trustee pursuant to the
Trust Agreement in order to provide for the payment of the benefits specified in
the Plan.
(w) "Hour of Service" shall mean each hour for which an Employee is
directly or indirectly paid or entitled to payment by an Employer for the
performance of duties or for reasons other than the performance of duties (such
as vacation time, holidays, sickness, disability, paid lay-offs, jury duty and
similar periods of paid nonworking time). To the extent not otherwise included,
Hours of Service shall also include each hour for which back pay, irrespective
of mitigation of damages, is either awarded or agreed to by the Employer. Hours
of working time shall be credited on the basis of actual hours worked, even
though compensated at a premium rate for overtime or other reasons.
4
<PAGE>
In computing and crediting Hours of Service for an Employee under this Plan, the
rules set forth in Sections 2530.200b-2(b) and (c) of the Department of Labor
Regulations shall apply, said Sections being herein incorporated by reference.
Hours of Service shall be credited to the Plan Year or other relevant period
during which the services were performed or the nonworking time occurred,
regardless of the time when Compensation therefor may be paid. Any Employee for
whom no hourly employment records are kept by the Employer shall be credited
with 45 Hours of Service for each calendar week in which he would have been
credited with a least one Hour or Service under the foregoing provisions, if
hourly records were available. Solely for purposes of determining whether a
Break for participation and vesting purposes has occurred in an Eligibility
Period or Plan Year, an individual who is absent from work for maternity or
paternity reasons shall receive credit for the Hours of Service which would
otherwise have been credited to such individual but for such absence, or in any
case in which such hours cannot be determined, eight Hours of Service per day of
such absence. For purposes of this Section 1.1(w), an absence from work for
maternity or paternity reasons means an absence (1) by reason of the pregnancy
of the individual, (2) by reason of a birth of a child of the individual, (3) by
reason of the placement of a child with the individual in connection with the
adoption of such child by such individual, or (4) for purposes of caring for
such child for a period beginning immediately following such birth or placement.
The Hours of Service credited under this provision shall be credited (1) in the
computation period in which the absence begins if the crediting is necessary to
prevent a Break in that period, or (2) in all other cases, in the following
computation period.
(x) "Investment Adjustments" shall mean the increases and/or decreases in
the value of a Participant's accounts attributable to earnings, gains, losses
and expenses of the Fund, as set forth in Section 5.3.
(y) "Limitation Year" shall mean the Plan Year.
(z) "Normal Retirement Date" shall mean the first day of the month
coincident with or during which a Participant attains age 65.
(aa) "Participant" shall mean an Employee who has met all of the
eligibility requirements of the Plan and who is currently included in the Plan
as provided in Article II hereof.
(bb) "Plan" shall mean the Pulaski Bank, A Federal Savings Bank Employee
Stock Ownership Plan, as described herein or as hereafter amended from time to
time.
(cc) "Plan Year" shall mean any 12 consecutive month period commencing on
January 1 and ending on December 31.
(dd) "Qualified Domestic Relations Order" shall mean any judgment, decree
or order (including approval of a property settlement agreement) that relates to
the provision of child support, alimony, marital property rights to a spouse,
former spouse, child or other dependent of the Participant (all such persons
hereinafter termed "alternate payee") and is made pursuant to a State
5
<PAGE>
domestic relations law (including community property law) and, further, that
creates or recognizes the existence of an alternate payee's right to, or assigns
to an alternate payee the right to receive all or a portion of the benefits
payable with respect to a Participant and that clearly specifies the following:
(1) the name and last known mailing address (if available) of the
Participant and the name and mailing address of each alternate payee
to which the order relates;
(2) the amount or percentage of the Participant's benefits to be paid to
an alternate payee or the manner in which the amount is to be
determined; and
(3) the number of payments or period for which payments are required.
A domestic relations order is not a Qualified Domestic Relations Order if
it:
(1) requires the Plan to provide any type or form of benefit or any option
not otherwise provided under the Plan; or,
(2) requires the Plan to provide increased benefits; or
(3) requires payment of benefits to an alternate payee that is required to
be paid to another alternate payee under a previously existing
Qualified Domestic Relations Order.
(ee) "Retirement" shall mean termination of employment which qualifies as
early, normal or Disability retirement as described in Article VI.
(ff) "Service" shall mean employment with the Employer.
(gg) "Sponsor" shall mean Pulaski Bank, A Federal Savings Bank, a federally
chartered stock savings bank.
(hh) "Trust Agreement" shall mean the agreement, the Sponsor and the
Trustee (or any successor Trustee governing the administration of the Trust as
it may be amended from time to time.
(ii) "Trustee" shall mean the Trustee or Trustees by whom the assets of the
Plan are held, as provided in the Trust Agreement, or his or their successors.
(jj) "Valuation Date" shall mean the last day of each Plan Year. The
Trustee may make additional valuations, at the instruction of the Administrator,
but in no event may the Administrator request additional valuations by the
Trustee more frequently than quarterly. Whenever such date falls on a Saturday,
Sunday or holiday, the preceding business day shall be the Valuation Date.
6
<PAGE>
(kk) "Year of Service" shall mean any Plan Year during which an Employee
has completed at least 1,000 Hours of Service. Except as otherwise specified in
Article III, in the determination of Years of Service for eligibility and
vesting purposes under this Plan, the term "Year of Service" shall also mean any
Plan Year during which an Employee has completed at least 1,000 Hours of Service
with an entity that is:
(1) a member of a controlled group including the Employer, while it is a
member of such controlled group (within the meaning of Section 414(b)
of the Code);
(2) in a group of trades or businesses under common control with the
Employer, while it is under common control (within the meaning of
Section 414(c) of the Code);
(3) a member of an affiliated service group including the Employer, while
it is a member of such affiliated service group (within the meaning of
Section 414(m) of the Code); or
(4) a leasing organization, under the circumstances described in Section
414(n) of the Code.
1.2 Plurals and Gender.
Where appearing in the Plan and the Trust Agreement, the masculine gender
shall include the feminine and neuter genders, and the singular shall include
the plural, and vice versa, unless the context clearly indicates a different
meaning.
1.3 Incorporation of Trust Agreement.
The Trust Agreement, as the same may be amended from time to time, is
intended to be and hereby is incorporated by reference into this Plan and for
all purposes shall be deemed a part of the Plan.
1.4 Headings.
The headings and sub-headings in this Plan are inserted for the convenience
of reference only and are to be ignored in any construction of the provisions
hereof.
1.5 Severability.
In case any provision of this Plan shall be held illegal or void, such
illegality or invalidity shall not affect the remaining provisions of this Plan,
but shall be fully severable, and the Plan shall be construed and enforced as if
said illegal or invalid provisions had never been inserted herein.
7
<PAGE>
1.6 References to Governmental Regulations.
References in this Plan to regulations issued by the Internal Revenue
Service, the Department of Labor, or other governmental agencies shall include
all regulations, rulings, procedures, releases and other position statements
issued by any such agency.
8
<PAGE>
ARTICLE II
PARTICIPATION
2.1 Commencement of Participation.
(a) Any Employee who completes at least 1,000 Hours of Service during his
Eligibility Period or during any Plan Year beginning after his Date of Hire
shall initially become a Participant on the Entry Date coincident next following
the later of the following dates, provided he is employed by the Employer on
that Entry Date:
(1) The date which is 12 months after his Date of Hire; and
(2) The date on which he attains age 21.
(b) Any Employee who had satisfied the requirements set forth in Section
2.1(a) during the 12-month period prior to the Effective Date shall become a
Participant on the Effective Date, provided he was still employed by the
Employer on the Effective Date.
2.2 Termination of Participation.
After commencement or resumption of his participation, an Employee shall
remain a Participant during each consecutive Plan Year thereafter until the
earliest of the following dates:
(a) His actual Retirement date;
(b) His date of death; or
(c) The last day of a Plan Year during which he incurs a Break.
2.3 Resumption of Participation
(a) Any Participant whose employment terminates and who resumes Service
before he incurs a Break shall resume participation immediately on the date he
is reemployed.
(b) Except as otherwise provided in Section 2.3(c), any Participant who
incurs one or more Breaks and resumes Service shall resume participation
retroactively as of the first day of the first Plan Year in which he completes a
Year of Service after such Break(s).
(c) Any Participant who incurs one or more Breaks and resumes Service, but
whose pre-Break Service is not reinstated to his credit pursuant to Section 3.3,
shall be treated as a new Employee and shall again be required to satisfy the
eligibility requirements contained in Section 2.1 before resuming participation
on the appropriate Entry Date, as specified in Section 2.1.
9
<PAGE>
2.4 Determination of Eligibility.
The Administrator shall determine the eligibility of Employees in
accordance with the provisions of this Article. For each Plan Year, the Employer
shall furnish the Administrator a list of all Employees, indicating the original
date of their reemployment with the Employer and any Breaks they may have
incurred.
10
<PAGE>
ARTICLE III
CREDITED SERVICE
3.1 Service Counted for Eligibility Purposes.
Except as provided in Section 3.3, all Years of Service completed by an
Employee shall be counted in determining his eligibility to become a Participant
on and after the Effective Date, whether such Service was completed before or
after the Effective Date.
3.2 Service Counted for Vesting Purposes.
All Years of Service completed by an Employee (including Years of Service
completed prior to the Effective Date) shall be counted in determining his
vested interest in this Plan, except the following:
(a) Service which is disregarded under the provisions of Section 3.3; and
(b) Service prior to the Effective Date of this Plan if such Service would
have been disregarded under the "break in service" rules (within the meaning of
Section 1.411(a)-5(b)(6) of the Treasury Regulations).
3.3 Credit for Pre-Break Service.
Upon his resumption of participation following one or a series of
consecutive Breaks, an Employee's pre-Break Service shall be reinstated to his
credit for all purposes of this Plan only if either:
(a) He was vested in any portion of his accrued benefit at the time the
Break(s) began; or
(b) The number of his consecutive Breaks does not equal or exceed the
greater of five or the number of his Years of Service credited to him before the
Breaks began.
Except as provided in the foregoing, none of an Employee's Service prior to
one or a series of consecutive Breaks shall be counted for any purpose in
connection with his participation in this Plan thereafter.
3.4 Service Credit During Authorized Leaves.
An Employee shall receive no Service credit under Section 3.1 or 3.2 during
any Authorized Leave of Absence. However, solely for the purpose of determining
whether he has incurred a Break during any Plan Year in which he is absent from
Service for one or more Authorized Leaves of Absence, he shall be credited with
45 Hours of Service for each week during any such leave period.
11
<PAGE>
Notwithstanding the foregoing, if an Employee fails to return to Service on or
before the end of a leave period, he shall be deemed to have terminated Service
as of the first day of such leave period and his credit for Hours of Service,
determined under this Section 3.4, shall be revoked. Notwithstanding any
provision of this Plan to the contrary, contributions, benefits and service
credit with respect to qualified military service will be provided in accordance
with Section 414(u) of the Code.
3.5 Service Credit During Maternity or Paternity Leave.
For purposes of determining whether a Break has occurred for participation
and vesting purposes, an individual who is on maternity or paternity leave as
described in Section 1.1(w), shall be deemed to have completed Hours of Service
during such period of absence, all in accordance with Section 1.1(w).
Notwithstanding the foregoing, no credit shall be given for such Hours of
Service unless the individual furnishes to the Administrator such timely
information as the Administrator may reasonably require to determine:
(a) that the absence from Service was attributable to one of the maternity
or paternity reasons enumerated in Section 1.1(w); and
(b) the number of days for which such absence lasted.
In no event, however, shall any credit be given for such leave other than
for determining whether a Break has occurred.
3.6 Ineligible Employees.
Notwithstanding any provisions of this Plan to the contrary, any person who
is employed by the Employer, but who is ineligible to participate in this Plan,
either because of his failure:
(a) To meet the eligibility requirements contained in Article II; or
(b) To be an Employee, as defined in Section 1.1(p), shall, nevertheless,
earn Years of Service for eligibility and vesting purposes pursuant to the rules
contained in this Article III. However, such a person shall not be entitled to
receive any contributions hereunder unless and until he becomes a Participant in
this Plan, and then, only during his period of participation.
12
<PAGE>
ARTICLE IV
CONTRIBUTIONS
4.1 Employee Stock Ownership Contributions.
(a) Subject to all of the provisions of this Article IV, for each Plan Year
commencing on or after the Effective Date, the Employer shall make an Employee
Stock Ownership contribution to the Fund, in such amount as may be determined by
the Board of Directors in its discretion. Such contribution shall be in the form
of cash or Employer Securities. In determining the value of Employer Securities
transferred to the Fund as an Employee Stock Ownership contribution, the
Administrator may determine the average of closing prices of such securities for
a period of up to 90 consecutive days immediately preceding the date on which
the securities are contributed to the Fund. In the event that the Employer
Securities are not readily tradable on an established securities market, the
value of the Employer Securities transferred to the Fund shall be determined by
an independent appraiser in accordance with Section 8.9.
(b) In no event shall such contribution by the Employer exceed for any Plan
Year the maximum amount that may be deducted by the Employer under Section 404
of the Code, nor shall such contribution cause the Employer to violate its
regulatory capital requirements. Each Employee Stock Ownership contribution by
the Employer shall be deemed to be made on the express condition that the Plan,
as then in effect, shall be qualified under Sections 401 and 501 of the Code and
that the amount of such contribution shall be deductible from the Employer's
income under Section 404 of the Code.
4.2 Time and Manner of Employee Stock Ownership Contributions.
(a) The Employee Stock Ownership contribution (if any) for each Plan Year
shall be paid to the Trustee in one lump sum or installments at any time on or
before the expiration of the time prescribed by law (including any extensions)
for filing of the Employer's federal income tax return for its fiscal year
ending concurrent with or during such Plan Year. Any portion of the Employee
Stock Ownership contribution for each Plan Year that may be made prior to the
last day of the Plan Year shall be maintained by the Trustee in the Employee
Stock Ownership suspense account described in Section 5.2 until the last day of
such Plan Year.
(b) If an Employee Stock Ownership contribution for a Plan Year is paid
after the close of the Employer's fiscal year which ends concurrent with or
during such Plan Year but on or prior to the due date (including any extensions)
for filing of the Employer's federal income tax return for such fiscal year, it
shall be considered, for allocation purposes, as an Employee Stock Ownership
contribution to the Fund for the Plan Year for which it was computed and
accrued, unless such contribution is accompanied by a statement to the Trustee,
signed by a representative of the Employer, which specifies that the Employee
Stock Ownership contribution is made with respect to the Plan Year in which it
is received by the Trustee. Any Employee Stock Ownership
13
<PAGE>
contribution paid by the Employer during any Plan Year but after the due date
(including any extensions) for filing of its federal income tax return for the
fiscal year of the Employer ending on or before the last day of the preceding
Plan Year shall be treated, for allocation purposes, as an Employee Stock
Ownership contribution to the Fund for the Plan Year in which the contribution
is paid to the Trustee.
(c) Notwithstanding anything contained herein to the contrary, no Employee
Stock Ownership contribution shall be made for any year during which a
"limitations account" created pursuant to Section 5.6(c)(2) is in existence
until the balance of such limitations account has been reallocated in accordance
with Section 5.6(c)(2).
4.3 Records of Contributions.
The Employer shall deliver at least annually to the Trustee, with respect
to the contributions contemplated in Section 4.1, a certificate of the
Administrator, in such form as the Trustee shall approve, setting forth:
(a) The aggregate amount of contributions, if any, to the Fund for such
Plan Year;
(b) The names, Internal Revenue Service identifying numbers and current
residential addresses of all Participants in the Plan;
(c) The amount and category of contributions to be allocated to each such
Participant; and
(d) Any other information reasonably required for the proper operation of
the Plan.
4.4 Erroneous Contributions.
(a) Notwithstanding anything herein to the contrary, upon the Employer's
request, a contribution which was made by a mistake of fact, or conditioned upon
the initial qualification of the Plan, under Code Section 401, or upon the
deductibility of the contribution under Section 404 of the Code, shall be
returned to the Employer by the Trustee within one year after the payment of the
contribution, the denial of the qualification or the disallowance of the
deduction (to the extent disallowed), whichever is applicable; provided,
however, that in the case of denial of the initial qualification of the Plan, a
contribution shall not be returned unless an Application for Determination has
been timely filed with the Internal Revenue Service. Any portion of a
contribution returned pursuant to this Section 4.4 shall be adjusted to reflect
its proportionate share of the losses of the fund, but shall not be adjusted to
reflect any earnings or gains. Notwithstanding any provisions of this Plan to
the contrary, the right or claim of any Participant or Beneficiary to any asset
of the Fund or any benefit under this Plan shall be subject to and limited by
this Section 4.4.
14
<PAGE>
(b) In no event shall voluntary Employee contributions be accepted. Any
such voluntary Employee contributions (and any earnings attributable thereto)
mistakenly received by the Trustee shall promptly be returned to the
Participant.
15
<PAGE>
ARTICLE V
ACCOUNTS, ALLOCATIONS AND INVESTMENTS
5.1 Establishment of Separate Participant Accounts.
The Administrator shall establish and maintain separate individual accounts
for Participants in the Plan and for each Former Participant in accordance with
the provisions of this Article V. Such separate accounts shall be for
accounting purposes only and shall not require a segregation of the Fund, and no
Participant, Former Participant or Beneficiary shall acquire any right to or
interest in any specific assets of the Fund as a result of the allocations
provided for under this Plan, except where segregation is expressly provided for
in this Plan.
(a) Employee Stock Ownership Accounts.
The Administrator shall establish a separate Employee Stock Ownership
Account in the Fund for each Participant. The account shall be credited as of
the last day of each Plan Year with the amounts allocated to the Participant
under Sections 5.4 and 5.5. The Administrator may establish subaccounts
hereunder, including an Employer Stock Account reflecting a Participant's
interest in Employer Securities held by the Trust and an Other Investments
Account reflecting the Participant's interest in his Employee Stock Ownership
Account other than Employer Securities.
(b) Distribution Accounts.
In any case where distribution of a terminated Participant's vested
interest in the Plan is to be deferred, the Administrator shall establish a
separate, nonforfeitable account in the Fund to which the balance in his
Employee Stock Ownership Account in the Plan shall be transferred after such
Participant incurs a Break. Unless the Former Participant's distribution
accounts are segregated for investment purposes pursuant to section 9.4, they
shall share in Investment Adjustments.
(c) Other Accounts.
The Administrator shall establish such other separate accounts for each
Participant as may be necessary or desirable for the convenient administration
of the Fund.
5.2 Establishment of Suspense Accounts.
The Administrator shall establish separate accounts to be known as
"suspense accounts." There shall be credited to such appropriate suspense
accounts any Employee Stock Ownership contributions that may be made prior to
the last day of the Plan Year, as provided in Section 4.2. The suspense accounts
shall share proportionately as to time and amount in any Investment Adjustments.
As of the last day of each Plan Year, the balance of the Employee Stock
Ownership suspense account shall be added to the Employee Stock Ownership
contribution and allocated to the Employee Stock
16
<PAGE>
Ownership Accounts of Participants as provided in Section 5.5, except as
provided herein. In the event that the Plan takes an Exempt Loan, the Employer
Securities purchased thereby shall be allocated to a separate Exempt Loan
Suspense Account, from which allocations shall be made in accordance with
Section 8.5.
5.3 Allocation of Earnings, Losses and Expenses.
As of each Valuation Date, any increase or decrease in the net worth of the
aggregate Employee Stock Ownership Accounts held in the Fund attributable to
earnings, losses, expenses and unrealized appreciation or depreciation in each
such aggregate Account, as determined by the Trustee pursuant to the Trust
Agreement, shall be credited to or deducted from the appropriate suspense
accounts and all Participants' Employee Stock Ownership Accounts (except
segregated distribution accounts described in Section 5.1(b) and the
"limitations account" described in Section 5.6(c)(4)) in the proportion that the
value of each such Account (determined immediately prior to such allocation and
before crediting any Employee Stock Ownership contributions and forfeitures for
the current Plan Year but after adjustment for any transfer to or from such
Accounts and for the time such funds were in such Accounts) bears to the value
of all Employee Stock Ownership Accounts.
5.4 Allocation of Forfeitures.
As of the last day of each Plan Year, all forfeitures attributable to the
Employee Stock Ownership Accounts which are then available for reallocation
shall be, as appropriate, added to the Employee Stock Ownership contribution (if
any) for such year and allocated among the Participants' Employee Stock
Ownership Accounts, as appropriate, in the manner provided in Sections 5.5 and
5.6.
5.5 Allocation of Annual Employee Stock Ownership Contributions.
As of the last day of each Plan Year for which the Employer shall make an
Employee Stock Ownership contribution, the Administrator shall allocate the
Employee Stock Ownership contribution (including reallocable forfeitures) for
such Plan Year to the Employee Stock Ownership account of each Participant who
completed at least 1,000 Hours of Service during that Plan Year, provided that
he is still employed by the Employer on the last day of the Plan Year. Such
allocation shall be made in the same proportion that each such Participant's
Compensation for such Plan Year bears to the total Compensation of all such
Participants for such Plan Year, subject to Section 5.6; provided, however,
that, for purposes of this Section 5.5, a Participant's Compensation shall not
be considered for any part of a Plan Year prior to the date the Participant
commenced participation in the Plan. Notwithstanding the foregoing, if a
Participant attains his Normal or Early Retirement Date and terminates Service
prior to the last day of the Plan Year but after completing 1,000 Hours of
Service, or terminates service by reason of death or Disability, he shall be
entitled to an allocation based on his Compensation earned prior to his
termination and during the Plan Year. Furthermore, if a Participant completes
1,000 Hours of Service and is on a Leave of Absence on the last day of
17
<PAGE>
the Plan Year because of pregnancy or other medical reason, such a Participant
shall be entitled to an allocation based on his Compensation earned during such
Plan Year.
5.6 Limitation on Annual Additions.
(a) Notwithstanding any provisions of this Plan to the contrary, the total
Annual Additions credited to a Participant's accounts under this Plan (and under
any other defined contribution plan to which the Employer contributes) for any
Limitation Year shall not exceed the lesser of:
(1) 25% of the Participant's compensation for such Limitation
Year; or
(2) $30,000. Whenever otherwise allowed by law, the maximum
amount of $30,000 shall be automatically adjusted annually
for cost-of-living increases in accordance with Section
415(d) of the Code and the highest such increase effective
at any time during the Limitation Year shall be effective
for the entire Limitation Year, without any amendment to
this Plan.
(b) Solely for the purpose of this Section 5.6, the term "compensation" is
defined as wages, salaries, and fees for professional services and other amounts
received (without regard to whether or not an amount is paid in cash) for
personal services actually rendered in the course of employment with the
Employer maintaining the Plan to the extent that the amounts are includable in
gross income (including, but not limited to, commissions paid to salesmen,
compensation for services on the basis of a percentage of profits, commissions
on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or
other expense allowances under a nonaccountable plan (as described in Treas.
Regs. Section 1.62-2(c)), and excluding the following:
(1) Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by the
employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture;
(2) Amounts realized from the sale, exchange or other disposition
of stock acquired under a qualified stock option; and
(3) Other amounts which received special tax benefits, or
contributions made by the employer (whether or not under a
salary reduction agreement) towards the purchase of an
annuity contract described in section 403(b) of the Code
(whether or not the contributions are actually excludable
from the gross income of the Employee).
Notwithstanding anything in this Section 5.6(b) to the contrary, for Plan
Years beginning after December 31, 1997, "compensation" for purposes of Section
5.6(b) shall include any elective deferrals under Code Sections 402(g)(3), 457
or 125.
18
<PAGE>
(c) In the event that the limitations on Annual Additions described in
this Section 5.6(a) above are exceeded with respect to any Participant in any
Limitation Year, then the contributions allocable to the Participant for such
year shall be reduced to the minimum extent required by such limitations in the
following order of priority:
(1) The Administrator shall determine to what extent the Annual
Additions to any Participant's Employee Stock Ownership
Account must be reduced in each Limitation Year. The
Administrator shall reduce the Annual Additions to all other
tax-qualified retirement plans maintained by the Employer in
accordance with the terms contained therein for required
reductions or reallocations mandated by Section 415 of the
Code before reducing any Annual Additions in this Plan.
(2) If any further reductions in Annual Additions are
necessary, then the Employee Stock Ownership contributions
and forfeitures allocated during such Limitation Year to
the Participant's Employee Stock Ownership Account shall be
reduced. The amount of any such reductions in the Employee
Stock Ownership contributions and forfeitures shall be
reallocated to all other Participants in the same manner
as set forth under Sections 5.4 and 5.5.
(3) Any amounts which cannot be reallocated to other
Participants in a current Limitation Year in accordance
with Section 5.6(c)(2) above because of the limitations
contained in Sections 5.6(a) and (d) shall be credited to
an account designated as the "limitations account" and
carried forward to the next and subsequent Limitation Years
until it can be reallocated to all Participants as set forth
in Sections 5.4, and 5.5, as appropriate. No Investment
Adjustments shall be allocated to this limitations account.
In the next and subsequent Limitation Years, all amounts in
the limitations account must be allocated in the manner
described in Sections 5.4 and 5.5, as appropriate, before
any Employee Stock Ownership contributions may be made to
this Plan for that Limitation Year.
(4) In the event this Plan is voluntarily terminated by the
Employer under Section 13.5, any amounts credited to the
limitations account described in Section 5.6(c)(2) above
which have not be reallocated as set forth herein shall be
distributed to the Participants who are still employed by
the Employer on the date of termination, in the proportion
that each Participant's Compensation bears to the
Compensation of all Participants.
(d) The Annual Additions credited to a Participant's accounts for each
Limitation Year beginning before January 1, 2000 are further limited so that in
the case of an Employee who is a
19
<PAGE>
Participant in both this Plan and any qualified defined benefit plan
(hereinafter referred to as a "pension plan") of the Employer, the sum of (1)
and (2) below will not exceed 1.0:
(1) (A) The projected annual normal retirement benefit of a Participant
under the pension plan, divided by
(B) The lesser of:
(i) The product of 1.25 multiplied by the
dollar limitation in effect under
Section 415(b)(1)(A) of the Code for
such Limitation Year; or
(ii) The product of 1.4 multiplied by the
amount of compensation which may be
taken into account under Section
415(b)(1)(B) of the Code for the
Participant for such Limitation Year;
plus
(2) (A) The sum of Annual Additions credited to the Participant under
this Plan for all Limitation Years, divided by:
(B) The sum of the lesser of the following amounts determined for
such Limitation Year and for each prior year of service with the
Employer:
(i) The product of 1.25 multiplied by the
dollar limitation in effect under
Section 415(b)(1)(A) of the Code for
such Limitation Year, or
(ii) The product of 1.4 multiplied by the
amount of compensation which may be
taken into account under Section
415(b)(1)(B) of the Code for the
Participant for such Limitation Year.
