<PAGE>
As filed with the Securities and Exchange Commission on November 3, 1998
Registration No. 333-63099
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
PRE-EFFECTIVE AMENDMENT NO.1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
FIRST PLACE FINANCIAL CORP.
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF WARREN 401(K) SAVINGS PLAN
(exact name of registrant as specified in its certificate of incorporation)
<TABLE>
<S> <C> <C>
DELAWARE 6035 BEING APPLIED FOR
(state or other jurisdiction of (Primary Standard (IRS Employer Identification No.)
incorporation or organization) Classification Code Number)
</TABLE>
185 EAST MARKET STREET
WARREN, OHIO 44482
(330) 373-1221
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
STEVEN R. LEWIS
PRESIDENT AND CHIEF EXECUTIVE OFFICER
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
185 EAST MARKET STREET
WARREN, OHIO 44482
(330) 373-1221
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
JOSEPH G. PASSAIC, JR., ESQUIRE
GEOFFREY W. RYAN, ESQUIRE
LISA A. HUNT, ESQUIRE
PATTON BOGGS LLP
2550 M STREET, N.W.
WASHINGTON, D.C. 20037
(202) 457-6000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / X /
----
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
----
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
----
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration number of the earlier effective registration statement for the same
offering. / /
----
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
----
<TABLE>
<CAPTION>
Title of each Class of Amount to Purchase Price Aggregate Registration
Securities to be Registered be Registered Per Share Offering Fee
Price(2)
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------
Common Stock 11,241,250 (1)
$.01 par Value Shares $10.00 $112,412,500 (3)
=======================================================================================================
Participation
Interests -- -- $908,275 (3)
=======================================================================================================
</TABLE>
(1) Includes shares of Common Stock to be issued to the First Federal of Warren
Community Foundation, a private foundation.
(2) Estimated solely for the purpose of calculating the registration fee.
(3) The filing fee was paid upon the initial filing of the Form S-1.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
<PAGE>
[To be used in connection with sales to Participants in the FIRST FEDERAL
SAVINGS AND LOAN ASSOCIATION OF WARREN 401(k) Savings Plan]
PROSPECTUS SUPPLEMENT
- ---------------------
FIRST PLACE FINANCIAL CORP.
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
90,827 PARTICIPATION INTERESTS
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
401(K) SAVINGS PLAN
This Prospectus Supplement relates to the offer and sale to participants
(the "Participants") in First Federal Savings and Loan Association of Warren
401(k) Savings Plan (the "Plan") of participation interests and shares of common
stock, par value $.01 per share of First Place Financial Corp. (the "Common
Stock"), as set forth herein.
In connection with the proposed conversion of First Federal Savings and
Loan Association of Warren (the "Association") from a mutual savings association
to a stock savings association, (the "Conversion") the Plan has been amended to
permit the investment of Plan assets in Common Stock of First Place Financial
Corp. (the "Holding Company"). The amended Plan will permit Participants to
direct the trustee of the Plan (the "Trustee") to invest in Common Stock with
amounts in the Plan attributable to such Participants. Such investments in
Common Stock would be made by means of the First Place Financial Corp. Stock
Fund (the "Employer Stock Fund"). Based upon the value of the Plan assets at
June 30, 1998, 90,827 shares of Common Stock could be purchased with Plan assets
(assuming a purchase price of $10.00 per share). This Prospectus Supplement
relates to the initial election of Participants to direct that all or a portion
of their accounts be invested in the Employer Stock Fund in connection with the
Conversion and also to elections by Participants to direct that all or a portion
of their accounts be invested in the Employer Stock Fund after the Conversion.
The Prospectus dated _______________________________, 1998 of the Holding
Company (the "Prospectus"), which is attached to this Prospectus Supplement,
includes detailed information with respect to the Conversion, the Common Stock
and the financial condition, results of operations and business of the
Association. This Prospectus Supplement, which provides detailed information
with respect to the Plan, should be read only in conjunction with the Prospectus
and should be retained for future reference. 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
through the Plan is subject to the Participant's general eligibility to purchase
shares of Common Stock in the Conversion and the maximum and minimum purchase
limitations set forth in the Plan of
<PAGE>
Conversion. See "The Conversion Limitations on Common Stock Purchases" in the
Prospectus.
For a discussion of certain factors that should be considered by each
Participant, see "Risk Factors."
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS ____________________, 1998.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, OR ANY OTHER FEDERAL
AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS SUCH COMMISSION, OFFICE OR
OTHER AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT FEDERALLY INSURED OR GUARANTEED BY THE BANK INSURANCE FUND
OR THE SAVINGS ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE
CORPORATION OR ANY OTHER GOVERNMENT AGENCY, NOR ARE THE SHARES OF COMMON STOCK
GUARANTEED BY THE COMPANY OR THE ASSOCIATION. THE ENTIRE AMOUNT OF A
PURCHASER'S PRINCIPAL IS SUBJECT TO LOSS.
No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Association 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 Association 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.
2
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
THE OFFERING.............................................................. 4
Securities Offered...................................................... 4
Election to Purchase Common Stock in the Conversion..................... 4
Value of Participation Interests........................................ 4
Method of Directing Transfer............................................ 5
Time for Directing Transfer............................................. 5
Irrevocability of Transfer Direction.................................... 5
Direction to Purchase Common Stock After the Conversion................. 5
Purchase Price of Common Stock.......................................... 6
Nature of a Participant's Interest in the Common Stock.................. 6
Voting and Tender Rights of Common Stock................................ 6
DESCRIPTION OF THE PLAN................................................... 7
Introduction............................................................ 7
Eligibility and Participation........................................... 8
Contributions Under the Plan............................................ 8
Limitations on Contributions............................................ 9
Investment of Contributions............................................. 11
Benefits Under the Plan................................................. 14
Withdrawals and Distributions From the Plan............................. 14
Administration of the Plan.............................................. 16
Reports to Plan Participants............................................ 16
Plan Administrator...................................................... 16
Amendment and Termination............................................... 16
Merger, Consolidation or Transfer....................................... 17
Federal Income Tax Consequences......................................... 17
ERISA and Other Qualification........................................... 19
Restrictions on Resale.................................................. 19
SEC Reporting and Short-Swing Profit Liability.......................... 20
LEGAL OPINIONS............................................................ 21
</TABLE>
3
<PAGE>
THE OFFERING
SECURITIES OFFERED
The securities offered hereby are participation interests in the Plan. Up
to 90,827 shares (assuming the actual purchase price is $10.00 per share) of
Common Stock may be acquired by the Plan to be held in the Employer Stock Fund.
The Holding Company is the issuer of the Common Stock. Only employees of the
Association (hereinafter referred to as the "Employer") may participate in the
Plan. The Common Stock to be issued hereby is conditioned on the consummation
of the Conversion. A Participant's investment in units in the Employer Stock
Fund in the Conversion is subject to the priority set forth in the Plan of
Conversion.
Information with regard to the Plan is contained in this Prospectus
Supplement and information with regard to the Conversion and the financial
condition, results of operations and business of the Association is contained in
the attached Prospectus. The address of the principal executive office of the
Association is 185 East Market Street, Warren, Ohio 44482. The Association's
telephone number is (330) 373-1221.
ELECTION TO PURCHASE COMMON STOCK IN THE CONVERSION
In connection with the Association's Conversion, the Plan has been amended
to permit each Participant to direct that all or part of the funds which
represent his or her beneficial interest in the assets of the Plan may be
transferred to an investment fund that will invest in Common Stock (the Employer
Stock Fund) and, to the extent shares are available, to use such funds to
purchase Common Stock issued in connection with the Conversion, and to purchase
Common Stock in the open market. If there is not enough Common Stock in the
Conversion to fill all subscriptions, the Common Stock would be apportioned and
the Plan may not be able to purchase all of the Common Stock requested by the
Participants. In such case, the Trustee will purchase shares in the open market
after the Conversion to fulfill Participants' requests. Such purchases may be
at prices higher than the purchase price in the Conversion. The ability of each
Participant to invest in the Employer Stock Fund in the Conversion pursuant to
directions to transfer all or a portion of their beneficial assets in the Plan
will be based on such Participant's status as an Eligible Account Holder,
Supplemental Eligible Account Holder or Other Member pursuant to the Plan of
Conversion, the subscription priorities set forth in the Plan of Conversion and
the availability of Common Stock. The Trustee of the Plan will follow the
Participants' directions. Funds not transferred to the Employer Stock Fund will
remain in the other investment funds of the Plan as directed by the Participant
on the attached Enrollment and Investment Application.
VALUE OF PARTICIPATION INTERESTS
The market value of the assets of the Plan, as of June 30, 1998, was
$908,275 and each Participant was informed of the value of his or her beneficial
interest in the Plan. This value
4
<PAGE>
represented the past contributions to the Plan by the Employers and the
Participants and any earnings or losses thereon, less previous withdrawals.
METHOD OF DIRECTING TRANSFER
The last page of this Prospectus Supplement is a form to direct a transfer
to the Employer Stock Fund (the "Investment Form"). If a Participant wishes to
transfer all or part (in multiples of not less than 1%) of his or her beneficial
interest in the assets of the Plan to the Employer Stock Fund being established
in connection with the Conversion, he or she should indicate that decision in
part 2 of the Investment Form. If a Participant does not wish to make such an
election, he or she does not need to take any action.
TIME FOR DIRECTING TRANSFER
The deadline for submitting a direction to transfer amounts to the Employer
Stock Fund which will purchase Common Stock issued in connection with the
Conversion is ten days prior to the Expiration Date of the Offering. The
Investment Form should be returned to the Association's Human Resources
Department by 12:00 noon, Eastern Time, 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 shall be
irrevocable. Participants, however, will be able to direct the reinvestment of
their accounts ("Accounts") after the Conversion under the Plan as explained
below.
DIRECTION TO PURCHASE COMMON STOCK AFTER THE CONVERSION
After the Conversion, a Participant shall be able to direct that a certain
percentage (in multiples of not less than 1%) of the net value of such
Participant's interests in the trust find established for the Plan (the "Trust
Fund") be transferred to the Employer Stock Fund and invested in Common Stock,
or to the other investment funds available under the Plan. Alternatively, a
Participant may direct that a certain percentage of such Participant's interest
in the Employer Stock Fund be transferred to the Trust Fund to be invested in
accordance with the terms of the Plan. Participants will be permitted to direct
that future contributions made to the Plan by or on their behalf will be
invested in Common Stock. Following the initial election, the allocation of a
Participant's interest in the Employer Stock Fund may be changed once each
calendar quarter in any plan year by filing a written notice with the plan
administrator at least ten days before the effective date of the change.
Special restrictions apply to transfers directed by those Participants who are
officers, directors and principal shareholders of the Association who are
subject to the provisions of Section 16(b) of the Securities Exchange Act of
1934, as amended (the "1934 Act").
5
<PAGE>
PURCHASE PRICE OF COMMON STOCK
The funds transferred to the Employer Stock Fund for the purchase of Common
Stock in connection with the Conversion will be used by the Trustee to purchase
shares of Common Stock. The price to be paid by the Trust Fund for such shares
of Common Stock will be the same price as is paid by all persons who purchase
shares of Common Stock in the Conversion.
Common Stock purchased by the Trustee after the Conversion will be acquired
in open market transactions. The prices paid by the Trustee for shares of
Common Stock will not exceed "adequate consideration" as defined in Section
3(18) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
NATURE OF A PARTICIPANT'S INTEREST IN THE COMMON STOCK
The Common Stock will be held in the name of the Trustee for the Plan, as
trustee. Each Participant has an allocable interest in the investment funds of
the Plan but not in any particular assets of the Plan. Accordingly, a specific
number of shares of Common Stock will not be directly attributable to the
account of any Participant. Earnings, e.g., gains and losses, are allocated to
the Account of a Participant based on units in the Employer Stock Fund held by
the Participants. Therefore, earnings with respect to a Participant's Account
should not be affected by the investment designations (including investments in
Common Stock) of other Participants.
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 Fund as directed by Participants with
interests in the Employer Stock Fund. With respect to each matter as to which
holders of Common Stock have a 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 number of shares of
Common Stock held in the Employer Stock Fund that are voted in the affirmative
and negative on each matter shall be proportionate to the number of voting
instruction rights exercised in the affirmative and negative, respectively. In
the event of a tender offer for Common Stock, the Plan provides that each
Participant will be allotted a number of tender 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 will
be tendered will be the same as the percentage of the total number of tender
instruction rights that are exercised in favor of tendering. The remaining
shares of Common Stock held in the Employer Stock Fund will not be tendered.
The Plan makes provision for Participants to exercise their voting instruction
rights and tender instruction rights on a confidential basis.
6
<PAGE>
DESCRIPTION OF THE PLAN
INTRODUCTION
The Plan was established effective January 1, 1993 as First Federal Savings
and Loan Association of Warren 401(k) Savings Plan (the "Plan"). The Plan is a
cash or deferred arrangement established in accordance with the requirements
under Section 401(a) and Section 401(k) of the Internal Revenue Code of 1986
(the "Code"). The Plan will be submitted to the Internal Revenue Service (the
"IRS") in a timely manner for a determination that the Plan, as amended and
restated, is qualified under Section 401(a) of the Code, and that its related
trust(s) are qualified under Section 501(a) of the Code.
The Association intends that the Plan, in operation, will comply with the
requirements under Section 401(a) and Section 401(k) of the Code. The
Association 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.
Employee Retirement Income Security Act. The Plan is an "individual
---------------------------------------
account plan" other than a "money purchase pension plan" within the meaning of
ERISA. As such, the Plan is subject to all of the provisions of Title I
(Protection of Employee Benefit Rights) and Title II (Amendments to the Internal
Revenue Code Relating to Retirement Plans) of ERISA, except the funding
requirements contained in Part 3 of Title I of ERISA which by their terms do not
apply to an individual account plan (other than a money purchase pension plan).
The Plan is not subject to Title IV (Plan Termination Insurance) of ERISA.
Neither the funding requirements contained in Part 3 of Title I of ERISA nor the
plan termination insurance provisions contained in Title IV of ERISA will be
extended to Participants (as defined below) or beneficiaries under the Plan.
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL RESTRICTIONS
ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS BENEFIT
UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF EMPLOYMENT WITH THE
ASSOCIATION. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE IMPOSED ON
WITHDRAWALS MADE PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59-1/2, REGARDLESS
OF WHETHER SUCH A WITHDRAWAL OCCURS DURING HIS EMPLOYMENT WITH THE ASSOCIATION
OR AFTER TERMINATION OF EMPLOYMENT.
Reference to Full Text of Plan. The following statements are summaries of
------------------------------
certain provisions of the Plan. They are not complete and are qualified in
their entirety by the full text of the Plan. Copies of the Plan are available
to all employees by filing a request with the Plan Administrator, R. Patrick
Wilkinson, First Federal Savings and Loan Association of Warren, 185 East Market
Street, Warren, Ohio 44482. The Plan Administrator's telephone number is (333)
373-1221. Each employee is urged to read carefully the full text of the
Plan.
7
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ELIGIBILITY AND PARTICIPATION
Any employee of the Employer is eligible to participate in the Plan as soon
as the employee reaches age 21 and completes one year of service with the
Employer. Employees covered by a collective bargaining agreement which does not
expressly provide for their coverage under the Plan and certain nonresident
aliens are not eligible to participate in the Plan.
As of June 30, 1998, there were approximately 155 employees eligible to
participate in the Plan, and 114 employees had elected to participate in the
Plan.
CONTRIBUTIONS UNDER THE PLAN
401(k) Plan Contributions. Each Participant in the Plan is permitted to
-------------------------
elect to reduce such Participant's Compensation (as defined below) pursuant to a
"salary reduction election" by an amount not to exceed the limitation on
contributions permitted by the Plan and the Code and have that amount
contributed to the Plan on such Participant's behalf. Such amounts are credited
to the Participant's Account. See "Limitations on Contributions" below. For
purposes of the Plan, "Compensation" means the compensation receivable by an
Employee from the Employer for the calendar year prior to any reductions
pursuant to the salary reduction election. Compensation includes salary, Basic
Contributions, wages, overtime, commissions, bonuses and wage continuation
payments to an employee who is absent due to an illness or disability of a
short-term nature. "Compensation" does not include expense allowances,
severance pay, fees, contributions other than Basic Contributions made to the
Plan and contributions made by the Employer to any other pension, insurance
welfare or other employee benefit plan. As of January 1, 1998, the annual
compensation of each Participant taken into account under the Plan is limited to
$160,000 (adjusted for increases in the cost of living as permitted by the
Code). Generally, a Participant may elect to modify the amount contributed to
the Plan under such participant's salary reduction election not more often than
twice each year by providing written notice to the Plan Administrator within a
reasonable time before commencement of the first day of the payroll period for
which the modification is to become effective. However, special restrictions
apply to persons subject to Section 16 of the Securities Exchange Act of 1934,
as amended ("1934 Act"). Basic Contributions are transferred by the Employer to
the Trustee of the Plan.
Notwithstanding the preceding, a Participant who receives a hardship
distribution under the terms of the Plan may not be eligible to make additional
contributions under a salary reduction election or have matching contributions
made on his behalf for a period of twelve (12) months after the receipt of the
hardship distribution.
Employer Contributions. The Employer contributes to the Plan for each Plan
----------------------
Year the Participant's Basic Contributions, between 0% and 4% of the
Participant's Compensation for the Plan Year. Such amounts are credited to his
Participant's Account. After the Conversion, at the discretion of the
Association, the Employer contributions may be credited to the Participant's
Account in First Federal Savings and Loan Association of Warren Employee Stock
Ownership Plan. The amount of the Employer Matching Contribution is subject,
however, to approval by the Board of Directors of the Association and is not
guaranteed for any period in the future. At
8
<PAGE>
its discretion, the Employer may make an additional contribution to the Plan as
of the end of the Plan Year in an amount determined by the Employer for the
purpose of ensuring that the Plan complies with Section 401(k) of the Code. Such
amounts are credited to Participants' "Elective Accounts" based on each
Participant's compensation. Special Contributions may be made only to the
accounts of non-highly compensated employees.
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 Elective Account and Participant's Account during any Plan
Year may not exceed the lesser of 25% of the Participant's (S)415 Compensation
for the Plan Year or $30,000 (adjusted for increases in the cost of living as
permitted by the Code). A Participant's (S)415 Compensation is a Participant's
Compensation, excluding any Employer contribution to the Plan or to any other
plan of deferred compensation or any distributions from a plan of deferred
compensation. In addition, annual additions shall be limited to the extent
necessary to prevent the limitations set forth in the Code for all of the
qualified defined benefit plans and defined contribution plans maintained by the
Association from being exceeded. To the extent that these limitations would be
exceeded by reason of excess annual additions with respect to a Participant,
such excess will be disposed of as follows:
(i) Any excess amount in the Participant's Account will be used to reduce
the Employer's contributions for such Participant in the next Limitation Year,
and each succeeding Limitation Year if necessary;
(ii) If, an excess amount still exists, and the Participant is not covered
---
by the Plan at the end of the Limitation Year, the excess amount will be held
unallocated in a suspense account which will then be applied to reduce future
Employer contributions for all remaining Participants in the next Limitation
Year, and each succeeding Limitation Year if necessary;
(iii) If a suspense account is in existence at any time during the
Limitation Year, it will not share in any earnings or losses of the Trust Fund.
Limitation on 401(k) Plan Contributions. The annual amount of deferred
---------------------------------------
Compensation under a salary reduction election of a Participant (when aggregated
with any elective deferrals of the Participant under a simplified employee
pension plan or a tax-deferred annuity) may not exceed $7,000 adjusted for
increases in the cost of living as permitted by the Code (the limitation for
1998 is $10,000). Contributions in excess of this limitation ("excess
deferrals") will be included in the Participant's gross income for federal
income tax purposes in the year they are made. In addition, any such excess
deferral will again be subject to federal income tax when distributed by the
Plan to the Participant, unless the excess deferral (together with any income
allocable thereto) is distributed to the Participant not later than the first
April 15th following the close of the taxable year in which the excess deferral
is made. Any income on the excess deferral that is distributed not later than
such date shall be treated, for federal income tax purposes, as earned and
received by the Participant in the taxable year in which the excess deferral is
made.
9
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Limitation on Plan Contributions for Highly Compensated Employees.
-----------------------------------------------------------------
Sections 401(k) and 401(m) of the Code limit the amount of Deferred Compensation
that may be made to the Plan in any Plan Year on behalf of Highly Compensated
Employees (defined below) in relation to the amount of Deferred Compensation
made by or on behalf of all other employees eligible to participate in the Plan.
Specifically, the actual deferral percentage (i.e., the average of the ratios,
calculated separately for each eligible employee in each group, by dividing the
amount of Deferred Compensation credited to the Participant's Elective Account
by such eligible employee's compensation for the Plan Year) of the Highly
Compensated Employees may not exceed the greater of (i) 125% of the actual
deferral percentage of all other eligible employees, or (ii) the lesser of
(x) 200% of the actual deferral percentage of all other eligible employees, or
(y) the actual deferral percentage of all other eligible employees plus two
percentage points. In addition, the actual contribution percentage for such
Plan Years (i.e., the average of the ratios calculated separately for each
eligible employee in each group, by dividing the amount of voluntary employee
and employer matching contributions credited to the Participant's Account and
Participant's Elective Account by such eligible employee's compensation for the
Plan Year) of the Highly Compensated Employees may not exceed the greater of
(i) 125% of the actual contribution percentage of all other eligible employees,
or (ii) the lesser of (x) 200% of the actual contribution percentage of all
other eligible employees, or (y) the actual contribution percentage of all other
eligible employees plus two percentage points.
In general, a Highly Compensated Employee includes any employee who,
(1) was a five percent owner of the Employer at any time during the year or
preceding year; or (2) had compensation for the preceding year in excess of
$80,000 and, if the Employer so elects, was in the top 20% of employees by
compensation for such year. The dollar amounts in the foregoing sentence are
for 1998. Such amounts are adjusted annually to reflect increases in the cost
of living.
In order to prevent the disqualification of the Plan, any amount
contributed by Highly Compensated Employees that exceed the average deferral
limitation in any Plan Year ("excess 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 Employer
will be subject to a 10% excise tax on any excess contributions unless such
excess contributions, together with any income allocable thereto, either are
recharacterized or are distributed before the close of the following Plan Year.
Top-Heavy Plan Requirements. If for any Plan Year the Plan is a Top-Heavy
---------------------------
Plan (as defined below), then (i) the Association may be required to make
certain minimum contributions to the Plan on behalf of non-key employees (as
defined below), and (ii) certain additional restrictions would apply with
respect to the combination of annual additions to the Plan and projected annual
benefits under any defined benefit plan maintained by the Association.
In general, the Plan will be regarded as a "Top-Heavy Plan" for any Plan
Year if, as of the last day of the preceding Plan Year, the aggregate balance of
the Accounts of Participants who are Key Employees exceeds 60% of the aggregate
balance of the Accounts of all Participants.
10
<PAGE>
Key Employees generally include any employee who, at any time during the Plan
Year or any of the four preceding Plan Years, is (1) an officer of the
Association having annual compensation in excess of $60,000 who is in an
administrative or policy-making capacity, (2) one of the ten employees having
annual compensation in excess of $30,000 and owning, directly or indirectly, the
largest interests in the Association, (3) a 5% owner of the Association, (i.e.,
owns directly or indirectly more than 5% of the outstanding stock of the
Association, or stock possessing more than 5% of the total combined voting power
of all stock of the Association) or (4) a 1% owner of the Association having
annual compensation in excess of $150,000. The dollar amounts in the foregoing
sentence are for 1998.
INVESTMENT OF CONTRIBUTIONS
All amounts credited to Participants' Accounts under the Plan are held in
the Plan Trust (the "Trust") which is administered by the Trustee appointed by
the Association's Board of Trustees.
Prior to the effective date of the Conversion, the Accounts of a
Participant held in the Trust have been invested by the Trustee at the direction
of the Participant in the following funds:
a. Strong Discovery Fund
b. Strong Government Securities Fund
c. Strong Corporate Bond Fund
d. Strong International Stock Fund
e. Strong Asset Allocation Fund
f. Strong Money Market Fund
g. Strong Opportunity Fund
h. Strong Short Term Bond Fund
i. Strong Total Return Fund
j. Aim Constellation Fund
k. Aim Global Aggressive Growth A
l. Aim Value A
The Plan, as amended effective _______, 1998, now provides that in addition
to the Funds specified above, a Participant who is employed by the Association
may direct the Trustee to invest all or a portion of his Participant's Elective
Account and in the Employer Stock Fund.
Participants in the Plan may direct the Trustee to invest all or a portion
of his Participant's Elective Account and Participant's Account in the Employer
Stock Fund.
Once in any calendar quarter a Participant may elect (in increments of 1%),
to have both past and future contributions and additions to the Participant's
Basic Contribution Account and Rollover Account invested either in the Employer
Stock Fund or among such other Funds. Participants may also elect to have past
contributions to their Matching Contribution Accounts invested in either the
Employer Stock Fund or among such other Funds. Participants Matching
Contribution Accounts may be invested in Employer Stock under the proposed terms
of First
11
<PAGE>
Federal Savings and Loan Association of Warren Employee Stock Ownership Plan
being implemented by the Association. These elections will be effective on the
effective date of the Participant's written notice to the plan administrator,
provided such notice is filed with the administrator at least 10 days before it
is to become effective. Any amounts credited to a Participant's Account for
which investment directions are not given will be invested in the Short-Term
Investment Fund in accordance with the terms of the Plan. Because investment
allocations only are required to be made in increments of 1%, Participants can
invest their Accounts in each of the 8 available investment funds.
Diversification with respect to the investment of a Participant's Account may be
achieved through the 8 investment options available to Participants and the
opportunity for Participants to make investment designations up to four times
each year.
A Participant who receives a loan from the Plan has a separate account
established under the Plan. The amount of the loan is obtained from the
Investment Accounts in which the Borrower's accounts are invested on a pro-rata
basis according to the terms of the Plan. The balance of a Participant's loan
account represents the unpaid principal and interest (if any) of such
participant's loan from the Plan. Repayments of principal and payments of
interest on loans are invested by the Trustee in the same manner as if the
repayment were a contribution.
The Participants interest in the Employer Stock Fund consists of units
whose value is related to a pro rata portion of the net asset value ("NAV") of
the Employer Stock Fund. The NAV is determined daily and all realized and
unrealized gains, dividends, and expenses are used to calculate the NAV. For
purposes of such valuation, all assets of the Trust are valued at their fair
market value.
12
<PAGE>
A. Previous Funds.
--------------
Prior to _________________________, contributions under the Plan were
invested in the seven Funds specified above. The annual percentage return on
these funds for the prior three years was:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------------
<S> <C> <C> <C>
a. Strong Discovery Fund
b. Strong Government Securities Fund
c. Strong Government Bond Fund
d. Strong International Stock Fund
e. Strong Asset Allocation Fund
f. Strong Money Market Fund
g. Strong Opportunity Fund
h. Strong Short Term Bond Fund
i. Strong Total Return Fund
j. Aim Constellation Fund
k. Aim Global Aggressive Growth A
l. Aim Value A
</TABLE>
B. The Employer Stock Fund.
------------------------
The Employer Stock Fund will consist of investments in Common Stock
made on and after the effective date of the Conversion. Each Participant's
proportionate undivided beneficial interest in the Employer Stock Fund is
measured by units. Each day a unit value will be calculated by determining the
market value of the Common Stock actually held and adding to that any cash held
by the Trustee. This total will be divided by the number of units outstanding
to determine the unit value of the Employer Stock Fund.
On the occasion of the payment of a cash dividend, the unit value will be
determined before the dividend is distributed. The Trustee may use the dividend
to purchase additional shares of Common Stock, thereby increasing the total
value of the Employer Stock Fund, and the value of each unit. The Board of
Directors of the Holding Company may consider a policy of paying cash dividends
on the Common Stock in the future; however, no decision as to the
13
<PAGE>
amount or timing of cash dividends, if any, has been made. The Trustee will, to
the extent practicable, use all amounts held by it in the Employer Stock Fund to
purchase shares of Common Stock of the Association. It is expected that all
purchases will be made at prevailing market prices. Under certain circumstances,
the Trustee may be required to limit the daily volume of shares purchased.
Pending investment in Common Stock, assets held in the Employer Stock Fund will
be placed in bank deposits and other short-term investments.
Any brokerage commissions, transfer fees and other expenses incurred in the
sale and purchase of Common Stock for the Employer Stock Fund will be paid out
of a cash account managed by the trustee. Therefore, although Participants'
accounts will not be directly adjusted for such fees, the market value of their
accounts will be reduced.
As of the date of this Prospectus Supplement, none of the shares of Common
Stock have been issued or are outstanding and there is no established market for
the Common Stock. Accordingly, there is no record of the historical performance
of the Employer Stock Fund. Performance will be dependent upon a number of
factors, including the financial condition and profitability of the Holding
Company and the Association and market conditions for the Common Stock
generally. See "Market for the Common Stock" in the Prospectus.
INVESTMENTS IN THE EMPLOYER STOCK FUND MAY INVOLVE CERTAIN SPECIAL RISKS IN
INVESTMENTS IN COMMON STOCK OF THE COMPANY. FOR A DISCUSSION OF THESE RISK
FACTORS, SEE "RISK FACTORS" IN THE PROSPECTUS.
BENEFITS UNDER THE PLAN
Vesting. A Participant, at all times, has a fully vested, nonforfeitable
-------
interest in his Participant's Elective Account and the earnings thereon under
the Plan. A Participant vests in his Participant's Account under the Plan
according to the following schedule:
<TABLE>
<CAPTION>
Period of Service Vested Percentage
----------------- -----------------
<S> <C>
Less than 5 years 0%
5 years or more 100%
</TABLE>
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 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
WITHDRAWAL OCCURS DURING HIS EMPLOYMENT WITH THE ASSOCIATION.
14
<PAGE>
Withdrawals Prior to Termination of Employment. Subject to the hardship
----------------------------------------------
distribution rules under the Plan, a Participant may withdraw all or a portion
of his (i) Participant's Elective Account and (ii) the vested interest in his
Participant's Account. The hardship distribution requirements ensure that
Participants have a true financial need before a withdrawal may be made.
A Participant may make a withdrawal from his Participant's Elective Account
and Participant's Account after he turns 59 1/2. A Participant after attaining
age 59 1/2 may withdraw contributions to his Account, contributions to the
vested portion of his Participant's Account at any time. However, such
withdrawals may not be made more often than two times during any Plan Year.
Distribution Upon Retirement, Disability or Termination of Employment.
---------------------------------------------------------------------
Payment of benefits to a Participant who retires, incurs a disability, or
otherwise terminates employment generally shall be made in a lump sum cash
payment as soon as administratively feasible after such termination of
employment if the vested value of the Participant's Account is $3,500 or less.
If the vested portion of the Participant's Account balance is greater than
$3,500, the Participant may request a distribution (subject to the minimum
distribution rules) in a lump sum payment: (a) as soon as administratively
possible after termination, (b) as of any Valuation Date up to 13 months after
termination or (c) as of the date the Participant attains normal retirement age.
At the request of the Participant, the distribution may include an in kind
distribution of Common Stock of the Holding Company equal to the number of
shares that can be purchased with the Participant's balance in the Employer
Stock Fund. Benefit payments ordinarily shall be made not later than 60 days
following the end of the Plan Year in which occurs the latest of the
Participant's: (i) termination of employment; (ii) the attainment of age 65 or
(iii) 10th anniversary of commencement of participation in the Plan; but in no
event later than the April 1 following the calendar year in which the
Participant attains age 70 1/2. However, if the vested portion of the
Participant's Account balances exceeds $3,500, no distribution shall be made
from the Plan prior to the Participant's attaining age 65 unless the Participant
elects to receive an earlier distribution.
Distribution upon Death. A Participant who dies prior to the benefit
-----------------------
commencement date for retirement, disability or termination of employment, and
who has a surviving spouse shall have his benefits paid to the surviving spouse
in a lump sum as soon as administratively possible following the date of his
death, unless the Participant elected prior to his death or the beneficiary so
elects within 90 days of the Participant's death, to receive such distribution
in a lump sum payment as of any Valuation Date which occurs within one year of
the Participant's death. With respect to an unmarried Participant, and in the
case of a married Participant with spousal consent to the designation of another
beneficiary, payment of benefits to the beneficiary of a deceased Participant
shall be made in the form of a lump-sum payment in cash or in Common Stock in
the same manner described above as to a Participant with a surviving spouse.
Nonalienation of Benefits. Except with respect to federal income tax
-------------------------
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale,
15
<PAGE>
transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or
levy of any kind, either voluntary or involuntary, and any attempt to
anticipate, alienate, sell, transfer, assign, pledge, encumber, charge or
otherwise dispose of any rights to benefits payable under the Plan shall be
void.
ADMINISTRATION OF THE PLAN
The Trustee with respect to the Plan is the named fiduciary of the Plan for
purposes of Section 402 of ERISA.
Trustees. The Trustees are appointed by the Employer to serve at its
--------
pleasure. The current Trustees of the Plan are Steven R. Lewis, R. Patrick
Wilkinson and Robert S. McGeough.
The Trustee receives, holds and invests the contributions to the Plan in
trust and distributes them to Participants and beneficiaries in accordance with
the terms of the Plan and the directions of the Plan Administrator. The Trustee
is responsible for investment of the assets of the Trust.
REPORTS TO PLAN PARTICIPANTS
The Administrator (as defined below) will furnish to each Participant a
statement at least quarterly 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
Pursuant to the terms of the Plan, the Plan is administered by one or more
persons who are appointed by and who serve at the pleasure of the Association
(the "Administrator"). Currently, the Administrator is R. Patrick Wilkinson. The
address and telephone number of the Administrator is c/o 185 East Market Street,
Warren, Ohio 44482; (330) 373-1221. The Administrator is responsible for the
administration of the Plan, interpretation of the provisions of the Plan,
prescribing procedures for filing applications for benefits, preparation and
distribution of information explaining the Plan, maintenance of Plan records,
books of account and all other data necessary for the proper administration of
the Plan, and preparation and filing of all returns and reports relating to the
Plan which are required to be filed with the U.S. Department of Labor and the
IRS, and for all disclosures required to be made to Participants, Beneficiaries
and others under Sections 104 and 105 of ERISA.
AMENDMENT AND TERMINATION
It is the intention of the Association to continue the Plan indefinitely.
Nevertheless, the Association may terminate the Plan at any time. If the Plan
is terminated in whole or in part, then regardless of other provisions in the
Plan, each employee affected by such termination shall have a fully vested
interest in his Accounts. The Association reserves the right to make, from
16
<PAGE>
time to time, any amendment or amendments to the Plan which do not cause any
part of the Trust to be used for, or diverted to, any purpose other than the
exclusive benefit of Participants or their beneficiaries or estates; provided,
however, that the Association may make any amendment it determines necessary or
desirable, with or without retroactive effect, to comply with ERISA.
MERGER, CONSOLIDATION OR TRANSFER
In the event of the merger or consolidation of the Plan with another plan,
or the transfer of the Trust assets to another plan, the Plan requires that each
Participant would (if either the Plan or the other plan then terminated) receive
a benefit immediately after the merger, consolidation or transfer which is equal
to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation or transfer (if the Plan had then
terminated).
FEDERAL INCOME TAX CONSEQUENCES
The following is only a brief summary of certain federal income tax aspects
of the Plan which are of general application under the Code and is not intended
to be a complete or definitive description of the federal income tax
consequences of participating in or receiving distributions from the Plan. The
summary is necessarily general in nature and does not purport to be complete.
Moreover, statutory provisions are subject to change, as are their
interpretations, and their application may vary in individual circumstances.
Finally, the consequences under applicable state and local income tax laws may
not be the same as under the federal income tax laws. PARTICIPANTS ARE URGED TO
CONSULT THEIR TAX ADVISORS WITH RESPECT TO ANY DISTRIBUTION FROM THE PLAN AND
TRANSACTIONS INVOLVING THE PLAN.
The Plan will be submitted to the IRS in a timely manner for a
determination that it is qualified under Section 401(a) and 401(k) of the Code,
and that the related Trust is exempt from tax under Section 501(a) of the Code.
A plan that is "qualified" under these sections of the Code is afforded special
tax treatment which include the following: (1) The sponsoring employer is
allowed an immediate tax deduction for the amount contributed to the Plan each
year; (2) Participants pay no current income tax on amounts contributed by the
employer on their behalf; and (3) earnings of the plan are tax-deferred thereby
permitting the tax-free accumulation of income and gains on investments. The
Plan will be administered to comply in operation with the requirements of the
Code as of the applicable effective date of any change in the law. The
Association 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 Association will submit the Plan to the IRS for
a determination that the Plan, as amended, continues to qualify under Sections
401(a) and 501(a) of the Code and that it continues to satisfy the requirements
for a qualified cash or deferred arrangement under Section 401(k) of the Code.
Should the Plan receive from the IRS an adverse determination letter regarding
its tax exempt status, all participants would generally recognize income equal
to their vested interest in the Plan, the participants would not be permitted to
transfer amounts distributed from the Plan to an IRA or to another qualified
retirement plan, and the Association may be denied certain deductions taken with
respect to the Plan.
17
<PAGE>
Lump Sum Distribution. A distribution from the Plan to a Participant or
---------------------
the beneficiary of a Participant will qualify as a Lump Sum Distribution if it
is made: (i) within one taxable year of the Participant or beneficiary; (ii) on
account of the Participant's death, disability or separation from service, or
after the Participant attains age 59 1/2; and (iii) consists of the balance to
the credit of the Participant under this Plan and all other profit sharing
plans, if any, maintained by the Association. The portion of any Lump Sum
Distribution that is required to be included in the Participant's or
beneficiary's taxable income for federal income tax purposes (the "total taxable
amount") consists of the entire amount of such Lump Sum Distribution less the
amount of after-tax contributions, if any, made by the Participant to any other
profit sharing plans maintained by the Association which is included in such
distribution.
Averaging Rules. The portion of the total taxable amount of a Lump Sum
---------------
Distribution that is attributable to participation after 1973 in this Plan or in
any other profit-sharing plan maintained by the Association (the "ordinary
income portion") will be taxable generally as ordinary income for federal income
tax purposes. However, a Participant who has completed at least five years of
participation in this Plan before the taxable year in which the distribution is
made, or a beneficiary who receives a Lump Sum Distribution on account of the
Participant's death (regardless of the period of the Participant's participation
in this Plan or any other profit-sharing plan maintained by the Employers), may
elect to have the ordinary income portion of such Lump Sum Distribution taxed
according to a special averaging rule ("five-year averaging"). The election of
the special averaging rules may apply only to one Lump Sum Distribution received
by the Participant or beneficiary, provided such amount is received on or after
the Participant turns 59-1/2 and the recipient elects to have any other Lump Sum
Distribution from a qualified plan received in the same taxable year taxed under
the special averaging rule. Under a special grandfather rule, individuals who
turned 50 by 1986 may elect to have their Lump Sum Distribution taxed under
either the five-year averaging rule or under the prior law ten-year averaging
rule. Such individuals also may elect to have that portion of the Lump Sum
Distribution attributable to the participant's pre-1974 participation in the
Plan taxed at a flat 20% rate as gain from the sale of a capital asset.
Common Stock Included in Lump Sum Distribution. If a Lump Sum Distribution
----------------------------------------------
includes Common Stock, the distribution generally will be taxed in the manner
described above, except that the total taxable amount will be reduced by the
amount of any net unrealized appreciation with respect to such Common Stock,
i.e., the excess of the value of such Common Stock at the time of the
distribution over its cost or other basis of the securities to the Trust. The
tax basis of such Common Stock to the Participant or beneficiary for purposes of
computing gain or loss on its subsequent sale will be the value of the Common
Stock at the time of distribution less the amount of net unrealized
appreciation. Any gain on a subsequent sale or other taxable disposition of
such Common Stock, to the extent of the amount of net unrealized appreciation at
the time of distribution, will be considered long-term capital gain regardless
of the holding period of such Common Stock. Any gain on a subsequent sale or
other taxable disposition of the Common Stock in excess of the amount of net
unrealized appreciation at the time of distribution will be considered either
short-term 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
18
<PAGE>
include the amount of any net unrealized appreciation in the total taxable
amount of such distribution to the extent allowed by the regulations to be
issued by the IRS.
Distributions: Rollovers and Direct Transfers to Another Qualified Plan or
---------------------------------------------------------------------------
to an IRA. Pursuant to a change in the law, effective January 1, 1993,
- ----------
virtually all distributions from the Plan may be rolled over to another
qualified Plan or to an IRA without regard to whether the distribution is a Lump
Sum Distribution or a Partial Distribution. Effective January 1, 1993,
Participants have the right to elect to have the Trustee transfer all or any
portion of an "eligible rollover distribution" directly to another plan
qualified under Section 401(a) of the Code or to an IRA. If the Participant
does not elect to have an "eligible rollover distribution" transferred directly
to another qualified plan or to an IRA, the distribution will be subject to an
mandatory federal withholding tax equal to 20% of the taxable distribution. An
"eligible rollover distribution" means any amount distributed from the Plan
except: (1) a distribution that is (a) one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or
life expectancy) of the Participant or the joint lines of the Participant and
his or her designated beneficiary, or (b) for a specified period of ten years or
more; (2) any amount that is required to be distributed under the minimum
distribution rules; and (3) any other distributions excepted under applicable
federal law. The tax law change described above did not modify the special tax
treatment of Lump Sum Distributions, that are not rolled over or transferred
i.e., forward averaging, capital gains tax treatment and the nonrecognition of
net unrealized appreciation, discussed earlier.
ERISA AND OTHER QUALIFICATION
As noted above, the Plan is subject to certain provisions of the Employee
Retirement Income Security Act of 1974, as amended, and will be submitted to the
IRS for a determination that it is qualified under Section 401(a) of the Code.
THE FOREGOING IS ONLY A BRIEF SUMMARY OF CERTAIN FEDERAL INCOME TAX ASPECTS
OF THE PLAN WHICH ARE OF GENERAL APPLICATION UNDER THE CODE AND IS NOT INTENDED
TO BE A COMPLETE OR DEFINITIVE DESCRIPTION OF THE FEDERAL INCOME TAX
CONSEQUENCES OF PARTICIPATING IN OR RECEIVING DISTRIBUTIONS FROM THE PLAN.
ACCORDINGLY, EACH PARTICIPANT IS URGED TO CONSULT A TAX ADVISOR CONCERNING THE
FEDERAL, STATE AND LOCAL TAX CONSEQUENCES OF PARTICIPATING IN AND RECEIVING
DISTRIBUTIONS FROM THE PLAN.
RESTRICTIONS ON RESALE
Any person receiving a distribution of shares of Common Stock under the
Plan who is an "affiliate" of the Association as the term "affiliate" is used in
Rules 144 and 405 under the Securities Act of 1933, as amended (the "Securities
Act") (e.g., directors, officers and substantial shareholders of the
Association) may reoffer or resell such shares only pursuant to a registration
statement filed under the Securities Act assuming the availability thereof,
pursuant to Rule 144 or some other exemption of the registration requirements of
the Securities Act Any person who may be an "affiliate" of the Association may
wish to consult with counsel before transferring any Common Stock owned by him.
In addition, Participants are advised to consult with counsel as to
19
<PAGE>
the applicability of Section 16 of the 1934 Act which may restrict the sale of
Common Stock where acquired under the Plan, or other sales of Common Stock.
Persons who are not deemed to be "affiliates" of the Association at the
---
time of resale will be free to resell any shares of Common Stock to them under
the Plan, either publicly or privately, without regard to the Registration and
Prospectus delivery requirements of the Securities Act or compliance with the
restrictions and conditions contained in the exemptive rules thereunder. An
"affiliate" of the Association is someone who directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control, with the Association. Normally, a director, principal officer or major
shareholder of a corporation may be deemed to be an "affiliate" of that
corporation. A person who may be deemed an "affiliate" of the Association at
the time of a proposed resale will be permitted to make public resales of the
Association's Common Stock only pursuant to a "reoffer" Prospectus or in
accordance with the restrictions and conditions contained in Rule 144 under the
Securities Act or some other exemption from registration, and will not be
permitted to use this Prospectus in connection with any such resale. In
general, the amount of the Association's Common Stock which any such affiliate
may publicly resell pursuant to Rule 144 in any three-month period may not
exceed the greater of one percent of the Association's Common Stock then
outstanding or the average weekly trading volume reported on the National
Association of Securities Dealers Automated Quotation System during the four
calendar weeks prior to the sale. Such sales may be made only through brokers
without solicitation and only at a time when the Association is current in
filing the reports required of it under the 1934 Act.
SEC REPORTING AND SHORT-SWING PROFIT LIABILITY
Section 16 of the 1934 Act imposes reporting and liability requirements on
officers, directors and persons beneficially owning more than ten percent of
public companies such as the Holding Company. Section 16(a) of the 1934 Act
requires the filing of reports of beneficial ownership. Within ten days of
becoming a person subject to the reporting requirements of Section 16(a), a Form
3 reporting initial beneficial ownership must be filed with the Securities and
Exchange Commission. Certain changes in beneficial ownership, such as
purchases, sales, gifts and participation in savings and retirement plans must
be reported periodically, either on a Form 4 within ten days after the end of
the month in which a change occurs, or annually on a Form 5 within 45 days after
the close of the Association's fiscal year. Participation in the Employer Stock
Fund of the Plan by officers, directors and persons beneficially owning more
than ten percent of Common Stock of the Holding Company must be reported to the
SEC annually on a Form 5 by such individuals. At June 30, 1998, 13.8% of the
Plan assets were allocated to executive officers.
In addition to the reporting requirements described above, Section 16(b) of
the 1934 Act provides for the recovery by the Holding Company of profits
realized by any officer, director or any person beneficially owning more than
ten percent of the Holding Company's Common Stock ("Section 16(b) Persons")
resulting from the purchase and sale or sale and purchase of the Holding
Company's Common Stock within any six-month period.
20
<PAGE>
The SEC has adopted rules that provide exemption from the profit recovery
provisions of Section 16(b) for participant-directed employer security
transactions within an employee benefit plan, such as the Plan, provided certain
requirements are met. These requirements generally involve restrictions upon
the timing of elections to acquire or dispose of employer securities for the
accounts of Section 16(b) Persons.
Except for distributions of Common Stock due to death, disability,
retirement, termination of employment or under a qualified domestic relations
order, Section 16(b) Persons are required to hold shares of Common Stock
distributed from the Plan for six months following such distribution.
LEGAL OPINIONS
The validity of the issuance of the Common Stock will be passed upon by
Patton Boggs LLP, Washington, D.C., which firm acted as special counsel for the
Association in connection with the Association's Conversion from a mutual
savings association to a stock savings association.
21
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
401(k) Savings Plan
Investment Form
---------------
Name of Plan Participant: ________________________________
Social Security Number: ________________________________
1. INSTRUCTIONS. In connection with the proposed Conversion of First
------------
Federal Savings and Loan Association of Warren from a mutual savings association
to a stock savings association (the "Conversion"), First Federal Savings and
Loan Association of Warren 401(k) Savings ("Plan") has been amended to permit
participants to direct their current account balances for their Basic
Contribution Account, Company Contribution Account and Rollover Account into a
new fund: the Employer Stock Fund. The percentage of a participant's account
transferred at the direction of the participant into the Employer Stock Fund
will be used to purchase shares of common stock of First Place Financial Corp.
(the "Common Stock").
To direct a transfer of all or a part of the funds credited to your
accounts to the Employer Stock Fund, you should complete and file this form with
the Human Resources Department, no later than 10 days prior to the expiration
date of the Offering (_____________, 1998.) A representative for the Plan
Administrator will retain a copy of this form and return a copy to you. If you
need any assistance in completing this form, please contact _______________ at
(330) 373-1221. If you do not complete and return this form to the Plan
Administrator by ____________, the funds credited to your accounts under the
Plan will continue to be invested in accordance with your prior investment
direction, or in accordance with the terms of the Plan if no investment
direction has been provided.
2. INVESTMENT DIRECTIONS. I hereby authorize the Plan Administrator to
---------------------
direct the Trustee to reinvest the following percentage (in multiples of not
less than 1%) of my Basic Contribution Account, Company Contribution Account and
Rollover Account in the:
<TABLE>
<S> <C> <C>
a. Strong Discovery Fund ______%
b. Strong Government Securities Fund ______%
c. Strong Corporate Bond Fund ______%
d. Strong International Stock Fund ______%
e. Strong Asset Allocation Fund ______%
f. Strong Money Market Fund ______%
g. Strong Opportunity Fund ______%
h. Strong Short Term Bond Fund ______%
i. Strong Total Return Fund ______%
j. Aim Constellation Fund ______%
k. Aim Global Aggressive Growth A ______%
l. Aim Value A ______%
</TABLE>
NOTE: The total percentage of directed investments stated above may not exceed
100%.
22
<PAGE>
3. STATUS. Enter information below for all accounts you had at the
Eligibility Record Date (March 31, 1997), the Supplemental Eligibility Record
Date (_________________, 1998) and the Voting Record Date (_____________, 1998).
<TABLE>
<CAPTION>
===================================================================
Account Title
(Names on Account) Account Number Date Opened
-------------------------------------------------------------------
<S> <C> <C>
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
-------------------------------------------------------------------
===================================================================
</TABLE>
If additional space is needed, please use the back of this form.
4. ACKNOWLEDGMENT OF PARTICIPANT. I understand that this Investment Form
shall be subject to all of the terms and conditions of the Plan. I acknowledge
that I have received a copy of the Prospectus and the Prospectus Supplement.
- ---------------------------------- ---------------
Signature of Participant Date
- --------------------------------------------------------------------------------
ACKNOWLEDGMENT OF RECEIPT BY ADMINISTRATOR. This Investment Form was received
by the Plan Administrator and will become effective on the date noted below.
- ---------------------------------- ---------------
By: Date
-------------------------------
THE PARTICIPATION INTERESTS REPRESENTED BY COMMON STOCK OFFERED HEREBY ARE
NOT DEPOSIT ACCOUNTS AND ARE NOT INSURED BY THE BANK INSURANCE FUND OR THE
SAVINGS ASSOCIATION INSURANCE FUND OF THE FEDERAL DEPOSIT INSURANCE CORPORATION
OR ANY OTHER GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY THE COMPANY OR
ASSOCIATION. THE COMMON STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE
POSSIBLE LOSS OF THE PRINCIPAL INVESTED.
23
<PAGE>
[To be used in connection with the Syndicated Community Offering only]
SYNDICATED PROSPECTUS SUPPLEMENT
FIRST PLACE FINANCIAL CORP.
(PROPOSED HOLDING COMPANY FOR FIRST FEDERAL SAVINGS
AND LOAN ASSOCIATION OF WARREN)
__________ SHARES OF COMMON STOCK
First Place Financial Corp. (the "Company"), a Delaware corporation, is
offering for sale in a syndicated community offering (the "Syndicated Community
Offering") __________ shares, at a per share price of $10.00, of its common
stock, par value $.01 per share (the "Common Stock"), to be issued in connection
with the conversion of First Federal Savings and Loan Association of Warren,
Ohio (the "Association") from a federally-chartered mutual savings and loan
association to a federally-chartered stock savings and loan association and the
issuance of all of the Association's capital stock to the Company pursuant to
the Association's Plan of Conversion (the "Plan"). The remaining __________
shares of the Common Stock have been subscribed for in subscription and
community offerings (the "Subscription and Community Offerings") by the Bank's
holders of deposit accounts with a balance of $50 or more as of March 31, 1997,
by the First Federal Savings and Loan Association of Warren Employee Stock
Ownership Plan, a tax-qualified employee benefit plan, and related trust (the
"ESOP"), by holders of deposit accounts with a balance of $50 or more as of
___________, 1998, by certain other members of the Association, consisting of
holders of deposit accounts of the Association as of ____________________, 1998
(the "Voting Record Date") and borrowers with loans outstanding as of _______,
1998, which continue to be outstanding as of the Voting Record Date and then by
certain members of the general public. See "The Conversion -General."
Contained herein is the Prospectus in the form used in the Subscription and
Community Offerings. The purchase price for all shares purchased in the
Syndicated Community Offering will be the same as the price paid by subscribers
in the Subscription and Community Offerings (the "Purchase Price"). The
Purchase Price of $10.00 per share is the amount to be paid for each share at
the time a purchase order is submitted. See the cover page of the Prospectus
and the table below for information as to the method by which the range within
which the number of shares offered may vary and the method of subscribing for
shares of the Common Stock.
Funds submitted to the Association with purchase orders will earn interest
at the Association's passbook rate of interest from the date of receipt until
completion or termination of the Conversion. The Syndicated Community Offering
will expire no later than _______________, 1998, unless extended by the
Association and the Company with the approval of the Office of Thrift
Supervision (the "OTS"). Such extensions may not go beyond _______________,
2000. If an extension of time has been granted, all subscribers will be
notified of such extension, and of their rights to confirm their subscriptions,
or to modify or rescind their subscriptions and have their funds returned
promptly with interest, and of the time period within which the subscriber must
<PAGE>
notify the Association of his intention to confirm, modify or rescind his
subscription. If an affirmative response to any resolicitation is not received
by the Association and the Company from subscribers, such orders will be
rescinded and all funds will be returned promptly with interest. The minimum
number of shares which may be purchased is 25 shares. Except for the ESOP,
which may purchase up to 10% of the total number of shares of Common Stock
issued in the Conversion, including shares issued to the First Federal of Warren
Community Foundation (the "Foundation"), no person, together with associates of
and persons acting in concert with such person, may purchase more than the total
number of shares offered in the Community Offering and the Syndicated Community
Offering that could be purchased for $250,000 at the Purchase Price and no
person, together with associates of and persons acting in concert with such
person, may purchase more than 1.0% of the total number of shares issued in the
Conversion. See "The Conversion - Subscription Offering and Subscription
Rights," and " - Limitations on Conversion Stock Purchases." The Company
reserves the right, in its absolute discretion, to accept or reject, in whole or
in part, any or all subscriptions in the Syndicated Community Offering.
The Company and the Association have engaged Charles Webb & Company
("Webb"), a Division of Keefe, Bruyette & Woods, Inc., as financial advisors to
assist them in the sale of the Common Stock in the Syndicated Community
Offering. It is anticipated that Webb will use the services of other registered
broker-dealers ("Selected Dealers") and that fees to Webb and such Selected
Dealers will be ____% of the aggregate Purchase Price of the shares sold in the
Syndicated Community Offering. Neither Webb nor any Selected Dealer shall have
any obligation to take or purchase any shares of Common Stock in the Syndicated
Community Offering.
The Company has applied to have its Common Stock quoted on the Nasdaq
National Market under the symbol "FPFC." Prior to this offering, there has not
been a public market for the Common Stock, and there can be no assurance that an
active and liquid trading market for the Common Stock will develop. The absence
or discontinuance of a market may have an adverse impact on both the price and
liquidity of the stock.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, OR ANY OTHER FEDERAL
AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS SUCH COMMISSION, OFFICE,
DEPARTMENT OR OTHER AGENCY OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED OR GUARANTEED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION,
THE BANK INSURANCE FUND, THE SAVINGS ASSOCIATION INSURANCE FUND OR ANY OTHER
GOVERNMENT AGENCY, NOR ARE THEY INSURED OR GUARANTEED BY THE ASSOCIATION OR THE
COMPANY.
2
<PAGE>
<TABLE>
<CAPTION>
Estimated Estimated Net Pro-
Underwriting Estimated Net ceeds of Subscrip-
Commissions Proceeds of tion, Community
Syndicated and Other Syndicated and Syndicated
Community Fees and Community Community
Offering Price Expenses(1) Offering Offerings(2)(3)
=====================================================================================================
<S> <C> <C> <C> <C>
Minimum Per Share $10.00 $ $ $
- -----------------------------------------------------------------------------------------------------
Midpoint Per Share $10.00 $ $ $
- -----------------------------------------------------------------------------------------------------
Maximum Per Share $10.00 $ $ $
- -----------------------------------------------------------------------------------------------------
Total Minimum(4) $ $ $ $
- -----------------------------------------------------------------------------------------------------
Total Midpoint $ $ $ $
- -----------------------------------------------------------------------------------------------------
Total Maximum(4) $ $ $ $
- -----------------------------------------------------------------------------------------------------
Total Maximum, As Adjusted(5) $ $ $ $
=====================================================================================================
</TABLE>
______________________________
(1) Consists of a pro rata allocation of estimated expenses of the Association
and the Company in connection with the Conversion (other than estimated fees
to be paid to Webb for services in connection with the Subscription and
Community Offerings) and estimated compensation of Webb and Selected Dealers
in connection with the sale of the remaining shares in the Syndicated
Community Offering which fees are estimated to be $__________ million and
$__________ million at the minimum and the maximum of the estimated price
range and may be deemed to be underwriting fees. The information under "Pro
Forma Data" in the Prospectus was based on the assumptions stated therein,
which may differ from the estimates used for this table. See "The
Conversion - Marketing and Underwriting Arrangements" for a more detailed
discussion of fee arrangements.
(2) The Company applied to retain up to 50% of the net proceeds. The balance of
the net proceeds will be transferred to the Association in exchange for all
of the outstanding common stock of the Association.
(3) The net proceeds of the Subscription and Community Offerings (based upon the
sale of the __________ shares subscribed for at a price of $10.00 per share
and after allocation of a pro rata portion of the estimated expenses
relating to the Conversion) are estimated to be $__________.
(4) Based on an estimated price range of $__________ to $__________ at $10.00
per share (the "Estimated Price Range). The Total Minimum reflects the sale
of __________ shares at a per share price of $10.00, leaving a total of
__________ shares to be sold in the Syndicated Community Offering.
(5) Gives effect to an increase in the number of shares which could occur due to
an increase in the Estimated Price Range of up to 15% to reflect changes in
market and financial conditions following commencement of the offerings.
See "The Conversion - Stock Pricing." For a discussion of the distribution
and allocation of the additional shares, see "The Conversion - Subscription
Offerings and Subscription Rights," and " -Limitations on Conversion Stock
Purchases."
CHARLES WEBB & COMPANY
_________________________________
The date of this Prospectus Supplement is _______________, 199___.
3
<PAGE>
PROSPECTUS
FIRST PLACE FINANCIAL CORP.
(Proposed Holding Company for First Federal Savings and Loan Association of
Warren)
9,077,065 Shares of Common Stock
First Place Financial Corp. (the "Company" or "First Place"), a Delaware
corporation, is offering up to 9,077,065 shares of its common stock, par value
$.01 per share (the "Common Stock"), in connection with the conversion of First
Federal Savings and Loan Association of Warren (the "Association" or "First
Federal") from a federally-chartered mutual savings and loan association to a
federally-chartered stock savings and loan association and the issuance of the
Association's capital stock to the Company pursuant to the Association's plan of
conversion (the "Plan" or "Plan of Conversion"). The simultaneous conversion of
the Association to stock form, the issuance of the Association's stock to the
Company and the offer and sale of the Common Stock by the Company are herein
referred to as the "Conversion." In certain circumstances, the Company may
increase the amount of Common Stock offered hereby up to 10,438,625 shares. See
Footnote 4 to the table below.
(continued on following page)
---------------------
FOR ADDITIONAL INFORMATION ON HOW TO SUBSCRIBE FOR COMMON STOCK, PLEASE
CALL THE CONVERSION CENTER AT (330) ___-____.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PROSPECTIVE INVESTOR, SEE "RISK FACTORS" ON PAGES ___ THROUGH ___.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION ("OTS") OR ANY OTHER
FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, OR ANY OTHER AGENCY, NOR HAS
SUCH COMMISSION, OFFICE OR OTHER AGENCY OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR
DEPOSITS AND ARE NOT INSURED OR GUARANTEED BY THE BANK INSURANCE FUND ("BIF") OR
THE SAVINGS ASSOCIATION INSURANCE FUND ("SAIF") OF THE FEDERAL DEPOSIT INSURANCE
CORPORATION ("FDIC") OR ANY OTHER GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY
THE COMPANY OR ASSOCIATION. THE COMMON STOCK IS SUBJECT TO INVESTMENT RISK,
INCLUDING THE POSSIBLE LOSS OF THE PRINCIPAL INVESTED.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Estimated Underwriting
Commissions and Other Fees
Subscription Price(1) and Expenses(2) Estimated Net Proceeds(3)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum Per Share $10.00 $0.27 $9.73
- -----------------------------------------------------------------------------------------------------------------------------
Midpoint Per Share $10.00 $0.25 $9.75
- -----------------------------------------------------------------------------------------------------------------------------
Maximum Per Share $10.00 $0.23 $9.77
- -----------------------------------------------------------------------------------------------------------------------------
Total Minimum(1) $67,091,350 $1,811,000 $65,280,350
- -----------------------------------------------------------------------------------------------------------------------------
Total Midpoint(1) $78,931,000 $1,947,000 $76,984,000
- -----------------------------------------------------------------------------------------------------------------------------
Total Maximum(1) $90,771,650 $2,082,000 $88,688,650
- -----------------------------------------------------------------------------------------------------------------------------
Total Maximum, as adjusted(4) $104,386,250 $2,082,000 $102,304,250
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Determined in accordance with an independent appraisal prepared by
Keller & Company, Inc. ("Keller") dated August 14, 1998 and updated
October 23, 1998, which states that the aggregate estimated pro forma
market value of the Common Stock being issued in the Conversion ranged
from $72.3 million to $97.8 million with a midpoint of $85.0 million
taking into account the contribution to the First Federal of Warren
Community Foundation of an amount of Common Stock equal to 7.7% of the
Common Stock sold in the Conversion (the "Valuation Range"). The
independent appraisal of Keller is based upon estimates and projections
that are subject to change and the valuation must not be construed as a
recommendation as to the advisability of purchasing the Common Stock
nor an assurance that a purchaser of Common Stock will thereafter be
able to sell the Common Stock at prices within the Valuation Range.
Based on the Valuation Range, the Board of Directors of the Company and
the Board of Directors of the Association established an estimated
price range of the Common Stock being offered for sale in the
Conversion within the Valuation Range of $67.1 million to $90.8 million
(the "Estimated Price Range") or between 6,709,135 and 9,077,065 shares
of Common Stock issued at the $10.00 per share price (the "Purchase
Price") to be paid for each share of Common Stock subscribed for or
purchased in the Offering. See "The Conversion - Stock Pricing."
(2) Consists of the estimated costs to the Association and the Company
arising from the Conversion, including estimated fixed expenses of
approximately $1.1 million, and marketing fees to be paid to Charles
Webb & Company ("Webb"), a Division of Keefe, Bruyette & Woods, Inc.
("KBW"), estimated to be between $711,000 and $983,000 at the minimum
and maximum of the Estimated Price Range, respectively. See "The
Conversion - Marketing and Underwriting Arrangements." The actual fees
and expenses may vary from the estimates. See "Pro Forma Data" for the
assumptions used to arrive at these estimates.
(3) Actual net proceeds may vary substantially from estimated amounts
depending upon the number of shares sold in the Offerings and other
factors. Includes the purchase of shares of Common Stock by the First
Federal Savings and Loan Association of Warren Employee Stock Ownership
Plan and related trust (the "ESOP") which is intended to be funded by a
loan to the ESOP from the Company or from a third party, which will be
deducted from the Company's stockholders' equity. See "Use of
Proceeds" and "Pro Forma Data."