The Administrator may, in calculating
the defined contribution plan fraction
described in Section 5.6(d)(2), elect
to use the transitional rule pursuant
to Section 415(e)(6) of the Code, if
applicable. If the sum of the fractions
produced above will exceed 1.0, even
after the use of the "fresh start" rule
contained in Section 235 of the Tax
Equity and Fiscal Responsibility Act of
1982 ("TEFRA"), if applicable, then the
same
20
<PAGE>
provisions as stated in Section 5.6(c)
above shall apply. If, even after the
reductions provided for in Section 5.6(c),
the sum of the fractions still exceed 1.0,
then the benefits of the Participant
provided under the pension plan shall be
reduced to the extent necessary, in
accordance with Treasury Regulations
issued under the Code. Solely for the
purposes of this Section 5.6(d), the term
"years of service" shall mean all years
of service defined by Treasury Regulations
issued under Section 415 of the Code.
(e) In the event that the Employer is a member of (1) a controlled group
of corporations or a group of trades or businesses under common control (as
described in Section 414(b) or (c) of the Code, as modified by Section 415(h)
thereof), or (2) an affiliated service group (as described in Section 414(m) of
the Code), the Annual Additions credited to any Participant's accounts in any
such Limitation Year shall be further limited by reason of the existence of all
other qualified retirement plans maintained by such affiliated corporations,
other entities under common control or other members of the affiliated service
group, to the extent such reduction is required by Section 415 of the Code and
the regulations promulgated thereunder. The Administrator shall determine if any
such reduction in the Annual Additions to a Participant's accounts is required
for this reason, and if so, the same provisions as stated in 5.6(c) and (d)
above shall apply.
(f) Annual Additions shall not include any Employer contributions which
are used by the Trust to pay interest on an Exempt Loan nor any forfeitures of
Employer Securities purchased with the proceeds of an Exempt Loan, provided that
not more than one-third of the Employer contributions are allocated to
Participants who are among the group of employees deemed "highly compensated
employees" within the meaning of Code Section 414(q).
5.7 Erroneous Allocations.
No Participant shall be entitled to any Annual Additions or other
allocations to his accounts in excess of those permitted under Sections 5.3,
5.4, 5.5, and 5.6. If it is determined at anytime that the Administrator and/or
Trustees have erred in accepting and allocating any contributions or forfeitures
under this Plan, or in allocating Investment Adjustments, or in excluding or
including any person as a Participant, then the Administrator, in a uniform and
nondiscriminatory manner, shall determine the manner in which such error shall
be corrected and shall promptly advise the Trustee in writing of such error and
of the method for correcting such error. The accounts of any or all
Participants may be revised, if necessary, in order to correct such error.
21
<PAGE>
5.8 Value of Participant's Interest in Fund
At any time, the value of a Participant's interest in the Fund shall
consist of the aggregate value of his Employee Stock Ownership Account and his
distribution account, if any, determined as of the next-preceding Valuation
Date. The Administrator shall maintain adequate records of the cost basis of
Employer Securities allocated to each Participant's Employer Stock Ownership
Account.
5.9 Investment of Account Balances.
The Employee Stock Ownership Accounts shall be invested primarily in
Employer Securities. All sales of Employer Securities by the Trustee
attributable to the Employee Stock Ownership Accounts of all Participants shall
be charged pro rata to the Employee Stock Ownership Accounts of all
Participants.
22
<PAGE>
ARTICLE VI
RETIREMENT, DEATH AND DESIGNATION OF BENEFICIARY
6.1 Normal Retirement.
A Participant who reaches his Normal Retirement Date and who shall retire
at that time shall thereupon be entitled to retirement benefits based on the
value of his interest in the Fund, payable pursuant to the provisions of Section
9.1. A Participant who remains in Service after his Normal Retirement Date
shall not be entitled to any retirement benefits until his actual termination of
Service thereafter (except as provided in Section 9.3(g)) and he shall meanwhile
continue to participate in this Plan.
6.2 Early Retirement.
A Participant who reaches his Early Retirement Date may retire at such time
(or, at his election, as of the first day of any month thereafter prior to his
Normal Retirement Date) and shall thereupon be entitled to retirement benefits
based on the value of his interest in the Fund, payable pursuant to the
provisions of Section 9.1.
6.3 Disability Retirement.
In the event a Participant incurs a Disability, he may retire on his
Disability Retirement Date and shall thereupon be entitled to retirement
benefits based on the value of his interest in the Fund, payable pursuant to the
provisions of Section 9.1.
6.4 Death Benefits.
(a) Upon the death of a Participant before his Retirement or other
termination of Service, the value of his interest in the Fund shall be payable
pursuant to the provisions of Section 9.1. The Administrator shall direct the
Trustee to distribute his interest in the Fund to any surviving Beneficiary
designated by the Participant or, if none, to such persons designated by the
Administrator pursuant to Section 6.5.
(b) Upon the death of a Former Participant, the Administrator shall direct
the Trustee to distribute any undistributed balance of his interest in the Fund
to any surviving Beneficiary designated by him or, if none, to such persons
designated by the Administrator pursuant to Section 6.5.
(c) The Administrator may require such proper proof of death and such
evidence of the right of any person to receive the interest in the Fund of a
deceased Participant or Former Participant as the Administrator may deem
desirable. The Administrator's determination of death and of the right of any
person to receive payment shall be conclusive.
23
<PAGE>
6.5 Designation of Death Beneficiary and Manner of Payment.
(a) Each Participant shall have the right to designate a Beneficiary or
Beneficiaries to receive the sum or sums to which he may be entitled upon his
death. The Participant may also designate the manner in which any death
benefits under this Plan shall be payable to his Beneficiary, provided that such
designation is in accordance with Section 9.4. Such designation of Beneficiary
and manner of payment shall be in writing and delivered to the Administrator,
and shall be effective when received by the Administrator. The Participant
shall have the right to change such designation by notice in writing to the
Administrator. Such change of Beneficiary or the manner of payment shall become
effective upon its receipt by the Administrator. Any such change shall be
deemed to revoke all prior designations.
(b) If a Participant shall fail to designate validly a Beneficiary or if
no designated Beneficiary survives the Participant, his interest in the Fund
shall be paid to the person or persons in the first of the following classes of
successive preference Beneficiaries surviving at the death of the Participant:
the Participant's (1) widow or widower, (2) children, (3) parents, and (4)
estate. The Administrator shall decide what Beneficiaries, if any, shall have
been validly designated, and its decision shall be binding and conclusive on all
persons.
(c) Notwithstanding the foregoing, if a Participant has been married
throughout the 12 month period preceding the date of his death, the sum or sums
to which he may be entitled under this Plan upon his death shall be paid to his
spouse, unless the Participant's spouse shall have consented to the election of
another Beneficiary. Such a spousal consent shall be in writing and shall be
witnessed either by a representative of the Plan or a notary public. If it is
established to the satisfaction of the Administrator that such spousal consent
cannot be obtained because there is no spouse, because the spouse cannot be
located, or other reasons prescribed by governmental regulations, the consent of
the spouse may be waived, and the Participant may designate a Beneficiary or
Beneficiaries other than his spouse.
24
<PAGE>
ARTICLE VII
VESTING AND FORFEITURES
7.1 Vesting on Death, Disability, Retirement and Change in Control.
Unless his participation in this Plan shall have terminated prior thereto,
upon a Participant's death, Disability, Early Retirement, or upon his attainment
of Normal Retirement Date (whether or not he actually retires at that time)
while he is still employed by the Employer, the Participant's entire interest in
the Fund shall be fully vested and nonforfeitable. In addition, a Participant's
interest shall be fully vested and nonforfeitable upon a Change in Control. For
purposes of this Plan, a "Change in Control" shall mean an event deemed to occur
if and when (1) an offeror other than the Pulaski Financial Corp. purchases
shares of the stock of Pulaski Financial Corp. or the Sponsor pursuant to a
tender or exchange offer for such shares, (2) any person (as such term is used
in Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes the beneficial
owner, directly or indirectly, of securities of Pulaski Financial Corp. or the
Sponsor representing 25% or more of the combined voting power of Pulaski
Financial Corp.'s or the Sponsor's then outstanding securities, (3) the
membership of the board of directors of Pulaski Financial Corp. or the Sponsor
changes as the result of a contested election, such that individuals who were
directors at the beginning of any 24 month period (whether commencing before or
after the date of adoption of this Plan) do not constitute a majority of the
Board at the end of such period, or (4) shareholders of Pulaski Financial Corp.
or the Sponsor approve a merger, consolidation, sale or disposition of all or
substantially all of Pulaski Financial Corp.'s or the Sponsor's assets, or a
plan of partial or complete liquidation.
7.2 Vesting on Termination of Participation.
Upon termination of his participation in this Plan for any reason other
than death, Disability, or Normal or Early Retirement, a Participant shall be
vested in a percentage of his Employee Stock Ownership Account, such vested
percentages to be determined under the following table, based on the Years of
Service (including Years of Service prior to the Effective Date) credited to him
for vesting purposes at the time of his termination of participation:
Years of Service Completed Percentage Vested
Less than 1 0%
1 25%
2 50%
3 75%
4 or more 100%
Any portion of the Participant's Employee Stock Ownership Account which is
not vested at the time he incurs a Break shall thereupon be forfeited and
disposed of pursuant to Section 7.3.
25
<PAGE>
Distribution of the vested portion of a terminated Participant's interest in the
Plan may be authorized by the Administrator in any manner permitted under
Section 9.1.
7.3 Disposition of Forfeitures.
(a) In the event a Participant incurs a Break and subsequently resumes
both his Service and his participation in the Plan prior to incurring at least
five Breaks, the forfeitable portion of his Employee Stock Ownership Account
shall be reinstated to the credit of the Participant as of the date he resumes
participation.
(b) In the event a Participant terminates Service and subsequently incurs
a Break and receives a distribution, or in the event a Participant does not
terminate Service, but incurs at least five Breaks, or in the event that a
Participant terminates Service and incurs at least five Breaks but has not
received a distribution, then the forfeitable portion of his Employer Account,
including Investment Adjustments, shall be reallocated to other Participants,
pursuant to Section 5.4 as of the date the Participant incurs such Break or
Breaks, as the case may be.
(c) In the event a former Participant who had received a distribution from
the Plan is rehired, he shall repay the amount of his distribution before the
earlier of five years after the date of his rehire by the Employer, or the close
of the first period of five consecutive Breaks commencing after the withdrawal
in order for any forfeited amounts to be restored to him.
26
<PAGE>
ARTICLE VIII
EMPLOYEE STOCK OWNERSHIP PROVISIONS
8.1 Right to Demand Employer Securities.
A Participant entitled to a distribution from his Employee Stock Ownership
Account shall be entitled to demand that his interest in the Account be
distributed to him in the form of Employer Securities, all subject to Section
9.9. In the event that the Employer Securities are not readily tradable on an
established market, the Participant shall be entitled to require that the
Employer repurchase the Employer Securities under a fair valuation formula, as
provided by governmental regulations. The Participant or Beneficiary shall be
entitled to exercise the put option described in the preceding sentence for a
period of not more than 60 days following the date of distribution of Employer
Securities to him. If the put option is not exercised within such 60-day period,
the Participant or Beneficiary may exercise the put option during an additional
period of not more than 60 days after the beginning of the first day of the
first Plan Year following the Plan Year in which the first put option period
occurred, all as provided in regulations promulgated by the Secretary of the
Treasury.
8.2 Voting Rights.
Each Participant with an Employee Stock Ownership Account shall be entitled
to direct the Trustee as to the manner in which the Employer Securities in such
Account are to be voted. Employer Securities held in the Employee Stock
Ownership Suspense Account or the Exempt Loan Suspense Account shall be voted by
the Trustee on each issue with respect to which shareholders are entitled to
vote in the manner directed by the majority of the Participants who directed the
Trustee as to the manner of voting their shares in the Employee Stock Ownership
Accounts with respect to such issue. Prior to the initial allocation of shares,
the Trustee shall be entitled to vote the shares in the Suspense Account without
prior direction from the Participants or the Administrator. In the event that a
Participant fails to give timely voting instructions to the Trustee with respect
to the voting of his allocated Employer Securities, the Trustee shall be
entitled to vote such shares in its discretion.
8.3 Nondiscrimination in Employee Stock Ownership Contributions.
In the event that the amount of the Employee Stock Ownership contributions
that would be required in any Plan Year to make the scheduled payments on an
Exempt Loan would exceed the amount that would otherwise be deductible by the
Employer for such Plan Year under Code Section 404, then no more than one-third
of the Employee Stock Ownership contributions for the Plan Year, which is also
the Employer's taxable year, shall be allocated to the group of Employees who:
(a) During the Plan Year or the preceding Plan Year was at any time a more
than 5% owner of the Employer; or
27
<PAGE>
(b) During the preceding Plan Year, received compensation from the
Employer in excess of $80,000, as adjusted under Code Section 414(q) and, if
elected by the Employer, was in the top paid group of Employees for such Plan
Year.
8.4 Dividends.
Any cash dividends or other cash contributions received by the Trustee of
Employer Securities allocated to the Employee Stock Account of Participants
shall be credited to the applicable Participants' Ownership Accounts unless the
Sponsor, in its sole discretion, elects to pay the cash dividends directly to
the applicable Participants or directs the Trustee to pay the cash dividends to
the Participants (or, if applicable, their Beneficiaries) within 90 calendar
days of the close of the Plan Year in which the cash dividend were paid to the
Fund. Notwithstanding anything contained in this Section to the contrary, the
Sponsor may direct cash dividends, including dividends on non-allocated shares,
be applied to repay an Exempt Loan, but only to the extent shares of Employer
Securities with an aggregate fair market value equal to the amount of dividends
so applied are allocated to the Employee Stock Ownership Account of the
applicable Participants and to the extent the cash dividends are deductible
under Section 404(k) of the Code. To the extent cash dividends on allocated
shares are applied to repay an Exempt Loan, shares released from encumbrance the
value equal to the amount of the dividends which, but for the repayment of the
Exempt Loan, would have been allocated to Participants' Employee Stock Ownership
Accounts shall be allocated to the Employee Stock Ownership Accounts of the
affected Participants, and the remaining shares to be allocated shall be
allocated among the Participants in accordance with Section 5.5. Dividends on
Employer Securities obtained pursuant to an Exempt Loan and not yet allocated
may be used to make payments on an Exempt Loan, as described in Section 8.5.
8.5 Exempt Loans.
(a) The Sponsor may direct the Trustee to obtain Exempt Loans. The Exempt
Loan may take the form of (i) a loan from a bank or other commercial lender to
purchase Employer Securities (ii) a loan from the Employer or affiliated
corporation, to the Plan; or (iii) an installment sale of Employer Securities to
the Plan. The proceeds of any such Exempt Loan shall be used, within a
reasonable time after the Exempt Loan is obtained, only to purchase Employer
Securities, repay the Exempt Loan, or repay any prior Exempt Loan. Any such
Exempt Loan shall provide for no more than a reasonable rate of interest and
shall be without recourse against the Plan. The number of years to maturity
under the Exempt Loan must be definitely ascertainable at all times. The only
assets of the Plan that may be given as collateral for an Exempt Loan are
Employer Securities acquired with the proceeds of the Exempt Loan and Employer
Securities that were used as collateral for a prior Exempt Loan repaid with the
proceeds of the current Exempt Loan. Such Employer Securities so pledged shall
be placed in an Exempt Loan Suspense Account. No person or institution entitled
to payment under an Exempt Loan shall have recourse against Trust assets other
than the aforesaid collateral, Employer Stock Ownership contributions (other
than contributions of Employer Securities) that are available under the Plan to
meet obligations under the Exempt Loan and earnings attributable to such
collateral and the investment of such contributions. All Employee Stock
28
<PAGE>
Ownership contributions paid during the Plan Year in which an Exempt Loan is
made (whether before or after the date the proceeds of the Exempt Loan are
received), all Employee Stock Ownership contributions paid thereafter until the
Exempt Loan has been repaid in full, and all earnings from investment of such
Employee Stock Ownership contributions, without regard to whether any such
Employee Stock Ownership contributions and earnings have been allocated to
Participants' Employee Stock Ownership Accounts, shall be available to meet
obligations under the Exempt Loan as such obligations accrue, or prior to the
time such obligations accrue, unless otherwise provided by the Employer at the
time any such contribution is made. Any pledge of Employer Securities shall
provide for the release of shares so pledged upon the payment of any portion of
the Exempt Loan.
(b) For each Plan Year during the duration of the Exempt Loan, the number
of shares of Employer Securities released from such pledge shall equal the
number of encumbered shares held immediately before release for the current Plan
Year multiplied by a fraction. The numerator of the fraction is the sum of
principal and interest paid in such Plan Year. The denominator of the fraction
is the sum of the numerator plus the principal and interest to be paid for all
future years. Such years will be determined without taking into account any
possible extension or renewal periods. If interest on any Exempt Loan is
variable, the interest to be paid in future years under the Exempt Loan shall be
computed by using the interest rate applicable as of the end of the Plan Year.
(c) Notwithstanding the foregoing, the Trustee may obtain an Exempt Loan
pursuant to the terms of which the number of Employer Securities to be released
from encumbrance may, at the election of the Sponsor or otherwise, be determined
solely with reference to principal payments. In the event that such an Exempt
Loan is obtained, annual payments of principal and interest shall be at a
cumulative rate that is not less rapid at any time than level payments of such
amounts for not more than 10 years. The amount of interest in any such annual
loan repayment shall be disregarded only to the extent that it would be
determined to be interest under standard loan amortization tables. The
requirement set forth in the preceding sentence shall not be applicable from the
time that, by reason of a renewal, extension, or refinancing, the sum of the
expired duration of the Exempt Loan, the renewal period, the extension period,
and the duration of a new Exempt Loan exceeds 10 years.
8.6 Exempt Loan Payments.
(a) Payments of principal and interest on any Exempt Loan during a Plan
Year shall be made by the Trustee (as directed by the Administrator) only from
(1) Employee Stock Ownership contributions to the Trust made to meet the Plan's
obligation under an Exempt Loan (other than contributions of Employer
Securities) and from any earnings attributable to Employer Securities held as
collateral for an Exempt Loan and investments of such contributions (both
received during or prior to the Plan Year); (2) the proceeds of a subsequent
Exempt Loan made to repay a prior Exempt Loan; and (3) the proceeds of the sale
of any Employer Securities held as collateral for an Exempt Loan. Such
contribution and earnings shall be accounted for separately by the Plan until
the Exempt Loan is repaid.
29
<PAGE>
(b) Employer Securities released by reason of the payment of principal or
interest on an Exempt Loan from amounts allocated to Participants' Employee
Stock Ownership Accounts shall be allocated as set forth in Section 5.5.
(c) The Employer shall contribute to the Trust sufficient amounts to
enable the Trust to pay principal and interest on any such Exempt Loans as they
are due, provided however that no such contribution shall exceed the limitations
in Section 5.6. In the event that such contributions by reason of the
limitations in Section 5.6 are insufficient to enable the Trust to pay principal
and interest on such Exempt Loan as it is due, then upon the Trustee's request
the Employer or an affiliated corporation shall:
(1) Make an Exempt Loan to the Trust in sufficient amounts to meet such
principal and interest payments. Such new Exempt Loan shall be
subordinated to the prior Exempt Loan. Securities released from the
pledge of the prior Exempt Loan shall be pledged as collateral to
secure the new Exempt Loan. Such Employer Securities will be
released from this new pledge and allocated to the Employee Stock
Ownership Accounts of the Participants in accordance with applicable
provisions of the Plan;
(2) Purchase any Employer Securities pledged as collateral in an amount
necessary to provide the Trustee with sufficient funds to meet the
principal and interest repayments. Any such sale by the Plan shall
meet the requirements of Section 408(e) of ERISA; or
(3) Any combination of the foregoing. However, the Employer shall not,
pursuant to the provisions of this subsection, do, fail to do or
cause to be done any act or thing which would result in a
disqualification of the Plan as an Employee Stock Ownership Plan
under the Code.
(d) Except as provided in Section 8.1 above and notwithstanding any
amendment to or termination of the Plan which causes it to cease to qualify as
an Employee Stock Ownership plan within the meaning of Section 4975(e)(7) of the
Code, or any repayment of an Exempt Loan, no shares of Employer Securities
acquired with the proceeds of an Exempt Loan obtained by the Trust to purchase
Employer Securities may be subject to a put, call or other option, or buy-sell
or similar arrangement while such shares are held by the Plan or when such
Shares are distributed from the Plan.
8.7 Put Option.
If a Participant exercises a put option (as set forth in Section 8.1) with
respect to Employer Securities that were distributed as part of a total
distribution pursuant to which a Participant's Employee Stock Ownership Account
is distributed to him in a single taxable year, the Employer or the Plan may
elect to pay the purchase price of the Employer Securities over a period not to
exceed
30
<PAGE>
five years. Such payments shall be made in substantially equal installments not
less frequently than annually over a period beginning not later than 30 days
after the exercise of the put option. Reasonable interest shall be paid to the
Participant with respect to the unpaid balance of the purchase price and
adequate security shall be provided with respect thereto. In the event that a
Participant exercises a put option with respect to Employer Securities that are
distributed as part of an installment distribution, the amount to be paid for
such securities shall be paid not later than 30 days after the exercise of the
put option.
8.8 Diversification Requirements
Each Participant who has completed at least 10 years of participation in
the Plan and has attained age 55 may elect within 90 days after the close of
each Plan Year during his "qualified election period" to direct the Plan as to
the investment of at least 25% of his Employee Stock Ownership Account (to the
extent such percentage exceeds the amount to which a prior election under this
Section 8.8 had been made). For purposes of this Section 8.8, the term
"qualified election period" shall mean the six-Plan Year period beginning with
the Plan Year after the Plan Year in which the Participant attains age 55 (or,
if later, beginning with the Plan Year after the first Plan Year in which the
Employee first completes at least 10 years of participation in the Plan). In
the case of the Employee who has attained age 60 and completed 10 years of
participation in the prior Plan Year and in the case of the election year in
which any other Participant who has met the minimum age and service requirements
for diversification can make his last election hereunder, he shall be entitled
to direct the Plan as to the investment of at least 50% of his Employee Stock
Ownership Account (to the extent such percentage exceeds the amount to which a
prior election under this Section 8.8 had been made). The Plan shall make
available at least three investment options (not inconsistent with regulations
prescribed by the Department of Treasury) to each Participant making an election
hereunder. The Plan shall be deemed to have met the requirements of this
Section if the portion of the Participant's Employee Stock Ownership Account
covered by the election hereunder is distributed to the Participant or his
designated Beneficiary within 90 days after the period during which the election
may be made. In the absence of such a distribution, the Trustee shall implement
the Participant's election within 90 days following the expiration of the
qualified election period.
8.9 Independent Appraiser.
An independent appraiser meeting the requirements of Code 170(a)(1) shall
value the Employer Securities in those Plan Years when such securities are not
readily tradable on an established securities market.
8.10 Limitation on Allocations.
In the event that the Trustee acquires shares of Employer Securities in a
transaction to which section 1042 of the Code applies, such Shares shall not be
allocated, directly or indirectly, to any Participant described in Section
409(n)(1) of the Code for the duration of the "nonallocation period" (as defined
in Section 409(n)(3)(C) of the Code). Where any shares of Employer Securities
are
31
<PAGE>
prevented from being allocated due to the prohibition contained in this section
the allocation of contributions otherwise provided under Section 5.5 shall be
adjusted to reflect such result.
32
<PAGE>
ARTICLE IX
PAYMENTS AND DISTRIBUTIONS
9.1 Payments on Termination of Service -- In General.
All benefits provided under this Plan shall be funded by the value of a
Participant's vested interest in the Fund. As soon as practicable after a
Participant's Retirement, death or termination of Service, the Administrator
shall ascertain the value of his vested interest in the Fund, as provided in
Article V, and the Administrator shall hold or dispose of the same in accordance
with the following provisions of this Article IX.
9.2 Commencement of Payments.
(a) Distributions upon Retirement or Death. Upon a Participant's
Retirement or Death, payment of benefits under this Plan shall, unless the
Participant otherwise elects (in accordance with Section 9.3), commence no later
than six months after the close of the Plan Year in which occurs the date of the
Participant's Retirement or death.
(b) Distribution following Termination of Service. Unless a Participant
elects otherwise, if a Participant terminates Service prior to Retirement or
death, he shall be accorded an opportunity to commence receipt of distributions
from his Accounts within six months after the Valuation Date next following the
date of his termination of service. A Participant who terminates Service with a
deferred vested benefit shall be entitled to receive from the Administrator a
statement of his benefits. In the event that a Participant elects not to
commence receipt of distributions from his Accounts in accordance with this
Section 9.2(b), after the Participant incurs a Break, the Administrator shall
transfer his deferred vested interest to a distribution account. If a
Participant's vested Employer Account does not exceed (or at the time of any
prior distribution did not exceed) $5,000, the Plan Administrator may distribute
the vested portion of his Employer Account as soon as administratively feasible
without the consent of the Participant or his spouse.
(c) Distribution of Accounts Greater Than $5,000. If the value of a
Participant's vested Account balance exceeds (or at the time of any prior
distribution exceeded) $5,000, and the Account balance is immediately
distributable, the Participant must consent to any distribution of such Account
balance. The Plan Administrator shall notify the Participant of the right to
defer any distribution until the Participant's Account balance is no longer
immediately distributable. The consent of the Participant shall not be required
to the extent that a distribution is required to satisfy Code Section 401(a)(9)
or Code Section 415.
9.3 Mandatory Commencement of Benefits.
(a) Unless a Participant elects otherwise, in writing, distribution of
benefits will begin no later than the 60th day after the latest of the close of
the Plan Year in which (i) the Participant attains
33
<PAGE>
age 65, (ii) occurs the tenth anniversary of the year in which the Participant
commenced participation in the Plan Year, or (iii) the Participant terminates
Service with the Employer.
(b) In the event that the Plan shall be subsequently amended to provide
for a form of distribution other than a lump sum, as of the first distribution
calendar year, distributions, if not made in a lump sum, may be made only over
one of the following periods (or a combination thereof):
(i) the life of the Participant,
(ii) the life of the Participant and the designated beneficiary,
(iii) a period certain not extending beyond the life expectancy of the
Participant, or
(iv) a period certain not extending beyond the joint and last survivor
expectancy of the Participant and a designated beneficiary.
(c) In the event that the Plan shall be subsequently amended to provide
for a form of distribution other than a lump sum, if the participant's interest
is to be distributed in other than a lump sum, the following minimum
distribution rules shall apply on or after the required beginning date:
(i) If a Participant's benefit is to be distributed over (1) a period
not extending beyond the life expectancy of the Participant or the
joint life and last survivor expectancy of the Participant and the
Participant's designated beneficiary or (2) a period not extending
beyond the life expectancy of the designated beneficiary, the amount
required to be distributed for each calendar year, beginning with
distributions for the first distribution calendar year, must at
least equal the quotient obtained by dividing the Participant's
benefit by the applicable life expectancy.
(ii) The amount to be distributed each year, beginning with distributions
for the first distribution calendar year shall not be less than the
quotient obtained by dividing the Participant's benefit by the
lesser of (1) the applicable life expectancy or (2) if the
Participant's spouse is not the designated beneficiary, the
applicable divisor determined from the table set forth in Q&A-4 of
section 1.401(a)(9)-2 of the Proposed Regulations. Distributions
after the death of the participant shall be distributed using the
applicable life expectancy in sub-section (iii) above as the
relevant divisor without regard to Proposed Regulations 1.401(a)(9)-
2.
34
<PAGE>
(iii) The minimum distribution required for the Participant's first
distribution calendar year must be made on or before the
Participant's required beginning date. The minimum distribution for
other calendar years, including the minimum distribution for the
distribution calendar year in which the employee's required
beginning date occurs, must be made on or before December 31 of the
distribution calendar year.
(d) If a Participant dies after a distribution has commenced in accordance
with Section 8.3(b) but before his entire interest has been distributed to him,
the remaining portion of such interest shall be distributed to his Beneficiary
at least as rapidly as under the method of distribution in effect as of the date
of his death.
(e) If a Participant shall die before the distribution of his interest in
the Plan has begun, the entire interest of the Participant shall be distributed
by December 31 of the calendar year containing the fifth anniversary of the
death of the Participant, except in the following events:
(i) If any portion of the Participant's interest is payable to (or for
the benefit of) a designated beneficiary over a period not extending
beyond the life expectancy of such beneficiary and such
distributions begin not later than December 31 of the calendar year
immediately following the calendar year in which the Participant
died.
(ii) If any portion of the Participant's interest is payable to (or for
the benefit of) the Participant's spouse over a period not extending
beyond the life expectancy of such spouse and such distributions
begin no later than December 31 of the calendar year in which the
Participant would have attained age 70-1/2.
If the Participant has not made a distribution election by the time
of his death, the Participant's designated beneficiary shall elect
the method of distribution no later than the earlier of (1) December
31 of the calendar year in which distributions would be required to
begin under this Article or (2) December 31 of the calendar year
which contains the fifth anniversary of the date of death of the
Participant. If the Participant has no designated beneficiary, or if
the designated beneficiary does not elect a method of distribution,
distribution of the Participant's entire interest shall be completed
by December 31 of the calendar year containing the fifth anniversary
of the Participant's death.
(f) For purposes of this Article, the life expectancy of a Participant and
his spouse may be redetermined but not more frequently than annually. The life
expectancy (or joint and last survivor expectancy) shall be calculated using the
attained age of the Participant (or designated beneficiary) as of the
Participant's (or designated beneficiary's) birthday in the applicable calendar
year reduced
35
<PAGE>
by one for each calendar year which has elapsed since the date life expectancy
was first calculated. If life expectancy is being recalculated, the applicable
life expectancy shall be the life expectancy as so recalculated. The applicable
calendar year shall be the first distribution calendar year, and if life
expectancy is being recalculated, such succeeding calendar year. Unless
otherwise elected by the Participant (or his spouse, if applicable) by the time
distributions are required to begin, life expectancies shall be recalculated
annually. Any such election not to recalculate shall be irrevocable and shall
apply to all subsequent years. The life expectancy of a nonspouse beneficiary
may not be recalculated.
(g) For purposes of Section 9.3(b) and 9.3(e), any amount paid to a child
shall be treated as if it had been paid to a surviving spouse if such amount
will become payable to the surviving spouse upon such child reaching majority
(or other designated event permitted under regulations).
(h) For distributions beginning before the Participant's death, the first
distribution calendar year is the calendar year immediately preceding the
calendar year which contains the Participant's required beginning date. For
distributions beginning after the Participant's death, the first distribution
calendar year is the calendar year in which distributions are required to begin
pursuant to this Article.
9.4 Required Beginning Dates.
The required beginning date of a Participant is the first day of April of
the calendar year following the later of (1) calendar year in which the
participant attains age 70-1/2 or (2) the calendar year in which the Participant
terminated his employment, unless he is a 5% owner (as defined in Section 416)
with respect to the Plan Year ending in the calendar year in which he attains
age 70-1/2, in which case clause (2) shall not apply.
9.5 Form of Payment.
Each Participant's vested interest shall be distributed in a lump sum
payment. Notwithstanding the preceding sentence, but subject to Section 9.3, the
Administrator may not distribute a lump sum when the present value of a
Participant's total Account balances is in excess of $5,000 without the
Participant's consent. This form of payment shall be the normal form of
distribution provided, however, that in the event that the Administrator must
commence distributions with respect to an Employee who has attained age 70-1/2
and is still employed by the Employer, if the Employee does not elect a lump sum
distribution, payments shall be made in installments in such amounts as shall
satisfy the minimum distribution rules of Section 9.3.
9.6 Payments Upon Termination of Plan.
Upon termination of this Plan pursuant to Sections 13.2, 13.4, 13.5 or
13.6, the Administrator shall continue to perform its duties and the Trustee
shall make all payments upon the following terms, conditions and provisions: All
interests of Participants shall immediately become fully vested;
36
<PAGE>
the value of the interests of all Participants shall be determined as soon as
administratively praticable after such termination, and the Administrator shall
have the same powers to direct the Trustee in making payments as contained in
Sections 9.1 and 13.5.
9.7 Distributions Pursuant to Qualified Domestic Relations Orders.
Upon receipt of a domestic relations order, the Administrator shall notify
promptly the Participant and any alternate payee of receipt of the order and the
Plan's procedure for determining whether the order is a Qualified Domestic
Relations Order. While the issue of whether a domestic relations order is a
Qualified Domestic Relations Order is being determined, if the benefits would
otherwise be paid, the Administrator shall segregate in a separate account in
the Plan the amounts that would be payable to the alternate payee during such
period if the order were a Qualified Domestic Relations Order. If within 18
months the order is determined to be a Qualified Domestic Relations Order, the
amounts so segregated, along with the interest or investment earnings
attributable thereto shall be paid to the alternate payee. Alternatively, if
within 18 months, it is determined that the order is not a Qualified Domestic
Relations Order or if the issue is still unresolved, the amounts segregated
under this Section 9.6, with the earnings attributable thereto, shall be paid to
the Participant or Beneficiary who would have been entitled to such amounts if
there had been no order. The determination as to whether the order is qualified
shall be applied prospectively. Thus, if the Administrator determines that the
order is a Qualified Domestic Relations Order after the 18-month period, the
Plan shall not be liable for payments to the alternative payee for the period
before the order is determined to be a Qualified Domestic Relations Order.
9.8 Cash-Out Distributions
If a Participant receives a distribution of the entire present value of his
vested Account balances under this Plan because of the termination of his
participation in the Plan, the Plan shall disregard a Participant's Service with
respect to which such cash-out distribution shall have been made, in computing
his accrued benefit under the Plan in the event that a Former Participant shall
again become an Employee and become eligible to participate in the Plan. Such a
distribution shall be deemed to be made on termination of participation in the
Plan if it is made not later than the close of the second Plan Year following
the Plan Year in which such termination occurs. The forfeitable portion of a
Participant's accrued benefit shall be restored upon repayment to the Plan by
such former Participant of the full amount of the cash-out distribution,
provided that the former Participant again becomes an Employee. Such repayment
must be made by the Employee not later than the end of the five-year period
beginning with the date of the distribution. Forfeitures required to be
restored by virtue of such repayment shall be restored from the following
sources in the following order of preference: (i) current forfeitures; (ii)
additional employee stock ownership contributions, as appropriate and as subject
to Section 5.6; and (iii) investment earnings of the Fund. In the event that a
Participant's interest in the Plan is totally forfeitable, a Participant shall
be deemed to have received a distribution of zero upon his termination of
Service. In the event of a return to Service within five years of the date of
his deemed distribution, the Participant shall be deemed to have repaid his
distribution in accordance with the rules of this Section 9.8.
37
<PAGE>
9.9 ESOP Distribution Rules.
Notwithstanding any provision of this Article IX to the contrary, the
distribution of a Participant's Employee Stock Ownership Account (unless the
Participant elects otherwise in writing), shall commence as soon as
administratively feasible as of the first Valuation Date coincident with or next
following his death, disability or termination of Service, but not later than
one year after the close of the Plan Year in which the Participant separates
from Service by reason of the attainment of his Normal Retirement Date,
disability, death or separation from Service. In addition, all distributions
hereunder shall, to the extent that the Participant's Account is invested in
Employer Securities, be made in the form of Employer Securities. Fractional
shares, however, may be distributed in the form of cash.
9.10 Withholding.
(a) Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under this Article IX, a distributee
may elect, at the time and in the manner prescribed by the Plan Administrator,
to have any portion of an "eligible rollover distribution" paid directly to an
"eligible retirement plan" specified by the distributee in a "direct rollover."
(b) For purposes of this Section 9.10, an "eligible rollover distribution"
is any distribution of all or any portion of the balance to the credit of the
distributee, except that an "eligible rollover distribution" does not include:
any distribution that is one of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the distributee or the joint lives (or joint life expectancies)
of the distributee and the distributee's designated beneficiary, or for a
specified period of 10 years or more; any distribution to the extent such
distribution is required under section 401(a)(9) of the Code; and the portion of
any distribution that is not includable in gross income (determined without
regard to the exclusion for net unrealized appreciation with respect to Employer
Securities).
(c) For purposes of this Section 9.10, an "eligible retirement plan" is an
individual retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code, or a qualified trust
described in section 401(a) of the Code, that accepts the distributee's eligible
rollover distribution. However, in the case of an "eligible rollover
distribution" to the surviving spouse, an "eligible retirement plan" is an
individual retirement account or individual retirement annuity.
(d) For purposes of this Section 9.10, a distributee includes a
Participant or former Participant. In addition, the Participant's or former
Participant's surviving spouse and the Participant's or former Participant's
spouse or former spouse who is the alternate payee under a qualified domestic
relations order, as defined in section 414(p) of the Code, are "distributees"
with regard to the interest of the spouse or former spouse.
38
<PAGE>
(e) For purposes of this Section 9.10, a "direct rollover" is a payment by
the Plan to the "eligible retirement plan" specified by the distributee.
9.11 Waiver of 30-day Notice.
If a distribution is one to which sections 401(a)(11) and 417 of the Code
do not apply, such distribution may commence less than 30 days after the notice
required under Section 1.411(a)-11(c) of the Income Tax Regulations is given,
provided that: (1) the Plan Administrator clearly informs the Participant that
the Participant has a right to a period of at least 30 days after receiving the
notice to consider the decision of whether or not to elect a distribution (and,
if applicable, a particular distribution option), and (2) the Participant, after
receiving the notice, affirmatively elects a distribution.
39
<PAGE>
ARTICLE X
PROVISIONS RELATING TO TOP-HEAVY PLANS
10.1 Top-Heavy Rules to Control.
Anything contained in this Plan to the contrary notwithstanding, if for any
Plan Year the Plan is a top-heavy plan, as determined pursuant to Section 416 of
the Code, then the Plan must meet the requirements of this Article X for such
Plan Year.
10.2 Top-Heavy Plan Definitions.
Unless a different meaning is plainly implied by the context, the following
terms as used in this Article X shall have the following meanings:
(a) "Accrued Benefit" shall mean the account balances or accrued benefits
of an Employee, calculated pursuant to Section 10.3.
(b) "Determination Date" shall mean, with respect to any particular Plan
Year of this Plan, the last day of the preceding Plan Year (or, in the case of
the first Plan Year of the Plan, the last day of the first Plan Year). In
addition, the term "Determination Date" shall mean, with respect to any
particular plan year of any plan (other than this Plan) in a Required
Aggregation Group or a Permissive Aggregation Group, the last day of the plan
year of such plan which falls within the same calendar year as the Determination
Date for this Plan.
(c) "Employer" shall mean the Employer (as defined in Section 1.1(q)) and
any entity which is (1) a member of a controlled group including such Employer,
while it is a member of such controlled group (within the meaning of Section
414(b) of the Code), (2) in a group of trades or businesses under common control
with such Employer, while it is under common control (within the meaning of
Section 414(c) of the Code), and (3) a member of an affiliated service group
including such Employer, while it is a member of such affiliated service group
(within the meaning of Section 414(m) of the Code).
(d) "Key Employee" shall mean any Employee or former Employee (or any
Beneficiary of such Employee or former Employee, as the case may be) who, at any
time during the Plan Year or during the four immediately preceding Plan Years is
one of the following:
(1) An officer of the Employer who has compensation greater than 50% of
the amount in effect under Code 415(b)(1)(A) for the Plan Year;
provided, however, that no more than 50 Employees (or, if lesser,
the greater of three or 10% of the Employees) shall be deemed
officers;
40
<PAGE>
(2) One of the 10 Employees having annual compensation (as defined in
Section 415 of the Code) in excess of the limitation in effect under
Section 415(c)(1)(A) of the Code, and owning (or considered as
owning, within the meaning of Section 318 of the Code) the largest
interests in the Employer;
(3) Any Employee owning (or considered as owning, within the meaning of
Section 318 of the Code) more than 5% of the outstanding stock of
the Employer or stock possessing more than 5% of the total combined
voting power of all stock of the Employer; or
(4) Any Employee having annual compensation (as defined in Section 415
of the Code) of more than $150,000 and who would be described in
Section 10.2(d)(3) if "1%" were substituted for "5%" wherever the
latter percentage appears.
For purposes of applying Section 318 of the Code to the provisions
of this Section 10.2(d), Section 318(a)(2)(C) of the Code shall be
applied by substituting "5%" for "50%" wherever the latter
percentage appears. In addition, for purposes of this Section
10.2(d), the provisions of Section 414(b), (c) and (m) shall not
apply in determining ownership interests in the Employer. However,
for purposes of determining whether an individual has compensation
in excess of $150,000, or whether an individual is a Key Employee
under Section 10.2(d)(1) and (2), compensation from each entity
required to be aggregated under Sections 414(b), (c) and (m) of the
Code shall be taken into account. Notwithstanding anything contained
herein to the contrary, all determinations as to whether a person is
or is not a Key Employee shall be resolved by reference to Section
416 of the Code and any rules and regulations promulgated
thereunder.
(e) "Non-Key Employee" shall mean any Employee or former Employee (or any
Beneficiary of such Employee or former Employee, as the case may be) who is not
considered to be a Key Employee with respect to this Plan.
(f) "Permissive Aggregation Group" shall mean all plans in the Required
Aggregation Group and any other plans maintained by the Employer which satisfy
Sections 401(a)(4) and 410 of the Code when considered together with the
Required Aggregation Group.
(g) "Required Aggregation Group" shall mean each plan (including any
terminated plan) of the Employer in which a Key Employee is (or in the case of a
terminated plan, had been) a Participant in the Plan Year containing the
Determination Date or any of the four preceding Plan Years, and each other plan
of the Employer which enables any plan of the Employer in which a Key Employee
is a Participant to meet the requirement of Sections 401(a)(4) and 410 of the
Code.
41
<PAGE>
10.3 Calculation of Accrued Benefits.
(a) An Employee's Accrued Benefit shall be equal to:
(1) With respect to this Plan or any other defined contribution plan
(other than a defined contribution pension plan) in a Required
Aggregation Group or a Permissive Aggregation Group, the Employee's
account balances under the respective plan, determined as of the
most recent plan valuation date within a 12-month period ending on
the Determination Date, including contributions actually made after
the valuation date but before the Determination Date (and, in the
first plan year of a plan, also including any contributions made
after the Determination Date which are allocated as of a date in the
first plan year).
(2) With respect to any defined contribution pension plan in a Required
Aggregation Group or a Permissive Aggregation Group, the Employee's
account balances under the plan, determined as of the most recent
plan valuation date within a 12-month period ending on the
Determination Date, including contributions which have not actually
been made, but which are due to be made as of the Determination
Date.
(3) With respect to any defined benefit plan in a Required Aggregation
Group or a Permissive Aggregation Group, the present value of the
Employee's accrued benefits under the plan, determined as of the
most recent plan valuation date within a 12-month period ending on
the Determination Date, pursuant to the actuarial assumptions used
by such plan, and calculated as if the Employee terminated Service
under such plan as of the valuation date (except that, in the first
plan year of a plan, a current Participant's estimated Accrued
Benefit Plan as of the Determination Date shall be taken into
account).
(4) If any individual has not performed services for the Employer
maintaining the Plan at any time during the five-year period ending
on the Determination Date, any Accrued Benefit for such individual
shall not be taken into account.
(b) The Accrued Benefit of any Employee shall be further adjusted as
follows:
(1) The Accrued Benefit shall be calculated to include all amounts
attributable to both Employer and Employee contributions, but shall
exclude amounts attributable to voluntary deductible Employee
contributions, if any.
(2) The Accrued Benefit shall be increased by the aggregate
distributions made with respect to an Employee under the plan or
plans, as the case may be, during the five-year period ending on the
Determination Date.
42
<PAGE>
(3) Rollover and direct plan-to-plan transfers shall be taken into
account as follows:
(A) If the transfer is initiated by the Employee and made from a
plan maintained by one employer to a plan maintained by another
unrelated employer, the transferring plan shall continue to
count the amount transferred; the receiving plan shall not
count the amount transferred.
(B) If the transfer is not initiated by the Employee or is made
between plans maintained by related employers, the transferring
plan shall no longer count the amount transferred; the
receiving plan shall count the amount transferred.
(c) If any individual has not performed services for the Employer at any
time during the five-year period ending on the Determination Date, any accrued
benefit for such individual (and the account of such individual) shall not be
taken into account.
10.4 Determination of Top-Heavy Status.
This Plan shall be considered to be a top-heavy plan for any Plan Year if,
as of the Determination Date, the value of the Accrued Benefits of Key Employees
exceeds 60% of the value of the Accrued Benefits of all eligible Employees under
the Plan. Notwithstanding the foregoing, if the Employer maintains any other
qualified plan, the determination of whether this Plan is top-heavy shall be
made after aggregating all other plans of the Employer in the Required
Aggregation Group and, if desired by the Employer as a means of avoiding top-
heavy status, after aggregating any other plan of the Employer in the Permissive
Aggregation Group. If the required Aggregation Group is top-heavy, then each
plan contained in such group shall be deemed to be top-heavy, notwithstanding
that any particular plan in such group would not otherwise be deemed to be top-
heavy. Conversely, if the Permissive Aggregation Group is not top-heavy, then
no plan contained in such group shall be deemed to be top-heavy, notwithstanding
that any particular plan in such group would otherwise be deemed to be top-
heavy. In no event shall a plan included in a top-heavy Permissive Aggregation
Group be deemed a top-heavy plan unless such plan is also included in a top-
heavy Required Aggregation Group.
43
<PAGE>
10.5 Determination of Super Top-Heavy Status.
The Plan shall be considered to be a super top-heavy plan if, as of the
Determination Date, the Plan would meet the test specified in Section 10.4 above
for classification as a top-heavy plan, except that "90%" shall be substituted
for "60%" whenever the latter percentage appears.
10.6 Minimum Contribution.
(a) For any year in which the Plan is top-heavy, each Non-Key Employee who
has met the age and service requirements, if any, contained in the Plan, shall
be entitled to a minimum contribution (which may include forfeitures otherwise
allocable) equal to a percentage of such Non-Key Employee's compensation (as
defined in Section 415 of the Code) as follows:
(1) If the Non-Key Employee is not covered by a defined benefit plan
maintained by the Employer, then the minimum contribution under this
Plan shall be 3% of such Non-Key Employee's compensation.
(2) If the Non-Key Employee is covered by a defined benefit plan
maintained by the Employer, then the minimum contribution under this
Plan shall be 5% of such Non-Key Employee's compensation.
(b) Notwithstanding the foregoing, the minimum contribution otherwise
allocable to a Non-Key Employee under this Plan shall be reduced in the
following circumstances:
(1) The percentage minimum contribution required under this Plan shall
in no event exceed the percentage contribution made for the Key
Employee for whom such percentage is the highest for the Plan Year
after taking into account contributions under other defined
contribution plans in this Plan's Required Aggregation Group;
provided, however, that this Section 10.7(b)(1) shall not apply if
this Plan is included in a Required Aggregation Group and this Plan
enables a defined benefit plan in such Required Aggregation Group to
meet the requirements of Section 401(a)(4) or 410 of the Code.
(2) No minimum contribution shall be required (or the minimum
contribution shall be reduced, as the case may be) for a Non-Key
Employee under this Plan for any Plan Year if the Employer maintains
another qualified plan under which a minimum benefit or contribution
is being accrued or made on account of such Plan Year, in whole or
in part, on behalf of the Non-Key Employee, in accordance with
Section 416(c) of the Code.
(c) For purposes of this Section 10.6, there shall be disregarded (1) any
Employer contributions attributable to a salary reduction or similar
arrangement, or (2) any Employer
44
<PAGE>
contributions to or any benefits under Chapter 21 of the Code (relating to the
Federal Insurance Contributions Act), Title II of the Social Security Act, or
any other federal or state law.
(d) For purposes of this Section 10.6, minimum contributions shall be
required to be made on behalf of only those Non-Key Employees, as described in
Section 10.7(a), who have not terminated Service as of the last day of the Plan
Year. If a Non-Key Employee is otherwise entitled to receive a minimum
contribution pursuant to this Section 10.6(d), the fact that such Non-Key
Employee failed to complete 1,000 Hours of Service or failed to make any
mandatory or elective contributions under this Plan, if any are so required,
shall not preclude him from receiving such minimum contribution.
10.7 Maximum Benefit Limitation.
For any Plan Year in which the Plan is a top-heavy plan, Section
5.6(d)(1)(B)(i) and Section 5.6(d)(2)(B)(i)shall be read by substituting "1.0"
for "1.25" wherever the latter figure appears; provided, however, that such
substitution shall not have the effect of reducing any benefit accrued under a
defined benefit plan prior to the first day of the plan year in which this
Section 10.8 becomes applicable.
45
<PAGE>
ARTICLE XI
ADMINISTRATION
11.1 Appointment of Administrator.
This Plan shall be administered by a committee consisting of up to five
persons, whether or not Employees or Participants, who shall be appointed from
time to time by the Board of Directors to serve at its pleasure. The Sponsor
may require that each person appointed as an Administrator shall signify his
acceptance by filing an acceptance with the Sponsor. The term "Administrator"
as used in this Plan shall refer to the members of the committee, either
individually or collectively, as appropriate. In the event that the Sponsor
shall elect not to appoint any individuals to constitute a committee to
administer the Plan, the Sponsor shall serve as the Administrator hereunder.
11.2 Resignation or Removal of Administrator.
An Administrator shall have the right to resign at any time by giving
notice in writing, mailed or delivered to the Employer and to the Trustee. Any
Administrator who was an employee of the Employer at the time of his appointment
shall be deemed to have resigned as an Administrator upon his termination of
Service. The Board of Directors may, in its discretion, remove any
Administrator with or without cause, by giving notice in writing, mailed or
delivered to the Administrator and to the Trustee.
11.3 Appointment of Successors: Terms of Office, Etc.
Upon the death, resignation or removal of an Administrator, the Employer
may appoint, by Board of Directors' resolution, a successor or successors.
Notice of termination of an Administrator and notice of appointment of a
successor shall be made by the Employer in writing, with copies mailed or
delivered to the Trustee, and the successor shall have all the rights and
privileges and all of the duties and obligations of the predecessor.
11.4 Powers and Duties of Administrator.
The Administrator shall have the following duties and responsibilities in
connection with the administration of this Plan:
(a) To promulgate and enforce such rules, regulations and procedures as
shall be proper for the efficient administration of the Plan, such rules,
regulations and procedures to apply uniformly to all Employees, Participants and
Beneficiaries;
(b) To determine all questions arising in the administration,
interpretation and application of the Plan, including questions of eligibility
and of the status and rights of Participants, Beneficiaries and any other
persons hereunder;
46
<PAGE>
(c) To decide any dispute arising hereunder strictly in accordance with the
terms of the Plan; provided, however, that no Administrator shall participate in
any matter involving any questions relating solely to his own participation or
benefits under this Plan;
(d) To advise the Employer and the Trustee regarding the known future needs
for funds to be available for distribution in order that the Trustee may
establish investments accordingly;
(e) To correct defects, supply omissions and reconcile inconsistencies to
the extent necessary to effectuate the Plan;
(f) To advise the Employer of the maximum deductible contribution to the
Plan for each fiscal year;
(g) To direct the Trustee concerning all payments which shall be made out
of the Fund pursuant to the provisions of this Plan;
(h) To advise the Trustee on all terminations of Service by Participants,
unless the Employer has so notified the Trustee;
(i) To confer with the Trustee on the settling of any claims against the
Fund;
(j) To make recommendations to the Board of Directors with respect to
proposed amendments to the Plan and the Trust Agreement;
(k) To file all reports with government agencies, Employees and other
parties as may be required by law, whether such reports are initially the
obligation of the Employer, the Plan or the Trustee; and
(l) To have all such other powers as may be necessary to discharge its
duties hereunder.
Reasonable discretion is granted to the Administrator to affect the
benefits, rights and privileges of Participants, Beneficiaries or other persons
affected by this Plan. The Administrator shall exercise reasonable discretion
under the terms of this Plan and shall administer the Plan strictly in
accordance with its terms, such administration to be exercised uniformly so that
all persons similarly situated shall be similarly treated.
11.5 Action by Administrator.
The Administrator may elect a Chairman and Secretary from among its members
and may adopt rules for the conduct of its business. A majority of the members
then serving shall constitute a quorum for the transaction of business. All
resolutions or other action taken by the Administrator shall be by vote of a
majority of those present at such meeting and entitled to vote. Resolutions may
be adopted or other action taken without a meeting upon written consent signed
by at least a majority
47
<PAGE>
of the members. All documents, instruments, orders, requests, directions,
instructions and other papers shall be executed on behalf of the Administrator
by either the Chairman or the Secretary of the Administrator, if any, or by any
member or agent of the Administrator duly authorized to act on the
Administrator's behalf.
11.6 Participation by Administrators.
No Administrator shall be precluded from becoming a Participant in the Plan
if he would be otherwise eligible, but he shall not be entitled to vote or act
upon matters or to sign any documents relating specifically to his own
participation under the Plan, except when such matters or documents relate to
benefits generally. If this disqualification results in the lack of a quorum,
then the Board of Directors shall appoint a sufficient number of temporary
Administrators who shall serve for the sole purpose of determining such a
question.
11.7 Agents.
The Administrator may employ agents and provide for such clerical, legal,
actuarial, accounting, medical, advisory or other services as it deems necessary
to perform its duties under this Plan. The cost of such services and all other
expenses incurred by the Administrator in connection with the administration of
the Plan shall be paid from the Fund, unless paid by the Employer.
11.8 Allocation of Duties.
The duties, powers and responsibilities reserved to the Administrator may
be allocated among its members so long as such allocation is pursuant to written
procedures adopted by the Administrator, in which case, except as may be
required by the Act, no Administrator shall have any liability, with respect to
any duties, powers or responsibilities not allocated to him, for the acts of
omissions of any other Administrator.