(4) As adjusted to reflect the sale of up to an additional 15% of the
Common Stock which may be offered at the Purchase Price, without
resolicitation of subscribers or any right of cancellation, due to
regulatory considerations, changes in market conditions or general
financial and economic conditions. See "Pro Forma Data" and "The
Conversion - Stock Pricing." For a discussion of the distribution and
allocation of the additional shares, if any, see "The Conversion -
Subscription Offering and Subscription Rights," "- Community Offering"
and "- Limitations on Common Stock Purchases."
-----------------------
Charles Webb & Company
a Division of Keefe, Bruyette & Woods, Inc.
-----------------------
The date of this Prospectus is _________, 1998.
<PAGE>
(continued from previous page)
NON-TRANSFERABLE RIGHTS TO SUBSCRIBE FOR THE COMMON STOCK IN A SUBSCRIPTION
OFFERING (THE "SUBSCRIPTION OFFERING") HAVE BEEN GRANTED IN THE FOLLOWING ORDER
OF PRIORITY TO: (1) THE ASSOCIATION'S ELIGIBLE ACCOUNT HOLDERS (DEFINED AS
HOLDERS OF DEPOSIT ACCOUNTS TOTALING $50 OR MORE AS OF MARCH 31, 1997) (2) THE
COMPANY'S AND ASSOCIATION'S TAX-QUALIFIED EMPLOYEE BENEFIT PLANS (COLLECTIVELY,
THE "EMPLOYEE PLANS"), INCLUDING THE ESOP WHICH INTENDS TO SUBSCRIBE FOR UP TO
8% OF THE COMMON STOCK ISSUED IN CONNECTION WITH THE CONVERSION (INCLUDING
SHARES ISSUED TO THE FIRST FEDERAL OF WARREN COMMUNITY FOUNDATION (THE
"FOUNDATION")); (3) THE ASSOCIATION'S SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS
(DEFINED AS HOLDERS OF DEPOSIT ACCOUNTS TOTALING $50 OR MORE AS OF SEPTEMBER 30,
1998); AND (4) OTHER MEMBERS OF THE ASSOCIATION (DEFINED AS DEPOSITORS OF THE
ASSOCIATION AS OF __________, 1998, THE VOTING RECORD DATE (THE "VOTING RECORD
DATE") FOR THE SPECIAL MEETING (AS DEFINED HEREIN), AND BORROWERS WITH LOANS
OUTSTANDING AS OF SEPTEMBER 8, 1998, OTHER THAN THOSE MEMBERS WHO OTHERWISE
QUALIFY AS ELIGIBLE ACCOUNT HOLDERS AND SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS).
SUBSCRIPTION RIGHTS ARE NON-TRANSFERABLE. PERSONS FOUND TO BE TRANSFERRING
SUBSCRIPTION RIGHTS WILL BE SUBJECT TO FORFEITURE OF SUCH RIGHTS AND POSSIBLE
FURTHER SANCTIONS AND PENALTIES IMPOSED BY THE OTS. Concurrently, and subject to
the prior rights of holders of subscription rights, the Company is offering the
shares of Common Stock not subscribed for in the Subscription Offering for sale
in a community offering to certain members of the general public (the "Community
Offering") with a preference given to natural persons residing in Trumbull and
Mahoning Counties, Ohio (the Association's "Local Community") (such natural
persons herein referred to as "Preferred Subscribers"). Shares not subscribed
for in the Subscription and Community Offerings will be offered to certain
members of the general public in a syndicated community offering (the
"Syndicated Community Offering") (the Subscription Offering, Community Offering
and the Syndicated Community Offering are referred to collectively as the
"Offerings"). For a description of limitations on the amount of Common Stock
that can be purchased in the Offerings, see "Summary of the Conversion and the
Offerings - Purchase Limitations" and "The Conversion - Subscription Offering
and Subscription Rights," "-Community Offering" and "- Limitation on Common
Stock Purchases."
The Plan provides that the Association and the Company will create the
Foundation, which will be incorporated under Delaware law as a non-stock
corporation, and fund the Foundation with shares of Common Stock contributed by
the Company from authorized but unissued shares, in an amount equal to 7.7% of
the number of shares of Common Stock sold in the Conversion. For a discussion
of the Foundation and its effects on the Conversion, including if the members do
not approve the establishment of the Foundation, see "Risk Factors -
Establishment of the Charitable Foundation," "Pro Forma Data," and "The
Conversion - Establishment of Charitable Foundation."
The Association has engaged Webb to consult with and advise the Company and
the Association in the Offerings and Webb has agreed to use its best efforts to
assist the Company with the solicitation of subscriptions and purchase orders
for shares of Common Stock in the Offerings. Webb is not obligated to take or
purchase any shares of Common Stock in the Offerings. The Association and the
Company will pay a fee to Webb which will be based on the aggregate Purchase
Price of the Common Stock sold in the Offerings. The Company and the
Association have agreed to indemnify Webb against certain liabilities arising
under the Securities Act of 1933, as amended (the "Securities Act"). See "The
Conversion - Marketing and Underwriting Arrangements."
THE SUBSCRIPTION AND COMMUNITY OFFERINGS WILL TERMINATE AT 12:00 NOON,
EASTERN TIME, ON __________, 1998 (THE "EXPIRATION DATE") UNLESS EXTENDED BY THE
ASSOCIATION AND THE COMPANY, WITH THE APPROVAL OF THE OTS, IF NECESSARY. Orders
submitted are irrevocable until the completion of the Conversion; provided, that
if the Conversion is not completed within 45 days after the close of the
Subscription and Community Offerings, unless such period has been extended with
the consent of the OTS, if necessary, all subscribers will have their funds
returned promptly with interest, and all withdrawal authorizations will be
cancelled. Such extensions may not go beyond _________, 2000. See "The
Conversion - Procedure for Purchasing Shares in Subscription and Community
Offerings." The Company and the Association reserve the right, in their
absolute discretion, to accept or reject, in whole or in part, any and all
subscriptions in the Community Offering and the Syndicated Community Offering,
either at the time of receipt of an order or as soon as practicable following
the termination of the Offerings.
The Company has applied to have its Common Stock quoted on the Nasdaq
National Market ("Nasdaq") under the symbol "FPFC" upon completion of the
Conversion. Prior to this offering there has not been a public market for the
Common Stock, and there can be no assurance that an active and liquid trading
market for the Common Stock will develop, or that the Common Stock will trade at
or above the Purchase Price. To the extent an active and liquid trading market
does not develop, the liquidity and market value of the Common Stock may be
adversely affected. See "Risk Factors - Absence of Market for Common Stock" and
"Market for the Common Stock."
2
<PAGE>
Explanatory Note: This Prospectus contains certain forward looking
statements consisting of estimates with respect to the financial condition,
results of operations and business of the Company and the Association.
Prospective investors are cautioned that such forward looking statements are not
guarantees of future performance and are subject to various factors which could
cause actual results to differ materially from these estimates. These factors
include changes in general, economic and market conditions, and the development
of an interest rate environment that adversely affects the interest rate spread
or other income anticipated from the Company's and the Association's operations
and investments. See "Risk Factors" for a discussion of other factors that
might cause actual results to differ from such estimates.
3
<PAGE>
[MAP GOES HERE]
<PAGE>
SUMMARY OF THE CONVERSION AND THE OFFERINGS
The following summary of the Conversion and the Offerings is qualified in
its entirety by the more detailed information appearing elsewhere in this
Prospectus.
Risk Factors........... A purchase of the Common Stock involves a substantial
degree of risk. Eligible Account Holders, Supplemental
Eligible Account Holders, Other Members and other
prospective investors should carefully consider the
matters set forth under "Risk Factors." THE SHARES OF
COMMON STOCK OFFERED HEREBY ARE NOT INSURED OR
GUARANTEED BY THE FDIC, BIF OR SAIF OR ANY OTHER
GOVERNMENT AGENCY AND ARE NOT GUARANTEED BY THE COMPANY
OR ASSOCIATION.
First Place Financial
Corp.................. The Company is a Delaware corporation organized at the
direction of the Association to become a savings and
loan holding company and own all of the Association's
capital stock to be issued upon its conversion from
mutual form to stock form. To date, the Company has not
engaged in any business. Its executive office is
located at 185 East Market Street, Warren, Ohio 44482
and its telephone number is (330) 373-1221.
First Federal Savings
and Loan Association
of Warren............. The Association is a federally-chartered mutual savings
association. At June 30, 1998, the Association had
total assets of $609.4 million, total deposits of
$435.5 million and retained earnings of $59.4 million.
The Association is located at 185 East Market Street,
Warren, Ohio 44482 and its telephone number is (330)
373-1221.
The Association is a community-oriented savings
institution whose principal business consists of
accepting retail deposits from the general public in
its primary market area and investing those deposits,
together with funds generated from operations and
borrowings, primarily in one- to four-family
residential mortgage loans, automobile and home equity
loans and, to a much lesser extent, multi-family and
commercial real estate loans, construction loans,
commercial loans and passbook savings loans. The
Association also invests in government issued and
sponsored mortgage-backed securities, securities issued
by the U.S. Government and agencies thereof, and other
investments permitted by applicable laws and
regulations. See "Business of the Association."
The Conversion and
Reasons for
Conversion............ The Board of Directors of the Association has adopted a
Plan of Conversion pursuant to which the Association
intends to convert to a federally-chartered stock
savings association and issue all of its stock to the
Company. The Company is offering shares of its Common
Stock in the Offerings in connection with the
Association's Conversion. Management believes the
Conversion offers a number of advantages, including:
(i) providing a larger capital base on which to
operate; (ii) providing enhanced future access to
capital markets; (iii) providing enhanced ability to
diversify into other financial services related
activities; and (iv) providing enhanced ability to
increase its presence in the communities it serves
through the acquisition or establishment of branch
offices or the acquisition of other financial
institutions. The Conversion and the Offerings are
subject to approval by the OTS, and approval of members
of the Association eligible to vote at a special
meeting to be held on __________, 1998 (the "Special
Meeting"). The OTS issued an approval letter on
_______, 1998. See "The Conversion--General."
5
<PAGE>
First Federal of
Warren Community The Association's Plan of Conversion provides for the
Foundation............ establishment of a charitable foundation in connection
with the Conversion. The Foundation, which will be
incorporated under Delaware law as a non-stock
corporation, will be funded concurrent with the sale of
Common Stock of the Company with a contribution by the
Company equal to 7.7% of the Common Stock sold in the
Conversion. The authority for the affairs of the
Foundation will be vested in the Board of Directors of
the Foundation, three of whom are existing Directors of
the Company and the Association and one of whom is
unaffiliated with the Company and the Association. See
"The Conversion -Establishment of the Charitable
Foundation."
Terms of the The shares of Common Stock to be sold in connection
Offering.............. with the Conversion are being offered at a fixed price
of $10.00 per share in the Subscription Offering
pursuant to subscription rights in the following order
of priority to: (i) Eligible Account Holders; (ii) the
ESOP; (iii) Supplemental Eligible Account Holders; and
(iv) Other Members. Concurrently, and subject to the
prior rights of holders of subscription rights, any
shares of Common Stock not subscribed for in the
Subscription Offering are being offered in the
Community Offering at $10.00 per share to certain
members of the general public with a preference given
to Preferred Subscribers. Subscription rights will
expire if not exercised by Noon, Eastern time, on
__________, 1998, unless extended by the Association
and the Company, with the approval of the OTS, if
necessary. See "The Conversion - Subscription Offering
and Subscription Rights" and " - Community Offering."
Procedure for Ordering
Shares and Prospectus Forms to order Common Stock offered in the Subscription
Delivery.............. Offering and the Community Offering will only be
distributed with or preceded by a Prospectus. Any
person receiving a stock order and certification form
who desires to subscribe for shares must do so prior to
the Expiration Date by delivering to the Association a
properly executed stock order form and certification
form together with full payment. ONCE TENDERED,
SUBSCRIPTION ORDERS CANNOT BE REVOKED OR MODIFIED
WITHOUT THE CONSENT OF THE ASSOCIATION. To ensure that
each purchaser receives a prospectus at least 48 hours
prior to the Expiration Date in accordance with Rule
15c2-8 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), no prospectus will be
mailed any later than five days prior to the Expiration
Date or hand delivered any later than two days prior to
such date. The Company and the Association are not
obligated to accept subscriptions not submitted on an
original stock order form. See "The Conversion -
Procedure for Purchasing Shares in Subscription and
Community Offerings."
IMPORTANT: TO ENSURE THAT YOUR SUBSCRIPTION RIGHTS ARE
PROPERLY IDENTIFIED, YOU MUST LIST ALL QUALIFYING
DEPOSIT ACCOUNTS AND LOANS, AS OF THE RESPECTIVE
QUALIFYING DATES ON THE STOCK ORDER FORM. PERSONS WHO
DO NOT LIST ALL QUALIFYING DEPOSIT ACCOUNTS AND LOANS
MAY BE SUBJECT TO REDUCTION OR REJECTION OF THEIR
SUBSCRIPTION.
Form of Payment for Payment for subscriptions may be made: (i) in cash
Shares................ (if delivered in person); (ii) by check, bank draft
or money order; or (iii) by authorization of withdrawal
from deposit accounts maintained at the Association.
Orders for Common Stock submitted by subscribers in the
Subscription Offering which aggregate $50,000 or more
must be paid by official bank or certified check or by
withdrawal authorization from a deposit account at the
Association. No wire transfers will be accepted. See
"Conversion - Procedure for Purchasing Shares in
Subscription and Community Offerings."
6
<PAGE>
Nontransferability of
Subscription Rights... The subscription rights of Eligible Account Holders,
Supplemental Eligible Account Holders, Other Members
and the Employee Plans, including the ESOP, are
nontransferable. THE ASSOCIATION AND THE COMPANY WILL
PURSUE ANY AND ALL LEGAL AND EQUITABLE REMEDIES
(INCLUDING FORFEITURE) IN THE EVENT THEY BECOME AWARE
OF THE TRANSFER OF SUBSCRIPTION RIGHTS AND WILL NOT
HONOR ORDERS KNOWN BY THEM TO INVOLVE THE TRANSFER OF
SUCH RIGHTS. Certificates representing shares of Common
Stock purchased in the Subscription Offering must be
registered in the name of the Eligible Account Holder,
Supplemental Eligible Account Holder or Other Member,
as the case may be. Joint stock registration will be
allowed only if the qualifying deposit account is so
registered. See "The Conversion -Restrictions on
Transfer of Subscription Rights and Shares."
Purchase Limitations... No Eligible Account Holder, Supplemental Eligible
Account Holder or Other Member may purchase in the
Subscription Offering more than $250,000 of Common
Stock. No person, together with associates and persons
acting in concert with such person, may purchase in the
Community Offering and the Syndicated Community
Offering more than $250,000 of Common Stock. No person,
together with associates and persons acting in concert
with such person, may purchase in the aggregate more
than 1% of the Common Stock offered. However, the ESOP
may purchase up to 10% of the Common Stock issued,
including shares issued to the Foundation. Pursuant to
the Plan of Conversion, it is the intent of the ESOP to
purchase 8% of the Common Stock issued, including
shares issued to the Foundation. The minimum purchase
is 25 shares of Common Stock. At any time during the
Conversion and without approval of the Association's
depositors or a resolicitation of subscribers, the
Association and the Company may, in their sole
discretion, decrease the maximum purchase limitation
below $250,000 of Common Stock; however, such amount
may not be reduced to less than 0.10% of the Common
Stock offered. Additionally, at any time during the
Conversion, the Association and the Company may, in
their sole discretion, increase the maximum purchase
limitation in the Subscription and Community Offerings
to an amount in excess of $250,000 up to a maximum of
5% of the shares to be issued in the Conversion.
Similarly, the 1% overall maximum purchase limitation
may be increased up to 5% of the total shares of Common
Stock offered in the Conversion.
Securities Offered and
Purchase Price........ The Company is offering between 6,709,135 and
9,077,065 shares of Common Stock at a Purchase Price
of $10.00 per share. The maximum of the Estimated Price
Range may be increased by up to 15% and the maximum
number of shares of Common Stock to be offered may be
increased up to 10,438,625 shares due to regulatory
considerations and changes in market or general
financial or economic conditions. See "The Conversion -
Stock Pricing" and "- Number of Shares to be Issued."
Appraisal.............. The Purchase Price per share has been fixed at $10.00.
The total number of shares to be issued in the
Conversion is based upon an independent appraisal
prepared by Keller, dated as of August 14, 1998, and
updated October 23, 1998, which states that the
estimated pro forma market value of the Common Stock
ranged from $72.3 million to $97.8 million, taking into
account shares to be issued to the Foundation. The
final aggregate value will be determined at the time of
closing of the Offerings and is subject to change due
to changing market conditions and other factors. See
"The Conversion - Stock Pricing."
Use of Proceeds........ The Company will use 50% of the net proceeds of the
Offerings to purchase all of the outstanding common
stock of the Association to be issued in the
Conversion. A
7
<PAGE>
portion of net proceeds retained by the Company will be
used for general business activity, including a loan of
funds by the Company directly to the ESOP to enable the
ESOP to purchase up to 8% of the stock issued in
connection with the Conversion, including shares issued
to the Foundation. The Company intends to initially
invest the remaining net proceeds primarily in
mortgage-backed and mortgage-related securities and
investment grade debt and equity securities. The
Association intends to utilize net proceeds from the
sale of its stock to the Company to expand its lending
and investment activities and to enhance customer
services. The Association currently intends to utilize
the net proceeds received for general business
purposes, including investment in loans and securities,
as well as the possible expansion of its facilities and
operations through marketing, business development, or
the acquisition or establishment of branch offices,
although the Company and the Association have no
current arrangements, understanding or agreements
regarding any such transactions. The Association
anticipates that the portion of the net proceeds
received by the Association will initially be invested
in overnight funds and short-term investments with
maturities of up to three years. See "Use of Proceeds."
Dividend Policy........ Upon Conversion, the Board of Directors of the Company
will have the authority to declare dividends on the
Common Stock, subject to statutory and regulatory
requirements. In the future, the Board of Directors of
the Company may consider a policy of paying cash
dividends on the Common Stock. However, no decision has
been made with respect to such dividends, if any. See
"Dividend Policy."
Benefits of the
Conversion to
Management............ Among the benefits to the Association and the Company
anticipated from the Conversion is the ability to
attract and retain personnel through the use of stock
options and other stock related benefit programs.
Subsequent to the Conversion, the Company intends to
adopt a Stock Program (as defined herein) and Stock
Option Plan (as defined herein) for the benefit of
directors, officers and employees. If such benefit
plans are adopted within one year after the Conversion,
such plans will be subject to stockholders' approval at
a meeting of stockholders which may not be held earlier
than six months after the Conversion. The following
table presents the dollar value and percentage of the
shares to be issued in the Offering, including shares
issued to the Foundation, of the shares to be allocated
under the ESOP to all eligible employees over a ten
year period in acordance with the requirements of the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), and the proposed Stock Program and
Stock Option Plan that the Company intends to adopt
within one year of the consummation of the Conversion,
subject to shareholder approval.
<TABLE>
<CAPTION>
PERCENTAGE OF SHARES
ESTIMATED ISSUED, INCLUDING
VALUE OF SHARES ISSUED
SHARES (1) TO THE FOUNDATION
<S> <C> <C>
ESOP.............. $ 7,820,000 8.0%
Stock Awards (2).. 3,910,000 4.0
Stock Options..... --(3) 10.0
Total............. $11,730,000 22.0%
</TABLE>
_______________
(1) Assumes shares are allocated to participants at
$10.00 per share and that shares are sold in the
Offering at the maximum of the Valuation Range.
(2) Any Common Stock awarded under the Stock Program
will be awarded at no cost to the recipients.
(3) Stock Options will be granted with an exercise
price equal to the fair market value of Common
Stock on the day of grant. Recipients of stock
options realize value only in the event of an
increase in the price of the Common Stock of the
Company following the date of grant of the stock
options.
Additionally, certain officers of the Company and the
Association will be provided with employment agreements
or change in control agreements which provide such
officers with employment rights and/or payments upon
their termination of service following a change in
control. For a further description of the Stock Program
and Stock Option Plan, see "Risk Factors-Stock Based
Benefits to Management, Employment Contracts and Change
in Control Payments" and "Management of the
Association -Benefit Plans." See "Management of the
Association -Subscriptions of Executive Officers and
Directors," "Restrictions on Acquisition of the Company
and the Association -Restrictions in the Company's
Certificate of Incorporation and Bylaws," and "The
Conversion -Establishment of the Charitable
Foundation."
Expiration Date for the
Subscription and
Community Offerings... The Expiration Date for the Subscription and Community
Offerings is 12:00 Noon, Eastern time on
_______________, 1998 unless extended by the
Association and the Company. See "The Conversion -
Subscription Offering and Subscription Rights."
8
<PAGE>
Market for Stock....... As a mutual institution, the Association has never
issued capital stock and, consequently, there is no
existing market for the Common Stock. The Company has
applied to have its Common Stock quoted on the Nasdaq
under the symbol "FPFC" subject to the completion of
the Conversion and compliance with certain conditions,
including the presence of at least three registered and
active market makers. KBW has advised the Company that
it intends to make a market in the Common Stock
following completion of the Conversion, but it is under
no obligation to do so. See "Market for the Common
Stock."
No Board
Recommendations....... The Association's Board of Directors and the Company's
Board of Directors are not making any recommendations
to depositors or other potential investors regarding
whether such persons should purchase the Common Stock.
An investment in the Common Stock must be made pursuant
to each investor's evaluation of his or her best
interests.
Conversion Center...... If you have any questions regarding Conversion, please
call the Conversion Center at (330) _____.
Voting Control of
Officers
and Directors......... Directors and executive officers of the Association and
the Company expect to purchase approximately 5.9% or
4.4% of shares of Common Stock outstanding, based upon
the minimum and the maximum of the Estimated Price
Range, including shares issued to the Foundation
respectively. Additionally, assuming the implementation
of the ESOP, Stock Program and Stock Option Plan,
directors, executive officers and employees have the
potential to control the voting of approximately 25.4%
or 24.0% of the Common Stock at the minimum and the
maximum of the Estimated Price Range, respectively,
including shares issued to the Foundation, on a fully
diluted basis. See "The Conversion -Establishment of
the Charitable Foundation," "Management of the
Association -Subscriptions of Executive Officers and
Directors," and "Restrictions on Acquisition of the
Company and the Association -Restrictions in the
Company's Certificate of Incorporation and Bylaws."
Risk Factors........... For a discussion of certain factors to be considered by
prospective investors, see "Risk Factors."
9
<PAGE>
SELECTED FINANCIAL AND OTHER DATA OF THE ASSOCIATION
Set forth below are selected financial and other data of the Association.
These financial data are derived in part from, and should be read in conjunction
with, the Financial Statements of the Association and Notes thereto presented
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands)
Selected Financial Data:
Total assets........................... $609,398 $548,870 $523,131 $481,192 $480,317
Loans receivable, net.................. 353,012 285,212 254,435 239,457 217,574
Securities available for sale(1)....... 211,185 202,677 202,176 148,273 158,243
Securities held to maturity(1)......... 28,295 44,875 47,918 74,006 81,707
Deposits............................... 435,462 412,934 391,715 376,541 382,710
Federal Home Loan Bank advances........ 44,820 58,398 76,078 52,436 47,265
Repurchase agreements.................. 60,430 16,000 - - 5,062
Total retained earnings................ 59,357 53,747 48,823 46,209 40,107
<CAPTION>
For the Years Ended June 30,
--------------------------------------------------
1998 1997 1996 1995 1994
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands)
Selected Operating Data:
Total interest income................................................ $42,482 $38,413 $36,436 $34,362 $32,208
Total interest expense............................................... 25,512 22,929 21,858 20,150 18,558
------- ------- ------- ------- -------
Net interest income............................................... 16,970 15,484 14,578 14,212 13,650
Provision for loan losses............................................ 1,779 590 238 313 360
------- ------- ------- ------- -------
Net interest income after provision for loan losses............... 15,191 14,894 14,340 13,899 13,290
Total noninterest income............................................. 1,751 444 1,220 565 1,240
Total noninterest expense............................................ 10,372 11,898 9,149 8,396 8,039
------- ------- ------- ------- -------
Income before income tax.......................................... 6,570 3,440 6,411 6,068 6,491
Provision for income tax............................................. 2,498 1,216 2,262 2,039 2,249
------- ------- ------- ------- -------
Net income....................................................... $ 4,072 $ 2,224 $ 4,149 $ 4,029 $ 4,242
======= ======= ======= ======= =======
</TABLE>
(Continued on following page)
10
<PAGE>
<TABLE>
<CAPTION>
For the Years Ended June 30,
---------------------------------------------------
1998 1997 1996 1995 1994
---------------------------------------------------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Selected Financial Ratios and
Other Data(2):
Performance Ratios:
Return on average assets......... 0.70% 0.42% 0.82% 0.84% 0.87%
Return on average retained
earnings........................ 7.16 4.26 8.34 8.75 10.39
Average retained earnings to
average assets.................. 9.71 9.81 9.83 9.57 8.41
Retained earnings to total
assets at end of period......... 9.48 9.78 9.84 9.82 9.01
Net interest rate spread(3)...... 2.55 2.52 2.48 2.49 2.39
Net interest margin(4)........... 3.00 2.97 2.94 2.88 2.70
Average interest-earning
assets to average interest-
bearing liabilities............. 110.46 109.90 109.94 109.08 108.07
Total noninterest expense to
average assets.................. 1.77 2.23 1.81 1.75 1.66
Efficiency ratio(5).............. 55.40 74.70 57.91 56.82 53.99
Net interest income to
operating expenses.............. 163.60 130.13 159.35 169.27 169.79
Regulatory Capital Ratios(6):
Tangible capital................. 9.52% 9.80% 9.79% 9.81% 8.05%
Core capital..................... 9.52 9.80 9.79 9.81 8.05
Total risk-based capital......... 21.84 23.85 25.64 24.87 22.50
Asset Quality Data and Ratios: :
Total nonperforming loans(7)..... $2,143 $2,480 $1,126 $ 992 $ 731
Real estate owned, net........... - - - - 140
Total nonperforming assets(8).).. 2,143 2,480 1,126 992 871
Allowance for loan losses........ 3,027 1,723 1,259 1,186 1,034
Nonperforming loans as a
percent of total loans(7)(9).... 0.60% 0.86% 0.44% 0.41% 0.33%
Nonperforming assets as a
percent of total assets(8)...... 0.35 0.45 0.22 0.21 0.18
Allowance for loan losses
as a percent of loans(9)........ 0.85 0.60 0.49 0.49 0.47
Allowance for loan losses
as a percent of nonperforming
loans(7)........................ 141.25 69.48 111.81 119.56 141.45
</TABLE>
- -------------------
(1) The Association adopted Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," ("SFAS No. 115"), as of June 30, 1994.
(2) Asset Quality Ratios and Regulatory Capital Ratios are end of period
ratios. With the exception of end of period ratios, all ratios are based on
average daily balances during the indicated periods and are annualized
where appropriate.
(3) The net interest rate spread represents the difference between the weighted
average yield on average interest-earning assets and the weighted average
cost of average interest-bearing liabilities.
(4) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(5) The efficiency ratio represents the ratio of noninterest expense divided by
the sum of net interest income and noninterest income.
(6) For definitions and further information relating to the Association's
regulatory capital requirements, see "Regulation and Supervision -
Regulations - Capital Requirements." See "Regulatory Capital Compliance"
for the Association's pro forma capital levels as a result of the
Offerings.
(7) Nonperforming loans consist of all non-accrual loans and all other loans 90
days or more past due. It is the Association's policy to generally cease
accruing interest on all loans 90 days or more past due when, in
management's opinion, the collection of all or a portion of the loan
principal has become doubtful. See "Business of the Association -
Delinquent Loans, Classified Assets and Real Estate Owned."
(8) Nonperforming assets consist of nonperforming loans and real estate owned,
net ("REO").
(9) Loans represent loans receivable, net, excluding the allowance for loan
losses.
11
<PAGE>
SUMMARY OF RECENT DEVELOPMENTS
The selected financial and operating data presented below at September 30,
1998 and for the three month periods ended September 30, 1998 and 1997 are
derived from unaudited financial data, but, in the opinion of management
reflects all adjustments (consisting only of normal recurring adjustments) which
are necessary to present fairly the results for such interim periods. The
results of operations of the three months ended September 30, 1998 are not
necessarily indicative of the results of operations that may be expected for the
year ended June 30, 1999.
<TABLE>
<CAPTION>
AT AT
SEPTEMBER 30, 1998 JUNE 30, 1998
------------------------- -------------------------
(IN THOUSANDS)
SELECTED FINANCIAL DATA:
<S> <C> <C>
Total assets.............................................. $628,664 $609,398
Loans receivable, net..................................... 384,856 353,012
Securities available for sale............................. 200,492 211,185
Securities held to maturity............................... 27,039 28,295
Deposits.................................................. 437,382 435,462
Federal Home Loan Bank advances........................... 57,694 44,820
Repurchase agreements..................................... 60,430 60,430
Total retained earnings................................... 61,105 59,357
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
----------------------------------------------------
1998 1997
------------------------- -------------------------
<S> <C> <C>
(IN THOUSANDS)
SELECTED OPERATING DATA:
Total interest income..................................... $11,215 $10,194
Total interest expense.................................... 6,700 6,094
------- -------
Net interest income.................................. 4,515 4,100
Provision for loan losses................................. 183 245
------- -------
Net interest income after provision
for loan losses................................. 4,332 3,855
Total noninterest income.................................. 458 558
Total noninterest expense................................. 2,900 2,649
------- -------
Income before income tax............................. 1,890 1,764
Provision for income tax.................................. 643 498
------- -------
Net income........................................... $ 1,247 $ 1,266
======= =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED SEPTEMBER 30,
------------------------------------------------------
1998 1997
-------------------------- --------------------------
<S> <C> <C>
(DOLLARS IN THOUSANDS)
Selected Financial Ratios and Other Data (1):
PERFORMANCE RATIOS:
Return on average assets.................................... 0.81% 0.91%
Return on average retained earnings......................... 8.21 9.14
Average retained earnings to average assets................. 9.86 9.93
Retained earnings to total assets at end
of period.............................................. 9.72 9.74
Net interest rate spread (2)................................ 2.55 2.58
Net interest margin (3)..................................... 3.03 3.04
Average interest-earning assets to
average interest-bearing liabilities................... 110.89 110.45
Total noninterest expense to average assets................. 1.88 1.94
Efficiency ratio (4)........................................ 54.10 53.58
Net interest income to operating expenses................... 155.67 154.76
REGULATORY CAPITAL RATIOS (5):
Tangible capital............................................ 9.43% 9.77%
Core capital................................................ 9.43 9.77
Total risk-based capital.................................... 21.00 23.37
ASSET QUALITY DATA AND RATIOS:
Total nonperforming loans (6)............................... $ 1,289 $ 2,324
Real estate owned, net...................................... - 115
Total nonperforming assets (7).............................. 1,289 2,439
Allowance for loan losses................................... 3,143 1,841
Nonperforming loans as a percent of total loans (6)(8)...... 0.33% 0.66%
Nonperforming assets as a percent of total assets (7)....... 0.21 0.40
Allowance for loan losses as a percent of loans (8)......... 0.81 0.52
Allowance for loan losses as a percent of
nonperforming loans (6).................................. 243.83 79.22
</TABLE>
__________
(1) Asset Quality Ratios and Regulatory Capital Ratios are end of period
ratios. With the exception of end of period ratios, all ratios are based
on average daily balances during the indicated periods and are annualized
where appropriate.
(2) The net interest rate spread represents the difference between the weighted
average yield on average interest-earning assets and the weighted average
cost of average interest-earning liabilities.
(3) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(4) The efficiency ratio represents the ratio of noninterest expense divided by
the sum of net interest income and noninterest income, net of security
gains.
(5) For definitions and further information relating to the Association's
regulatory capital requirements, see "Regulation and Supervision-
Regulations-Capital Requirements." See "Regulatory Capital Compliance"
for the Association's pro forma capital levels as a result of the
Offerings.
(6) Nonperforming loans consist of all non-accrual loans and all other loans 90
days or more past due. It is the Association's policy to generally cease
accruing interest on all loans 90 days or more past due when, in
management's' opinion, the collection of all or a portion of the loan
principal has become doubtful. See "Business of the Association
Delinquent Loans, Classified Assets and Real Estate Owned."
(7) Nonperforming assets consist of nonperforming loans and REO.
(8) Loans represent loans receivable, net, excluding the allowance for loan
losses.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RECENT DEVELOPMENTS
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1998 AND JUNE 30, 1998
Total assets at September 30, 1998 were $628.7 million compared to $609.4
million at June 30, 1998, an increase of $19.3 million. The primary factor in
this increase was a $31.9 million increase in loans receivable, net from $353.0
million at June 30, 1998 to $384.9 million at September 30, 1998, partially
offset by a $10.7 million decrease in securities available for sale from $211.2
million at June 30, 1998 to $200.5 million at September 30, 1998.
Total deposits of the Association increased by $1.9 million from $435.5
million at June 30, 1998 to $437.4 million at September 30, 1998 due principally
to an increase in NOW accounts. Federal Home Loan Bank ("FHLB") advances
increased by $12.9 million from $44.8 million at June 30, 1998 to $57.7 million
at September 30, 1998. The Association used the new advances to fund loan
growth during the three months ended September 30, 1998.
Total retained earnings at September 30, 1998 were $61.1 million compared
to $59.4 million at June 30, 1998, an increase of $1.7 million, or 2.9%, due to
net earnings of $1.2 million for the three months ended September 30, 1998 and a
$500,000 increase in the value of securities available for sale, net of tax.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998
AND SEPTEMBER 30, 1997.
Net income for the three months ended September 30, 1998 was $1.25 million
compared to $1.27 million for the three months ended September 30, 1997. Net
interest income increased $415,000 or 10.1% for the three months ended September
30, 1998 compared to the same period in 1997.
Average interest-earning assets for the three months ended September 30,
1998 increased 10.9% to $605.2 million and average interest-bearing liabilities
increased 10.4% to $545.7 million compared to the three months ended September
30, 1997. The net interest margin decreased only one basis point from 3.04% for
the quarter ended September 30, 1997 to 3.03% for the three months ended
September 30, 1998. The growth in net interest income was the result of an
increased volume of financial instruments during the three months ended
September 30, 1998 compared to the same period in 1997 which exceeded the
decrease due to a decline in rates.
Noninterest income for the three months ended September 30, 1998 decreased
$100,000, due to the sale of debt securities during the same period in 1997.
Noninterest expense increased $251,000 in the three months ended September 30,
1998 from the three months ended September 30, 1997, attributable to the
increase in salaries and wages and other operating expenses.
INTEREST INCOME
Interest income for the three months ended September 30, 1998 was $11.2
million compared to $10.2 million for the three months ended September 30, 1997,
an increase of $1.0 million or 10%. The increase in interest income was
primarily the result of growth in average interest-earning assets from $546.2
million for the three months ended September 30, 1997 to $605.2 million for the
three months ended September 30, 1998. The yield for interest-earning assets
for the three months ended September 30, 1998 decreased to 7.40% as compared to
7.46% for the same period in 1997, which partially offset the increase in
interest income due to volume.
INTEREST EXPENSE
Interest expense for the three months ended September 30, 1998 was $6.7
million as compared to $6.1 million for the three months ended September 30,
1997, an increase of $606,000 or 9.9%. The increase in interest expense was
primarily the result of growth in average interest-bearing liabilities from
$494.5 million for the three months ended September 30, 1997 to $545.7 million
for the three months ended September 30, 1998. The yield on interest-bearing
liabilities for the three months ended September 30, 1998 decreased to 4.86%
compared to 4.88% for the same period in 1997, which partially offset the
increase in interest expense due to volume.
PROVISION FOR LOAN LOSSES
The Association's provision for loan losses for the three months ended
September 30, 1998 was $183,000, compared to $245,000 for the three months ended
September 30, 1997. The amount of the provision for loan losses is based upon
management's periodic analysis of the adequacy of the allowance for loan losses.
The change in the provision for loan losses is due to a decrease in the level of
charge-offs for the three months ended September 30, 1998 compared to the same
period in 1997.
NONINTEREST INCOME
Noninterest income for the three months ended September 30, 1998 was
$458,000 compared to $558,000 for the three months ended September 30, 1997, a
decrease of $100,000 or 17.9%. The Association sold debt securities and
recorded a $100,000 gain on sale for the three months ended September 30, 1997.
No securities were sold during the three months ended September 30, 1998.
NONINTEREST EXPENSE
Noninterest expense was $2.9 million for the three months ended September
30, 1998 compared to $2.6 million for the three months ended September 30, 1997,
a $300,000, or 9.5%, increase. Compensation and benefits expense increased to
$1.5 million for the three months ended September 30, 1998 compared to $1.4
million for the three months ended September 30, 1997, a $100,000, or 7.1%
increase. Other operating expenses increased to $608,000 for the three months
ended September 30, 1998 compared to $420,000 for the same period in 1997, an
increase of $188,000 or 44.8%. $110,000 of the increase in other operating
expenses is related to advertising and stationary and supplies expenditures
INCOME TAXES
Income taxes for the three months ended September 30, 1998 were $643,000
compared to $498,000 for the three months ended September 30, 1997, an increase
of $145,000 or 29.1%.
RISK FACTORS
The following special considerations, in addition to those discussed
elsewhere in this Prospectus, should be considered by investors in deciding
whether to purchase the Common Stock offered hereby.
Sensitivity to Increases in Interest Rates
The Association's profitability, like that of most financial institutions,
is dependent to a large extent upon its net interest income, which is the
difference between its interest income on interest-earning assets, such as loans
and securities, and its interest expense on interest-bearing liabilities, such
as its deposits and borrowed funds. Accordingly, the Association's results of
operations and financial condition are largely dependent on movements in market
interest rates and its ability to manage its assets and liabilities in response
to such movements.
At June 30, 1998, the Association had $185.5 million of long-term, fixed-
rate mortgage loans, or 51% of the Association's total loan portfolio, all of
which the Association maintains in its portfolio. At that date, $111 million,
or 30.5% of the Association's total loan portfolio consisted of adjustable-rate
mortgage ("ARM") loans. As of June 30, 1998, $60.6 million, or 25.3% of the
Association's securities had adjustable rates and its securities portfolio had a
weighted average life of 6.4 years. The Association's certificates of deposit
with maturities of less than one year totaled $167.8 million, and certificates
of deposit over $100,000 ("jumbo certificates of deposit") totaled $53.2
million. Such jumbo certificates of deposit tend to be less stable sources of
funding as compared to money market, savings, retail checking/negotiable order
of withdrawal ("NOW") accounts and commercial checking accounts (collectively,
"core deposits"), and at June 30, 1998, represented 10.3% of the Association's
interest-bearing liabilities.
Management monitors the Association's interest rate sensitivity through the
use of an internally generated Net Portfolio Value Model which generates
estimates of the change in the Association's net portfolio value ("NPV") over a
range of interest rate scenarios. NPV is the present value of expected cash
flows from assets, liabilities and off-balance sheet contracts. The NPV ratio,
under any interest rate scenario, is defined as the NPV in that scenario divided
by the market value of assets in the same scenario. As of June 30, 1998, the
Association's NPV was $72.2 million, or 11.7% of the market value of assets. A
200 basis point increase in interest rates would result in a decrease in the
Association's NPV to $53.4 million, representing a 26.0% reduction in the value
of the Association's discounted cash flows. Conversely, a 200 basis point
decrease in interest rates would result in a decrease in the Association's NPV
to $66.6 million, representing only a 7.7% decrease in the value of the
Association's discounted cash flows. Consequently, an increase in interest
rates will have a significantly greater impact on the Association's NPV than a
corresponding decrease in interest rates.
Significant increases in the level of market interest rates also may
adversely affect the fair value of the Association's securities and other
interest-earning assets. At June 30, 1998, $178.9 million, or 74.7%, of the
Association's securities had fixed interest rates. Generally, the value of
fixed-rate instruments fluctuates inversely with changes in interest rates. As
a result, increases in interest rates could result in decreases in the market
value of interest-earning assets which could adversely affect the Association's
results of operations if sold or, in the case of interest-earning assets
classified as available-for-sale, the Association's retained earnings if
retained. Increases in market interest rates also can affect the type (fixed-
rate or adjustable-rate) and amount of loans originated by the Association and
the average life of loans and securities, which can adversely impact the yields
earned on the Association's loan and securities portfolio. In periods of
decreasing interest rates, the average life of loans held by the Association may
be shortened to the extent increased prepayment activity occurs during such
periods which, in turn, may result in the Association investing funds from such
prepayments in lower yielding assets. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Management of Interest Rate
Risk."
Risks Associated with Economic Conditions in the Association's Primary Market
Area
The Association's primary market area consists of Trumbull and Mahoning
Counties in Northeastern Ohio. Nine of the Association's offices are located in
Trumbull County, including the Association's main office in the City of Warren
and two offices are in Mahoning County. With regard to several important
economic factors, statistics for the Association's primary market area in recent
years have trailed both the State of Ohio and the United States.
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In 1997, the per capita annual income of $14,953 for the Association's
primary market area was lower than the $17,244 and $18,100 per capita annual
income for Ohio and the United States, respectively. The median annual
household income for the Association's primary market area was $31,060 in 1996,
compared to $36,165 for the State of Ohio and $36,961 for the United States.
The unemployment rates for the Association's market area and the City of Warren
have exceeded both the Ohio and national rates in the recent past. For 1998,
through May, the unemployment rate in the Association's primary market area
averaged 5.0%, compared to 4.2% for Ohio and 3.9% for the United States. The
City of Warren experienced a significantly higher unemployment rate of 9.3% in
January 1998.
There have been published reports that General Motors ("GM") is evaluating
which of its plants will be awarded their next generation of small cars,
replacing its Cavalier and Sunbird models in 2002. The assembly plant producing
the current models noted is located in Lordstown, Ohio, and employs
approximately 6,400 people in the Warren/Youngstown area. Should GM not award
the new line to the Lordstown plant, a great deal of uncertainty concerning its
future beyond 2002 will be created. GM has not commented on such reports, and
the possibility of such a closure cannot be determined. If the plant were to be
shut down, the resulting unemployment would, in all likelihood, have a major
adverse impact on the economy in the region, and therefore on the Association's
results of operations. Additionally, a number of businesses in the
Warren/Youngstown area are dependent on the Lordstown plant and/or its employees
and the impact of a plant closing would have a ripple effect on other businesses
in the area, which in turn would exacerbate the adverse impact of the closing on
the Association. The reports estimate that a closure, should it occur, would be
effective in 2002-2003. The reports state that decision on the future of the
Lordstown plant could be made within the next twelve months. The Association is
unable to estimate the extent of the impact that such a closure would have on
its results of operations.
A decline in the local economy could result in an increase in the level of
defaults by borrowers in the repayment of existing loans and could suppress
demand for new loans. Similarly, a decline in the local economy could result in
a decline in core deposits as customers would have fewer discretionary funds for
savings. If these conditions occurred, they could adversely affect the
Association's net income. Moreover, the absence of a robust local economy could
limit the Association's potential for growth in its primary market area.
Lending and Deposit Concentrations
At June 30, 1998, the majority of the Association's total real estate loans
were secured by properties in Trumbull and Mahoning Counties, located in
northeastern Ohio. A concentration of loans secured by properties in any single
area presents the risk that any adverse change in the local economic or
employment conditions may result in increased loan delinquencies and loan
losses. The Association attempts to address this risk by relying upon
conservative underwriting practices when considering loans and frequently
reviewing general economic information relating to northeastern Ohio. See
"Business of the Association--Lending Activities."
Increased Lending Risks Associated with Automobile Loans
In recent years, as part of its efforts to diversify its loan portfolio and
generate greater returns, the Association has increased its emphasis on
automobile loans. At June 30, 1998, the Association's consumer loan portfolio
totaled $64.1 million, or 17.6% of the Association's total loans, and consisted
primarily of new and used automobile loans. At that date, automobile loans
totaled $52.8 million, or 14.5% of total loans and 82.5% of consumer loans.
Loans secured by rapidly depreciable assets such as automobiles entail greater
risks than one- to four-family residential mortgage loans. In such cases,
repossessed collateral for a defaulted loan may not provide an adequate source
of repayment of the outstanding loan balance, since there is a greater
likelihood of damage, loss or depreciation of the underlying collateral.
Further, collections on these loans are dependent on the borrower's continuing
financial stability and, therefore, are more likely to be adversely affected by
job loss, divorce, illness or personal bankruptcy. Finally, the application of
various federal and state laws, including federal and state bankruptcy and
insolvency laws, may limit the amount which can be recovered on such loans in
the event of a default. See "Business of the Association--Lending Activities--
Consumer Lending."
Potential Low Return on Equity Following the Conversion
At June 30, 1998, the Association's ratio of average retained earnings to
average assets was 9.71%. The national average ratio of average retained
earnings to average assets for all savings institutions was 4.00% at June 30,
1998, while the average ratio for savings institutions in Ohio with assets
between $300 million to $1 billion was 5.55% at that same date, as reported by a
national banking information service. The Company's equity position will be
significantly increased as a result of the Conversion. On a pro forma basis as
of June 30, 1998, assuming the sale of Common Stock at the midpoint of the
Estimated Price Range, the Company's ratio of equity to assets would exceed
18.9%. The national average ratio of equity to assets for all savings
institutions was 8.57% at June 30, 1998, while the average ratio of equity to
assets for savings institutions in Ohio with assets between $300 million to $1
billion was 9.29% at that same date, as reported by a national banking
information service. The Company's ability to deploy this new capital through
investments in interest-
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bearing assets, such as loans and securities, which bear rates of return
comparable to its current investments, will be significantly affected by
industry competition for such investments. The Company currently anticipates
that it will take time to prudently deploy such capital. In addition, the
issuance of authorized but unissued shares of Common Stock to the Foundation
will adversely impact the Company's earnings per share on a going-forward basis.
As a result, the Company's return on equity initially is expected to be below
its historical return on equity and may be below peer group institutions after
the Conversion.
Year 2000 Compliance
The Federal Financial Institutions Examination Council (the "FFIEC"),
through the bank regulatory agencies, has issued compliance guidelines requiring
financial institutions to develop and implement plans for addressing Year 2000
issues relevant to their operations. The Association has implemented a detailed
Year 2000 plan, as required by the FFIEC guidelines, to evaluate Year 2000
compliance of its computer systems and the equipment which supports the
operations of the Association. Also included in this Year 2000 plan is a
detailed review of the readiness of the Association's service providers,
vendors, major fund providers, major borrowers and companies with which the
Association has material investments. As of October 15, 1998, the Association
has met all current target objectives of the Year 2000 plan, and management
believes that it will continue to meet all future target objectives in
accordance with the terms of the plan.
To date, the Association has not identified any system which presents a
material risk of not being Year 2000 ready in a timely fashion or for which a
suitable alternative cannot be implemented. However, as the Association
progresses with its Year 2000 conversion, the Association may identify systems
which do present a material risk of Year 2000 disruption. Such disruption may
include, among other things, the inability to process and underwrite loan
applications, to credit deposits and withdrawals from customer accounts, to
credit loan payments or track delinquencies, to properly reconcile and record
daily activity or to engage in similar normal banking activities.
Additionally, if the Association's commercial customers are not Year 2000
compliant and suffer adverse effects on their operations, their ability to meet
their obligations to the Association could be adversely affected.
The failure of the Association to identify systems which require Year 2000
conversion that are critical to the Association's operations or the failure of
the Association or others with which the Association does business to become
Year 2000 ready in a timely manner could have a material adverse impact on the
Association's financial condition and results of operations. Moreover, to the
extent that the risks posed by the Year 2000 problem are pervasive in data
processing and transmission and communications services worldwide, the
Association cannot predict with any certainty that its operations will remain
materially unaffected after January 1, 2000 or on dates preceding this date at
which time post-January 1, 2000 dates become significant within the
Association's systems. For further discussion of the Association's Year 2000
compliance efforts, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Year 2000."
Highly Competitive Industry and Geographic Area
The Association faces significant competition in its primary market area
both in attracting deposits and in originating loans. All of the Association's
offices are located in Trumbull and Mahoning Counties in northeastern Ohio. The
Association's share of deposits in Trumbull and Mahoning Counties amounts to
approximately 7.3%. The remainder of deposits in Trumbull and Mahoning Counties
are spread among a number of competitors; no one competitor holds more than 15%
of deposits in the Association's primary market area. The Association faces
direct competition from a significant number of financial institutions operating
in its market area, many with a state-wide or regional presence, and, in some
cases, a national presence. This competition arises from commercial banks,
savings banks, mortgage banking companies, credit unions and other providers of
financial services, many of which are significantly larger than the Association
and, therefore, have greater financial and marketing resources than those of the
Association. As the Trumbull and Mahoning Counties area continues to develop,
the continued profitability of the Association will depend, in part, upon its
ability to compete successfully in its primary market area. See "Business of the
Association - Primary Market Area."
Provisions Which May Discourage Takeover Attempt
Provisions in the Company's and the Association's Governing Instruments.
Certain provisions of the Company's Certificate of Incorporation and Bylaws,
particularly a provision limiting voting rights, and the Association's Stock
Charter and Bylaws, as well as certain federal regulations, assist the Company
in maintaining its status as an independent publicly owned corporation. These
provisions provide for, among other things, supermajority voting on certain
matters, staggered boards of directors, noncumulative voting for directors,
limits on the calling of special meetings of shareholders, limits on the ability
to vote Common Stock in excess of 10% of outstanding shares, and certain uniform
price provisions for certain business combinations. The uniform price provisions
for certain business combinations provide that 80% approval of shareholders is
required for any business combination involving an Interested Stockholder
(generally defined as any individual, corporation, partnership or other entity
(other than the Company or its subsidiaries) which owns or controls 10% or more
of the voting power of the outstanding shares of voting stock of the Company),
unless the transaction is approved by a majority of directors unaffiliated with
the Interested Stockholder or if the proposed transaction meets certain
conditions which are designed to provide shareholders a fair price in
consideration for their shares, in which case approval of only a majority of the
outstanding shares of voting stock would be required. By requiring a vote of
shareholders in excess of that required by statute generally, the uniform fair
price provision would permit management controlling the voting of greater than
20% of the outstanding Common Stock to reject certain takeover attempts that
certain stockholders deem to be in their best interests. See "Restrictions on
Acquisition of the Company and the Association -- Restrictions in the Company's
Certificate of Incorporation and Bylaws -- Stockholder Vote Required to Approve
Business Combinations with Interested Stockholders." The Association's Stock
Charter also prohibits, for five years, the acquisition or offer to acquire,
directly or indirectly, the beneficial ownership of more than 10% of the
Association's equity securities. Any person, or group acting in concert,
violating this restriction may not vote the Association's securities in excess
of 10%. These provisions in the Association's and the Company's governing
instruments may discourage potential proxy contests and other potential takeover
attempts, particularly those which have not been negotiated with the Boards of
Directors, and thus, generally may serve to perpetuate current management. For a
more detailed discussion of these provisions, see "Restrictions on Acquisition
of the Company and the Association."
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Voting Control of Officers and Directors. Directors and executive officers
of the Association and the Company expect to purchase approximately 5.9% or 4.3%
of the shares of Common Stock to be issued in the Conversion, including shares
issued to the Foundation, based upon the minimum and the maximum of the
Estimated Price Range, respectively, and exclusive of shares that may be
attributable to directors and officers through the Stock Program, the Stock
Option Plan and the ESOP, which plans may give directors, executive officers and
employees the potential to control the voting of an additional 20.0% of the
Company's Common Stock on a fully diluted basis at the maximum of the Estimated
Price Range. In addition, the Foundation will be funded with a contribution by
the Company equal to 7.7% of the Common Stock sold in the Conversion, which if a
waiver of the voting restriction imposed on such Common Stock is obtained from
the OTS, may be voted as determined by the Directors of the Foundation, a
majority of whom will be Directors of the Company or the Association.
Management's potential voting control could, together with additional
stockholder support, defeat stockholder proposals requiring 80% approval of
stockholders. As a result, this potential voting control may preclude takeover
attempts that certain stockholders deem to be in their best interest and may
tend to perpetuate existing management. See "Restrictions on Acquisition of the
Company and the Association - Restrictions in the Company's Certificate of
Incorporation and Bylaws" and "The Conversion - Establishment of the Charitable
Foundation."
Absence of Market For Common Stock
The Company, as a newly organized company, has never issued capital stock,
and consequently, there is no established market for its Common Stock at this
time. The Company has applied to have its Common Stock quoted on the Nasdaq
under the symbol "FPFC" upon completion of the Conversion. A public trading
market having the desirable characteristics of depth, liquidity and orderliness
depends upon the existence of willing buyers and sellers at any given time, the
presence of which is dependent upon the individual decisions of buyers and
sellers over which the Company has no control. Accordingly, there can be no
assurance that an active and liquid trading market for the Common Stock will
develop or that, if developed, will continue, nor is there any assurance that
purchasers of the Common Stock will be able to sell their shares at or above the
Purchase Price. The absence or discontinuance of a market for the Common Stock
would have an adverse impact on both the price and liquidity of the Common
Stock. See "Market for Common Stock."
Possible Dilutive Effect of Stock Program and Stock Options
Following the Conversion, the Stock Program will acquire an amount of
shares equal to 4% of the shares of Common Stock issued in the Conversion,
including shares issued to the Foundation, either through open market purchases
or the issuance of authorized but unissued shares of Common Stock from the
Company. If the Stock Program is funded by the issuance of authorized but
unissued shares, the voting interests of existing shareholders will be diluted
by approximately 3.8%. Also following the Conversion, the Company intends to
implement the Stock Option Plan which will provide directors and selected
employees of the Company and the Association with Stock Options to purchase
authorized but unissued shares in an amount equal to 10% of the Common Stock
issued in the Conversion, including shares issued to the Foundation. If all of
the Stock Options intended to be granted were to be exercised using authorized
but unissued Common Stock and if the Stock Program were funded with authorized
but unissued shares, the voting interests of existing stockholders would be
diluted by approximately 12.3%.
Possible Adverse Income Tax Consequences of the Distribution of Subscription
Rights
The Association has received an opinion of Keller that subscription rights
granted to Eligible Account Holders, Supplemental Eligible Account Holders and
Other Members have no value. However, this opinion is not binding on the IRS.
If the subscription rights granted to Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members are deemed to have an ascertainable
value, such recipients could be taxed upon receipt of such subscription rights.
Additionally, the Association could recognize a gain for tax purposes on such
distribution. Whether subscription rights are considered to have ascertainable
value is an inherently factual determination. See "The Conversion - Effects of
Conversion" and "- Tax Aspects."
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Possible Increase in Estimated Price Range and Number of Shares Issued
The number of shares to be sold in the Conversion may be increased as a
result of an increase in the Estimated Price Range of up to 15% to reflect
changes in market and financial conditions following the commencement of the
Subscription and Community Offerings. In the event that the Estimated Price
Range is so increased, it is expected that the Company will sell up to
10,438,625 shares of Common Stock at the Purchase Price for an aggregate
purchase price of up to $104.4 million. An increase in the number of shares
issued will decrease a subscriber's pro forma net earnings per share and
stockholders' equity per share and will increase the Company's pro forma
consolidated stockholders' equity and net earnings. Such an increase will also
increase the Purchase Price as a percentage of pro forma stockholders' equity
per share and net earnings per share.
No Fairness Opinion
The Association has engaged Webb as a financial and marketing advisor, and
Webb has agreed to assist the Association and the Company in its solicitation of
subscriptions and purchase orders for Common Stock in the Offerings. Webb has
not prepared any report or opinion constituting recommendations or advice to the
Association. In addition, Webb has expressed no opinion as to the prices at
which Common Stock to be issued in the Offerings may trade. Furthermore, Webb
has not verified the accuracy or completeness of the information contained in
the Prospectus or the Proxy Statement. See "The Conversion - Marketing and
Underwriting Arrangements."
Potential Delays of Consummation of the Conversion
Orders submitted in the Subscription Offering, Community Offering and/or
Syndicated Community Offering are irrevocable. The Company and the Association
expect to complete the Conversion within the time periods indicated in this
Prospectus. Nevertheless, it is possible that several factors, including, but
not limited to, a delay in receiving regulatory approval of the final updated
appraisal prepared by Keller, a delay in processing orders in the event the
Offerings are oversubscribed or a delay caused by a regulatory or legal
challenge to the establishment and funding of the Foundation or other actions
taken in connection with the Conversion could significantly delay the completion
of the Conversion. Subscribers will have no access to subscription funds and/or
shares of Common Stock until the Conversion is completed or terminated. In the
event the Conversion is terminated, subscribers will be refunded their
subscription funds, together with interest at a rate equal to the Association's
interest rate paid on passbook accounts, or will have their withdrawal
authorization terminated. See "The Conversion."
Effects of the Establishment of the Charitable Foundation
Pursuant to the Plan, the Company intends to voluntarily establish a
charitable foundation in connection with the Conversion. The Foundation will be
incorporated under Delaware law as a non-stock corporation and will be funded
with shares of Common Stock contributed by the Company. Establishment of the
Foundation is subject to the approval of the Association's members at the
Special Meeting. If approved by members, the establishment of the Foundation
and the contribution of Common Stock to the Foundation will be dilutive to the
interests of stockholders and will have an adverse impact on the reported
earnings of the Company in fiscal 1999, the year in which the Foundation will be
funded.
Dilution of Stockholders' Interests. The Company proposes to fund the
Foundation with Common Stock of the Company in an amount equal to 7.7% of the
Common Stock to be sold in the Conversion. At the minimum, midpoint and maximum
of the Estimated Price Range, the contribution to the Foundation would equal
515,865, 606,900 and 697,935 shares, with a value of $5.2 million, $6.1 million
and $7.0 million, respectively, based on the Purchase Price of $10.00 per share.
Assuming the sale of Common Stock at the maximum of the Estimated Price Range,
upon completion of the Conversion and establishment of the Foundation, the
Company will have 9,775,000 shares issued and outstanding of which the
Foundation will own 697,935 shares, or 7.1%. AS A RESULT, PERSONS PURCHASING
SHARES OF COMMON STOCK IN THE CONVERSION WILL HAVE THEIR OWNERSHIP AND VOTING
INTERESTS IN THE COMPANY DILUTED BY 7.1%, AS COMPARED TO COMPLETING THE
CONVERSION WITHOUT THE FOUNDATION. SEE "PRO FORMA DATA."
Adverse Impact on Earnings. Assuming receipt of approval of the
Association's members, the contribution of Common Stock to the Foundation will
have an adverse impact on the Company's earnings in the year in which the
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contribution is made. The Company will recognize the full expense in the amount
of the contribution of Common Stock to the Foundation in the quarter in which it
occurs, which is expected to be the second quarter of fiscal 1999. The amount of
the contribution will range from $5.2 million to $7.0 million, based on the
minimum and maximum of the Estimated Price Range. The contribution expense will
be partially offset by the tax benefit related to the expense. The Company and
the Association have been advised by their independent tax advisors that the
contribution to the Foundation will be tax deductible, subject to an annual
limitation based on 10% of the Company's annual taxable income. Assuming a
contribution of $7.0 million in Common Stock (based on the maximum of the
Estimated Price Range), the Company estimates a net tax effected expense of $4.6
million (based upon a 34% tax rate). If the Foundation had been established at
June 30, 1998, the Association would have reported a net loss of $534,000,
rather than reporting net income of $4.1 million for the year ended June 30,
1998. Management cannot predict earnings for fiscal 1999, but expects that the
establishment and funding of the Foundation will have an adverse impact on the
Company's earnings for the quarter in which the Foundation is funded. Due to the
contribution to the Foundation, the Association expects in the future to reduce
the amount of its current charitable contributions within its community. The
Company and the Association do not currently anticipate making additional
contributions to the Foundation within the first five years following the
initial contribution.
Tax Considerations. The Company and the Association have been advised by
Crowe, Chizek and Company LLP that an organization created for the above
purposes would qualify as a Section 501(c)(3) exempt organization under the
Internal Revenue Code of 1986, as amended (the "Code"), and would be classified
as a private foundation. The Foundation will submit a request to the Internal
Revenue Service ("IRS") to be recognized as an exempt organization. The Company
and the Association have received an opinion of Crowe, Chizek and Company LLP
that the Foundation would qualify as a Section 501(c)(3) exempt organization
under the Code, except that such opinion does not consider the impact of the
regulatory condition agreed to by the Foundation that Common Stock issued to the
Foundation be voted in the same ratio as all shares of the Company's Common
Stock voted on all proposals considered by stockholders of the Company. See
"The Conversion - Establishment of the Charitable Foundation." Consistent with
this condition, in the event that the Company or the Foundation receives an
opinion of their legal counsel that compliance with the voting restriction would
have the effect of causing the Foundation to lose its tax-exempt status, or
otherwise have a material and adverse tax consequence on the Foundation or
subject the Foundation to an excise tax under Section 4941 of the Code, the OTS
will waive such voting restriction upon submission of a legal opinion by the
Company or the Foundation that is satisfactory to the OTS. The independent tax
advisors' opinion further provides that the Company's contribution of its own
stock to the Foundation will not constitute an act of self-dealing, and that the
Company will be entitled to a deduction in the amount of the fair market value
of the stock at the time of the contribution less the nominal par value that the
Foundation is required to pay to the Company for such stock, subject to an
annual limitation based on 10% of the Company's annual taxable income. The
Company, however, would be able to carry forward any unused portion of the
deduction for five years following the contribution subject to the 10% annual
limitation. Thus, while the Company would have received a charitable
contribution deduction of approximately $700,000 in fiscal 1998 (based upon the
sale of stock at the maximum of the Estimated Price Range and a contribution of
$7.0 million of Common Stock and the Association's pre-tax income for fiscal
1998), the Company is permitted under the Code to carryover the excess
contribution in the five following years. Assuming the sale of Common Stock at
the midpoint of the Estimated Price Range, the Company estimates that
substantially all of the deduction should be deductible over the six-year
period. Although the Company and the Association have received an opinion of
Crowe, Chizek and Company LLP that the Company will be entitled to the deduction
for the charitable contribution, there can be no assurances that the IRS will
recognize the Foundation as a Section 501(c)(3) exempt organization or that the
deduction will be permitted. In such event, the Company's tax benefit related
to the Foundation would have to be fully expensed, resulting in a further
reduction in earnings in the year in which the IRS makes such a
determination.
Comparison of Valuation and Other Factors Assuming the Foundation is Not
Established as Part of the Conversion. The establishment of the Foundation was
taken into account by Keller in determining the estimated pro forma market value
of the Common Stock of the Company. The aggregate price of the shares of Common
Stock being offered in the Subscription and Community Offerings is based upon
the independent appraisal conducted by Keller of the estimated pro forma market
value of the Common Stock of the Company. The pro forma aggregate price of the
Common Stock being offered for sale in the Conversion is currently estimated to
be between $67.1 million and $90.8 million, with a midpoint of $78.9 million.
Based on the appraisal, the pro forma market capitalization of the Association
at the midpoint of the Estimated Price Range, including shares issued to the
Foundation, is $85.0 million.
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The pro forma price to book ratio and the pro forma price to earnings ratio, at
and for the year ended June 30, 1998, are 66.30% and 13.81x, respectively, at
the midpoint of the Estimated Price Range. In the event that the Conversion did
not include the Foundation, Keller has estimated that the estimated pro forma
market capitalization of the Association would be approximately $90.5 million
at the midpoint based on a pro forma price to book ratio and the pro forma price
to earnings ratio that are approximately the same as the independent appraisal
at 66.10% and 13.89x, respectively. If the Foundation was not part of the
Conversion, the pro forma market value of the shares being offered is estimated
to be between $76.9 million and $104.1 million. See "Comparison of Valuation
and Pro Forma Information with No Foundation." This estimate by Keller was
prepared at the request of the OTS and is solely for purposes of providing
depositors and subscribers with information with which to make an informed
decision on the Conversion. There is no assurance that if the Foundation was not
approved the appraisal prepared at that time would conclude that the pro forma
market value of the Company would be the same as the amount estimated herein.
Any appraisal prepared at that time would be based on the facts and
circumstances existing at that time, including, among other things, market and
economic conditions.
The Association believes that the establishment of the Foundation is in the
best interests of the Association, its depositors, its prospective stockholders
and the communities in which it operates. The Foundation is integrally tied to
the Association's business of operating a community banking institution and the
Association believes that the Foundation will have a positive impact on the
Association's long-term franchise value. The amount of Common Stock being
offered in the Conversion at the midpoint of the Estimated Price Range is
approximately $11.6 million less than the estimated amount of Common Stock that
would be offered in the Conversion without the Foundation based on the estimate
provided by Keller. Accordingly, certain depositors of the Association who
subscribe to purchase Common Stock in the Subscription Offering may receive
fewer shares depending on the appraisal valuation at that time, the number of
shares sold based on that appraisal, the size of a depositor's stock order, the
amount of his or her qualifying deposits in the Association and the overall
level of subscriptions. The decrease in the amount of Common Stock being
offered as a result of the contribution of Common Stock to the Foundation will
not have a significant effect on the Company or the Association's capital
position. The Association's regulatory capital is significantly in excess of
its regulatory capital requirements and will further exceed such requirements
following the Conversion. The Association's tangible, core and risk-based
capital ratios at June 30, 1998 were 9.5%, 9.5% and 21.8%, respectively.
Assuming the sale of shares at the midpoint of the Estimated Price Range, the
Association's pro forma tangible, core and risk-based capital ratios at June 30,
1998 would be 13.5%, 13.5% and 30.6%, respectively. On a consolidated basis,
the Company's pro forma stockholders' equity would be $128.2 million, or
approximately 18.9% of pro forma consolidated assets, assuming the sale of
shares at the midpoint of the Estimated Price Range. Pro forma stockholders'
equity per share and pro forma net earnings per share would be $15.08 and $0.72,
respectively. If the Foundation was not being established in the Conversion,
based on the Keller estimate, the Company's pro forma stockholders' equity would
be approximately $140.5 million, or approximately 20.5% of pro forma
consolidated assets at the midpoint of the estimate, and pro forma stockholder's
equity per share and pro forma net earnings per share would be substantially
similar with the Foundation as without the establishment of the Foundation.
See "Comparison of Valuation and Pro Forma Information with No Foundation."
Potential Anti-Takeover Effect. If approved by members, upon completion of
the Conversion, the Foundation will own 7.1% of the total shares of the
Company's Common Stock outstanding. Such shares will be owned solely by the
Foundation; however pursuant to the terms of the contribution as mandated by the
OTS, the shares of Common Stock held by the Foundation must be voted in the same
ratio as all other shares of the Company's Common Stock on all proposals
considered by the stockholders of the Company. See "The Conversion--
Establishment of the Charitable Foundation--Regulatory Conditions Imposed on the
Foundation." Such restriction is included in the Foundation's corporate
governance documents. In the event that the OTS were to waive this voting
restriction, the Foundation's board of directors would exercise sole voting
power over such shares and would no longer be subject to the restriction.
However, the OTS could impose additional conditions at that time on the
composition of the board of directors of the Foundation or which otherwise
relate to control of the Common Stock held by the Foundation. See "The
Conversion--Establishment of the Foundation--Regulatory Conditions Imposed on
the Foundation." If a waiver of the voting restriction were granted by the OTS
and no further conditions were imposed on the Foundation at that time,
management of the Company and the Association may benefit to the extent that the
Board of Directors of the Foundation determines to vote the shares of Common
Stock held by the Foundation in
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favor of proposals supported by the Company and the Association. Furthermore, in
such an event, when the Foundation's shares are combined with shares purchased
directly by officers and directors of the Company, shares held by the Stock
Program trust, and shares held by the ESOP trust, the aggregate of such shares
could exceed 20% of the Company's outstanding Common Stock, which could enable
management to defeat stockholder proposals requiring 80% approval. Consequently,
in the event the voting restriction was waived, the potential voting control
might preclude takeover attempts that certain stockholders deem to be in their
best interest, and might tend to perpetuate management. However, since the ESOP
shares are allocated to all eligible employees of the Association, and any
unallocated shares will be voted by an independent trustee, and because the
Stock Program must first be approved by stockholders no sooner than six months
following completion of the Conversion, and awards under such proposed plans may
be granted to employees other than executive officers and Directors, management
of the Company does not expect to have voting control of all shares covered by
the ESOP and other stock-based benefit plans. See " -Certain Anti-Takeover
Provisions - Voting Control of Officers and Directors."
Further, there will be no agreements or understandings, written or tacit,
with respect to the exercise of either direct or indirect control over the
management or policies of the Company by the Foundation which may discourage
takeover attempts, including agreements related to voting, acquisition or
disposition of the Company's Common Stock. Finally, as the Foundation sells its
shares of Common Stock over time, its ownership interest and voting power in the
Company is expected to decrease.
Potential Challenges. The establishment and funding of a charitable
foundation as part of a conversion of a mutual savings institution to stock form
is innovative and has been done in a limited number of instances. As such, the
Foundation may be subject to potential challenges notwithstanding that the Board
of Directors of the Company and the Board of Directors of the Association have
carefully considered the various factors involved in the establishment of the
Foundation in reaching their determination to establish the Foundation as part
of the Conversion. See "The Conversion - Establishment of the Charitable
Foundation - Purpose of the Foundation." In conjunction with its approval of
the Conversion, the Association determined to submit the Foundation for a vote
of members so that members have a right to vote on whether the Foundation should
be established as part of the Conversion. If certain parties were to institute
an action seeking to require the Association to eliminate establishment of the
Foundation in connection with the Conversion, no assurances can be made that the
resolution of such challenges would not result in a delay in the consummation of
the Conversion or that any objecting persons would not be ultimately successful
in obtaining such removal or other equitable relief or monetary damages against
the Company or the Association. Additionally, if the Company and the
Association are forced to eliminate the Foundation, the Company may be required
to resolicit subscribers in the Offerings.
Approval of Members. Establishment of the Foundation is subject to the
approval of a majority of the total outstanding votes of the Association's
members eligible to be cast the Special Meeting. The Foundation will be
considered as a separate matter from approval of the Plan of Conversion. If the
Association's members approve the Plan of Conversion, but not the establishment
of the Foundation, the Association intends to complete the Conversion without
the establishment of the Foundation. Failure to approve the Foundation may
materially increase the pro forma market value of the Common Stock being offered
for sale in the Offerings since the Valuation Range, as set forth herein, takes
into account the dilutive impact of the issuance of shares to the Foundation.
If the pro forma market value of the Common Stock without the Foundation is
either greater than $104.4 million or less than $67.1 million, the Association
will establish a new Estimated Price Range and commence a resolicitation of
subscribers (i.e., subscribers will be permitted to continue their orders, in
which case they will need to affirmatively reconfirm their subscriptions prior
to the expiration of the resolicitation offering or their subscriptions funds
will be promptly refunded with interest at the Association's passbook rate of
interest, or be permitted to increase, decrease, or cancel their subscriptions).
Any change in the Estimated Price Range must be approved by the OTS. See "The
Conversion--Stock Pricing." A resolicitation, if any, following the conclusion
of the Subscription and Community Offerings would not exceed 45 days unless
further extended by the OTS for periods of up to 90 days not to extend beyond
__________, 2000.
19
<PAGE>
Stock-Based Benefits to Management, Employment Contracts and Change in Control
Payments
Stock Program. The Company intends to adopt a stock benefit plan which
would provide stock grants of Common Stock to non-employee directors and
selected officers and employees of the Company and Association (the "Stock
Program") and intends to seek stockholder approval of such plans at a meeting of
stockholders following the Conversion, which may be held no earlier than six
months after completion of the Conversion. The Company expects to acquire Common
Stock on behalf of the Stock Program in an amount equal to 4% of the Common
Stock issued in connection with the Conversion, including shares issued to the
Foundation, or 289,000 shares and 391,000 shares at the minimum and maximum of
the Estimated Price Range, respectively. These shares will be acquired either
through open market purchases or from authorized but unissued Common Stock. See
"- Possible Dilutive Effect of Stock Program and Stock Options." Although no
specific award determinations have been made, the Company anticipates that it
will provide awards under the Stock Program to the directors and selected
officers and employees of the Company and Association to the extent permitted by
applicable regulations. See "Management of the Association - Benefit Plans -
Stock Program." These shares granted under the Stock Program will be awarded at
no cost to the recipients. The implementation of such Stock Program may result
in increased compensation expenses to the Company and may have a dilutive effect
on existing stockholders. See "Management of the Association - Benefit Plans -
Stock Program" and "- Possible Dilutive Effect of Stock Program and Stock
Options."
Stock Option Plan. The Company also intends to adopt stock-based benefit
plans which would provide options to purchase Common Stock ("Stock Options") to
officers, employees and non-employee directors of the Company and Association
(the "Stock Option Plan") and intends to seek stockholder approval of such plans
at a meeting of stockholders following the Conversion, which may be held no
earlier than six months after completion of the Conversion. Although no specific
determinations have been made, the Company expects that non-employee directors
and selected officers and employees of the Company and Association will be
granted options to purchase Common Stock in an amount equal to 10% of the Common
Stock issued in connection with the Conversion, including shares issued to the
Foundation, or 722,500 shares and 977,500 shares at the minimum and maximum of
the Estimated Price Range, respectively. It is currently intended that the
exercise price of the Stock Options will be equal to the fair market value of
the underlying Common Stock on the date of grant. Recipients of Stock Options
will not be required to pay for the shares until the date of exercise. The
implementation of such Stock Option Plan may have a dilutive effect upon
existing stockholders of the Company to the extent option exercises are
satisfied with authorized but unissued shares. See "- Possible Dilutive Effect
of Stock Program and Stock Options" and "Management of the Association -Benefit
Plans - Stock Option Plan."
Change In Control Provisions. The Company and the Association intend to
enter into employment or change in control agreements with certain officers of
the Association and Company which will provide for benefits and cash payments in
the event of their involuntary or, in certain circumstances, voluntary
termination following a change in control of the Company or Association. These
provisions may have the effect of increasing the cost of acquiring the Company
or Association, thereby discouraging future attempts to take over the Company or
the Association. Additionally, the Association intends to adopt an employee
severance compensation plan, which similarly provides a cash payment and
benefits to eligible employees upon such employees' termination following a
change in control of the Company or Association, which, in addition to any
payments which may be made under the Stock Program and Stock Option Plan, also
may have the effect of increasing the cost of acquiring the Company or
Association. Based on current salaries, cash payments to be paid in the event
of a change in control pursuant to the terms of the employment agreements, and
change in control agreements would be approximately $1.2 million. However, the
actual amount to be paid in the event of a change in control of the Association
or the Company cannot be estimated at this time because the actual amount is
based on the average salary of the employee and other factors existing at the
time of the change in control. See "Restrictions on Acquisition of the Company
and the Association - Restrictions in the Company's Certificate of Incorporation
and Bylaws," "Management of the Association - Employment Agreements," "- Change
in Control Agreements," "- Employee Severance Compensation Plan," "- Benefit
Plans - Stock Option Plan" and "- Benefit Plans - Stock Program."
20
<PAGE>
FIRST PLACE FINANCIAL CORP.
First Place Financial Corp. is a Delaware corporation recently organized at
the direction of the Board of Directors of the Association for the purpose of
acquiring all of the capital stock of the Association to be issued in the
Conversion. The Company expects to receive approval from the Office of Thrift
Supervision ("OTS") to become a savings and loan holding company and, upon
completion of the Conversion, will be subject to regulation by the OTS. See
"The Conversion - General" and "Regulation - Holding Company Regulation." Upon
consummation of the Conversion, the Company will have no significant assets
other than all of the shares of the Association's capital stock acquired in the
Conversion and an amount equal to 50% of the net proceeds of the Conversion,
including the loan to the ESOP, and will have no significant liabilities. The
Company intends to use a portion of the net proceeds it retains to loan to the
ESOP funds to enable the ESOP to purchase up to 8% of the stock issued in
connection with the Conversion, including shares issued to the Foundation. The
Company and the Association may, however, alternatively choose to fund the ESOP
through a loan to the ESOP trust by a third-party financial institution. The
management of the Holding Company is set forth under "Management of the
Company." Initially, the Company will neither own nor lease any property, but
will instead use the premises, equipment and furniture of the Association. At
the present time, the Company does not intend to employ any persons other than
certain officers who are currently officers of the Association but will utilize
the support staff of the Association from time to time. Additional employees
will be hired as appropriate to the extent the Company expands its business in
the future.
Management believes that the holding company structure will provide the
Company additional flexibility to diversify its business activities through
existing or newly formed subsidiaries (which subsidiaries could be financial
institutions), or through acquisitions of or mergers with other financial
institutions and financial services related companies. Although there are no
current arrangements, understandings or agreements regarding any such
opportunities, the Company will be in a position after the Conversion, subject
to regulatory limitations and the Company's financial position, to take
advantage of any such acquisition and expansion opportunities that may arise.
The initial activities of the Company are anticipated to be funded by the
proceeds to be retained by the Company, income thereon and through dividends
from the Association.
The Company's executive office is located at the administrative offices of
the Association, 185 East Market Street, Warren, Ohio 44482. Its telephone
number is (330) 373-1221.
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
The Association was originally organized in 1922 as an Ohio-chartered
savings and loan association, and converted to a federally-chartered savings and
loan association in 1936. The Association's deposit accounts are insured to the
maximum allowable amount by the SAIF as administered by the FDIC. Including the
Association's principal office, which is located in Warren, Ohio, the
Association serves its customers from 11 full-service banking facilities and 2
loan service centers located in Warren, Ohio and its surrounding areas. At June
30, 1998, the Association had total assets of $609.4 million, total deposits of
$435.5 million, retained earnings of $59.4 million and had a tangible capital
ratio of 9.52%, a core capital ratio of 9.52% and a total risk-based capital
ratio of 21.84%. See "Regulation--Federal Savings Institution Regulation--
Capital Requirements."
The Association is a community-oriented savings institution whose principal
business consists of accepting retail deposits from the general public in its
primary market area, consisting of those areas surrounding its full-service
branch offices, and investing those deposits, together with funds generated from
operations and borrowings, primarily in one- to four-family residential mortgage
loans, automobile and home equity loans and, to a much lesser extent, multi-
family and commercial real estate loans, construction loans, commercial loans
and passbook savings loans. The Association also invests in government issued
and sponsored mortgage-backed securities, securities issued by the U.S.
Government and agencies thereof, and other investments permitted by applicable
laws and regulations. The Association's primary market area for lending
consists of Trumbull and Mahoning Counties. See "Business of the Association."
21
<PAGE>
At June 30, 1998, the Association's gross loan portfolio totaled $363.4
million, or 59.6% of total assets, of which $268.0 million were one- to four-
family residential mortgage loans, $4.5 million were multi-family real estate
loans, $8.8 million were commercial real estate loans, $6.3 million were
construction loans, $9.2 were home equity loans and $64.1 million were consumer
loans, consisting primarily of automobile loans. The Association originates
one- to four-family mortgage loans generally secured by properties located in
the Association's primary market area. See "Business of the Association."
The Association's investment activities primarily consist of investments in
mortgage-backed securities and U.S. Government obligations. At June 30, 1998,
the Association's securities portfolio totaled $239.5 million, or 39.3% of total
assets, of which $211.2 million was categorized as available-for-sale. At June
30, 1998, the Association's mortgage-backed securities portfolio totaled $207.9
million, or 34.1% of total assets, of which $190.1 million was classified as
available-for-sale and consisted almost entirely of mortgage-backed securities,
guaranteed or issued by Governmental-sponsored and federal agencies such as the
Federal National Mortgage Association ("FNMA"), Federal Home Loan Mortgage
Corporation ("FHLMC") and Government National Mortgage Association ("GNMA"). The
Association's investment securities generally consist of United States
Government or federal agency obligations. See "Business of the Association -
Investment Activities."
At June 30, 1998, the Association's deposit accounts totaled $435.5 million
or 79.2% of total liabilities, of which $175.5 million, or 40.3%, were comprised
of passbook saving accounts, retail checking/NOW accounts, money market accounts
and commercial checking accounts. In addition to core deposits, the Association
had $260.0 million of certificate accounts, or 59.7% of total deposits, of which
$167.8 million were certificates of deposit with maturities of one year or less
and $53.2 million were certificates of deposit with balances of $100,000 or more
("jumbo deposits").
The Association's executive office is located at 185 East Market Street,
Warren, Ohio 44482. Its telephone number is (330) 373-1221.
22
<PAGE>
REGULATORY CAPITAL COMPLIANCE
At June 30, 1998, the Association exceeded each of its regulatory capital
requirements. Set forth below is a summary of the Association's compliance with
the OTS capital standards as of June 30, 1998, on an historical and pro forma
basis assuming that the indicated number of shares were sold as of such date and
receipt by the Association of 50% of the net proceeds. For purposes of the table
below, the amount expected to be borrowed by the ESOP and the cost of its shares
expected to be acquired by the Stock Program are deducted from pro forma
regulatory capital.
<TABLE>
<CAPTION>
Pro Forma at June 30, 1998 Based Upon the Sale at $10.00 Per Share
------------------------------------------------------------------
6,709,135 Shares 7,893,100 Shares
(Minimum of the (Midpoint of the
Historical at Estimated Estimated
June 30, 1998 Price Range) Price Range)
------------------------- ------------------------- -------------------------
Percent Percent Percent
of of of
Amount Assets(2) Amount Assets(2) Amount Assets(2)
----------- ----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
GAAP Capital(3).............. $59,357 9.7% $83,327 13.2% $87,649 13.7%
======= ==== ======= ==== ======= ====
Tangible Capital:
Capital Level(4).......... $57,763 9.5% $81,733 12.9% $86,055 13.5%
Requirement(5)............ 9,117 1.5 9,477 1.5 9,541 1.5
------- ---- ------- ---- ------- ----
Excess.................... $48,646 8.0% $72,256 11.4% $76,514 12.0%
======= ==== ======= ==== ======= ====
Core Capital:
Capital Level(4).......... $57,763 9.5% $81,733 12.9% $86,055 13.5%
Requirement(5)............ 18,234 3.0 18,953 3.0 19,083 3.0
------- ---- ------- ---- ------- ----
Excess.................... $39,529 6.5% $62,780 9.9% $66,972 10.5%
======= ==== ======= ==== ======= ====
Risk-Based Capital:
Capital Level(4)(6)....... $60,418(7) 21.8% $84,388 29.3% $88,710 30.6%
Requirement............... 22,134 8.0 23,005 8.0 23,161 8.0
------- ---- ------- ---- ------- ----
Excess.................... $38,284 13.8% $61,383 21.3% $65,549 22.6%
======= ==== ======= ==== ======= ====
<CAPTION>
Pro Forma at June 30, 1998 Based Upon the Sale at $10.00 Per Share
------------------------------------------------------------------
10,438,625 Shares
9,077,065 Shares (15% Above Maximum
(Maximum of the of the
Estimated Estimated
Price Range) Price Range)(1)
------------------------- -------------------------
Percent Percent
of of
Amount Assets(2) Amount Assets(2)
----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
GAAP Capital(3).............. $ 91,971 14.3% $ 97,020 15.0%
======== ==== ======== ====
Tangible Capital:
Capital Level(4).......... $ 90,370 14.1% $ 95,426 14.8%
Requirement(5)............ 9,606 1.5 9,682 1.5
-------- ---- -------- ----
Excess.................... $ 80,764 12.6% $ 85,744 13.3%
======== ==== ======== ====
Core Capital:
Capital Level(4).......... $ 90,370 14.1% $ 95,426 14.8%
Requirement(5)............ 19,213 3.0 19,364 3.0
-------- ---- -------- ----
Excess.................... $ 71,157 11.1% $ 76,062 11.8%
======== ==== ======== ====
Risk-Based Capital:
Capital Level(4)(6)....... $ 93,032 31.9% $ 98,081 33.4%
Requirement............... 23,318 8.0 23,502 8.0
-------- ---- -------- ----
Excess.................... $ 69,714 23.9% $ 74,579 25.4%
======== ==== ======== ====
</TABLE>
- ---------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations as changes in market or general
financial or economic conditions following the commencement of the
Subscription and Community Offerings.
(2) Tangible capital levels are shown as a percentage of total adjusted assets
of $609.4 million. Core capital levels are shown as a percentage of total
adjusted assets of $609.4 million. Risk-based capital levels are calculated
on the basis of a percentage of risk-weighted assets of $276.7 million.
(3) GAAP defined as Generally Accepted Accounting Principles.
(4) Pro forma capital levels assume receipt by the Association of 50% of the net
proceeds from the shares of Common Stock sold at the minimum, midpoint and
maximum of the Estimated Price Range. These levels also assume funding by
the Association of the Stock Program equal to 4% of the Common Stock issued
and repayment of the Company's loan to the ESOP to enable the ESOP to
purchase 8% of the Common Stock issued valued at the minimum, midpoint and
maximum of the Estimated Price Range. See "Management of the Association -
Benefit Plans" for a discussion of the Stock Program and ESOP.
(5) 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 that are not experiencing or anticipating significant growth, and a 4%
to 5% core capital ratio requirement for all other thrifts. See
"Regulation - Federal Savings Institution Regulations - Capital
Requirements." The Company will not be subject to regulatory capital
requirements.
(6) Assumes net proceeds are invested in assets that carry a risk-weighting of
45.4%, the average risk weighting of the Association's assets as of June 30,
1998.
(7) Historical risk-based capital is comprised of tangible capital of $57.8
million plus the Association's general valuation allowance of $2.7 million
at June 30, 1998.
23
<PAGE>
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock cannot
be determined until the Conversion is completed, it is presently anticipated
that the net proceeds from the sale of the Common Stock will be between $56.6
million and $77.0 million (or $88.8 million if the Estimated Price Range is
increased by 15%). See "Pro Forma Data" and "The Conversion - Stock Pricing" as
to the assumptions used to arrive at such amounts. The Company will be unable
to utilize any of the net proceeds of the Offerings until the consummation of
the Conversion.
The Company will purchase all of the outstanding capital stock of the
Association to be issued upon Conversion in exchange for 50% of the net proceeds
of the Offerings, with the remaining net proceeds to be retained by the Company.
Based on net proceeds of $56.6 million to $77.0 million, the Company expects to
utilize between $28.3 million and $38.5 million of net proceeds to purchase the
common stock of the Association. Such portion of net proceeds received by the
Association from the Company will be added to the Association's general funds
to permit the Association to expand its lending and investment activities and to
enhance customer services. The Association currently intends to utilize the
net proceeds received for general corporate purposes, including investment in
loans and securities, as well as the possible expansion of its facilities and
operations through marketing, business development, or the acquisition or
establishment of branch offices, although the Company and the Association have
no current arrangements, understandings or agreements regarding any such
transactions. The Association anticipates that the portion of the net proceeds
received by the Association will initially be invested in overnight funds and
short-term investments with maturities of up to three years. To the extent that
the stock-based benefit programs which the Company or the Association intend to
adopt subsequent to the Conversion are not funded with authorized but unissued
common stock of the Company, the Company or Association may use net proceeds
from the Conversion to fund the purchase of stock to be awarded under such stock
benefit programs. The Association has not yet determined the approximate amount
of net proceeds to be used for any of the purposes mentioned above. While the
amount of net proceeds received by the Association will further strengthen the
Association's capital position, which already substantially exceeds all
regulatory requirements, it should be noted that the Association is not
converting primarily to raise capital. Rather, one of the principal purposes
for the Conversion is to structure the Association in the stock form used in the
United States by all commercial banks, most major business corporations and most
savings institutions. See "Risk Factors- Stock-Based Benefits to Management,
Employment Contracts and Change in Control Payments" and "Management of the
Association - Benefit Plans - Stock Option Plan" and " - Stock Program."
The Company intends to use a portion of the net proceeds it retains (i.e.,
50% of the net proceeds, which based on net proceeds of $56.6 million to $77.0
million will be between $28.3 million and $38.5 million) to make a loan directly
to the ESOP to enable the ESOP to purchase in the Conversion 8% of the Common
Stock issued in connection with the Conversion, including shares issued to the
Foundation. Based upon the sale of 6,709,135 shares or 9,077,065 shares at the
minimum and maximum of the Estimated Price Range, and the issuance of shares to
the Foundation, the amount of the loan to the ESOP would be $5.8 million or
$7.8 million, respectively (or $9.0 million if the Estimated Price Range is
increased by 15%), with a term of 15 years at the prevailing prime rate of
interest. The Company and Association may alternatively choose to fund the
ESOP's stock purchases through a loan by a third party financial institution.
See "Management of the Association - Benefit Plans - ESOP." The remaining net
proceeds retained by the Company will initially be invested in mortgage-backed
and investment securities.
Ultimately, the net proceeds retained by the Company may also be used to
support the future expansion of operations through branch acquisitions, the
establishment of branch offices and the acquisition of savings associations and
commercial banks or their assets, including those located within the
Association's market area or diversification into other banking related
businesses. The Company and the Association have no current arrangements,
understandings or agreements regarding any such transactions. The Company,
upon the Conversion, will be a unitary savings and loan holding company, which
under existing laws would not be restricted as to the types of business
activities in which it may engage. See "Regulation - Holding Company
Regulation" for a description of certain regulations applicable to the Company.
The Company may also determine to pay dividends, make a tax-free return of
capital, repurchase Common Stock and fund the Stock Program. However, the
Company and the Association have committed to the OTS that they will take no
action to further the payment of any return on capital during the one-year
period following consummation of the Conversion. See "Dividend
Policy."
Upon completion of the Conversion, the Board of Directors of the Company
will have the authority to adopt stock repurchase plans, subject to statutory
and regulatory requirements. Unless approved by the OTS, the Company, pursuant
to OTS regulations, will be prohibited from repurchasing any shares of Common
Stock for three years except (i) for an offer to all stockholders on a pro rata
basis, or (ii) for the repurchase of qualifying shares of a director.
Notwithstanding the foregoing and except as provided below, beginning one year
following completion of the Conversion, the OTS regulations permit the Company
to repurchase its Common Stock so long as: (i) the repurchases within the
following two years are part of an open-market program not involving greater
than 5% of its outstanding capital stock during a 12-month period; (ii) the
repurchases do not cause the Association to become "undercapitalized"
24
<PAGE>
within the meaning of the OTS prompt corrective action regulation; and (iii) the
Company provides to the Regional Director of the OTS no later than 10 days prior
to the commencement of a repurchase program written notice containing a full
description of the program to be undertaken and such program is not disapproved
by the Regional Director. See "Regulation--Prompt Corrective Regulatory Action."
In addition, under current OTS policies, repurchases may be allowed in the first
year following Conversion and in amounts greater than 5% in the second and third
years following Conversion provided there are valid and compelling business
reasons for such repurchases and the OTS does not object to such repurchases.
Based upon facts and circumstances following the Conversion and subject to
applicable regulatory requirements, the Board of Directors may determine to
repurchase stock in the future. Such facts and circumstances may include but
not be limited to: (i) market and economic factors such as the price at which
the stock is trading in the market, the volume of trading, the attractiveness of
other investment alternatives in terms of the rate of return and risk involved
in the investment, the ability to increase the book value and/or earnings per
share of the remaining outstanding shares, and the opportunity to improve the
Company's return on equity; (ii) the avoidance of dilution to stockholders by
not having to issue additional shares to cover the exercise of stock options or
to fund employee stock benefit plans; and (iii) any other circumstances in which
repurchases would be in the best interests of the Company and its shareholders.
In the event the Company determines to repurchase stock, such repurchases may be
made at market prices which may be in excess of the Purchase Price in the
Conversion and in excess of the per share book value. To the extent that the
Company repurchases stock at market prices in excess of the per share book
value, such repurchases may have a dilutive effect upon the interests of
existing stockholders. Any stock repurchases will be subject to the
determination of the Board of Directors that both the Company and the
Association will be capitalized in excess of all applicable regulatory
requirements after any such repurchases and that such capital will be adequate,
taking into account, among other things, the level of non-performing and other
risk assets, the Company's and the Association's current and projected results
of operations and asset/liability structure, the economic environment, tax and
other considerations. See "The Conversion - Certain Restrictions on Purchase or
Transfer of Shares after Conversion."
DIVIDEND POLICY
Upon Conversion, the Board of Directors of the Company will have the
authority to declare dividends on the Common Stock, subject to statutory and
regulatory requirements. In the future, the Board of Directors intends to
consider a policy of paying cash or stock dividends on the Common Stock.
However, no decision has been made with respect to the payment of dividends.
Declarations of dividends by the Board of Directors, if any, will depend upon a
number of factors, including the amount of net proceeds retained by the Company
in the Conversion, investment opportunities available to the Company or the
Association, capital requirements, regulatory limitations, the Company's and the
Association's financial condition and results of operations, tax considerations
and general economic conditions. No assurances can be given, however, that any
dividends will be paid or, if commenced, will continue to be paid. Special cash
dividends, stock dividends or returns of capital may be paid in addition to, or
in lieu of, regular cash dividends (however, the Company and the Association
have committed to the OTS that they will take no action to further the payment
of any return of capital during the one-year period following consummation of
the Conversion).
The Association will not be permitted to pay dividends to the Company on
its capital stock if its stockholders' equity would be reduced below the amount
required for the liquidation account. See "The Conversion--Liquidation Rights."
For information concerning federal regulations which apply to the Association in
determining the amount of proceeds which may be retained by the Company and
regarding a savings institution's ability to make capital distributions,
including payment of dividends to its holding company, see "Federal and State
Taxation--Distributions" and "Regulation--Federal Savings Institution
Regulation--Limitations on Capital Distributions."
Unlike the Association, the Company is not subject to OTS regulatory
restrictions on the payment of dividends to its stockholders, although the
source of such dividends will be, in part, dependent upon dividends from the
Association in addition to the net proceeds retained by the Company and earnings
thereon. The Company is subject, however, to the requirements of Delaware law,
which generally limit dividends to an amount equal to the excess of the net
assets of the Company (the amount by which total assets exceed total
liabilities) over its statutory capital (generally defined as the aggregate par
value of the outstanding shares of the Company's capital stock having a par
value plus the amount of the consideration paid for shares of the Company's
capital stock without par value) or, if there is no such excess, to its net
profits for the current and/or immediately preceding fiscal year.
25
<PAGE>
MARKET FOR THE COMMON STOCK
The Company and the Association have never issued capital stock, and
consequently, there is no established market for the Common Stock at this time.
The Company has applied to have its Common Stock quoted on the Nasdaq National
Market under the symbol "FPFC". Making a market involves maintaining bid and
ask quotations and being able, as principal, to effect transactions in
reasonable quantities at these quoted prices, subject to various securities laws
and other regulatory requirements. 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 Company, the Association or
any market maker. Accordingly, 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
and should not view the Common Stock as a short-term investment. Accordingly,
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, nor is there
any assurance that persons purchasing shares of Common Stock will be able to
sell them at or above the Purchase Price. In order to be quoted on the Nasdaq
National Market, among other criteria, there must be at least three market
makers for the Common Stock, the Company must satisfy certain minimum
capitalization requirements, and there must be at least 400 round lot
shareholders. KBW has indicated its intention to act as a market maker in the
Common Stock following the consummation of the Conversion, depending on trading
volume and subject to compliance with applicable laws and regulatory
requirements. Furthermore, Webb has agreed to use its best efforts to assist
the Company in obtaining at least two additional market makers for the Common
Stock. There can be no assurance there will be two additional market makers for
the Common Stock. There can be no assurance that purchasers will be able to
sell their shares at or above the Purchase Price.
26
<PAGE>
CAPITALIZATION
The following table presents the unaudited historical capitalization of the
Association at June 30, 1998, and the pro forma consolidated capitalization of
the Company after giving effect to the Conversion, including the issuance of
shares to the Foundation, based upon the sale of the number of shares indicated
in the table and the other assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
Company Pro Forma Based Upon Sale at $10.00 Per Share
--------------------------------------------------------------
10,438,625
6,709,135 7,893,100 9,077,065 Shares
Shares Shares Shares (15% above
(Minimum of (Midpoint of (Maximum of Maximum of
Association Estimated Estimated Estimated Estimated
Historical Price Range price Range) Price Range) Price Range)(1)
----------- ----------- ------------ ------------ ---------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Borrowings:
Deposits (2)....................................... $435,462 $435,462 $435,462 $435,462 $435,462
Repurchase agreements.............................. 60,430 60,430 60,430 60,430 60,430
FHLB Advances...................................... 44,820 44,820 44,820 44,820 44,820
-------- -------- -------- -------- --------
Total deposits and borrowed funds.................. $540,712 $540,712 $540,712 $540,712 $540,712
======== ======== ======== ======== ========
Stockholders' equity:
Preferred Stock, $.01 par value,
3,000,000 shares authorized;
none to be issued............................... $ - $ - $ - $ - $ -
Common Stock, $.01 par value,
33,000,000 shares authorized;
shares to be issued as reflected(3)............. - 72 85 98 112
Additional paid-in capital(3)...................... - 65,208 76,899 88,591 102,192
Retained earnings(4)............................... 57,763 57,763 57,763 57,763 57,763
Net unrealized gain (loss) on
securities available-for-sale, net of taxes..... 1,594 1,594 1,594 1,594 1,594
Shares issued to Foundation........................ - 5,159 6,069 6,979 8,026
Less:
Foundation contribution expense, net (5)........... - 3,405 4,006 4,606 5,297
Common Stock acquired by the
ESOP(6).......................................... - 5,780 6,800 7,820 8,993
Common Stock acquired by the
Stock Program(7)................................. - 2,890 3,400 3,910 4,497
-------- -------- -------- -------- --------
Total stockholders' equity............................ $ 59,357 $117,721 $128,204 $138,689 $150,900
======== ======== ======== ======== ========
</TABLE>
- -----------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15% as
a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
Common Stock in the Conversion. Such withdrawals would reduce pro forma
deposits by the amount of such withdrawals.
(3) Reflects the issuance of shares sold in the Offerings and the issuance of
additional shares of Common Stock to the Foundation in an amount of
515,865, 606,900, 697,935 and 802,625 shares at the minimum, midpoint,
maximum and maximum, as adjusted, of the Estimated Price Range, at a
value of $10.00 per share. No effect has been given to the issuance of
additional shares of Common Stock pursuant to the Company's Stock Option
Plan intended to be adopted by the Company and presented for approval of
stockholders at a meeting of stockholders following the Conversion. The
Stock Option Plan would provide the grant of stock options to purchase an
amount of Common Stock equal to 10% of the shares of Common Stock issued
in the Conversion, including shares issued to the Foundation. See
"Management of the Association - Benefit Plans - Stock Option Plan."
(4) The retained earnings of the Association will be substantially restricted
after the Conversion. See "The Conversion - Liquidation Rights."
(5) Represents the tax effect of the contribution of Common Stock to the
Foundation based on a 34% tax rate. The realization of the deferred tax
benefit is limited annually to 10% of the Company's annual taxable
income, subject to the ability of the Company to carry forward any unused
portion of the deduction for five years following the year in which the
contribution is made.
(6) Assumes that 8% of the shares issued in connection with the Conversion,
including shares issued to the Foundation, will be purchased by the ESOP
and the funds used to acquire the ESOP shares will be borrowed from the
Company. The Common Stock acquired by the ESOP is reflected as a
reduction of stockholders' equity. See "Management of the Association -
Benefit Plans - ESOP" and "- Benefit Plans -Stock Program."
(7) Assumes that, subsequent to the Conversion, an amount equal to 4% of the
shares of Common Stock sold in the Conversion, including shares issued to
the Foundation, is purchased by the Stock Program through open market
purchases. The Common Stock purchased by the Stock Program is reflected
as a reduction of stockholder's equity. See "Risk Factors - Possible
Dilutive Effect of Stock Program and Stock Options," Footnote 2 to the
tables under "Pro Forma Data" and "Management of the Association -
Benefit Plans - Stock Program."
27
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Conversion is completed. However, net proceeds are
currently estimated to be between $75.0 million and $101.9 million based upon
the following assumptions: (i) $5.0 million will be sold to executive officers,
Directors and employees of the Association and Company, the ESOP will purchase
8% of the Common Stock issued in connection with the Conversion, including
shares issued to the Foundation, and the remaining shares will be sold in the
Subscription and Community Offerings; (ii) Webb will receive a fee equal to
1.25% of the aggregate Purchase Price of the shares sold in the Subscription
Offering and Community Offering, up to the maximum of the estimated price range,
except that no fee will be paid with respect to shares purchased by the Employee
Plans, including the ESOP, officers, employees, Directors of the Association and
Company and members of their immediate families; (iii) the Company will issue to
the Foundation an amount of Common Stock of equal to 7.7% of the Common Stock
sold in the Conversion from authorized but unissued shares; and (iv) Conversion
expenses, excluding the marketing fees paid to Webb, will be approximately $1.1
million. Actual Conversion expenses may vary from those estimated.
Pro forma consolidated net income of the Company for the year ended
June 30, 1998 has been calculated as if the Common Stock had been sold at the
beginning of the fiscal year and the net proceeds had been invested at 5.38%,
the one year U.S. Treasury note rate at June 30, 1998. The Treasury yield was
used on the reinvestment of proceeds because it more appropriately reflects a
market rate of return than the arithmetic average of the average yield of the
Association's interest-earning assets and cost of deposits, which was 5.23% at
June 30, 1998. The tables do not reflect the effect of withdrawals from deposit
accounts for the purchase of Common Stock. The pro forma after-tax yield for the
Company and the Association is assumed to be 3.45% for the year ended June 30,
1998 (based on an assumed tax rate of 34%). Historical and pro forma per share
amounts have been calculated by dividing historical and pro forma amounts by the
indicated number of shares of Common Stock, as adjusted to give effect to the
purchase of shares by the ESOP and the effect of the issuance of shares to the
Foundation. No effect has been given in the pro forma stockholders' equity
calculations for the assumed earnings on the net proceeds. As discussed under
"Use of Proceeds," the Company will retain 50% of the net Conversion proceeds.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma consolidated stockholders' equity represents
the difference between the stated amount of assets and liabilities of the
Company. The pro forma stockholders' equity is not intended to represent the
fair market value of the Common Stock and may be greater than amounts that would
be available for distribution to stockholders in the event of liquidation.
The following table summarizes historical data of the Association and
pro forma data of the Company at or the year ended June 30, 1998, based on the
assumptions set forth above and in the table and should not be used as a basis
for projections of market value of the Common Stock following the Conversion.
The table below gives effect to the Stock Program, which are expected to be
adopted by the Company following the Conversion and presented to stockholders
for approval at a meeting of stockholders. See Footnote 2 to the table and
"Management of the Association - Benefit Plans - Stock Program." No effect has
been given in the table to the possible issuance of additional shares reserved
for future issuance pursuant to the Stock Option Plan to be adopted by the Board
of Directors of the Company and presented to stockholders for approval at a
meeting of stockholders, nor does book value as presented give any effect to the
liquidation account to be established for the benefit of Eligible Account
Holders or Supplemental Eligible Account Holders or, in the event of liquidation
of the Association, to the tax effect of the bad debt reserve and other factors.
See Footnote 3 to the tables below, "The Conversion - Liquidation Rights" and
"Management of the Association - Benefit Plans - Stock Option Plan." THE
FOLLOWING TABLES GIVE EFFECT TO THE ISSUANCE OF AUTHORIZED BUT UNISSUED SHARES
OF THE COMPANY'S COMMON STOCK TO THE FOUNDATION CONCURRENTLY WITH THE COMPLETION
OF THE CONVERSION. THE VALUATION RANGE, AS SET FORTH HEREIN AND IN THE TABLES
BELOW, TAKES INTO ACCOUNT THE DILUTIVE IMPACT OF THE ISSUANCE OF SHARES TO THE
FOUNDATION.
28
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended June 30, 1998
-------------------------------------------------------------------------------
6,709,135 7,893,100 10,438,625
Shares Sold Shares Sold at 9,077,065 Shares Sold at
at $10.00 Per $10.00 Per Shares Sold at $10.00 Per Share
Share Share $10.00 Per Share (15% above
(Minimum (Midpoint (Maximum of Maximum of
of Estimated of Estimated Estimated Price Estimated Price
Price Range) Price Range) Range) Range)(7)
--------------- --------------- ----------------- -----------------
(In Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds............................. $ 67,091 $ 78,931 $ 90,771 $ 104,386
Plus: Shares issued to the Foundation
(equal to 7.7% of stock issued in
Conversion)........................ 5,159 6,069 6,979 8,026
--------- ----------- ----------- -----------
Pro forma market capitalization............ $ 72,250 $ 85,000 $ 97,750 $ 112,412
========= =========== =========== ===========
Gross proceeds............................. $ 67,091 $ 78,931 $ 90,771 $ 104,386
Less: Offering expenses and
commissions...................... (1,811) (1,947) (2,082) (2,082)
--------- ----------- ----------- -----------
Estimated net proceeds..................... 65,280 76,984 88,689 102,304
Less: Common Stock purchased
by ESOP.......................... (5,780) (6,800) (7,820) (8,993)
Common Stock purchased by
Stock Program..................... (2,890) (3,400) (3,910) (4,497)
--------- ----------- ----------- -----------
Estimated net proceeds, as adjusted.... $ 56,610 $ 66,784 $ 76,959 $ 88,814
========= =========== =========== ===========
Net income(1):
Historical............................. $ 4,072 $ 4,072 $ 4,072 $ 4,072
Pro forma income on net proceeds,
as adjusted......................... 2,010 2,371 2,733 3,154
Less: Pro forma ESOP adjustment(2)........ (254) (299) (344) (396)
Pro forma Stock Program
adjustment(3)...................... (381) (449) (516) (594)
--------- ----------- ----------- -----------
Pro forma net income.............. $ 5,447 $ 5,695 $ 5,945 $ 6,236
========= =========== =========== ===========
Per share net income(1):
Historical............................. $ 0.61 $ 0.52 $ 0.46 $ 0.40
Pro forma income on net proceeds,
as adjusted......................... 0.30 0.30 0.30 0.30
Less: Pro forma ESOP adjustment(2)........ (0.04) (0.04) (0.04) (0.04)
Pro forma Stock Program
adjustment(3)...................... (0.06) (0.06) (0.06) (0.06)
--------- ----------- ----------- -----------
Pro forma net income per share.... $ 0.81 $ 0.72 $ 0.66 $ 0.60
========= =========== =========== ===========
Stockholders' equity(4):
Historical.............................. $ 59,357 $ 59,357 $ 59,357 $ 59,357
Estimated net proceeds.................. 65,280 76,984 88,689 102,304
Plus: Shares issued to Foundation...... 6,159 6,069 6,979 8,026
Less: After tax cost of Foundation.... (3,405) (4,006) (4,606) (5,297)
Less: Common Stock acquired
by ESOP(2)..................... (5,780) (6,800) (7,820) (8,993)
Less: Common Stock acquired
by Stock Program(3)............ (2,890) (3,400) (3,910) (4,497)
--------- ----------- ----------- -----------
Pro forma stockholders'
equity(3)(5)(6).................... $ 117,721 $ 128,204 $ 138,689 $ 150,900
========= =========== =========== ===========
Stockholders' equity per share(4)(7):
Historical............................. $ 8.22 $ 6.98 $ 6.07 $ 5.28
Estimated net proceeds................. 9.04 9.06 9.07 9.10
Plus: Shares issued to Foundation..... 0.71 0.71 0.71 0.71
Less: After tax cost of Foundation.... (0.47) (0.47) (0.47) (0.47)
Less: Common Stock acquired
by ESOP(2).................... (0.80) (0.80) (0.80) (0.80)
Common Stock acquired by
Stock Program(3).............. (0.40) (0.40) (0.40) (0.40)
--------- ----------- ----------- -----------
Pro forma stockholders' equity
per share(3)(5)(6).............. $ 16.30 $ 15.08 $ 14.18 $ 13.42
========= =========== =========== ===========
Offering price as a percentage of
pro forma stockholders' equity
per share.............................. 61.37% 66.30% 70.48% 74.49%
Offering price to pro forma net
earnings per share(8).................. 12.28x 13.81x 15.22x 16.68x
</TABLE>
(See footnotes on next page)
29
<PAGE>
- ---------------------
(1) Does not give effect to the non-recurring expense that will be recognized
in fiscal 1999 as a result of the establishment of the Foundation. The
Company will recognize an after-tax expense for the amount of the
contribution to the Foundation which is expected to be $3.4 million, $4.0
million, $4.6 million and $5.3 million at the minimum, midpoint, maximum
and maximum as adjusted, of the Estimated Price Range, respectively.
Assuming the contribution to the Foundation was expensed during the year
ended June 30, 1998, pro forma net loss per share would be $0.10, $0.01,
$(0.06) and $(0.12), at the minimum, midpoint, maximum and maximum, as
adjusted, respectively. Per share net income data is based on 6,685,533
7,865,333, 9,045,153 and 10,401,903 shares outstanding which represents
shares sold in the Conversion, shares contributed to the Foundation and
shares to be allocated or distributed under the ESOP and Stock Program
for the period presented.
(2) It is assumed that 8% of the shares of Common Stock issued in connection
with the Conversion, including shares issued to the Foundation, will be
purchased by the ESOP. For purposes of this table, the funds used to
acquire such shares are assumed to have been borrowed by the ESOP from
the Company. The amount to be borrowed is reflected as a reduction of
stockholders' equity. The Association intends to make annual
contributions to the ESOP in an amount at least equal to the principal
and interest requirement of the debt. The Association's total annual
payment of the ESOP debt is based upon fifteen equal annual installments
of principal. The pro forma net earnings assumes: (i) that the
Association's contribution to the ESOP is equivalent to the debt service
requirement for the year ended June 30, 1998, and was made at the end of
the period; (ii) that 38,533, 45,333, 52,133 and 59,953 shares at the
minimum, midpoint, maximum and 15% above the maximum of the range,
respectively, were committed to be released during the year ended June
30, 1998 at an average fair value of $10.00 per share in accordance with
SOP 93-6; and (iii) only the ESOP shares committed to be released were
considered outstanding for purposes of the net earnings per share
calculations. See "Management of the Association - Benefit Plans -ESOP."
(3) Gives effect to the Stock Program expected to be adopted by the Company
following the Conversion and presented for approval at a meeting of
stockholders. If the Stock Program are approved by stockholders, the
Stock Program intend to acquire an amount of Common Stock equal to 4% of
the shares of Common Stock issued in connection with the Conversion,
including shares issued to the Foundation, or 289,000, 340,000, 391,000
and 449,650 shares of Common Stock at the minimum, midpoint, maximum and
15% above the maximum of the Estimated Price Range, respectively, either
through open market purchases, if permissible, or from authorized but
unissued shares of Common Stock or treasury stock of the Company, if any.
Funds used by the Stock Program to purchase the shares will be
contributed to the Stock Program by the Association. In calculating the
pro forma effect of the Stock Program, it is assumed that the shares were
acquired by the Stock Program at the beginning of the period presented in
open market purchases at the Purchase Price and that 20% of the amount
contributed was an amortized expense during such period. The issuance of
authorized but unissued shares of the Company's Common Stock to the Stock
Program instead of open market purchases would dilute the voting
interests of existing stockholders by approximately 3.8% and pro forma
net earnings per share would be $0.80, $0.71, $0.64 and $0.59 at the
minimum, midpoint, maximum and 15% above the maximum of the range,
respectively and pro forma stockholders' equity per share would be
$18.57, $17.47, $16.55 and $15.82 at the minimum, midpoint, maximum and
15% above the maximum of the range, respectively. There can be no
assurance that stockholder approval of the Stock Program will be
obtained, or that the actual purchase price of the shares granted under
the Stock Program will be equal to the Purchase Price. See "Management of
the Association - Benefit Plans - Stock Program."
(4) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock Option Plan expected to be adopted by the
Company following the Conversion. The Company expects to present the
Stock Option Plan for approval at a meeting of stockholders. If the Stock
Option Plan are approved by stockholders, an amount equal to 10% of the
Common Stock issued in connection with the Conversion, including shares
issued to the Foundation, or 722,500, 850,000, 977,500 and 1,124,125
shares at the minimum, midpoint, maximum and 15% above the maximum of the
Estimated Price Range, respectively, will be reserved for future issuance
upon the exercise of options to be granted under the Stock Option Plan.
The issuance of Common Stock pursuant to the exercise of options under
the Stock Option Plan will result in the dilution of existing
stockholders' interests. Assuming all options were exercised at the end
of the period at an exercise price of $10.00 per share, the pro forma net
earnings per share would be $0.77, $0.69, $0.63 and $0.58, respectively,
and the pro forma stockholders' equity per share would be $18.11, $17.01,
$16.19 and $15.50, respectively. See "Management of the Association -
Benefit Plans - Stock Option Plan."
(5) The retained earnings of the Association will continue to be
substantially restricted after the Conversion. See "Dividend Policy,"
"The Conversion - Liquidation Rights."
(6) Stockholders' equity per share data is based upon 7,225,000, 8,500,000,
9,775,000 and 11,241,250 shares outstanding representing shares sold in
the conversion, shares contributed to the Foundation and shares purchased
by the ESOP and Stock Program.
(7) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Estimated Price Range of up to 15%
as a result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
Subscription and Community Offerings.
30
<PAGE>
COMPARISON OF VALUATION AND PRO FORMA INFORMATION WITH NO FOUNDATION
In the event that the Foundation was not being established as part of the
Conversion, Keller has estimated that the pro forma aggregate market
capitalization of the Company would be approximately $90.5 million, at the
midpoint, which is approximately $5.5 million greater than the pro forma
aggregate market capitalization of the Company if the Foundation is approved by
members of the Association, and would result in approximately an $11.6 million
increase, or 14.66%, in the amount of Common Stock offered for sale in the
Conversion. The pro forma price to book ratio and pro forma price to earnings
ratio would be approximately the same under both the current appraisal and the
estimate of the value of the Company without the Foundation. Further, assuming
the midpoint of the Estimated Price Range, pro forma stockholders' equity per
share and pro forma earnings per share would be substantially the same with the
Foundation as without the Foundation. In this regard, pro forma stockholders'
equity and pro forma net income per share would be $15.13 and $0.72,
respectively, at the midpoint of the estimate, assuming no Foundation, and
$15.08 and $0.72, respectively, with the Foundation. The pro forma price to book
ratio and the pro forma price to earnings ratio are 66.10% and 13.89x,
respectively, at the midpoint of the estimate, assuming no Foundation and are
66.30% and 13.81x, respectively, with the Foundation. This estimate by Keller
was prepared at the request of the OTS and is solely for the purposes of
providing members with sufficient information with which to make an informed
decision on the Foundation. There is no assurance that in the event the
Foundation is not approved by members of the Association that the appraisal
prepared at that time would conclude that the pro forma market value of the
Company would be the same as that estimated herein. Any appraisal prepared at
that time would be based on the facts and circumstances existing at that time,
including, among other things, market and economic conditions.
For comparative purposes only, set forth below are certain pricing ratios
and financial data and ratios, at the minimum, midpoint, maximum and maximum, as
adjusted, of the Estimated Price Range, assuming the Conversion was completed at
June 30, 1998.
<TABLE>
<CAPTION>
At the Maximum,
At the Minimum At the Midpoint At the Maximum as Adjusted
-------------------------- ------------------------ ------------------------ -----------------------
With No With No With No With No
Foundation Foundation Foundation Foundation Foundation Foundation Foundation Foundation
------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------
(Dollars in thousands except per share information)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Estimated offering amount.. $ 67,091 $ 76,925 $ 78,931 $ 90,500 $ 90,771 $104,075 $104,386 $119,686
Pro forma market
capitalization............ 72,250 76,925 85,000 90,500 97,750 104,075 112,412 119,686
Total assets............... 667,762 678,244 678,245 690,577 688,730 702,911 700,942 717,198
Total liabilities.......... 550,041 550,041 550,041 550,041 550,041 550,041 550,041 550,041
Pro forma stockholders'
equity.................... 117,721 128,204 128,204 140,537 138,689 152,870 150,900 167,158
Pro forma consolidated net
earnings.................. 5,447 5,730 5,695 6,030 5,945 6,329 6,236 6,677
Pro forma stockholders'
equity per share.......... 16.30 16.27 15.08 15.13 14.18 14.29 13.42 13.57
Pro forma consolidated net
earnings per share........ 0.81 0.81 0.72 0.72 0.66 0.66 0.60 0.60
Pro Forma Pricing Ratios:
Offering price as a
percentage of pro
forma stockholders'
equity per share...... 61.37% 61.48% 66.30% 66.10% 70.48% 69.99% 74.49% 73.71%
Offering price to pro
forma net earnings per
share.................... 12.28x 12.42x 13.81x 13.89x 15.22x 15.22x 16.68x 16.59x
Pro Forma Market
Capitalization to assets. 10.82% 11.34% 12.53% 13.10% 14.19% 14.61% 16.04% 16.69%
Pro Forma Financial Ratios:
Return on assets.......... 0.82% 0.84% 0.84% 0.87% 0.86% 0.90% 0.89% 0.93%
Return on stockholders'
equity................... 4.63 4.47 4.44 4.29 4.29 4.14 4.13 3.99
Stockholders' equity to
assets................... 17.63 18.90 18.90 20.35 20.14 21.75 21.53 23.31
</TABLE>
31
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The Association's results of operations are dependent primarily on net
interest income, which is the difference ("spread") between the interest income
earned on its loans, mortgage-backed securities, and investment portfolio and
its cost of funds, consisting of interest paid on its deposits and borrowed
funds. The interest rate spread is affected by regulatory, economic and
competitive factors that influence interest rates, loan demand and deposit
flows. The Association's net income is also affected by, among other things,
loan fee income, provisions for loan losses, service charges, operating expenses
and franchise and income taxes. The Association's revenues are derived
primarily from interest on mortgage loans, consumer loans, mortgage-backed
securities and investments, as well as income from service charges and loan
originations. The Association's operating expenses principally consist of
employee compensation and benefits, occupancy and other general and
administrative expenses. The Association's results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government policies and actions
of regulatory authorities.
The Association has been, and intends to continue to be, a community-
oriented financial institution offering a variety of financial services to meet
the needs of the communities it serves. The Association attracts deposits from
the general public and uses such deposits, together with borrowings and other
funds, to originate one- to four-family residential mortgage loans and short-
term consumer loans. To a lesser extent, the Association also originates
residential construction loans in its market area and a limited amount of
commercial business loans and loans secured by multi-family and non-residential
real estate. The Association's deposits are insured up to the maximum allowable
amount by the SAIF as administered by the FDIC. The Association also invests in
mortgage-backed securities, most of which are insured or guaranteed by federal
agencies, as well as securities issued by the U.S. government or agencies
thereof.
The Association is not aware of any market or institutional trends, events
or uncertainties that are expected to have a material effect on liquidity,
capital resources or operations, except as discussed below. The Association is
also not aware of any current recommendations by its regulators which would have
a material effect if implemented, except as discussed below.
Management Strategy
The Association operates as a consumer-oriented savings association,
offering traditional savings deposit and loan products to its local community.
Management's primary goal has been to improve profitability and its capital
position, so that the Association can have greater flexibility in providing the
products and services desired by the customers in the communities it serves. To
accomplish this, the Association has employed an operating strategy which has:
(1) emphasized the increased origination of one- to four-family residential
mortgage loans secured by properties located in its primary market area; (2)
emphasized the increased origination of consumer loans, consisting primarily of
home equity and automobile loans, in an effort to diversify the loan portfolio;
(3) sought to maintain asset quality and manage credit risk by limiting its
investment in commercial real estate and multi-family lending; (4) invested
funds not utilized for lending in investment securities primarily consisting of
U.S. Government Agency and mortgage-backed securities; and (5) focused on
increasing its loan and deposit market share and the retention of existing
deposit accounts by offering competitive rates on its deposit and loan products
and expanding the number of deposit and loan products and services offered. In
addition, while the Association has not done so in the past, it may in the
future sell long-term, fixed-rate mortgage loans. Such sales would help the
Association better manage interest rate risk by giving it a portfolio of
interest-earning assets and interest-bearing liabilities that reprice more
similarly, thus reducing the risk posed by rapidly-changing interest rate
environments in which different periods to repricing adversely affect net
interest income.
Management periodically engages in arbitrage strategies as a means of
augmenting the earnings of the Association by leveraging the balance sheet
while helping to insulate against interest rate risk. The arbitrage is
accomplished by acquiring matching assets and liabilities with similar cash flow
characteristics as a means of increasing earnings on the positive spread between
the interest earning assets and the interest bearing liabilities. As the
Association typically makes relatively longer-term mortgage loans, while the
deposit base is generally short term in nature (i.e. passbook accounts, checking
accounts and certificates of deposit with terms of less than three years), the
arbitrage strategy helps the Association manage interest rate risk by more
closely matching the term to repricing of the interest earning assets and the
interest bearing liabilities. The assets used in the arbitrage strategies
are mortgage-backed securities issued or guaranteed by FNMA, FHLMC or GNMA,
while funding is obtained through FHLB advances or through reverse repurchase
agreements. Historically, the Association has looked to achieve spreads of
between 100 to 120 basis points with its arbitrage positions.
32
<PAGE>
Average Balances, Interest Rates and Yields. The following table presents
for the periods indicated the total dollar amount of interest income from
average interest-earning assets and the resultant yields, as well as the
interest expense on average interest-bearing liabilities, expressed in both
dollars and rates.
<TABLE>
<CAPTION>
For the Years Ended June 30,
-----------------------------------
At June 30, 1998 1998
--------------------------------------------------------
Average
Average Yield/
Balance Rate Balance Interest Cost
------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Interest-bearing deposits in other
financial institutions........... $ 1,565 5.50% $ 4,107 $ 306 7.45%
Taxable securities(1)............. 25,949 6.09 40,264 2,441 6.04
Nontaxable securities(1)(2)....... 1,217 10.46 1,234 66 8.29
Mortgage-backed securities(1)..... 207,899 6.74 200,866 13,581 6.84
Loans receivable - net............ 353,012 7.93 315,726 25,736 8.15
FHLB stock........................ 4,415 7.25 4,869 352 7.23
-------- -------- -------
Total interest-earning assets... 594,057 567,066 42,482 7.52
Noninterest-earning assets:
Cash and amounts due from
depository institutions.......... 6,668 9,780
Premises and equipment, net....... 5,899 6,183
Other noninterest-earning assets.. 2,774 2,304
-------- --------
Total assets................... $609,398 $585,333
======== ========
Interest-bearing liabilities:
NOW and money market accounts..... $102,874 3.34 $ 95,871 3,300 3.44
Savings accounts.................. 67,401 2.24 68,945 1,661 2.41
Time deposits..................... 259,969 5.88 251,130 14,898 5.93
Repurchase agreements............. 60,430 5.69 45,044 2,596 5.76
FHLB advances..................... 44,820 5.71 52,396 3,057 5.83
-------- -------- -------
Total interest-bearing
liabilities................... 535,494 513,386 25,512 4.97
Noninterest-bearing liabilities.. 14,547 13,739
------- --------
Total liabilities................. 550,041 527,125
Retained earnings................. 59,357 58,208
------- --------
Total liabilities and retained
earnings...................... $609,398 $585,333
======== ========
Net interest income/interest rate
spread.............................. $16,970 2.55%
======= ======
Net interest margin (net interest
income as a percent of average
interest-earning assets)............ 3.00%
======
Average interest-earning assets to
interest-bearing liabilities........ 110.46%
======
<CAPTION>
For the Years Ended June 30,
------------------------------------------------------------
1997 1996
------------------------------------------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Interest-bearing deposits in other
financial institutions............ $ 10,452 $ 623 5.96% $ 3,110 $ 191 6.14%
Taxable securities(1).............. 47,337 2,751 5.71 45,785 2,691 5.80
Nontaxable securities(1)(2)........ 437 32 11.09 457 32 10.61
Mortgage-backed securities(1)...... 188,362 12,805 6.76 193,599 13,124 6.73
Loans receivable - net............. 267,928 21,872 8.16 247,699 20,135 8.13
FHLB stock......................... 4,683 330 7.05 3,749 263 7.02
-------- ------- -------- -------
Total interest-earning assets.... 519,199 38,413 7.37 494,399 36,436 7.34
Noninterest-earning assets:
Cash and amounts due from
depository institutions........... 9,366 4,953
Premises and equipment, net........ 5,589 4,958
Other noninterest-earning assets... (1,727) 2,023
-------- --------
Total assets.................... $532,427 $506,333
======== ========
Interest-bearing liabilities:
NOW and money market accounts...... $ 84,388 2,701 3.20 $ 70,183 1,942 2.77
Savings accounts................... 72,132 1,782 2.47 77,953 2,013 2.58
Time deposits...................... 238,859 14,013 5.87 232,955 13,927 5.98
Repurchase agreements.............. 8,470 480 5.67 - - -
FHLB advances...................... 68,596 3,953 5.76 68,615 3,976 5.79
-------- ------- -------- -------
Total interest-bearing
liabilities.................... 472,445 22,929 4.85 449,706 21,858 4.86
Noninterest-bearing liabilities... 9,368 7,944
-------- --------
Total liabilities.................. 481,813 457,650
Retained earnings.................. 50,614 48,683
-------- --------
Total liabilities and retained
earnings....................... $532,427 $506,333
======== ========
Net interest income/interest rate
spread............................... $15,484 2.52% $14,578 2.48%
======= ====== ======= ======
Net interest margin (net interest
income as a percent of average
interest-earning assets)............. 2.97% 2.94%
====== ======
Average interest-earning assets to
interest-bearing liabilities......... 109.90% 109.94%
====== ======
</TABLE>
- --------
(1) Includes unamortized discounts and premiums. Average balance is computed
using the carrying value of securities. The average yield has been computed
using the historical amortized cost average balance for available for sale
securities.
(2) Average yields are stated on a fully taxable equivalent basis.
33
<PAGE>
Rate/Volume Analysis of Net Interest Income. The following table presents
the dollar amount of changes in interest income and interest expense for major
components of interest-earning assets and interest-bearing liabilities. It
distinguishes between the increase or decrease related to changes in balances
and/or changes in interest rates. For each category of interest-earning assets
and interest-bearing liabilities, information is provided on changes
attributable to (i) changes in volume (i.e., changes in volume multiplied by old
rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume).
For purposes of this table, changes attributable to both rate and volume, which
cannot be segregated, have been allocated proportionately to the change due to
volume and the change due to rate.