11.9 Delegation of Duties.
The Administrator may delegate any of its duties to other employees of the
Employer, to the Trustee with its consent, or to any other person or firm,
provided that the Administrator shall prudently choose such agents and rely in
good faith on their actions.
11.10 Administrator's Action Conclusive.
Any action on matters within the authority of the Administrator shall be
final and conclusive except as provided in Article XII.
48
<PAGE>
11.11 Compensation and Expenses of Administrator.
No Administrator who is receiving compensation from the Employer as a full-
time employee, as a director or agent, shall be entitled to receive any
compensation or fee for his services hereunder. Any other Administrator shall be
entitled to receive such reasonable compensation for his services as an
Administrator hereunder as may be mutually agreed upon between the Employer and
such Administrator. Any such compensation shall be paid from the Fund, unless
paid by the Employer. Each Administrator shall be entitled to reimbursement by
the Employer for any reasonable and necessary expenditures incurred in the
discharge of his duties.
11.12 Records and Reports.
The Administrator shall maintain adequate records of its actions and
proceedings in administering this Plan and shall file all reports and take all
other actions as it deems appropriate in order to comply with the Act, the Code
and governmental regulations issued thereunder.
11.13 Reports of Fund Open to Participants.
The Administrator shall keep on file, in such form as it shall deem
convenient and proper, all annual reports of the Fund received by the
Administrator from the Trustee, and a statement of each Participant's interest
in the Fund as from time to time determined. The annual reports of the Fund and
the statement of his own interest in the Fund, as well as a complete copy of the
Plan and the Trust Agreement and copies of annual reports to the Internal
Revenue Service, shall be made available by the Administrator to the Employer
for examination by each Participant during reasonable hours at the office of the
Employer, provided, however, that the statement of a Participant's interest
shall not be made available for examination by any other Participant.
11.14 Named Fiduciary.
The Administrator is the named fiduciary for purposes of the Act and shall
be the designated agent for receipt of service of process on behalf of the Plan.
It shall use ordinary care and diligence in the performance of its duties under
this Plan. Nothing in this Plan shall preclude the Employer from indemnifying
the Administrator for all actions under this Plan, or from purchasing liability
insurance to protect it with respect to its duties under this Plan.
11.15 Information from Employer.
The Employer shall promptly furnish all necessary information to the
Administrator to permit it to perform its duties under this Plan. The
Administrator shall be entitled to rely upon the accuracy and completeness of
all information furnished to it by the Employer, unless it knows or should have
known that such information is erroneous.
49
<PAGE>
11.16 Reservation of Rights by Employer.
Where rights are reserved in this Plan to the Employer, such rights shall
be exercised only by action of the Board of Directors, except where the Board of
Directors, by written resolution, delegates any such rights to one or more
officers of the Employer or to the Administrator. Subject to the rights
reserved to the Board of Directors acting on behalf of the Employer as set forth
in this Plan, no member of the Board of Directors shall have any duties or
responsibilities under this Plan, except to the extent he shall be acting in the
capacity of an Administrator or Trustee.
11.17 Liability and Indemnification.
(a) The Administrator shall perform all duties required of it under this
Plan in a prudent manner. To the extent not prohibited by the Act, the
Administrator shall not be responsible in any way for any action or omission of
the Employer, the Trustee or any other fiduciaries in the performance of their
duties and obligations set forth in this Plan and in the Trust Agreement. To
the extent not prohibited by the Act, the Administrator shall also not be
responsible for any act or omission of any of its agents, or with respect to
reliance upon advice of its counsel (whether or not such counsel is also counsel
to the Employer or the Trustee), provided that such agents or counsel were
prudently chosen by the Administrator and that the Administrator relied in good
faith upon the action of such agent or the advice of such counsel.
(b) The Administrator shall not be relieved from responsibility or
liability for any responsibility, obligation or duty imposed upon it under this
Plan or under the Act. Except for its own gross negligence, willful misconduct
or willful breach of the terms of this Plan, the Administrator shall be
indemnified and held harmless by the Employer against liability or losses
occurring by reason of any act or omission of the Administrator to the extent
that such indemnification does not violate the Act or any other federal or state
laws.
11.18 Service as Trustee and Administrator.
Nothing in this Plan shall prevent one or more Trustees from serving as
Administrator under this Plan.
50
<PAGE>
ARTICLE XII
CLAIMS PROCEDURE
12.1 Notice of Denial.
If a Participant or his Beneficiary is denied any benefits under this Plan,
either in whole or in part, the Administrator shall advise the claimant in
writing of the amount of his benefit, if any, and the specific reasons for the
denial. The Administrator shall also furnish the claimant at that time with a
written notice containing:
(a) A specific reference to pertinent Plan provisions;
(b) A description of any additional material or information necessary for
the claimant to perfect his claim, if possible, and an explanation of why such
material or information is needed; and
(c) An explanation of the Plan's claim review procedure.
12.2 Right to Reconsideration.
Within 60 days of receipt of the information described in 12.1 above, the
claimant shall, if he desires further review, file a written request for
reconsideration with the Administrator.
12.3 Review of Documents.
So long as the claimant's request for review is pending (including the 60-
day period described in Section 12.2 above), the claimant or his duly authorized
representative may review pertinent Plan documents and the Trust Agreement (and
any pertinent related documents) and may submit issues and comments in writing
to the Administrator.
12.4 Decision by Administrator.
A final and binding decision shall be made by the Administrator within 60
days of the filing by the claimant of his request for reconsideration; provided,
however, that if the Administrator feels that a hearing with the claimant or his
representative present is necessary or desirable, this period shall be extended
an additional 60 days.
12.5 Notice by Administrator.
The Administrator's decision shall be conveyed to the claimant in writing
and shall include specific reasons for the decision, written in a manner
calculated to be understood by the claimant, with specific references to the
pertinent Plan provisions on which the decision is based.
51
<PAGE>
ARTICLE XIII
AMENDMENTS, TERMINATION AND MERGER
13.1 Amendments.
The Employer reserves the right at any time and from time to time, and
retroactively if deemed necessary or appropriate by it, to the extent
permissible under law, to conform with governmental regulations or other
policies, to amend in whole or in part any or all of the provisions of this
Plan, provided that:
(a) No amendment shall make it possible for any part of the Fund to be used
for, or diverted to, purposes other than for the exclusive benefit of
Participants or their Beneficiaries under the Trust Agreement, except to the
extent provided in Section 4.4;
(b) No amendment may, directly or indirectly, reduce the vested portion of
any Participant's interest as of the effective date of the amendment or change
the vesting schedule with respect to the future accrual of Employer
contributions for any Participants unless each Participant with three or more
Years of Service with the Employer is permitted to elect to have the vesting
schedule in effect before the amendment used to determine his vested benefit;
(c) No amendment may eliminate an optional form of benefit;
(d) No amendment may increase the duties of the Trustee without its
consent; and
(e) No amendment that shall change any of the following types of provisions
shall be made more than once every six months, other than to comport with
changes in the Code, the Act or the regulations thereunder: (i) any provision
stating the amount and price of Employer Securities to be awarded to designated
officers and directors or categories of officers and directors; (ii) any
provisions specifying the timing of awards or allocations to officers and
directors; (iii) any provision setting forth a formula that determines the
amount, price and timing of allocations or awards, using objective criteria such
as earnings of the issuer, value of the Employer Securities, Years of Service,
job classification and Compensation levels.
Amendments may be made in the form of Board of Directors' resolutions or
separate written document. Copies of all amendments shall be delivered to the
Trustee.
13.2 Consolidation, Merger or Other Transactions of Employer.
Nothing in this Plan shall prevent the consolidation, merger,
reorganization or liquidation of the Employer, or prevent the sale by Employer
of any or all of its property. Any successor corporation or other entity formed
and resulting from any such transaction shall have the right to become a party
to this Plan by adopting the same by resolution and by appointing a new Trustee
as
52
<PAGE>
though the Trustee had resigned in accordance with the Trust Agreement, and by
executing a proper supplemental agreement with the Trustee. If, within 180 days
from the effective date of such transaction, such new entity does not become a
party to this Plan as above provided, this Plan shall automatically be
terminated and the Trustee shall make payments to the persons entitled thereto
in accordance with Section 9.5.
13.3 Consolidation or Merger of Trust.
In the event of any merger or consolidation of the Fund with, or transfer
in whole or in part of the assets and liabilities of the Fund to, another trust
fund held under any other plan of deferred compensation maintained or to be
established for the benefit of all or some of the Participants of this Plan, the
assets of the Fund applicable to such Participants shall be transferred to the
other trust fund only if:
(a) Each Participant would receive a benefit under such successor trust
fund immediately after the merger, consolidation or transfer which is equal to
or greater than the benefit he would have been entitled to receive immediately
before the merger, consolidation or transfer (determined as if this Plan and
such transferee trust fund had then terminated);
(b) Resolutions of the Board of Directors under this Plan, or of any new or
successor employer of the affected Participants, shall authorize such transfer
of assets, and, in the case of the new or successor employer of the affected
Participants, its resolutions shall include an assumption of liabilities with
respect to such Participants' inclusion in the new employer's plan; and
(c) Such other plan and trust are qualified under Sections 401(a) and
501(a) of the Code.
13.4 Bankruptcy or Insolvency of Employer.
In the event of (a) the Employer's legal dissolution or liquidation by any
procedure other than a consolidation or merger, (b) the Employer's receivership,
insolvency, or cessation of its business as a going concern, or (c) the
commencement of any proceeding by or against the Employer under the federal
bankruptcy laws, and similar federal or state statute, or any federal or state
statute or rule providing for the relief of debtors, compensation of creditors,
arrangement, receivership, liquidation or any similar event which is not
dismissed within 30 days, this Plan shall terminate automatically on such date
(provided, however, that if a proceeding is brought against the Employer for
reorganization under Chapter 11 of the United States Bankruptcy Code or any
similar federal or state statute, then this Plan shall terminate automatically
if and when said proceeding results in a liquidation of the Employer, or the
approval of any Plan providing therefor, or the proceeding is converted to a
case under Chapter 7 of the Bankruptcy Code or any similar conversion to a
liquidation proceeding under federal or state law including, but not limited to,
a receivership proceeding). In the event of any such termination as provided in
the foregoing sentence, the Trustee shall make payments to the persons entitled
thereto in accordance with Section 9.5 hereof.
53
<PAGE>
13.5 Voluntary Termination.
The Board of Directors reserves the right to terminate this Plan at any time by
giving to the Trustee and the Administrator notice in writing of such desire to
terminate. The Plan shall terminate upon the date of receipt of such notice,
the interests of all Participants shall become fully vested, and the Trustee
shall make payments to each Participant or Beneficiary in accordance with
Section 9.5. Alternatively, the Employer, in its discretion, may determine to
continue the Trust Agreement and to continue the maintenance of the Fund, in
which event distributions shall be made upon the contingencies and in all the
circumstances which would have been entitled such distributions on a fully
vested basis, had there been no termination of the Plan.
13.6 Partial Termination of Plan or Permanent Discontinuance of
Contributions.
In the event that a partial termination of the Plan shall be deemed to have
occurred, or if the Employer shall discontinue completely its contributions
hereunder, the right of each affected Participant to his interest in the Fund
shall be fully vested. The Employer, in its discretion, shall decide whether to
direct the Trustee to make immediate distribution of such portion of the Fund
assets to the persons entitled thereto or to make distribution in the
circumstances and contingencies which would have controlled such distributions
if there had been no partial termination or discontinuance of contributions.
54
<PAGE>
ARTICLE XIV
MISCELLANEOUS
14.1 No Diversion of Funds.
It is the intention of the Employer that it shall be impossible for any
part of the corpus or income of the Fund to be used for, or diverted to,
purposes other than for the exclusive benefit of the Participants or their
Beneficiaries, except to extent that a return of the Employer's contribution is
permitted under Section 4.4.
14.2 Liability Limited.
Neither the Employer nor the Administrator, nor any agents, employees,
officers, directors or shareholders of any of them, nor the Trustee, nor any
other person shall have any liability or responsibility with respect to this
Plan, except as expressly provided herein.
14.3 Incapacity.
If the Administrator shall receive evidence satisfactory to it that a
Participant or Beneficiary entitled to receive any benefit under the Plan is, at
the time when such benefit becomes payable, a minor, or is physically or
mentally incompetent to receive such benefit and to give a valid release
therefor, and that another person or an institution is then maintaining or has
custody of such Participant or Beneficiary, and that no guardian, committee or
other representative of the estate of such Participant or Beneficiary shall have
been duly appointed, the Administrator may direct the Trustee to make payment of
such benefit otherwise payable to such Participant or Beneficiary, to such other
person or institution, including a custodian under a Uniform Gifts to Minor Act,
or corresponding legislation (who shall be an adult, a guardian of the minor or
a trust company), and the release of such other person or institution shall be a
valid and complete discharge for the payment of such benefit.
14.4 Spendthrift Clause.
Except as permitted by the Act or the Code, no benefits or other amounts
payable under the Plan shall be subject in any manner to anticipation, sale,
transfer, assignment, pledge, encumbrance, charge or alienation. If the
Administrator determines that any person entitled to any payments under the Plan
has become insolvent or bankrupt or has attempted to anticipate, sell, transfer,
assign, pledge, encumber, charge or otherwise in any manner alienate any benefit
or other amount payable to him under the Plan or that there is any danger of any
levy or attachment or other court process or encumbrance on the part of any
creditor of such person entitled to payments under the Plan against any benefit
or other accounts payable to such person, the Administrator may, at any time, in
its discretion, direct the Trustee to withhold any or all payments to such
person under the Plan and apply the same for the benefit of such person, in such
manner and in such proportion as the
55
<PAGE>
Administrator may deem proper. Notwithstanding anything in this Section 14.4 to
the contrary, distributions pursuant to a Qualified Domestic Relations Order may
be made without regard to the age or employment status of the Participant.
14.5 Benefits Limited to Fund.
All contributions by the Employer to the Fund shall be voluntary, and the
Employer shall be under no legal liability to make any such contributions. The
benefits of this Plan shall be only as can be provided by the assets of the
Fund, and no liability for the payment of benefits under the Plan or for any
loss of assets due to any action or inaction of the Trustee shall be imposed
upon the Employer.
14.6 Cooperation of Parties.
All parties to this Plan and any party claiming interest hereunder agree to
perform any and all acts and execute any and all documents and papers which are
necessary and desirable for carrying out this Plan or any of its provisions.
14.7 Payments Due Missing Persons.
The Administrator shall direct the Trustee to make a reasonable effort to
locate all persons entitled to benefits under the Plan; however, notwithstanding
any provision in the Plan to the contrary, if, after a period of five years from
the date such benefit shall be due, any such persons entitled to benefits have
not been located, their rights under the Plan shall stand suspended. Before
this provision becomes operative, the Trustee shall send a certified letter to
all such persons at their last known address advising them that their interest
in benefits under the Plan shall be suspended. Any such suspended amounts shall
be held by the Trustee for a period of three additional years (or a total of
eight years from the time the benefits first became payable), and thereafter
such amounts shall be reallocated among current Participants in the same manner
that a current contribution would be allocated. However, if a person
subsequently makes a valid claim with respect to such reallocated amounts and
any earnings thereon, the Plan earnings or the Employer's contribution to be
allocated for the year in which the claim shall be paid shall be reduced by the
amount of such payment. Any such suspended amounts shall be handled in a manner
not inconsistent with regulations issued by the Internal Revenue Service and
Department of Labor.
14.8 Governing Law.
This Plan has been executed in the State of Missouri and all questions
pertaining to its validity, construction and administration shall be determined
in accordance with the laws of that State, except to the extent superseded by
the Act.
56
<PAGE>
14.9 Nonguarantee of Employment.
Nothing contained in this Plan shall be construed as a contract of
employment between the Employer and any Employee, or as a right of any Employee
to be continued in the employment of the Employer, or as a limitation of the
right of the Employer to discharge any of its Employees, with or without cause.
14.10 Counsel.
The Trustee and the Administrator may consult with legal counsel, who may
be counsel for the Employer and for the Administrator or the Trustee (as the
case may be), with respect to the meaning or construction of this Plan and the
Trust Agreement, their respective obligations or duties hereunder or with
respect to any action or proceeding or any question of law, and they shall be
fully protected with respect to any action taken or omitted by them in good
faith pursuant to the advice of legal counsel.
IN WITNESS WHEREOF, the Sponsor has caused these presents to be executed by
its duly authorized officers and its corporate seal to be affixed on this ____
day of ________, 1998.
Attest: PULASKI BANK, A FEDERAL SAVINGS BANK
_______________________ By:__________________________________
Secretary William A. Donius
President
57
<PAGE>
EXHIBIT 21
Exhibit 21
Subsidiaries of the Registrant
Parent
- ------
Pulaski Financial Corp.
<TABLE>
<CAPTION>
Percentage Jurisdiction or
Subsidiaries (a) of Ownership State of Incorporation
- ---------------- ------------ ----------------------
<S> <C> <C>
Pulaski Bank, A Federal Savings Bank (1) 100% United States
Pulaski Service Corporation (2) 100% Missouri
</TABLE>
___________________
(1) Upon consummation of the Conversion and Reorganization, Pulaski Bank, A
Federal Savings Bank will become a wholly-owned subsidiary of the
Registrant.
(2) This corporation is a wholly owned subsidiary of Pulaski Bank, A Federal
Savings Bank.
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors
Pulaski Financial Corp.
St. Louis, Missouri
We consent to the use in this Registration Statement of Pulaski Financial Corp.
on Form S-1 of our report dated November 7, 1997, relating to the consolidated
financial statements of Pulaski Bank, A Federal Savings Bank and Subsidiaries,
which appears in the Prospectus constituting part of such Registration
Statement. We also consent to the reference to us under the heading "Experts"
contained in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
St. Louis, Missouri
June 9, 1998
<PAGE>
EXHIBIT 23.2
[LETTERHEAD APPEARS HERE]
June __, 1998
Board of Directors
Pulaski Financial Corp.
12300 Olive Boulevard
St. Louis, Missouri 63141
RE: Pulaski Financial Corp.
Registration Statement on Form S-1
To the Board of Directors:
We hereby consent to the filing of the form of our federal tax opinion as
an exhibit to the Registration Statement and to the reference to us in the
Prospectus included therein under the headings "THE CONVERSION AND
REORGANIZATION -- Effects of Conversion and Reorganization on Depositors and
Borrowers of the Savings Bank" and "LEGAL AND TAX OPINIONS."
Sincerely,
BREYER & AGUGGIA LLP
Washington, D.C.
<PAGE>
Exhibit 23.3
RP FINANCIAL, LC.
- --------------------------------------------
Financial Services Industry Consultants
June 8, 1998
Board of Directors
Pulaski Bancshares, M.H.C.
Pulaski Bank, A Federal Savings Bank
12300 Olive Boulevard
St. Louis, Missouri 63141
Gentlemen:
We hereby consent to the use of our firm's name in the Application for
Conversion of Pulaski Bancshares, M.H.C., the mutual holding company for
Pulaski Bank, A Federal Savings Bank, St. Louis, Missouri and any
amendments thereto, in the Form S-1 Registration Statement and any
amendments thereto and in the Form H(e)1-S for Pulaski Financial Corp. We
also hereby consent to the inclusion of, summary of and references to our
Appraisal Report and our letter regarding subscription rights in such
filings including the Prospectus of Pulaski Financial Corp.
Sincerely,
RP FINANCIAL, LC.
/s/ Gregory E. Dunn
Gregory E. Dunn
Senior Vice President
- --------------------------------------------------------------------------------
WASHINGTON HEADQUARTERS
Rosslyn Center
1700 North Moore Street, Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
<PAGE>
EXHIBIT 99.1
PROXY CARD
PLEASE SIGN, DETACH, & RETURN IN THE ENCLOSED WHITE ENVELOPE
- --------------------------------------------------------------------------------
PULASKI FINANCIAL CORP.
Proposed Holding Company for Pulaski Bank
Stock Information Center
Address Line 1
Address Line 2
St. Louis, Missouri xxxx
(314) xxx-xxxx
STOCK ORDER FORM
- --------------------------------------------------------------------------------
DEADLINE: The Subscription Offering ends at 12:00 Noon, Central Time, on
September , 1998. Your original Stock Order and Certification Form, properly
executed and with the correct payment, must be received (not postmarked) at the
address on the top of this form or at any branch by this deadline, or it will be
considered void. FAXES AND COPIES WILL NOT BE ACCEPTED.
- --------------------------------------------------------------------------------
(1) Number of Shares Price Per Share (2) Total Amount Due
[ ] X $10.00 = [ ]
The minimum number of shares that may be subscribed for is 25. In each of the
Subscription Offering, the Direct Community Offering or any Syndicated
Community Offering, the maximum purchase for any person is 40,000 shares;
provided, however that such shares when added to any Exchange Shares to which
such person may be entitled as a shareholder of the Savings Bank may not exceed
125,000 shares. There are additional purchase limitations for associates and
groups acting in concert as defined in the Prospectus.
- --------------------------------------------------------------------------------
METHOD OF PAYMENT
(3) [ ] Enclosed is a check, bank draft or money order payable to Pulaski
Financial Corp. for $ (or cash if presented in person).
-----------
(4) [ ] I authorize Pulaski Bank to make withdrawals from my Pulaski Bank
certificate or savings account(s) shown below, and understand that the
amounts will not otherwise be available for withdrawal:
Account Number(s) Amount(s)
---------------------------- -----------------------------
---------------------------- -----------------------------
---------------------------- -----------------------------
---------------------------- -----------------------------
Total Withdrawal -----------------------------
(5) [ ] Check here if you are a director officer or employee of Pulaski Bank or
a member of such person's immediate family (same residence).
- --------------------------------------------------------------------------------
(6) PURCHASE INFORMATION (check one)
a [ ] Eligible Account Holder - Check here if you were a depositor with $50.00
or more on deposit with Pulaski Bank as of March 31, 1997. Enter
information below for all deposit accounts that you had at Pulaski Bank
on March 31, 1997.
b [ ] Supplemental Eligible Account Holder - Check here if you were a depositor
with $50.00 or more on deposit with Pulaski Bank as of June 30, 1998, but
are not an Eligible Account Holder. Enter information below for all
deposit accounts that you had at Pulaski Bank on June 30, 1998.
c [ ] Other Eligible Members - Check here if you were a depositor with Pulaski
Bank as of , 1998, or a borrower of Pulaski Bank as of
----------
May 11, 1994 whose loan continues to be outstanding as of ,
---------------
1998.
d [ ] Shareholder - Check here if you are a shareholder of Pulaski Bank,
as of , 1998 and indicate the number of shares owned by you
---------------
or persons associated with you.
[ Shares]
e [ ] Local Community - Check here if you are a permanent resident of St. Louis,
Missouri; St. Charles, Jefferson, Franklin and St. Louis Counties; and
Jersey,St. Clair, Monroe, and Madison Counties, Illinois.
f [ ] General Community
Account Title (Names on Accounts) Account Number(s)
---------------------------- -----------------------------
---------------------------- -----------------------------
---------------------------- -----------------------------
---------------------------- -----------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(7) STOCK REGISTRATION/FORM OF OWNERSHIP
<S> <C> <C>
[ ] Individual [ ] Uniform Transfer to Minors [ ] Partnership
[ ] Joint Tenants [ ] Uniform Gift to Minors [ ] Individual Retirement Account
[ ] Tenants in Common [ ] Corporation [ ] Fiduciary/Trust (Under Agreement Dated )
</TABLE>
<TABLE>
<CAPTION>
(8) NAME(S) IN WHICH STOCK IS TO BE REGISTERED (PLEASE PRINT LEGIBLY AND FILL OUT COMPLETELY)
<S> <C>
Name 1 Social Security or Tax I.D.
- --------------------------------------------------------------------------------------------------
Name 2 Social Security or Tax I.D.
- --------------------------------------------------------------------------------------------------
Street Daytime
Address Telephone
- --------------------------------------------------------------------------------------------------
Zip Evening
City State Code County Telephone
- --------------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
NASD AFFILIATION (This section only applies to those individuals who meet
the delineated criteria)
[ ] Check here if you are a member of the National Association of Securities
Dealers, Inc. ("NASD"), a person associated with an NASD member, a member of the
immediate family of any such person to whose support such person contributes,
directly or indirectly, or the holder of an account in which an NASD member or
person associated with an NASD member has a beneficial interest. To comply with
conditions under which an exemption from the NASD's Interpretation With Respect
to Free-Riding and Withholding is available, you agree, if you have checked the
NASD affiliation box: (1) not to sell, transfer or hypothecate the stock for a
period of three months following the issuance and (2) to report this
subscription in writing to the applicable NASD member within one day of the
payment therefor.
- --------------------------------------------------------------------------------
ACKNOWLEDGMENT By signing below, I acknowledge receipt of the Prospectus dated
August , 1998 and understand I may not change or revoke my order once it is
received by Pulaski Financial Corp. I also certify that this stock order is for
my account and there is no agreement or understanding regarding any further sale
or transfer of these shares. Federal regulations prohibit any persons from
transferring, or entering into any agreement directly or indirectly to transfer,
the legal or beneficial ownership of conversion subscription rights or the
underlying securities to the account of another person. Pulaski Bank will pursue
any and all legal and equitable remedies in the event it becomes aware of the
transfer of subscription rights and will not honor orders known by it to involve
such transfer. Under penalties of perjury, I further certify that: (1) the
social security number or taxpayer identification number given above is correct;
and (2) I am not subject to backup withholding. You must cross out this item,
(2) above, if you have been notified by the Internal Revenue Service that you
are subject to backup withholding because of under-reporting interest or
dividends on your tax return. By signing below, I also acknowledge that I have
not waived any rights under the Securities Act of 1933 and the Securities
Exchange Act of 1934.
THE SHARES OR COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS AND ARE NOT
INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE SAVINGS
ASSOCIATION INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
SIGNATURE: THIS FORM MUST BE SIGNED AND DATED TWICE: HERE AND ON THE
---------------------------------------------------------
CERTIFICATION FORM ON THE REVERSE SIDE. THIS ORDER IS NOT VALID IF THE STOCK
ORDER FORM AND CERTIFICATION FORM ARE NOT BOTH SIGNED. YOUR ORDER WILL BE
--- ----
FILLED IN ACCORDANCE WITH THE PROVISIONS OF THE PROSPECTUS. An additional
signature is required only if payment is by withdrawal from an account that
requires more than one signature to withdraw funds.
- --------------------------------------------------------------------------------
Signature Date
- ---------------------------------------- --------------------------------
Signature Date
- ---------------------------------------- --------------------------------
- --------------------------------------------------------------------------------
FOR OFFICE Date Rec'd / / Order #
------------------ ----------------------
USE Check # Category
------------------ ----------------------
Batch # Amount $ Deposit $
----- ------------------ ----------------------
- --------------------------------------------------------------------------------
<PAGE>
Proxy Card
- --------------------------------------------------------------------------------
Pulaski Financial Corp.