<TABLE>
<CAPTION>
Year Ended Year Ended
June 30, 1998 June 30, 1997
Compared to Compared to
Year Ended Year Ended
June 30, 1997 June 30, 1996
------------------------------- --------------------------------
Increase (Decrease) Increase (Decrease)
Due to Due to
---------------------- --------------------
Volume Rate Net Volume Rate Net
------------ --------- -------- ---------- --------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits in other financial institutions.. $ (445) $128 $ (317) $ 438 $ (6) $ 432
Taxable securities......................................... (460) 150 (310) 102 (42) 60
Nontaxable securities...................................... 67 (33) 34 (2) 2 -
Mortgage-backed securities................................. 637 139 776 (385) 66 (319)
Loans receivable - net..................................... 3,896 (32) 3,864 1,651 86 1,737
FHLB stock................................................. 13 9 22 66 1 67
------ ---- ------ ------ ----- ------
Total interest-earning assets............................ 3,708 361 4,069 1,870 107 1,977
------ ---- ------ ------ ----- ------
Interest-bearing liabilities:
NOW and money market accounts.............................. 385 214 599 428 331 759
Savings accounts........................................... (77) (44) (121) (146) (85) (231)
Time deposits.............................................. 727 158 885 349 (262) 87
Repurchase agreements...................................... 2,108 8 2,116 480 - 480
FHLB advances.............................................. (945) 49 (896) (1) (22) (23)
------ ---- ------ ------ ----- ------
Total interest-bearing liabilities....................... 2,210 373 2,583 1,111 (39) 1,072
------ ---- ------ ------ ----- ------
Net change in net interest income.......................... $1,498 $(12) $1,486 $ 759 $ 146 $ 905
====== ==== ====== ====== ===== ======
</TABLE>
Asset and Liability Management and Market Risk
General. The principal market risk affecting the Association is interest-
rate risk. The Association does not maintain a trading account for any class of
financial instrument, and the Association is not affected by foreign currency
exchange rate risk or commodity price risk. Because the Association does not
hold any equity securities other than stock in the FHLB of Cincinnati, the
Association is not subject to equity price risk.
The Association, like other financial institutions, is subject to interest
rate risk to the extent that its interest-earnings assets reprice differently
than its interest-bearing liabilities. As part of its efforts to monitor and
manage the interest-rate risk of the Association, the Board of Directors has
adopted an interest-rate risk policy which charges the Board with reviewing
quarterly reports related to interest-rate risk and to set exposure limits for
the Association as a guide to senior management in setting and implementing day
to day operating strategies.
Quantitative Aspects of Market Risk. As part of its efforts to monitor and
manage interest rate risk, the Association uses the "net portfolio value"
("NPV") methodology adopted by the OTS as part of its capital regulations. See
"Regulation - Federal Savings Institution Regulation - Capital Requirements."
In essence, NPV is the difference between the present value of expected cash
flows from assets and the present value of expected cash flows from
34
<PAGE>
liabilities. The Association uses a net portfolio value simulation model
prepared in-house as the primary method of managing interest-rate risk. The
model utilizes the actual cash flows and repricing characteristics of its assets
and liabilities and incorporates market-based assumptions regarding the impact
of changing interest rates on future volumes and prepayment rates. For purposes
of valuing core deposit products, valuations derived by the OTS for the
Association each quarter are utilized.
Presented below, as of June 30, 1998, is an analysis of the Association's
interest rate risk as measured by changes in NPV for instantaneous and sustained
parallel shifts of 100 basis point increments in market interest rates. The
percentage changes fall within the policy limits set forth by the Board of
Directors of the Association.
NPV as % of Portfolio
Change in Net Portfolio Value Value of Assets
Interest Rates ----------------------------------- ------------------------
In Basis Points %
(Rate Shock) Amount $ Change Change NPV Ratio Change
- ------------------ ---------- ----------- ------------ ------------- ----------
(Dollars in thousands)
400 $32,658 ($39,530) -54.76% 5.99% -571 bp
300 43,056 (29,132) -40.36 7.65 -405
200 53,449 (18,739) -25.96 9.19 -251
100 63,770 (8,418) -11.66 10.63 -107
0 72,188 -- -- 11.70 --
(100) 71,122 (1,066) -1.48 11.40 -30
(200) 66,614 (5,574) -7.72 10.64 -106
(300) 65,500 (6,688) -9.26 10.37 -133
(400) 64,447 (7,741) -10.72 10.13 -157
As illustrated in the table, the Association's NPV is more sensitive to
increases in interest rates than to decreases. This sensitivity arises because
as interest rates rise borrowers become less likely to prepay fixed-rate loans
than when rates are falling. Since a majority of the Association's assets have
longer terms and its liabilities have shorter terms, an increase in market
interest rates results in the cash flow characteristics of the Association's
liabilities changing more rapidly than the cash flow characteristics of its
assets resulting in a decrease in NPV from the base.
In evaluating the Association's exposure to interest rate risk, certain
shortcomings inherent in the method of analysis presented in the foregoing table
must be considered. For example, although certain assets and liabilities may
have similar maturities or period to repricing, they may react in varying
degrees to changes in market interest rates. In addition, 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. Furthermore, in the event of a change in interest
rates, prepayments on loans and mortgage-backed securities and early withdrawals
of certificates of deposit would likely deviate significantly from those assumed
in calculating the table. Therefore, the actual effect of changing interest
rates may differ from that presented in the foregoing table.
The Board of Directors and management of the Association believe that
certain factors afford the Association the ability to operate successfully
despite its exposure to interest rate risk. The Association manages its interest
rate risk by maintaining capital and liquidity well in excess of regulatory
requirements. The Association continually manages interest rate risk, and
formally measures changes in interest rate risk quarterly using its own interest
rate risk model, as well as the OTS model outlined above. The Board of Directors
sets interest rate risk limits to give management guidelines and limitations as
to how much risk can be maintained. The guidelines are reviewed periodically to
ensure effectiveness. Management makes adjustments to both assets and
liabilities continuously to mitigate interest rate risk exposure. For the year
ended June 30, 1998, the Association's tangible capital was 9.5% of total assets
and its liquidity ratio was 9.35%. At that same date, the average liquidity
ratio for all savings institutions was 7.02%, while the average liquidity ratio
for Ohio savings institutions with assets between $300 million and $1 billion
was 9.7%, as reported by a national banking information service.
35
<PAGE>
Financial Condition at June 30, 1998 and 1997
Total assets of the Association were $609.4 million at June 30, 1998,
compared to $548.9 million at June 30, 1997, representing an increase of $60.5
million, or 11.0%. The growth was primarily attributable to increases in loans,
which was partially offset by decreases in investment and mortgage-backed
securities. The increase was funded from an increase in deposits and repurchase
agreements. The changes in the balance sheets and the factors that caused the
changes are discussed below.
Investment and Mortgage-Backed Securities. Total investment and mortgage-
backed securities decreased $8.1 million, or 3.3%, from $247.6 million at June
30, 1997 to $239.5 million at June 30, 1998. The decrease was the result of the
Association investing funds obtained through sales and maturities of investment
securities to partially fund loan growth.
At June 30, 1998 the Association's mortgage-backed securities portfolio was
comprised primarily of agency-issued securities. The net unrealized gain on
these securities totaled $2.5 million at June 30, 1998. Of the $207.9 million
mortgage-backed securities, $190.1 million, or 91.4%, are classified as
available for sale, however, the Association does not anticipate the need to
sell these securities in the near future. Management's strategy emphasizes
investment in securities guaranteed by the U.S. Government and its agencies in
order to minimize credit risk. The investment strategy also includes purchasing
an established level of variable rate mortgage-backed securities with monthly
and annually adjusting interest rates in order to minimize interest rate risk.
These securities provide the Association a continued cash flow stream through
principal paydowns and help reduce the Association's exposure to interest rate
risk. In addition, the Association had approximately $990,000, or 0.5% of
mortgage related securities, consisting of privately backed CMOs at June 30,
1998. Privately backed CMOs carry more risk than government backed CMOs due
to slightly higher credit risk. While many private issues carry insurance or
guarantees against credit losses to ensure "AAA" market rating, the insurance is
not for 100% of the principal as is the implicit guarantee associated with
government backed CMOs. The reward for investing in private label product is
the yield premium versus comparable government backed CMOs. Investment
securities totaled $31.6 million at June 30, 1998 and included U.S. government
and government agency securities as well as a small portfolio of municipal
securities. During 1998, the Association elected to liquidate its position in a
mutual fund which had been underperforming for an extended period. The fund
invested primarily in mortgage-backed securities backed by the U.S. government
or its agencies. The position was sold at a loss of $174,000.
At June 30, 1997, the Association's mortgage-backed and investment
securities were comprised of $202.7 million in available-for-sale securities and
$44.9 million in held-for-maturity securities.
Loans. Loans increased from $285.2 million at June 30, 1997 to $353.0
million at June 30, 1998. Average loans comprised 55.7% of interest-earning
assets in 1998 compared to 51.6% in 1997. Real estate loans increased $56.7
million, or 23.7%, from $239.8 million at June 30, 1997 to $296.6 million at
June 30, 1998. The increase in one-to four-family loans represented $52.4
million, or 92.4%, of the increase in real estate loans as the Association
continued to increase its core lending product. At June 30, 1998, one-to four-
family loans of $268.0 million represented 73.8% of gross loans. The increase
in real estate loans reflects the Association's expansion efforts into Mahoning
County as well as the decrease in long term interest rates in 1998 which led to
an overall increase in loan demand due to significant refinancing activity.
Consumer loans increased $14.4 million, or 29.0%, from $49.7 million at
June 30, 1997 to $64.1 million at June 30, 1998. The increases were primarily
due to management's increased emphasis on originating consumer loans, which
resulted in a $9.7 million increase in automobile loans and a $4.7 million
increase in other loans.
Deposits and Borrowings. The Association's deposits are obtained primarily
from individuals and businesses in its primary market area. Total deposits
increased $22.6 million, or 5.5%, from $412.9 million at June 30, 1997 to $435.5
million at June 30, 1998. The growth was primarily in certificates of deposits,
which increased $12.8 million, or 5.2% during the period and money market
accounts which increased $10.9 million, or 18.9%. Repurchase agreements
increased $44.4 million, or 277.7%, from $16.0 million at June 30, 1997 to $60.4
million at June 30, 1998, due to the Association's arbitrage positions taken
during the year.
Comparison of Results of Operations for the Years Ended June 30, 1998 and 1997
General. Net income for the year ended June 30, 1998 increased by $1.9
million or 83.1% from $2.2 million for the year ended June 30, 1997 to $4.1
million for the year ended June 30, 1998. The increase was primarily due to a
decrease in noninterest expense, due to the one-time special assessment to
recapitalize the SAIF, which was recorded in fiscal 1997, as well as the
increase in net interest income and noninterest income, including an increase in
gains on sales of securities. The increase in net income was partially offset
by increases in the provision for loan losses and federal income tax expense.
36
<PAGE>
Net Interest Income. Net interest income is the largest component of the
Association's net income, and consists of the difference between interest income
generated on interest-earnings assets and interest expense incurred on interest-
bearing liabilities. Net interest income is primarily affected by the volume,
interest rates and composition of interest-earning assets and interest-bearing
liabilities.
Net interest income increased approximately $1.5 million, or 9.6%, from
$15.5 million in 1997 to $17.0 million in fiscal 1998. The primary component of
this change was a $3.9 million, or 17.7%, increase in interest income on loans.
The increase in interest income on loans consisted of a $3.9 million increase
due to increased average volume in the loan portfolio and a $32,000 decrease due
to decreasing average interest rates. The increase in interest income of $4.1
million was partially offset by a $2.6 million, or 11.3%, increase in interest
expense, primarily due to the $2.1 million increase in repurchase agreements.
Average loans outstanding during fiscal 1998 increased $47.8 million, or
17.8%, compared to fiscal 1997, while average mortgage-backed securities
increased $12.5 million, or 6.6%, compared to the prior year. The increase in
average loans reflects the Association's expansion efforts into Mahoning County,
the decrease in long term interest rates in 1998 which led to an overall
increase in loan demand due to significant refinancing activity and the
Association's continued growth in the consumer automobile loan portfolio based
on successful relationship development with dealers in the Association's local
market. In fiscal 1998, the Association experienced increases in yield on assets
and cost of liabilities of 15 and 12 basis points, resulting in the $4.1 million
increase in interest income and $2.6 million increase in interest expense. Net
interest margin increased 3 basis points from 2.97% in 1997 to 3.00% in 1998.
The Association's average interest rate spread increased 3 basis points from
2.52% in 1997 to 2.55% in 1998.
The tables appearing elsewhere in this discussion provide a more detailed
analysis of the changes in average balances, yields/rates and net interest
income identifying that portion of change in average volume versus that portion
due to change in average rates. See "-Average Balances, Interest Rates and
Yields," "-Rate/Volume Analysis of Net Interest Income" and "-Weighted Average
Yields."
Provision for Loan Losses. The provision for loan losses is based on
management's regular review of the loan portfolio, which considers factors such
as past experience, prevailing general economic conditions and considerations
applicable to specific loans, such as the ability of the borrower to repay the
loan and the estimated value of the underlying collateral, as well as changes in
the size and growth of the loan portfolio
The provision for loan losses increased $1.2 million from $590,000 for 1997
to $1.8 million for 1998. At June 30, 1998, the allowance for loan losses
represented .85% of loans, net of unearned and deferred income, compared to .60%
at June 30, 1997. The increased provision and resulting increased allowance for
loan losses was due to several factors including an increase in the level of
consumer loan charge-offs, the approximately 25% growth in total loans, the
continued trend of increased non-performing loans over the Association's
historical levels as well as local economic conditions including significant
recent layoffs at GM's Lordstown plant caused by a strike at two of GM's other
facilities. The strike which affected these facilities has subsequently been
settled and the majority of the striking workers have returned to full
employment. Management considered the evaluation of the local economic
conditions and the increase in the level of consumer loan charge-offs as
significant factors in evaluating the allowance for loan losses. While
nonperforming loans have increased in the last two years over historical levels,
the Association's level of nonperforming loans is not above peers. The increase
in nonperforming loans is due primarily to increases in nonperforming real
estate loans which have historically resulted in a relatively low level of
charge-offs. The increase in nonperforming consumer loans and charge-offs is
due to the increase in nonperforming loans and charge-offs from indirect
automobile lending. Both the increase in nonperforming loans and the charge-offs
are a result of increases in consumer bankruptcy filings, which is a national
trend. In an effort to reduce the level of nonperforming consumer loans and
charge-offs, management has implemented more aggressive collection efforts than
have historically been utilized. Management believes the allowance for loan
losses is adequate to absorb losses; however, future additions to the allowance
may be necessary based on changes in economic conditions. In addition, the OTS,
as an integral part of its examination process, periodically reviews the
Association's allowance for loan losses. Such agency may require the Association
to make additional provisions for loan losses based on judgements different from
those of management.
Noninterest Income. The Association experienced a $1.3 million, or 294.5%,
increase in noninterest income during 1998. The increase was primarily due to
sales of securities which generated net gains of $135,000 in 1998, resulting in
an increase of $1.1 million over the loss on sale of securities of $934,000
recognized in fiscal 1997. The increase was due to management's decision to
restructure a portion of its investment portfolio which occurred in 1997. The
restructuring was accomplished by selling assets in the investment portfolio
that were underperforming as compared to the rest of the portfolio, and using
the proceeds to fund additional loans. In addition, service charges provided an
increase in noninterest income of $156,000, or 16.8% from $929,000 in fiscal
1997 to $1.1 million in fiscal 1998, due to the increase in the average balance
of deposit accounts.
Noninterest Expense. Noninterest expense decreased $1.5 million, or 12.8%,
primarily due to the special assessment to recapitalize the SAIF recorded in
fiscal 1997. Salaries and benefits increased $607,000, or 12.5%, for 1998,
compared to 1997 due primarily to the staffing requirements for opening two new
offices. The construction in progress at June 30, 1998 represented minor
remodeling projects which will not significantly impact operating expenses in
future periods. The Association expects that salaries and benefits may increase
after the Conversion, primarily as a result of the adoption of various employee
benefit plans contemplated in connection with the Conversion. See "Management
of the Association - Benefit Plans." In addition, noninterest expense may
increase in future periods as a result of the possible renovation or
reconstruction of the Association's main office, the cost of which is currently
estimated to be up to $15.0 million. Other expense includes professional fees,
advertising, deposit account expense, telephone, stationery and printing as well
as other miscellaneous expense accounts. There were no significant changes to
any category of expense included within other expenses.
37
<PAGE>
Income Taxes. The provision for income taxes totaled $2.5 million in
fiscal 1998 compared to $1.2 million in fiscal 1997, due to the increase in
income before income taxes. The effective tax rate was 38.0% for fiscal 1998 as
compared to 35.3% for fiscal 1997.
Comparison of Results of Operations for the Years Ended June 30, 1997 and 1996
General. Net income for the year ended June 30, 1997 decreased by $1.9
million or 46.4% from $4.1 million for the year ended June 30, 1996 to $2.2
million for the year ended June 30, 1997. The decrease was primarily due to
the increase in noninterest expense, due to the special assessment to
recapitalize the SAIF recorded in 1997, and the provision for loan losses and
the decrease in noninterest income, which was partially offset by increases in
net interest income and a decrease in federal income tax expense.
Net Interest Income. Net interest income increased approximately $906,000,
or 6.2%, from $14.6 million in 1996 to $15.5 million in 1997. In fiscal 1997,
the Association experienced an increased yield on assets of three basis points
and a decreased cost of funds of one basis point. Interest income increased by
$2.0 million, primarily due to increased interest earning assets and to a lesser
extent due to the increase in weighted average yields. Interest expense
increased $1.1 million due to increases in average interest bearing liabilities
which was slightly offset by the modest one basis point decrease in the weighted
average cost of funds.
The primary component of the increase in interest income was a $1.7
million, or 8.6%, increase in interest income on loans. Average loans
outstanding during fiscal 1997 increased $20.2 million, or 8.2% compared to
fiscal 1996, while average investment and mortgage-backed securities decreased
$2.8 million, or 1.1%, compared to the prior year. The increase in interest
income on loans consisted of a $1.7 million increase due to increased average
volume in the loan portfolio and an $86,000 increase due to rising average
interest rates in the loan portfolio. The increase in interest income was also
due to a $559,000 increase in interest income on securities which was partially
offset by a $319,000 decrease in interest income on mortgage-backed securities.
The increase in interest income on securities and decrease in interest income on
mortgage-backed securities were substantially due to the changes in the average
balance of the respective portfolios.
The increase in interest income was partially offset by a $1.1 million, or
5.0%, increase in interest expense, primarily on NOW and money market accounts
and FHLB advances. Interest expense on NOW and money market accounts increased
both due to a $14.9 million increase in the average balance of NOW and money
market accounts and a 43 basis point increase in the weighted average rate paid
on NOW and money market accounts from 2.77% in 1996 to 3.20% in 1997, as part of
management's strategy to increase core deposit accounts In addition, interest
expense on repurchase agreements increased $480,000 as the Association utilized
retail repurchase agreements as a source of funding in 1997. During 1997, the
Association experienced a $5.9 million increase in the balance of average
certificates, while reducing the weighted average rate paid on those deposits by
11 basis points, resulting in a modest overall increase of $86,000 in interest
expense on certificates.
The tables appearing elsewhere in this report provide a more detailed
analysis of the changes in average balances, yields/rates and net interest
income identifying that portion of change in average volume versus that portion
due to change in average rates. See "Average Balances, Interest Rates and
Yields," "Rate/Volume Analysis of Net Interest Income" and "Weighted Average
Yields."
Provision for Loan Losses. The provision for loan losses increased from
$238,000 in 1996 to $590,000 in 1997. The increase was based on management's
evaluation of the loan portfolio and real estate market conditions in the
Association's market area which affects the value of the collateral securing the
loans. In particular, management considered delinquencies, current market
conditions and the size and mix of the loan portfolio. At June 30, 1997, the
allowance for loan losses represented .60% of loans, net of unearned and
deferred income, compared to .49% at June 30, 1996.
During fiscal year 1997, the Association adopted Statement of Financial
Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment
of a Loan," and SFAS No. 118 which require the carrying value of an impaired
loan be determined by calculating the present value of estimated future cash
flows discounted using the loan's effective interest yield. The adoption of
these pronouncements did not have a significant impact on the Association's
38
<PAGE>
financial statements.
Noninterest Income. The Association experienced a $776,000, or 63.6%,
decrease in noninterest income during 1997. The decrease was primarily due to
increases in losses on the sale of securities as the Association continued its
strategy to use the sale of securities as a source of funding to support loan
growth and to increase the yield on earnings assets by shifting assets from
lower yielding securities to higher yielding loans. The decrease in noninterest
income was slightly offset by a $126,000 increase in service charges, from
$803,000 for fiscal 1996 to $929,000 for fiscal 1997, an increase of 15.7%. The
increase was due to the increase in the average balance of deposit accounts.
Noninterest Expense. Noninterest expense increased $2.8 million, or 30.1%,
primarily due to the assessment to recapitalize the SAIF recorded in 1997. The
SAIF assessment represented 65.7 basis points of deposits held as of March 31,
1995, and amounted to $2.5 million, which was paid in October 1996. Occupancy
and equipment expense increased by $136,000, or 10.4%, in fiscal 1997, due to
the conversion to a new computer system in October 1996. Other expense includes
professional fees, advertising, deposit account expense, telephone, stationery
and printing as well as other miscellaneous expense accounts. There were no
significant changes to any category of expense included within other
accounts.
Income Taxes. The provision for income taxes totaled $1.2 million in
fiscal 1997 compared to $2.3 million in fiscal 1996. The decrease was primarily
the result of a decrease in pretax income.
Liquidity and Capital Resources
Liquidity. The Association's liquidity, primarily represented by cash and
cash equivalents, is a result of its operating, investing and financing
activities. These activities are summarized below for the years ended June 30,
1998 and 1997.
Year Ended June 30,
---------------------
1998 1997
---------- ---------
(in thousands)
Net income............................................ $ 4,072 $ 2,224
Adjustments to reconcile net income to net cash from
operating activities................................ 2,699 2,233
-------- --------
Net cash from operating activities.................... 6,771 4,457
Net cash used in investing activities................. (60,522) (24,762)
Net cash from financing activities.................... 53,662 19,504
-------- --------
Net change in cash and cash equivalents............... (89) (801)
Cash and cash equivalents at beginning of period...... 6,757 7,558
-------- --------
Cash and cash equivalents at end of period............ $ 6,668 $ 6,757
The Association's sources of funds include customer deposits, other
borrowings including FHLB advances and repurchase agreements, loan and mortgage-
backed securities repayments and other funds provided by operations. The
Association also has the ability to borrow additional funds from the FHLB of
Cincinnati. The Association maintains investments in liquid assets based upon
management's assessment of (i) the Association's need for funds, (ii) expected
deposit flows, (iii) the yields available on short-term liquid assets, and (iv)
the objectives of the Association's asset/liability management program. The OTS
requires savings associations to maintain minimum levels of liquid assets. OTS
regulations currently require the Association to maintain an average daily
balance of liquid assets equal to at least 4.0% of the sum of its average daily
balance of net withdrawable deposit accounts and borrowings payable in one year
or less. At June 30, 1998, the Association's regulatory liquidity ratio was
9.4% compared to 13.0% at June 30, 1997. At June 30, 1998 and 1997, the
Association had commitments to originate loans or fund outstanding lines of
credit totaling $23.9 million and $13.9 million, respectively. The Association
considers its liquidity sufficient to meet its outstanding short- and long-term
needs. The Association expects to be able to fund or refinance, on a timely
basis, its material commitments and long-term liabilities.
Capital Resources. Federally insured savings institutions, such as the
Association, are required to meet a 1.5% tangible capital requirement, a 4.0%
leverage ratio (core capital to risk weighted assets) requirement, a 4.0%
leverage ratio (core capital to adjusted total assets) requirement and an 8.0%
risk-based capital requirement. At June 30, 1998,
39
<PAGE>
the Association exceeded these requirements with tangible capital ratio of 9.5%,
a core capital to risk weighted assets ratio of 20.9%, a core capital to
adjusted total assets of 9.5% and a risk-based capital ratio of 21.8%. See
"Regulatory Capital Compliance" for the Association's pro forma capital levels
as a result of the Offerings.
YEAR 2000 ISSUES
Introduction. Similar to other financial institutions, the operations of
the Association are particularly sensitive to potential problems arising from
the inability of many existing computer hardware and software systems and
associated applications to process accurately information relating to any two-
digit "date field" entries referring to the year 2000 and beyond. Many existing
systems are constructed to read such entries as referring to dates beginning
with "19," rather than "20." This set of issues is generally referred to as the
"Year 2000" problem. The Federal Financial Institutions Examination Council
(the "FFIEC"), through the bank regulatory agencies, has issued compliance
guidelines requiring financial institutions to develop and implement plans for
addressing Year 2000 issues relevant to their operations.
State of Readiness. The Association has implemented a detailed Year 2000
plan, as required by the FFIEC guidelines, to evaluate Year 2000 compliance of
its computer systems and the equipment which supports the operations of the
Association. Also included in this Year 2000 plan is a detailed review of the
readiness of the Association's service providers, vendors, major fund providers,
major borrowers and companies with which the Association has material
investments. As of October 15, 1998, the Association has met all current target
objectives of the Year 2000 plan, and management believes that it will continue
to meet all future target objectives in accordance with the terms of the plan.
Like many financial institutions, the Association relies upon computers for
the daily conduct of its business and for data processing generally. As part of
its regular upgrading of computer systems, the Association installed a new core
computer system in 1996. The new system has been developed by one of the
leading national vendors of data processing services for banks. The vendor of
the new core computer system is executing its Year 2000 readiness plan in
cooperation with the Association. Management expects the new core computer
system to be Year 2000 compliant.
In addition to its new core computer system, the Association is reliant on
financial accounting and mortgage loan origination systems that are computer-
based, and thus vulnerable to the Year 2000 issues. The Association has also
installed new financial accounting, mortgage loan origination and mortgage loan
servicing systems which are Year 2000 compliant as part of its computer upgrade.
As a result of the new core computer system and the new financial
accounting, mortgage loan origination and mortgage loan servicing systems,
management believes that it has resolved the Year 2000 issues with respect to
the most critical computer systems and applications. Management expects to
begin the testing or remediation phase with respect to its computer systems and
other equipment that is Year 2000 sensitive, which includes equipment containing
embedded microprocessors or other technology related to the recognition of dates
by December 31, 1998. The Association expects to complete its Year 2000
conversion by June 30, 1999.
Because of the substantial progress made by the Association towards its
Year 2000 conversion, the Association does not anticipate that any additional
significant changes will be required or that the Year 2000 issue will pose
significant operational problems for the Association. However, if the necessary
changes are not made or completed in a timely fashion or unanticipated problems
arise, the Year 2000 issue may take longer for the Association to address and
may have a material impact on the Association's financial condition and results
of operations.
In addition to its extensive interaction with major service providers, the
Association has had initial communications with other vendors, major fund
providers, major borrowers and companies with which the Association has material
investments, to evaluate their Year 2000 compliance plans and state of readiness
and to determine the extent to which the Association's systems may be affected
by the failure of others to remediate their own Year 2000 issues. To date,
however, the Association has received only preliminary feedback from such
parties and has not independently confirmed any information received from other
parties with respect to Year 2000 issues. As such, there can be no assurance
that such other parties will complete their Year 2000 conversion in a timely
fashion or will not suffer a Year 2000 business disruption that may adversely
affect the Association's financial condition and results of operations.
Costs to Address the Year 2000 Issue. The new computer systems were
installed as a result of management's desire to keep the Association competitive
by ensuring that its systems take advantage of recent advances in technology.
The system conversions were made in 1996 for business reasons that were
unrelated to the Year 2000 issues and did not contribute to the direct cost of
Year 2000 compliance. Nevertheless, these system replacements are all Year 2000
compliant and therefore automatically address that issue. The additional costs
to achieve Year 2000 compliance are currently estimated to be $300,000, and are
not expected to have a material financial impact on the Association. The
Association intends to fund such costs from its operations. However, as the
Association progresses with its Year 2000 conversion and implements the
necessary changes to its systems, certain additional costs may be identified.
There can be no assurance that such additional costs will not have a material
adverse effect on the Association's financial condition and results of
operations.
Risks of Year 2000 Issues. To date, the Association has not identified any
system which presents a material risk of not being Year 2000 ready in a timely
fashion or for which a suitable alternative cannot be implemented. However, as
the Association progresses with its Year 2000 conversion, the Association may
identify systems which do present a material risk of Year 2000 disruption. Such
disruption may include, among other things, the inability to process and
underwrite loan applications, to credit deposits and withdrawals from customer
accounts, to credit loan payments or track delinquencies, to properly reconcile
and record daily activity or to engage in similar normal banking activities.
Additionally, if the Association's commercial customers are not Year 2000
compliant and suffer adverse effects on their operations, their ability to meet
their obligations to the Association could be adversely affected. The failure
of the Association to identify systems which require Year 2000 conversion that
are critical to the Association's operations or the failure of the Association
or others with which the Association does business to become Year 2000 ready in
a timely manner could have a material adverse impact on the Association's
financial condition and results of operations. Moreover, to the extent that the
risks posed by the Year 2000 problem are pervasive in data processing and
transmission and communications services worldwide, the Association cannot
predict with any certainty that its operations will remain materially unaffected
after January 1, 2000 or on dates preceding this date at which time post-January
1, 2000 dates become significant within the Association's systems.
Contingency Plans. The Association has two types of contingency plans:
Remediation and Business Interruption. Remediation Plans are designed to
mitigate the risks associated with the failure to successfully complete
renovation, validation and implementation of mission-critical systems. Business
Interruption Plans are plans of action to ensure the ability of the Association
to continue functioning as a business entity in the event of unanticipated
systems failures at critical dates prior to, on, and after the Year 2000.
Remediation Plans: The Association's Year 2000 conversion is expected to
-----------------
be completed prior to any potential disruption to the Association's business.
However, the Association is developing Year 2000 remediation contingency plans
for mission-critical systems. These plans would be invoked in the event of
anticipated failures of particular Year 2000 projects or sub-projects. Such
plans may involve the designation of alternate vendors and would essentially
constitute replacement of the current Year 2000 remediation path with an
alternate one. Remediation plans will be built in succeeding stages of detail
and this process may, if management deems appropriate, be halted at any point
where the success of the base project is clearly predictable. If the results of
testing of the Association's systems are not satisfactory, remediation
contingency plans will be invoked for mission-critical systems, no later than
the conclusion of testing, which is expected to be March 31, 1999.
Business Interruption Plans: These plans would be invoked if unanticipated
---------------------------
Year 2000 problems occur in production, similar to scenarios in Disaster
Recovery Plans. Teams will be established for mobilization in case of
emergencies that threaten the viability of the Association, and require that
certain resources be available immediately for utilization. The Association has
begun preparation of these plans, will continue to fine-tune them, train staff
to carry them out, and test them.
The discussion above contains certain forward-looking statements. The
costs of the Year 2000 conversion, the date which the Association has set to
complete such conversion and the possible risks associated with the Year 2000
issue are based on the Association's current estimates and are subject to
various uncertainties that could cause the actual results to differ materially
from the Association's expectations. Such uncertainties include, among others,
the success of the Association in identifying systems that are not Year 2000
compliant, the nature and amount of programming required to upgrade or replace
each of the affected systems, the availability of qualified personnel,
consultants and other resources, and the success of the Year 2000 conversion
efforts of others.
Recent Accounting Developments
Recent pronouncements by the Financial Accounting Standards Board ("FASB")
will have an impact on financial statements issued in subsequent periods. Set
forth below are summaries of such pronouncements.
SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities," was issued in 1996. It revises the
accounting for transfers of financial assets, such as loans and securities, and
for distinguishing between sales and secured borrowings. SFAS No. 125 was
originally effective for some transactions occurring after December 31, 1996,
and was effective for others in 1998. SFAS No. 127, "Deferral of the Effective
Date of Certain Provisions of FASB Statement No. 125," which was issued in
December 1996, defers for one year the effective date of provisions relating to
securities lending, repurchase agreements and other similar transactions. The
impact of partial adoption in 1997 was not material to the 1997 financial
statements and the impact of the complete adoption in 1998 was not material to
the 1998 financial statements.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This Statement establishes standards for reporting and display of
comprehensive income and its components (revenue, expenses, gains and losses) in
a full set of general-purpose financial statements. This Statement requires
that all items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements. Income tax
effects must also be shown. This Statement is effective for fiscal years
beginning after December 15, 1997.
40
<PAGE>
In June 1997, the FASB issued SFAS No. 131 "Disclosures about Segments of
an Enterprise and Related Information." SFAS No. 131 establishes standards for
the way that public business enterprises report information about operating
segments in annual financial statements and requires that those enterprises
report selected information about operating segments in interim financial
reports issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major customers.
This statement is effective for financial statements for periods beginning after
December 15, 1997.
In June 1998, the FASB issued SFAS No. 133 "Accounting for Derivative
Instruments and Hedging Activities." SFAS No. 133 addresses the accounting for
derivative instruments and certain derivative instruments embedded in other
contracts, and hedging activities. The statement standardizes the accounting
for derivative instruments by requiring that an entity recognize those items as
assets or liabilities in the statement of financial position and measure them at
fair value. This statement is effective for all fiscal years beginning after
June 15, 1999. Management will adopt SFAS No. 133 in the quarter beginning
October 1, 1998 and will elect to reclassify all held to maturity securities to
available for sale as allowed by SFAS No. 133.
These statements are not expected to have a material effect on the
Association's consolidated financial position or results of operation.
Impact on Inflation and Changing Prices
The financial statements and related data presented herein have been
prepared in accordance with generally accepted accounting principles, which
require the measurement of financial position and results of operations
primarily in terms of historical dollars without considering changes in the
relative purchasing power of money over time due to inflation. Unlike most
industrial companies, virtually all of the assets and liabilities of the
Association are monetary in nature. Therefore, interest rates have a more
significant impact on a financial institution's performance than the effects of
general levels of inflation. Interest rates do not necessarily move in the same
direction or in the same magnitude as the prices of goods and services. The
liquidity, maturity structure and quality of the Association's assets and
liabilities are critical to the maintenance of acceptable performance levels.
BUSINESS OF THE COMPANY
General
The Company was organized in August 1998 at the direction of the Board of
Directors of the Association for the purpose of becoming a holding company to
own all of the outstanding capital stock of the Association. Upon consummation
of the Conversion, it is anticipated that the Association will become a wholly-
owned subsidiary of the Company. Upon the consummation of the Conversion, the
Company will be a savings and loan holding company regulated by the OTS. See
"Regulation - Holding Company Regulation."
The Company is currently not an operating company. Following the
Conversion, in addition to directing, planning and coordinating the business
activities of the Association, the Company will initially invest net proceeds it
retains primarily in mortgage-backed and mortgage-related securities and other
investment-grade marketable securities. In addition, the Company intends to
fund the loan to the ESOP to enable the ESOP to subscribe for 8% of the Common
Stock issued in connection with the Conversion, including shares issued to the
Foundation; however, a third-party lender may be utilized to lend funds to the
ESOP. See "Use of Proceeds." In the future, the Company may acquire or
organize operating subsidiaries, including other financial institutions and
financial services companies. There are presently no agreements, understandings
or plans for an expansion of the Company's operations. Initially, the Company
will neither own nor lease any property from any third party, but will instead
use the premises, equipment and furniture of the Association. At the present
time, the Company does not intend to employ any persons other than certain
officers of the Association, who will not be separately provided cash
compensation by the Company. The Company may utilize the support staff of the
Association from time to time, if needed. Additional employees will be hired as
appropriate to the extent the Company expands its business in the future.
41
<PAGE>
BUSINESS OF THE ASSOCIATION
General
The Association is a community-oriented savings institution which was
originally organized in 1922 as an Ohio-chartered savings and loan association,
and which converted to a federally-chartered savings and loan association in
1936. The Association's principal business consists of the acceptance of retail
deposits from the general public in its primary market area, consisting of those
areas surrounding its full-service branch offices, and investing those deposits,
together with funds generated from operations and borrowings, primarily in one-
to four-family residential mortgage loans, automobile and home equity loans and,
to a much lesser extent, multi-family and commercial real estate loans,
construction loans, commercial loans, and passbook savings loans. The
Association originates all of its loans for investment. Management may consider
in the future selling long-term, fixed-rate mortgage loans in an effort to
better manage interest rate risk and add flexibility to balance sheet management
policy. The Association also invests in government issued and sponsored
mortgage-backed securities, securities issued by the U.S. Government and
agencies thereof, and other investments permitted by applicable laws and
regulations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Management Strategy." The Association's revenues
are derived principally from the interest on its mortgage and consumer loans and
mortgage-backed and investment securities. The Association's primary sources of
funds are retail savings deposits and, to a lesser extent, advances from the
FHLB-Cincinnati and reverse repurchase agreements.
Primary Market Area
Headquartered in Trumbull County, Ohio, the Association has been, and
intends to continue to be, a community-oriented financial institution offering a
variety of financial services to meet the needs of the communities it serves.
The Association currently operates 11 full-service banking facilities and two
loan origination centers in Trumbull and Mahoning Counties of Ohio. See "--
Properties." The Association's primary lending and deposit gathering area is
concentrated around the areas where its full-service banking facilities are
located which the Association generally considers to be its primary market area.
Warren is located in northeastern Ohio, in proximity to Youngstown, Ohio
and approximately half way between the cities of Cleveland, Ohio and Pittsburgh,
Pennsylvania. The Association's primary market area is characterized by a
higher current unemployment rate than in both Ohio and the United States. For
1998, through May, the primary market area continues to have a decreased yet
still higher unemployment rate of 5.0%, as compared to Ohio at 4.2% and the
United States at 3.9%. In Warren, the unemployment rate was 9.3% in January
1998. Overall, the primary market area's population decreased by 1.5% from 1990
to 1997, while Ohio's population increased by 3.4% and the United States'
population increased by 7.7% for the same period. Median household income in
the primary market area has increased by 19.6% from 1990 to 1997, while it has
increased by 26.0% and 30.8% in Ohio and the United States, respectively, over
the same period. According to the Youngstown/Warren Regional Chamber of
Commerce, major employers in the Youngstown/Warren metropolitan area include
Delphi Packard Electric Systems, General Motors and HM Health Systems. See
"Risk Factors--Risks Associated with Economic Conditions in the Association's
Primary Market Area."
Competition
The Association faces significant competition both in making loans and in
attracting deposits. The State of Ohio has a high density of financial
institutions, many of which are branches of significantly larger institutions
which have greater financial resources than the Association, all of which are
competitors of the Association to varying degrees. The Association's
competition for loans comes principally from savings banks, savings and loan
associations, commercial banks, mortgage banking companies, credit unions,
insurance companies and other financial service companies. Its most direct
competition for deposits has historically come from savings and loan
associations, savings banks, commercial banks and credit unions. The
Association faces additional competition for deposits from non-depository
competitors such as the mutual fund industry, securities and brokerage firms and
insurance companies. Competition may also increase as a result of the lifting
of restrictions on the interstate operations of financial institutions. There
are approximately seventeen different financial institutions with operations in
Trumbull and Mahoning counties.
42
<PAGE>
Lending Activities
Loan Portfolio Composition. The types of loans that the Association may
originate are subject to federal and state laws and regulations. Interest rates
charged by the Association on loans are affected principally by the demand for
such loans, the supply of money available for lending purposes and the rates
offered by its competitors. These factors are, in turn, affected by general and
economic conditions, monetary policies of the federal government, including the
Board of Governors of the Federal Reserve System ("FRB"), legislative tax
policies and governmental budgetary matters.
The Association's loan portfolio primarily consists of first mortgage loans
secured by one- to four-family residences most of which are located in its
primary market area. At June 30, 1998, the Association's total loans receivable
were $363.2 million, of which $268.0 million were one- to four-family
residential mortgage loans, or 73.7% of total loans receivable. At such date,
the remainder of the loan portfolio consisted of $4.5 million of multi-family
loans, or 1.2% of total loans receivable; $8.6 million of commercial real estate
loans, or 2.4% of total loans receivable; $6.3 million of construction loans, or
1.7% of total loans receivable; $9.2 million of home equity loans, or 2.5% of
total loans receivable; $2.6 million of commercial loans, or 0.7% of total loans
receivable; and $64.1 million of consumer loans, or 17.6% of total loans
receivable, consisting of $52.9 million of automobile loans and $11.2 million of
other consumer loans. The Association has not sold loans in recent years and
had no loans held for sale at each of the five years ended June 30, 1998. At
June 30, 1998, 37.4% of the Association's real estate mortgage loans had
adjustable interest rates, most of which were indexed to the one year Constant
Maturity Treasury ("CMT") Index.
43
<PAGE>
The following table sets forth the composition of the Association's loan
portfolio in dollar amounts and in percentages of the respective portfolios at
the dates indicated.
<TABLE>
<CAPTION>
At June 30,
---------------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
------------------- ----------------- ----------------- ----------------- -----------------
Percent Percent Percent Percent Percent
Amount of Total Amount of Total Amount of Total Amount of Total Amount of Total
-------- --------- ------ --------- ------- -------- ------- -------- ------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans:
One- to four-family........ $267,950 73.77% $215,549 73.92% $202,697 78.14% $185,270 76.15% $185,039 83.32%
Multi-family............... 4,482 1.23 2,293 0.79 1,397 0.54 1,515 0.62 1,719 0.77
Commercial real estate..... 8,626 2.37 6,789 2.33 7,159 2.76 8,516 3.50 7,063 3.18
Construction............... 6,301 1.73 5,376 1.84 2,515 0.97 1,859 0.76 2,363 1.06
Home equity................ 9,189 2.53 9,822 3.37 6,531 2.52 4,309 1.77 1,545 0.70
-------- ------ -------- ------ -------- -------- -------- ------ -------- ------
Total real estate 296,548 81.64 239,829 82.25 220,299 84.93 201,469 82.80 197,729 89.03
mortgage loans..........
Consumer loans:
Automobiles................ 52,847 14.55 43,172 14.80 31,234 12.04 32,212 13.24 14,679 6.61
Other(1)................... 11,243 3.10 6,521 2.24 6,675 2.57 8,262 3.40 7,863 3.54
-------- ------ -------- ------ -------- -------- -------- ------ -------- ------
Total consumer loans..... 64,090 17.65 49,693 17.04 37,909 14.61 40,474 16.64 22,542 10.15
Commercial loans............. 2,586 0.71 2,068 0.71 1,188 0.46 1,358 0.56 1,813 0.82
-------- ------ -------- ------ -------- -------- -------- ------ -------- ------
Total loans receivable....... 363,224 100.00% 291,590 100.00% 259,396 100.00% 243,301 100.00% 222,084 100.00%
====== ====== ====== ====== ======
Less:
Net deferred loan 1,319 1,316 1,517 1,228 1,776
origination fees..........
Loans in process........... 5,866 3,339 1,837 1,221 1,693
Allowance for loan losses.. 3,027 1,723 1,259 1,186 1,034
-------- -------- -------- -------- --------
Loans receivable, net........ $353,012 $285,212 $254,783 $239,666 $217,581
======== ======== ======== ======== ========
</TABLE>
- ----------
(1) Other consumer loans consist of home equity lines of credit and secured and
unsecured personal loans.
44
<PAGE>
Loan Originations. The Association's mortgage lending activities are
conducted primarily by its loan personnel operating at its executive and 10
other full-service branch offices and its two loan origination centers. All
loans originated by the Association are underwritten by the Association pursuant
to the Association's policies and procedures. The Association originates both
adjustable-rate and fixed-rate mortgage loans, commercial loans and consumer
loans. The Association's ability to originate fixed- or adjustable-rate loans
is dependent upon the relative customer demand for such loans, which is affected
by the current and expected future level of interest rates. It is the general
policy of the Association to retain all loans originated in its portfolio.
During the years ended June 30, 1998, 1997 and 1996, the Association
originated $105.2 million, $49.9 million and $54.6 million of one- to four-
family and home equity loans, respectively, and $33.5 million, $31.6 million and
$18.7 million of consumer loans, respectively. During the three years ended
June 30, 1998, the Association neither sold nor purchased any loans, and no
loans were held for sale at June 30, 1998.
45
<PAGE>
The following tables set forth the Association's loan originations and
principal repayments for the periods indicated. All loans originated by the
Association are held for investment. The Association neither purchased nor sold
any loans during these periods.
<TABLE>
<CAPTION>
For the Years Ended June 30,
------------------------------
1998 1997 1996
------------------------------
(In thousands)
<S> <C> <C> <C>
Total loans receivable(1):
Balance outstanding at beginning of period... $288,251 $257,559 $242,080
Loans originated(2):
Real estate mortgage loans:
One-to four-family and home equity....... 105,184 49,913 54,644
Multi-family and commercial real estate.. 4,515 5,494 316
Construction............................. 7,882 6,415 3,127
Consumer loans(3)........................... 33,457 31,610 18,683
Commercial loans............................ 62 92 87
-------- -------- --------
Total loans originated................... 151,100 93,524 76,857
Less:
Principal repayments....................... 79,466 61,330 60,762
Change in loans in process(4).............. 2,527 1,502 616
-------- -------- --------
Total loans receivable at end of period....... $357,358 $288,251 $257,559
======== ======== ========
</TABLE>
____________________
(1) Total loans receivable does not include unearned discounts, deferred loan
fees and the allowance for loan losses.
(2) Amounts for each period include loans in process at period end.
(3) Consists primarily of originations of automobile loans.
(4) Represents change in loans in process from first day to last day of the
period.
46
<PAGE>
Loan Maturity and Repricing. The following table shows the contractual
maturity of the Association's loan portfolio at June 30, 1998. The table does
not include prepayments or scheduled principal amortization. Prepayments and
scheduled principal amortization on mortgage loans totaled $79.3 million, $61.3
million, and $60.8 million for the years ended June 30, 1998, 1997 and 1996,
respectively. All loans originated by the Association are held for investment.
At June 30, 1998
----------------------------------------------
Real Total
Estate Loans
Mortgage Consumer Commercial Receivable
----------------------------------------------
(In thousands)
Amounts due:
Within one year.................. $ 10,971 $ 1,114 $1,662 $ 13,747
-------- ------- ------ --------
After one year:
More than one year to three 2,879 11,859 63 14,801
years.........................
More than three years to five 8,682 34,390 64 43,136
years.........................
More than five years to 10 27,670 7,380 328 35,378
years.........................
More than 10 years to 20 years. 95,294 9,137 470 104,901
More than 20 years............. 151,052 209 - 151,261
-------- ------- ------ --------
Total due after June 30, 1999..... 296,548 64,089 2,587 349,477
--------
Total amount due............. 363,224
--------
Less:
Net deferred loan origination 1,319
fees..........................
Loans in process............. 5,866
Allowance for loan losses.... 3,027
--------
Loans receivable, net............. $353,012
========
47
<PAGE>
The following table sets forth at June 30, 1998, the dollar amount of total
loans receivable contractually due after June 30, 1999, and whether such loans
have fixed interest rates or adjustable interest rates.
Due After June 30, 1999
--------------------------------------------
Fixed Adjustable Total
---------- ------------ ----------
(In thousands)
Real estate mortgage loans........ $180,267 $105,310 $285,577
Consumer loans.................... 53,737 9,238 62,975
Commercial loans.................. 105 821 926
-------- -------- --------
Total loans................. $234,109 $115,369 $349,478
======== ======== ========
One- to Four-Family Lending. The Association currently offers both fixed-
rate and adjustable-rate mortgage ("ARM") loans with maturities up to 30 years
secured by one- to four-family residences substantially all of which are located
in the Association's primary market area. One- to four-family mortgage loan
originations are generally obtained from the Association's in-house loan
representatives, from existing or past customers, through advertising, and
through referrals from local builders, real estate brokers and attorneys. At
June 30, 1998, the Association's one- to four-family mortgage loans totaled
$268.0 million, or 73.8%, of total loans. Of the one- to four-family mortgage
loans outstanding at that date, 63.2% were fixed-rate mortgage loans and 36.8%
were ARM loans.
The Association currently offers fixed-rate one-to four-family mortgage
loans with terms of up to 30 years. These loans have generally been priced
competitively with current market rates for such loans. The Association
currently offers a number of ARM loans with terms of up to 30 years and interest
rates which adjust every year from the outset of the loan or which adjust
annually after a three, five or seven year initial fixed period. The interest
rates for the Association's ARM loans are indexed to the one year U.S. Treasury
Index. The Association's ARM loans generally provide for periodic (not more
than 2%) and overall (not more than 6%) caps on the increase or decrease in the
interest rate at any adjustment date and over the life of the loan.
The origination of adjustable-rate one-to four-family mortgage loans, as
opposed to fixed-rate one-to four-family mortgage loans, helps reduce the
Association's exposure to increases in interest rates. However, adjustable-rate
loans generally pose credit risks not inherent in fixed-rate loans, primarily
because as interest rates rise, the underlying payments of the borrower rise,
thereby increasing the potential for default. Periodic and lifetime caps on
interest rate increases help to reduce the risks associated with adjustable-rate
loans but also limit the interest rate sensitivity of such loans.
The Association currently originates all one- to four-family mortgage loans
for its own portfolio. Management may consider in the future selling long-term,
fixed-rate one-to four-family mortgage loans in an effort to better manage
interest-rate risk. Generally, the Association originates one- to four-family
residential mortgage loans in amounts up to 97% of the appraised value or
selling price of the property, whichever is lower, securing the loan. Private
mortgage insurance ("PMI") may be required for such loans with a loan-to-value
("LTV") ratio of greater than 85%. One-to four-family mortgage loans originated
by the Association generally include due-on-sale clauses which provide the
Association with the contractual right to deem the loan immediately due and
payable in the event the borrower transfers ownership of the property without
the Association's consent. Due-on-sale clauses are an important means of
adjusting the yields on the Association's fixed-rate one- to four-family
mortgage loan portfolio. The Association requires fire, casualty, and, in
required cases, flood insurance on all properties securing real estate loans
made by the Association.
Home Equity Lending. The Association originates home equity loans secured
by one- to four-family residences. These loans are generally originated as
fixed-rate loans with terms of up to 15 years. Home equity loans are primarily
made on owner-occupied, one- to four-family residences and primarily to the
Association's first mortgage
48
<PAGE>
customers. These loans are generally subject to a 90% loan-to-value limitation,
including any other outstanding mortgages or liens. Generally, the Association's
minimum equity loan is $5,000 and the maximum equity loan, if the loan-to-value
ratio exceeds 90%, is $40,000. As of June 30, 1998, the Association had $9.2
million in fixed-rate home equity loans outstanding and no adjustable-rate home
equity loans outstanding.
Multi-family and Commercial Real Estate Lending. The Association
originates multi-family and commercial real estate loans on a limited basis.
Such loans are generally secured by five or more unit apartment buildings and
properties used for business purposes such as small office buildings or retail
facilities located in the Association's primary market area. The Association's
multi-family and commercial real estate underwriting policies provide that such
real estate loans may be made in amounts up to 75% of the appraised value of the
property or sales price, when applicable, whichever is lower. The Association's
multi-family and commercial real estate loans may be made with terms up to 15
years and are offered with interest rates that adjust periodically. In reaching
its decision on whether to make a multi-family or commercial real estate loan,
the Association considers the net operating income of the property, the
borrower's expertise, credit history and profitability and the value of the
underlying property. Generally, all multi-family and commercial real estate
loans made to corporations, partnerships and other business entities require
personal guarantees by the principals. On an exception basis, the Association
may not require a personal guarantee on such loans depending on the
creditworthiness of the borrower and the amount of the downpayment and other
mitigating circumstances. The Association's multi-family real estate loan
portfolio at June 30, 1998 was $4.5 million, or 1.2% of total loans and the
Association's commercial real estate loan portfolio at such date was $8.6
million, or 2.4% of total loans. The largest multi-family or commercial real
estate loan in the Association's portfolio (excluding loan participation
interests) at June 30, 1998 was a performing $900,000 commercial real estate
loan secured by real estate, accounts receivable and other corporate assets.
Loans secured by multi-family and commercial real estate properties
generally involve larger principal amounts and a greater degree of risk than
one- to four-family residential mortgage loans. Because payments on loans
secured by multi-family and commercial real estate properties are often
dependent on successful operation or management of the properties, repayment of
such loans may be subject to adverse conditions in the real estate market or the
economy. The Association seeks to minimize these risks through its underwriting
standards.
Construction Lending. The Association originates construction loans for
the development of residential property primarily located in the Association's
primary market area. Construction loans are offered primarily to individuals
for the construction of their residence and, to a lesser extent, to experienced
local developers operating in the Association's primary market area. The
majority of the Association's construction loans are originated primarily to
finance the construction of one- to four-family, owner-occupied residential real
estate and, to a lesser extent, multi-family real estate properties located in
the Association's primary market area. Construction loans are generally offered
with terms up to 30 years, if the loan converts to a permanent mortgage loan,
and may be made in amounts up to 85% of the appraised value of the property, as
improved. Construction loan proceeds are disbursed periodically in increments
as construction progresses and as inspections by the Association's lending
officers warrant.
At June 30, 1998, the Association's largest construction loan was a
performing loan with a $1.0 million carrying balance secured by land and
condominium units for single-family residences located in Howland Township. At
June 30, 1998, the Association had $6.3 million of construction loans which
amounted to 1.7% of the Association's total loans.
Speculative construction financing is generally considered to involve a
higher degree of credit risk than long-term financing on improved, owner-
occupied real estate. Risk of loss on a construction loan is dependent largely
upon the accuracy of the initial estimate of the property's value at completion
of construction or development compared to the estimated cost (including
interest) of construction and other assumptions, including the estimated time to
sell residential properties. If the estimate of value proves to be inaccurate,
the Association may be confronted with a project, when completed, having a value
which is insufficient to assure full repayment.
Commercial Lending. The Association also originates on a very limited
basis commercial loans in the forms of term loans and lines of credit to small-
and medium-sized businesses operating in the Association's primary market area.
Since commercial loans are made on such an infrequent basis, the Association
handles each such loan request on
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<PAGE>
an individual basis. At June 30, 1998, the Association had $2.6 million of
commercial loans, which amounted to 0.7% of the Association's total loans.
Unlike mortgage loans, which generally are made on the basis of the
borrower's ability to make repayment from his or her employment or other income,
and which are secured by real property whose value tends to be more easily
ascertainable, commercial loans are of higher risk and typically are made on the
basis of the borrower's ability to make repayment from the cash flow of the
borrower's business. As a result, the availability of funds for the repayment
of commercial loans may be substantially dependent on the success of the
business itself. Further, any collateral securing such loans may depreciate
over time, may be difficult to appraise and may fluctuate in value based on the
success of the business.
Consumer Lending. Consumer loans at June 30, 1998 amounted to $64.1
million, or 17.6% of the Association's total loans, and consisted primarily of
new and used automobile loans, and to a lesser extent, secured and unsecured
personal loans. Such loans are generally originated in the Association's
primary market area and generally are secured by real estate, deposit accounts,
personal property and automobiles. Secured personal loans are generally secured
by personal assets. Unsecured personal loans generally may not exceed $10,000
and must be approved by an executive officer of the Association. In recent
years, the Association has increased its emphasis on the origination of new and
used automobile loans. Such loans are only available to Ohio and Pennsylvania
residents. Approximately half of the Association's automobile loans are made on
used vehicles; the Association will generally not make a loan on a vehicle
manufactured before 1991. The average automobile loan is for $13,000. The
Association originates automobile loans through an automobile dealer network,
primarily composed of new car dealers located in the Association's primary
market area. At June 30, 1998, the Association had sixty dealers participating
in the dealer network. The dealer takes the application and forwards it to the
Association for underwriting. The Association will loan up to 100% of the
manufacturer's suggested retail price on new automobiles and 100% of the average
retail value of used cars. The typical loan term is sixty-six months. At June
30, 1998, personal loans (both secured and unsecured) totaled $2.0 million, or
0.6% of the Association's total loans and 3.1% of consumer loans; and automobile
loans totaled $52.8 million, or 14.5% of total loans and 82.5% of consumer
loans.
The Association also offers a variable rate home equity line of credit
which extends a credit line based on the applicant's income and equity in the
home. Generally, the credit line, when combined with the balance of the prior
mortgage liens, may not exceed 90% of the appraised value of the property at the
time of the loan commitment. Home equity lines of credit are secured by a
mortgage on the underlying real estate. The Association holds the first
mortgage on a substantial majority of the properties securing such lines of
credit. The Association presently charges no origination fees for these loans.
A borrower is required to make monthly payments of principal and interest.
Generally, the interest rate charged is the prime rate of interest (as published
in The Wall Street Journal) plus up to 0.49%. The interest rate adjusts when
the prime rate adjusts. At June 30, 1998, the Association had outstanding home
equity lines of credit of $9.2 million, against total available credit lines of
$21.6 million.
Loans secured by rapidly depreciable assets such as automobiles or that are
unsecured entail greater risks than one- to four-family residential mortgage
loans. In such cases, repossessed collateral for a defaulted loan may not
provide an adequate source of repayment of the outstanding loan balance, since
there is a greater likelihood of damage, loss or depreciation of the underlying
collateral. Further, collections on these loans are dependent on the borrower's
continuing financial stability and, therefore, are more likely to be adversely
affected by job loss, divorce, illness or personal bankruptcy. Finally, the
application of various federal and state laws, including federal and state
bankruptcy and insolvency laws, may limit the amount which can be recovered on
such loans in the event of a default.
Loan Approval Procedures and Authority. The Board of Directors of the
Association establishes the lending policies and loan approval limits of the
Association. The Board of Directors has established the Loan Committee (the
"Committee") of the Board which considers and approves all loans within its
designated authority as established by the Board. In addition, the Board of
Directors has authorized certain officers of the Association (the "designated
officers") to consider and approve all loans within their designated authority
as established by the Board.
The Board of Directors has authorized the following persons and groups of
persons to approve loans up to the amounts indicated: one- to four-family
mortgage loans up to $200,000 may be approved by any of the designated
50
<PAGE>
officers; one- to four-family mortgage loans in excess of $200,000 and up to
$300,000 may be approved by two of the designated officers; one- to four-family
mortgage loans in excess of $300,000 must be approved by the Board of Directors.
Home equity loans and lines of credit up to $200,000 may be approved by any of
the designated officers. Home equity loans and lines of credit over $200,000
must be approved by the Board of Directors. Multi-family and commercial real
estate loans less than $100,000 may be approved by the Lending Division; any
multi-family and commercial real estate loan greater than $100,000 must be
approved by the Board of Directors. Construction loans are subject to the
approval limits applicable to the type of property being constructed. Consumer
loans may be approved by certain officers up to $50,000, and the President must
approve loans in excess of $50,000 to $100,000. Consumer loans over $100,000
must approved by the Board of Directors. Commercial loans up to $50,000 may be
approved by any member of the Commercial Loan Committee; commercial loans up to
$100,000 must be approved by two members of that committee; commercial loans up
to $250,000 must be approved by the Commercial Loan Committee and one member of
the Board of Directors of the Association, and commercial loans in excess of
$250,000 must be approved by the Board of Directors.
With respect to all loans originated by the Association, upon receipt of a
completed loan application from a prospective borrower, a credit report is
ordered and certain other information is verified by an independent credit
agency. If necessary, additional financial information may be required. An
appraisal of real estate intended to secure a proposed loan generally is
required to be performed by the Association's "in-house" appraisers or outside
appraisers approved by the Association. The Board annually approves independent
appraisers used by the Association. The Association's policy is to obtain
hazard insurance on all mortgage loans and flood insurance when necessary and
the Association may require borrowers to make payments to a mortgage escrow
account for the payment of property taxes and insurance premiums.
Delinquent Loans, Classified Assets and Real Estate Owned
Delinquencies, Classified Assets and Real Estate Owned. Reports listing
all delinquent accounts are generated and reviewed by management on a monthly
basis and the Board of Directors performs a monthly review of all loans or
lending relationships delinquent 30 days or more. The procedures taken by the
Association with respect to delinquencies vary depending on the nature of the
loan, period and cause of delinquency and whether the borrower is habitually
delinquent. When a borrower fails to make a required payment on a loan, the
Association takes a number of steps to have the borrower cure the delinquency
and restore the loan to current status. The Association generally sends the
borrower a written notice of non-payment after the loan is first past due. The
Association's guidelines provide that telephone, written correspondence and/or
face-to-face contact will be attempted to ascertain the reasons for delinquency
and the prospects of repayment once a loan becomes 60 days past due. When
contact is made with the borrower at any time prior to foreclosure, the
Association will attempt to obtain full payment, offer to work out a repayment
schedule with the borrower to avoid foreclosure or, in some instances, accept a
deed in lieu of foreclosure. In the event payment is not then received or the
loan not otherwise satisfied, additional letters and telephone calls generally
are made. Once the loan becomes 90 days past due, the Association notifies the
borrower in writing that if the loan is not brought current within two weeks,
the Association will commence foreclosure proceedings against any real property
that secured the loan. If a foreclosure action is instituted and the loan is
not brought current, paid in full, or refinanced before the foreclosure sale,
the property securing the loan generally is sold at foreclosure and, if
purchased by the Association, becomes real estate owned.
Federal regulations and the Association's internal policies require that
the Association utilize an internal asset classification system as a means of
reporting problem and potential problem assets. The Association currently
classifies problem and potential problem assets as "Substandard," "Doubtful" or
"Loss" assets. An asset is considered Substandard if it is inadequately
protected by the current net worth and paying capacity of the obligor or of the
collateral pledged, if any. Substandard assets include those characterized by
the distinct possibility that the Association will sustain some loss if the
deficiencies are not corrected. Assets classified as Doubtful have all of the
weaknesses inherent in those classified Substandard with the added
characteristic that the weaknesses present make collection or liquidation in
full, on the basis of currently existing facts, conditions and values, highly
questionable and improbable. Assets classified as Loss are those considered
uncollectible and of such little value that their continuance as assets, without
the establishment of a specific loss reserve, is not warranted. Assets which do
not currently expose the Association to a sufficient degree of risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are
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<PAGE>
required to be designated "Special Mention."
When the Association classifies one or more assets, or portions thereof, as
Substandard or Doubtful, it is required to establish an allowance for possible
loan losses in an amount deemed prudent by management unless the loss of
principal appears to be remote. When the Association classifies one or more
assets, or portions thereof, as Loss, it is required either to establish a
specific allowance for losses equal to 100% of the amount of the assets so
classified or to charge off such amount.
The Association's determination as to the classification of its assets and
the amount of its valuation allowances is subject to review by the OTS which can
order the establishment of additional general or specific loss allowances. The
OTS, in conjunction with the other federal banking agencies, recently adopted an
interagency policy statement on the allowance for loan and lease losses. The
policy statement provides guidance for financial institutions on both the
responsibilities of management for the assessment and establishment of adequate
allowances and guidance for banking agency examiners to use in determining the
adequacy of general valuation guidelines. Generally, the policy statement
recommends that institutions have effective systems and controls to identify,
monitor and address asset quality problems; that management has analyzed all
significant factors that affect the collectibility of the portfolio in a
reasonable manner; and that management has established acceptable allowance
evaluation processes that meet the objectives set forth in the policy statement.
While the Association believes that it has established an adequate allowance for
possible loan losses, there can be no assurance that regulators, in reviewing
the Association's loan portfolio, will not request the Association to materially
increase at that time its allowance for possible loan losses, thereby negatively
affecting the Association's financial condition and earnings at that time.
Although management believes that adequate specific and general loan loss
allowances have been established, future provisions are dependent upon future
events such as loan growth and portfolio diversification and, as such, further
additions to the level of specific and general loan loss allowances may become
necessary.