Proposed Holding Company for Pulaski Bank
________________________________________________________________________________
ITEM (6) CONTINUED; PURCHASER INFORMATION DEFINITION OF ASSOCIATE (CONT'D)
director, officer or partner or is
ACCOUNT TITLE directly or indirectly the benefi-
(NAMES ON ACCOUNTS) ACCOUNT NUMBER cial owner of 10% or more of any
- ----------------------------------------- class of equity securities; (ii)
- ----------------------------------------- any trust or other estate in which
- ----------------------------------------- such person has a substantial bene-
- ----------------------------------------- ficial interest or as to which such
- ----------------------------------------- person serves as trustee or in a
DEFINITION OF ASSOCIATE similar fiduciary capacity, pro-
The term "associate" of a person is vided, however that such term shall
defined to mean (i) any corporation or not include any tax-qualified
other organization (other than Pulaski employee stock benefit plan of the
Financial Corp. (the "Holding Company"), Holding Company or the Bank in
Pulaski Bancshares, M.H.C. (the "MHC"), which such person has a substantial
Pulaski Bank, (the "Bank"), or a majority beneficial interest or serves as a
owned subsidiary of any of them) of which trustee or in a similar fiduciary
such person is a capacity; and (iii) any relative or
spouse of such person, or any
relative of such person, who either
has the same home as such person or
who is a director or officer of the
Holding Company, MHC, or the Bank
or any of their subsidiaries.
- --------------------------------------------------------------------------------
CERTIFICATION FORM
(This Certification Must Be Signed In Addition to the Stock Order Form
On Reverse Side)
I ACKNOWLEDGE THAT THE SHARES OF COMMON STOCK, $0.01 PAR VALUE, OF PULASKI
FINANCIAL CORP., INC. ARE NOT A DEPOSIT OR AN ACCOUNT AND ARE NOT FEDERALLY
INSURED, AND ARE NOT GUARANTEED BY PULASKI BANK OR BY THE FEDERAL GOVERNMENT.
If anyone asserts that the shares of common stock or federally insured or
guaranteed, or are as safe as an insured deposit, I should call the Office of
Thrift Supervision.
I further certify that, before purchasing the shares of common stock of Pulaski
Financial Corp., I received a copy of the Prospectus dated August __, 1998 which
discloses the nature of the shares of common stock being offered thereby and
describes the following risks involved in an investment in the common stock
under the heading "Risk Factors" beginning on page __ of the Prospectus.
1. Mortgage Lending and Risks Associated with ARM Loans
2. Fluctuation in Income from Loan Sales
3. Interest Rate Risk
4. Below Average Return on Equity After Conversion
5. Expenses Associated with the ESOP and 1999 MRDP
6. Possible Dilutive Effect of Benefit Program
7. Possible Voting Control by Management and Employees
8. Anti-Takeover Provisions and Statutory Provisions that Could Discourage
Hostile Acquisitions of Control
9. Possible Anti-Takeover Effect of Employment and Severance Agreements
10. Competition
11. Absence of Prior Market for the Common Stock
12. Possible Increase in Estimated Valuation Range and Number of Shares
Issued
13. Risk of Year 2000 Data Processing Problems
14. Financial Institution Regulation and the Future of the Thrift Industry
- ------------------------------------- ---------------------------------------
Signature Date Signature Date
- ------------------------------------- ---------------------------------------
(Note: If stock is to be held jointly, both parties must sign)
----
<PAGE>
PULASKI FINANCIAL CORP.
Stock Ownership Guide and Stock Order Form Instructions
STOCK ORDER FORM INSTRUCTIONS
- --------------------------------------------------------------------------------
ITEM 1 AND 2 - Fill in the number of shares that you wish to purchase and the
total payment due. The amount due is determined by multiplying the number of
shares ordered by the subscription price of $10.00 per share. The minimum
purchase is 25 shares. The maximum purchase for any person is 40,000 shares;
provided, however that such shares when added to any exchange shares to which
such person may be entitled as a shareholder of the Savings Bank may not exceed
125,000 shares. There are additional purchase limitations for associates and
groups acting in concert as defined in the Prospectus. Pulaski Financial Corp.
reserves the right to reject the subscription of any order received in the
Direct Community Offering, if any, in whole or in part.
ITEM 3 - Payment for shares may be made in cash (only if delivered by you in
person), by check, bank draft or money order payable to Pulaski Financial Corp.
DO NOT MAIL CASH. Your funds will earn interest at Pulaski Bank's current
passbook rate.
ITEM 4 - To pay by withdrawal from a savings account or certificate at Pulaski
Bank, insert the account number(s) and the amount(s) you wish to withdraw from
each account. If more than one signature is required to withdraw, each must
sign in the signature box on the front of this form. To withdraw from an
account with checking privileges, please write a check. Pulaski Bank will
waive any applicable penalties for early withdrawal from certificate accounts.
A hold will be placed on the account(s) for the amount(s) you show. Payments
will remain in account(s) until the stock offering closes. If a partial
withdrawal reduces the balance of a certificate account to less than the
applicable minimum, the remaining balance will thereafter earn interest at the
passbook rate.
ITEM 5 - Please check this box to indicate whether you are a director, officer
or employee of Pulaski Bank or a member of such person's immediate family
ITEM 6 - Please check this box if you or any associate (as defined on the
reverse side of the Stock Order Form) or person acting in concert with you has
submitted another order for shares and complete the reverse side of the Stock
Order Form.
ITEM 7 - Please check the appropriate box if you were:
a) A depositor with $50.00 or more on deposit at Pulaski Bank as of
March 31, 1997. Enter information below for all deposit accounts
that you had at Pulaski Bank on March 31, 1997.
b) A depositor with $50.00 or more on deposit at Pulaski Bank as of
June 30, 1998, but is not an Eligible Account Holder. Enter
information below for all deposit accounts that you had at Pulaski
Bank on June 30, 1998.
c) A depositor at Pulaski Bank as of ______ __, 1998, but are not an
Eligible Account Holder or Supplemental Eligible Account Holder or
a borrower of Pulaski Bank as of May 11, 1994 whose loan continues
to be outstanding as of ______ __, 1998, but are not an Eligible
Account Holder or Supplemental Eligible Account Holder.
d) A shareholder of Pulaski Bank as of _____ __, 1998.
e) A permanent resident of St. Louis, Missouri; St. Charles,
Jefferson, Franklin and St. Louis Counties, Missouri; and Jersey,
St. Clair, Monroe and Madison Counties, Illinois.
f) General Community
ITEM 8 - The stock transfer industry has developed a uniform system of
shareholder registrations that we will use in the issuance of Pulaski Financial
Corp. common stock. Please complete this section as fully and accurately as
possible, and be certain to supply your social security or Tax I.D. number(s)
and your daytime and evening phone numbers. We will need to call you if we can
not execute you order as given. If you have any questions regarding the
registration of your stock, please consult your legal advisor. Subscription
rights are not transferable. If you are a qualified member, to protect your
priority over other purchasers as described in the Prospectus, you must take
ownership in at least one of the account holder's names.
STOCK OWNERSHIP GUIDE
- --------------------------------------------------------------------------------
INDIVIDUAL - The Stock is to be registered in an individual's name only. You
may not list beneficiaries for this ownership
JOINT TENANTS - Joint tenants with rights of survivorship identifies two or more
owners. When stock is held by joint tenants with rights of survivorship,
ownership automatically passes to the surviving joint tenant(s) upon the death
of any joint tenant. You may not list beneficiaries for this ownership.
TENANTS IN COMMON - Tenants in common may also identify two or more owners.
When stock is to be held by tenants in common, upon the death of one co-tenant,
ownership of the stock will be held by the surviving co-tenant(s) and by the
heirs of the deceased co-tenant. All parties must agree to the transfer or sale
of shares held by tenants in common. You may not list beneficiaries for this
ownership.
UNIFORM GIFT TO MINORS - For residents of many states, stock may by held in the
name of a custodian for the benefit of a minor under the Uniform Gift to Minors
Act. For residents in other states, stock may be held in a similar type of
ownership under the Uniform Transfer to Minors Act of the individual state. For
either ownership, the minor is the actual owner of the stock with the adult
custodian being responsible for the investment until the child reaches legal
age. Only one custodian and one minor may be designated.
Instructions: On the first name line, print the first name, middle initial and
last name of the custodian, with the abbreviation "CUST" after the name. Print
the first name, middle initial and last name of the minor on the second name
line. USE THE MINOR'S SOCIAL SECURITY NUMBER.
CORPORATION/PARTNERSHIP - Corporation/Partnerships may purchase stock. Please
provide the Corporation/Partnership's legal name and Tax I.D. To have depositor
rights, the Corporation/Partnership must have an account in the legal name.
Please contact the Stock Information Center to verify depositor rights and
purchase limitations.
INDIVIDUAL RETIREMENT ACCOUNT - Individual Retirement Account ("IRA") holders
may make stock purchases from their deposits through a prearranged "trustee-to-
trustee" transfer. Stock may only be held in a self-directed IRA. Pulaski Bank
does not offer a self-directed IRA. Please contact the Stock Information Center
if you have any questions about your IRA account.
FIDUCIARY/TRUST - Generally, fiduciary relationships (such as Trusts, Estates,
Guardianships, etc.) are established under a form of trust agreement or pursuant
to a court order. Without a legal document establishing a fiduciary
relationship, your stock may not be registered in a fiduciary capacity.
Instructions: On the first name line, print the first name, middle initial and
last name of the fiduciary if the fiduciary is an individual. If the fiduciary
is a corporation, list the corporate title on the first name line. Following
the name, print the fiduciary title such as trustee, executor, personal
representative, etc. On the second name line, print the name of the maker ,
donor or testator or the name of the beneficiary. Following the name, indicate
the type of legal document establishing the fiduciary relationship (agreement,
court order, etc.). In the blank after "Under Agreement Dated", fill in the
date of the document governing the relationship. The date of the document need
not be provided for a trust created by a will.
<PAGE>
EXHIBIT 99.2
[LETTERHEAD OF CHARLES WEBB & COMPANY APPEARS HERE]
TO MEMBERS AND FRIENDS OF PULASKI BANK AND PULASKI BANCSHARES, M.H.C.
- --------------------------------------------------------------------------------
Charles Webb & Company, a Division of Keefe, Bruyette & Woods, Inc., a member of
the National Association of Securities Dealers, Inc. ("NASD"), is pleased to
announce that Pulaski Bancshares, M.H.C. is converting to stock form and Pulaski
Bank (the "Bank") is reorganizing as a wholly-owned subsidiary of a newly-formed
stock holding company (the "Conversion and Reorganization"). In conjunction
with the Conversion and Reorganization, Pulaski Financial Corp., (the "Holding
Company"), the newly-formed corporation that will serve as the holding company
for the Bank, is offering shares of common stock in a subscription offering and
direct community offering to certain depositors and borrowers of the Bank, the
Bank's Employee Stock Ownership Plan and members of the general public, pursuant
to a Plan of Conversion and Agreement and Plan of Reorganization.
At the request of the Holding Company, we are enclosing materials explaining the
Conversion and Reorganization and your opportunity to invest in shares of the
Holding Company's common stock. Please read the enclosed prospectus carefully.
The Holding Company has asked us to forward these documents to you in view of
certain requirements of the securities laws in your state.
If you have any questions, please visit our Stock Information Center at ________
_______________________________________________________ or feel free to call the
Stock Information Center at (314) XXX-XXXX.
Very truly yours,
Charles Webb & Company
a Division of Keefe, Bruyette & Woods, Inc.
THE SHARES OF COMMON STOCK BEING OFFERED IN THE CONVERSION AND REORGANIZATION
ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. THIS IS NOT AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY STOCK. THE OFFER IS MADE ONLY BY THE
PROSPECTUS.
Investment Bankers and Financial Advisors
<PAGE>
(RECEIPT OF ORDER LETTER PULASKI FINANCIAL CORP. LETTERHEAD)
DATE
NAME
ADDRESS TAX I.D. NUMBER XXX-XX-XXX
CITY, STATE, ZIP
RECEIPT OF ORDER
This letter is to acknowledge receipt of your order to purchase common stock
offered by Pulaski Financial Corp. Please check the following information
carefully to ensure that we have entered your order correctly. Your order has
been assigned a prioritized category described below. Acceptance of your order
and the shares of stock you actually receive will be subject to the allocation
provisions of the Plan of Conversion, as well as other conditions and
limitations described in the Prospectus.
Our records indicate the following:
Number of Shares Ordered: _________
Purchase Price Per Share: $10.00
Total Order Amount: $________
Date Order Received: __/__ /__
Order Number: _________
Category Assigned: _________
Category Description
--------------------
1. Eligible Account Holders - Depositors as of March 31, 1997 with
$50.00 or more on deposit
2. Employee Stock Ownership Plan (ESOP)
3. Supplemental Eligible Account Holders - Depositors as of June 30,
1998 with $50.00 or more on deposit
4. Other Eligible Members Depositors as of _______, 1998 and borrowers
of the Bank as of May 11, 1994 whose loans continue to be outstanding
as of ________, 1998.
5. Public Stockholder of the Bank
6. Local Community Permanent resident of St. Louis, Missouri; St.
Charles, Jefferson, Franklin and St. Louis Counties, Missouri; and
Jersey, St. Clair, Monroe and Madison Counties, Illinois.
7. General Community
If this does not agree with your records or if you have any questions, please
call our Stock Information Center at (XXX) XXX-XXXX. Thank you for your order.
Sincerely,
William A. Donius
President
<PAGE>
Date
Dear Member:
We are pleased to announce that Pulaski Bancshares, M.H.C. is converting to
stock form and Pulaski Bank (the "Bank") is reorganizing as a wholly-owned
subsidiary of a newly-formed stock holding company (the "Conversion and
Reorganization"). In conjunction with the Conversion and Reorganization,
Pulaski Financial Corp. (the "Holding Company"), the newly-formed corporation
that will serve as a holding company for the Bank, is offering shares of common
stock in a subscription offering and direct community offering to certain
depositors and borrowers of the Bank, to the Bank Employee Stock Ownership Plan,
and members of the general public, pursuant to a Plan of Conversion and
Agreement and Plan of Reorganization (the "Plan of Conversion").
Unfortunately, the Holding Company is unable to either offer or sell its common
stock to you because the small number of eligible subscribers in your
jurisdiction makes registration or qualification of the common stock under the
securities laws of your jurisdiction impractical, for reasons of cost or
otherwise. Accordingly, this letter should not be considered an offer to sell
or a solicitation of an offer to buy the common stock of the Holding Company.
However, you have the right to vote on the Plan of Conversion at the Special
Meeting of Members on September __, 1998. Therefore, enclosed is a proxy card,
a Proxy Statement (which includes the Notice of the Special Meeting), a
Prospectus (which is provided solely as an accompaniment to the Proxy Statement)
and a return envelope for your proxy card.
I invite you to attend the Special Meeting on September __, 1998. However,
whether or not you are able to attend, please complete the enclosed proxy card
and return it in the enclosed envelope.
Sincerely,
William A. Donius
President
THE SHARES OF COMMON STOCK BEING OFFERED IN THE CONVERSION AND REORGANIZATION
ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
<PAGE>
Date
Dear Friend:
We are pleased to announce that Pulaski Bancshares, M.H.C. is converting to
stock form and Pulaski Bank (the "Bank") is reorganizing as a wholly-owned
subsidiary of a newly-formed stock holding company (the "Conversion and
Reorganization"). In conjunction with the Conversion and Reorganization,
Pulaski Financial Corp. (the "Holding Company"), the newly-formed corporation
that will serve as holding company for the Bank, is offering shares of common
stock in a subscription offering and direct community offering to certain
depositors and borrowers of the Bank, the Bank Employee Stock Ownership Plan,
and members of the general public, pursuant to a Plan of Conversion and
Agreement and Plan of Reorganization (the "Plan of Conversion").
Because we believe you may be interested in learning more about the Holding
Company's common stock as a potential investment, we are sending you the
following materials that describe the stock offering. Please read these
materials carefully before you submit a Stock Order and Certification Form.
. PROSPECTUS: This document provides detailed information about the
operations of the Holding Company, the Bank and the proposed stock
offering.
. QUESTIONS AND ANSWERS: Key questions and answers about the stock
offering are found in this pamphlet.
. STOCK ORDER AND CERTIFICATION FORM: This form is used to purchase
stock by returning it with your payment in the enclosed business
reply envelope. The deadline for ordering stock is 12:00 Noon,
Central Time, on September __, 1998.
You have the opportunity to buy stock directly from the Holding Company without
commission or fee. If you have additional questions regarding the Plan of
Conversion and stock offering, please call us at (314) XXX-XXXX, Monday through
Friday ____ a.m. to ____ p.m., or stop by the Stock Information Center at
- --------------------------------------------------------------------------------
We are pleased to offer you this opportunity to become a charter shareholder of
Pulaski Financial Corp.
Sincerely,
William A. Donius
President
THE SHARES OF COMMON STOCK BEING OFFERED IN THE CONVERSION AND REORGANIZATION
ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. THIS IS NOT AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY STOCK. THE OFFER IS MADE ONLY BY THE
PROSPECTUS.
<PAGE>
Date
Dear Member:
We are pleased to announce that Pulaski Bancshares, M.H.C. (the "MHC") is
converting to stock form Pulaski Bank (the "Bank") is reorganizing as a wholly-
owned subsidiary of a newly-formed stock holding company (the "Conversion and
Reorganization"). In conjunction with Conversion and Reorganization, Pulaski
Financial Corp. (the "Holding Company"), the newly-formed corporation that will
serve as holding company for the Bank, is offering shares of common stock in a
subscription offering and direct community offering to certain depositors and
borrowers of the Bank, the Bank Employee Stock Ownership Plan, and members of
the general public, pursuant to a Plan of Conversion and Agreement and Plan of
Reorganization (the "Plan of Conversion").
To accomplish the Conversion and Reorganization, we need your participation in
an important vote. Enclosed is a proxy statement describing the Plan of
Conversion and your voting and subscription rights. The Plan of Conversion has
been approved by the Office of Thrift Supervision and now must be approved by
you. YOUR VOTE IS VERY IMPORTANT.
Enclosed, as part of the proxy material, is your proxy card. This proxy card
should be signed and returned to us prior to the Special Meeting of Members on
September __, 1998. Please take a moment to sign the enclosed proxy card and
return it to us in the postage-paid envelope provided. FAILURE TO VOTE HAS THE
SAME EFFECT AS VOTING AGAINST THE PLAN OF CONVERSION.
The Boards of Directors of the MHC and the Bank believe that the Conversion and
Reorganization is in the best interests of the MHC and its members and the Bank
and its stockholders. Please remember:
. Your deposit accounts at the Bank will continue to be insured up to
the maximum legal limit by the Federal Deposit Insurance Corporation
("FDIC").
. There will be no change in the balance, interest rate, or maturity of
any deposit or loan accounts because of the Conversion and
Reorganization.
. You have a right, but no obligation, to buy stock before it is offered
to the public.
. Like all stock, stock issued in this offering will not be insured by
the FDIC.
Enclosed are materials describing the stock offering, including a Prospectus.
We urge you to read the Prospectus carefully before submitting your Stock Order
and Certification Form. If you are interested in purchasing common stock, you
must submit your Stock Order and Certification Form and payment prior to 12:00
Noon, Central Time, on September __, 1998.
If you have additional questions regarding the stock offering, please call us at
(314) XXX-XXXX, Monday through Friday ____ a.m. to ____ p.m., or stop by the
Stock Information Center located at ______________________________________.
Sincerely,
William A. Donius
President
THE SHARES OF COMMON STOCK BEING OFFERED IN THE CONVERSION AND REORGANIZATION
ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. THIS IS NOT AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY STOCK. THE OFFER IS MADE ONLY BY THE
PROSPECTUS.
<PAGE>
(Stockholder Letter Street holders - 2nd mailing-Pulaski Bank Letterhead)
Date
Dear Stockholder:
Under separate cover on this date, we forwarded to you information regarding the
Plan of Conversion and Agreement and Plan of Reorganization of Pulaski Bank (the
"Bank") and Pulaski Bancshares, M.H.C. (the "MHC") and the concurrent offering
of common stock by Pulaski Financial Corp. (the "Holding Company").
As a result of certain requirements, we could not forward a Stock Order and
Certification Form with the other packet of materials. They are enclosed
herein, along with a Prospectus.
The deadline for ordering the Holding Company's common stock is at 12:00 Noon,
Central Time, on September __, 1998.
Should you have additional questions regarding the Conversion and Reorganization
and stock offering, please call the Stock Information Center at (314) XXX-XXXX,
Monday through Friday from ____ a.m. to ____ p.m., Central Time, or stop by the
Stock Information Center at
- --------------------------------------------------------------------------------
Sincerely,
William A. Donius
President
THE SHARES OF COMMON STOCK BEING OFFERED IN THE CONVERSION AND REORGANIZATION
ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. THIS IS NOT AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY STOCK. THE OFFER IS MADE ONLY BY THE
PROSPECTUS.
<PAGE>
(Stockholder Letter STREET HOLDERS- Pulaski Bank letterhead)
Date
Dear Stockholder:
We are pleased to inform you that the Boards of Directors of Pulaski Bank (the
"Bank") and Pulaski Bancshares, M.H.C. (the "MHC") have adopted a Plan of
Conversion and Agreement and Plan of Reorganization (the "Plan of Conversion")
whereby the MHC will convert to stock form and the Bank will be reorganized as a
wholly-owned subsidiary of a newly-formed stock holding company (the "Conversion
and Reorganization"). The Bank has organized Pulaski Financial Corp. (the
"Holding Company") to become the holding company for the Bank. Pursuant to the
Plan of Conversion, stockholders of the Bank (other than the MHC) will be issued
shares of common stockof the Holding Company in exchange for their shares of the
Bank common stock (the "Exchange"). The Exchange will result in those
shareholders owning in the aggregate approximately the same ownership in the
Holding Company as they owned in the Bank. In addition to the shares of common
stock to be issued in the Exchange, the Company is also offering up to 6,900,000
shares of common stock (subject to increase up to 7,935,000 shares under certain
circumstances) to the MHC's members, the Banks' stockholders and members of the
public. Consummation of the Plan of Conversion is subject to (i) the approval
of the members of the MHC, (ii) the approval of the stockholders of the Bank and
(iii) regulatory approval.
We are asking stockholders of the Bank as of ______ __, 1998, the voting record
date, to vote FOR the Plan of Conversion. If you and/or members of your family
hold stock in different names, you may receive more than one proxy mailing.
Please vote all proxy cards received and return them today in the enclosed
postage-paid envelope. Should you choose to attend the meeting and wish to vote
in person, you may do so by executing your previously submitted proxy. Your
vote FOR the Plan of Conversion will not obligate you to buy any stock in the
Conversion and Reorganization. A Proxy Statement relating to the Conversion and
Reorganization is enclosed.
We have enclosed the following materials which will help you learn more about
investing in the Holding Company's common stock. Please read and review the
materials carefully before making an investment decision.
. PROSPECTUS: This document provides detailed information about the
operations of the Holding Company, the Bank and the proposed stock
offering.
. QUESTIONS AND ANSWERS BROCHURE: Key questions and answers about the
stock offering are found in this pamphlet.
. STOCK ORDER AND CERTIFICATION FORM: This form is used to purchase
stock by signing and returning it with your payment in the enclosed
business reply envelope. The deadline for ordering stock is 12:00
Noon, Central Time, on September __, 1998. YOU MAY OBTAIN A STOCK
ORDER AND CERTIFICATION FORM FROM YOUR BROKER OR BY CONTACTING THE
STOCK INFORMATION CENTER.
We are inviting our loyal depositors, existing stockholders, and local community
members to become stockholders of the Holding Company. Through this offering
you have the opportunity to buy stock directly from the Holding Company without
commission or fee.
Should you have additional questions regarding the Conversion and Reorganization
and stock offering, please call the Stock Information Center at (314) XXX-XXXX,
Monday through Friday ____ a.m. to ____ p.m. or stop by the Stock Information
Center at _______________________________________________________.
Sincerely,
William A. Donius
President
THE SHARES OF COMMON STOCK BEING OFFERED IN THE CONVERSION AND REORGANIZATION
ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. THIS IS NOT AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY STOCK. THE OFFER IS MADE ONLY BY THE
PROSPECTUS.
<PAGE>
[STOCKHOLDER LETTER REGISTERED HOLDERS -- PULASKI BANK LETTERHEAD APPEARS HERE]
Date
Dear Stockholder:
We are pleased to inform you that the Boards of Directors of Pulaski Bank (the
"Bank") and Pulaski Bancshares, M.H.C. (the "MHC") have adopted a Plan of
Conversion and Agreement and Plan of Reorganization (the "Plan of Conversion")
whereby the MHC will convert to stock form and the Bank will be reorganized as a
wholly-owned subsidiary of a newly-formed stock holding company (the "Conversion
and Reorganization"). The Bank has organized Pulaski Financial Corp. (the
"Holding Company") to become the holding company for the Bank. Pursuant to the
Plan of Conversion, stockholders of the Bank (other than the MHC) will be issued
shares of common stock of the Holding Company in exchange for their shares of
the Bank common stock (the "Exchange"). The Exchange will result in those
shareholders owning in the aggregate approximately the same ownership in the
Holding Company as they owned in the Bank. In addition to the shares of common
stock to be issued in the Exchange, the Company is also offering up to 6,900,000
shares of common stock (subject to increase up to 7,935,000 shares under certain
circumstances) to the MHC's members, the Banks' stockholders and members of the
public. Consummation of the Plan of Conversion is subject to (i) the approval
of the members of the MHC, (ii) the approval of the stockholders of the Bank and
(iii) regulatory approval.
We are asking stockholders of the Bank as of ______ __, 1998, the voting record
date, to vote FOR the Plan of Conversion. If you and/or members of your family
hold stock in different names, you may receive more than one proxy mailing.
Please vote all proxy cards received and return them today in the enclosed
postage-paid envelope. Should you choose to attend the meeting and wish to vote
in person, you may do so by executing your previously submitted proxy. Your
vote FOR the Plan of Conversion will not obligate you to buy any stock in the
Conversion and Reorganization. A Proxy Statement relating to the Conversion and
Reorganization is enclosed.
We have enclosed the following materials which will help you learn more about
investing in the Holding Company's common stock. Please read and review the
materials carefully before making an investment decision.
. PROSPECTUS: This document provides detailed information about the
operations of the Holding Company, the Bank and the proposed stock
offering.
. QUESTIONS AND ANSWERS BROCHURE: Key questions and answers about the
stock offering are found in this pamphlet.
. STOCK ORDER AND CERTIFICATION FORM: This form is used to purchase
stock by signing and returning it with your payment in the enclosed
business reply envelope. The deadline for ordering stock is 12:00
Noon, Central Time, on September __, 1998.