The Association reviews and classifies its assets on a quarterly basis and
the Board of Directors reviews the results of the reports on a quarterly basis.
The Association classifies its assets in accordance with the management
guidelines described above. At June 30, 1998, the Association had $1.6 million,
or 0.27%, of assets designated as Substandard, consisting of primarily mortgage
loans secured by single-family owner-occupied residences. Assets classified as
Doubtful totaled $231,000, consisting of automobile loans, and assets classified
as Loss totaled $100,000 at June 30, 1998. At June 30, 1998, the Association
had $933,000, or 0.15%, of assets designated as Special Mention, consisting
primarily of automobile loans. At June 30, 1998, these classified assets
totaled $2.8 million, representing 0.77% of loans receivable.
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<PAGE>
The following tables set forth delinquencies in the Association's loan
portfolio past due 30 days or more:
<TABLE>
<CAPTION>
At June 30, 1998 At June 30, 1997
-------------------------------------------------- -----------------------------------------------
30-89 Days 90 Days or More 30-89 Days 90 Days or More
---------------------- -------------------------- ------------------------ ---------------------
Principal Principal Principal Principal
Number Balance Number Balance Number Balance Number Balance
of Loans of Loans of Loans of Loans of Loans of Loans of Loans of Loans
--------- --------- -------- --------------- ---------- ---------- ---------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans... 39 $1,298 59 $1,673 51 $1,380 82 $1,767
Consumer loans............... 138 1,287 58 470 108 1,053 87 713
Commercial loans............. - - - - - - - -
--- ------ --- ------ -------- ------ -------- ------
Total delinquent loans(1).. 177 $2,585 117 $2,143 159 $2,433 169 $2,480
====== ====== ====== ======
Delinquent loans to total
loans(1).................... 0.73% 0.60% 0.85% 0.86%
====== ======
<CAPTION>
At June 30, 1996
--------------------------------------------------
30-89 Days 90 Days or More
--------------------- --------------------------
Principal Principal
Number Balance Number Balance
of Loans of Loans of Loans of Loans
--------- --------- --------- --------------
(Dollars in thousands)
<S> <C> <C> <C>
Real estate mortgage loans... (2) $ 939 (2) $ 825
Consumer loans............... (2) 588 (2) 200
Commercial loans............. (2) 140 (2) 101
------ ------
Total delinquent loans(1).. $1,667 $1,126
====== ======
Delinquent loans to total
loans(1).................... 0.66% 0.44%
====== ======
</TABLE>
____________________
(1) Total loans represent gross loans receivable less deferred loan fees and
loans in process.
(2) Information not available.
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<PAGE>
Nonperforming Assets. The following table sets forth information regarding
nonperforming loans and REO. At June 30, 1998, the Association had no troubled-
debt restructured loans within the meaning of SFAS 15, and no REO properties.
It is the general policy of the Association to cease accruing interest on loans
90 days or more past due when, in management's opinion, the collection of all or
a portion of the loan principal has become doubtful and to fully reserve for all
previously accrued interest. For the years ended June 30, 1998, 1997, 1996,
1995 and 1994 the amount of additional interest income that would have been
recognized on non-accrual loans if such loans had continued to perform in
accordance with their contractual terms was $94,000, $172,000, $109,000, $88,000
and $59,000, respectively.
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------
1998 1997 1996 1995 1994
-------------------------------------------
<S> <C> <C> <C> <C> <C>
(In thousands)
Nonperforming loans(1):
Real estate mortgage loans.......... $1,673 $1,767 $ 825 $ 665 $ 516
Consumer loans...................... 470 713 200 256 64
Commercial loans.................... - - 101 71 151
------ ------ ------ ----- -----
Total nonperforming loans.......... 2,143 2,480 1,126 992 731
------ ------ ------ ----- -----
Real estate owned, net............. - - - - 140
------ ------ ------ ----- -----
Total nonperforming assets........... $2,143 $2,480 $1,126 $ 992 $ 871
====== ====== ====== ===== =====
Nonperforming loans as a percent of
total loans (2)..................... 0.60% 0.86% 0.44% 0.41% 0.33%
Nonperforming assets as a percent of
total assets(3)..................... 0.35 0.45 0.22 0.21 0.18
</TABLE>
__________
(1) Nonperforming loans represents non-accrual loans. The Association had no
loans past due greater than 90 days still accruing.
(2) Loans represent loans receivable, net, excluding the allowance for
loan losses.
(3) Nonperforming assets consist of nonperforming loans and REO.
Nonperforming loans totaled $2.1 million as of June 30, 1998, and included
59 mortgage loans with an aggregate balance of $1.7 million and $470,000 in
consumer loans.
Allowance for Loan Losses
The allowance for loan losses is maintained through provisions for loan
losses based on management's on-going evaluation of the risks inherent in its
loan portfolio in consideration of the trends in its loan portfolio, the
national and regional economies and the real estate market in the Association's
primary lending area. The allowance for loan losses is maintained at an amount
management considers adequate to cover estimated losses in its loan portfolio
which are deemed probable and estimable based on information currently known to
management. The Association's loan loss allowance determinations also
incorporate factors and analyses which consider the potential principal loss
associated with the loan, costs of acquiring the property securing the loan
through foreclosure or deed in lieu thereof, the periods of time involved with
the acquisition and sale of such property, and costs and expenses associated
with maintaining and holding the property until sale and the costs associated
with the Association's inability to utilize funds for other income producing
activities during the estimated holding period of the property.
As of June 30, 1998, the Association's allowance for loan losses was $3.0
million, or 0.9% of total loans and 141.3% of nonperforming loans as compared to
$1.7 million, or 0.6%, of total loans and 69.5% of nonperforming loans as of
June 30, 1997. The increased allowance for loan losses was due to several
factors including an increase in the level of consumer loan charge-offs, the
approximately 25% growth in total loans, the continued trend of increased non-
performing loans over the Association's historical levels as well as local
economic conditions including significant recent layoffs at GM's Lordstown plant
caused by a strike at two of GM's other facilities. The strike which affected
these facilities has subsequently been settled and the majority of the striking
workers have returned to full employment. The Association had total
nonperforming loans of $2.1 million at June 30, 1998, and nonperforming loans to
total loans of 0.6%. The Association will continue to monitor and modify its
allowance for loan losses as conditions dictate. Management believes that,
based on information currently available, the Association's allowance for loan
losses is sufficient to cover losses inherent in
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<PAGE>
its loan portfolio at this time. Based upon the Association's recent increased
emphasis in consumer lending, the Association expects to increase its allowance
for loan losses over future periods depending upon the then current conditions.
However, no assurances can be given that the Association's level of allowance
for loan losses will be sufficient to cover future loan losses incurred by the
Association or that future adjustments to the allowance for loan losses will not
be necessary if economic and other conditions differ substantially from the
economic and other conditions used by management to determine the current level
of the allowance for loan losses. In addition, the OTS, as an integral part of
its examination process, periodically reviews the Association's allowance for
loan losses. Such agency may require the Association to make additional
provisions for estimated loan losses based upon judgments different from those
of management.
The following table sets forth activity in the Association's allowance for
loan losses for the periods set forth in the table.
<TABLE>
<CAPTION>
At or For the Years Ended June 30,
----------------------------------------------
1998 1997 1996 1995 1994
-------- ------- -------- -------- -------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance at beginning of period...... $ 1,723 $1,259 $ 1,186 $ 1,034 $ 1,087
Provision for loan losses........... 1,779 590 238 313 360
Charge-offs:
Real estate mortgage loans:
One-to four-family............... 32 - - - 50
Commercial real estate........... - - - - 325
Consumer.......................... 484 138 236 205 75
Commercial........................ - - - - 11
------- ------ ------- ------- -------
Total charge-offs............... 516 138 236 205 461
Recoveries:
Real estate mortgage loans:
One-to four-family............... 3 3 - 12 -
Consumer.......................... 38 9 71 32 10
Commercial........................ - - - - 38
------- ------ ------- ------- -------
Total recoveries................ 41 12 71 44 48
------- ------ ------- ------- -------
Balance at end of period............ $ 3,027 $1,723 $ 1,259 $ 1,186 $ 1,034
======= ====== ======= ======= =======
Allowance for loan losses as a
percent of loans(1)................ 0.85% 0.60% 0.49% 0.49% 0.47%
Allowance for loan losses as a
percent of nonperforming loans(2).. 141.25% 69.48% 111.81% 119.56% 141.45%
Net charge-offs as a percent of
average loans...................... 0.15% 0.05% 0.07% 0.07% 0.20%
</TABLE>
______________
(1) Loans receivable, net, excluding the allowance for loan losses.
(2) Nonperforming loans consist of all nonaccrual loans and all other
loans 90 days or more past due.
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<PAGE>
The following tables set forth the Association's percent of allowance for
loan losses to total allowance and the percent of loans to total loans in each
of the categories listed at the dates indicated.
<TABLE>
<CAPTION>
At June 30,
-----------------------------------------------------------------------------------------------
1998 1997 1996
-----------------------------------------------------------------------------------------------
Percent Percent Percent
of Loans of Loans of Loans
Percent of in Each Percent of in Each Percent of in Each
Allowance Category Allowance Category Allowance Category
to Total to Total to Total to Total to Total to Total
Amount Allowance Loans Amount Allowance Loans Amount Allowance Loans
-------- ----------- --------- -------- ----------- ---------- --------- ---------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans.. $1,458 48.17% 81.64% $ 911 52.87% 82.25% $ 836 66.40% 84.86%
Consumer loans.............. 901 29.77 17.65 432 25.07 17.04 275 21.84 14.62
Commercial loans............ 9 0.30 0.71 7 0.41 0.71 11 0.87 0.52
Unallocated................. 659 21.76 - 373 21.65 - 137 10.89 -
------ ------ ------ ------ ------ ------ ------ ------ ------
Total allowance for loan $3,027 100.00% 100.00% $1,723 100.00% 100.00% $1,259 100.00% 100.00%
losses..................... ====== ====== ====== ====== ====== ====== ====== ====== ======
<CAPTION>
At June 30,
--------------------------------------------------------------
1995 1994
--------------------------------------------------------------
Percent Percent
of Loans of Loans
Percent of in Each Percent of in Each
Allowance Category Allowance Category
to Total to Total to Total to Total
Amount Allowance Loans Amount Allowance Loans
-------- ----------- --------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans.. $ 779 65.68% 82.74% $ 839 81.14% 88.62%
Consumer loans.............. 286 24.11 16.63 145 14.02 10.49
Commercial loans............ 12 1.01 0.63 6 0.58 0.89
Unallocated................. 109 9.20 - 44 -
------ ------ ------ ------ 4.26 ------
------
Total allowance for loan $1,186 100.00% 100.00% $1,034 100.00% 100.00%
losses..................... ====== ====== ====== ====== ====== ======
</TABLE>
56
<PAGE>
Real Estate Owned. At June 30, 1998, the Association had no REO in its
portfolio. When the Association does acquire property through foreclosure or
deed in lieu of foreclosure, it is initially recorded at fair value of the
related assets at the date of foreclosure, less costs to sell. Any initial loss
is recorded as a charge to the allowance for loan losses before being
transferred to REO. Thereafter, if there is a further deterioration in value,
the Association provides for a specific valuation allowance and charges
operations for the diminution in value.
Investment Activities
The Board of Directors of the Association sets the investment policy and
procedures of the Association. This policy generally provides that investment
decisions will be made based on the safety of the investment, liquidity
requirements of the Association and, to a lesser extent, potential return on
the investments. In pursuing these objectives, the Association considers the
ability of an investment to provide earnings consistent with factors of quality,
maturity, marketability and risk diversification. While the Board of Directors
has final authority and responsibility for the securities investment portfolio,
the Association has established an Investment Committee comprised of the Chief
Executive Officer, the Chief Financial Officer and at least one member of the
Board of Directors to supervise the Association's investment activities. A
chief investment officer is appointed annually to oversee daily investment
activities. The Association's Investment Committee meets quarterly and
evaluates all investment activities for safety and soundness, adherence to the
Association's investment policy, and assurance that authority levels are
maintained.
The Association currently does not participate in hedging programs,
interest rate swaps, or other activities involving the use of off-balance sheet
derivative financial instruments. Similarly, the Association does not invest in
mortgage-related securities which are deemed to be "high risk," or purchase
bonds which are not rated investment grade.
Mortgage-Backed Securities. The Association currently purchases mortgage-
backed securities in order to: (i) generate positive interest rate spreads with
minimal administrative expense; and (ii) lower its credit risk as a result of
the guarantees provided by FHLMC, FNMA, and GNMA. The Association invests in
mortgage-backed securities issued or guaranteed by FNMA, FHLMC and GNMA. At
June 30, 1998, mortgage-backed securities totaled $207.9 million, or 34.1%, of
total assets, of which $190.1 million was classified as available-for-sale. At
June 30, 1998, 29.1% of the mortgage-backed securities were backed by
adjustable-rate loans and 70.9% were backed by fixed-rate loans. The mortgage-
backed securities portfolio had coupon rates ranging from 4.7% to 10.25% and
had a weighted average yield of 6.75% at June 30, 1998. The estimated fair
value of the Association's mortgage-backed securities at June 30, 1998, was
$208.0 million, which is $2.5 million more than the amortized cost of $205.6
million.
Mortgage-backed securities are created by the pooling of mortgages and
issuance of a security with an interest rate which is less than the interest
rate on the underlying mortgage. Mortgage-backed securities typically represent
a participation interest in a pool of single-family or multi-family mortgages,
although the Association focuses its investments on mortgage-backed securities
backed by single-family mortgages. The issuers of such securities (generally
U.S. Government agencies and government sponsored enterprises, including FNMA,
FHLMC and GNMA) pool and resell the participation interests in the form of
securities to investors such as the Association and guarantee the payment of
principal and interest to investors. Mortgage-backed securities generally yield
less than the loans that underlie such securities because of the cost of payment
guarantees and credit enhancements. In addition, mortgage-backed securities are
usually more liquid than individual mortgage loans and may be used to
collateralize certain liabilities and obligations of the Association.
Investments in mortgage-backed securities involve a risk that actual prepayments
will be greater than estimated prepayments over the life of the security, which
may require adjustments to the amortization of any premium or accretion of any
discount relating to such instruments thereby reducing the net yield on such
securities. There is also reinvestment risk associated with the cash flows from
such securities or in the event such securities are redeemed by the issuer. In
addition, the market value of such securities may be adversely affected by
changes in interest rates. The Association estimates prepayments for its
mortgage-backed securities at purchase to ensure that prepayment assumptions are
reasonable considering the underlying collateral for the mortgage-backed
securities at issue and current mortgage interest rates and to determine the
yield and estimated maturity of its mortgage-backed security portfolio excluding
FHLB stock. Of the Association's $207.9 million mortgage-backed securities
portfolio at June 30, 1998, $715,000 with a weighted average yield of 6.23% had
contractual maturities within five years and $207.2 million with a weighted
average yield of 6.75% had contractual maturities over five years. However, the
actual maturity of a mortgage-backed security may be less than its stated
maturity due to prepayments of the underlying mortgages.
57
<PAGE>
Prepayments that are faster than anticipated may shorten the life of the
security and may result in a loss of any premiums paid and thereby reduce the
net yield on such securities. Although prepayments of underlying mortgages
depend on many factors, the difference between the interest rates on the
underlying mortgages and the prevailing mortgage interest rates generally is the
most significant determinant of the rate of prepayments. During periods of
declining mortgage interest rates, refinancing generally increases and
accelerates the prepayment of the underlying mortgages and the related security.
Under such circumstances, the Association may be subject to reinvestment risk
because, to the extent that the Association's mortgage-backed securities prepay
faster than anticipated, the Association may not be able to reinvest the
proceeds of such repayments and prepayments at a comparable rate.
Investment Securities. At June 30, 1998, the Association's investment
securities portfolio totaled $31.6 million, of which $21.1 million were
classified as available-for-sale. Such portfolio primarily consists of short-
to medium-term (maturities of one to five years) U.S. Treasury and agency
securities.
The following table sets forth the composition of the Association's
investment and mortgage-backed securities portfolios in dollar amounts and in
percentages at the dates indicated:
<TABLE>
<CAPTION>
At June 30,
--------------------------------------------------------------------------
1998 1997 1996
----------------------- ------------------------- ------------------------
Percent of Percent of Percent of
Amount Total Amount Total Amount Total
---------- ------------ ----------- ------------- --------- --------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Available for sale:
U.S. Government agencies............................. $ 15,797 6.60% $ 33,678 13.60% $ 25,012 10.00%
Obligations of states and political subdivisions..... 853 0.36 838 0.34 -
FHLB stock........................................... 4,415 1.84 4,893 1.98 4,563 1.82
Marketable equity securities......................... - - 2,980 1.20 2,920 1.17
-------- ------ -------- ------ -------- ------
Total investment securities...................... 21,065 8.80 42,389 17.12 32,495 12.99
-------- -------- --------
Mortgage-backed securities:
GNMA................................................. 37,714 15.75 39,823 16.09 31,075 12.43
FNMA................................................. 50,518 21.09 57,888 23.38 63,959 25.57
FHLMC................................................ 100,898 42.13 60,891 24.60 72,092 28.83
Other mortgage-backed securities..................... 990 0.41 1,686 0.68 2,555 1.02
-------- ------ -------- ------ -------- ------
Total mortgage-backed securities.......... 190,120 79.38 160,288 64.75 169,681 67.85
-------- ------ -------- ------ -------- ------
Total securities available for sale..................... 211,185 88.18 202,677 81.87 202,176 80.84
-------- -------- --------
Held to maturity:
U.S.Treasury securities.............................. 6,005 2.52 14,005 5.66 11,984 4.79
U.S. Government agencies............................. 4,147 1.73 4,239 1.71 6,000 2.40
Obligations of states and political subdivisions..... 364 0.15 405 0.16 446 0.18
-------- ------ -------- ------ -------- ------
Total investment securities...................... 10,516 4.40 18,649 7.53 18,430 7.37
-------- -------- --------
Mortgage-backed securities:
GNMA............................................. 1,512 0.63 1,943 0.78 2,386 0.95
FNMA............................................. 16,267 6.79 24,283 9.82 27,102 10.84
-------- ------ -------- ------ -------- ------
Total mortgage-backed securities.............. 17,779 7.42 26,226 10.60 29,488 11.79
-------- ------ -------- ------ -------- ------
Total securities held to maturity....................... 28,295 11.82 44,875 18.13 47,918 19.16
-------- ------ -------- ------ -------- ------
Total securities........................................ $239,480 100.00% $247,552 100.00% $250,094 100.00%
======== ====== ======== ====== ======== ======
</TABLE>
58
<PAGE>
The following table sets forth at the dates indicated certain information
regarding the amortized cost and market values of the Association's investment
and mortgage-backed securities.
<TABLE>
<CAPTION>
At June 30,
-------------------------------------------------------------
1998 1997 1996
------------------- ------------------- -------------------
Amortized Market Amortized Market Amortized Market
Cost Value Cost Value Cost Value
--------- -------- --------- -------- --------- --------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Available for sale:
U.S. Government agencies................................ $ 15,734 $ 15,797 $ 34,012 $ 33,678 $ 25,938 $ 25,012
Obligations of states and political subdivisions........ 826 853 825 838 -- --
FHLB stock.............................................. 4,415 4,415 4,893 4,893 4,563 4,563
Marketable equity securities............................ -- -- 3,216 2,980 3,216 2,920
-------- -------- -------- -------- -------- --------
Total investment securities......................... 20,975 21,065 42,946 42,389 33,717 32,495
-------- -------- -------- -------- -------- --------
Mortgage-backed securities:
GNMA.................................................... 37,355 37,714 39,493 39,823 31,507 31,075
FNMA.................................................... 49,959 50,518 57,604 57,888 65,065 63,959
FHLMC................................................... 99,494 100,898 60,893 60,891 73,428 72,092
Other mortgage-backed securities........................ 987 990 1,655 1,686 2,465 2,555
-------- -------- -------- -------- -------- --------
Total mortgage-backed securities............. 187,795 190,120 159,645 160,288 172,465 169,681
-------- -------- -------- -------- -------- --------
Total securities available for sale........................ $208,770 $211,185 $202,591 $202,677 $206,182 $202,176
======== ======== ======== ======== ======== ========
Held to maturity:
U.S.Treasury securities................................. $ 6,005 $ 6,014 $ 14,005 $ 13,951 $ 11,984 $ 12,061
U.S. Government agencies................................ 4,147 4,181 4,239 4,236 6,000 5,932
Obligations of states and political subdivisions........ 364 396 405 439 446 472
-------- -------- -------- -------- -------- --------
Total investment securities......................... 10,516 10,591 18,649 18,626 18,430 18,465
-------- -------- -------- -------- -------- --------
Mortgage-backed securities:
GNMA................................................ 1,512 1,561 1,943 1,993 2,386 2,324
FNMA................................................ 16,267 16,367 24,283 24,180 27,102 26,597
-------- -------- -------- -------- -------- --------
Total mortgage-backed securities.................... 17,779 17,928 26,226 26,173 29,488 28,921
-------- -------- -------- -------- -------- --------
Total securities held to maturity.......................... $ 28,295 $ 28,519 $ 44,875 $ 44,799 $ 47,918 $ 47,386
======== ======== ======== ======== ======== ========
</TABLE>
59
<PAGE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Association's
securities portfolio, excluding FHLB stock.
<TABLE>
<CAPTION>
At June 30, 1998
---------------------------------------------------------------------------------
More than One More than Five
One Year or Less Year to Five Years Years to Ten Years
------------------------- ------------------------- -------------------------
Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield
----------- ----------- ----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Available for sale:
U.S. Government agencies....................... $ 9,575 6.36% $ 6,222 5.96% $ - -%
Obligations of state and political subdivisions - - 429 6.85 424 7.05
Mortgage-backed securities:
GNMA..................................... - - - - - -
FNMA..................................... - - - - 2,972 6.84
FHLMC.................................... - - - - 17,647 6.68
Other mortgage-backed securities......... - - - - - -
------- ------- -------
Total securities available for sale.... $ 9,575 6.36 $ 6,651 6.02 $21,043 6.71
======= ======= =======
Held to maturity:
U.S. Treasury securities....................... $ 6,005 5.73 $ - - $ - -
U.S. Government agencies....................... - - 4,147 6.17 - -
Obligations of state and political subdivisions 40 6.80 161 6.80 163 6.80
Mortgage-backed securities:
GNMA......................................... - - - 1,462 7.88
FNMA......................................... - - 710 6.23 4,174 6.78
------- ------- -------
Total securities held to maturity........ $ 6,045 5.74 $ 5,018 6.20 $ 5,799 7.06
======= ======= =======
Total securities............................... $15,620 6.12 $11,669 6.10 $26,842 6.79
======= ======= =======
<CAPTION>
At June 30, 1998
-----------------------------------------------------
More than Ten Years Total
------------------------- -------------------------
Weighted Weighted
Carrying Average Carrying Average
Value Yield Value Yield
----------- ----------- ----------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Available for sale:
U.S. Government agencies....................... $ - -% $ 15,797 6.20%
Obligations of state and political subdivisions - - 853 6.95
Mortgage-backed securities:
GNMA..................................... 37,714 7.09 37,714 7.09
FNMA..................................... 47,546 6.32 50,518 6.35
FHLMC.................................... 83,251 6.79 100,898 6.77
Other mortgage-backed securities......... 990 10.04 990 10.04
-------- --------
Total securities available for sale.... $169,501 6.74 $206,770 6.70
======== ========
Held to maturity:
U.S. Treasury securities....................... $ - - $ 6,005 5.73
U.S. Government agencies....................... - - 4,147 6.17
Obligations of state and political subdivisions - - 364 6.80
Mortgage-backed securities:
GNMA......................................... 50 7.22 1,512 7.86
FNMA......................................... 11,383 6.77 16,267 6.75
-------- --------
Total securities held to maturity........ $ 11,433 6.77 $ 28,295 6.51
======== ========
Total securities............................... $180,934 6.74 $235,065 6.68
======== ========
</TABLE>
60
<PAGE>
Sources of Funds
General. Deposits, loan repayments, cash flows generated from operations
(primarily cash basis net income) and FHLB advances are the primary sources of
the Association's funds for use in lending, investing and for other general
purposes.
Deposits. The Association offers a variety of deposit accounts with a
range of interest rates and terms. The Association's deposit accounts consist of
savings, retail checking/NOW accounts, business checking accounts, money market
accounts, club accounts and certificate of deposit accounts. The Association
offers certificate of deposit accounts with balances in excess of $100,000 at
preferential rates (jumbo certificates) and also offers Individual Retirement
Accounts ("IRAs") and other qualified plan accounts.
At June 30, 1998, the Association's deposits totaled $435.5 million, or
81.3%, of interest-bearing liabilities. For the year ended June 30, 1998, the
average balance of core deposits totaled $169.3 million, or 40.3% of total
average deposits. At June 30, 1998, the Association had a total of $260.0
million in certificates of deposit, of which $167.8 million had maturities of
one year or less reflecting the shift in deposit accounts from savings accounts
to shorter-term certificate accounts that has occurred in recent years. Although
the Association has a significant portion of its deposits in core deposits,
management monitors activity on the Association's core deposits and, based on
historical experience and the Association's current pricing strategy, believes
it will continue to retain a large portion of such accounts. The Association is
not limited with respect to the rates it may offer on deposit products.
The flow of deposits is influenced significantly by general economic
conditions, changes in money market rates, prevailing interest rates and
competition. The Association's deposits are obtained predominantly from the
areas in which its branch offices are located. The Association relies primarily
on customer service and long-standing relationships with customers to attract
and retain these deposits; however, market interest rates and rates offered by
competing financial institutions affect the Association's ability to attract and
retain deposits. The Association uses traditional means of advertising its
deposit products, including radio and print media and generally does not solicit
deposits from outside its primary market area. While certificate accounts in
excess of $100,000 are accepted by the Association, and may be subject to
preferential rates, the Association does not actively solicit such deposits as
such deposits are more difficult to retain than core deposits. The Association's
policies do not permit the use of brokered deposits.
61
<PAGE>
The following table presents the deposit activity of the Association for
the periods indicated.
For the Years Ended
June 30,
-----------------------------
1998 1997 1996
-------- -------- ---------
(In thousands)
Beginning balance...................... $412,934 $391,715 $376,541
Net deposits (withdrawals)............. 2,579 2,538 (3,154)
Interest credited on deposit accounts.. 19,949 18,681 18,328
-------- -------- --------
Total increase in deposit accounts..... 22,528 21,219 15,174
-------- -------- --------
Ending balance......................... $435,462 $412,934 $391,715
======== ======== ========
At June 30, 1998, the Association had outstanding $53.2 million in
certificate of deposit accounts in amounts of $100,000 or more, maturing as
follows:
Weighted
Maturity Period Amount Average Rate
------------------------------------- ---------- --------------------
(Dollars in thousands)
Three months or less................. $ 5,374 6.24%
Over three through six months........ 10,585 6.17
Over six through 12 months........... 17,735 5.91
Over 12 months....................... 19,531 5.64
-------
Total................................ $53,225 5.89
62
<PAGE>
The following table sets forth the distribution of the Association's
deposit accounts at June 30, 1998 and the distribution of the average deposit
accounts for the periods indicated and the weighted average interest rates on
each category of deposits presented.
<TABLE>
<CAPTION>
At June 30, 1998 For the Year Ended June 30, 1998
--------------------------------- ----------------------------------
Percent Weighted Percent Weighted
of Total Average Average of Total Average
Balance Deposits Rate Balance Deposits Rate
--------- ---------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Noninterest bearing demand.... $ 5,217 1.20% --% $ 4,560 1.08% --%
NOW and money market.......... 102,875 23.62 3.51 95,871 22.80 3.44
Savings....................... 67,401 15.48 2.24 68,945 16.40 2.41
Certificates of deposit....... 259,969 59.70 5.88 251,130 59.72 5.93
-------- ------ -------- ------
Total deposits............ $435,462 100.00% 4.69 $420,506 100.00% 4.72
======== ====== ======== ======
<CAPTION>
For the Year Ended June 30, 1997 For the Year Ended June 30, 1996
--------------------------------- ----------------------------------
Percent Weighted Percent Weighted
Average of Total Average Average of Total Average
Balance Deposits Rate Balance Deposits Rate
--------- ---------- ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Noninterest bearing demand.... $ 3,681 0.92% --% $ 3,033 0.79% --%
NOW and money market.......... 84,388 21.15 3.20 70,183 18.27 2.77
Savings....................... 72,132 18.08 2.47 77,953 20.29 2.58
Certificates of deposit....... 238,859 59.86 5.87 232,955 60.65 5.98
-------- ------ -------- ------
Total deposits............ $399,060 100.00% 4.64 $384,124 100.00% 4.66
======== ====== ======== ======
</TABLE>
The following table presents, by various rate categories, the amount of
certificate of deposit accounts outstanding at the dates indicated.
<TABLE>
<CAPTION>
Period to Maturity from June 30, 1998
---------------------------------------------------------------------------------
Over Total at
Less than One to Two to Three to Four to Five June 30,
One Year Two Years Three Years Four Years Five Years Years 1998
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Certificate accounts:
0 to 4.00%......................... $1,241 $1,503 $71 $19 $ - $ - $2,834
4.01 to 5.00%...................... 15,072 969 681 2,006 41 414 19,183
5.01 to 6.00%...................... 109,434 29,629 13,664 3,022 1,017 4,110 160,876
6.01 to 7.00%...................... 25,359 18,244 3,268 1,646 569 10,415 59,501
7.01 to 8.00%...................... 3,160 759 20 - - - 3,939
8.01 to 9.00%...................... 3,036 56 - 22 6 - 3,120
Over 9.01%......................... 10,516 - - - - - 10,516
-------- ------- ------- ------ ------ ------- --------
Total at June 30, 1998......... $167,818 $51,160 $17,704 $6,715 $1,633 $14,939 $259,969
======== ======= ======= ====== ====== ======= ========
</TABLE>
63
<PAGE>
Borrowings. The Association's policy has been to utilize borrowings as an
alternative and/or less costly source of funds. The Association obtains
advances from the FHLB-Cincinnati, which are collateralized by the capital stock
of the FHLB-Cincinnati held by the Association, and certain mortgage loans of
the Association. The Association also borrows funds through reverse repurchase
agreements with the FHLB-Cincinnati and primary broker/dealers. Advances from
the FHLB-Cincinnati are made pursuant to several different credit programs, each
of which has its own interest rate and maturity. The maximum amount that the
FHLB-Cincinnati will advance to member institutions, including the Association,
for purposes of other than meeting withdrawals, fluctuates from time to time in
accordance with the policies of the FHLB-Cincinnati and the OTS. The maximum
amount of FHLB-Cincinnati advances permitted to a member institution generally
is reduced by borrowings from any other source. At June 30, 1998, the
Association's FHLB-Cincinnati advances totaled $44.8 million, representing 8.1%
of total liabilities.
During the year ended June 30, 1998, the Association continued to borrow
funds from primary broker/dealers. The borrowings are collateralized by
designated mortgage-backed securities and investment securities. The total of
these borrowings at June 30, 1998, was $60.4 million, representing 11.0% of
total liabilities. The Association has the right to freely substitute
collateral as long as the margin is at least 95% of all outstanding borrowings,
including accrued interest. The Association has used these repurchase
agreements in arbitrage strategies, using the funds to purchase a mix of fixed
and adjustable rate mortgage-backed securities, to generate a spread of
approximately 100 to 120 basis points, as well as to help reduce the
Association's interest rate risk. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Management Strategy."
The Association also has an available overnight line-of-credit with the
FHLB-Cincinnati for a maximum of $20.0 million. There was no fee for the line-
of-credit for the year ended June 30, 1998. The Association may continue to
increase borrowings in the future to fund asset growth. To the extent it does
so, the Association may experience an increase in its cost of funds.
The following table sets forth certain information regarding the
Association's borrowed funds at or for the periods ended on the dates indicated:
At or For the Years Ended
June 30,
---------------------------------
1998 1997 1996
---------------------------------
(Dollars in thousands)
FHLB advances:
Average balance outstanding.............. $52,396 $68,596 $68,615
Maximum amount outstanding at any
month-end during the period............. 65,705 87,001 88,054
Balance outstanding at end of period..... 44,820 58,398 76,078
Weighted average interest rate during 5.83% 5.76% 5.79%
the period..............................
Weighted average interest rate at end of 5.71% 5.84% 5.70%
period..................................
Repurchase agreements:
Average balance outstanding.............. $45,044 $ 8,470 $ -
Maximum amount outstanding at any
month-end during the period............. 60,430 16,000 -
Balance outstanding at end of period..... 60,430 16,000 -
Weighted average interest rate during
the period.............................. 5.76% 5.67% -%
Weighted average interest rate at end of
period.................................. 5.69% 5.60% -%
Total borrowings:
Average balance outstanding.............. $97,440 $77,066 $68,615
Maximum amount outstanding at any
month-end during the period............. 109,089 87,001 88,054
Balance outstanding at end of period..... 105,250 74,398 76,078
Weighted average interest rate during
the period.............................. 5.80% 5.75% 5.79%
Weighted average interest rate at end of
period.................................. 5.70% 5.79% 5.70%
64
<PAGE>
Properties
The Association conducts its business through an executive and 10 other
full-service branch offices. The Association currently is considering plans to
renovate or rebuild its main office, which includes its administrative offices.
The Board of Directors is currently considering options presented to it by an
outside consultant, which range from renovation of the existing facility to
razing the existing facility and building a new office at that location. The
cost of renovation or rebuilding is currently estimated to be up to $15.0
million, exclusive of land acquisition costs.
Original Net Book Value
Year of Property or
Leased Leased Date of Leasehold
or or Lease Improvements at
Location Owned Acquired Expiration June 30, 1998
- ------------------------------ ------- ---------- ---------- ------------------
Executive/Main/Branch Office:
185 East Market St. Owned 1940 N/A $353,581
Warren, OH 44482
Branch Offices:
201 Elm Road NE Leased 1970 2002 8,128
Warren, OH 44483
8226 East Market Street Leased 1973 2004 35,051
Warren, OH 44484
4460 Mahoning Ave NW Owned 1976 N/A 376,401
Warren, OH 44483
325 S. High Street Owned 1979 N/A 167,281
Cortland, OH 44410
7290 Sharon Warren Rd. Owned 1981 N/A 144,813
Brookfield, OH 44403
Village Center Plaza, Leased 1986 2006 237,358
Unit 530
6002 Warren-Youngstown Rd.
Niles, OH 44446
8228 East Market St. Leased 1994 2003 154,682
Warren, OH 44484
(Loan Center)
2104 Niles Cortland Rd, SE Leased 1995 2000 202,796
Warren, OH 44484
(Inside Super Kmart)
2790 Mahoning Ave NW Leased 1995 1999 3,009
Warren, OH 44483
486 Boardman Canfield Rd. Leased 1996 2001 118,082
Youngstown, OH 44512
5220 Mahoning Avenue, Suite A Leased 1997 2002 99,647
Youngstown, OH 44515
45 Manor Drive, Suite 400 Leased 1998 2003 57,579
Canfield, OH 44406
(Loan Center)
The Association also owns an office building located at 159 E. Market
Street in Warren, Ohio, which is partially occupied by four commercial business
tenants. The Association presently receives aggregate annual rental income of
approximately $101,000 from its tenants. The largest tenant has a lease which
expires in December 1999, with a 3 year option to renew. The other leases
expire in the years 2000 and 2001.
65
<PAGE>
Legal Proceedings
The Association is not involved in any pending legal proceedings other than
routine legal proceedings occurring in the ordinary course of business. Such
routine legal proceedings, in the aggregate, are believed by management to be
immaterial to the financial condition and results of operations of the
Association.
Personnel
As of June 30, 1998, the Association had 150 full-time employees and 25
part-time employees. The employees are not represented by a collective
bargaining unit and the Association considers its relationship with its
employees to be good. See "Management of the Association - Benefit Plans" for a
description of certain compensation and benefit programs offered to the
Association's employees.
FEDERAL AND STATE TAXATION
Federal Taxation
General. The Company and the Association will report their income on a
June 30 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 Association's reserve for bad debts
discussed below. The following discussion of tax matters is intended only as a
summary and does not purport to be a comprehensive description of the tax rules
applicable to the Association or the Company. The Association has been audited
by the IRS for the 1992 and 1993 tax years.
Bad Debt Reserve. Historically, savings institutions such as the
Association which met certain definitional tests primarily related to their
assets and the nature of their business ("qualifying thrifts") were permitted to
establish a reserve for bad debts and to make annual additions thereto, which
are deducted in arriving at their taxable income. The Association'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 Association's actual loss experience, or a percentage equal to 8%
of the Association's taxable income, computed with certain modifications and
reduced by the amount of any permitted addition to the non-qualifying reserve.
Due to the Association's loss experience, the Association generally recognized a
bad debt deduction equal to 8% of taxable income.
In August 1996, the provisions repealing the above thrift bad debt rules
were passed by Congress as part of "The Small Business Job Protection Act of
1996." The new rules eliminate the 8% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax years beginning
after December 31, 1995. These rules also require that all thrift institutions
recapture all or a portion of their bad debt reserves added since the base year
(last taxable year beginning before January 1, 1988). The Association has
previously recorded a deferred tax liability equal to the bad debt recapture and
as such, the new rules will have no effect on net income or federal income tax
expense. For taxable years beginning after December 31, 1995, the Association's
bad debt deduction will be equal to net charge-offs. The new rules allow an
institution to suspend the bad debt reserve recapture for the 1996 and 1997 tax
years if the institution's lending activity for those years is equal to or
greater than the institution's average mortgage lending activity for the six
taxable years preceding 1996. For this purpose, only home purchase and home
improvement loans are included and the institution can elect to have the tax
years with the highest and lowest lending activity removed from the average
calculation. If an institution is permitted to postpone the reserve recapture,
it must begin its six year recapture no later than the 1998 tax year. The
unrecaptured base year reserves will not be subject to recapture as long as the
institution continues to carry on the business of banking. In addition, the
balance of the pre-1988 bad debt reserves continue to be subject to a provision
of present law referred to below that require recapture in the case of certain
excess distributions to shareholders.
Distributions. To the extent that the Association makes "non-dividend
distributions" to the Company that are considered as made (i) from the reserve
for losses on qualifying real property loans, to the extent the reserve for such
losses exceeds the amount that would have been allowed under the experience
method, or (ii) from the supplemental reserve for losses on loans ("Excess
Distributions"), then an amount based on the amount distributed will be included
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in the Association's taxable income. Non-dividend distributions include
distributions in excess of the Association'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 Association'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
Association's bad debt reserve. Thus, any dividends to the Company that would
reduce amounts appropriated to the Association's bad debt reserve and deducted
for federal income tax purposes would create a tax liability for the
Association. 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 Association makes a "non-dividend distribution," then
approximately one and one-half times the amount so used would be includable in
gross income for federal income tax purposes, assuming a 34% corporate income
tax rate (exclusive of state and local taxes). See "Regulation" and "Dividend
Policy" for limits on the payment of dividends of the Association. The
Association does not intend to pay dividends that would result in a recapture of
any portion of its bad debt reserve.
Corporate Alternative Minimum Tax. The Code imposes a tax on alternative
minimum taxable income ("AMTI") at a rate of 20%. The excess of the bad debt
reserve deduction claimed by the Association over the deduction that would have
been allowable under the experience method is treated as a preference item for
purposes of computing the AMTI. Only 90% of AMTI can be offset by net operating
loss carryovers of which the Association currently has none. AMTI is increased
by an amount equal to 75% of the amount by which the Association's adjusted
current earnings exceeds its AMTI (determined without regard to this preference
and prior to reduction for net operating losses).
Dividends Received Deduction and Other Matters. The Company may exclude
from its income 100% of dividends received from the Association as a member of
the same affiliated group of corporations. The corporate dividends received
deduction is generally 70% in the case of dividends received from unaffiliated
corporations with which the Company and the Association will not file a
consolidated tax return, except that if the Company or the Association own more
than 20% of the stock of a corporation distributing a dividend then 80% of any
dividends received may be deducted.
Ohio Taxation
The Company is subject to the Ohio corporation franchise tax, which, as
applied to the Company, is a tax measured by both net earnings and net worth.
The rate of tax is the greater of (i) 5.1% on the first $50,000 of computed Ohio
taxable income and 8.9% of computed Ohio taxable income in excess of $50,000 and
(ii) 0.582% times taxable net worth. Under these alternative measures of
computing tax liability, the states to which a taxpayer's adjusted total net
income and adjusted total net worth are apportioned or allocated are determined
by complex formulas. The minimum tax is $50 per year.
A special litter tax is also applicable to all corporations, including the
Company, subject to the Ohio corporation franchise tax other than "financial
institutions." If the franchise tax is paid on the net income basis, the litter
tax is equal to .11% of the first $50,000 of computed Ohio taxable income and
.22% of computed Ohio taxable income in excess of $50,000. If the franchise tax
is paid on the net worth basis, the litter tax is equal to .014% times taxable
net worth.
Ohio corporation franchise tax law is scheduled to change markedly as a
consequence of legislative reforms enacted July 1, 1997. Tax liability,
however, continues to be measured by both net income and net worth. In general,
tax liability will be the greater of (i) 5.1% on the first $50,000 of computed
Ohio taxable income and 8.5% of computed Ohio taxable income in excess of
$50,000 or (ii) 0.40% of taxable net worth. Under these alternative measures of
computing tax liability, the states to which total net income and total net
worth will be apportioned or allocated will continue to be determined by complex
formulas, but the formulas change. The minimum tax will still be $50 per year
and maximum tax liability as measured by net worth will be limited to $150,000
per year. The special litter taxes remain in effect. Various other changes in
the tax law may affect the Company.
The Association is a "financial institution" for State of Ohio tax
purposes. As such, it is subject to the Ohio
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corporation franchise tax on "financial institutions," which is imposed annually
at a rate of 1.5% of the Association's apportioned book net worth, determined in
accordance with GAAP, less any statutory deduction. This rate of tax is
scheduled to decrease in each of the years 1999 and 2000. As a "financial
institution," the Association is not subject to any tax based upon net income or
net profits imposed by the State of Ohio.
Delaware Taxation
As a Delaware holding company not earning income in Delaware, the Company
is exempted from Delaware corporate income tax but is required to file an annual
report with and pay an annual franchise tax to the State of Delaware.
REGULATION
General
The Association is subject to extensive regulation, examination and
supervision by the OTS, as its chartering agency, and the FDIC, as the deposit
insurer. The Association is a member of the FHLB System. The Association's
deposit accounts are insured up to applicable limits by the SAIF managed by the
FDIC. The Association must file reports with the OTS and the FDIC concerning
its activities and financial condition in addition to obtaining regulatory
approvals prior to entering into certain transactions such as mergers with, or
acquisitions of, other financial institutions. There are periodic examinations
by the OTS and the FDIC to test the Association's compliance with various
regulatory requirements. This regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the insurance fund and depositors. The
regulatory structure also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of assets and
the establishment of adequate loan loss reserves for regulatory purposes. Any
change in such policies, whether by the OTS, the FDIC or the Congress, could
have a material adverse impact on the Company, the Association and their
operations. Assuming that the holding company form of organization is utilized,
the Company, as a savings and loan holding company, will also be required to
file certain reports with, and otherwise comply with the rules and regulations
of the OTS and of the SEC under the federal securities laws.
Certain of the regulatory requirements applicable to the Association and to
the Company are referred to below or elsewhere herein. The description of
statutory provisions and regulations applicable to savings associations set
forth in this Prospectus do not purport to be complete descriptions of such
statutes and regulations and their effects on the Association and the Company
and is qualified in its entirety by reference to such statutes and regulations.
Federal Savings Institution Regulation
Business Activities. The activities of federal savings institutions are
governed by the Home Owners' Loan Act, as amended (the "HOLA") and, in certain
respects, the Federal Deposit Insurance Act ("FDI Act") and the regulations
issued by the agencies to implement these statutes. These laws and regulations
delineate the nature and extent of the activities in which federal associations
may engage. In particular, many types of lending authority for federal
associations, e.g., commercial, non-residential real property loans and consumer
loans, are limited to a specified percentage of the institution's capital or
assets.
Loans-to-One Borrower. Under the HOLA, savings institutions are generally
subject to the national bank limit on loans-to-one borrower. Generally, this
limit is 15% of the Association's unimpaired capital and surplus, plus an
additional 10% of unimpaired capital and surplus, if such loan is secured by
readily-marketable collateral, which is defined to include certain financial
instruments and bullion. At June 30, 1998, the Association's largest aggregate
amount of loans-to-one borrower consisted of a $3.4 million real estate loan
for a community development project.
Qualified Thrift Lender Test. The HOLA requires savings institutions to
meet a qualified thrift lender ("QTL") test. Under the QTL test, a savings
association is required to qualify as a "domestic building and loan
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association" as that term is defined in the Code or maintain at least 65% of its
"portfolio assets" (total assets less: (i) specified liquid assets up to 20% of
total assets; (ii) intangibles, including goodwill; and (iii) the value of
property used to conduct business) in certain "qualified thrift investments"
(primarily residential mortgages and related investments, including certain
mortgage-backed and related securities) in at least 9 months out of each 12-
month period. A savings association that fails the QTL test must either convert
to a bank charter or operate under certain restrictions. As of June 30, 1998,
the Association met the QTL test. Recent legislation has expanded the extent to
which education loans, credit card loans and small business loans may be
considered as "qualified thrift investments."
Limitation on Capital Distributions. OTS regulations impose limitations
upon all capital distributions by a savings institution, such as cash dividends,
payments to repurchase or otherwise acquire its shares, payments to shareholders
of another institution in a cash-out merger and other distributions charged
against capital. The rule establishes three tiers of institutions, which are
based primarily on an institution's capital level. An institution that exceeds
all fully phased-in regulatory capital requirements before and after a proposed
capital distribution ("Tier 1 Bank") and has not been advised by the OTS that it
is in need of more than normal supervision, could, after prior notice to, but
without the approval of the OTS, make capital distributions during a calendar
year equal to the greater of: (i) 100% of its net earnings to date during the
calendar year plus the amount that would reduce by one-half its "surplus capital
ratio" (the excess capital over its fully phased-in capital requirements) at the
beginning of the calendar year; or (ii) 75% of its net earnings for the previous
four quarters. Any additional capital distributions would require prior OTS
approval. In the event the Association's capital fell below its capital
requirements or the OTS notified it that it was in need of more than normal
supervision, the Association's ability to make capital distributions could be
restricted. In addition, the OTS could prohibit a proposed capital distribution
by any institution, which would otherwise be permitted by the regulation, if the
OTS determines that such distribution would constitute an unsafe or unsound
practice.
The OTS has proposed amendments to its capital distribution regulations
which could conform OTS regulations to the existing requirements of other
banking agencies, as well as simplify the existing OTS regulations. These
proposed rules would eliminate the requirement of notifying the OTS when cash
dividends of a certain amount will be paid for institutions that will remain at
least adequately capitalized. However, applications for capital distributions
will be required for all distributions over a specified amount. Notices will
still be required for distributions that would reduce the amount of or retire
common or preferred stock, or debt instruments included in the capital and for
all capital distributions by savings associations in a holding company
structure.
Liquidity. The Association is required to maintain an average daily
balance of specified liquid assets equal to a monthly average of not less than a
specified percentage (currently 4%) of its net withdrawable deposit accounts
plus short-term borrowings. Monetary penalties may be imposed for failure to
meet these liquidity requirements. The Association's average liquidity ratio
for the month ended June 30, 1998 was 9.40%, which exceeded the applicable
requirements. The Association has never been subject to monetary penalties for
failure to meet its liquidity requirements. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations --Liquidity and
Capital Resources."
Assessments. Savings institutions are required by regulation to pay
assessments to the OTS to fund the agency's operations. The general assessment,
paid on a semi-annual basis, is based upon the savings institution's total
assets, including consolidated subsidiaries, as reported in the Association's
latest quarterly Thrift Financial Report. The assessments paid by the
Association for the year ended June 30, 1998 totaled $124,000.
Branching. OTS regulations permit federally-chartered savings associations
to branch nationwide under certain conditions. Generally, federal savings
associations may establish interstate networks and geographically diversify
their loan portfolios and lines of business. The OTS authority preempts any
state law purporting to regulate branching by federal savings associations.
Transactions with Related Parties. The Association's authority to engage
in transactions with related parties or "affiliates" (i.e., any company that
controls or is under common control with an institution, including the Company
and any non-savings institution subsidiaries that the Company may establish) is
limited by Sections 23A and 23B of the Federal Reserve Act ("FRA"). Section 23A
restricts the aggregate amount of covered transactions with any
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individual affiliate to 10% of the capital and surplus of the savings
institution and also limits the aggregate amount of transactions with all
affiliates to 20% of the savings institution's capital and surplus. Certain
transactions with affiliates are required to be secured by collateral in an
amount and of a type described in Section 23A and the purchase of low quality
assets from affiliates is generally prohibited. Section 23B generally requires
that certain transactions with affiliates, including loans and asset purchases,
must be on terms and under circumstances, including credit standards, that are
substantially the same or at least as favorable to the institution as those
prevailing at the time for comparable transactions with non-affiliated
companies. A savings association also is prohibited from extending credit to any
affiliate engaged in activities not permitted for a bank holding company and may
not purchase the securities of an affiliate (other than a subsidiary).
Section 22(h) of the Federal Reserve Act restricts a savings association
with respect to loans to directors, executive officers, and principal
stockholders. Under Section 22(h), loans to directors, executive officers and
stockholders who control, directly or indirectly, 10% or more of voting
securities of a savings association, and certain related interests of any of the
foregoing, may not exceed, together with all other outstanding loans to such
persons and affiliated entities, the savings association's total capital and
surplus. Section 22(h) also prohibits loans above amounts prescribed by the
appropriate federal banking agency to directors, executive officers, and
shareholders who directly or indirectly control 10% or more of voting securities
of a stock savings association, and their respective related interests, unless
such loan is approved in advance by a majority of the board of directors of the
savings association. Any "interested" director may not participate in the
voting. The loan amount (which includes all other outstanding loans to such
person) as to which such prior board of director approval is required, is the
greater of $25,000 or 5% of capital and surplus or any loans over $500,000.
Further, pursuant to Section 22(h), loans to directors, executive officers and
principal shareholders must be made on terms substantially the same as offered
in comparable transactions to other persons except for extensions of credit made
pursuant to a benefit or compensation program that is widely available to the
institution's employees and does not give preference to insiders over other
employees. Section 22(g) of the Federal Reserve Act places additional
limitations on loans to executive officers.
Enforcement. Under the FDI Act, the OTS has primary enforcement
responsibility over savings institutions and has the authority to bring action
against all "institution-affiliated parties," including stockholders, and any
attorneys, appraisers and accountants who knowingly or recklessly participate in
wrongful action likely to have an adverse effect on an insured institution.
Formal enforcement action may range from the issuance of a capital directive or
cease and desist order to removal of officers or directors, receivership,
conservatorship or termination of deposit insurance. Civil penalties cover a
wide range of violations and can amount to $25,000 per day, or $1 million per
day in especially egregious cases. Under the FDI Act, the FDIC has the
authority to recommend to the Director of the OTS that enforcement action be
taken with respect to a particular savings institution. If action is not taken
by the Director, the FDIC has authority to take such action under certain
circumstances. Federal and state law also establishes criminal penalties for
certain violations.
Standards for Safety and Soundness. The FDI Act requires each federal
banking agency to prescribe for all insured depository institutions standards
relating to, among other things, internal controls, information systems and
audit systems, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, and compensation, fees and benefits and such other
operational and managerial standards as the agency deems appropriate. The
federal banking agencies have adopted final regulations and Interagency
Guidelines Establishing Standards for Safety and Soundness ("Guidelines") to
implement these safety and soundness standards. The Guidelines set forth the
safety and soundness standards that the federal banking agencies use to identify
and address problems at insured depository institutions before capital becomes
impaired. The Guidelines address internal controls and information systems;
internal audit system; credit underwriting; loan documentation; interest rate
risk exposure; asset growth; asset quality; earnings; and compensation, fees and
benefits. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by the Guidelines, the agency
may require the institution to submit to the agency an acceptable plan to
achieve compliance with the standard, as required by the FDI Act. The final
regulations establish deadlines for the submission and review of such safety and
soundness compliance plans.
Capital Requirements. The OTS capital regulations require savings
institutions to meet three capital standards: a 1.5% tangible capital standard,
a 3% leverage (core capital) ratio and an 8% risk based capital standard. Core
capital is defined as common stockholder's equity (including retained earnings),
certain non-cumulative perpetual
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preferred stock and related surplus, minority interests in equity accounts of
consolidated subsidiaries less intangibles other than certain mortgage servicing
rights ("MSRs") and credit card relationships. The OTS regulations require that,
in meeting the leverage ratio, tangible and risk-based capital standards
institutions generally must deduct investments in and loans to subsidiaries
engaged in activities not permissible for a national bank. In addition, the OTS
prompt corrective action regulation provides that a savings institution that has
a leverage capital ratio of less than 4% (3% for institutions receiving the
highest CAMEL examination rating) will be deemed to be "undercapitalized" and
may be subject to certain restrictions. See "--Prompt Corrective Regulatory
Action." The OTS has proposed to amend its capital regulations so that the
leverage requirement is identical to the above prompt corrective standard to
avoid "undercapitalized" status.
The risk-based capital standard for savings institutions requires the
maintenance of total capital (which is defined as core capital and supplementary
capital) to risk-weighted assets of 8%. In determining the amount of risk-
weighted assets, all assets, including certain off-balance sheet assets, are
multiplied by a risk-weight of 0% to 100%, as assigned by the OTS capital
regulation based on the risks OTS believes are inherent in the type of asset.
The components of core capital are equivalent to those discussed earlier under
the 3% leverage standard. The components of supplementary capital currently
include cumulative preferred stock, long-term perpetual preferred stock,
mandatory convertible securities, subordinated debt and intermediate preferred
stock and, within specified limits, the allowance for loan and lease losses.
Overall, the amount of supplementary capital included as part of total capital
cannot exceed 100% of core capital.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. The final interest rate risk rule also adjusts the
risk-weighting for certain mortgage derivative securities. Under the rule,
savings associations with "above normal" interest rate risk exposure would be
subject to a deduction from total capital for purposes of calculating their
risk-based capital requirements. A savings association's interest rate risk
would be measured by the decline in the net portfolio value of its assets (i.e.,
the difference between incoming and outgoing discounted cash flows from assets,
liabilities and off-balance sheet contracts) that would result from a
hypothetical 200-basis point increase or decrease in market interest rates
divided by the estimated economic value of the association's assets, as
calculated in accordance with guidelines set forth by the OTS. A savings
association whose measured interest rate risk exposure exceeds 2% must deduct an
interest rate component in calculating its total capital under the risk-based
capital rule. The interest rate risk component is an amount equal to one-half
of the difference between the institution's measured interest rate risk and 2%,
multiplied by the estimated economic value of the association's assets. That
dollar amount is deducted from an association's total capital in calculating
compliance with its risk-based capital requirement. Under the rule, there is a
two quarter lag between the reporting date of an institution's financial data
and the effective date for the new capital requirement based on that data. A
savings association with assets of less than $300 million and risk-based capital
ratios in excess of 12% is not subject to the interest rate risk component,
unless the OTS determines otherwise. The rule also provides that the Director
of the OTS may waive or defer an association's interest rate risk component on a
case-by-case basis. The OTS has postponed indefinitely the date that the
component will first be deducted from an institution's total capital.
At June 30, 1998, the Association met each of its capital requirements, in
each case on a fully phased-in basis. See "Regulatory Capital Compliance" for a
table which sets forth in terms of dollars and percentages the OTS tangible,
leverage and risk-based capital requirements, the Association's historical
amounts and percentages at June 30, 1998, and pro forma amounts and percentages
based upon the issuance of the shares within the Estimated Price Range and
assuming that a portion of the net proceeds are retained by the Company.
Prompt Corrective Regulatory Action
Under the OTS prompt corrective action regulations, the OTS is required to
take certain supervisory actions against undercapitalized institutions, the
severity of which depends upon the institution's degree of capitalization.
Generally, a savings institution that has a total risk-based capital of less
than 8.0% or a leverage ratio or a Tier 1 capital ratio that is less than 4.0%
is considered to be undercapitalized. A savings institution that has a total
risk-based capital less than 6.0%, a Tier 1 risk-based capital ratio of less
than 3.0% or a leverage ratio that is less than 3.0% is considered to be
"significantly undercapitalized" and a savings institution that has a tangible
capital to assets ratio equal to or less than 2.0% is deemed to be "critically
undercapitalized." Subject to a narrow exception, the banking regulator is
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required to appoint a receiver or conservator for an institution that is
critically undercapitalized. The regulation also provides that a capital
restoration plan must be filed with the OTS within 45 days of the date an
association receives notice that it is "undercapitalized," "significantly
undercapitalized" or "critically undercapitalized." Compliance with the plan
must be guaranteed by any parent holding company. In addition, numerous
mandatory supervisory actions may become immediately applicable to the
institution depending upon its category, including, but not limited to,
increased monitoring by regulators, restrictions on growth, and capital
distributions and limitations on expansion. The OTS could also take any one of a
number of discretionary supervisory actions, including the issuance of a capital
directive and the replacement of senior executive officers and directors.
Insurance of Deposit Accounts
The FDIC has adopted a risk-based insurance assessment system. The FDIC
assigns an institution to one of three capital categories based on the
institution's financial information, as of the reporting period ending seven
months before the assessment period, consisting of (1) well capitalized, (2)
adequately capitalized or (3) undercapitalized, and one of three supervisory
subcategories within each capital group. The supervisory subgroup to which an
institution is assigned is based on a supervisory evaluation provided to the
FDIC by the institution's primary federal regulator and information which the
FDIC determines to be relevant to the institution's financial condition and the
risk posed to the deposit insurance funds. An institution's assessment rate
depends on the capital category and supervisory category to which it is
assigned. Assessment rates for SAIF member institutions currently range from 0
basis points to 27 basis points. The FDIC is authorized to raise the assessment
rates in certain circumstances. The FDIC has exercised this authority several
times in the past and may raise insurance premiums in the future. If such
action is taken by the FDIC, it could have an adverse effect on the earnings of
the Association. The Association's assessment rate for the year ended June 30,
1998 was 0.006% of assessable deposits.
Under the FDI Act, insurance of deposits may be terminated by the FDIC upon
a finding that the institution has engaged in unsafe or unsound practices, is in
an unsafe or unsound condition to continue operations or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC or the
OTS. The management of the Association does not know of any practice, condition
or violation that might lead to termination of deposit insurance.
Community Reinvestment Act
Federal Regulation. Under the Community Reinvestment Act, as amended
("CRA"), as implemented by OTS regulations, a savings association has a
continuing and affirmative obligation consistent with its safe and sound
operation to help meet the credit needs of its entire community, including low
and moderate income neighborhoods. The CRA does not establish specific lending
requirements or programs for financial institutions nor does it limit an
institution's discretion to develop the types of products and services that it
believes are best suited to its particular community, consistent with the CRA.
The CRA requires the OTS, in connection with its examination of a savings
institution, to assess the institution's record of meeting the credit needs of
its community and to take such record into account in its evaluation of certain
applications by such institution. The FIRREA amended the CRA to require the OTS
to provide a written evaluation of an institution's CRA performance utilizing a
four-tiered descriptive rating system, which replaced the five-tiered numerical
rating system. The Association's latest CRA rating received from the OTS was
"Outstanding."
Federal Home Loan Bank System
The Association is a member of the FHLB System, which consists of 12
regional FHLBs. The FHLB provides a central credit facility primarily for
member institutions. The Association, as a member of the FHLB, is required to
acquire and hold shares of capital stock in the FHLB in an amount at least equal
to 1% of the aggregate principal amount of its unpaid residential mortgage loans
and similar obligations at the beginning of each year, or 1/20 of its advances
(borrowings) from the FHLB, whichever is greater. The Association was in
compliance with this requirement with an investment in FHLB stock at June 30,
1998 of $4.4 million. FHLB advances must be secured by specified types of
collateral and all long-term advances may only be obtained for the purpose of
providing funds for residential housing finance. At June 30, 1998, the
Association had $44.8 million in FHLB advances.
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The FHLBs are required to provide funds for the resolution of insolvent
thrifts and to contribute funds for affordable housing programs. These
requirements could reduce the amount of dividends that the FHLBs pay to their
members and could also result in the FHLBs imposing a higher rate of interest on
advances to their members. For the years ended June 30, 1998, 1997 and 1996,
dividends from the FHLB to the Association amounted to approximately $352,000,
$330,000 and $261,000, respectively. If dividends were reduced, the
Association's net interest income would likely also be reduced. Further, there
can be no assurance that the impact of recent or future legislation on the FHLBs
will not also cause a decrease in the value of the FHLB stock held by the
Association.
Federal Reserve System
The Federal Reserve Board regulations require savings institutions to
maintain non-interest-earning reserves against their transaction accounts. The
Federal Reserve Board regulations generally require that reserves be maintained
against aggregate transaction accounts as follows: for accounts aggregating
$47.8 million or less (subject to adjustment by the Federal Reserve Board) the
reserve requirement is 3%; and for accounts greater than $47.8 million, the
reserve requirement is $1.4 million plus 10% (subject to adjustment by the
Federal Reserve Board between 8% and 14%) against that portion of total
transaction accounts in excess of $47.8 million. The first $4.7 million of
otherwise reservable balances (subject to adjustment by the Federal Reserve
Board) are exempted from the reserve requirements. The Association is in
compliance with the foregoing requirements. Because required reserves must be
maintained in the form of either vault cash, a non-interest-bearing account at a
Federal Reserve Bank or a pass-through account as defined by the Federal Reserve
Board, the effect of this reserve requirement is to reduce the Association's
interest-earning assets. FHLB System members are also authorized to borrow from
the Federal Reserve "discount window," but Federal Reserve Board regulations
require institutions to exhaust all FHLB sources before borrowing from a Federal
Reserve Bank.
Holding Company Regulation
The Company, if utilized, will be a non-diversified unitary savings and
loan holding company within the meaning of the HOLA. As such, the Company will
be required to register with the OTS and will be subject to OTS regulations,
examinations, supervision and reporting requirements. In addition, the OTS has
enforcement authority over the Company and its non-savings institution
subsidiaries. Among other things, this authority permits the OTS to restrict or
prohibit activities that are determined to be a serious risk to the subsidiary
savings institution. The Association must notify the OTS 30 days before
declaring any dividend to the Company.
As a unitary savings and loan holding company, the Company generally will
not be restricted under existing laws as to the types of business activities in
which it may engage, provided that the Association continues to be a QTL. See
"-- Federal Savings Institution Regulation -- QTL Test" for a discussion of the
QTL requirements. Upon any non-supervisory acquisition by the Company of
another savings association, the Company would become a multiple savings and
loan holding company (if the acquired institution is held as a separate
subsidiary) and would be subject to extensive limitations on the types of
business activities in which it could engage. The HOLA limits the activities of
a multiple savings and loan holding company and its non-insured institution
subsidiaries primarily to activities permissible for bank holding companies
under Section 4(c)(8) of the Bank Holding Company Act, as amended (the "BHC
Act"), subject to the prior approval of the OTS, and to other activities
authorized by OTS regulation. Previously proposed legislation would have
treated all savings and loan holding companies as bank holding companies and
limit the activities of such companies to those permissible for bank holding
companies.