We invite our loyal customers, existing stockholders and local community members
to become charter stockholders of the Holding Company. Through this offering
you have the opportunity to buy stock directly from the Holding Company without
commission or fee.
Should you have additional questions regarding the Conversion and Reorganization
and stock offering, please call the Stock Information Center at (314) XXX-XXXX,
Monday through Friday ____ a.m. to ____ p.m., or stop by the Stock Information
Center at ________________________________________________________.
Sincerely,
William A. Donius
President
THE SHARES OF COMMON STOCK BEING OFFERED IN THE CONVERSION AND REORGANIZATION
ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, RIVERVIEW SAVINGS INSURANCE FUND, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. THIS IS NOT AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY STOCK. THE OFFER IS MADE ONLY BY THE
PROSPECTUS.
<PAGE>
Date
Dear Prospective Investor:
We are pleased to announce that Pulaski Bancshares, M.H.C. is converting to
stock form and Pulaski Bank (the "Bank") is reorganizing as a wholly-owned
subsidiary of a newly-formed stock holding company (the "Conversion and
Reorganization"). In conjunction with the Conversion and Reorganization,
Pulaski Financial Corp. (the "Holding Company"), the newly-formed corporation
that will serve as holding company for the Bank, is offering shares of common
stock in a subscription offering and direct community offering. The sale of
stock in connection with the Conversion and Reorganization will enable the Bank
to raise additional capital to support and enhance its current operations.
We have enclosed the following materials that will help you learn more about the
stock offering of the Holding Company. Please read and review the materials
carefully before you submit a Stock Order and Certification Form.
. PROSPECTUS: This document provides detailed information about the
operations of the Holding Company, the Bank and the proposed stock
offering.
. QUESTIONS AND ANSWERS: Key questions and answers about the stock
offering are found in this pamphlet.
. STOCK ORDER AND CERTIFICATION FORM: This form is used to purchase
stock by returning it with your payment in the enclosed business reply
envelope. The deadline for ordering stock is 12:00 Noon, Central Time,
on September __, 1998.
We invite our loyal customers and local community members to become charter
shareholders of the Holding Company. Through this offering you have the
opportunity to buy stock directly from the Holding Company, without commission
or fee. The board of directors and management of the Bank and the MHC fully
support the stock offering.
If you have additional questions regarding the Conversion and Reorganization and
stock offering, please call us at (314) XXX-XXXX, Monday through Friday ____
a.m. to ____ p.m., or stop by the Stock Information Center located at
______________________________________________________________.
Sincerely,
William A. Donius
President
THE SHARES OF COMMON STOCK BEING OFFERED IN THE CONVERSION AND REORGANIZATION
ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY. THIS IS NOT AN OFFER TO SELL OR
A SOLICITATION OF AN OFFER TO BUY STOCK. THE OFFER IS MADE ONLY BY THE
PROSPECTUS.
<PAGE>
FACTS ABOUT CONVERSION AND REORGANIZATION
The Boards of Directors of Pulaski Bank, ("Pulaski Bank" or the "Bank") and
Pulaski Bancshares, M.H.C. (the "MHC") unanimously adopted a Plan of Conversion
and Agreement and Plan of Reorganization (the "Plan") to convert the MHC to
stock form and reorganize Pulaski Bank as a wholly-owned subsidiary of a newly-
formed stock company (the "Conversion and Reorganization").
This brochure answers some of the most frequently asked questions about the Plan
and about your opportunity to invest in Pulaski Financial Corp., (the "Holding
Company" or "Pulaski Financial"), the newly formed company that will serve as
the holding company for Pulaski Bank following the Conversion and
Reorganization.
Investment in the stock of the Holding Company involves certain risks. For a
discussion of these risks, other factors, and a complete description of the
stock offering, investors are urged to read the accompanying Prospectus,
especially the discussion under the heading "Risk Factors".
WHY IS PULASKI BANK CONVERTING TO THE STOCK HOLDING COMPANY STRUCTURE?
- ----------------------------------------------------------------------
The stock holding company structure is a more common form of ownership than the
mutual holding company structure and offers the ability to diversify the Bank's
business activities. The Conversion and Reorganization will increase both the
capital base of the Bank and the number of outstanding shares, which will
increase the likelihood of the development of an active and liquid market for
the common stock of the Holding Company.
WILL THE PLAN AFFECT ANY OF MY DEPOSIT ACCOUNTS OR LOANS?
- ---------------------------------------------------------
No. The Plan will not effect the balance or terms of any savings account or
loan, and your deposits will continue to be federally insured by the Federal
Deposit Insurance Corporation ("FDIC") to the maximum legal limit. YOUR SAVINGS
ACCOUNT IS NOT BEING CONVERTED TO STOCK.
WHO IS ELIGIBLE TO PURCHASE STOCK IN THE SUBSCRIPTION OFFERING AND DIRECT
- -------------------------------------------------------------------------
COMMUNITY OFFERING?
- -------------------
Depositors and borrowers of Pulaski Bank as of certain dates, the Bank's
Employee Stock Ownership Plan, Pulaski Bank's public shareholders and certain
members of the general public, subject to the priorities described in the
Prospectus.
HOW MANY SHARES OF STOCK ARE BEING OFFERED AND AT WHAT PRICE?
- -------------------------------------------------------------
Pulaski Financial is offering up to 6,900,000 shares of common stock (the
"Conversion Shares"), subject to adjustment up to 7,935,500 shares, at a price
of $10.00 per share through the Prospectus.
I AM AN EXISTING STOCKHOLDER. HOW WILL MY STOCK BE TREATED?
- ------------------------------------------------------------
The outstanding shares of common stock of the Bank will be exchanged for shares
of common stock of the Holding Company (the "Exchange Shares"). The Plan
ensures that existing shareholders of the Bank will own approximately the same
aggregate percentage of the Holding Company's common stock as they own of the
Bank's common stock. Depending upon where the offering closes in the Estimated
Valuation Range, each share of Bank common stock will be converted into 2.9456
to 3.9852 shares of the Holding Company common stock.
HOW MANY CONVERSION SHARES MAY I BUY?
- -------------------------------------
The minimum order is 25 shares. In each of the Subscription Offering, the
Direct Community Offering or any Syndicated Offering, the maximum purchase for
any person is 40,000 shares excluding Exchange Shares. However, no person may
purchase Conversion Shares that when combined with Exchange Shares, exceeds
125,000 shares.
DO MEMBERS HAVE TO BUY CONVERSION SHARES?
- -----------------------------------------
No. However, if a member of the MHC is also a stockholder of the Bank, his or
her shares of Bank stock will be converted automatically into shares of Holding
Company common stock.
HOW DO I ORDER CONVERSION SHARES?
- ---------------------------------
You must complete the enclosed Stock Order Form and Certification Form.
Instructions for completing your Stock Order and Certification Form are
contained in this packet. Your order must be received by 12:00 Noon, Central
Time, on September __, 1998.
HOW MAY I PAY FOR MY CONVERSION SHARES?
- ---------------------------------------
First, you may pay by check, cash or money order. Interest will be paid by
Pulaski Bank on these funds at the current passbook rate from the day the funds
are received until the completion or termination of the Conversion and
Reorganization. Second, you may authorize us to withdraw funds from your Pulaski
Bank account or certificate of deposit for the amount of funds you specify for
payment. You will not have access to these funds from the day we receive your
order until completion or termination of the Conversion and Reorganization.
Pulaski Bank will waive any early withdrawal penalties on certificate accounts
used to purchase stock.
<PAGE>
CAN I PURCHASE SHARES USING FUNDS IN MY PULASKI BANK IRA ACCOUNT?
- -----------------------------------------------------------------
Yes, but special arrangements must be made before you may do so. Please call
our Stock Information Center for additional information at least one week before
the Expiration Date. The Bank will waive the early withdrawal penalty for IRAs.
WILL THE STOCK BE INSURED?
- --------------------------
No. Like any other common stock, the Holding Company's common stock will not be
insured.
WILL DIVIDENDS BE PAID ON THE STOCK?
- ------------------------------------
The Board of Directors of the Holding Company intends to pay cash dividends on
the common stock following consummation of the Conversion and Reorganization.
However no assurances can be given that such dividends will be paid, or if paid,
will continue.
HOW WILL THE STOCK BE TRADED?
- -----------------------------
The Company has received conditional approval to list the common stock on the
Nasdaq National Market System under the symbol "PULB". However, no assurance
can be given that an active and liquid market will develop or, if developed,
will be maintained.
MUST I PAY A COMMISSION?
- ------------------------
No. You will not be charged a commission or fee on the purchase of Conversion
Shares.
SHOULD I VOTE?
- --------------
Yes. Your "YES" vote is very important!
PLEASE VOTE, SIGN AND RETURN ALL PROXY CARDS!
WHY DID I GET SEVERAL PROXY CARDS?
- ----------------------------------
If you have more than one account, you could receive more than one proxy card
for the MHC's Special Meeting of Members, depending on the ownership structure
of your accounts. If you own shares of common stock of the Savings Bank in more
than one account, you could receive more than one proxy card for the Savings
Bank's Special Meeting of Stockholders.
HOW MANY VOTES DO I HAVE?
- -------------------------
Your proxy card(s) show(s) the number of votes you have. Every member of the
MHC entitled to vote may cast one vote for each $100, or fraction thereof, on
deposit at the Bank as of the voting record date, up to a maximum of 1,000
votes. Each stockholder of the Bank is entitled to cast one vote for each share
held as of the voting record date. These voting rights are established by the
respective charter of the MHC and the Bank.
MAY I VOTE IN PERSON AT THE SPECIAL MEETING OF MEMBERS AND/OR THE MEETING OF
- ----------------------------------------------------------------------------
STOCKHOLDERS?
- -------------
Yes, but we would still like you to sign and mail your proxy today. If you
decide to revoke your proxy you may do so by giving notice at the appropriate
meeting.
FOR ADDITIONAL INFORMATION YOU MAY CALL OUR STOCK INFORMATION CENTER BETWEEN
____ A.M. AND ____ P.M. MONDAY THROUGH FRIDAY.
STOCK INFORMATION CENTER
(314) XXX-XXXX
PULASKI FINANCIAL CORP.
Street Address
St. Louis, Missouri XXXXX
STOCK OFFERING QUESTIONS AND ANSWERS
PULASKI FINANCIAL CORP.
THE STOCK OFFERED IN THE CONVERSION AND REORGANIZATION IS NOT A DEPOSIT OR
ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED. THIS IS NOT AN OFFER TO SELL
OR A SOLICITATION OF AN OFFER TO BUY STOCK. THE OFFER WILL BE MADE ONLY BY THE
PROSPECTUS.
<PAGE>
(Dear Stockholder Dark blue sky)
Date
Dear Shareholder:
We are pleased to announce that Pulaski Bancshares, M.H.C. is converting to
stock form and Pulaski Bank (the "Bank") is reorganizing as a wholly-owned
subsidiary of a newly-formed stock corporation (the "Conversion and
Reorganization"). In conjunction with the Conversion and Reorganization,
Pulaski Financial Corp., (the "Holding Company"), the newly-formed corporation
that will serve as the holding company for the Bank, is offering shares of
common stock in a subscription offering and direct community offering.
Unfortunately, the Holding Company is unable to either offer or sell its common
stock to you because the small number of eligible subscribers in your
jurisdiction makes registration or qualification of the common stock under the
securities laws of your jurisdiction impractical, for reasons of cost or
otherwise. Accordingly, this letter should not be considered an offer to sell
or a solicitation of an offer to buy the common stock of the Holding Company.
However, you have the right to vote on the Plan of Conversion and Agreement and
Plan of Reorganization at the Special Meeting of Members on September __, 1998.
Therefore, enclosed is a proxy card, a Proxy Statement (which includes the
Notice of the Special Meeting), a Prospectus (which is provided solely as an
accompaniment to the Proxy Statement) and a return envelope for your proxy card.
I invite you to attend the Special Meeting on September __, 1998. However,
whether or not you are able to attend, please complete the enclosed proxy card
and return it in the enclosed envelope.
Sincerely,
William A. Donius
President
THE SHARES OF COMMON STOCK BEING OFFERED IN THE CONVERSION AND REORGANIZATION
ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION, THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION
INSURANCE FUND OR ANY OTHER GOVERNMENTAL AGENCY.
<PAGE>
YOU ARE CORDIALLY INVITED
TO A COMMUNITY INVESTORS MEETING
TO LEARN MORE ABOUT THE CONVERSION AND REORGANIZATION OF
PULASKI BANK
AND THE STOCK OFFERING OF
Pulaski Financial Corp.
(insert logo here)
Senior executives of Pulaski Bank and its investment bankers will present
information and answer your questions about the Plan of Conversion and Agreement
and Plan of Reorganization, as well as about the business and operations of
Pulaski Bank.
<TABLE>
<S> <C>
Tuesday, September __, 1998 Wednesday, September __, 1998
100 Any Street 200 Anywhere Rd.
St. Louis, Missouri St. Louis, Missouri
</TABLE>
All Community Investor Meetings will begin at ____ p.m., Central Time.
PLEASE RSVP TO THE PULASKI FINANCIAL CORP. STOCK INFORMATION CENTER, AT
(314) XXX-XXXX, IF YOU PLAN TO ATTEND.
The shares of common stock offered in the Conversion and Reorganization are not
savings accounts or deposits and are not insured by the Federal Deposit
Insurance Corporation, the Bank Insurance Fund, the Savings Association
Insurance Fund, or any other government agency. This is not an offer to sell or
a solicitation of an offer to buy stock. The offer is made only by the
Prospectus.
<PAGE>
PROXY GRAM
We recently forwarded to you a proxy statement and letter advising that Pulaski
Bancshares, M.H.C. had received conditional approval to convert from a mutual
holding company to a stock holding company.
Your vote on our Plan of Conversion and Agreement and Plan of Reorganization has
- --------------------------------------------------------------------------------
not yet been received. FAILURE TO VOTE HAS THE SAME EFFECT AS VOTING AGAINST
- ---------------------
THE PLAN OF CONVERSION AND AGREEMENT AND PLAN OF REORGANIZATION.
Your vote is important to us. Therefore, we are requesting that you sign the
enclosed proxy card and return it promptly in the enclosed postage-paid
envelope.
VOTING FOR THE PLAN OF CONVERSION AND AGREEMENT AND PLAN OF REORGANIZATION DOES
NOT OBLIGATE YOU TO PURCHASE STOCK OR AFFECT THE TERMS OR INSURANCE ON YOUR
ACCOUNTS.
The Boards of Directors of Pulaski Bancshares, M.H.C. and Pulaski Bank
unanimously recommend that you vote "FOR" the Plan of Conversion and Agreement
and Plan of Reorganization.
Pulaski Bancshares, M.H.C.
Pulaski Bank
St. Louis, Missouri
William A. Donius
President
- --------------------------------------------------------------------------------
If you mailed the proxy, please accept our thanks and disregard this request.
For further information call
(314) XXX-XXXX.
The shares of common stock being offered are not savings accounts or deposits
and are not insured by the Federal Deposit Insurance Corporation, the Bank
Insurance Fund or any other governmental agency. This is not an offer to sell
or a solicitation of an offer to buy stock. The offer is made only by the
Prospectus.
<PAGE>
EXHIBIT 99.3
RP FINANCIAL, LC.
- ------------------------------------------------
Financial Services Industry Consultants
April 2, 1998
Mr. William Donius
President
Pulaski Bank, a Federal Savings Bank
12300 Olive Boulevard
St. Louis, Missouri 63141-6434
Dear Mr. Donius:
This letter sets forth the agreement between Pulaski Bank, a Federal
Savings Bank, St. Louis, Missouri ("Pulaski" or the "Bank") and RP Financial,
LC. ("RP Financial") for certain conversion appraisal services pertaining to the
mutual-to-stock conversion of Pulaski Bancshares, MHC (the "MHC"), a federal
mutual holding company and the majority shareholder of Pulaski, and the Plan of
Reorganization between the MHC and Pulaski. The specific services to be
rendered by RP Financial are described below. These services will be rendered
by a team of two senior consultants on staff.
Description of Conversion Appraisal Services
- --------------------------------------------
RP Financial will prepare a written detailed valuation report which will be
fully consistent with applicable regulatory guidelines and standard valuation
practices. The valuation report will conclude with an estimate of the pro forma
market value of the shares of stock to be offered and sold in the conversion. RP
Financial understands that as part of the conversion, the shares of Pulaski
which are held by public shareholders (i.e. stockholders other than the MHC)
will be exchanged for newly issued shares of common stock of a newly organized
stock holding company ("SHC") and that shares offered in the conversion will be
SHC shares. The valuation report will incorporate such key transaction
parameters as the financial strength and operations of Pulaski, the proposed
treatment in the conversion of the publicly-traded shares of Pulaski (including
the proposed exchange), and the financial strength and operation of the MHC
unconsolidated. The estimate of pro forma market value will be a preliminary
value, subject to confirmation by RP Financial at the closing of the offering.
Prior to preparing the valuation report, RP Financial will conduct a
financial due diligence, including on-site interviews of senior management and
reviews of financial and other documents and records, to gain insight into the
operations, financial condition, profitability, risks and external factors which
impact the Bank. The valuation will include an in-depth analysis of the Bank's
financial condition and operating results, as well as assess the Bank's interest
rate risk, credit risk and liquidity risk. The valuation report will describe
the Bank's business strategies and market area and prospects for the future. A
peer group analysis relative to publicly-traded savings institutions will be
conducted for the purpose of determining
- --------------------------------------------------------------------------------
WASHINGTON HEADQUARTERS
Rosslyn Center
1700 North Moore Street, Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
<PAGE>
RP Financial, LC.
Mr. William Donius
April 2, 1998
Page 2
appropriate valuation adjustments relative to the group. The valuation report
will conclude with a midpoint pro forma valuation for the shares to be offered
in the conversion, as well as a range of value around the midpoint value. The
valuation report may be periodically updated throughout the conversion process
and there will be at least one updated valuation prepared at the time of the
closing of the stock offering.
RP Financial agrees to deliver the valuation appraisal and subsequent
updates, in writing, to Pulaski at the above address in conjunction with the
filing of the regulatory application. Subsequent updates will be filed promptly
as certain events occur which would warrant the preparation and filing of such
valuation updates. Further, RP Financial agrees to perform such other services
as are necessary or required in connection with the regulatory review of the
appraisal and respond to the regulatory comments, if any, regarding the
valuation appraisal and subsequent updates.
Fee Structure and Payment Schedule
- ----------------------------------
Pulaski agrees to pay RP Financial a fixed fee of $35,000 for these
services, plus reimbursable expenses. Payment of these fees shall be made
according to the following schedule:
o $5,000 upon execution of the letter of agreement engaging RP
Financial's services as outlined herein;
o $25,000 upon delivery of the completed original appraisal report; and
o $5,000 upon completion of the conversion to cover all subsequent
valuation updates that may be required.
The Bank will reimburse RP Financial for out-of-pocket expenses incurred in
the preparation of the appraisal report. Such out-of-pocket expenses will
include travel, telephone, facsimile, copying, shipping, computer and data. RP
Financial will make all attempts to keep out-of-pocket expenses to a minimum.
In the event Pulaski or the MHC shall, for any reason, discontinue the
proposed conversion prior to delivery of the completed documents set forth above
and payment of the respective progress payment fees, Pulaski agrees to
compensate RP Financial according to RP Financial's standard billing rates for
consulting services based on accumulated and verifiable time expenses, not to
exceed the respective fee caps noted above, after giving full credit to the
initial retainer fee. RP Financial's standard billing rates range from $75 per
hour for research and associates to $250 per hour for managing consultants.
If during the course of the proposed transaction, unforeseen events occur
so as to materially change the nature or the work content of the services
described in this contract, the terms of said contract shall be subject to
renegotiation by Pulaski and RP Financial. Such unforeseen events shall
include, but not be limited to, major changes in the conversion regulations,
appraisal guidelines or processing procedures as they relate to conversion
appraisals, major changes in management or procedures, operating policies or
philosophies, and excessive delays or suspension of processing of conversion
applications by the regulators such
<PAGE>
RP Financial, LC.
Mr. William Donius
April 2, 1998
Page 3
that completion of the conversion transaction requires the preparation by
RP Financial of a new appraisal.
Representations and Warranties
- ------------------------------
Pulaski and RP Financial agree to the following:
1. The Bank agrees to make available or to supply to RP Financial such
information with respect to its business and financial condition as RP Financial
may reasonably request in order to provide the aforesaid valuation. Such
information heretofore or hereafter supplied or made available to RP Financial
shall include: annual financial statements, periodic regulatory filings and
material agreements, debt instruments, off balance sheet assets or liabilities,
commitments and contingencies, unrealized gains or losses and corporate books
and records. All information provided by the Bank to RP Financial shall remain
strictly confidential (unless such information is otherwise made available to
the public), and if conversion is not consummated or the services of RP
Financial are terminated hereunder, RP Financial shall upon request promptly
return to the Bank the original and any copies of such information.
2. The Bank hereby represents and warrants to RP Financial that any
information provided to RP Financial does not and will not, to be best of the
Bank's knowledge, at the times it is provided to RP Financial, contain any
untrue statement of a material fact or fail to state a material fact necessary
to make the statements therein not false or misleading in light of the
circumstances under which they were made.
3. (a) The Bank agrees that it will indemnify and hold harmless RP
Financial, any affiliates of RP Financial, the respective directors, officers,
agents and employees of RP Financial or their successors and assigns who act for
or on behalf of RP Financial in connection with the services called for under
this agreement (hereinafter referred to as "RP Financial"), from and against any
and all losses, claims, damages and liabilities (including, but not limited to,
all losses and expenses in connection with claims under the federal securities
laws) attributable to (i) any untrue statement or alleged untrue statement of a
material fact contained in the financial statements or other information
furnished or otherwise provided by Pulaski to RP Financial, either orally or in
writing, (ii) the omission or alleged omission of a material fact from the
financial statements or other information furnished or otherwise made available
by Pulaski to RP Financial or (iii) any action or omission to act by Pulaski, or
Pulaski's respective officers, directors, employees or agents which action or
omission is willful or negligent. Pulaski will be under no obligation to
indemnify RP Financial hereunder if a court determines that RP Financial was
negligent or acted in bad faith with respect to any actions or omissions of RP
Financial related to a matter for which indemnification is sought hereunder.
Any time devoted by employees of RP Financial to situations for which
indemnification is provided hereunder, shall be an indemnifiable cost payable by
Pulaski at the normal hourly professional rate chargeable by such employee.
(b) RP Financial shall give written notice to the Bank of such claim or
facts within thirty days of the assertion of any claim or discovery of material
facts upon which the RP Financial intends to base a claim for indemnification
hereunder. In the event the Bank elects, within seven days of the receipt of
the original notice thereof, to contest such claim by written notice to RP
Financial, RP Financial will be entitled to be paid any amounts payable by the
Bank hereunder, together with interest on such costs from the date incurred at
the rate of
<PAGE>
RP Financial, LC.
Mr. William Donius
April 2, 1998
Page 4
fifteen percent (15%) per annum within five days after the final determination
of such contest either by written acknowledgement of the Bank or a final
judgment of a court of competent jurisdiction. If the Bank does not so elect, RP
Financial shall be paid promptly and in any event within thirty days after
receipt by the Bank of the notice of the claim.
(c) The Bank shall pay for or reimburse the reasonable expenses,
including attorneys' fees, incurred by RP Financial in advance of the final
disposition of any proceeding within thirty days of the receipt of such request
if RP Financial furnishes the Bank: (1) a written statement of RP Financial's
good faith belief that if is entitled to indemnification hereunder; and (2) a
written undertaking to repay the advance if it ultimately is determined in a
final adjudication of such proceeding that it or he is not entitled to such
indemnification.
(d) In the event the Bank does not pay any indemnified loss or make
advance reimbursements of expenses in accordance with the terms of this
agreement, RP Financial shall have all remedies available at law or in equity to
enforce such obligation.
It is understood that, in connection with RP Financial's above-mentioned
engagement, RP Financial may also be engaged to act for the Bank in one or more
additional capacities, and that the terms of the original engagement may be
embodied in one or more separate agreements. The provisions of Paragraph 3
herein shall apply to the original engagement, any such additional engagement,
any modification of the original engagement or such additional engagement and
shall remain in full force and effect following the completion or termination of
RP Financial's engagement(s). This agreement constitutes the entire
understanding of the Bank and RP Financial concerning the subject matter
addressed herein, and such contract shall be governed and construed in
accordance with the laws of the Commonwealth of Virginia. This agreement may not
be modified, supplemented or amended except by written agreement executed by
both parties.
Pulaski and RP Financial are not affiliated, and neither Pulaski nor RP
Financial has an economic interest in, or is held in common with, the other and
has not derived a significant portion of its gross revenues, receipts or net
income for any period from transactions with the other.
The MHC and RP Financial are not affiliated, and neither the MHC nor RP
Financial has an economic interest in, or is held in common with, with other and
has not derived a significant portion of its gross revenues, receipts or net
income for any period from transactions with the other.
* * * * * * * * * * *
<PAGE>
RP Financial, LC.
Mr. William Donius
April 2, 1998
Page 5
Please acknowledge your agreement to the foregoing by signing as indicated
below and returning to RP Financial a signed copy of this letter, together with
the initial retainer fee of $5,000.
Sincerely,
/s/ William E. Pommerening
William E. Pommerening
Chief Executive Officer
and Managing Director
Agreed To and Accepted By: /s/ Mr. William A. Donius
-------------------------
Mr. William A. Donius
President
For: Pulaski Bank, a Federal Savings Bank
St. Louis, Missouri
Date Executed: 4-15-98
-------
<PAGE>
RP FINANCIAL, LC.
- ------------------------------------------
Financial Services Industry Consultants
April 2, 1998
Mr. William Donius
President
Pulaski Bank, a Federal Savings Bank
12300 Olive Boulevard
St. Louis, Missouri 63141-6434
Dear Mr. Donius:
This letter sets forth the agreement between Pulaski Bank, a Federal
Savings Bank, St. Louis, Missouri ("Pulaski" or the "Bank") and RP Financial,
LC. ("RP Financial"), whereby the Bank has engaged RP Financial to assist in
the preparation of the regulatory business plan and financial projections to be
adopted by the Bank pursuant to the formation of a holding company. These
services are described in greater detail below.
Description of Proposed Services
- --------------------------------
RP Financial's business planning services will include, but are not limited
to, the following areas: (1) gaining an understanding of Pulaski's current
financial and operating condition, business strategies and anticipated
strategies in the future; (2) analyzing and quantifying the impact of business
strategies to enhance profitability, capitalization, competitiveness and
compliance with applicable regulations; (3) preparing detailed financial
projections on a quarterly basis for a period of at least three fiscal years to
reflect the impact of Board approved business strategies; and (4) preparing the
written business plan document which conform with any applicable regulatory
guidelines.