The HOLA prohibits a savings and loan holding company, directly or
indirectly, or through one or more subsidiaries, from acquiring more than 5% of
the voting stock of another savings institution, or holding company thereof,
without prior written approval of the OTS; from acquiring or retaining, with
certain exceptions, more than 5% of a non-subsidiary holding company or savings
association. The HOLA also prohibits a savings and loan holding company from
acquiring more than 5% of a company engaged in activities other than those
authorized for savings and loan holding companies by the HOLA; or acquiring or
retaining control of a depository institution that is not insured by the FDIC.
In evaluating applications by holding companies to acquire savings institutions,
the OTS must consider the financial and managerial resources and future
prospects of the company and institution involved, the effect of the acquisition
on the risk to the insurance funds, the convenience and needs of the community
and competitive factors.
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The OTS is prohibited from approving any acquisition that would result in a
multiple savings and loan holding company controlling savings institutions in
more than one state, except: (i) the approval of interstate supervisory
acquisitions by savings and loan holding companies, and (ii) the acquisition of
a savings institution in another state if the laws of the state of the target
savings institution specifically permit such acquisitions. The states vary in
the extent to which they permit interstate savings and loan holding company
acquisitions.
Federal Securities Laws
The Company has filed with the SEC a registration statement under the
Securities Act for the registration of the Common Stock to be issued pursuant to
the Conversion. Upon completion of the Conversion, the Company's Common Stock
will be registered with the SEC under the Exchange Act. The Company will then
be subject to the information, proxy solicitation, insider trading restrictions
and other requirements under the Exchange Act.
The registration under the Securities Act of shares of the Common Stock to
be issued in the Conversion does not cover the resale of such shares. Shares of
the Common Stock purchased by persons who are not affiliates of the Company may
be resold without registration. Shares purchased by an affiliate of the Company
will be subject to the resale restrictions of Rule 144 under the Securities Act.
If the Company meets the current public information requirements of Rule 144
under the Securities Act, each affiliate of the Company who complies with the
other conditions of Rule 144 (including those that require the affiliate's sale
to be aggregated with those of certain other persons) would be able to sell in
the public market, without registration, a number of shares not to exceed, in
any three-month period, the greater of (i) 1% of the outstanding shares of the
Company or (ii) the average weekly volume of trading in such shares during the
preceding four calendar weeks. Provision may be made in the future by the
Company to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.
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MANAGEMENT OF THE COMPANY
Directors of the Company
The Board of Directors of the Company is divided into three classes, each
of which contains one-third of the Board. The directors shall be elected by the
stockholders of the Company for staggered three year terms, or until their
successors are elected and qualified. One class of directors, consisting of
Messrs. Paul Watson, William Watson and Steven Lewis, has a term of office
expiring at the first annual meeting of stockholders, a second class, consisting
of Messrs. Thomas Humphries, Robert McGeough and Robert Grace, has a term
expiring at the second annual meeting of stockholders and a third class,
consisting of Messrs. George Gentithes and E. Jeffrey Rossi, has a term of
office expiring at the third annual meeting of stockholders. The biographical
information of each Director is set forth under "Management of the Association -
Biographical Information." It is currently intended that Directors of the
Company will receive no additional fees for their services as Directors of the
Company.
Executive Officers of the Company
The following individuals are executive officers of the Company and hold
the offices set forth below opposite their names. The biographical information
for each executive officer is set forth under "Management of the Association -
Biographical Information."
Name Position(s) Held With the Company
---- ---------------------------------
Paul A. Watson Chairman of the Board of Directors
Steven R. Lewis President and Chief Executive Officer
Richard K. Smith Vice President - Treasurer
Mary Ann Roberts Corporate Secretary
The executive officers of the Company are elected annually and hold office
until their respective successors have been elected and qualified or until
death, resignation, retirement or removal by the Board of Directors.
Since the formation of the Company, none of the executive officers,
Directors or other personnel has received remuneration from the Company.
Information concerning the principal occupations, employment and other
information concerning the directors and officers of the Company during the past
five years is set forth under "Management of the Association - Biographical
Information."
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MANAGEMENT OF THE ASSOCIATION
Directors of the Association
The Directors of the Company are also Directors of the Association. Upon
consummation of the Conversion, the current Directors of the Association will
become Directors of the stock chartered Association. The following table sets
forth certain information regarding the Board of Directors of the Association.
Position(s) Held Director Term
Name Age(1) With the Association Since Expires
---- ------ -------------------- ----- -------
Paul A. Watson 66 Chairman of the Board of 1983 2001
Directors
Robert P. Grace 59 Director 1996 2001
George J. Gentithes 65 Director 1989 2000
Thomas M. Humphries 53 Director 1990 1999
Steven R. Lewis 40 Director, President and 1998 2001
Chief Executive Officer
Robert S. McGeough 67 Director 1973 1999
E. Jeffrey Rossi 45 Director 1994 2000
William W. Watson 71 Director 1993 2001
- -------------------
(1) As of June 30, 1998.
Executive Officers of the Association who are not Directors
The following table sets forth certain information regarding the executive
officers of the Association who are not also directors.
Position(s) Held
Name Age(1) With the Association
---- ------ --------------------
David J. Jenkins 60 Vice President-Lending Operations
R. Patrick Wilkinson 50 Vice President-Retail Division
Richard K. Smith 40 Vice President-Treasurer
Brian Hoopes 40 Vice President - Bank Systems
Mary Ann Roberts 57 Secretary
- ---------------------
(1) As of June 30, 1998.
The executive officers of the Association are elected annually and will
hold office in the converted Association until the annual meeting of the Board
of Directors of the Association held immediately after the first annual meeting
of stockholders of the Association subsequent to Conversion, and until their
successors are elected and qualified or until death, resignation, retirement or
removal by the Board of Directors. Officers are re-elected by the Board of
Directors annually.
Biographical Information
Directors of the Association
Paul A. Watson is Chairman of the Board of Directors of the Association.
Mr. Watson was elected to the Board of Directors of the Association in 1983 and
has been Chairman of the Board since 1997. Prior to his retirement on December
31, 1996, Mr. Watson served as President and Chief Executive Officer of the
Association since 1983. Mr. Watson is the brother of Mr. William Watson, a
director of the Association.
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Robert P. Grace has served as a Director of the Association since 1996.
Mr. Grace is Vice President and Chief Financial Officer of Salem Label Co.,
Salem, Ohio. Prior to assuming that position in May 1995, Mr. Grace was a
principal in the accounting firm of Packer, Thomas & Co., since 1993, and was a
partner in the accounting firm Ernst & Young from 1977 to 1993. Mr. Grace is a
certified public accountant.
George J. Gentithes has served as a Director of the Association since 1989.
Mr. Gentithes was owner and Chief Executive Officer of the Rapid Poulson
Textile Service from 1976 until 1989, when he became a consultant for Clean
Textile Service until 1994. He is currently a consultant for T.F. Industries,
located in Warren, Ohio.
Thomas M. Humphries has served on the Association's Board of Directors
since 1990. Mr. Humphries is currently President of the Youngstown-Warren
Regional Chamber of Commerce . Prior to taking that position in 1998, Mr.
Humphries was a General Manager with Sprint Corp., a telecommunications
corporation located in Warren, Ohio.
Steven R. Lewis, a certified public accountant, is President and Chief
Executive Officer of the Association. Mr. Lewis has been employed by the
Association since 1983. He served as Vice President and Treasurer of the
Association from 1985 until his promotion to Executive Vice President in 1995.
He was elected President and Chief Executive Officer in 1997, and became a
Director of the Association in January 1998. Mr. Lewis has a B.S. degree in
Accounting from the University of Akron, and has an M.B.A. from Cleveland State
University.
Robert S. McGeough has served as a Director of the Association since 1973.
Mr. McGeough was a partner with the law firm of Hoppe, Frey, Hewitt & Milligan
from 1970 until 1997, when he became of counsel to the firm Harrington, Hoppe &
Mitchell, located in Warren, Ohio. Harrington, Hoppe & Mitchell serves as the
Association's legal counsel.
E. Jeffrey Rossi joined the Association's Board of Directors in 1994. Mr.
Rossi is principal of E.J. Rossi & Company, located in Youngstown and Warren,
Ohio, where he is a life and health insurance broker. Mr. Rossi holds B.A. and
J.D. degrees from The Catholic University of America. He is the immediate past
Chairman of the Board of HM Health Services.
William W. Watson has served as a Director of the Association since 1993.
Prior to his retirement in 1991, Mr. Watson served as President of Trumbull
Savings and Loan Association. Mr. Watson is the brother of Mr. Paul Watson, a
director of the Association.
Executive Officers of the Association Who are Not Directors
David J. Jenkins has been employed by the Association since 1969. From
1969 until 1982, Mr. Jenkins held various positions with the Association. In
1982, he was named Vice President-Secretary. He currently is responsible for
overseeing all lending functions of the Association.
R. Patrick Wilkinson has been with the Association since 1973. He served
in various positions until he was named Vice President of the Retail Division in
1987. His responsibilities are primarily to plan, develop and implement
policies and procedures in support of the Association's retail function,
including branch operations and general services.
Richard K. Smith joined the Association in 1990 as Assistant Vice
President--Financial. In January 1995, he was named Vice President--Treasurer.
His primary areas of responsibility are overseeing financial and regulatory
reporting, investment policy, interest rate risk policy and internal controls.
Mr. Smith has Bachelor of Science degrees in Accounting and Industrial
Management from the University of Akron.
Brian E. Hoopes joined the Association in August 1998 as Vice President-
Banking Systems. He was previously employed with Michelin Tire Corporation for
the past 18 years in positions responsible for electronic data processing and
financial operations. His most recent position there was Project Manager for
the installation of a new financial software package in North America.
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<PAGE>
Mary Ann Roberts has been with the Association since 1975. In 1981 she
accepted the position of Executive Administrative Assistant. In August 1998 she
was named the Corporate Secretary of the Association.
Meetings and Committees of the Boards of Directors of the Association and the
Company
The Association's Board of Directors meets weekly and may have additional
special meetings as may be called in the manner specified in the Bylaws. During
the year ended June 30, 1998, the Board held fifty-two meetings. For the year
ended June 30, 1998, no Director attended fewer than 75% in the aggregate of the
total number of meetings of the Board or Committees on which such Director
served.
The Board of Directors of the Association has established the following
committees:
The Executive Committee consists of Messrs. Paul Watson, McGeough,
Gentithes and Lewis. This committee acts upon such items that demand immediate
attention between meetings of the Board of Directors. The committee meets on an
as-needed basis and met one time in fiscal 1998.
The Audit Committee consists of Messrs. Grace, Gentithes, Humphries and
Rossi. The committee meets quarterly with the Internal Auditor to review
material findings and general status, as well as to review proposed regulatory
changes with regard to their impact on the Association.
Additionally, the Board has established the following committees composed
of directors and/or management: the Loan Committee, the Asset Classification
Committee, the Human Resources Committee, the Long-Range Planning Committee, the
Proxy Committee, the Pension and 401(k) Committee, the Investment Committee, the
Technology Committee, the Asset Liability Committee, the CRA Committee, the
Environmental Risk Committee, the Commercial Loan Committee and the Second
Review Committee.
The Board of Directors of the Company has established the following
committees: the Audit Committee, consisting of Messrs. Grace, Gentithes,
Humphries and Rossi; and the Compensation Committee consisting of Messrs.
McGeough, Rossi, Gentithes and Humphries.
Compensation of Directors
All outside Directors of the Association receive an annual retainer of
$6,000. In addition, each outside director receives a fee of $300 ($350 for the
Chairman of the Board) for each regular and special Board meeting which they
attend. All outside Directors of the Association receive a fee of $90 ($150 in
the case of the Audit Committee and the Asset Classification Committee) for each
committee meeting attended.
Directors Emeritus
Pursuant to the Association's bylaws, no person seventy-five years of age
shall be eligible for election, reelection, appointment or reappointment to the
Board of Directors, and no director shall serve as such beyond the annual
meeting of the Association immediately following the director becoming seventy-
two years of age. Any Director who retires because of such age limitation is
eligible to be elected as advisor or emeritus director. Directors emeritus have
no vote and receive fees as determined by resolution of the Directors of the
Association. There is currently one director emeritus who receives an annual
retainer of $6,600.
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<PAGE>
Executive Compensation
Summary Compensation Table. The following table sets forth the cash
compensation paid by the Association as well as certain other compensation paid
or accrued for services rendered in all capacities during the fiscal year ended
June 30, 1998, to the Chief Executive Officer. No other executive officers of
the Association received salary and bonus in excess of $100,000.
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Annual Compensation(1)
--------------------------------------------------
Other
Annual
Name and Principal Compensation
Positions Year Salary($) Bonus($) ($)(2)
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Steven R. Lewis 1998 $120,162 $12,480 --
President and Chief Executive Officer
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
------------------------------------------------------
Awards Payouts
------------------------------------------------------
Securities
Restricted Underlying LTIP All Other
Name and Principal Stock Awards Options/SARs Payouts Compensation
Positions ($) (#) ($) ($)(3)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Steven R. Lewis -- -- -- $2,603
President and Chief Executive Officer
</TABLE>
- -------------------------------
(1) Under Annual Compensation, the column titled "Salary" includes amounts
deferred by the Chief Executive Officer under the Association's 401(k)
Plan.
(2) For 1998, there were no (a) perquisites over the lesser of $50,000 or 10%
of the individual's total salary and bonus for the year; (b) payments of
above-market preferential earnings on deferred compensation; (c) payments
of earnings with respect to long-term incentive plans prior to settlement
or maturation; (d) tax payment reimbursements; or (e) preferential
discounts on stock. For 1998, the Association had no restricted stock or
stock related plans in existence.
(3) Other compensation includes the Association's matching contribution under
the Association's 401(k) Plan.
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Employment Agreements
Upon the Conversion, the Association and the Company intend to enter into
employment agreements with Mr. Lewis (the "Executive") (collectively, the
"Employment Agreements"). The Employment Agreements are subject to the review
and approval of the OTS and may be amended as a result of such OTS review.
Review of compensation arrangements by the OTS does not indicate, and should not
be construed to indicate, that the OTS has passed on the merits of such
arrangements. The Employment Agreements are intended to ensure that the
Association and the Company will be able to maintain a stable and competent
management base after the Conversion. The continued success of the Association
and the Company depends to a significant degree on the skills and competence of
Mr. Lewis. The Association does not currently hold "key man" life insurance on
Mr. Lewis or any other executive officer.
The Employment Agreements provide for a three-year term. The Association
Employment Agreement provides that, commencing on the first anniversary date and
continuing on each anniversary date thereafter, the Board of Directors may
extend the agreement for an additional year so that the remaining term shall be
three years, unless written notice of non-renewal is given by the Board of
Directors after conducting a performance evaluation of the Executive. The terms
of the Company Employment Agreement shall be extended on a daily basis, unless
written notice of non-renewal is given by the Board of Directors. The
Employment Agreements provide that the Executive's base salary will be reviewed
annually. The base salary which will be effective for such Employment
Agreements for Mr. Lewis will be $150,000. In addition to the base salary, the
Employment Agreements provide for, among other things, participation in stock
benefits plans and other fringe benefits applicable to executive personnel. The
agreements provide for termination by the Association or the Company for cause,
as defined in the Employment Agreements, at any time. In the event the
Association or the Company chooses to terminate the Executive's employment for
reasons other than for cause, or in the event of the Executive's resignation
from the Association and the Company upon: (i) failure to re-elect the
Executive to his current offices; (ii) a material change in the Executive's
functions, duties or responsibilities; (iii) a relocation of the Executive's
principal place of employment by more than 30 miles; (iv) a material reduction
in the benefits and perquisites being provided to the Executive into the
Employment Agreement, unless consented to by the Executive; (v) liquidation or
dissolution of the Association or the Company; or (vi) a breach of the agreement
by the Association or the Company, the Executive or, in the event of death, his
beneficiary would be entitled to receive an amount equal to the remaining base
salary payments due to the Executive for the remaining term of the Employment
Agreement and the contributions that would have been made on the Executive's
behalf to any employee benefit plans of the Association and the Company during
the remaining term of the agreement. The Association and the Company would also
continue and pay for the Executive's life, health, and dental coverage for the
remaining term of the Agreement. Upon any termination of the Executive, the
Executive is subject to a one year non-competition agreement.
Under the Employment Agreements, if involuntary termination or under
certain circumstances, voluntary termination follows a change in control of the
Association or the Company, the Executive or, in the event of the Executive's
death, his beneficiary, would be entitled to a severance payment equal to the
greater of: (i) the payments due for the remaining terms of the agreement; or
(ii) three times the average of the five preceding taxable years' annual
compensation. The Association and the Company would also continue the
Executive's life, health and dental coverage for thirty-six months.
Notwithstanding that both the Association and Company Employment Agreements
provide for a severance payment in the event of a change in control, the
Executive would only be entitled to receive a severance payment under one
agreement.
Payments to the Executive under the Association's Employment Agreement will
be guaranteed by the Company in the event that payments or benefits are not paid
by the Association. Payment under the Company's Employment Agreement would be
made by the Company. All reasonable costs and legal fees paid or incurred by
the Executive pursuant to any dispute or question of interpretation relating to
the Employment Agreements shall be paid by the Association or Company,
respectively, if the Executive is successful on the merits pursuant to a legal
judgment, arbitration or settlement. The Employment Agreements also provide
that the Association and Company shall indemnify the Executive to the fullest
extent allowable under Federal and Delaware law, respectively. In the event of
a change in control of the Association or the Company, the total amount of
payments due under the Agreements, based solely on the base salary to be paid to
Mr. Lewis effective upon consummation of the Conversion excluding any benefits
under any employee benefit plan which may be payable, would be approximately
$450,000.
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Change in Control Agreements
Upon Conversion, the Association and the Company intend to enter into two-
year Change in Control Agreements (the "CIC Agreements") with five executive
officers of the Association, none of whom will be covered by employment
contracts. Commencing on the first anniversary date and continuing on each
anniversary thereafter, the Association CIC Agreements may be renewed by the
Board of Directors of the Association for an additional year. The Company CIC
Agreements shall be extended on a daily basis unless written notice of non-
renewal is given by the Board of Directors. The CIC Agreements will provide that
in the event involuntary termination or, in certain circumstances, voluntary
termination follows a change in control of the Company or the Association, the
officer would be entitled to receive a severance payment equal to two times the
officer's average annual compensation for the five most recent taxable years
preceding termination. The Company and the Association would also continue and
pay for the officer's life and health coverage for 24 months following
termination. In the event of a change in control of the Company or the
Association, the total payments that would be due under the CIC Agreements,
based solely on the current annual compensation paid to the officers covered by
the CIC Agreements and excluding any benefits under any employee benefit plan
which may be payable, would be approximately $702,000.
Employee Severance Compensation Plan
The Association's Board of Directors intends to, upon Conversion, establish
the First Federal Savings and Loan Association of Warren Employee Severance
Compensation Plan ("Severance Plan") which will provide eligible employees with
severance pay benefits in the event of a change in control of the Association or
the Company following Conversion. Management personnel with Employment
Agreements or CIC Agreements are not eligible to participate in the Severance
Plan. Generally, employees are eligible to participate in the Severance Plan if
they have completed at least one year of service with the Association. The
Severance Plan vests in each participant a contractual right to the benefits
such participant is entitled to thereunder. Under the Severance Plan, in the
event of a change in control of the Association or the Company, eligible
employees who are terminated from or terminate their employment within one year
(for reasons specified under the Severance Plan), will be entitled to receive a
severance payment. If the participant, whose employment has terminated, has
completed at least one year of service, the participant will be entitled to a
cash severance payment equal to one-twelfth of annual compensation for each year
of service up to a maximum of 100% of annual compensation. Such payments may
tend to discourage takeover attempts by increasing costs to be incurred by the
Association in the event of a takeover. The Severance Plan is an unfunded plan
that will be paid out of retained earnings.
Insurance Plans
All full-time employees of the Association, upon completion of the
applicable introductory period, are covered as a group for comprehensive
hospitalization, including major medial and long-term disability insurance.
Life insurance is also provided to employees and directors.
Benefit Plans
Retirement Plan. The Association sponsors a defined benefit pension plan
known as the First Federal Savings and Loan Association of Warren Defined
Benefit Pension Plan ("Retirement Plan"). The Retirement Plan is intended to
satisfy the tax qualification requirements of Section 401(a) of the Code.
Employees are eligible to participate in the Retirement Plan on the April 1
or October 1 coincident with or otherwise next following the later of an
employee's 21/st/ birthday and the one year anniversary of the employee's date
of employment, regardless of the number of hours of service credited. The
Retirement Plan defines "Employee" as any individual employed by the Association
or its affiliates or any leased employee who is deemed to be an employee under
Section 414(n) of the Code but excludes any person who is an independent
contractor.
The Retirement Plan provides for a normal retirement benefit to
participants upon retirement at or after the later of (i) attainment of age 65
or (ii) the fifth anniversary of initial participation in the plan. The annual
normal
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retirement benefit for a participant under the Retirement Plan equals 45% of a
participant's "Average Monthly Compensation" (as defined in the plan) plus 16%
of the participant's "Average Monthly Compensation" in excess of one-twelfth
"Covered Compensation" (as defined in the plan). However, if projected years of
service to normal retirement age are less than twenty-five, the percentage of
Average Monthly Compensation and the excess percentage will be reduced by one-
twenty-fifth for each year of service less than twenty-five.
A participant may also become eligible to receive an early retirement
benefit upon the (i) attainment of age 60; and (ii) completion of 15 years of
service. Early retirement benefits are generally calculated in the same manner
as a participant's normal retirement benefits but may be actuarially reduced if
paid prior to the participant's "Normal Retirement Date" (as defined by the
plan). Participants generally become vested in their benefits under the
Retirement Plan upon completing at least five years of Service.
The plan generally pays benefits in the form of a straight life annuity
with respect to unmarried participants and in the form of a joint and 50%
survivor annuity (with the spouse as designated beneficiary) for married
participants. Other forms of benefit payments, including a lump sum, are
available under the Retirement Plan.
The following table sets forth the estimated annual benefits payable under
the Retirement Plan upon a participant's retirement at age 65 under the most
advantageous plan provisions available at various levels of compensation and
years of service. Covered compensation under the Retirement Plan basically
includes the base salary for participants, and does not consider any cash bonus
amounts. The benefits listed in the table below for the Retirement Plan are not
subject to a deduction for social security benefits or any other offset amount.
Final Years of Service
Average --------------------------------------------------------
Compensation 15 20 25 30 35 40
- -------------- --------------------------------------------------------
$ 20,000 $ 5,400 $ 7,200 $ 9,000 $ 9,000 $ 9,000 $ 9,000
30,000 8,100 10,800 13,500 13,500 13,500 13,500
50,000 13,500 18,000 22,500 22,500 22,500 22,500
75,000 21,102 28,137 35,171 35,171 35,171 35,171
100,000 30,252 40,337 50,421 50,421 50,421 50,421
150,000 48,552 64,737 80,921 80,921 80,921 80,921
200,000 52,212 69,617 87,021 87,021 87,021 87,021
250,000 52,212 69,617 87,021 87,021 87,021 87,021
300,000 52,212 69,617 87,021 87,021 87,021 87,021
and over(1)
- -----------
(1) Under current law, the final average compensation for computing benefits
under the Pension Plan cannot exceed $160,000 (indexed for inflation).
The approximate years of service, as of June 30, 1998, for the named
executive officer is as follows:
Named Executive Officer Years of Service
----------------------- ----------------
Steven R. Lewis 14
401(k) Plan. The Association also sponsors the First Federal Savings
and Loan Association of Warren 401(k) Savings Plan ("401(k) Plan"), a tax-
qualified profit sharing and salary reduction plan under Sections 401(a) and
401(k) of the Code. Generally, employees other than employees who are
collective bargaining unit employees and employees
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who are non-resident aliens become eligible to participate in the 401(k) Plan
upon the attainment of age 21 and the completion of one year of service. Under
the 401(k) Plan, participants may make salary reduction contributions equal to
2% to 12% of their compensation or the legally permissible limit (currently
$9,500). The Association matches of the compensation deferred by a participant
with respect to amounts deferred up to 4% of annual compensation.
Participants are always 100% vested in their salary reduction
contributions. Participants become 100% vested in Association matching
contributions after the completion of five years of service with the
Association. A participant who terminates employment due to death, disability,
or retirement immediately becomes fully vested in the Association's matching
contributions credited to his or her account regardless of the participant's
years of service. A participant's vested portion of his or her 401(k) Plan
account is distributable from the 401(k) Plan upon the termination of the
participant's employment, death, disability or retirement. In addition, a
participant may be eligible for hardship withdrawals and loans under the 401(k)
Plan. Any distribution made to a participant prior to the participant's
attainment of age 59 1/2 is subject to a 10% excise tax in addition to federal
income taxes. The Board of Directors may at any time discontinue the
Association's contributions to employee accounts. For the years ended June 30,
1998, 1997 and 1996, the Association's matching contributions to the 401(k) Plan
were $56,000, $52,000 and $48,000, respectively.
The 401(k) Plan currently permits participants to invest their 401(k) plan
account balances in several types of investment funds. In connection with the
Conversion, the Association intends amend the 401(k) Plan to permit plan
participants to invest their account balances in Company Common Stock through an
employer stock fund (the "Employer Stock Fund.") The Employer Stock Fund will be
invested primarily in shares of Common Stock. Participants may use their
subscription rights to purchase stock in the Conversion but may not purchase
more than $250,000 in aggregate value of the Common Stock in the Conversion
(subject to the maximum overall purchase liability). A participant's ability to
divert all or some of his vested account to purchase Common Stock in the
Offering will be dependent upon such individual being an Eligible Account
Holder, Supplemental Eligible Account Holder or Other Member. The trustee may
follow the voting directions of 401(k) Plan participants investing in the
Employer Stock Fund; provided that the trustee determines such voting is
consistent with its fiduciary duties.
ESOP. In connection with the Conversion, the Association also intends to
implement an employee stock ownership plan ("ESOP"). An ESOP is a tax-qualified
retirement plan designed to invest primarily in employer securities. The
Association will make contributions to the ESOP on behalf of all ESOP
participants. The ESOP will provide eligible employees with the opportunity to
receive a Association funded retirement benefit based on the value of the Common
Stock. The Association anticipates that the eligibility requirements for the
ESOP will be similar to those of the 401(k) Plan.
The ESOP intends to purchase 8.0% of the Common Stock issued in connection
with the Conversion, including shares issued to the Foundation. As part of the
Conversion and in order to fund the ESOP's purchase of the Common Stock to be
issued in the Conversion, the ESOP intends to borrow funds from the Company
equal to 100% of the aggregate purchase price of the Common Stock to be
purchased by the ESOP. Alternatively, the Company and Association may choose to
fund the ESOP's purchase of stock through a loan from a third party financial
institution. The Common Stock purchased by the ESOP with the loan proceeds will
serve as collateral for the loan, as described below. Based on the sale of
6,709,135 shares or 9,077,065 shares at the minimum and maximum of the Estimated
Price Range, and the issuance of shares to the Foundation, the amount of the
loan to the ESOP would be $5.8 million or $7.8 million, respectively (or $9.0
million if the Estimated Price Range is increased by 15%). The term of the ESOP
loan will be 15 years and the trustee will repay the loan principally from the
Company's or the Association's contributions to the ESOP in fifteen equal annual
installments of principal. The Association may use matching contributions made
with respect to ESOP participants' 401(k) salary reduction contributions and
other discretionary contributions to meet the ESOP loan obligations.
Additionally, any dividends that may be paid on unallocated stock held by the
ESOP will also be used to repay the ESOP loan. Subject to receipt of any
necessary regulatory approvals or opinions, the Association may make additional
contributions to the ESOP for repayment of the loan or to reimburse the Company
for contributions made by it. The interest rate for the loan is expected to be
at or near the prime rate, which currently is 8.0%.
Shares of Common Stock purchased by the ESOP with the loan proceeds will
initially be pledged as collateral for the loan, and will be held in a suspense
account until released for allocation among participants as the loan is repaid.
The trustee will release the pledged shares annually from the suspense account
in an amount proportional to the repayment of the ESOP loan for each plan year.
The released shares will then be allocated to the accounts of ESOP participants
as follows: First, for each eligible ESOP participant, a portion of the shares
released for the plan year will be allocated to a special "matching" account
under the ESOP equal in value to the amount of matching contribution,
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if any, and/or if applicable, that such participant would be entitled to under
the terms of the 401(k) Plan for the plan year. Second, the remaining shares
which have been released for the plan year will be allocated to each eligible
participant's general ESOP account based on the ratio of each such participant's
base compensation to the total base compensation of all eligible ESOP
participants. Participants will vest in their ESOP account at a rate of 20%
annually commencing after the completion of two years of service, with 100%
vesting upon the completion of 6 years of service. Participants will also
become fully vested in their accounts if their service terminates due to death,
retirement, disability, or upon the occurrence of a change in control. The ESOP
may reallocate forfeitures among remaining participants, in the same proportion
as contributions. Benefits under the ESOP will become payable upon death,
retirement, early retirement, or separation from service. The annual
contributions to the ESOP are not fixed, so benefits payable under the ESOP
cannot be estimated.
In connection with the establishment of the ESOP, the Board of Directors
will appoint a Committee of the Board of Directors and officers of the
Association to administer the ESOP (the "ESOP Committee"). The Association
anticipates that this Committee will appoint an unrelated trustee for the ESOP
and the 401(k) Plan Employer Stock Fund prior to the Conversion. The ESOP
Committee may instruct the trustee regarding investment of funds contributed to
the ESOP and the 401(k) Plan Employee Stock Fund. The ESOP trustee, subject to
its fiduciary duties, must vote all allocated shares held in the ESOP in
accordance with the instructions of the participating employees. Subject to its
fiduciary duties under the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), the trustee will vote unallocated shares and allocated shares
for which participants provide no instructions in a manner calculated to most
accurately reflect the instructions it has received from participants regarding
the allocated stock for which it has received instructions.
Stock Option Plan. Following the Conversion, the Board of Directors of the
Company intends to adopt a stock-based benefit plan which would provide for the
granting of options to purchase Common Stock to certain individuals. Currently,
the Company anticipates granting stock options under a single stock-based
incentive plan ("Incentive Option Plan") covering full-time employees and
outside directors of the Company and its affiliates. However, it is possible
that the Company may establish a separate option plan solely for outside
directors. At a meeting of stockholders of the Company following the Conversion,
which under applicable regulations may not be held earlier than six months after
the completion of the Conversion, the Board of Directors intends to present the
Incentive Option Plan to stockholders for approval. The Company anticipates
reserving an amount equal to 10% of the shares of Common Stock issued in the
Conversion, including shares issued to the Foundation (or 977,500 shares based
upon the issuance of 9,775,000 shares), for issuance under the Incentive Option
Plan. No specific award determinations have been made at this date.
The Company intends to design the stock option benefits provided under the
Incentive Option Plan to attract and retain qualified personnel in key
positions, provide officers and key employees with a proprietary interest in the
Company as an incentive to contribute to the success of the Company and reward
key employees for outstanding performance. The Company may condition the
granting or vesting of stock options on the achievement of individual or
Company-wide performance goals, including the achievement by the Company or the
Association of specified levels of net income, asset growth, return on equity or
other specific financial performance goals. The Company anticipates that the
Incentive Option Plan will provide for the grant of: (i) options for employees
to purchase the Company's Common Stock intended to qualify as incentive stock
options under Section 422 of the Code ("Incentive Stock Options"); (ii) options
for all participants that do not qualify as incentive stock options ("Non-
Statutory Stock Options"); and (iii) Limited Rights (discussed below) which
participants may exercise only upon a change in control of the Association or
the Company. Unless sooner terminated, the Incentive Option Plan will be in
effect for a period of ten years from the earlier of adoption by the Board of
Directors or approval by the Company's stockholders. If such plan is adopted
within one year after Conversion, OTS regulations provide that no individual
officer or employee of the Association may receive more than 25% of the stock
options available under the Incentive Option Plan (or any separate plan for
officers and employees) and non-employee directors may not receive more than 5%
individually, or 30% in the aggregate, of the stock options available under the
Incentive Option Plan (or any separate plan for directors). The Company intends
to grant options with Limited Rights under the Incentive Option Plan at an
exercise price equal to the fair market value of the underlying Common Stock on
the date of grant. Subject to any applicable regulations, upon exercise of
"Limited Rights" in the event of a change in control, the employee will be
entitled to receive a lump sum cash payment equal to the difference between the
exercise price of the related option and the fair market value of the shares of
common stock subject to the option on the date of exercise of the right in lieu
of purchasing the stock underlying the option. The Company anticipates that all
options granted contemporaneously with
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stockholder approval of the Incentive Option Plan will qualify as Incentive
Stock Options to the extent permitted under Section 422 of the Code.
A committee of the Board of Directors will administer the Incentive Option
Plan and will determine which officers and employees may receive options and
Limited Rights, whether such options will qualify as Incentive Stock Options,
the number of shares subject to each option, the exercise price of each option,
the manner of exercise of the options and the time when such options become
exercisable.
If the Company adopts an option plan in the form described above, an
employee will not realize taxable income upon grant or exercise of any Incentive
Stock Option, provided that the employee does not dispose of the shares received
through the exercise of such option for at least one year after the date the
employee receives the stock in connection with the option exercise and two years
after the date of grant of the option (a "disqualifying disposition"). The
Company may not take a compensation expense deduction with respect to the grant
or exercise of Incentive Stock Options, unless the employee disposes of the
shares in a disqualifying disposition. In the case of a Non-Statutory Stock
Option and in the case of a disqualifying disposition of an Incentive Stock
Option, an employee will be deemed to receive ordinary income upon exercise of
the stock option in an amount equal to the amount by which the fair market value
of the Common Stock on the date of exercise exceeds the exercise price of the
option. The amount of taxable income realized by an optionee upon the exercise
of a Non-Statutory Stock Option or due to a disqualifying disposition of shares
acquired through the exercise of an Incentive Stock Option are a deductible
expense for tax purposes by the Company. Upon the exercise of a Limited Right,
the option holder realizes taxable income equal to the amount paid to him or her
upon exercise of the right and the Company receives a deduction equal to that
same amount.
Stock options under an option plan adopted by the Company would become
vested and exercisable in the manner specified by the committee responsible for
administering the plan, subject to applicable regulations. If the Incentive
Option Plan (or any separate plans for employees and directors) is adopted
within one year after the Conversion, awards would become vested and exercisable
subject to applicable OTS regulations, which such regulations require that any
awards begin vesting not earlier than one year from the date of shareholder
approval of the plan and, thereafter, vest at a rate of no more than 20% per
year and may not be accelerated except in case of death or disability. The
Company anticipates options granted in connection with the Incentive Option Plan
will remain exercisable for at least three months following the date on which
the employee ceases to perform services for the Association or the Company,
except that in the event of death or disability, in which cases options
accelerate and become fully vested and remain exercisable for up to one year
thereafter, or such longer period as determined by the Company. However, any
Incentive Stock Options exercised more than three months following the date the
employee ceases to perform services as an employee, other than termination due
to death or disability, would be treated for tax purposes as a Non-Statutory
Stock Option. The Company also anticipates that in the event of retirement, if
the optionee continues to perform services as a Director, Director Emeritus or
consultant on behalf of the Association, the Company or an affiliate, unvested
options would continue to vest in accordance with their original vesting
schedule until the optionee ceases to serve as a Director, Director Emeritus or
consultant. If the Incentive Option Plan is adopted in the form described above,
the Company, if requested by the optionee, could elect, in exchange for vested
options, to pay the optionee, or beneficiary in the event of death, the amount
by which the fair market value of the Common Stock exceeds the exercise price of
the options on the date of the employee's termination of employment.
All options granted to outside directors under an option plan must, by law,
be Non-Statutory Stock Options and would vest and become exercisable in a manner
specified by the committee, subject to applicable regulations, and would expire
upon the earlier of ten years following the date of grant or one year following
the date the optionee ceases to be a Director, Director Emeritus, Advisory
Director or consultant. In the event of the death or disability of a
participant, all previously granted options would immediately vest and become
fully exercisable.
Subject to any applicable regulations, the Incentive Option Plan (or any
separate plan for employees and directors) described above may be amended
subsequent to the expiration of the one-year period to provide for accelerated
vesting of previously granted options in the event of a change in control of the
Company or the Association. A change in control would be defined in the plan
document and would generally occur when a person or group of persons acting in
concert acquires beneficial ownership of 20% or more of any class of equity
security of the Company or the Association or in the event of a tender or
exchange offer, merger or other form of business combination, sale of all or
substantially all of the assets of the Company or the Association or contested
election of directors which
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resulted in the replacement of a majority of the Board of Directors by persons
not nominated by the directors in office prior to the contested election.
Stock Program. Following the Conversion, the Company intends to establish
the Stock Program which would provide for the grant of stock awards to officers,
employees and non-employee directors of the Association and Company as a method
of providing officers, employees and non-employee directors with a proprietary
interest in the Company in a manner designed to encourage such persons to remain
with the Association. The benefits under the Stock Program may be provided for
under either a separate plan for officers and employees and a separate plan for
outside directors or under the Incentive Option Plan. The Company intends to
present the Stock Program for stockholder approval at a meeting of stockholders,
which pursuant to applicable regulations, the Company may hold no earlier than
six months after the completion of the Conversion.
The Association or Company expects to contribute funds to the Stock Program
to enable such plan to acquire, in the aggregate, an amount equal to 4% of the
shares of Common Stock issued in the Conversion, including shares issued to the
Foundation (or 391,000 shares based upon the issuance of 9,775,000 shares). The
Company will acquire these shares through open market purchases, if permitted,
or from authorized but unissued shares. Although no specific award
determinations have been made at this date, the Company anticipates that it
will provide stock awards to the directors and employees of the Company or
Association or their affiliates to the extent permitted by applicable
regulations. If such plan is adopted within one year after Conversion, OTS
regulations provide that no individual officer or employee of the Association
may receive more than 25% of the stock awards available under the Stock Program
(or any separate plan for officers and employees) and non-employee directors may
not receive more than 5% individually, or 30% in the aggregate, of the stock
awards available under the Stock Program (or any separate plan for directors).
Shares of Common Stock granted pursuant to the Stock Program will be awarded at
no cost to the recipients.
A committee of the Board of Directors will administer the Stock Program.
Stock awards will not be transferable or assignable. The Board intends to
appoint an independent fiduciary to serve as trustee of a trust established
pursuant to the Stock Program. The Company may make allocations and grants to
officers and employees under the Stock Program in the form of non performance-
based grants and/or performance-based grants. The Company may make the granting
or vesting of stock awards under the Stock Program conditioned upon the
achievement of individual or Company-wide performance goals, including the
Company's or Association's achievement of specified levels of net income, return
on assets, return on equity or other specified financial performance goals and
will be subject to applicable regulations. If the Stock Program (or any separate
plans for employees and directors) is adopted within one year after the
Conversion, awards would become vested subject to applicable OTS regulations,
which such regulations require that any awards begin vesting not earlier than
one year from the date of shareholder approval of the plan and, thereafter, vest
at a rate of no more than 20% per year and may not be accelerated except in case
or death or disability.
In the event of death, stock awards will become 100% vested. In the event
of disability, stock awards would be 100% vested upon termination of employment
of an officer or employee, or upon termination of service as a director. In the
event of retirement, if the participant continues to perform services as a
Director, Director Emeritus or consultant on behalf of the Association, the
Company or an affiliate or, in the case of a retiring Director, Director
Emeritus or as a consulting director, unvested stock awards will continue to
vest in accordance with their original vesting schedule until the recipient
ceases to perform such services at which time any unvested stock awards would
lapse.
Subject to any applicable regulations, the Stock Program described above
may be amended subsequent to the expiration of the one-year period to provide
for accelerated vesting of shares granted under the Stock Program in the event
of a change in control of the Association or Company. A change in control, which
will be defined in the plan document, generally occurs when a person or group of
persons acting in concert acquires beneficial ownership of 20% or more of a
class of equity securities of the Company or the Association or in the event of
a tender or exchange offer, merger or other form of business combination, sale
of all or substantially all of the assets of the Company or the Association or
contested election of directors which results in the replacement of a majority
of the Board of Directors by persons not nominated by the directors in office
prior to the contested election.
When shares become vested in accordance with the Stock Program described
above, the participants will
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recognize taxable income equal to the fair market value of the Common Stock at
that time. The Company may take a deduction equal to that amount for the year in
which it becomes taxable to the individual. When shares become vested and are
actually distributed in accordance with the Stock Program, the participants also
receive amounts equal to any accrued dividends with respect thereto. Prior to
vesting, recipients of grants may direct the voting of the shares awarded to
them. Shares not subject to grants and shares allocated subject to the
achievement of performance goals will be voted by the trustee of the Stock
Program in accordance to the directions provided by individuals with respect to
shares subject to grants. Vested shares will be distributed to recipients as
soon as practicable following the day on which they are vested.
In the event that additional authorized but unissued shares are acquired by
the Stock Program after the Conversion, the interests of existing shareholders
would be diluted. See "Pro Forma Data."
Transactions With Certain Related Persons
Federal regulations require that all loans or extensions of credit to
executive officers and directors must be made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with the general public and must not involve more than
the normal risk of repayment or present other unfavorable features. In addition,
loans made to a director or executive officer in excess of the greater of
$25,000 or 5% of the Association's capital and surplus (up to a maximum of
$500,000) must be approved in advance by a majority of the disinterested members
of the Board of Directors.
The Association offers directors, officers and full-time employees of the
Association who satisfy certain criteria and the general underwriting standards
of the Association, mortgage loans with interest rates which may be up to 1%
below the rates offered to the Association's other customers, the Employee Loan
Rate ("ELR"). The program also offers a 3/4% interest rate discount on motor
vehicle loans (other than motorcycles). Loan application fees are waived for all
ELR loans. The ELR normally ceases upon termination of employment. Upon
termination of the ELR, the interest rate reverts to the contract rate in effect
at the time that the loan was originated. All other terms and conditions
contained in the original mortgage and note continue to remain in effect. With
the exception of ELR loans, the Association currently makes loans to its
executive officers, directors and employees on the same terms and conditions
offered to the general public. Loans made by the Association to its directors
and executive officers are made in the ordinary course of business, on
substantially the same terms , including collateral, as those prevailing at the
time for comparable transactions with other persons and do not involve more than
the normal risk of collectibility or present other unfavorable features. As of
June 30, 1998, eight of the Association's executive officers or directors had
loans with outstanding balances totaling $862,000 in the aggregate. All such
loans were made by the Association in the ordinary course of business, with no
favorable terms (except for ELR loans) and such loans do not involve more than
the normal risk of collectibility or present unfavorable features.
The Company intends that all transactions between the Company and its
executive officers, directors, holders of 10% or more of the shares of any class
of its Common Stock and affiliates thereof, will contain terms no less favorable
to the Company than could have been obtained by it in arms-length negotiations
with unaffiliated persons and will be approved by a majority of independent
outside directors of the Company not having any interest in the transaction.
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Subscriptions of Executive Officers and Directors
The following table sets forth the number of shares of Common Stock that
the executive officers and directors, and their associates, propose to purchase,
assuming shares of Common Stock are issued at the minimum and maximum of the
Estimated Price Range (including shares issued to the Foundation) and that
sufficient shares will be available to satisfy their subscriptions. The table
also sets forth the total expected beneficial ownership of Common Stock as to
all directors and executive officers as a group.
<TABLE>
<CAPTION>
At the Minimum At the Maximum
of the Estimated of the Estimated Price
Price Range(1) Range(1)
-------------------------- --------------------------
As a
As a Percent Percent
Number of Shares Number of Shares
Name Amount of Shares Issued(2) of Shares Issued(2)
- -------------------------------------- ---------- --------- --------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
Paul A. Watson........................ $ 700,000 70,000 0.97% 70,000 0.72%
Robert P. Grace....................... 250,000 25,000 0.35 25,000 0.26
George J. Gentithes................... 750,000 75,000 1.04 75,000 0.77
Thomas M. Humphries................... 500,000 50,000 0.69 50,000 0.51
Steven R. Lewis....................... 400,000 40,000 0.55 40,000 0.41
Robert S. McGeough.................... 250,000 25,000 0.35 25,000 0.26
E. Jeffrey Rossi...................... 400,000 40,000 0.55 40,000 0.41
William W. Watson..................... 500,000 50,000 0.69 50,000 0.51
All directors and executive officers
as a group (12 persons)............. $4,270,000 427,000 5.91% 427,000 4.37%
========== ======= ==== ======= ====
</TABLE>
- ----------------------
(1) Includes proposed subscriptions, if any, by associates. Does not include
orders by the ESOP. Intended purchases by the ESOP are expected to be 8%
of the shares issued in the Conversion, including shares issued to the
Foundation. Also does not include shares to be contributed to the
Foundation equal to 8% of the Common Stock sold, Common Stock which may
be awarded under the Stock Program to be adopted equal to 4% of the
Common Stock issued in the Conversion, including shares issued to the
Foundation, and Common Stock which may be purchased pursuant to options
which may be granted under the Stock Option Plan equal to 10% of the
number of shares of Common Stock issued in the Conversion, including
shares issued to the Foundation.
(2) Includes shares issued to the Foundation.
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THE CONVERSION
THE BOARD OF DIRECTORS OF THE ASSOCIATION AND THE OTS HAVE APPROVED THE
PLAN OF CONVERSION, SUBJECT TO APPROVAL BY THE MEMBERS OF THE ASSOCIATION
ENTITLED TO VOTE ON THE MATTER AND THE SATISFACTION OF CERTAIN OTHER CONDITIONS.
SUCH OTS APPROVAL, HOWEVER, DOES NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT
OF THE PLAN BY SUCH AGENCY. THE OTS NEITHER APPROVED NOR DISAPPROVED THE
ESTABLISHMENT OF THE FOUNDATION.
General
The Association's Board of Directors, on June 15, 1998, unanimously
adopted, subject to approval by the OTS, the Plan pursuant to which the
Association will be converted from a federally-chartered mutual savings
association to a federally-chartered capital stock savings association. It is
currently intended that all of the outstanding capital stock of the Association
will be held by the Company, which is incorporated under Delaware law. The Plan
was approved by the OTS, subject to, among other things, approval of the Plan by
the Association's members. A special meeting of members has been called for
this purpose to be held on __________, 1998.
The Company has applied for and expects to receive the approval from the
OTS to become a savings and loan holding company and to acquire all of the
Common Stock of the Association to be issued in the Conversion. The Company
plans to purchase the shares of issued and outstanding capital stock of the
Association in exchange for 50% of the net proceeds and retain the remaining net
proceeds. The Conversion will be effected only upon completion of the sale of
all of the shares of Common Stock of the Company or the Association, if the
holding company form of organization is not utilized, to be issued pursuant to
the Plan.
The Plan provides that the Board of Directors of the Association may, at
any time prior to the issuance of the Common Stock and for any reason, decide
not to use a holding company form. Such reasons may include possible delays
resulting from overlapping regulatory processing or policies which could
adversely affect the Association's or the Company's ability to consummate the
Conversion and transact its business as contemplated herein and in accordance
with the Association's operating policies. In the event such a decision is
made, the Association will withdraw the Company's registration statement from
the SEC and take steps necessary to complete the Conversion without the Company,
including filing any necessary documents with the OTS. In such event, and
provided there is no regulatory action, directive or other consideration upon
which basis the Association determines not to complete the Conversion, if
permitted by the OTS, the Association will issue and sell the Common Stock of
the Association and subscribers will be notified of the elimination of a holding
company and resolicited (i.e., be permitted to affirm their orders, in which
case they will need to affirmatively reconfirm their subscriptions prior to the
expiration of the resolicitation offering or their funds will be promptly
refunded with interest at the Association's passbook rate of interest; or be
permitted to modify or rescind their subscriptions), and notified of the time
period within which the subscriber must affirmatively notify the Association of
his intention to affirm, modify or rescind his subscription. The following
description of the Plan assumes that a holding company form of organization will
be used in the Conversion. In the event that a holding company form of
organization is not used, all other pertinent terms of the Plan as described
below will apply to the conversion of the Association from the mutual to stock
form of organization and the sale of the Association's common stock.
The Plan provides generally that (i) the Association will convert from a
mutual savings association to a capital stock savings association and (ii) the
Company will offer shares of Common Stock for sale in the Subscription Offering
to the Association's Eligible Account Holders, the ESOP, Supplemental Eligible
Account Holders, and Other Members. Subsequent to the Subscription Offering,
any remaining shares will be offered in a Community Offering with preference
given to natural persons residing in the Association's Local Community. It is
anticipated that all shares not subscribed for in the Subscription and Community
Offerings will be offered for sale by the Company to the general public in a
Syndicated Community Offering. The Association has the right to accept or
reject, in whole or in part, any orders to purchase shares of the Common Stock
received in the Community Offering or in the Syndicated Community Offering. See
"-- Community Offering" and "-- Syndicated Community Offering."
The aggregate price of the shares of Common Stock to be sold in the
Conversion within the Estimated Price
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Range, currently estimated to be between $88.4 million and $119.6 million, will
be determined based upon an independent appraisal, prepared by Keller of the
estimated pro forma market value of the Common Stock of the Company. All shares
of Common Stock to be issued and sold in the Conversion will be sold at the same
price. The independent appraisal will be affirmed or, if necessary, updated at
the completion of the Subscription and Community Offerings, if all shares are
subscribed for, or at the completion of the Syndicated Community Offering. The
appraisal has been performed by Keller, a consulting firm experienced in the
valuation and appraisal of savings institutions. See "-- Stock Pricing" for
additional information as to the determination of the estimated pro forma market
value of the Common Stock.
The following is a brief summary of the material aspects of the Conversion.
The summary is qualified in its entirety by reference to the provisions of the
Plan. A copy of the Plan is available for inspection at each branch of the
Association and at the Central Region and Washington, D.C. offices of the OTS.
Establishment of the Charitable Foundation
General. In furtherance of the Association's long-standing commitment to
its local community, the Association's Plan of Conversion provides for the
establishment of a charitable foundation in connection with the Association's
Conversion. The Plan provides that the Association and the Company will
establish the Foundation, which will be incorporated under Delaware law as a
non-stock corporation, and will fund the Foundation with Common Stock of the
Company, as further described below. The Company and the Association believe
that the funding of the Foundation with Common Stock of the Company is a means
of establishing a common bond between the Association and the communities in
which the Association operates and thereby enables such communities to share in
the potential growth and success of the Company and the Association over the
long term. By further enhancing the Association's visibility and reputation in
the communities in which it operates, the Association believes that the
Foundation will enhance the long-term value of the Association's community
banking franchise.
The Foundation would be dedicated to the promotion of charitable purposes
within the communities in which the Association operates, including, but not
limited to, providing grants or donations to support housing assistance, not-
for-profit medical facilities, community groups and other types of organizations
or projects. Establishment of the Foundation is subject to the approval of a
majority of the total outstanding votes of the Association's members eligible to
be cast at the Special Meeting. The Foundation will be considered as a separate
matter from approval of the Plan of Conversion. If the Association's members
approve the Plan of Conversion, but not the Foundation, the Association intends
to complete the Conversion without the establishment of the Foundation. Failure
to approve the establishment of the Foundation may materially affect the pro
forma market value of the Common Stock. In such an event, the Association may
establish a new Estimated Price Range and commence a resolicitation of
subscribers. In the event of a resolicitation, unless an affirmative response
is received within a specified period of time, all funds will be promptly
returned to investors, as described elsewhere herein. See "-- Stock Pricing."
Purpose of the Foundation. The purpose of the Foundation is to provide
funding to support charitable purposes within the communities in which the
Association operates. The Association has long emphasized community lending and
community development activities and currently has an "outstanding" Community
Reinvestment Act ("CRA") rating. The Foundation is being formed as a complement
to the Association's existing community activities, not as a replacement for
such activities. Indeed, the Association intends to continue to emphasize
community lending and community development activities following the Conversion.
However, such activities are not the Association's sole corporate purpose. The
Foundation, conversely, will be completely dedicated to community activities and
the promotion of charitable causes, and may be able to support such activities
in ways that are not presently available to the Association. Since the
Association already engages in community development activities, the Association
believes that the Foundation will enable the Company and the Association to
assist their local community in areas beyond community development and lending.
In this regard, the Board of Directors believes the establishment of a
charitable foundation is consistent with the Association's commitment to
community service. The Boards of Directors of the Association and Company also
believe that the funding of the Foundation with Common Stock of the Company is a
means of enabling the communities in which the Association operates to share in
the potential growth and success of the Company long after completion of the
Conversion. The Foundation accomplishes that goal by providing for continued
ties between the Foundation and Association, thereby forming a partnership with
the Association's community. The establishment of the Foundation would also
enable the Company and the Association to develop a
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unified charitable donation strategy and would centralize the responsibility for
administration and allocation of corporate charitable funds.
Structure of the Foundation. The Foundation will be incorporated under
Delaware law as a non-stock corporation. It is currently anticipated that the
Foundation's board of directors will be comprised of four members, three of whom
will be individuals elected from existing directors of the Association. The
directors of the Association and Company that are expected to serve on the Board
of Directors of the Foundation consist of Messrs. Paul Watson, Robert McGeough
and Steven Lewis, who intend to purchase 70,000, 25,000 and 40,000 shares of
Common Stock in the Conversion, respectively, or 0.7%, 0.3% and 0.4%,
respectively, or 1.4% in the aggregate of the total number of shares to be
issued in the Conversion, including shares issued to the Foundation, based upon
the maximum of the Estimated Price Range. As required by the OTS, the fourth
director, Mr. Richard P. Cowin, a certified public accountant in Warren, Ohio,
is unaffiliated with the Company and the Association. On an on-going basis, a
Nominating Committee of the board of directors of the Foundation will nominate
individuals eligible for election to the board of directors of the Foundation.
The members of the Foundation, who are comprised of its board members, will
elect the directors at the annual meeting of the Foundation from those nominated
by the Nominating Committee. Only persons serving as directors of the Foundation
qualify as members of the Foundation with voting authority. Directors will be
divided into three classes with each class appointed for three-year terms. The
certificate of incorporation of the Foundation will provide that the Foundation
is organized exclusively for charitable purposes as set forth in Section
501(c)(3) of the Code. The Foundation's certificate of incorporation further
will provide that no part of the net earnings of the Foundation will inure to
the benefit of, or be distributable to, its directors, officers or members. A
person who is a director, officer or employee of the Association, or has the
power to direct its management or policies, or otherwise owes a fiduciary duty
to the Association, and who will also serve as a director or employee of the
Foundation would be subject to the requirements of OTS conflicts of interest
regulations.
The authority for the affairs of the Foundation will be vested in the board
of directors of the Foundation. The directors of the Foundation will be
responsible for establishing the policies of the Foundation with respect to
grants or donations by the Foundation, consistent with the stated purposes for
which the Foundation is established. Although no formal policy governing
Foundation grants exists at this time, the Foundation's board of directors will
adopt such a policy upon establishment of the Foundation. The directors will
also be responsible for directing the assets of the Foundation. Pursuant to the
terms of the contribution as mandated by the OTS, all shares of Common Stock
held by the Foundation must be voted in the same ratio as all other shares of
the Company's Common Stock on all proposals considered by stockholders of the
Company; provided, however, that the OTS will waive this voting restriction
under certain circumstances if compliance with the restriction would: (i) cause
a violation of the law of the State of Delaware and the OTS determines that
federal law would not preempt the application of the laws of the State of
Delaware to the Foundation; (ii) cause the Foundation to lose its tax-exempt
status or otherwise have a material and adverse tax consequence on the
Foundation; or (iii) cause the Foundation to be subject to an excise tax under
Section 4941 of the Code. In order for the OTS to waive such voting
restriction, the Company's or the Foundation's legal counsel must render an
opinion satisfactory to OTS that compliance with the voting restriction would
have the effect described in clauses (i), (ii) or (iii) above. Under those
circumstances, the OTS will grant a waiver of the voting restriction upon
submission of such legal opinion(s) by the Company or the Foundation. In the
event that the OTS waived the voting restriction, the directors would direct the
voting of the Common Stock held by the Foundation. However, a condition to the
OTS approval of the Conversion provides that in the event such voting
restriction is waived or becomes unenforceable, the Director of the OTS, or his
designees, at that time may impose conditions on the composition of the board of
directors of the Foundation or such other conditions or restrictions relating to
the control of the Common Stock held by the Foundation, any of which could limit
the ability of the board of directors of the Foundation to control the voting of
the Common Stock held by the Foundation. Further, there will be no agreements
or understandings with directors of the Foundation regarding the exercise of
control, directly or indirectly, over the management or policies of the Company
or the Association, including agreements related to voting, acquisition or
disposition of the Company's stock. As directors of a nonprofit corporation,
directors of the Foundation will at all times be bound by their fiduciary duty
to advance the Foundation's charitable goals, to protect the assets of the
Foundation and to act in a manner consistent with the charitable purpose for
which the Foundation is established.
The Company will provide office space and administrative support services
to the Foundation. Initially, the Foundation is expected to have no employees.
The board of directors of the Foundation will appoint such officers as may be
necessary to manage the operations of the Foundation. It is anticipated that
initially such officers will be selected from the board of directors of the
Foundation. Any transaction between the Association and the Foundation
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will comply with the affiliate transaction restrictions set forth in Sections
23A and 23B of the Federal Reserve Act, as amended.
The Company and the Association determined to fund the Foundation with
Common Stock rather than cash because it desired to form a bond with its
community in a manner that would allow the community to share in the potential
growth and success of the Company and the Association over the long term. The
funding of the Foundation with stock also provides the Foundation with a
potentially larger endowment than if the Company contributed cash to the
Foundation since, as a shareholder, the Foundation will share in the potential
growth and success of the Company. As such, the contribution of stock to the
Foundation has the potential to provide a self-sustaining funding mechanism
which reduces the amount of cash that the Company, if it were not making the
stock contribution, would have to contribute to the Foundation in future years
in order to maintain a level amount of charitable grants and donations.
The Foundation would receive working capital from any dividends that may be
paid on the Common Stock in the future, and subject to applicable federal and
state laws, loans collateralized by the Common Stock or from the proceeds of the
sale of any of the Common Stock in the open market from time to time as may be
permitted to provide the Foundation with additional liquidity. As a private
foundation under Section 501(c)(3) of the Code, the Foundation will be required
to distribute annually in grants or donations, a minimum of 5% of the average
fair market value of its net investment assets. In the event that no ready
market for the Common Stock develops after the Offering, the Foundation will
lack a steady and dependable source of funding, which would adversely impact the
Foundation's ability to distribute the minimum amount necessary under the Code.
In such an event, the Company may consider making a cash contribution to the
Foundation to enable it to meet this requirement. As the Common Stock is
expected to be approved for quotation on the Nasdaq, management does not
anticipate that there will be no market for the Common Stock, however. One of
the conditions imposed on the gift of Common Stock by the Company is that the
amount of Common Stock that may be sold by the Foundation in any one year shall
not exceed 5% of the average market value of the assets held by the Foundation,
except where the board of directors of the Foundation, determines that the
failure to sell an amount of common stock greater than such amount would result
in a long-term reduction of the value of the Foundation's assets or would
otherwise jeopardize the Foundation's capacity to carry out its charitable
purposes. While there may be a greater risk associated with a one-stock
portfolio in comparison to a diversified portfolio, the Company believes any
such risk is mitigated by the ability of the Foundation's directors to sell more
than 5% of its stock in such circumstances. Upon completion of the Conversion
and the contribution of shares to the Foundation immediately following the
Conversion, the Company would have 7,225,000, 8,500,000 and 9,775,000 shares
issued and outstanding at the minimum, midpoint and maximum of the Estimated
Price Range. BECAUSE THE COMPANY WILL HAVE AN INCREASED NUMBER OF SHARES
OUTSTANDING, THE VOTING AND OWNERSHIP INTERESTS OF SHAREHOLDERS IN THE COMPANY'S
COMMON STOCK WOULD BE DILUTED BY 7.1%, AS COMPARED TO THEIR INTERESTS IN THE
COMPANY IF THE FOUNDATION WAS NOT ESTABLISHED. For additional discussion of the
dilutive effect, see "Comparison of Valuation and Pro Forma Information With No
Foundation" and "Pro Forma Data."
Comparison of Valuation and Other Factors Assuming the Foundation Is Not
Established as Part of the Conversion. The Company proposes to capitalize the
Foundation with Common Stock in an amount equal to 7.7% of the total amount of
Common Stock sold in connection with the Conversion. At the minimum, midpoint,
maximum and 15% above the maximum of the Estimated Price Range, the contribution
to the Foundation would equal 515,865, 606,900, 697,935 and 802,625 shares,
respectively, which would have a market value of $5.2 million, $6.1 million,
$7.0 million and $8.0 million, respectively, based on the Purchase Price of
$10.00 per share. Such contribution, once made, will not be recoverable by the
Company or the Association. As a result of the establishment of the Foundation,
the Estimated Price Range, as estimated by Keller, has decreased and the amount
of stock available for sale in the Offerings has also correspondingly decreased.
The amount of the decrease is 983,365, 1,156,900, 1,330,435 and 1,530,000
shares, or $9.8 million, $11.6 million, $13.3 million and $15.3 million at the
minimum, midpoint, maximum and 15% above the maximum of the Estimated Price
Range, respectively. See "Pro Forma Data" and "Comparison of Valuation and Pro
Forma Data Information with No Foundation."
As a result of the establishment of the Foundation, the Company will
recognize an expense of the full amount of the contribution, which is expected
to be offset in part by a corresponding tax benefit, during the quarter in which
the contribution is made, which is expected to be the second quarter of fiscal
1999. Such expense will reduce earnings and have a material impact on the
Company's earnings for the fiscal year in which it is made. While management
cannot predict earnings for fiscal 1999, it expects that the establishment and
funding of the Foundation will have an adverse impact on the Company's earnings
for the year in which it is made. Assuming a contribution of $7.0 million in
Common Stock in fiscal 1999, based on the maximum of the Estimated Price Range
and assuming a tax rate of 34%, the Company estimates a net tax effected expense
of $4.6 million. If the Foundation had been established at June 30, 1998, the
Association would have recorded a net loss of $534,000, rather than recording
net income of $4.1 million
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for the year ended June 30, 1998, based on an assumed tax rate of 34%. Due to
the contribution to the Foundation, the Association expects in the future to
reduce the amount of its current charitable contributions within its community.
The Association does not anticipate making future charitable contributions to
the Foundation during the first five years following the initial contribution to
the Foundation.
Tax Considerations. The Company and the Association have been advised by
Crowe, Chizek and Company LLP that the Foundation will qualify as a 501(c)(3)
exempt organization under the Code, and will be classified as a private
foundation rather than a public charity. A private foundation typically receives
its support from one person or one corporation whereas a public charity receives
its support from the public. The Foundation will submit a request to the IRS to
be recognized as an exempt organization after approval of the Foundation by the
Association's members at the Special Meeting being held to consider the
Conversion. As long as the Foundation files its application for tax-exempt
status within 15 months from the date of its organization, and provided the IRS
approves the application, the effective date of the Foundation's status as a
Section 501(c)(3) organization will be the date of its organization. Crowe,
Chizek and Company LLP, however, has not rendered any advice on the condition of
the gift which requires that all shares of Common Stock of the Company held by
the Foundation must be voted in the same ratio as all other shares of the
Company's Common Stock, on all proposals considered by stockholders of the
Company. In the event that the Company or the Foundation receives an opinion of
their tax counsel satisfactory to the OTS that compliance with the voting
restriction would cause the Foundation to lose its tax-exempt status, otherwise
have a material adverse tax consequence on the Foundation or subject the
Foundation to an excise tax under Section 4941 of the Code, the OTS will waive
such condition upon submission of such opinion(s) by the Company or the
Foundation. See "-- Regulatory Conditions Imposed on the Foundation."
A legal opinion of the OTS which addresses the establishment of charitable
foundations by savings associations opines that as a general rule funds
contributed to a charitable foundation should not exceed the deductible
limitations set forth in the Code, and if a saving association's contributions
exceed the deductible limit, such action must be justified by the Board of
Directors. In addition, under Delaware law, the Company is authorized by
statute to make charitable contributions and case law has recognized the
benefits of such contributions to a Delaware corporation. In this regard,
Delaware case law provides that a charitable gift must merely be within
reasonable limits as to amount and purpose to be valid. Under the Code, the
Company may deduct up to 10% of its taxable income in any one year and any
contributions made by the Company in excess of the deductible amount will be
deductible for federal tax purposes over each of the five succeeding taxable
years. The Company and the Association believe that the Conversion presents a
unique opportunity to establish and fund a charitable foundation given the
substantial amount of additional capital being raised in the Conversion. In
making such a determination, the Company and the Association considered the
dilutive impact of the Foundation on the amount of Common Stock available to be
offered for sale in the Conversion. See "Comparison of Valuation and Pro Forma
Information with No Foundation." Based on such consideration, the Company and
Association believe that the contribution to the Foundation in excess of the 10%
annual limitation is justified given the Association's capital position and its
earnings, the substantial additional capital being raised in the Conversion and
the potential benefits of the Foundation to the Association's community. In
this regard, assuming the sale of the Common Stock at the midpoint of the
Estimated Price Range, the Company would have pro forma consolidated capital of
$128.2 million, or 18.9% of pro forma consolidated assets and the Association's
pro forma tangible, core and risk-based capital ratios would be 13.5%, 13.5% and
30.6%, respectively. See "Regulatory Capital Compliance," "Capitalization," and
"Comparison of Valuation and Pro Forma Information with No Foundation." Thus,
the amount of the contribution will not adversely impact the financial condition
of the Company and the Association and the Company and the Association therefore
believe that the amount of the charitable contribution is reasonable given the
Company and the Association's pro forma capital positions. As such, the Company
and the Association believe that the contribution does not raise safety and
soundness concerns.
The Company and the Association have received an opinion of Crowe, Chizek
and Company LLP that the Company's contribution of its own stock to the
Foundation should not constitute an act of self-dealing, and that the Company
should be entitled to a deduction in the amount of the fair market value of the
stock at the time of the contribution less the nominal par value that the
Foundation is required to pay to the Company for such stock, subject to a
limitation based on 10% of the Company's annual taxable income. The Company,
however, would be able to carry forward any unused portion of the deduction for
five years following the year in which the contribution is made for federal tax
purposes. Thus, while the Company expects, based on the midpoint of the
Estimated Price Range, to be able to utilize for federal income tax purposes a
charitable contribution deduction of approximately $1.2 million in
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fiscal year 1999, the Company is permitted under the Code to carryover the
excess of the total contribution over such 1999 deduction over a five-year
period for federal income tax purposes. Assuming the close of the Offerings at
the midpoint of the Estimated Price Range, the Company estimates that all of the
federal tax deduction should be deductible over the six-year period. However, no
assurances can be made that the Company will have sufficient pre-tax income over
the five year period following the year in which the contribution was made to
fully utilize the carryover related to the excess contribution. Neither the
Company nor the Association expects to make any further contributions to the
Foundation within the first five years following the initial contribution. After
that time, the Company and the Association may consider future contributions to
the Foundation. Any such decisions would be based on an assessment of, among
other factors, the financial condition of the Company and the Association at
that time, the interests of shareholders and depositors of the Company and the
Association, and the financial condition and operations of the Foundation.
Although the Company and the Association have received an opinion of Crowe,
Chizek and Company LLP that the Company is entitled to a deduction for the
charitable contribution, there can be no assurances that the IRS will recognize
the Foundation as a Section 501(c)(3) exempt organization or that the deduction
will be permitted. In such event, the Company's contribution to the Foundation
would be expensed without tax benefit, resulting in a reduction in earnings in
the year in which the IRS makes such a determination. In cases of willful,
flagrant or repeated acts or failures to act which result in violations of the
IRS rules governing private foundations, a private foundation's status as a
private foundation may be involuntarily terminated by the IRS. In such event,
the managers of a private foundation could be liable for excise taxes based on
such violations and the private foundation could be liable for a termination tax
under the Code. The Foundation's certificate of incorporation provides that it
shall have a perpetual existence. In the event, however, the Foundation were
subsequently dissolved as a result of a loss of its tax exempt status, the
Foundation would be required under the Code and its certificate of incorporation
to distribute any assets remaining in the Foundation at that time for one or
more exempt purposes within the meaning of Section 501(c)(3) of the Code, or to
distribute such assets to the federal government, or to a state or local
government, for a public purpose.
As a private foundation, earnings and gains, if any, from the sale of
Common Stock or other assets are exempt from federal and state corporate
taxation. However, investment income, such as interest, dividends and capital
gains, will be subject to a federal excise tax of 2.0%. The Foundation will be
required to make an annual filing with the IRS within four and one-half months
after the close of the Foundation's fiscal year to maintain its tax-exempt
status. The Foundation will be required to publish a notice that the annual
information return will be available for public inspection for a period of 180
days after the date of such public notice. The information return for a private
foundation must include, among other things, an itemized list of all grants made
or approved, showing the amount of each grant, the recipient, any relationship
between a grant recipient and the Foundation's managers and a concise statement
of the purpose of each grant.
Regulatory Conditions Imposed on the Foundation. Establishment of the
Foundation is subject to the following conditions imposed by the OTS: (i) the
Foundation will be subject to examination by the OTS, at the Foundation's own
expense; (ii) the Foundation must comply with supervisory directives imposed by
the OTS; (iii) the Foundation will provide annual reports to the OTS describing
grants made and grant recipients; (iv) the Foundation will operate in accordance
with written policies adopted by the board of directors, including a conflict of
interest policy; (v) the Foundation will not engage in self-dealing and will
comply with all laws necessary to maintain its tax-exempt status; (vi) any
purchases of Common Stock by the Foundation following that Conversion will be
subject to OTS regulations on stock repurchases; (vii) for a period of five (5)
years following the Conversion, one (1) director of the Foundation must be an
individual who is not an officer and/or director of the Company or the
Association and who is a civic or community leader within Trumbull or Mahoning
Counties, Ohio or their contiguous locality and is not an associate of any
officer or director of the Company or the Association; (viii) for a period of
five (5) years following the Conversion, one (1) director must be an individual
who is a member of the Board of Directors of the Association; and (ix) any
shares of Common Stock of the Company held by the Foundation must be voted in
the same ratio as all other shares of the Company's Common Stock on all
proposals considered by stockholders of the Company; provided, however, that the
OTS will waive this voting restriction under certain circumstances if compliance
with the voting restriction would: (a) cause a violation of the law of the State
of Delaware and the OTS determines the federal law does not preempt the
application of the laws of the State of Delaware to the Foundation; (b) cause
the Foundation to lose its tax-exempt status or otherwise have a material and
adverse tax consequence on the Foundation; or (c) cause the Foundation to be
subject to an excise tax under Section 4941 of the Code. In order for the OTS to
waive such voting restriction, the Company's or the Foundation's legal counsel
must render an opinion satisfactory to OTS that compliance with the voting
restriction would have the effect described in clauses (a), (b) or (c) above.
Under those circumstances, the OTS will grant a waiver of the voting restriction
upon submission of such opinion(s) by the Company or the Foundation. There can
be no assurances that either a legal or
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tax opinion addressing these issues will be rendered, or if rendered, that the
OTS will grant an unconditional waiver of the voting restriction. In this
regard, a condition to the OTS approval of the Conversion provides that in the
event such voting restriction is waived or becomes unenforceable, the Director
of the OTS, or his designees, at that time may impose conditions on the
composition of the board of directors of the Foundation or such other conditions
or restrictions relating to the control of the Common Stock held by the
Foundation, any of which could limit the ability of the board of directors of
the Foundation to control the voting of Common Stock held by the Foundation. In
no event will the voting restriction survive the sale of shares of the Common
Stock held by the Foundation.
In addition, establishment of the Foundation is subject to the approval of
a majority of the total outstanding votes of the Association's members eligible
to be cast at the Special Meeting. The Foundation will be considered as a
separate matter from approval of the Plan of Conversion. If the Association's
members approve the Plan of Conversion, but not the Foundation, the Association
intends to complete the Conversion without the establishment of the Foundation.
Failure to approve the Foundation may materially increase the pro forma market
value of the Common Stock being offered for sale in the Offering since the
Valuation Range, as set forth herein, takes into account the dilutive impact of
the issuance of shares to the Foundation. See "Comparison of Valuation and Pro
Forma Information With No Foundation."
Purposes of Conversion
The Association, as a federally-chartered mutual savings and loan
association, does not have shareholders and has no authority to issue capital
stock. By converting to the capital stock form of organization, the Association
will be structured in the form used by commercial banks, other business entities
and a growing number of savings institutions. The Conversion will enhance the
Association's ability to access capital markets, expand its current operations,
acquire other financial institutions or branch offices, provide affordable home
financing opportunities to the communities it serves or diversify into other
financial services to the extent allowable by applicable law and regulation.
The Conversion would also position the Association for a conversion to a
commercial bank charter if the Board of the Association chooses to do so in the
future.
The holding company form of organization, if used, would provide additional
flexibility to diversify the Association's business activities through existing
or newly formed subsidiaries, or through acquisitions of or mergers with both
mutual and stock institutions, as well as other companies. Although there are
no current arrangements, understandings or agreements regarding any such
opportunities, the Company will be in a position after the Conversion, subject
to regulatory limitations and the Company's financial position, to take
advantage of any such opportunities that may arise.
The potential impact of the Conversion upon the Association's capital base
is significant. The Conversion will significantly increase the Association's
capital position to a level whereby the Association will be better positioned to
take advantage of business opportunities and engage in activities which, prior
to Conversion, would have been more difficult for the Association to engage in
and still continue to meet its status as a "well capitalized" institution. At
June 30, 1998, the Association had total equity, determined in accordance with
GAAP, of $59.4 million, or 9.7% of total assets, which approximated the
Association's regulatory tangible capital at that date of 9.5% of assets. An
institution with a ratio of tangible capital to total assets of greater than or
equal to 5.0% is considered to be "well-capitalized" pursuant to OTS
regulations. Assuming that the Company uses 50% of the net proceeds at the
maximum of the Estimated Price Range to purchase the stock of the Association,
the Association's GAAP capital will increase to $92.0 million or a ratio of
GAAP capital to adjusted assets, on a pro forma basis, of 14.3% after the
Conversion. In the event that the holding company form of organization is not
utilized and all of the net Conversion proceeds, at the midpoint of the
Estimated Price Range, are retained by the Association, the Association's ratios
of tangible and core capital to adjusted assets, on a pro forma basis, will both
increase to 17.2% after Conversion. The investment of the net proceeds from the
sale of the Common Stock is expected to provide the Association with additional
income to increase further its capital position. The additional capital may
also assist the Association in offering new programs and expanded services to
its customers. See "Use of Proceeds."
After completion of the Conversion, the unissued common and preferred stock
authorized by the Company's Certificate of Incorporation will permit the
Company, subject to market conditions and any required regulatory approval of an
offering, to raise additional equity capital through further sales of
securities, and to issue securities in
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connection with possible acquisitions. At the present time, the Company has no
plans with respect to additional offerings of securities, other than the
possible issuance of additional shares upon exercise of Stock Options under the
Stock-Based Incentive Plan or the possible issuance of authorized but unissued
shares to the Stock-Based Incentive Plan for Stock Awards. Following the
Conversion, the Company will also be able to use stock-related incentive plans
to attract and retain executive and other personnel for itself and its
subsidiaries. See "Management of the Association -- Executive Compensation."
Effects of Conversion
General. Each depositor in a mutual savings institution has both a deposit
account in the institution and a pro rata ownership interest in the net worth of
the institution based upon the balance in his or her account, which interest may
only be realized in the event of a liquidation of the institution or in the
event the institution declares a capital distribution to depositors, subject to
applicable regulations of the OTS. However, this ownership interest is tied to
the depositor's account and has no tangible market value separate from such
deposit account. Any depositor who opens a deposit account obtains a pro rata
ownership interest in the net worth of the institution without any additional
payment beyond the amount of the deposit. A depositor who reduces or closes his
account receives a portion or all of the balance in the account but nothing for
his ownership interest in the net worth of the institution, which is lost to the
extent that the balance in the account is reduced.
Consequently, mutual savings institution depositors normally have no way to
realize the value of their ownership interest, which has realizable value only
in the unlikely event that the mutual savings institution is liquidated or in
the event the institution declares a capital distribution to depositors, subject
to applicable regulations of the OTS. In such event, the depositors of record
at that time, as owners, would share pro rata in any residual surplus and
reserves after other claims, including claims of depositors to the amounts of
their deposits, are paid.
When a mutual savings institution converts to stock form, permanent
nonwithdrawable capital stock is created to represent the ownership of the
institution's net worth. The common stock is separate and apart from deposit
accounts and cannot be and is not insured by the FDIC or any other governmental
agency. Certificates are issued to evidence ownership of the capital stock.
The stock certificates are transferable and, therefore, the stock may be sold or
traded if a purchaser is available with no effect on any account the seller may
hold in the institution.
Continuity. While the Conversion is being accomplished, the normal
business of the Association of accepting deposits and making loans will continue
without interruption. The Association will continue to be subject to regulation
by the OTS and the FDIC. After the Conversion, the Association will continue to
provide services for depositors and borrowers under current policies by its
present management and staff. The Directors serving the Association at the time
of Conversion will serve initially as Directors of the Association after the
Conversion. The Directors of the Company will consist initially of individuals
currently serving on the Board of Directors of the Association. All officers of
the Association at the time of Conversion will retain their positions
immediately after Conversion.
Effect on Deposit Accounts. Under the Plan, each depositor in the
Association at the time of Conversion will automatically continue as a depositor
after the Conversion, and each such deposit account will remain the same with
respect to deposit balance, interest rate and other terms. Each such account
will be insured by the FDIC to the same extent as before the Conversion (i.e.,
up to $100,000 per depositor). Depositors will continue to hold their existing
certificates, passbooks and other evidences of their accounts.
Effect on Loans. No loan outstanding from the Association will be affected
by the Conversion, and the amount, interest rate, maturity and security for each
loan will remain as they were contractually fixed prior to the Conversion.
Effect on Voting Rights of Members. At present, all depositors and certain
borrowers of the Association are members of, and have voting rights in, the
Association as to all matters requiring membership action. Upon Conversion,
depositors and borrowers will cease to be members and will no longer be entitled
to vote at meetings of the Association. Upon Conversion, all voting rights in
the Association will be vested in the Company as the sole stockholder of the
Association. Exclusive voting rights with respect to the Company will be vested
in the holders of Common Stock. Depositors and borrowers of the Association
will not have voting rights after the Conversion except
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to the extent that they become stockholders of the Company through the purchase
of Common Stock.
Tax Effects. The Association has received an opinion from Patton Boggs LLP
with regard to federal income taxation and an opinion from Crowe, Chizek and
Company LLP with regard to Ohio income taxation to the effect that the
Conversion will not be a taxable transaction to the Association, its Eligible
Account Holders, or its Supplemental Eligible Account Holders or the Company,
except as discussed below. See "-- Tax Aspects."
Effect on Liquidation Rights. If a mutual savings institution were to
liquidate, all claims of creditors (including those of depositors, to the extent
of deposit balances) would be paid first. Thereafter, if there were any assets
remaining, depositors would be entitled to such remaining assets, pro rata,
based upon the deposit balances in their deposit accounts immediately prior to
liquidation. In the unlikely event that the Association were to liquidate after
Conversion, all claims of creditors (including those of depositors, to the
extent of their deposit balances) would also be paid first, followed by
distribution of the "liquidation account" to certain depositors (see "--
Liquidation Rights"), with any assets remaining thereafter distributed to the
Company as the holder of the Association's capital stock. Pursuant to the rules
and regulations of the OTS, a post-Conversion merger, consolidation, sale of
bulk assets or similar combination or transaction with another insured savings
institution would not be considered a liquidation and, in such a transaction,
the liquidation account would be assumed by the surviving institution.
Stock Pricing
The Plan of Conversion requires that the aggregate purchase price of the
Common Stock must be based on the appraised pro forma market value of the Common
Stock, as determined on the basis of an independent valuation. The Association
and the Company have retained Keller to make such valuation. For its services
in making such appraisal, Keller will receive a fee of $26,000, including out-
of-pocket expenses. The Association and the Company have agreed to indemnify
Keller and its employees and affiliates against certain losses (including any
losses in connection with claims under the federal securities laws) arising out
of its services as appraiser, except where Keller's liability results from its
negligence, willful misconduct or bad faith.
An appraisal has been made by Keller in reliance upon the information
contained in this Prospectus, including the Consolidated Financial Statements.
Keller also considered the following factors, among others: the present and
projected operating results and financial condition of the Company and the
Association and the economic and demographic conditions in the Association's
existing marketing area; certain historical, financial and other information
relating to the Association; a comparative evaluation of the operating and
financial statistics of the Association with those of other similarly situated
publicly-traded savings banks and savings institutions located in the
Association's market area and the Midwest and the Midatlantic areas of the
United States; the aggregate size of the offering of the Common Stock; the
impact of Conversion on the Association's net worth and earnings potential; the
proposed dividend policy of the Company and the Association; and the trading
market for securities of comparable institutions and general conditions in the
market for such securities.
On the basis of the foregoing, Keller has advised the Company and the
Association that, in its opinion, dated August 14, 1998 and updated October 23,
1998, the estimated pro forma market value of the Common Stock, being offered
for sale ranged from a minimum of $67.1 million to a maximum of $90.8 million
with a midpoint of $78.9 million. Based upon the Valuation Range and the
Purchase Price of $10.00 per share for the Common Stock established by the Board
of Directors, the Board of Directors has established the Estimated Price Range
of $67.1 million to $90.8 million, with a midpoint of $78.9 million, and the
Company expects to sell between 6,709,135 and 9,077,065 shares of Common Stock.
The Board of Directors of the Company and the Association have reviewed the
appraisal of Keller and in determining the reasonableness and adequacy of such
appraisal consistent with OTS regulations and policies, have reviewed the
methodology and reasonableness of the assumptions utilized by Keller in the
preparation of such appraisal. The Estimated Price Range may be amended with the
approval of the OTS (if required), if necessitated by subsequent developments in
the financial condition of the Company or the Association or market conditions
generally. The $10.00 per share price for the Common Stock was based on the
consideration of a number of factors, including the potential after market
liquidity of the stock, Nasdaq listing requirements and other marketing
conditions.
SUCH APPRAISAL, HOWEVER, IS NOT INTENDED, AND MUST NOT BE CONSTRUED, AS A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF PURCHASING COMMON STOCK IN
THE OFFERINGS. KELLER DID NOT INDEPENDENTLY VERIFY THE
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CONSOLIDATED FINANCIAL STATEMENTS AND OTHER INFORMATION PROVIDED BY THE
ASSOCIATION, NOR DID KELLER VALUE INDEPENDENTLY THE ASSETS OR LIABILITIES OF THE
ASSOCIATION. THE APPRAISAL CONSIDERS THE ASSOCIATION AS A GOING CONCERN AND
SHOULD NOT BE CONSIDERED AS AN INDICATION OF THE LIQUIDATION VALUE OF THE
ASSOCIATION. MOREOVER, BECAUSE SUCH APPRAISAL IS NECESSARILY BASED UPON
ESTIMATES AND PROJECTIONS OF A NUMBER OF MATTERS, ALL OF WHICH ARE SUBJECT TO
CHANGE FROM TIME TO TIME, NO ASSURANCE CAN BE GIVEN THAT PERSONS PURCHASING
COMMON STOCK IN THE CONVERSION WILL THEREAFTER BE ABLE TO SELL COMMON STOCK AT
PRICES AT OR ABOVE THE PURCHASE PRICE OR IN THE RANGE OF THE FOREGOING VALUATION
OF THE PRO FORMA MARKET VALUE THEREOF. SEE "RISK FACTORS -- ABSENCE OF MARKET
FOR COMMON STOCK."
Following commencement of the Subscription Offering, the maximum of the
Estimated Price Range may be increased up to 15% and the number of shares of
Common Stock to be sold in the Conversion may be increased to 10,438,625 shares
due to regulatory considerations, changes in the market and general financial
and economic conditions, without the resolicitation of subscribers. See "--
Limitations on Common Stock Purchases" as to the method of distribution and
allocation of additional shares that may be issued in the event of an increase
in the Estimated Price Range to fill unfilled orders in the Subscription
Offering.
If the pro forma market value of the Common Stock is either more than 15%
above the maximum of the Estimated Price Range or less than the minimum of the
Estimated Price Range, the Association and the Company, after consulting with
the OTS, may terminate the Plan and return all funds promptly with interest at
the Association's passbook rate of interest on payments made by check,
Association draft or money order, extend or hold a new Subscription Offering
and/or Community Offering, establish a new Estimated Price Range, commence a
resolicitation of subscribers or take such other actions as permitted by the OTS
in order to complete the Conversion. In the event that a resolicitation is
commenced, unless an affirmative response is received within a reasonable period
of time, all funds will be promptly returned to investors as described above. A
resolicitation, if any, following the conclusion of the Subscription Offering
would not exceed 45 days unless further extended by the OTS for periods of up to
90 days not to extend beyond _______, 2000.
If all shares of Common Stock are not sold through the Subscription
Offering or Community Offering, then the Association and the Company expect to
offer the remaining shares in a Syndicated Community Offering which would occur
as soon as practicable following the close of the Subscription Offering but may
commence during the Subscription Offering subject to prior rights of
subscribers. All shares of Common Stock will be sold at the same price per
share in the Syndicated Community Offering as in the Subscription Offering and
Community Offering. See "--Syndicated Community Offering."
No sale of shares of Common Stock may be consummated unless, prior to such
consummation, Keller confirms to the Association, the Company and the OTS that,
to the best of its knowledge, nothing of a material nature has occurred which,
taking into account all relevant factors, would cause Keller to conclude that
the aggregate value of the Common Stock at the Purchase Price is incompatible
with its estimate of the pro forma market value of the Common Stock of the
Company. Any change which would result in an aggregate purchase price which is
below or more than 15% above the Estimated Price Range would be subject to OTS
approval. If such confirmation is not received, the Association may extend the
Conversion, extend, reopen or commence a new Subscription Offering, Community
Offering or Syndicated Community Offering, establish a new Estimated Price Range
and commence a resolicitation of all subscribers with the approval of the OTS or
take such other actions as permitted by the OTS in order to complete the
Conversion, or terminate the Plan and cancel the Subscription and Community
Offerings and/or the Syndicated Community Offering. In the event market or
financial conditions change so as to cause the aggregate purchase price of the
shares to be below the minimum of the Estimated Price Range or more than 15%
above the maximum of such range, and the Company and the Association determine
to continue the Conversion, subscribers will be resolicited (i.e., be permitted
to continue their orders, in which case they will need to affirmatively
reconfirm their subscriptions prior to the expiration of the resolicitation
offering or their subscription funds will be promptly refunded with interest at
the Association's passbook rate of interest, or be permitted to decrease or
cancel their subscriptions). Any change in the Estimated Price Range must be
approved by the OTS. A resolicitation, if any, following the conclusion of the
Subscription Offering would not exceed 45 days unless further extended by the
OTS for periods up to 90 days not to extend beyond _______, 2000. If such
resolicitation is not effected, the Association will return all funds promptly
with interest at the Association's passbook rate of interest on payments made by
check, bank draft or money order.
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Copies of the appraisal report of Keller, including any amendments thereto,
and the detailed memorandum of the appraiser setting forth the method and
assumptions for such appraisal are available for inspection at the main office
of the Association and the other locations specified under "Additional
Information."
Number of Shares to Be Issued
Depending upon market or financial conditions following the commencement of
the Subscription Offering, the total number of shares to be issued in the
Conversion may be increased or decreased without a resolicitation of
subscribers, provided that the product of the total number of shares times the
price per share is not below the minimum of the Estimated Price Range or more
than 15% above the maximum of the Estimated Price Range. Based on a fixed
purchase price of $10.00 per share and Keller's estimate of the pro forma market
value of the Common Stock to be sold ranging from a minimum of $67.1 million to
a maximum, as increased by 15%, of $104.4 million, the number of shares of
Common Stock expected to be sold in the Conversion is between a minimum of
6,709,135 shares and a maximum, as adjusted by 15%, of 10,438,625 shares. The
actual number of shares sold between this range will depend on a number of
factors and shall be determined by the Association and Company, subject to OTS
approval, if necessary.
In the event market or financial conditions change so as to cause the
aggregate purchase price of the shares to be below the minimum of the Estimated
Price Range or more than 15% above the maximum of the Estimated Price Range, if
the Plan is not terminated by the Company and the Association after consultation
with the OTS, purchasers will be resolicited (i.e., permitted to continue their
orders, in which case they will need to affirmatively reconfirm their
subscriptions prior to the expiration of the resolicitation offering or their
subscription funds will be promptly refunded, or be permitted to modify or
rescind their subscriptions). Any change in the Estimated Price Range must be
approved by the OTS. If the number of shares issued in the Conversion is
increased due to an increase of up to 15% in the Estimated Price Range to
reflect changes in market or financial condition, persons who subscribed for the
maximum number of shares will not be given the opportunity to subscribe for an
adjusted maximum number of shares, except for the ESOP which will be able to
subscribe for such adjusted amount. See "-- Limitations on Common Stock
Purchases."
In the event the members of the Association approve the establishment of
the Foundation, the number of shares to be issued and outstanding following the
Conversion will be increased by a number of shares equal to 7.7% of the Common
Stock sold in the Conversion. Assuming the sale of shares in the Offerings at
the maximum of the Estimated Price Range, the Company will issue 697,935 shares
of its Common Stock from authorized but unissued shares to the Foundation
immediately following the completion of the Conversion. In that event, the
Company will have total shares of Common Stock outstanding of 9,775,000 shares.
Of that amount, the Foundation will own 7.1%. Funding the Foundation with
authorized but unissued shares will have the effect of diluting the ownership
and voting interests of persons purchasing shares in the Conversion by 7.1%
since a greater number of shares will be outstanding upon completion of the
Conversion than would be if the Foundation were not established. See "Pro Forma
Data."
An increase in the number of shares to be issued in the Conversion as a
result of an increase in the estimated pro forma market value would decrease
both a subscriber's ownership interest and the Company's pro forma net earnings
and stockholders' equity on a per share basis while increasing pro forma net
earnings and stockholders' equity on an aggregate basis. A decrease in the
number of shares to be issued in the Conversion would increase both a
subscriber's ownership interest and the Company's pro forma net earnings and
stockholders' equity on a per share basis while decreasing pro forma net
earnings and stockholder's equity on an aggregate basis. For a presentation of
the effects of such changes, see "Pro Forma Data."
Subscription Offering and Subscription Rights
In accordance with the Plan of Conversion, rights to subscribe for the
purchase of Common Stock have been granted under the Plan of Conversion to the
following persons in the following order of descending priority: (1) holders of
deposit accounts (as defined by the Plan and described herein) with a balance of
$50 or more as of March 31, 1997 ("Eligible Account Holders"); (2) the ESOP; (3)
holders of deposit accounts with a balance of $50 or more as of September 30,
1998 ("Supplemental Eligible Account Holders"); and (4) members of the
Association, consisting of depositors of the Association as of _________, 1998,
the Voting Record Date, and borrowers with loans outstanding
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as of September 8, 1998, other than Eligible Account Holders and Supplemental
Eligible Account Holders ("Other Members"). All subscriptions received will be
subject to the availability of Common Stock after satisfaction of all
subscriptions of all persons having prior rights in the Subscription Offering
and to the maximum and minimum purchase limitations set forth in the Plan of
Conversion and as described below under "--Limitations on Common Stock
Purchases."
Deposit accounts which will provide subscription rights to holders thereof
consist of any "savings account," as defined by the Plan of Conversion. Pursuant
to the Plan noninterest-bearing demand deposit accounts qualify as "savings
accounts."
Priority 1: Eligible Account Holders. Each Eligible Account Holder will
receive, without payment therefor, first priority, nontransferable subscription
rights to subscribe for in the Subscription Offering up to the greater of (1)
the amount permitted to be purchased in the Community Offering, currently
$250,000 of Common Stock; (2) one-tenth of one percent (.10%) of the total
offering of shares of Common Stock; or (3) fifteen times the product (rounded
down to the next whole number) obtained by multiplying the total number of
shares of Common Stock to be issued by a fraction of which the numerator is the
amount of the Eligible Account Holder's Qualifying Deposit (defined by the Plan
as any deposit account in the Association with a balance of $50 or more as of
March 31, 1997) and the denominator is the total amount of Qualifying Deposits
of all Eligible Account Holders, in each case on the Eligibility Record Date,
subject to the overall purchase limitation and exclusive of an increase in the
shares issued pursuant to an increase in the Estimated Price Range of up to 15%.
See "-- Limitations on Common Stock Purchases."
In the event that Eligible Account Holders exercise subscription rights for
a number of shares of Conversion Stock in excess of the total number of such
shares eligible for subscription, the shares of Conversion Stock shall be
allocated among the subscribing Eligible Account Holders so as to permit each
subscribing Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his or her total allocation of Conversion
Stock equal to the lesser of 100 shares or the number of shares subscribed for
by the Eligible Account Holder. Any shares remaining after that allocation will
be allocated among the subscribing Eligible Account Holders whose subscriptions
remain unsatisfied in the proportion that the amount of the Qualifying Deposit
of each Eligible Account Holder whose subscription remains unsatisfied bears to
the total amount of the Qualifying Deposits of all Eligible Account Holders
whose subscriptions remain unsatisfied. If the amount so allocated exceeds the
amount subscribed for by any one or more Eligible Account Holders, the excess
shall be reallocated (one or more times as necessary) among those Eligible
Account Holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied.
To ensure proper allocation of stock, each Eligible Account Holder must
list on his subscription order form all accounts in which he has an ownership
interest. Failure to list an account could result in less shares being
allocated than if all accounts had been disclosed. The subscription rights of
Eligible Account Holders who are also Directors or Officers of the Association
or their associates will be subordinated to the subscription rights of other
Eligible Account Holders to the extent attributable to increased deposits in the
12 months preceding March 31, 1997.
Priority 2: Employee Stock Ownership Plan. To the extent that there are
sufficient shares remaining after satisfaction of the subscriptions by Eligible
Account Holders, the ESOP will receive, without payment therefor, second
priority, nontransferable subscription rights to purchase, in the aggregate, up
to 10% of Common Stock issued in the Conversion, including shares issued to the
Foundation, and any increase in the number of shares of Common Stock to be
issued in the Conversion after the date hereof as a result of an increase of up
to 15% in the maximum of the Estimated Price Range. The ESOP intends to
purchase 8% of the shares to be issued in the Conversion, including shares
issued to the Foundation, or 578,000 shares and 782,000 shares, based on the
minimum and maximum of the Estimated Price Range, respectively. Subscriptions
by the ESOP will not be aggregated with shares of Common Stock purchased
directly by or which are otherwise attributable to any other participants in the
Subscription Offering, including subscriptions of any of the Association's
directors, officers, employees or associates thereof. See "Management of the
Association -- Other Benefit Plans -- Employee Stock Ownership Plan."
Priority 3: Supplemental Eligible Account Holders. Each Supplemental
Eligible Account Holder will receive, without payment therefor, third priority,
nontransferable subscription rights to subscribe for in the Subscription
Offering up to the greater of the amount permitted to be purchased in the
Community Offering, currently $250,000
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of Common Stock, one-tenth of one percent (.10%) of the total offering of shares
of Common Stock or fifteen times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares of Common Stock to be
issued by a fraction of which the numerator is the amount of the Supplemental
Eligible Account Holder's Qualifying Deposit and the denominator is the total
amount of Qualifying Deposits of all Supplemental Eligible Account Holders, in
each case on the Supplemental Eligibility Record Date, subject to the overall
purchase limitation and exclusive of an increase in the shares issued pursuant
to an increase in the Estimated Price Range of up to 15%. See "-- Limitations on
Common Stock Purchases."
In the event that Supplemental Eligible Account Holders exercise
subscription rights for a number of shares of Conversion Stock in excess of the
total number of such shares eligible for subscription, the shares of Conversion
Stock shall be allocated among the subscribing Supplemental Eligible Account
Holders so as to permit each subscribing Supplemental Eligible Account Holder,
to the extent possible, to purchase a number of shares sufficient to make his or
her total allocation of Conversion Stock equal to the lesser of 100 shares or
the number of shares subscribed for by the Supplemental Eligible Account Holder.
Any shares remaining after that allocation will be allocated among the
subscribing Supplemental Eligible Account Holders whose subscriptions remain
unsatisfied in the proportion that the amount of the Qualifying Deposit of each
Supplemental Eligible Account Holder whose subscription remains unsatisfied
bears to the total amount of the Qualifying Deposits of all Supplemental
Eligible Account Holders whose subscriptions remain unsatisfied. If the amount
so allocated exceeds the amount subscribed for by any one or more Supplemental
Eligible Account Holders, the excess shall be reallocated (one or more times as
necessary) among those Supplemental Eligible Account Holders whose subscriptions
are still not fully satisfied on the same principle until all available shares
have been allocated or all subscriptions satisfied.
To ensure proper allocation of stock, each Supplemental Eligible Account
Holder must list on his subscription order form all accounts in which he has an
ownership interest. Failure to list an account could result in less shares
being allocated than if all accounts had been disclosed. The subscription
rights received by Eligible Account Holders will be applied in partial
satisfaction to the subscription rights to be received as a Supplemental
Eligible Account Holder.
Priority 4: Other Members. To the extent that there are sufficient shares
remaining after satisfaction of subscriptions by the Eligible Account Holders,
the ESOP and the Supplemental Eligible Account Holders, each Other Member will
receive, without payment therefor, fourth priority nontransferable subscription
rights to subscribe for Common Stock in the Subscription Offering up to the
greater of the amount permitted to be purchased in the Community Offering,
currently $250,000 of Common Stock, or one-tenth of one percent (.10%) of the
total offering of shares of Common Stock, subject to the overall purchase
limitation and exclusive of an increase in shares issued pursuant to an increase
in the Estimated Price Range of up to 15%.
In the event that Other Members subscribe for a number of shares of
Conversion Stock which, when added to the shares of Conversion Stock subscribed
for by the Eligible Account Holders, the Employee Plans and the Supplemental
Eligible Account Holders is in excess of the total number of shares of
Conversion Stock being issued, the subscriptions of such Other Members will be
allocated among the subscribing Other Members so as to permit each subscribing
Other Member, to the extent possible, to purchase a number of shares sufficient
to make his or her total allocation of Conversion Stock equal to the lesser of
100 shares or the number of shares subscribed for by the Other Member. Any
shares remaining after that allocation will be allocated among the subscribing
Other Members whose subscriptions remain unsatisfied pro rata in the same
proportion that the number of votes of a subscribing Other Member on the Voting
Record Date bears to the total votes on the Voting Record Date of all
subscribing Other Members whose subscriptions remain unsatisfied. If the amount
so allocated exceeds the amount subscribed for by any one or more remaining
Other Members, the excess shall be reallocated (one or more times as necessary)
among those remaining Other Members whose subscriptions are still not fully
satisfied on the same principle until all available shares have been allocated
or all subscriptions satisfied.
Expiration Date for the Subscription Offering. The Subscription Offering
will expire on ________, 1998, unless extended for up to 45 days by the
Association or such additional periods with the approval of the OTS.
Subscription rights which have not been exercised prior to the Expiration Date
will become void.
The Association will not execute orders until all shares of Common Stock
have been subscribed for or
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otherwise sold. If all shares have not been subscribed for or sold within 45
days after the Expiration Date, unless such period is extended with the consent
of the OTS, all funds delivered to the Association pursuant to the Subscription
Offering will be returned promptly to the subscribers with interest and all
withdrawal authorizations will be canceled. If an extension beyond the 45 day
period following the Expiration Date is granted, the Association will notify
subscribers of the extension of time and of any rights of subscribers to modify
or rescind their subscriptions and have their funds returned promptly with
interest, and of the time period within which subscribers must affirmatively
notify the Association of their intention to confirm, modify, or rescind their
subscription. If an affirmative response to any resolicitation is not received
by the Company from a subscriber, such order will be rescinded and all
subscription funds will be promptly returned with interest. Such extensions may
not go beyond _______, 2000.
Community Offering
To the extent that shares remain available for purchase after satisfaction
of all subscriptions of the Eligible Account Holders, the ESOP, the Supplemental
Eligible Account Holders and Other Members, the Association has determined to
offer shares pursuant to the Plan to certain members of the general public in a
Community Offering. In the event a Community Offering is held, a preference will
be given to natural persons residing in Trumbull and Mahoning counties, subject
to the right of the Company to accept or reject any such orders, in whole or in
part, in their sole discretion. Persons purchasing stock in the Community
Offering, together with associates of and persons acting in concert with such
persons, may purchase up to $250,000 of Common Stock subject to the maximum
purchase limitation and exclusive of shares issued pursuant to an increase in
the Estimated Price Range by up to 15%. See "--Limitations on Common Stock
Purchases." This amount may be increased to up to a maximum of 5% or decreased
to less than $250,000 at the sole discretion of the Company and the Association.
THE OPPORTUNITY TO SUBSCRIBE FOR SHARES OF COMMON STOCK IN THE COMMUNITY
OFFERING CATEGORY IS SUBJECT TO THE RIGHT OF THE ASSOCIATION AND THE COMPANY, IN
THEIR SOLE DISCRETION, TO ACCEPT OR REJECT ANY SUCH ORDERS IN WHOLE OR IN PART
EITHER AT THE TIME OF RECEIPT OF AN ORDER OR AS SOON AS PRACTICABLE FOLLOWING
THE EXPIRATION DATE.
Subject to the foregoing, if the amount of stock remaining is insufficient
to fill the orders of subscribers after completion of the Subscription Offering,
such stock will be allocated first to each subscriber whose order is accepted by
the Association, in an amount equal to the lesser of 100 shares or the number of
shares subscribed for by each such subscriber, if possible. Thereafter,
unallocated shares will be allocated among the subscribers whose order remains
unsatisfied on a 100 shares per order basis until all such orders have been
filled or the remaining shares have been allocated.
Syndicated Community Offering
As a final step in the Conversion, the Plan provides that, if feasible, all
shares of Common Stock not purchased in the Subscription and Community
Offerings, if any, will be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-dealers
to be formed and managed by Webb acting as agent of the Company to assist the
Company and the Association in the sale of the Common Stock. The Company and
the Association 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.
The price at which Common Stock is sold in the Syndicated Community
Offering will be determined as described above under "-- Stock Pricing."
Subject to overall purchase limitations, no person, together with any associate
or group of persons acting in concert, will be permitted to subscribe in the
Syndicated Community Offering for more than $250,000 of the Common Stock,
exclusive of an increase in shares issued pursuant to an increase in the
Estimated Price Range of up to 15%; provided, however, that shares of Common
Stock purchased in the Community Offering by any persons, together with
associates of or persons acting in concert with such persons, will be aggregated
with purchases in the Syndicated Community Offering and be subject to an overall
maximum purchase limitation of 1.0% of the shares offered, exclusive of an
increase in shares issued pursuant to an increase in the Estimated Price Range
by up to 15%.
Payments made in the form of a check, bank draft, money order or in cash
will earn interest at the
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Association's passbook rate of interest from the date such payment is actually
received by the Association until completion or termination of the Conversion.
In addition to the foregoing, if a syndicate of broker-dealers ("selected
dealers") is formed to assist in the Syndicated Community Offering, a purchaser
may pay for his shares with funds held by or deposited with a selected dealer.
If an order form is executed and forwarded to the selected dealer or if the
selected dealer is authorized to execute the order form on behalf of a
purchaser, the selected dealer is required to forward the order form and funds
to the Association for deposit in a segregated account on or before noon of the
business day following receipt of the order form or execution of the order form
by the selected dealer. Alternatively, selected dealers may solicit indications
of interest from their customers to place orders for shares. Such selected
dealers shall subsequently contact their customers who indicated an interest and
seek their confirmation as to their intent to purchase. Those indicating an
intent to purchase shall execute order forms and forward them to their selected
dealer or authorize the selected dealer to execute such forms. The selected
dealer will acknowledge receipt of the order to its customer in writing on the
following business day and will debit such customer's account on the third
business day after the customer has confirmed his intent to purchase (the "debit
date") and on or before noon of the next business day following the debit date
will send order forms and funds to the Association for deposit in a segregated
account. Although purchasers' funds are not required to be in their accounts
with selected dealers until the debit date in the event that such alternative
procedure is employed once a confirmation of an intent to purchase has been
received by the selected dealer, the purchaser has no right to rescind his
order.
Certificates representing shares of Common Stock purchased, together with
any refund due, will be mailed to purchasers at the address specified in the
order form, as soon as practicable following consummation of the sale of the
Common Stock. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
The Syndicated Community Offering will terminate no more than 45 days
following the Subscription Expiration Date, unless extended by the Company with
the approval of the OTS. Such extensions may not be beyond _________, 2000.
See "-- Stock Pricing" above for a discussion of rights of subscribers, if any,
in the event an extension is granted.
Persons in Nonqualified States or Foreign Countries
The Company and the Association will make reasonable efforts to comply with
the securities laws of all states in the United States in which persons entitled
to subscribe for stock pursuant to the Plan reside. However, the Plan provides
that the Association and the Company are not required to offer stock in the
Subscription Offering to any person who resides in a foreign country or resides
in a state of the United States with respect to which both of the following
apply: (i) a small number of persons otherwise eligible to subscribe for shares
of Common Stock reside in such state; and (ii) the Company or the Association
determines that compliance with the securities laws of such state would be
impracticable for reasons of cost or otherwise, including but not limited to a
request that the Company and the Association or their officers, directors or
trustees register as a broker, dealer, salesman or selling agent, under the
securities laws of such state, or a request to register or otherwise qualify the
subscription rights or Common Stock for sale or submit any filing with respect
thereto in such state. Where the number of persons eligible to subscribe for
shares in one state is small, the Association and the Company will base their
decision as to whether or not to offer the Common Stock in such state on a
number of factors, including the size of accounts held by account holders in the
state, the cost of registering or qualifying the shares or the need to register
the Company, its officers, directors or employees as brokers, dealers or
salesmen.
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Marketing and Underwriting Arrangements
The Association and the Company have engaged Webb as a consultant and
financial advisor in connection with the offering of the Common Stock, and Webb
has agreed to use its best efforts to solicit subscriptions and purchase orders
for shares of Common Stock in the Offerings. Based upon negotiations between
the Association and the Company concerning fee structure, Webb will receive a
management fee of $25,000 and a fee equal to 1.25% of the aggregate Purchase
Price of the shares sold in the Subscription and Community Offerings, up to the
maximum of the Estimated Price Range, excluding shares purchased by directors,
officers, employees and any immediate family member thereof, and any employee
benefit plan of the Company or Association, including the ESOP for which Webb
will not receive a fee. If Common Stock remains available after the
satisfaction of all subscriptions in the Subscription Offering, Webb may enter
into an agreement with other NASD member firms ("Selected Brokers") to assist in
the sale of Common Stock in the Community Offering. If Selected Brokers are
used, Webb will receive commission of no more than 5.5% of the aggregate
purchase price of the Common Stock sold in the Community Offering by the
Selected Brokers, and Webb will pay to the Selected Brokers a portion of the
5.5% commission pursuant to selected dealer agreements. Fees to Webb and to any
other broker-dealer may be deemed to be underwriting fees, and Webb and such
broker-dealers may be deemed to be underwriters. The Company and the
Association have agreed to indemnify Webb for reasonable costs and expenses in
connection with certain claims or liabilities, including certain liabilities
under the Securities Act. Webb has received advances towards its fees. Total
marketing fees to Webb are expected to be $875,000 and $1.2 million at the
minimum and the maximum of the Estimated Price Range, respectively. See "Pro
Forma Data" for the assumptions used to arrive at these estimates. The
Association will also reimburse Webb for its out-of-pocket expenses, provided
such expenses (excluding counsel's fees) do not exceed $15,000.
Crowe, Chizek & Company, LLP will perform conversion agent services and
records management services for the Association in the Conversion and will
receive a fee for these services of $30,000, including out-of-pocket expenses.
Directors and executive officers of the Company and Association may
participate in the solicitation of offers to purchase Common Stock. Questions
of prospective purchasers will be directed to executive officers or registered
representatives. Other employees of the Association may participate in the
Offering in ministerial capacities or providing clerical work in effecting a
sales transaction. Such other employees have been instructed not to solicit
offers to purchase Common Stock or provide advice regarding the purchase of
Common Stock. The Company will rely on Rule 3a4-1 under the Exchange Act, and
sales of Common Stock will be conducted within the requirements of Rule 3a4-1,
so as to permit officers, directors and employees to participate in the sale of
Common Stock. No officer, director or employee of the Company or the
Association will be compensated in connection with his participation by the
payment of commissions or other remuneration based either directly or indirectly
on the transactions in the Common Stock.
Procedure for Purchasing Shares
To ensure that each purchaser receives a prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange Act,
no prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the stock
order form and certification form will confirm receipt or delivery in accordance
with Rule 15c2-8. Stock order and certification forms will only be distributed
with a prospectus.
To purchase shares in the Offerings, an executed stock order form and
certification form with the required payment for each share subscribed for, or
with appropriate authorization for withdrawal from the Association's deposit
account (which may be given by completing the appropriate blanks in the stock
order form), must be physically received by the Association at any of its
offices by Noon, Eastern time, on the Expiration Date. Stock order forms which
are not received by such time or are executed defectively or are received
without full payment (or appropriate withdrawal instructions) are not required
to be accepted. In addition, the Association and Company are not obligated to
accept orders submitted on photocopied or facsimiled stock order forms and will
not accept stock order forms unaccompanied by an executed certification form.
Notwithstanding the foregoing, the Company shall have the right, in its sole
discretion, to permit institutional investors to submit irrevocable orders
together with a legally binding commitment for payment and to thereafter pay for
the shares of Common Stock for which they subscribe in the
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Community Offering at any time prior to 48 hours before the completion of the
Conversion. The Company and the Association have the right to waive or permit
the correction of incomplete or improperly executed forms, but do not represent
that they will do so. Once received, an executed stock order form may not be
modified, amended or rescinded without the consent of the Association unless the
Conversion has not been completed within 45 days after the end of the
Subscription Offering, unless such period has been extended.
IMPORTANT: TO ENSURE THAT YOUR SUBSCRIPTION RIGHTS ARE PROPERLY
IDENTIFIED, YOU MUST LIST ALL QUALIFYING DEPOSIT ACCOUNTS AND LOANS, AS OF THE
RESPECTIVE QUALIFYING DATES ON THE STOCK ORDER FORM. PERSONS WHO DO NOT LIST
ALL QUALIFYING DEPOSIT ACCOUNTS AND LOANS MAY BE SUBJECT TO REDUCTION OR
REJECTION OF THEIR SUBSCRIPTION.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (March 31,
1997) and/or the Supplemental Eligibility Record Date (September 30, 1998)
and/or the Voting Record Date (________, 1998) must list all accounts on the
stock order form giving all names in each account and the account number.
Payment for subscriptions may be made (i) in cash if delivered in person at
any branch office of the Association, (ii) by check, bank draft or money order,
or (iii) by authorization of withdrawal from deposit accounts maintained with
the Association. No wire transfers will be accepted. Interest will be paid on
payments made by cash, check, bank draft or money order at the Association's
passbook rate of interest from the date payment is received until the completion
or termination of the Conversion. Orders for Common Stock submitted by
subscribers in the Subscription Offering which aggregate $50,000 or more must be
paid by official or certified check or by withdrawal authorization from a
deposit account of the Association. If payment is made by authorization of
withdrawal from deposit accounts, the funds authorized to be withdrawn from a
deposit account will continue to accrue interest at the contractual rates until
completion or termination of the Conversion, but a hold will be placed on such
funds, thereby making them unavailable to the depositor until completion or
termination of the Conversion.
If a subscriber authorizes the Association to withdraw the amount of the
purchase price from his deposit account, the Association will do so as of the
effective date of the Conversion. The Association 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
Association's passbook rate.
If the ESOP subscribes for shares during the Subscription Offering, the
ESOP will not be required to pay for the shares subscribed for at the time it
subscribes, but rather, may pay for such shares of Common Stock subscribed for
at the Purchase Price upon consummation of the Subscription Offering, if all
shares are sold, or upon consummation of the Community Offering or Syndicated
Community Offering if shares remain to be sold in such offerings; provided, that
there is in force from the time of its subscription until such time, a loan
commitment from an unrelated financial institution or the Company to lend to the
ESOP, at such time, the aggregate Purchase Price of the shares for which it
subscribed.
Owners of self-directed Individual Retirement Accounts ("IRAs") and
Qualified Plans may use the assets of such IRAs and Qualified Plans to purchase
shares of Common Stock in the Subscription Offering and/or Community Offering,
provided that such IRAs are not maintained at the Association. Persons with
self-directed IRAs and Qualified Plans maintained at the Association must have
their accounts transferred to an unaffiliated institution or broker to purchase
shares of Common Stock in the Subscription Offering and/or Community Offering.
In addition, the provisions of ERISA and IRS regulations require that officers,
directors and ten percent shareholders who use self-directed IRA funds and
Qualified Plans to purchase shares of Common Stock in the Subscription Offering
and/or Community Offering, make such purchases for the exclusive benefit of the
IRAs and Qualified Plans.
Certificates representing shares of Common Stock purchased will be mailed
to purchasers at the address specified in properly completed stock order forms,
as soon as practicable following consummation of the sale of all shares of
Common Stock. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
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Restrictions on Transfer of Subscription Rights and Shares
Prior to the completion of the Conversion, the OTS conversion regulations
prohibit any person with subscription rights, including the Eligible Account
Holders, the ESOP, the Supplemental Eligible Account Holders and Other Members
of the Association, from transferring or entering into any agreement or
understanding to transfer the legal or beneficial ownership of the subscription
rights issued under the Plan or the shares of Common Stock to be issued upon
their exercise. Such rights may be exercised only by the person to whom they
are granted and only for his account. Each person exercising such subscription
rights will be required to certify that he is purchasing shares solely for his
own account and that he has no agreement or understanding regarding the sale or
transfer of such shares. The regulations also prohibit any person from offering
or making an announcement of an offer or intent to make an offer to purchase
such subscription rights or shares of Common Stock prior to the completion of
the Conversion.
THE ASSOCIATION AND THE COMPANY WILL PURSUE ANY AND ALL LEGAL AND EQUITABLE
REMEDIES (INCLUDING FORFEITURE) IN THE EVENT THEY BECOME AWARE OF THE TRANSFER
OF SUBSCRIPTION RIGHTS AND WILL NOT HONOR ORDERS KNOWN BY THEM TO INVOLVE THE
TRANSFER OF SUCH RIGHTS.
Limitations on Common Stock Purchases
The Plan includes the following limitations on the number of shares of
Common Stock which may be purchased during the Conversion:
(1) No less than 25 shares;
(2) Each Eligible Account Holder may subscribe for and purchase in the
Subscription Offering up to the greater of: 1) the amount permitted to
be purchased in the Community Offering, currently $250,000 of Common
Stock; 2) one-tenth of one percent (.10%) of the total offering of
shares of Common Stock; or 3) fifteen times the product (rounded down
to the next whole number) obtained by multiplying the total number of
shares of Common Stock to be issued by a fraction of which the
numerator is the amount of the Qualifying Deposit of the Eligible
Account Holder and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders, in each case on the
Eligibility Record Date subject to the overall maximum purchase
limitation in (8) below and exclusive of an increase in the total
number of shares issued due to an increase in the Estimated Price
Range of up to 15%;
(3) The ESOP is permitted to purchase in the aggregate up to 10% of the
shares of Common Stock issued in the Conversion, including shares
issued to the Foundation, including shares issued in the event of an
increase in the Estimated Price Range of 15%, and intends to purchase
8% of the shares of Common Stock issued in the Conversion, including
shares issued to the Foundation;
(4) Each Supplemental Eligible Account Holder may subscribe for and
purchase in the Subscription Offering up to the greater of: 1) the
amount permitted to be purchased in the Community Offering, currently
$250,000 of Common Stock; 2) one-tenth of one percent (.10%) of the
total offering of shares of Common Stock; or 3) fifteen times the
product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Common Stock to be issued by
a fraction of which the numerator is the amount of the Qualifying
Deposit of the Supplemental Eligible Account Holder and the
denominator is the total amount of Qualifying Deposits of all
Supplemental Eligible Account Holders, in such case on the
Supplemental Eligibility Record Date subject to the overall maximum
purchase limitation in (8) below and exclusive of an increase in the
total number of shares issued due to an increase in the Estimated
Price Range of up to 15%;
(5) Each Other Member may subscribe for and purchase in the Subscription
Offering up to the greater of: 1) the amount permitted to be purchased
in the Community Offering, currently $250,000 of Common Stock; or 2)
one-tenth of one percent (.10%) of the total offering of shares of
Common Stock, in each case subject to the overall maximum purchase
limitation in (8) below and exclusive of an increase in the total
number of shares issued due to an increase in the Estimated Price
Range
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of up to 15%;
(6) Persons purchasing shares of Common Stock in the Community Offering,
together with associates of and groups of persons acting in concert
with such persons, may purchase in the Community Offering up to
$250,000 of Common Stock, subject to the overall maximum purchase
limitation in (8) below and exclusive of an increase in the total
number of shares issued due to an increase in the Estimated Price
Range of up to 15%;
(7) Persons purchasing shares of Common Stock in the Syndicated Community
Offering, together with associates of and persons acting in concert
with such persons, may purchase in the Syndicated Offering up to
$250,000 of Common Stock, subject to the overall maximum purchase
limitation in (8) below and exclusive of an increase in the total
number of shares issued due to an increase in the Estimated Price
Range of up to 15% and, provided further that shares of Common Stock
purchased in the Community Offering by any persons, together with
associates of or persons acting in concert with such persons, will be
aggregated with purchases in the Syndicated Community Offering in
applying the $250,000 purchase limitation;
(8) Except for the ESOP, the overall maximum number of shares of Common
Stock subscribed for or purchased in all categories of the Conversion
by any person, together with associates of or persons acting in
concert with such persons, shall not exceed 1.0% of the shares of
Common Stock offered in the Conversion and exclusive of an increase in
the total number of shares issued due to an increase in the Estimated
Price Range of up to 15%; and
(9) No more than 25% of the total number of shares offered for sale in the
Conversion may be purchased by directors and officers of the
Association and their associates in the aggregate, excluding purchases
by the ESOP.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the members of
the Association, both the individual amount permitted to be subscribed for and
the overall maximum purchase limitation may be increased to up to a maximum of
5% at the sole discretion of the Company and the Association. If such amount is
increased, subscribers for the maximum amount will be, and certain other large
subscribers in the sole discretion of the Association may be, given the
opportunity to increase their subscriptions up to the then applicable limit. In
addition, the Boards of Directors of the Company and the Association may, in
their sole discretion, increase the maximum purchase limitation referred to
above up to 9.99%, provided that orders for shares exceeding 5% of the shares
being offering in the Subscription and Community Offerings shall not exceed, in
the aggregate, 10% of the shares being offered in the Subscription and Community
Offerings. Requests to purchase additional shares of Common Stock under this
provision will be determined by the Boards of Directors and, if approved,
allocated on a pro rata basis giving priority in accordance with the priority
rights set forth herein.
The overall maximum purchase limitation may not be reduced to less than 1%
but the individual amount permitted to be subscribed for may be reduced by the
Association to less than $250,000 subject to paragraphs (2), (4) and (5) above
without the further approval of members or resolicitation of subscribers. An
individual Eligible Account Holder, Supplemental Eligible Account Holder or
Other Member may not purchase individually in the Subscription Offering the
overall maximum purchase limit of 1.0% of the shares offered, but may make such
purchase, together with associates of and persons acting in concert with such
person, by also purchasing in other available categories of the Conversion,
subject to availability of shares and the overall maximum purchase limit for
purchases in the Conversion.
In the event of an increase in the total number of shares offered in the
Conversion due to an increase in the Estimated Price Range of up to 15% (the
"Adjusted Maximum"), the additional shares will be allocated in the following
order or priority in accordance with the Plan: (i) to fill the ESOP's
subscription of 8% of the amount of Common Stock issued in the Conversion,
including shares issued to the Foundation, at the Adjusted Maximum number of
shares; (ii) in the event that there is an oversubscription by Eligible Account
Holders, to fill unsatisfied subscriptions of Eligible Account Holders,
exclusive of the Adjusted Maximum; (iii) in the event that there is an
oversubscription by Supplemental Eligible Account Holders, to fill unsatisfied
subscriptions of Supplemental Eligible Account Holders, exclusive of the
Adjusted Maximum; (iv) in the event that there is an oversubscription by Other
Members, to fill
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unsatisfied subscriptions of Other Members exclusive of the Adjusted Maximum;
and (v) to fill unsatisfied subscriptions in the Community Offering to the
extent possible, exclusive of the Adjusted Maximum, with preference to
institutional investors.
The term "associate" of a person is defined to mean: (i) any corporation,
partnership (other than the Association or a majority-owned subsidiary of the
Association) of which such person is an officer, partner or 10% stockholder;
(ii) any trust or other estate in which such person has a substantial beneficial
interest or serves as a trustee or in a similar fiduciary capacity; provided,
however, such term shall not include any employee stock benefit plan of the
Association in which such person has a substantial beneficial interest or serves
as a trustee or in a similar fiduciary capacity; and (iii) any relative or
spouse of such person, or any relative of such spouse, who either has the same
home as such person or who is a director or officer of the Association.
Directors are not treated as associates of each other solely because of their
Board membership. For a further discussion of limitations on purchases of a
converting institution's stock at the time of Conversion and subsequent to
Conversion, see "Management of the Association -- Subscriptions by Executive
Officers and Directors," "-- Certain Restrictions on Purchase or Transfer of
Shares After Conversion" and "Restrictions on Acquisition of the Company and the
Association."
Liquidation Rights
In the unlikely event of a complete liquidation of the Association in its
present mutual form, each depositor would receive his pro rata share of any
assets of the Association remaining after payment of claims of all creditors
(including the claims of all depositors to the withdrawal value of their
accounts). Each depositor's pro rata share of such remaining assets would be in
the same proportion as the value of his deposit account was to the total value
of all deposit accounts in the Association at the time of liquidation. After
the Conversion, each depositor, in the event of a complete liquidation, would
have a claim as a creditor of the same general priority as the claims of all
other general creditors of the Association. However, except as described below,
his claim would be solely in the amount of the balance in his deposit account
plus accrued interest. He would not have an interest in the value or assets of
the Association above that amount.
The Plan provides for the establishment, upon the completion of the
Conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in an amount equal to
the surplus and reserves of the Association as of the date of its latest balance
sheet contained in the final Prospectus used in connection with the Conversion.
Each Eligible Account Holder and Supplemental Eligible Account Holder, if he
were to continue to maintain his deposit account at the Association, would be
entitled, on a complete liquidation of the Association after the Conversion, to
an interest in the liquidation account prior to any payment to the stockholders
of the Association. Each Eligible Account Holder and Supplemental Eligible
Account Holder would have an initial interest in such liquidation account for
each deposit account, including regular accounts, transaction accounts such as
NOW accounts, money market deposit accounts, and certificates of deposit, with
a balance of $50 or more held in the Association on March 31, 1997 and
September 30, 1998, respectively. Each Eligible Account Holder and Supplemental
Eligible Account Holder will have a pro rata interest in the total liquidation
account based on the proportion that the balance of his Qualifying Deposits on
the Eligibility Record Date or Supplemental Eligibility Record Date,
respectively, bore to the total amount of all Qualifying Deposits of all
Eligible Account Holders and Supplemental Eligible Account Holders in the
Association. For deposit accounts in existence at both dates separate
subaccounts shall be determined on the basis of the Qualifying Deposits in such
deposit accounts on such respective record dates.
If, however, on any annual closing date subsequent to the Eligibility
Record Date or Supplemental Eligibility Record Date, the amount of the
Qualifying Deposit of an Eligible Account Holder or Supplemental Eligible
Account Holder is less than the amount of the Qualifying Deposit of such
Eligible Account Holder or Supplemental Eligible Account Holder as of the
Eligibility Record Date or Supplemental Eligibility Record Date, respectively,
or less than the amount of the Qualifying Deposits as of the previous annual
closing date, then the interest in the liquidation account relating to such
Qualifying Deposit would be reduced from time to time by the proportion of any
such reduction, and such interest will cease to exist if such Qualifying Deposit
accounts are closed. In addition, no interest in the liquidation account would
ever be increased despite any subsequent increase in the related Qualifying
Deposit. Any assets remaining after the above liquidation rights of Eligible
Account Holders and Supplemental Eligible Account Holders are satisfied would be
distributed to the Company as the sole stockholder of the Association.
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Tax Aspects
Consummation of the Conversion is expressly conditioned upon the receipt by
the Association of either a favorable ruling from the IRS or an opinion with
respect to federal income taxation, and an opinion with respect to Ohio income
taxation, to the effect that the Conversion will not be a taxable transaction to
the Company, the Association, Eligible Account Holders, or Supplemental Eligible
Account Holders except as noted below.
No private ruling will be received from the IRS with respect to the
proposed Conversion. Instead, the Association has received an opinion of its
counsel, Patton Boggs LLP, to the effect that for federal income tax purposes,
among other matters: (i) the Association's change in form from mutual to stock
ownership will constitute a reorganization under section 368(a)(1)(F) of the
Code and neither the Association nor the Company will recognize any gain or loss
as a result of the Conversion; (ii) no gain or loss will be recognized to the
Association or the Company upon the purchase of the Association's capital stock
by the Company or to the Company upon the purchase of its Common Stock in the
Conversion; (iii) no gain or loss will be recognized by Eligible Account Holders
or Supplemental Eligible Account Holders upon the issuance to them of Deposit
Accounts in the Association in its stock form plus their interests in the
liquidation account in exchange for their deposit accounts in the Association;
(iv) the tax basis of the depositors' accounts in the Association immediately
after the Conversion will be the same as the basis of their deposit accounts
immediately prior to the Conversion; (v) the tax basis of each Eligible Account
Holder's and Supplemental Eligible Account Holder's interest in the liquidation
account will be zero; (vi) no gain or loss will be recognized by Eligible
Account Holders or Supplemental Eligible Account Holders upon the distribution
to them of nontransferable subscription rights to purchase shares of the Common
Stock, provided that the amount to be paid for the Common Stock is equal to the
fair market value of such stock; and (vii) the tax basis to the stockholders of
the Common Stock of the Company purchased in the Conversion will be the amount
paid therefor and the holding period for the shares of Common Stock purchased by
such persons will begin on the date on which their subscription rights are
exercised. Crowe, Chizek and Company LLP has opined that the Conversion will
not be a taxable transaction to the Company, the Association, Eligible Account
Holders or Supplemental Eligible Account Holders for Ohio income tax purposes.