The business plan will clearly describe and demonstrate the business and
operating strategies and objectives of Pulaski and the holding company for three
fiscal years, with the objective of demonstrating the financial viability and
operating strength of the Bank and holding company cash flows. Contents of the
business plan will include:
Philosophy/Goals
Economic Environment and Background
Lending, Leasing and Investment Activities
Deposit, Savings and Borrowing Activity
Asset and Liability Management
Operations
Records, Systems and Controls
Growth, Profitability and Capital
Responsibility for Monitoring this Plan
The business plan will include detailed financial projections prepared on a
quarterly basis covering three fiscal years. The financial projections will
reflect the anticipated timing and financial impact of the Board-approved
strategies.
- --------------------------------------------------------------------------------
WASHINGTON HEADQUARTERS
Rosslyn Center
1700 North Moore Street, Suite 2210 Telephone: (703) 528-1700
Arlington, VA 22209 Fax No.: (703) 528-1788
<PAGE>
RP Financial, LC.
Mr. William Donius
April 2, 1998
Page 2
Fee Structure and Payment Schedule
- ----------------------------------
The Bank agrees to compensate RP Financial for preparation of the business
plan with a fixed fee of $7,500. The Bank will reimburse RP Financial for out-
of-pocket expenses incurred in the preparation of the business plan. Such out-
of-pocket expenses will include, but not be limited to, travel, telephone,
facsimile, copying, shipping, computer and data. RP Financial will make all
attempts to keep out-of-pocket expenses to a minimum.
In the event the Bank shall, for any reason, discontinue this planning
engagement prior to delivery of the completed business plan and payment of the
business planning fee, the Bank agrees to compensate RP Financial according to
RP Financial's standard billing rates for consulting services based on
accumulated and verifiable time expenses, not to exceed the fee cap described
above.
If during the course of the planning engagement, unforeseen events occur so
as to materially change the nature or the work content of the business planning
services described in this contract, the terms of said contract shall be subject
to renegotiation by the Bank and RP Financial. Such unforeseen events may
include changes in regulatory requirements as it specifically relates to Pulaski
or potential transactions which will dramatically impact the Bank such as a
pending acquisition or branch transaction.
* * * * * * * * * * *
Please acknowledge your agreement to the foregoing by signing as indicated
below and returning to RP Financial a signed copy of this letter.
Sincerely,
/s/ William E. Pommerening
William E. Pommerening
Chief Executive Officer
and Managing Director
Agreed To and Accepted By: /s/ Mr. William A. Donius
-------------------------
Mr. William A. Donius
President
For: Pulaski Bank, a Federal Savings Bank
St. Louis, Missouri
Date Executed: 4-15-98
-------
<PAGE>
EXHIBIT 99.5
PULASKI BANCSHARES, M.H.C.
12300 OLIVE BOULEVARD
ST. LOUIS, MISSOURI 63141
(314) 878-2210
NOTICE OF SPECIAL MEETING OF MEMBERS
TO BE HELD ON __________, 1998
Notice is hereby given that a special meeting ("Special Meeting") of
members of PULASKI BANCSHARES, M.H.C. ("MHC") will be held at
_____________________, ________________, St. Louis, Missouri, on _________,
__________, 1998, at _____ a.m., Central Time. Business to be taken up at the
Special Meeting shall be:
(1) To approve a Plan of Conversion from Mutual Holding Company to Stock
Holding Company and Agreement and Plan of Reorganization ("Plan of
Conversion") adopted by Pulaski Bancshares, M.H.C. (the "MHC") and
the Bank, pursuant to which (i) the MHC will convert to a federally
chartered interim stock savings bank and merge into the Bank, with
the Bank being the surviving institution, (ii) the Bank and a newly
formed federally chartered interim stock savings bank will merge,
with the Bank being the surviving institution and becoming a
wholly-owned subsidiary of a newly formed stock corporation named
Pulaski Financial Corp. (the "Holding Company") and (iii) the Holding
Company will sell shares of its common stock to the public and issue
shares of its common stock in exchange for shares of the Bank's common
stock, all on and subject to the terms and conditions contained
therein.
(2) To consider and vote upon any other matters that may lawfully come
before the Special Meeting.
Note: As of the date of mailing of this Notice, the Board of Directors is
not aware of any other matters that may come before the Special Meeting.
The members entitled to vote at the Special Meeting shall be those members
of the MHC at the close of business on ________, 1998, and who continue as
members until the Special Meeting, and should the Special Meeting be, from time
to time, adjourned to a later time, until the final adjournment thereof.
BY ORDER OF THE BOARD OF DIRECTORS
WILLIAM A. DONIUS
SECRETARY
St. Louis, Missouri
________, 1998
PLEASE SIGN AND RETURN PROMPTLY EACH PROXY CARD YOU RECEIVE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. THIS WILL ASSURE NECESSARY REPRESENTATION AT THE SPECIAL
MEETING, BUT WILL NOT PREVENT YOU FROM VOTING IN PERSON IF YOU SO DESIRE. THE
PROXY IS SOLICITED ONLY FOR THIS SPECIAL MEETING (AND ANY ADJOURNMENTS THEREOF)
AND WILL NOT BE USED FOR ANY OTHER MEETING. YOU MAY REVOKE YOUR WRITTEN PROXY BY
WRITTEN INSTRUMENT DELIVERED TO WILLIAM A. DONIUS, SECRETARY, PULASKI
BANCSHARES, M.H.C., AT THE ABOVE ADDRESS AT ANY TIME PRIOR TO OR AT THE SPECIAL
MEETING.
<PAGE>
PULASKI BANCSHARES, M.H.C.
12300 OLIVE BOULEVARD
ST. LOUIS, MISSOURI 63141
(314) 878-2210
PROXY STATEMENT
__________, 1998
YOUR PROXY, IN THE FORM ENCLOSED, IS SOLICITED BY THE BOARD OF DIRECTORS OF
PULASKI BANCSHARES, M.H.C. FOR USE AT A SPECIAL MEETING OF MEMBERS TO BE HELD ON
_________, __________, 1998, AND ANY ADJOURNMENT OF THAT MEETING, FOR THE
PURPOSES SET FORTH IN THE FOREGOING NOTICE OF SPECIAL MEETING. YOUR BOARD OF
DIRECTORS AND MANAGEMENT URGE YOU TO VOTE FOR THE PLAN OF CONVERSION.
PURPOSE OF MEETING -- SUMMARY
A special meeting of members ("Special Meeting") of Pulaski Bancshares,
M.H.C. ("MHC") will be held at ______________, _________________, St. Louis,
Missouri, on _________, __________, 1998, at _____ a.m., Central Time, for the
purpose of considering and voting upon a Plan of Conversion and Agreement and
Plan of Reorganization ("Plan of Conversion"), which, if approved by a majority
of the total votes of the members eligible to be cast, will permit Pulaski Bank,
A Federal Savings Bank ("Bank") to become a subsidiary of the Holding Company, a
newly organized Delaware corporation formed by the Bank. The reorganization of
the Bank and the acquisition of control of the Bank by the Holding Company are
collectively referred to herein as the "conversion."
Pursuant to the MHC's Federal Mutual Holding Company Charter, depositors of
the Bank and borrowers of the Bank with a loan outstanding as of May 11, 1994
and for as long as such loan remains outstanding are members of the MHC.
Members entitled to vote on the Plan of Conversion are members of the MHC as of
________, 1998 ("Voting Record Date") who continue as members until the Special
Meeting, and should the Special Meeting be, from time to time, adjourned to a
later time, until the final adjournment thereof. The conversion requires the
approval of not less than a majority of the total votes eligible to be cast at
the Special Meeting.
Pursuant to the Plan of Conversion, (i) the MHC will convert from a
federally-chartered mutual holding company to a federally-chartered interim
stock savings bank (i.e. Interim A) and simultaneously merge with and into the
----
Bank, pursuant to which the MHC will cease to exist and the shares of common
stock of the Bank held by the MHC will be canceled, and (ii) Interim B will then
merge with and into the Bank. As a result of the merger of Interim B with and
into the Bank, the Bank will become a wholly owned subsidiary of the Holding
Company and the shares of Bank common stock held by persons other than the MHC
will be converted into shares of common stock of the Holding Company pursuant to
a ratio ("Exchange Ratio"), which will result in the holders of such shares
owning in the aggregate approximately the same percentage of the Common Stock to
be outstanding upon the completion of the conversion as the percentage of Bank
common stock owned by them in the aggregate immediately prior to consummation of
the conversion, but before giving effect to (a) the payment of cash in lieu of
issuing fractional shares and (b) any shares of Holding Company common stock
purchased by the Bank's stockholders in the offering.
As part of the Plan of Conversion, nontransferable rights to subscribe for
up to 6,900,000 shares of common stock have been granted, in order of priority,
to (i) depositors with $50.00 or more on deposit at the Bank as of March 31,
1996 ("Eligible Account Holders"), (ii) the Bank's employee stock ownership plan
("ESOP"), a tax-qualified employee benefit plan, (iii) depositors with $50.00 or
more on deposit at the Bank as of September 30, 1998 ("Supplemental Eligible
Account Holders"), and (iv) depositors of the Bank (other than Eligible Account
Holders and Supplemental Eligible Account Holders) as of ________, 1998 ("Voting
Record Date"), and borrowers of the Bank with
1
<PAGE>
loans outstanding as of May 11, 1994 which continue to be outstanding as of the
Voting Record Date ("Other Members"), subject to the priorities and purchase
limitations set forth in the Plan of Conversion ("Subscription Offering").
Concurrently, but subject to the prior rights of subscription rights
holders, the Holding Company is offering the shares of common stock for sale to
members of the general public through a direct community offering ("Direct
Community Offering") with preference given first to public stockholders of the
Bank (who are not Eligible Account Holders, Supplemental Eligible Account
Holders or Other Members) and then to natural persons and trusts of natural
persons who are permanent residents of St. Louis, Missouri; St. Charles,
Jefferson, Franklin and St. Louis Counties, Missouri; and Jersey, St. Clair,
Monroe and Madison Counties, Illinois ("Local Community"). Any shares not
subscribed for in the Subscription Offering or purchased in the Direct Community
Offering may be offered to eligible members of the general public on a best
efforts basis by a selling group of broker-dealers managed by Charles Webb &
Company ("Webb") in a syndicated community offering ("Syndicated Community
Offering"). The Holding Company and the Bank reserve the right, in their
absolute discretion, to accept or reject, in whole or in part, any or all orders
in the Direct Community Offering or Syndicated Community Offering either at the
time of receipt of an order or as soon as practicable following the termination
of the offering. If an order is rejected in part, the purchaser does not have
the right to cancel the remainder of the order.
PULASKI BANCSHARES, M.H.C.
The MHC is the federally-chartered mutual holding company of the Bank. The
MHC was formed in May 1994 as a result of the reorganization of the Bank into a
federally chartered mutual holding company. The members of the MHC consist of
depositors of the Bank and those current borrowers of the Bank who had loans
outstanding as of the consummation date of the MHC reorganization (May 11,
1994). The MHC's sole business activity is holding 1,470,000 shares of the
Bank's common stock, which represents 69.87% of the outstanding shares as of the
date of this prospectus. As part of the conversion, the MHC will merge into the
Bank, with the Bank as the surviving entity. As a result of this merger, the MHC
will cease to exist. The MHC's main office is located at 12300 Olive Boulevard,
St. Louis, Missouri and its telephone number is (314) 878-2210.
PULASKI BANK, A FEDERAL SAVINGS BANK
The Bank was founded in 1922 as a Missouri-chartered mutual savings and
loan association. In 1994, in connection with the formation of the MHC, the Bank
converted to a Missouri-chartered capital stock savings and loan association. In
1995, the Bank converted to a federally chartered stock savings bank and adopted
the name Pulaski Bank, A Federal Savings Bank. The Bank's main office is located
at 12300 Olive Boulevard, St. Louis, Missouri 63141 and its telephone number is
(314) 878-2210.
The Bank is regulated by the Office of Thrift Supervision ("OTS") and the
Federal Deposit Insurance Corporation. The Bank's deposits have been federally-
insured by the FDIC since 1947 and are currently insured by the FDIC under the
Savings Association Insurance Fund. The Bank has been a member of the Federal
Home Loan Bank-System since 1946.
The Bank's strategy is to operate as an independent, retail financial
institution dedicated to financing home ownership and other consumer needs in
St. Louis and the surrounding area. At March 31, 1998 the Bank operated five
offices in the St. Louis area and had total assets of $183.6 million, deposits
of $154.1 million and stockholders' equity of $24.6 million. At that date,
$117.4 million, or 93.7%, of the Bank's loans were residential mortgage loans
and $7.3 million, or 5.8%, of the Bank's loans were consumer loans. In recent
years, as part of its asset/liability management, the Bank has sold most of the
fixed-rate loans that it has originated. Loan sales for the six months ended
March 31, 1998 and the year ended September 30, 1998 totaled $51.3 million and
$63.4 million, respectively.
2
<PAGE>
PULASKI FINANCIAL CORP.
The Bank formed the Holding Company under Delaware law in May 1998 for the
purpose of owning all of the Bank's capital stock following completion of the
conversion. The Holding Company has received conditional approval of the OTS to
become a savings and loan holding company by acquiring the capital stock of the
Bank in the conversion. Before the completion of the conversion, the Holding
Company will not have any material assets or liabilities and it will not conduct
any business other than business related to the conversion. After the
conversion, the Holding Company's primary assets will be all of the capital
stock of the Bank, the loan that the Holding Company intends to make to the
Bank's ESOP and the net proceeds remaining from the sale of its common stock
after contributing 50% of the net proceeds to the Bank and funding the ESOP
loan. Initially, the primary activity of the Holding Company will be to direct,
plan and coordinate the Bank's business activities. In the future, the Holding
Company might become an operating company or acquire or organize other operating
subsidiaries, including other financial institutions, although it currently has
no plans to do so. The Holding Company's main office is located at 12300 Olive
Boulevard, St. Louis, Missouri 63141 and its telephone number is (314) 878-2210.
VOTING RIGHTS AND VOTE REQUIRED FOR APPROVAL
The MHC's Board of Directors has fixed the close of business on ________,
1998 as the record date for the determination of members entitled to notice of
and to vote at the Special Meeting. All holders of savings or other authorized
accounts of the Bank, and borrowers of the Bank with loans outstanding as of May
11, 1994 and for as long as such loans remain outstanding, are members of the
Bank under its current charter. All members of record as of the close of
business on the Voting Record Date who continue to be members on the date of the
Special Meeting or any adjournment thereof will be entitled to vote at the
Special Meeting or such adjournment.
Each eligible depositor member 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 the depositor's savings accounts in the Bank as of the Voting
Record Date. Borrowers with loans outstanding as of May 11, 1994, which
continue to be outstanding as of the Voting Record Date will be entitled to cast
one vote for the period of time such borrowings remain in existence. No member
is entitled to cast more than 1,000 votes. Any number of members present and
voting, represented in person or by proxy, at the Special Meeting will
constitute a quorum.
Approval of the Plan of Conversion will require the affirmative vote of a
majority of the total outstanding votes of the MHC's members eligible to be cast
at the Special Meeting. As of the Voting Record Date for the Special Meeting,
there were approximately _________ votes eligible to be cast, of which _________
votes may be cast by depositor members and ___ votes may be cast by borrower
members.
PROXIES
Members may vote at the Special Meeting or any adjournment thereof in
person or by proxy. Enclosed is a proxy which may be used by any eligible member
to vote on the Plan of Conversion. All properly executed proxies received by
management 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. If any other matters are
properly presented at the Special Meeting and may properly be voted on, all
proxies will be voted on such matters in accordance with the best judgment of
the proxy holders named therein. If the enclosed proxy is returned, it may be
revoked at any time before it is voted by written notice to the Secretary of the
MHC, by submitting a later dated proxy, or by attending and voting in person at
the Special Meeting. The proxies being solicited are only for use at the Special
Meeting and at any and all adjournments thereof and will not be used for any
other meeting. Management is not aware of any other business to be presented at
the Special Meeting.
3
<PAGE>
The trustees for individual retirement accounts at the Bank, will vote in
favor of the Plan of Conversion, unless the beneficial owner executes and
returns the enclosed proxy for the Special Meeting or attends the Special
Meeting and votes in person.
To the extent necessary to permit approval of the Plan of Conversion,
proxies may be solicited by officers, directors or regular employees of the MHC,
in person, by telephone or through other forms of communication. Such persons
will be reimbursed by the MHC for their reasonable out-of-pocket expenses
incurred in connection with such solicitation. If necessary, the Special Meeting
may be adjourned to an alternative date.
RECOMMENDATION OF THE BOARD OF DIRECTORS
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE PLAN
OF CONVERSION. VOTING IN FAVOR OF THE PLAN OF CONVERSION WILL NOT OBLIGATE ANY
VOTER TO PURCHASE ANY COMMON STOCK.
THE CONVERSION
THE OTS HAS APPROVED THE PLAN OF CONVERSION SUBJECT TO ITS APPROVAL BY THE
MEMBERS OF THE MHC AND THE STOCKHOLDERS OF THE BANK ENTITLED TO VOTE THEREON AND
TO THE SATISFACTION OF CERTAIN OTHER CONDITIONS IMPOSED BY THE OTS IN ITS
APPROVAL. OTS APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF
THE PLAN OF CONVERSION.
GENERAL
On April 15, 1998, the Boards of Directors of the MHC and the Bank
unanimously adopted the Plan of Conversion, pursuant to which the Bank will
convert from the mutual holding company form of organization to the stock
holding company form of organization. THE FOLLOWING DISCUSSION OF THE PLAN OF
CONVERSION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PLAN OF CONVERSION,
WHICH IS ATTACHED AS EXHIBIT A HERETO. The OTS has approved the Plan of
Conversion, subject to its approval by the members of the MHC and the
stockholders of the Bank and to the satisfaction of certain other conditions.
Pursuant to the Plan of Conversion, (i) the MHC will convert from a
federally-chartered mutual holding company to a federally-chartered interim
stock savings bank (Interim A) and simultaneously merge with and into the Bank
and (ii) an interim federal stock savings bank (Interim B) will be formed as a
wholly-owned subsidiary of the Holding Company and Interim B will merge with and
into the Bank. As a result of the merger of Interim A with and into the Bank,
the MHC will cease to exist and the shares of Bank common stock held by the MHC
will be cancelled. As a result of the merger of Interim B with and into the
Bank, the Bank will become a wholly owned subsidiary of the Holding Company and
the common stock of the Bank will be converted into common stock of the Holding
Company pursuant to the Exchange Ratio, which will result in the holders of such
shares owning in the aggregate approximately the same percentage of the Holding
Company common stock to be outstanding upon the completion of the conversion as
the percentage of the Bank common stock owned by them in the aggregate
immediately prior to consummation of the conversion, but before giving effect to
(a) the payment of cash in lieu of issuing fractional shares (b) any shares of
common stock purchased by the Bank's stockholders in this offering and (c)
certain adjustments required by the OTS.
As part of the conversion, the Holding Company is offering shares of its
common stock in the Subscription Offering to holders of subscription rights in
the following order of priority: (i) Eligible Account Holders (depositors of the
Bank with $50.00 or more on deposit as of the close of business on March 31,
1997); (ii) Supplemental Eligible Account Holders (depositors of the Bank with
$50.00 or more on deposit as of the close of business on June 30, 1998); and
(iii) Other Members (depositors of the Bank as of the close of business on
________________ and borrowers of the Bank with loans outstanding as of the
close of business on May 11, 1994, which continue to be outstanding as of the
close of business on ________________).
4
<PAGE>
Concurrently with the Subscription Offering, any shares of common stock not
subscribed for in the Subscription Offering may be offered for sale in the
Direct Community Offering to members of the general public, with priority being
given first to stockholders of the Bank as of the close of business on the
Voting Record Date (who are not Eligible Account Holders, Supplemental Eligible
Account Holders or Other Members) and then to natural persons and trusts of
natural persons residing in the Local Community. Shares of common stock not sold
in the Subscription Offering and the Direct Community Offering may be offered in
the Syndicated Community Offering. Regulations require that the Direct Community
Offering and the Syndicated Community Offering be completed within 45 days after
completion of the fully extended Subscription Offering unless extended by the
Bank or the Holding Company with the approval of the regulatory authorities. If
the Syndicated Community Offering is determined not to be feasible because of
market conditions or otherwise, the Board of Directors of the Bank will consult
with the regulatory authorities to determine an appropriate alternative method
for selling the unsubscribed shares of common stock. The Plan of Conversion
provides that the conversion must be completed within 24 months after the date
of the approval of the Plan of Conversion by the members of the MHC.
No sales of common stock may be completed, either in the Subscription
Offering, Direct Community Offering or Syndicated Community Offering unless the
Plan of Conversion is approved by the members of the MHC and the stockholders of
the Bank. The completion of this offering, however, is subject to market
conditions and other factors beyond the Bank's control. No assurance can be
given as to the length of time after approval of the Plan of Conversion by the
members of the MHC and the stockholders of the Bank that will be required to
complete the Direct Community Offering or Syndicated Community Offering or other
sale of the shares of common stock. If delays are experienced, significant
changes may occur in the estimated pro forma market value of the MHC and the
Bank, as converted, together with corresponding changes in the net proceeds
realized by the Holding Company from the sale of its common stock.
Orders for shares of common stock will not be filled until at least
$51,000,000 of common stock has been subscribed for or sold and the OTS approves
the final valuation and the conversion closes. If the conversion is not
completed within 45 days after the last day of the fully extended Subscription
Offering and the OTS consents to an extension of time to complete the
conversion, subscribers will be given the right to increase, decrease or rescind
their subscriptions. Unless an affirmative indication is received from
subscribers that they wish to continue to subscribe for shares, the funds will
be returned promptly, together with accrued interest at the Bank's passbook rate
from the date payment is received until the funds are returned to the
subscriber. If such period is not extended, or, in any event, if the conversion
is not completed, all withdrawal authorizations will be terminated and all funds
received will be promptly returned together with accrued interest at the Bank's
passbook rate from the date payment is received until the conversion is
terminated.
PURPOSES OF CONVERSION
The MHC, as a federally chartered mutual holding company, does not have
stockholders and has no authority to issue capital stock. As a result of the
conversion, the Holding Company will be structured in the form used by holding
companies of commercial banks, most business entities and a growing number of
savings institutions. The holding company form of organization will provide the
Holding Company with the ability to diversify the Holding Company's and the
Bank's business activities through acquisition of or mergers with both stock
savings institutions and commercial banks, as well as other companies. Although
there are no current arrangements, understandings or agreements regarding any
such opportunities, the Holding Company will be in a position after the
conversion, subject to regulatory limitations and the Holding Company's
financial position, to take advantage of any such opportunities that may arise.
In their decision to pursue the conversion, the Board of Directors of the
MHC and the Bank considered various regulatory uncertainties associated with the
mutual holding company structure including the ability to waive dividends in the
future as well as the general uncertainty regarding a possible elimination of
the federal savings association charter.
The conversion will be important to the future growth and performance of
the holding company organization by providing a larger capital base to support
the operations of the Bank and Holding Company and by enhancing their
5
<PAGE>
future access to capital markets, their ability to diversify into other
financial services related activities, and their ability to provide services to
the public.
The conversion also will result in a larger number of shares of Holding
Company common stock to be outstanding as compared to the number of outstanding
shares of Bank common stock, which will increase the likelihood of the
development of an active and liquid trading market for the common stock. See
"MARKET FOR COMMON STOCK." In addition, the conversion will permit the Holding
Company to engage in stock repurchases without adverse federal income tax
consequences. The Bank cannot repurchase its common stock without triggering
adverse federal income tax consequences. Currently, the Holding Company has no
specific plans regarding any stock repurchases.
An additional benefit of the conversion will be an increase in the
accumulated earnings and profits of the Bank for federal income tax purposes.
When the Bank (as a mutual institution) transferred substantially all of its
assets and liabilities to its stock savings bank successor in the MHC
reorganization, its accumulated earnings and profits tax attribute was not able
to be transferred to the Bank because no tax-free reorganization was involved.
Accordingly, this tax attribute was retained by the Bank when it converted its
charter to that of the MHC, even though the underlying retained earnings were
transferred to the Bank. The conversion has been structured to re-unite the
accumulated earnings and profits tax attribute retained by the MHC in the MHC
reorganization with the retained earnings of the Bank by merging the MHC with
and into the Bank in a tax-free reorganization. This transaction will increase
the Bank's ability to pay dividends to the Holding Company in the future. See
"DIVIDEND POLICY."
If the Bank had undertaken a standard conversion involving the formation of
a stock holding company in 1994, applicable OTS regulations would have required
a greater amount of common stock to be sold than the amount sold in the MHC
reorganization. Management believed that it was advisable to profitably invest
the proceeds raised in the MHC reorganization prior to raising the larger amount
of capital that would have been raised at one time in a standard conversion. A
standard conversion in 1994 also would have immediately eliminated all aspects
of the mutual form of organization.
In light of the foregoing, the Boards of Directors of the MHC and the Bank
believe that the conversion is in the best interests of the MHC and the Bank,
their respective members and stockholders, and the communities served by the
Bank.
EFFECTS OF CONVERSION ON DEPOSITORS AND BORROWERS OF THE BANK
GENERAL. Prior to the conversion, each depositor in the Bank has both a
deposit account in the institution and a pro rata ownership interest in the net
worth of the MHC based upon the balance in his or her account, which interest
may only be realized in the event of a liquidation of the MHC. However, this
ownership interest is tied to the depositor's account and has no tangible market
value separate from such deposit account. A depositor who reduces or closes his
or her account receives a portion or all of the balance in the account but
nothing for his or her ownership interest in the net worth of the MHC, which is
lost to the extent that the balance in the account is reduced.
Consequently, the depositors of the Bank normally have no way to realize
the value of their ownership interest in the MHC, which has realizable value
only in the unlikely event that the MHC is liquidated. In such event, the
depositors of record at that time, as owners, would share pro rata in any
residual surplus and reserves of the MHC after other claims are paid.
Upon consummation of the conversion, permanent nonwithdrawable capital
stock will be created to represent the ownership of the net worth of the Holding
Company. The common stock is separate and apart from deposit accounts and cannot
be and is not insured by the FDIC or any other governmental agency. Certificates
are issued to evidence ownership of the permanent stock. The stock certificates
are transferable, and therefore the stock may be sold or traded if a purchaser
is available with no effect on any deposit and/or loan account(s) the seller may
hold in the Bank.
6
<PAGE>
CONTINUITY. The conversion will not interrupt the Bank's normal business of
accepting deposits and making loans. The Bank will continue to be subject to
regulation by the OTS and the FDIC. After the conversion, the Bank will continue
to provide services for depositors and borrowers under current policies by its
present management and staff.
The directors and officers of the Bank at the time of the conversion will
continue to serve as directors and officers of the Bank after the conversion.
The directors and officers of the Holding Company consist of individuals
currently serving as directors and officers of the MHC and the Bank, and they
will retain their positions in the Holding Company after the conversion.
EFFECT ON THE BANK'S COMMON STOCK. Under the Plan of Conversion, upon
consummation of the conversion, each share of the Bank's common stock held by
the Bank's public stockholders will be converted into shares of Holding Company
common stock based upon the Exchange Ratio without any further action on the
part of the holder thereof. Upon surrender of certificates representing shares
of Bank common stock, Holding Company common stock will be issued in exchange
for such shares. See "-- Delivery and Exchange of Stock Certificates."
Upon consummation of the conversion, the public stockholders of the Bank
will become stockholders of the Holding Company. For a description of certain
changes in the rights of stockholders as a result of the conversion, see
"COMPARISON OF STOCKHOLDERS' RIGHTS."
VOTING RIGHTS. Presently, depositors and borrowers of the Bank are members
of, and have voting rights in, the MHC as to all matters requiring membership
action. Upon completion of the conversion, the MHC will cease to exist and all
voting rights in the Bank will be vested in the Holding Company as the sole
stockholder of the Bank. Exclusive voting rights with respect to the Holding
Company will be vested in the holders of the Holding Company's common stock.
Depositors and borrowers of the Bank will not have voting rights in the Holding
Company after the conversion, except to the extent that they become stockholders
of the Holding Company.
SAVINGS ACCOUNTS AND LOANS. The Bank's savings accounts, account balances
and existing FDIC insurance coverage of savings accounts will not be affected by
the conversion. Furthermore, the conversion will not affect the loan accounts,
loan balances or obligations of borrowers under their individual contractual
arrangements with the Bank.
TAX EFFECTS. The Bank has received an opinion from Breyer & Aguggia LLP,
Washington, D.C., that the conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(A) of the Internal Revenue Code. Among
other things, the opinion provides that:
(i) the conversion of the MHC from a mutual holding company to a
federally-chartered interim stock savings bank (Interim A) and its
simultaneous merger with and into the Bank, with the Bank as the
surviving entity, will qualify as a reorganization within the meaning
of Section 368(a)(1)(A) of the Internal Revenue Code;
(ii) no gain or loss will be recognized by the Bank upon the receipt of
the assets of the MHC in such merger;
(iii) the merger of Interim B with and into the Bank, with the Bank as the
surviving entity, will qualify as a reorganization within the meaning
of Section 368(a)(1)(A) of the Internal Revenue Code;
(iv) no gain or loss will be recognized by Interim B upon the transfer of
its assets to the Bank;
(v) no gain or loss will be recognized by the Bank upon the receipt of
the assets of Interim B;
7
<PAGE>
(vi) no gain or loss will be recognized by the Holding Company upon the
receipt of Bank common stock solely in exchange for Holding Company
common stock;
(vii) no gain or loss will be recognized by the Public Stockholders upon
the receipt of shares of the Holding Company's common stock in
exchange for their shares of Bank common stock;
(viii) the basis of the shares of common stock of the Holding Company to be
received by the Bank's public stockholders will be the same as the
basis of the shares of common stock of the Bank surrendered in
exchange therefor, before giving effect to any payment of cash in
lieu of fractional shares;
(ix) the holding period of the shares of Holding Company common stock to
be received by the Bank's public stockholders will include the
holding period of the Bank common stock, provided that the shares of
Bank common stock were held as a capital asset on the date of the
exchange;
(x) no gain or loss will be recognized by the Holding Company upon the
sale of shares of its common stock in this offering;
(xi) the Eligible Account Holders, Supplemental Eligible Account Holders
and Other Members will recognize gain, if any, upon the issuance to
them of withdrawable savings accounts in the Bank following the
conversion, interests in the liquidation account and nontransferable
subscription rights to purchase common stock, but only to the extent
of the value, if any, of the subscription rights; and
(xii) the tax basis to the holders of shares of common stock purchased in
this offering will be the amount paid therefor, and the holding
period for the shares of common stock will begin on the date of
consummation of this offering, if purchased through the exercise of
Subscription Rights, and on the day after the date of purchase, if
purchased in the Direct Community Offering or the Syndicated
Community Offering.
Unlike a private letter ruling issued by the IRS, an opinion of counsel is
not binding on the IRS and the IRS could disagree with the conclusions reached
therein. In the event of such disagreement, no assurance can be given that the
conclusions reached in an opinion of counsel would be sustained by a court if
contested by the IRS.
Based upon past rulings issued by the IRS, the opinion provides that the
receipt of subscription rights by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members under the Plan of Conversion will be
taxable to the extent, if any, that the subscription rights are deemed to have a
fair market value. RP Financial, a financial consulting firm retained by the
Bank, whose findings are not binding on the IRS, has issued a letter indicating
that the subscription rights do not have any value, based on the fact that such
rights are acquired by the recipients without cost, are nontransferable and of
short duration and afford the recipients the right only to purchase shares of
the common stock at a price equal to its estimated fair market value, which will
be the same price paid by purchasers in the Direct Community Offering for
unsubscribed shares of common stock. If the subscription rights are deemed to
have a fair market value, the receipt of such rights may only be taxable to
those Eligible Account Holders, Supplemental Eligible Account Holders and Other
Members who exercise their subscription rights. The Bank could also recognize a
gain on the distribution of such subscription rights. Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members are encouraged to
consult with their own tax advisors as to the tax consequences in the event the
subscription rights are deemed to have a fair market value.
The Bank has also received an opinion fromBreyer & Aguggia LLP, that,
assuming the conversion does not result in any federal income tax liability to
the Bank, its account holders, or the Holding Company, implementation of the
Plan of Conversion will not result in any Missouri tax liability to such
entities or persons.
8
<PAGE>
The opinion of Breyer & Aguggia LLP and the letter from RP Financial are
filed as exhibits to the Registration Statement. See "ADDITIONAL INFORMATION."
THE PRECEDING DISCUSSION SUMMARIZES THE MATERIAL TAX CONSEQUENCES OF THE
CONVERSION. PROSPECTIVE INVESTORS, HOWEVER, ARE URGED TO CONSULT WITH THEIR OWN
TAX ADVISORS REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO
THEM.
LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of the
MHC, each depositor of the Bank would receive his or her pro rata share of any
assets of the MHC remaining after payment of claims of all creditors. Each
depositor's pro rata share of such remaining assets would be in the same
proportion as the value of his or her deposit account was to the total value of
all deposit accounts in the Bank at the time of liquidation. After the
conversion, each depositor, in the event of a complete liquidation of the Bank,
would have a claim as a creditor of the same general priority as the claims of
all other general creditors of the Bank. However, except as described below, his
or her claim would be solely in the amount of the balance in his or her deposit
account plus accrued interest. Each stockholder would not have an interest in
the value or assets of the Bank or the Holding Company above that amount.
The Plan of Conversion provides for the establishment, upon the completion
of the conversion, of a special "liquidation account" for the benefit of
Eligible Account Holders and Supplemental Eligible Account Holders in an amount
equal to the amount of any dividends waived by the MHC plus the greater of (i)
the Bank's retained earnings of $15.2 million at December 31, 1993, the date of
the latest statement of financial condition contained in the final offering
circular utilized in the MHC reorganization, or (ii) _____% of the Bank's total
stockholders' equity as reflected in its latest statement of financial condition
contained in the final Prospectus utilized in this offering. As of the date of
this Prospectus, the initial balance of the liquidation account would be $____
million. Each Eligible Account Holder and Supplemental Eligible Account Holder,
if he or she were to continue to maintain his or her deposit account at the
Bank, would be entitled, upon a complete liquidation of the Bank after the
conversion to an interest in the liquidation account prior to any payment to the
Holding Company as the sole stockholder of the Bank. Each Eligible Account
Holder and Supplemental Eligible Account Holder would have an initial interest
in such liquidation account for each deposit account, including passbook
accounts, transaction accounts such as checking accounts, money market deposit
accounts and certificates of deposit, held in the Bank at the close of business
on March 31, 1997 or June 30, 1998, as the case may be. Each Eligible Account
Holder and Supplemental Eligible Account Holder will have a pro rata interest in
the total liquidation account for each of his or her deposit accounts based on
the proportion that the balance of each such deposit account on the Eligibility
Record Date (March 31, 1997) or the Supplemental Eligibility Record Date (June
30, 1998), as the case may be, bore to the balance of all deposit accounts in
the Bank on such date.
If, however, on any September 30 annual closing date of the Bank,
commencing September 30, 1998, the amount in any deposit account is less than
the amount in such deposit account on March 31, 1997 or June 30, 1998, as the
case may be, or any other annual closing date, then the interest in the
liquidation account relating to such deposit account would be reduced by the
proportion of any such reduction, and such interest will cease to exist if such
deposit account is closed. In addition, no interest in the liquidation account
would ever be increased despite any subsequent increase in the related deposit
account. Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders are satisfied would be
distributed to the Holding Company as the sole stockholder of the Bank.
REVIEW OF OTS ACTION
Any person aggrieved by a final action of the OTS which approves, with or
without conditions, or disapproves a plan of conversion pursuant to 12 C.F.R.
Part 563b may obtain review of such action by filing in the court of appeals of
the United States 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, a written petition praying that the final action of the
OTS be modified, terminated or set aside. Such petition must be filed within 30
days after the publication of notice of such final
9
<PAGE>
action in the Federal Register, or 30 days after the mailing by the applicant of
the notice to members as provided for in 12 C.F.R. (S)563b.6(c), whichever is
later. The further procedure for review is as follows: A copy of the petition is
forthwith transmitted to the OTS by the clerk of the court and thereupon the OTS
files in the court the record in the proceeding, as provided in Section 2112 of
Title 28 of the United States Code. Upon the filing of the petition, the court
has jurisdiction, which upon the filing of the record is exclusive, to affirm,
modify, terminate, or set aside in whole or in part, the final action of the
OTS. Review of such proceedings is as provided in Chapter 7 of Title 5 of the
United States Code. The judgment and decree of the court is final, except that
they are subject to review by the United States Supreme Court upon certiorari as
provided in Section 1254 of Title 28 of the United States Code.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration Statement on Form
S-1 (File No. 333-_____) under the Securities Act with respect to the common
stock offered in the conversion. The prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. You may read
and copy such information at the SEC's public reference room in Missouri, D.C.
You can request copies of those documents, upon payment of a duplicating fee, by
writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. The Registration
Statement also is available through the SEC's World Wide Web site on the
Internet (http://www.sec.gov).
The Bank has filed with the OTS an Application for Approval of Conversion.
The accompanying Prospectus omits certain information contained in such
Application. The Application, including exhibits and certain other information
that are a part thereof, may be inspected, without charge, at the offices of the
OTS, 1700 G Street, N.W., Missouri, D.C. 20552 and at the office of the Regional
Director of the OTS at the OTS Midwest Regional Office, 122 W. John Carpenter
Freeway, Suite 600, Irving, Texas 75039.
Copies of the Holding Company's Articles of Incorporation and Bylaws may be
obtained by written request to the Bank.
All persons eligible to vote at the Special Meeting should review both this
Proxy Statement and the accompanying Prospectus carefully. However, no person is
obligated to purchase any Common Stock. For additional information, you may call
the Stock Information Center at __________________.
BY ORDER OF THE BOARD OF DIRECTORS
WILLIAM A. DONIUS
SECRETARY
St. Louis, Missouri
______, 1998
YOUR BOARD OF DIRECTORS URGES YOU TO CONSIDER CAREFULLY THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT AND THE PROSPECTUS AND, WHETHER OR NOT YOU
PLAN TO BE PRESENT IN PERSON AT THE SPECIAL MEETING, TO FILL IN, DATE, SIGN AND
RETURN THE ENCLOSED PROXY CARD(S) AS SOON AS POSSIBLE TO ASSURE THAT YOUR VOTES
WILL BE COUNTED. THIS WILL NOT PREVENT YOU FROM VOTING IN PERSON IF YOU ATTEND
THE SPECIAL MEETING. YOU MAY REVOKE YOUR PROXY BY WRITTEN INSTRUMENT DELIVERED
TO THE SECRETARY OF THE BANK AT ANY TIME PRIOR TO OR AT THE SPECIAL MEETING OR
BY ATTENDING THE SPECIAL MEETING AND VOTING IN PERSON.
10
<PAGE>
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 IN THOSE
JURISDICTIONS IN WHICH IT IS LAWFUL TO MAKE SUCH OFFER.
11
<PAGE>
EXHIBIT 99.6
________, 1998
Dear Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders of
Pulaski Bank, A Federal Savings Bank ("Bank"), which will be held at the main
office of the Bank, 12300 Olive Boulevard, St. Louis, Missouri, on _________,
_________, 1998, at ___:___ ___.m., Central Time.
The Notice of Special Meeting of Stockholders and Proxy Statement appearing
on the following pages describe the formal business to be transacted at the
meeting. At the meeting you will be asked to approve a Plan of Conversion and
Agreement and Plan of Reorganization ("Plan of Conversion"). The Plan of
Conversion provides for the conversion of Pulaski Bancshares, M.H.C. from a
mutual holding company to a stock holding company, to be known as Pulaski
Financial Corp. ("Holding Company"), and the reorganization of the Bank as a
wholly-owned subsidiary of the Holding Company.
Your vote is important, regardless of the number of shares you own. THE
BOARD OF DIRECTORS URGES YOU TO SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD AS
SOON AS POSSIBLE EVEN IF YOU CURRENTLY PLAN TO ATTEND THE SPECIAL MEETING. This
will not prevent you from voting in person at the Special Meeting, but will
assure that your vote is counted if you are unable to attend.
Sincerely,
William A. Donius
President
<PAGE>
PULASKI BANK, A FEDERAL SAVINGS BANK
12300 OLIVE BOULEVARD
ST. LOUIS, MISSOURI 63141
(314) 878-2210
- --------------------------------------------------------------------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON _________, 1998
- --------------------------------------------------------------------------------
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders ("Special
Meeting") of Pulaski Bank, A Federal Savings Bank ("Bank") will be held at the
main office of the Bank, 12300 Olive Boulevard, St. Louis, Missouri, on
_________, _________, 1998, at ____ p.m., Central Time, for the following
purpose:
1. To consider and vote upon a proposal to approve a Plan of Conversion
from Mutual Holding Company to Stock Holding Company and Agreement and
Plan of Reorganization ("Plan of Conversion") adopted by Pulaski
Bancshares, M.H.C. (the "MHC") and the Bank, pursuant to which (i) the
MHC will convert to a federally chartered interim stock savings bank
and merge into the Bank, with the Bank being the surviving
institution, (ii) the Bank and a newly formed federally chartered
interim stock savings bank will merge, with the Bank being the
surviving institution and becoming a wholly-owned subsidiary of a
newly formed stock corporation named Pulaski Financial Corp. (the
"Holding Company") and (iii) the Holding Company will sell shares of
its common stock to the public and issue shares of its common stock in
exchange for shares of the Bank's common stock, all on and subject to
the terms and conditions contained therein.; and
2. To consider and act upon such other matters as may properly come
before the Special Meeting or any adjournments thereof.
NOTE: The Board of Directors is not aware of any other business to come
before the Special Meeting.
Any action may be taken on any one of the foregoing proposals at the
Special Meeting on the date specified above, or on any date or dates to which,
by original or later adjournment, the Special Meeting may be adjourned. Pursuant
to the Bank's Bylaws, the Board of Directors has fixed the close of business on
_________, 1998 as the record date for the determination of the stockholders
entitled to notice of and to vote at the Special Meeting and any adjournments
thereof.
Please complete and sign the enclosed form of Proxy, which is solicited by
the Board of Directors, and mail it promptly in the enclosed envelope. The Proxy
will not be used if you attend the Special Meeting and vote in person.
BY ORDER OF THE BOARD OF DIRECTORS
MICHAEL J. DONIUS
Secretary
St. Louis, Missouri
________, 1998
- --------------------------------------------------------------------------------
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE YOUR BANK THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO INSURE A QUORUM. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED IN
THE UNITED STATES.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
PROXY STATEMENT
OF
PULASKI BANK, A FEDERAL SAVINGS BANK
12300 OLIVE BOULEVARD
ST. LOUIS, MISSOURI 63141
(314) 878-2210
- --------------------------------------------------------------------------------
SPECIAL MEETING OF STOCKHOLDERS
_________, 1998
- --------------------------------------------------------------------------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Pulaski Bank, A Federal Savings Bank
("Bank") to be used at the Special Meeting of Stockholders (as may be adjourned
or postponed, the "Meeting") of the Bank. The Special Meeting will be held at
the Bank's main office, 12300 Olive Boulevard, St. Louis, Missouri, on
_________, _________, 1998, at ____ p.m., Central Time. The accompanying Notice
of Special Meeting of Stockholders and this Proxy Statement are being first
mailed to stockholders on or about ________, 1998.
- --------------------------------------------------------------------------------
VOTING AND PROXY PROCEDURE
- --------------------------------------------------------------------------------
Stockholders Entitled to Vote. Stockholders of record as of the close of
business on _______, 1998 are entitled to one vote for each share of common
stock ("Common Stock") of the Bank then held. As of _______, 1998, the Bank had
_________ shares of Common Stock issued and outstanding of which 1,470,000 were
owned by Pulaski Bancshares, M.H.C. ("MHC"), the Bank's mutual holding company.
Quorum. The presence, in person or by proxy, of at least a majority of the
total number of outstanding shares of Common Stock entitled to vote is necessary
to constitute a quorum at the Special Meeting. Abstentions will be counted as
shares present and entitled to vote at the Special Meeting for purposes of
determining the existence of a quorum. Broker non-votes (i.e., shares held by
----
brokers or nominees as to which instructions have not been received and the
broker or nominee does not have discretionary voting power) will be considered
shares present and will be included in determining whether a quorum is present.
SINCE THE MHC OWNS MORE THAN 50% OF THE OUTSTANDING SHARES OF COMMON STOCK, THE
BANK IS GUARANTEED TO ACHIEVE A QUORUM.
Voting. The Board of Directors solicits proxies so that each stockholder
has the opportunity to vote on the proposals to be considered at the Special
Meeting. When a proxy card is returned properly signed and dated the shares
represented thereby will be voted in accordance with the instructions on the
proxy card. If a stockholder of record attends the Special Meeting, he or she
may vote by ballot. Where no instructions are indicated, proxies will be voted
in accordance with the recommendations of the Board of Directors. The Board
recommends a vote FOR approval of the Plan of Conversion.
Stockholders may vote for a proposal, against a proposal or may abstain
from voting. Adoption of the Plan of Conversion will require the affirmative
vote of (i) the holders of at least two-thirds of the outstanding shares of
Common Stock, and (ii) the holders of at least a majority of the outstanding
shares of Common Stock present in person or by proxy at the Special Meeting
(other than those held by the MHC) and entitled to vote. SINCE THE MHC OWNS
MORE THAN TWO-THIRDS OF THE OUTSTANDING SHARES OF COMMON STOCK, THE BANK IS
GUARANTEED TO RECEIVE THE FIRST REQUIRED APPROVAL. Abstentions will have the
same effect as a vote "against" approval of the Plan of Conversion. Broker non-
votes will have the same effect as a vote "against" adoption of the Plan of
Conversion with respect to the approval of the conversion by the holders of at
least two-thirds of the outstanding shares of Common Stock and will have no
effect on the voting with respect to the adoption of the Plan of Conversion by a
majority of the shares (other than those held by the MHC) present and entitled
to vote.
<PAGE>
Revocation of a Proxy. Stockholders who execute proxies retain the right
to revoke them at any time before they are voted. Proxies may be revoked by
written notice delivered in person or mailed to the Secretary of the Bank or by
filing a later proxy prior to a vote being taken on a particular proposal at the
Special Meeting. Attendance at the Special Meeting will not automatically revoke
a proxy, but a stockholder in attendance may request a ballot and vote in
person, thereby revoking a prior granted proxy.
- --------------------------------------------------------------------------------
PROPOSAL I -- APPROVAL OF PLAN OF CONVERSION
- --------------------------------------------------------------------------------
On April 15, 1998, the Boards of Directors of the MHC and the Bank
unanimously adopted the Plan of Conversion, pursuant to which the Bank will
convert from the mutual holding company form of organization to the stock
holding company form of organization. THE FOLLOWING DISCUSSION OF ALL MATERIAL
ASPECTS OF THE PLAN OF CONVERSION IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
THE PLAN OF CONVERSION, WHICH IS ATTACHED HERETO AS EXHIBIT A. The OTS has
approved the Plan of Conversion subject to its approval by the members of the
MHC and the stockholders of the Bank and subject to the satisfaction of certain
other conditions imposed by the OTS in its approval. All capitalized terms not
defined herein shall have the meanings set forth in the Holding Company's
Prospectus dated February 11, 1998, a copy of which is being delivered herewith.
Pursuant to the Plan of Conversion, (i) the MHC will convert from a
federally-chartered mutual holding company to a federally-chartered interim
stock savings bank ("Interim A") and simultaneously merge with and into the
Bank, pursuant to which the MHC will cease to exist and the shares of Savings
Bank Common Stock held by the MHC will be canceled, and (ii) an interim federal
stock savings bank ("Interim B") will be formed as a wholly-owned subsidiary of
the Holding Company and will merge with and into the Bank. As a result of the
merger of Interim B with and into the Bank, the Bank will become a wholly owned
subsidiary of the Holding Company and the Public Savings Bank Shares will be
converted into the Exchange Shares pursuant to the Exchange Ratio, which will
result in the holders of such shares owning in the aggregate approximately the
same percentage of the Common Stock to be outstanding upon the completion of the
Conversion and Reorganization (i.e., the Conversion Shares and the Exchange
----
Shares) as the percentage of Savings Bank Common Stock owned by them in the
aggregate immediately prior to consummation of the Conversion and
Reorganization, but before giving effect to (a) the payment of cash in lieu of
issuing fractional Exchange Shares and (b) any shares of Conversion Stock
purchased by the Bank's stockholders in the Conversion Offerings.
As part of the Conversion and Reorganization, the Holding Company is
offering Conversion Shares in the Subscription Offering to holders of
Subscription Rights in the following order of priority: (i) Eligible Account
Holders (depositors of the Bank with $50.00 or more on deposit as of the close
of business on March 31, 1997); (ii) Supplemental Eligible Account Holders
(depositors of the Bank with $50.00 or more on deposit as of the close of
business on June 30, 1998); and (iii) Other Members (depositors of the Bank as
of the close of business on ________ ________ and borrowers of the Bank with
loans outstanding as of the close of business on May 11, 1994, which continue to
be outstanding as of the close of business on ________________).
Concurrently with the Subscription Offering, any shares not subscribed for
in the Subscription Offering may be offered for sale in the Direct Community
Offering to members of the general public, with priority being given first to
Public Stockholders as of the close of business on the Voting Record Date (who
are not Eligible Account Holders, Supplemental Eligible Account Holders or Other
Members) and then to natural persons and trusts of natural persons residing in
the Local Community. Conversion Shares not sold in the Subscription and Direct
Community Offerings may be offered in the Syndicated Community Offering.
Regulations require that the Direct Community and Syndicated Community Offerings
be completed within 45 days after completion of the fully extended Subscription
Offering unless extended by the Bank or the Holding Company with the approval of
the regulatory authorities. If the Syndicated Community Offering is determined
not to be feasible, the Board of Directors of the Bank will consult with the
regulatory authorities to determine an appropriate alternative method for
selling the unsubscribed Conversion
2
<PAGE>
Shares. The Plan of Conversion provides that the Conversion and Reorganization
must be completed within 24 months after the date of the approval of the Plan of
Conversion by the members of the MHC.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" APPROVAL OF PLAN OF
CONVERSION.
- --------------------------------------------------------------------------------
INCORPORATION BY REFERENCE
- --------------------------------------------------------------------------------
Each person receiving this Proxy Statement is also receiving the Prospectus
of Pulaski Financial Corp. dated ___________, 1998. Although such Prospectus is
incorporated herein by reference, this Proxy Statement does not constitute an
offer to sell or a solicitation of an offer to buy the common stock of the
Holding Company. Such offer and solicitation is made only by the Prospectus in
such jurisdictions where it is lawful to do so.
The Bank urges each recipient of this Proxy Statement to read carefully the
sections of the Prospectus that describe the following:
(i) the conversion (see "THE CONVERSION" in the Prospectus);
(ii) the business of the Holding Company and the Bank (see "BUSINESS OF
THE HOLDING COMPANY" and "BUSINESS OF THE BANK" in the Prospectus);
(iii) the reasons for the conversion and management's belief that the
conversion is in the best interests of the Bank and its stockholders (see
"THE CONVERSION -- Purposes of Conversion" in the Prospectus);
(iv) employment agreements, severance agreements, and stock benefit plans
that the Bank and/or the Holding Company intend to implement in connection
with the conversion (see "MANAGEMENT OF THE BANK" in the Prospectus);
(v) the common stock of the Holding Company (see "DESCRIPTION OF CAPITAL
STOCK OF THE HOLDING COMPANY" in the Prospectus);
(vi) the historical capitalization of the Bank and the pro forma
capitalization of the Holding Company (see "CAPITALIZATION" in the
Prospectus);
(vii) the historical and pro forma capital compliance of the Bank (see
"HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE" in the Prospectus);
(viii) pro forma financial information with respect to the conversion (see
"PRO FORMA DATA" in the Prospectus);
(ix) the Holding Company and the Bank's respective intended use of
proceeds of the offering (see "USE OF PROCEEDS" in the Prospectus);
(x) the Holding Company's proposed dividend policy (See "DIVIDEND
POLICY" in the Prospectus);
(xi) restrictions on the acquisition of the Holding Company, including
anti-takeover provisions in the Holding Company's Certificate of
Incorporation and Bylaws (see "RESTRICTIONS ON THE ACQUISITION OF THE
HOLDING COMPANY" in the Prospectus);
3
<PAGE>
(xii) a comparison of the rights of the holders of Common Stock and rights
of the holders of the Holding Company's common stock (see "COMPARISON OF
STOCKHOLDERS' RIGHTS" in the Prospectus); and
(xiii) the consolidated financial statements of the Bank appearing in the
Prospectus.
- --------------------------------------------------------------------------------
OTHER MATTERS
- --------------------------------------------------------------------------------
The Board of Directors of the Bank is not aware of any business to come
before the Special Meeting other than those matters described above in this
Proxy Statement. However, if any other matters should properly come before the
Special Meeting, it is intended that executed proxies in the accompanying form
will be voted in respect thereof in accordance with the judgment of the person
or persons voting the proxies.
The cost of solicitation of proxies will be borne by the Bank. In addition
to solicitations by mail, directors, officers and regular employees of the Bank
may solicit proxies personally or by telecopier or telephone without additional
compensation. In addition, the Bank has retained Charles Webb & Company for the
solicitation of proxies, account consolidation, proxy tabulation and inspection,
for an aggregate fee of $______ plus reimbursement of reasonable out-of-pocket
expenses.
BY ORDER OF THE BOARD OF DIRECTORS
MICHAEL J. DONIUS
SECRETARY
St. Louis, Missouri
________, 1998
4