Certain portions of both the federal and the state income tax opinions are based
upon the assumption that the subscription rights issued in connection with the
Conversion will have no value.
Unlike private rulings, an opinion of counsel or an opinion of an
independent accountant is not binding on the IRS and the IRS could disagree with
conclusions reached therein. In the event of such disagreement, there can be no
assurance that the IRS would not prevail in a judicial or administrative
proceeding.
Keller has issued an opinion stating that, pursuant to its valuation,
Keller is of the opinion that the subscription rights do not have any value,
based on the fact that such rights are acquired by the recipients without cost,
are nontransferable and of short duration, and afford the recipients the right
only to purchase the Common Stock at a price equal to its estimated fair market
value, which will be the same price as the Purchase Price for the shares of
Common Stock sold in the Community Offering. Such valuation is not binding on
the IRS. If the subscription rights granted to Eligible Account Holders or
Supplemental Eligible Account Holders are deemed to have an ascertainable value,
receipt of such rights could be taxable to those Eligible Account Holders or
Supplemental Eligible Account Holders who receive and/or exercise the
subscription rights in an amount equal to such value and the Association could
recognize gain on such distribution. Eligible Account Holders and Supplemental
Eligible Account Holders are encouraged to consult with their own tax advisor as
to the tax consequences in the event that such subscription rights are deemed to
have an ascertainable value.
Interpretation and Amendment of the Plan of Conversion
To the extent permitted by law, all interpretations of the Plan by the
Board of Directors of the Association will be final. The Plan provides that the
Association's Board of Directors shall have the discretion to interpret and
apply the provisions of the Plan to particular circumstances and that such
interpretation or application shall be final. This includes any and all
interpretations, applications and determinations made by the Board of Directors
on the basis of such information and assistance as was then reasonably available
for such purpose.
The Plan provides that, if deemed necessary or desirable by the Board of
Directors, the Plan may be substantively amended at any time prior to
solicitation of proxies from members to vote on the Plan by a two-thirds
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vote of the Association's Board of Directors. After submission of the proxy
materials to the members, the Plan may be amended by a two-thirds vote of the
Association's Board of Directors at any time prior to the Special Meeting with
the concurrence of the OTS. The Plan may be amended at any time after the
approval of members with the approval of the OTS and no further approval of the
members will be necessary unless otherwise required by the OTS. By adoption of
the Plan, the Association's members will be deemed to have authorized amendment
of the Plan under the circumstances described above.
The establishment of the Foundation will be considered as a separate matter
from approval of the Plan of Conversion. If the Association's members approve
the Plan of Conversion, but not the creation of the Foundation, the Association
intends to complete the Conversion without the Foundation. Failure to approve
the establishment of the Foundation may materially increase the pro forma market
value of the Common Stock since the Valuation Range, as set forth herein, takes
into account the dilutive impact of the issuance of shares to the Foundation.
In such an event, the Association may establish a new Estimated Price Range and
commence a resolicitation of subscribers. In the event of a resolicitation,
unless an affirmative response is received within a specified period of time,
all funds will be promptly returned to investors, as described elsewhere herein.
See "-- Stock Pricing."
Certain Restrictions on Purchase or Transfer of Shares after Conversion
All shares of Common Stock purchased in connection with the Conversion by a
director or an officer of the Association will be subject to a restriction that
the shares not be sold for a period of one year following the Conversion, except
in the event of the death of such director or officer. Each certificate for
restricted shares will bear a legend giving notice of this restriction on
transfer, and instructions will be issued to the effect that any transfer within
such time period of any certificate or record ownership of such shares other
than as provided above is a violation of the restriction. Any shares of Common
Stock issued at a later date as a stock dividend, stock split, or otherwise,
with respect to such restricted stock will be subject to the same restrictions.
The directors and officers of the Association will also be subject to the
insider trading rules promulgated pursuant to the Exchange Act and any other
applicable requirements of the federal securities laws.
Purchases of outstanding shares of Common Stock of the Company by
directors, officers (or any person who was an officer or director of the
Association after adoption of the Plan of Conversion) and their associates
during the three-year period following 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 1.0% of the Company's outstanding Common Stock
or to the purchase of stock pursuant to any stock option plan to be established
after the Conversion.
Unless approved by the OTS, the Company, pursuant to OTS regulations, will
be prohibited from repurchasing any shares of the Common Stock for three years
after the Conversion except: (i) for an offer to all stockholders on a pro rata
basis; or (ii) for the repurchase of qualifying shares of a director.
Notwithstanding the foregoing, beginning one year following completion of the
Conversion the Company may repurchase its Common Stock so long as: (i) the
repurchases within the following two years are part of an open-market program
not involving greater than 5% of its outstanding capital stock during a twelve-
month period; (ii) the repurchases do not cause the Company to become
undercapitalized; and (iii) the Company provides to the Regional Director of the
OTS no later than 10 days prior to the commencement of a repurchase program
written notice containing a full description of the program to be undertaken and
such program is not disapproved by the Regional Director. In addition, under
current OTS policies, repurchases may be allowed in the first year following
Conversion and in amounts greater than 5% in the second and third years
following Conversion, provided there are valid and compelling business reasons
for such repurchases and the OTS approves such repurchases.
RESTRICTIONS ON ACQUISITION OF THE COMPANY AND THE ASSOCIATION
General
The Association's Plan of Conversion provides for the Conversion of the
Association from the mutual to the stock form of organization and, in connection
therewith, a new Federal Stock Charter and Bylaws to be adopted by
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members of the Association. The Plan also provides for the concurrent formation
of a holding company, which form of organization may or may not be utilized at
the option of the Board of Directors of the Association. See "The Conversion --
General." In the event that the holding company form of organization is
utilized, as described below, certain provisions in the Company's Certificate of
Incorporation and Bylaws and in its management remuneration entered into in
connection with the Conversion, together with provisions of Delaware corporate
law, may have anti-takeover effects. In the event that the holding company form
of organization is not utilized, the Association's Stock Charter and Bylaws and
management remuneration entered into in connection with the Conversion may have
anti-takeover effects as described below. In addition, regulatory restrictions
may make it difficult for persons or companies to acquire control of either the
Company or the Association.
Restrictions in the Company's Certificate of Incorporation and Bylaws
A number of provisions of the Company's Certificate of Incorporation and
Bylaws deal with matters of corporate governance and certain rights of
stockholders. The following discussion is a general summary of the material
provisions of the Company's Certificate of Incorporation and Bylaws and certain
other statutory and regulatory provisions relating to stock ownership and
transfers, the Board of Directors and business combinations, which might be
deemed to have a potential "anti-takeover" effect. These provisions may have
the effect of discouraging a future takeover attempt which is not approved by
the Board of Directors but which individual Company stockholders may deem to be
in their best interests or in which shareholders may receive a substantial
premium for their shares over then current market prices. As a result,
stockholders who might desire to participate in such a transaction may not have
an opportunity to do so. Such provisions will also render the removal of the
current Board of Directors or management of the Company more difficult. The
following description of certain of the provisions of the Certificate of
Incorporation and Bylaws of the Company is necessarily general and reference
should be made in each case to such Certificate of Incorporation and Bylaws,
which are incorporated herein by reference. See "Additional Information" as to
how to obtain a copy of these documents.
Limitation on Voting Rights. The Certificate of Incorporation of the
Company provides that in no event shall any record owner of any outstanding
Common Stock which is beneficially owned, directly or indirectly, by a person
who beneficially owns in excess of 10% of the then outstanding shares of Common
Stock (the "Limit") be entitled or permitted to any vote in respect of the
shares beneficially owned by such person in excess of the Limit. Beneficial
ownership is determined pursuant to Rule 13d-3 of the General Rules and
Regulations promulgated pursuant to the Exchange Act, and includes shares
beneficially owned by such person or any of his affiliates (as defined in the
Certificate of Incorporation), shares which such person or his affiliates have
the right to acquire upon the exercise of conversion rights or options and
shares as to which such person and his affiliates have or share investment or
voting power, but shall not include shares beneficially owned by the ESOP or
directors, officers and employees of the Association or Company or shares that
are subject to a revocable proxy and that are not otherwise beneficially owned,
or deemed by the Company to be beneficially owned, by such person and his
affiliates. The Certificate of Incorporation of the Company further provides
that this provision limiting voting rights may only be amended upon the vote of
80% of the outstanding shares of voting stock (after giving effect to the
limitation on voting rights).
Board of Directors. The Board of Directors of the Company is divided into
three classes, each of which shall contain approximately one-third of the whole
number of members of the Board. Each class shall serve a staggered term, with
approximately one-third of the total number of directors being elected each
year. The Company's Certificate of Incorporation and Bylaws provide that the
size of the Board shall be determined by a majority of the directors, but in the
absence of such determination shall be eight. The Certificate of Incorporation
and the Bylaws provide that any vacancy occurring in the Board, including a
vacancy created by an increase in the number of directors or resulting from
death, resignation, retirement, disqualification, removal from office or other
cause, shall be filled for the remainder of the unexpired term exclusively by a
majority vote of the directors then in office. The classified Board is intended
to provide for continuity of the Board of Directors and to make it more
difficult and time consuming for a stockholder group to fully use its voting
power to gain control of the Board of Directors without the consent of the
incumbent Board of Directors of the Company. The Certificate of Incorporation
of the Company provides that a director may be removed from the Board of
Directors prior to the expiration of his term only for cause, upon the vote of
80% of the outstanding shares of voting stock.
In the absence of these provisions, the vote of the holders of a majority
of the shares could remove the entire
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Board, with or without cause, and replace it with persons of such holders'
choice.
Cumulative Voting, Special Meetings And Action by Written Consent. The
Certificate of Incorporation does not provide for cumulative voting for any
purpose. Moreover, special meetings of stockholders of the Company may be
called only by the Board of Directors of the Company. The Certificate of
Incorporation also provides that any action required or permitted to be taken by
the stockholders of the Company may be taken only at an annual or special
meeting and prohibits stockholder action by written consent in lieu of a
meeting.
Authorized Shares. The Certificate of Incorporation authorizes the
issuance of 33,000,000 shares of Common Stock and 3,000,000 shares of Preferred
Stock. The shares of Common Stock and Preferred Stock were authorized in an
amount greater than that to be issued in the Conversion to provide the Company's
Board of Directors with as much flexibility as possible to effect, among other
transactions, financings, acquisitions, stock dividends, stock splits and
employee Stock Options. However, these additional authorized shares may also be
used by the Board of Directors consistent with its fiduciary duty to deter
future attempts to gain control of the Company. The Board of Directors also has
sole authority to determine the terms of any one or more series of Preferred
Stock, including voting rights, conversion rates, and liquidation preferences.
As a result of the ability to fix voting rights for a series of Preferred Stock,
the Board has the power, to the extent consistent with its fiduciary duty, to
issue a series of Preferred Stock to persons friendly to management in order to
attempt to block a post-tender offer merger or other transaction by which a
third party seeks control, and thereby assist management to retain its position.
The Company's Board of Directors currently has no plans for the issuance of
additional shares, other than the issuance of additional shares pursuant to the
terms of the Stock Program and upon exercise of Stock Options to be issued
pursuant to the terms of the Stock Option Plan or Master Stock-Based Benefit
Plan, all of which are to be established and presented to stockholders at the
first annual meeting after the Conversion.
Stockholder Vote Required to Approve Business Combinations With Interested
Stockholders. The Certificate of Incorporation requires the approval of the
holders of at least 80% of the Company's outstanding shares of voting stock to
approve certain "Business Combinations," as defined therein, and related
transactions. Under Delaware law, absent this provision, Business Combinations,
including mergers, consolidations and sales of all or substantially all of the
assets of a corporation must, subject to certain exceptions, be approved by the
vote of the holders of only a majority of the outstanding shares of Common Stock
of the Company and any other affected class of stock. Under the Certificate of
Incorporation, at least 80% approval of shareholders is required in connection
with any transaction involving an Interested Stockholder (as defined below)
except (i) in cases where the proposed transaction has been approved in advance
by a majority of those members of the Company's Board of Directors who are
unaffiliated with the Interested Stockholder and were directors prior to the
time when the Interested Stockholder became an Interested Stockholder or (ii) if
the proposed transaction meets certain conditions set forth therein which are
designed to afford the shareholders a fair price in consideration for their
shares in which case, if a stockholder vote is required, approval of only a
majority of the outstanding shares of voting stock would be sufficient. The
term "Interested Stockholder" is defined to include any individual, corporation,
partnership or other entity (other than the Company or its subsidiaries) which
owns beneficially or controls, directly or indirectly, 10% or more of the voting
power of the outstanding shares of voting stock of the Company. This provision
of the Certificate of Incorporation applies to any "Business Combination," which
is defined to include (i) any merger or consolidation of the Company or any of
its subsidiaries with or into any Interested Stockholder or Affiliate (as
defined in the Certificate of Incorporation) of an Interested Stockholder; (ii)
any sale, lease, exchange, mortgage, pledge, transfer, or other disposition to
or with any Interested Stockholder or Affiliate of 25% or more of the assets of
the Company or combined assets of the Company and its subsidiary; (iii) the
issuance or transfer to any Interested Stockholder or its Affiliate by the
Company (or any subsidiary) of any securities the value of which equals or
exceeds 25% of the fair market value of the Common Stock of the Company in
exchange for any assets, cash or securities; (iv) the adoption of any plan for
the liquidation or dissolution of the Company proposed by or on behalf of any
Interested Stockholder or Affiliate thereof; and (v) any reclassification of
securities, recapitalization, merger or consolidation of the Company which has
the effect of increasing the proportionate share of Common Stock or any class of
equity or convertible securities of the Company owned directly or indirectly by
an Interested Stockholder or Affiliate thereof. The directors and executive
officers of the Association are purchasing in the aggregate approximately 4.4%
of the shares of the Common Stock to be issued in the Conversion, including
shares to be issued to the Foundation, at the maximum of the Estimated Price
Range. In addition, the ESOP intends to purchase 8% of the Common Stock issued
in connection with the Conversion, including shares issued to the Foundation.
Additionally, if at a meeting of stockholders following the Conversion
stockholder
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approval of the proposed Stock-Based Incentive Plan is received, the Company
expects to acquire 4% of the Common Stock issued in connection with the
Conversion, including shares issued to the Foundation, on behalf of the Stock-
Based Incentive Plan and expects to issue options to purchase up to 10% of the
Common Stock issued in connection with the Conversion, including shares issued
to the Foundation, under the Stock-Based Incentive Plan to directors and
executive officers. As a result, at the maximum of the Estimated Price Range,
assuming the Stock-Based Incentive Plan is approved by Stockholders, directors,
executive officers and employees have the potential to control the voting of
approximately 24.0% of the Company's Common Stock, if the shares held by the
ESOP are aggregated with the shares purchased in the Conversion by management
and acquired for award under the Stock-Based Incentive Plan, thereby enabling
them to prevent the approval of the transactions requiring the approval of at
least 80% of the Company's outstanding shares of voting stock described
hereinabove.
Evaluation of Offers. The Certificate of Incorporation of the Company
further provides that the Board of Directors of the Company, when evaluating any
offer of another "Person" (as defined therein) to (i) make a tender or exchange
offer for any equity security of the Company, (ii) merge or consolidate the
Company with another corporation or entity, or (iii) purchase or otherwise
acquire all or substantially all of the properties and assets of the Company,
may, in connection with the exercise of its judgment in determining what is in
the best interest of the Company, the Association and the stockholders of the
Company, give due consideration to all relevant factors, including, without
limitation, the social and economic effects of acceptance of such offer on the
Company's customers and the Association's present and future account holders,
borrowers and employees; on the communities in which the Company and the
Association operate or are located; and on the ability of the Company to fulfill
its corporate objectives as a savings and loan holding company and on the
ability of the Association to fulfill the objectives of a federally-chartered
stock savings bank under applicable statutes and regulations. By having these
standards in the Certificate of Incorporation of the Company, the Board of
Directors may be in a stronger position to oppose such a transaction if the
Board concludes that the transaction would not be in the best interest of the
Company, even if the price offered is significantly greater than the then market
price of any equity security of the Company.
Amendment of Certificate of Incorporation and Bylaws. Amendments to the
Company's Certificate of Incorporation must be approved by a majority vote of
its Board of Directors and also by a majority of the outstanding shares of its
voting stock; provided, however, that an affirmative vote of at least 80% of the
outstanding voting stock entitled to vote (after giving effect to the provision
limiting voting rights) is required to amend or repeal certain provisions of the
Certificate of Incorporation, including the provision limiting voting rights,
the provisions relating to approval of certain business combinations, calling
special meetings, the number and classification of directors, director and
officer indemnification by the Company and amendment of the Company's Bylaws and
Certificate of Incorporation. The Company's Bylaws may be amended by its Board
of Directors, or by a vote of 80% of the total votes eligible to be voted at a
duly constituted meeting of stockholders.
Certain Bylaw Provisions. The Bylaws of the Company also require a
stockholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at a stockholder meeting to give at least 90
days advance notice to the Secretary of the Company. The notice provision
requires a stockholder who desires to raise new business to provide certain
information to the Company concerning the nature of the new business, the
stockholder and the stockholder's interest in the business matter. Similarly, a
stockholder wishing to nominate any person for election as a director must
provide the Company with certain information concerning the nominee and the
proposing stockholder.
Anti-takeover Effects of the Company's Certificate of Incorporation and Bylaws
and Management Remuneration Adopted in Conversion
The provisions described above are intended to reduce the Company's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by members of its Board of Directors. The
provisions of the Employment Agreements, CIC Agreements, Employee Severance
Compensation Plan, Stock Program, Stock Option Plan or Master Stock-Based
Benefit Plan to be established may also discourage takeover attempts by
increasing the costs to be incurred by the Association and the Company in the
event of a takeover. See "Management of the Association -- Employment
Agreements."
The Company's Board of Directors believes that the provisions of the
Certificate of Incorporation, Bylaws
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and management remuneration plans to be established are in the best interest of
the Company and its stockholders. An unsolicited non-negotiated proposal can
seriously disrupt the business and management of a corporation and cause it
great expense. Accordingly, the Board of Directors believes it is in the best
interests of the Company and its stockholders to encourage potential acquirors
to negotiate directly with management and that these provisions will encourage
such negotiations and discourage non-negotiated takeover attempts. It is also
the Board of Directors' view that these provisions should not discourage persons
from proposing a merger or other transaction at a price that reflects the true
value of the Company and that otherwise is in the best interest of all
stockholders.
THE FOUNDATION
If approved by the members of the Association, upon completion of the
Conversion, the Foundation will own 7.1% of the total shares of the Company's
Common Stock outstanding. Such shares will be owned solely by the Foundation;
however, pursuant to the terms of the contribution as mandated by the OTS, the
shares of Common Stock held by the Foundation must be voted in the same ratio as
all other shares of the Company's Common Stock on all proposals considered by
stockholders of the Company. In the event the OTS were to waive this
restriction, the Foundation's board of directors would exercise sole voting
power over such shares and would no longer be subject to the restriction.
However, the OTS could impose additional conditions at that time on the
composition of the board of directors of the Foundation or which would otherwise
relate to the control of the Common Stock held by the Foundation. See "The
Conversion--Establishment of the Foundation--Regulatory Conditions Imposed on
the Foundation." If a waiver of the voting restriction were granted by the OTS
and no further conditions were imposed on the Foundation at that time, with the
Foundation's shares combined with shares purchased directly by officers and
directors of the Company, shares held by the Stock Program trust, and shares
held by the ESOP trust, the aggregate of such shares could exceed 20% of the
Company's outstanding Common Stock, which could enable management to defeat
stockholder proposals requiring 80% approval. Consequently, in the event the
voting restriction was waived, the potential voting control might preclude
takeover attempts that certain stockholders deem to be in their best interest,
and might tend to perpetuate management. However, since the ESOP shares are
allocated to all eligible employees of the Association, and any unallocated
shares will be voted by an independent trustee, and because the Stock Programs
must first be approved by stockholders no sooner than six months following
completion of the Conversion, and awards under such proposed plans may be
granted to employees other than executive officers and Directors, management of
the Company does not expect to have voting control of all shares covered by the
ESOP and other stock-based benefit plans.
Delaware Corporate Law
The state of Delaware has a statute designed to provide Delaware
corporations with additional protection against hostile takeovers. The takeover
statute, which is codified in Section 203 of the Delaware General Corporate Law
("Section 203"), is intended to discourage certain takeover practices by
impeding the ability of a hostile acquiror to engage in certain transactions
with the target company.
In general, Section 203 provides that a "Person" (as defined therein) who
owns 15% or more of the outstanding voting stock of a Delaware corporation (an
"Interested Stockholder") may not consummate a merger or other business
combination transaction with such corporation at any time during the three-year
period following the date such Person became an Interested Stockholder. The
term "business combination" is defined broadly to cover a wide range of
corporate transactions including mergers, sales of assets, issuances of stock,
transactions with subsidiaries and the receipt of disproportionate financial
benefits.
The statute exempts the following transactions from the requirements of
Section 203: (i) any business combination if, prior to the date a person became
an Interested Stockholder, the Board of Directors approved either the business
combination or the transaction which resulted in the stockholder becoming an
Interested Stockholder; (ii) any business combination involving a person who
acquired at least 85% of the outstanding voting stock in the transaction in
which he became an Interested Stockholder, with the number of shares outstanding
calculated without regard to those shares owned by the corporation's directors
who are also officers and by certain employee stock plans; (iii) any business
combination with an Interested Stockholder that is approved by the Board of
Directors and by a two-thirds vote of the outstanding voting stock not owned by
the Interested Stockholder; and (iv) certain business combinations that are
proposed after the corporation had received other acquisition proposals and
which are approved or not opposed by a majority of certain continuing members of
the Board of Directors. A corporation may exempt itself from the requirements
of the statute by adopting an amendment to its Certificate of Incorporation or
Bylaws electing not to be governed by Section 203. At the present time, the
Board of Directors does not intend to propose any such amendment.
Restrictions in the Association's New Charter and Bylaws
Although the Board of Directors of the Association is not aware of any
effort that might be made to obtain control of the Association after the
Conversion, the Board of Directors believes that it is appropriate to adopt
certain provisions permitted by federal regulations to protect the interests of
the converted Association and its stockholders from any hostile takeover. Such
provisions may, indirectly, inhibit a change in control of the Company, as the
Association's sole stockholder. See "Risk Factors -- Certain Anti-Takeover
Provisions."
The Association's Federal Stock Charter will contain a provision whereby
the acquisition of or offer to acquire beneficial ownership of more than 10% of
the issued and outstanding shares of any class of equity securities of the
Association by any person (i.e., any individual, corporation, group acting in
concert, trust, partnership, joint stock company or similar organization),
either directly or through an affiliate thereof, will be prohibited for a period
of five years following the date of completion of the Conversion. Any stock in
excess of 10% acquired in violation of the Federal Stock Charter provision will
not be counted as outstanding for voting purposes. This limitation shall not
apply to any transaction in which the Association forms a holding company
without a change in the respective beneficial ownership interests of its
stockholders other than pursuant to the exercise of any dissenter or appraisal
rights. In the event that holders of revocable proxies for more than 10% of the
shares of the Common Stock of the Company seek, among other things, to elect
one-third or more of the Company's Board of Directors, to cause the Company's
stockholders to approve the acquisition or corporate reorganization of the
Company or to exert a continuing influence
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on a material aspect of the business operations of the Company, which actions
could indirectly result in a change in control of the Association, the Board of
Directors of the Association will be able to assert this provision of the
Association's Federal Stock Charter against such holders. Although the Board of
Directors of the Association is not currently able to determine when and if it
would assert this provision of the Association's Federal Stock Charter, the
Board of Directors, in exercising its fiduciary duty, may assert this provision
if it were deemed to be in the best interests of the Association, the Company
and its stockholders. It is unclear, however, whether this provision, if
asserted, would be successful against such persons in a proxy contest which
could result in a change in control of the Association indirectly through a
change in control of the Company. Finally, for five years, stockholders will not
be permitted to call a special meeting of stockholders relating to a change of
control of the Association or a charter amendment or to cumulate their votes in
the election of directors. Furthermore, the staggered terms of the Board of
Directors could have an anti-takeover effect by making it more difficult for a
majority of shares to force an immediate change in the Board of Directors since
only one-third of the Board is elected each year. The purpose of these
provisions is to assure stability and continuity of management of the
Association in the years immediately following the Conversion.
Although the Association has no arrangements, understandings or plans at
the present time, except as described in "Description of Capital Stock of the
Company -- Preferred Stock," for the issuance or use of the shares of
undesignated Preferred Stock proposed to be authorized, the Board of Directors
believes that the availability of such shares will provide the Association with
increased flexibility in structuring possible future financings and acquisitions
and in meeting other corporate needs which may arise. In the event of a
proposed merger, tender offer or other attempt to gain control of the
Association of which management does not approve, it might be possible for the
Board of Directors to authorize the issuance of one or more series of Preferred
Stock with rights and preferences which could impede the completion of such a
transaction. An effect of the possible issuance of such Preferred Stock,
therefore, may be to deter a future takeover attempt. The Board of Directors
does not intend to issue any Preferred Stock except on terms which the Board
deems to be in the best interest of the Association and its then existing
stockholders.
Regulatory Restrictions
The Plan of Conversion prohibits any person, prior to the completion of the
Conversion, from transferring, or from entering into any agreement or
understanding to transfer, to the account of another, legal or beneficial
ownership of the subscription rights issued under the Plan or the Common Stock
to be issued upon their exercise. The Plan also prohibits any person, prior to
the completion of the Conversion, from offering, or making an announcement of an
offer or intent to make an offer, to purchase such subscription rights or Common
Stock.
For three years following the Conversion, OTS regulations prohibit any
person from acquiring or making an offer to acquire more than 10% of the stock
of any converted savings institution, except for: (i) offers that, if
consummated, would not result in the acquisition by such person during the
preceding 12-month period of more than 1% of such stock; (ii) offers for up to
25% in the aggregate by the ESOP or other tax qualified plans of the Association
or the Company; or (iii) offers which are not opposed by the Board of Directors
of the Association and which receive the prior approval of the OTS. Such
prohibition is also applicable to the acquisition of the stock of the Company.
Such acquisition may be disapproved by the OTS if it is found, among other
things, that the proposed acquisition (a) would frustrate the purposes of the
provisions of the regulations regarding conversions; (b) would be manipulative
or deceptive; (c) would subvert the fairness of the conversion; (d) would be
likely to result in injury to the savings institution; (e) would not be
consistent with economical home financing; (f) would otherwise violate law or
regulation; or (g) would not contribute to the prudent deployment of the savings
institution's conversion proceeds. In the event that any person, directly or
indirectly, violates this regulation, the securities beneficially owned by such
person in excess of 10% shall not be counted as shares entitled to vote and
shall not be voted by any person or counted as voting shares in connection with
any matters submitted to a vote of stockholders. The definition of beneficial
ownership for this regulation extends to persons holding revocable or
irrevocable proxies for the Company's stock under circumstances that give rise
to a conclusive or rebuttable determination of control under the OTS
regulations.
In addition, any proposal to acquire 10% of any class of equity security of
the Company generally would be subject to approval by the OTS under the Change
in Bank Control Act. The OTS requires all persons seeking control of a savings
institution and, therefore, indirectly its holding company, to obtain regulatory
approval prior to offering to obtain control. Federal law generally provides
that no "person," acting directly or indirectly or through or
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in concert with one or more other persons, may acquire directly or indirectly
"control," as that term is defined in OTS regulations, of a federally-insured
savings institution without giving at least 60 days' written notice to the OTS
and providing the OTS an opportunity to disapprove the proposed acquisition.
Such acquisitions of control may be disapproved if it is determined, among other
things, that (i) the acquisition would substantially lessen competition; (ii)
the financial condition of the acquiring person might jeopardize the financial
stability of the savings institution or prejudice the interests of its
depositors; or (iii) the competency, experience or integrity of the acquiring
person or the proposed management personnel indicates that it would not be in
the interest of the depositors or the public to permit the acquisition of
control by such person. Such change in control restrictions on the acquisition
of holding company stock are not limited to three years after conversion but
will apply for as long as the regulations are in effect. Persons holding
revocable or irrevocable proxies may be deemed to be beneficial owners of such
securities under OTS regulations and therefore prohibited from voting all or the
portion of such proxies in excess of the 10% aggregate beneficial ownership
limit. Such regulatory restrictions may prevent or inhibit proxy contests for
control of the Company or the Association which have not received prior
regulatory approval.
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
General
The Company is authorized to issue 33,000,000 shares of Common Stock having
a par value of $0.01 per share and 3,000,000 shares of preferred stock having a
par value of $0.01 per share (the "Preferred Stock"). Based on the sale of
Common Stock in connection with the Conversion and issuance of authorized but
unissued Common Stock to the Foundation in an amount equal to 7.7% of the Common
Stock sold in the Conversion, the Company currently expects to issue up to
9,775,000 shares of Common Stock (or 11,241,250 in the event of an increase of
15% in the Estimated Price Range) and no shares of Preferred Stock in the
Conversion. Except as discussed above in "Restriction on Acquisition of the
Company and the Association," each share of the 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, all such stock will be duly authorized,
fully paid and non-assessable.
THE COMMON STOCK OF THE COMPANY WILL REPRESENT NON-WITHDRAWABLE CAPITAL,
WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT BE INSURED BY THE
FDIC.
Common Stock
Dividends. The Company can pay dividends out of statutory surplus or from
certain net profits if, as and when declared by its Board of Directors. The
payment of dividends by the Company is subject to limitations which are imposed
by law and applicable regulation. See "Dividend Policy" and "Regulation." The
holders of Common Stock of the Company will be entitled to receive and share
equally in such dividends as may be declared by the Board of Directors of the
Company out of funds legally available therefor. If the Company issues
Preferred Stock, the holders thereof may have a priority over the holders of the
Common Stock with respect to dividends.
Voting Rights. Upon Conversion, the holders of Common Stock of the Company
will possess exclusive voting rights in the Company. They will elect the
Company's Board of Directors and act on such other matters as are required to be
presented to them under Delaware law or the Company's Certificate of
Incorporation or as are otherwise presented to them by the Board of Directors.
Except as discussed in "Restrictions on Acquisition of the Company and the
Association," each holder of Common Stock will be entitled to one vote per share
and will not have any right to cumulate votes in the election of directors. If
the Company issues Preferred Stock, holders of the Preferred Stock may also
possess voting rights. Certain matters require an 80% shareholder vote. See
"Restrictions on Acquisition of the Company and the Association."
As a federal mutual savings and loan association, corporate powers and
control of the Association are vested in its Board of Directors, who elect the
officers of the Association 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
Association, which will be the Company, and voted at the direction of the
Company's Board of Directors. Consequently, the holders of the Common Stock
will not have direct control of the Association.
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Liquidation. In the event of any liquidation, dissolution or winding up of
the Association, the Company, as holder of the Association's capital stock,
would be entitled to receive, after payment or provision for payment of all
debts and liabilities of the Association (including all deposit accounts and
accrued interest thereon) and after distribution of the balance in the special
liquidation account to Eligible Account Holders and Supplemental Eligible
Account Holders (see "The Conversion -- Liquidation Rights"), all assets of the
Association available for distribution. In the event of liquidation,
dissolution or winding up of the Company, the holders of its Common Stock would
be entitled to receive, after payment or provision for payment of all its debts
and liabilities, all of the assets of the Company available for distribution.
If Preferred Stock is issued, the holders thereof may have a priority over the
holders of the Common Stock in the event of liquidation or dissolution.
Preemptive Rights. Holders of the Common Stock of the Company will not be
entitled to preemptive rights with respect to any shares which may be issued.
The Common Stock is not subject to redemption.
Preferred Stock
None of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion. Such stock may be issued with such preferences and
designations as the Board of Directors may from time to time determine. The
Board of Directors can, without stockholder approval, issue preferred stock with
voting, dividend, liquidation and conversion rights which could dilute the
voting strength of the holders of the Common Stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
DESCRIPTION OF CAPITAL STOCK OF THE ASSOCIATION
General
The Federal Stock Charter of the Association, to be effective upon the
Conversion, authorizes the issuance of capital stock consisting of 33,000,000
shares of common stock, par value $1.00 per share, and 3,000,000 shares of
preferred stock, par value $1.00 per share, which preferred stock may be issued
in series and classes having such rights, preferences, privileges and
restrictions as the Board of Directors may determine. Each share of Common
Stock of the Association will have the same relative rights as, and will be
identical in all respects with, each other share of common stock. After the
Conversion, the Board of Directors will be authorized to approve the issuance of
Common Stock up to the amount authorized by the Federal Stock Charter without
the approval of the Association's stockholders. Assuming that the holding
company form of organization is utilized, all of the issued and outstanding
common stock of the Association will be held by the Company as the Association's
sole stockholder. THE CAPITAL STOCK OF THE ASSOCIATION WILL REPRESENT NON-
WITHDRAWABLE CAPITAL, WILL NOT BE AN ACCOUNT OF AN INSURABLE TYPE, AND WILL NOT
BE INSURED BY THE FDIC.
Common Stock
Dividends. The holders of the Association's common stock will be entitled
to receive and to share equally in such dividends as may be declared by the
Board of Directors of the Association out of funds legally available therefor.
See "Dividend Policy" for certain restrictions on the payment of dividends and
"Federal and State Taxation --Federal Taxation" for a discussion of the
consequences of the payment of cash dividends from income appropriated to bad
debt reserves.
Voting Rights. Immediately after the Conversion, the holders of the
Association's common stock will possess exclusive voting rights in the
Association. Each holder of shares of common stock will be entitled to one vote
for each share held, subject to the right of shareholders to cumulate their
votes for the election of directors. During the five-year period after the
effective date of the Conversion, cumulation of votes will not be permitted.
See "Restrictions on Acquisition of the Company and the Association -- Anti-
Takeover Effects of the Company's Certificate of Incorporation and Bylaws and
Management Remuneration Adopted in Conversion."
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Liquidation. In the event of any liquidation, dissolution, or winding up
of the Association, the holders of common stock will be entitled to receive,
after payment of all debts and liabilities of the Association (including all
deposit accounts and accrued interest thereon), and distribution of the balance
in the special liquidation account to Eligible Account Holders and Supplemental
Eligible Account Holders, all assets of the Association available for
distribution in cash or in kind. If preferred stock is issued subsequent to the
Conversion, the holders thereof may also have priority over the holders of
common stock in the event of liquidation or dissolution.
Preemptive Rights; Redemption. Holders of the common stock of the
Association will not be entitled to preemptive rights with respect to any shares
of the Association which may be issued. The common stock will not be subject to
redemption. Upon receipt by the Association of the full specified purchase
price therefor, the common stock will be fully paid and non-assessable.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is [Transfer Agent].
CHANGE IN ACCOUNTANTS
Prior to the year ended June 30, 1998 the Association's financial
statements were audited by Packer, Thomas & Co. As a result of the
Association's decision to convert from a mutual savings and loan association to
a stock savings and loan association, the Association decided on June 29, 1998
to dismiss Packer, Thomas & Co. and to engage Crowe, Chizek and Company LLP as
the independent auditors of the Association. The decision to change auditors
was recommended by the Audit Committee and was approved by the Board of
Directors. Accordingly, the statement of financial condition as of June 30,
1997 and related statements of income, retained earnings and cash flows for the
years ended June 30, 1997 and 1996, and included in this Prospectus, were
audited by Packer, Thomas & Co.
For the year ended June 30, 1997 and up to the date of replacement of
Packer, Thomas & Co., there were no disagreements with Packer, Thomas & Co. on
any matter of accounting principles or practices, financial statement disclosure
or auditing scope or procedure which, if not resolved to the satisfaction of
Packer, Thomas & Co., would have caused it to make reference to the subject
matter of the disagreement in connection with its report. The independent
auditors' report on the financial statements for the year ended June 30, 1997
did not contain an adverse opinion or a disclaimer of opinion, and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
EXPERTS
The consolidated financial statements of the Association as of June 30,
1998, and for the year ended June 30, 1998, have been included herein in
reliance upon the report of Crowe, Chizek & Company, LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
The financial statements of the Association as of June 30, 1997 and for the
years ended June 30, 1997 and 1996, have been included herein in reliance upon
the report of Packer, Thomas & Co., independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
Keller and Company, Inc. has consented to the publication herein of the
summary of its report to the Association and Company setting forth its opinion
as to the estimated pro forma market value of the Common Stock upon Conversion
and its opinion with respect to subscription rights.
LEGAL AND TAX OPINIONS
The legality of the Common Stock and the federal income tax consequences of
the Conversion will be passed upon for the Association and Company by Patton
Boggs LLP, Washington, D.C., special counsel to the Association and Company.
The federal income tax consequences of First Federal of Warren Community
Foundation will be passed upon for the Association and the Company by Crowe,
Chizek and Company LLP, independent certified public
118
<PAGE>
accountants who have served as the Association's and the Company's independent
tax advisors. Patton Boggs LLP will rely as to certain matters of Delaware law
on the opinion of Potter Anderson & Corroon LLP. Ohio state income tax
consequences will be passed upon by Crowe, Chizek and Company LLP. Certain legal
matters will be passed upon for Webb by Elias, Matz, Tiernan & Herrick L.L.P.,
Washington, DC.
ADDITIONAL INFORMATION
The Company has filed with the SEC a registration statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the registration statement. Such information,
including the Conversion Valuation Appraisal Report, which is an exhibit to the
Registration Statement, can be examined without charge at the public reference
facilities of the SEC located at 450 Fifth Street, N.W., Washington, D.C. 20549,
and copies of such material can be obtained from the SEC at prescribed rates.
In addition, the SEC maintains a web site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
registrants that file electronically with the SEC, including the Company. The
Conversion Valuation Appraisal Report may also be inspected by members of the
Association at the offices of the Association during normal business hours.
This Prospectus contains a description of the material terms and features of all
material contracts, reports or exhibits to the registration statement required
to be described; however, the statements contained in this Prospectus as to the
contents of any contract or other document filed as an exhibit to the
registration statement are, of necessity, brief descriptions thereof and are not
necessarily complete; each such statement is qualified by reference to such
contract or document.
The Association has filed an application for conversion with the OTS.
Pursuant to the rules and regulations of the OTS, this Prospectus omits certain
information contained in that application. The application may be examined at
the principal office of the OTS, 1700 G Street, Washington, DC, 20552 and at the
office of the Regional Director of the OTS located at 200 West Madison Street,
Suite 1300, Chicago, Illinois, 60606.
The Company has filed with the Office of Thrift Supervision an Application
to Form a Holding Company. This Prospectus omits certain information contained
in such Application. Such Application may be inspected at the offices of the
OTS, 1700 G Street, N.W., Washington, D.C. 20552.
In connection with the Conversion, the Company will register its Common
Stock with the SEC under Section 12(g) of the Exchange Act, and, upon such
registration, the Company and the holders of its stock will become subject to
the proxy solicitation rules, reporting requirements and restrictions on stock
purchases and sales by directors, officers and greater than 10% stockholders,
the annual and periodic reporting and certain other requirements of the Exchange
Act. Under the Plan, the Company has undertaken that it will not terminate such
registration for a period of at least three years following the Conversion. In
the event that the Association amends the Plan to eliminate the concurrent
formation of the Company as part of the Conversion, the Association will
register its stock with the Federal Deposit Insurance Corporation under Section
12(g) of the Exchange Act and, upon such registration, the Association and the
holders of its stock will become subject to the same obligations and
restrictions.
A copy of the Plan of Conversion, Certificate of Incorporation and the
Bylaws of the Company and the Charter and Bylaws of the Association are
available without charge from the Association. The Association's principal
office is located at 185 East Market Street, Warren, Ohio and its telephone
number is (330) 373-1221.
119
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
INDEX TO FINANCIAL STATEMENTS
Page
-------------
Independent Auditors' Report for the Year Ended June 30, 1998...... F-2
Independent Auditors' Report for the Years Ended June 30, 1997 and
1996.............................................................. F-3
Statements of Financial Condition as of June 30, 1998 and 1997..... F-4
Statements of Income for the Years Ended June 30, 1998, 1997 and
1996.............................................................. F-5
Statements of Retained Earnings for the Years Ended June 30, 1998,
1997 and 1996..................................................... F-6
Statements of Cash Flows for the Years Ended June 30, 1998,
1997 and 1996...................................................... F-7 to F-8
Notes to Financial Statements...................................... F-9 to F-27
All schedules are omitted because they are not required or applicable, or
the required information is shown in the financial statements or notes thereto.
The financial statements of First Place Financial Corp. have been omitted
because First Place Financial Corp. has not yet issued any stock, has no assets
and no liabilities, and has not conducted any business other than of an
organizational nature.
F-1
<PAGE>
[LETTERHEAD OF CROWE CHIZEK APPEARS HERE]
REPORT OF INDEPENDENT AUDITORS
Board of Directors
First Federal Savings and Loan Association
of Warren
Warren, OH
We have audited the accompanying statements of financial condition of First
Federal Savings and Loan Association of Warren as of June 30, 1998, and the
related statements of income, retained earnings and cash flows for the year then
ended. These financial statements are the responsibility of the Association's
management. Our responsibility is to express an opinion on these financial
statements based on our audit. The 1997 and 1996 financial statements were
audited by other auditors whose report dated September 9, 1997, expressed an
unqualified opinion on those statements.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1998 financial statements referred to above present fairly,
in all material respects, the financial position of First Federal Savings and
Loan Association of Warren as of June 30, 1998, and the results of its
operations and cash flows for the year then ended, in conformity with generally
accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Cleveland, Ohio
July 22, 1998
F-2
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
We have audited the accompanying statements of financial condition of First
Federal Savings and Loan Association of Warren as of June 30, 1997 and 1996 and
the related statements of income, retained earnings and cash flows, for the
years then ended. These financial statements are the responsibility of the
Association's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of First Federal Savings and Loan
Association of Warren as of June 30, 1997 and 1996, and the results of its
operations and cash flows for the years then ended, in conformity with generally
accepted accounting principles.
Warren, Ohio /s/ Packer, Thomas & Co.
September 9, 1997 Packer, Thomas & Co.
F-3
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
STATEMENTS OF FINANCIAL CONDITION
June 30, 1998 and 1997
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 6,668,406 $ 6,757,030
Federal funds sold 1,565,167 209,892
Securities available for sale 211,184,978 202,676,569
Securities held to maturity, fair value of
$28,518,985 in 1998 and $44,798,465 in 1997 28,294,848 44,874,887
Loans receivable, net 353,012,434 285,211,625
Premises and equipment, net 5,898,813 6,446,380
Accrued interest receivable 1,835,336 1,888,998
Other assets 938,261 804,191
------------ ------------
Total assets $609,398,243 $548,869,572
============ ============
LIABILITIES
Deposits $435,461,723 $412,933,944
Repurchase agreements 60,430,000 16,000,000
Federal Home Loan Bank advances 44,820,060 58,397,984
Advances by borrowers for taxes and insurance 1,983,256 1,700,988
Accrued interest payable 1,089,645 704,278
Federal income taxes payable 1,702,008 1,115,234
Other liabilities 4,554,191 4,270,326
------------ ------------
Total liabilities 550,040,883 495,122,754
------------ ------------
Commitments and contingencies
RETAINED EARNINGS
Retained earnings, substantially restricted 57,762,916 53,690,574
Unrealized gain on available for sale securities, net
of taxes 1,594,444 56,244
------------ ------------
Total retained earnings 59,357,360 53,746,818
------------ ------------
Total liabilities and retained earnings $609,398,243 $548,869,572
============ ============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-4
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
STATEMENTS OF INCOME
Years ended June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
----------- ------------ ------------
<S> <C> <C> <C>
INTEREST INCOME
Loans $25,735,667 $ 21,871,589 $ 20,135,093
Securities
Taxable 3,098,434 3,542,299 3,145,380
Tax-exempt 66,072 193,879 31,517
Mortgage-backed and related securities 13,581,433 12,805,242 13,124,197
----------- ------------ ------------
Total interest income 42,481,606 38,413,009 36,436,187
----------- ------------ ------------
INTEREST EXPENSE
Deposits 19,859,626 18,495,360 17,881,388
FHLB advances 3,056,698 3,953,237 3,976,414
Repurchase agreements 2,595,728 480,356
----------- ------------ ------------
Total interest expense 25,512,052 22,928,953 21,857,802
----------- ------------ ------------
NET INTEREST INCOME 16,969,554 15,484,056 14,578,385
Provision for loan losses 1,778,591 590,395 238,239
----------- ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 15,190,963 14,893,661 14,340,146
----------- ------------ ------------
NONINTEREST INCOME
Service charges 1,084,911 929,166 803,099
Gains (losses) on securities available
for sale, net 135,138 (934,150) (26,451)
Other 531,723 449,007 443,426
----------- ------------ ------------
Total noninterest income 1,751,772 444,023 1,220,074
----------- ------------ ------------
NONINTEREST EXPENSE
Salaries and benefits 5,470,758 4,863,349 4,698,715
Occupancy and equipment 1,577,820 1,431,500 1,295,575
Federal deposit insurance premiums 258,236 2,970,655 867,188
Franchise taxes 776,228 713,658 648,608
Other 2,289,423 1,919,304 1,638,425
----------- ------------ ------------
Total noninterest expense 10,372,465 11,898,466 9,148,511
----------- ------------ ------------
INCOME BEFORE INCOME TAX 6,570,270 3,439,218 6,411,709
Provision for income tax 2,497,928 1,215,175 2,262,419
----------- ------------ ------------
NET INCOME $ 4,072,342 $ 2,224,043 $ 4,149,290
=========== ============ ============
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-5
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
STATEMENTS OF RETAINED EARNINGS
Years ended June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Unrealized
Gains (Losses)
on Securities
Retained Available for
Earnings Sale, Net Total
----------- ----------- -----------
<S> <C> <C> <C>
Balance at July 1, 1995 $47,317,241 $(1,107,951) $46,209,290
Change in fair value of
securities available for sale (1,535,916) (1,535,916)
Net income 4,149,290 4,149,290
----------- ----------- -----------
Balance at June 30, 1996 51,466,531 (2,643,867) 48,822,664
Change in fair value of
securities available for sale 2,700,111 2,700,111
Net income 2,224,043 2,224,043
----------- ----------- -----------
Balance at June 30, 1997 53,690,574 56,244 53,746,818
Change in fair value of
securities available for sale 1,538,200 1,538,200
Net income 4,072,342 4,072,342
----------- ----------- -----------
Balance at June 30, 1998 $57,762,916 $ 1,594,444 $59,357,360
=========== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-6
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
STATEMENTS OF CASH FLOWS
Years ended June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,072,342 $ 2,224,043 $ 4,149,290
Adjustments to reconcile net income to net
cash from operating activities
Depreciation 737,726 570,125 514,596
Provision for loan losses 1,778,591 590,395 238,239
Net amortization 282,363 127,892 298,834
Investment security (gains) losses (135,138) 934,150 26,451
Loss on disposal of fixed assets 158,878
FHLB dividend (351,800) (330,022) (262,378)
Change in
Interest receivable 53,662 (15,920) 44,704
Interest payable 385,367 (185,616) (446,752)
Other assets (134,070) (23,960) (78,098)
Other liabilities 498,574 572,638 986,473
Deferred loan fees 3,611 (180,949) 179,410
Deferred taxes (420,339) 15,175 209,680
------------ ------------ ------------
Net cash from operating activities 6,770,889 4,456,829 5,860,449
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Investment and mortgage-backed securities
available for sale
Proceeds from sales 37,052,332 43,293,998 20,683,939
Proceeds from maturities, calls
and principal paydowns 41,984,709 9,480,126 2,782,904
Purchases (85,697,887) (50,050,159) (74,984,501)
Investment and mortgage-backed securities
held to maturity
Proceeds from maturities, calls
and principal paydowns 16,437,655 7,225,191 25,571,016
Purchases (4,000,000)
Net decrease (increase) in Federal Funds sold (1,355,275) 2,360,909 (1,128,407)
Purchases of Federal Home Loan Bank Stock (330,000) (1,084,200)
Sale of Federal Home Loan Bank Stock 830,000
Net increase in loans (69,583,011) (30,678,497) (15,351,087)
Premises and equipment expenditures, net (190,159) (2,063,256) (460,180)
------------ ------------ ------------
Net cash from investing activities (60,521,636) (24,761,688) (43,970,516)
------------ ------------ ------------
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-7
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
STATEMENTS OF CASH FLOWS (Continued)
Years ended June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net change in deposits 22,527,779 21,199,868 15,151,770
Net change in advances by borrowers
for taxes and insurance 282,268 (16,448) (230,556)
Net change in repurchase agreements 44,430,000 16,000,000
Proceeds from FHLB borrowings 57,075,000 59,550,000 82,078,100
Repayment of FHLB borrowings (70,652,924) (77,229,912) (58,435,754)
------------ ------------ ------------
Net cash from financing activities 53,662,123 19,503,508 38,563,560
------------ ------------ ------------
Net change in cash and cash equivalents (88,624) (801,351) 453,493
Cash and cash equivalents at beginning
of year 6,757,030 7,558,381 7,104,888
------------ ------------ ------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 6,668,406 $ 6,757,030 $ 7,558,381
============ ============ ============
Supplemental disclosures of cash flow
information
Cash paid during the year for
Interest $ 25,126,685 $ 23,215,732 $ 22,182,972
Income taxes 2,745,000 1,200,000 1,895,000
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes to financial statements.
F-8
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
NOTES TO FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization: First Federal Savings and Loan Association of Warren is a
- ------------
federally chartered mutual thrift association operating in Trumbull and Mahoning
Counties, Ohio. The Association is engaged in the business of banking with
operations conducted through its main office in Warren, Ohio and eleven branch
locations and two loan production offices. The Association originates and holds
residential, consumer and commercial loans and also offers a variety of deposit
products to customers. The majority of the Association's income is derived from
one- to four-family residential real estate loans and mortgage-backed
securities.
Use of Estimates in Preparation of Financial Statements: In preparing financial
- -------------------------------------------------------
statements, management must make estimates and assumptions. These estimates and
assumptions affect the amounts reported for assets, liabilities, revenues and
expenses as well as affecting the disclosures provided. Future results could
differ from current estimates. Areas involving the use of management's
estimates and assumptions primarily include the allowance for loan losses, the
realization of deferred tax assets, fair value of certain securities and the
determination and carrying value of impaired loans.
Cash Reserves: At June 30, 1998, the Association was required to have $100,000
- -------------
on deposit with a correspondent bank. This deposit does not earn interest.
Investment Securities: Securities are classified into held-to-maturity and
- ---------------------
available-for-sale categories. Held-to-maturity securities are those that the
Association has the positive intent and ability to hold to maturity, and are
reported at amortized cost. Available-for-sale securities are those that the
Association may decide to sell if needed for liquidity, asset-liability
management, or other reasons. Available-for-sale securities are reported at
fair value, with unrealized gains or losses included as a separate component of
equity, net of tax.
Realized gains or losses on sales are determined based on the amortized cost of
the specific security sold. Amortization of premiums and accretion of discounts
are computed under a system materially consistent with the level yield method
and are recognized as adjustments to interest income. Prepayment activity on
mortgage-backed securities is affected primarily by changes in interest rates.
Yields on mortgage-backed securities are adjusted as prepayments occur through
changes to premium amortization or discount accretion.
- --------------------------------------------------------------------------------
(Continued)
F-9
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
NOTES TO FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Loans: Interest income on loans is accrued over the term of the loans based
- -----
upon the principal outstanding. The accrual of interest on loans is suspended
when a loan is 90 days or more past due or when, in management's opinion, the
collection of all or a portion of the loan principal has become doubtful. When
a loan is placed on nonaccrual status, accrued and unpaid interest at risk is
charged against income. Under Statement of Financial Accounting Standards
("SFAS") No. 114, as amended by SFAS No. 118, the carrying value of impaired
loans is periodically adjusted to reflect cash payments, revised estimates of
future cash flows and increases in the present value of expected cash flows due
to the passage of time. Cash payments representing interest income are reported
as such and other cash payments are reported as reductions in carrying value.
Increases or decreases in carrying value due to changes in estimates of future
payments or the passage of time are reported as reductions or increases in bad
debt expense.
Loan fees, net of direct loan origination costs, are deferred and recognized
over the life of the loan as a yield adjustment.
Allowance for Loan Losses: Because some loans may not be repaid in full, an
- -------------------------
allowance for loan losses is maintained. Increases to the allowance are
recorded by a provision for loan losses charged to expense. Estimating the risk
of the loss and the amount of loss on any loan is necessarily subjective.
Accordingly, the allowance is maintained by management at a level considered
adequate to cover losses that are currently anticipated based on past loss
experience, general economic conditions, information about specific borrower
situations including their financial position and collateral values, and other
factors and estimates which are subject to change over time. While management
may periodically allocate portions of the allowance for specific problem-loan
situations, the whole allowance is available for any loan charge-offs that
occur. A loan is charged-off against the allowance by management when deemed
uncollectible, although collection efforts continue and future recoveries may
occur.
Effective July 1, 1995, the Association adopted SFAS No. 114, "Accounting by
Creditors for Impairment of a Loan." SFAS No. 114 requires that the carrying
values of impaired loans be determined by calculating the present value of
estimated future cash flows, discounted using the loan's effective interest
yield. A loan is impaired when it is probable that a creditor will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. SFAS No. 118 was issued in October 1994 and amends SFAS No. 114 to
allow a creditor to use existing methods to recognize income on impaired loans.
SFAS No. 114 and SFAS No. 118 did not materially affect the Association's
financial condition or results of operations.
Smaller-balance homogeneous loans are evaluated for impairment in total. Such
loans include residential first mortgage loans secured by one- to four-family
residences, residential construction loans and automobile, home equity and
second mortgages. Commercial loans and mortgage loans secured by other
properties are evaluated individually for impairment.
- --------------------------------------------------------------------------------
(Continued)
F-10
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
NOTES TO FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
When analysis of borrower operating results and financial condition indicates
that underlying cash flows of the borrower's business are not adequate to meet
its debt service requirements, the loan is evaluated for impairment. Often this
is associated with a delay or shortfall in payments of 30 days or more. Loans
are generally moved to nonaccrual status when 90 days or more past due or when
collection of principal or interest is in doubt. These loans are often also
considered impaired. Impaired loans, or portions thereof, are charged off when
deemed uncollectible. The nature of disclosures for impaired loans is considered
generally comparable to prior nonaccrual and renegotiated loans and non-
performing and past-due asset disclosures.
Real Estate Owned: Real estate owned, other than that which is used in the
- -----------------
normal course of business, is recorded at fair value less estimated costs to
sell. For real estate acquired through foreclosure, any initial loss is
recorded as a charge to the allowance for loan losses before being transferred
to real estate owned. Any subsequent reduction in fair value is recognized in a
valuation allowance by charges to income.
Premises and Equipment: Office properties and equipment are stated at cost less
- ----------------------
accumulated depreciation. Depreciation is computed based on both the straight-
line method and the accelerated method over the estimated useful lives of the
respective properties and equipment, which range from 5 to 30 years. Maintenance
and repairs are expensed and major improvements are capitalized.
Income Taxes: The Association records income tax expense based on the amount of
- ------------
tax due on its tax return plus deferred taxes computed based on the expected
future tax consequences of temporary differences between the carrying amounts
and tax bases of assets and liabilities, using enacted tax rates. The provision
for income taxes is based on the effective tax rate expected to be applicable
for the entire year.
Concentrations of Credit Risk: The Association grants residential, consumer and
- -----------------------------
commercial loans to customers located primarily in Trumbull and surrounding
counties in Ohio. Real estate mortgage loans make up approximately 82% of the
Association's loan portfolio and the remaining 18% is made up of consumer and
commercial loans. The Association, in the normal course of business, makes
commitments to make loans that are not reflected in the financial statements.
Statement of Cash Flows: For purposes of this statement, cash and cash
- -----------------------
equivalents are defined to include the Association's cash on hand and due from
banks. The Association reports net cash flows for customer loan transactions,
deposit transactions, repurchase agreements transactions and federal funds sold.
Reclassifications: Certain items in the 1997 and 1996 financial statements have
- ------------------
been reclassified to conform with the 1998 presentation. Such reclassifications
had no effect on the net results of operations.
- --------------------------------------------------------------------------------
(Continued)
F-11
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
NOTES TO FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES
The amortized cost, gross unrealized gains and losses and estimated fair values
of investment securities at June 30, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Available for sale
Investment securities
U.S. Government agencies $ 15,733,962 $ 63,519 $ 567 $ 15,796,914
Federal Home Loan Bank stock 4,414,500 4,414,500
Obligations of states and
political subdivisions 826,127 27,226 853,353
------------ ---------- -------- ------------
Total 20,974,589 90,745 567 21,064,767
------------ ---------- -------- ------------
Mortgage-backed securities and
collateralized mortgage obligations
FHLMC 99,493,537 1,470,722 66,163 100,898,096
FNMA 49,958,930 1,095,359 536,341 50,517,948
GNMA 37,354,752 375,622 16,455 37,713,919
Other 987,346 2,902 990,248
------------ ---------- -------- ------------
Total 187,794,565 2,944,605 618,959 190,120,211
------------ ---------- -------- ------------
$208,769,154 $3,035,350 $619,526 $211,184,978
============ ========== ======== ============
HELD TO MATURITY
Investment securities
U.S. Treasury securities $ 6,004,462 $ 12,938 $ 3,640 $ 6,013,760
U.S. Government agencies 4,147,358 33,268 4,180,626
Obligations of states and
political subdivisions 364,203 32,108 396,311
------------ ---------- -------- ------------
Total 10,516,023 78,314 3,640 10,590,697
------------ ---------- -------- ------------
Mortgage-backed securities and
collateralized mortgage obligations
FNMA 16,266,909 210,027 110,026 16,366,910
GNMA 1,511,916 49,462 1,561,378
------------ ---------- -------- ------------
Total 17,778,825 259,489 110,026 17,928,288
------------ ---------- -------- ------------
$ 28,294,848 $ 337,803 $113,666 $ 28,518,985
============ ========== ======== ============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-12
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
NOTES TO FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES (Continued)
<TABLE>
<CAPTION>
1997
-------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
------------ ---------- ---------- ------------
<S> <C> <C> <C> <C>
Available for sale
Investment securities
U.S. Government agencies $ 34,011,694 $ 73,846 $ 407,560 $ 33,677,980
Federal Home Loan Bank stock 4,892,700 4,892,700
Obligations of states and
political subdivisions 825,316 12,649 837,965
Equity securities 3,216,426 236,184 2,980,242
------------ ---------- ---------- ------------
Total 42,946,136 86,495 643,744 42,388,887
------------ ---------- ---------- ------------
Mortgage-backed securities and
collateralized mortgage obligations
FHLMC 60,892,819 553,578 555,331 60,891,066
FNMA 57,604,132 1,055,564 771,678 57,888,018
GNMA 39,493,035 340,681 11,197 39,822,519
Other 1,655,228 30,851 1,686,079
------------ ---------- ---------- ------------
Total 159,645,214 1,980,674 1,338,206 160,287,682
------------ ---------- ---------- ------------
$202,591,350 $2,067,169 $1,981,950 $202,676,569
============ ========== ========== ============
HELD TO MATURITY
Investment securities
U.S. Treasury securities $ 14,004,878 $ 599 $ 54,837 $ 13,950,640
U.S. Government agencies 4,238,818 2,081 5,273 4,235,626
Obligations of states and
political subdivisions 405,088 34,249 439,337
------------ ---------- ---------- ------------
Total 18,648,784 36,929 60,110 18,625,603
------------ ---------- ---------- ------------
Mortgage-backed securities and
collateralized mortgage obligations
FNMA 24,283,597 73,909 177,438 24,180,068
GNMA 1,942,506 50,288 1,992,794
------------ ---------- ---------- ------------
Total 26,226,103 124,197 177,438 26,172,862
------------ ---------- ---------- ------------
$ 44,874,887 $ 161,126 $ 237,548 $ 44,798,465
============ ========== ========== ============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-13
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
NOTES TO FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES (Continued)
The amortized cost and estimated fair value of debt securities at June 30, 1998,
by contractual maturity, are shown below. Expected maturities may differ from
contractual maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Amortized Estimated
Cost Fair Value
------------ ------------
<S> <C> <C>
AVAILABLE FOR SALE
Due in one year or less $ 9,552,400 $ 9,575,038
Due after one year through five years 7,007,689 7,075,229
------------ ------------
16,560,089 16,650,267
Mortgage-backed securities and
collateralized mortgage obligations 187,794,565 190,120,211
Federal Home Loan Bank stock 4,414,500 4,414,500
------------ ------------
$208,769,154 $211,184,978
============ ============
HELD TO MATURITY
Due in one year or less $ 6,044,517 $ 6,054,319
Due after one year through five years 4,308,691 4,352,783
Due after five years through ten years 162,815 183,595
------------ ------------
10,516,023 10,590,697
Mortgage-backed securities and
collateralized mortgage obligations 17,778,825 17,928,288
------------ ------------
$ 28,294,848 $ 28,518,985
============ ============
</TABLE>
Proceeds from the sale of debt securities for the years ended June 30, 1998 and
1997 were $34,009,566 and $43,293,998. Gross gains of $472,837 and $ 76,317
and gross losses of $164,038 and $1,010,467 were realized on sales of securities
in 1998 and 1997. Proceeds from the sale of equity securities for the year
ended June 30, 1998 were $3,042,766, resulting in gross loss of $173,661.
- --------------------------------------------------------------------------------
(Continued)
F-14
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
NOTES TO FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 2 - INVESTMENT SECURITIES (Continued)
Investment and mortgage-backed securities with a carrying value of $103,493,000
and $27,517,152 as of June 30, 1998 and 1997 were pledged to secure public
deposits, repurchase agreements and for other purposes as required or permitted
by law.
NOTE 3 - LOANS
Loans as presented on the balance sheet are comprised of the following
classifications at June 30:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Real estate mortgage loans
One- to four- family $267,949,898 $215,548,836
Multifamily 4,481,617 2,292,969
Commercial 8,626,770 6,787,635
Construction 6,301,000 5,376,444
Home equity 9,189,216 9,822,022
------------ ------------
296,548,501 239,827,906
------------ ------------
Consumer loans
Automobile 52,846,731 43,172,395
Other 11,242,663 6,521,390
------------ ------------
64,089,394 49,693,785
------------ ------------
Commercial loans 2,586,649 2,067,758
Less:
Loans in process 5,865,902 3,339,387
Net deferred loan origination fees 1,319,278 1,315,667
Allowance for loan losses 3,026,930 1,722,770
------------ ------------
10,212,110 6,377,824
------------ ------------
$353,012,434 $285,211,625
============ ============
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-15
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
NOTES TO FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 3 - LOANS (Continued)
A summary of the activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period $1,722,770 $1,258,829 $1,186,076
Provision for loan losses 1,778,591 590,395 238,239
Charge-offs (515,000) (138,000) (236,000)
Recoveries 40,569 11,546 70,514
---------- ---------- ----------
Balance at end of period $3,026,930 $1,722,770 $1,258,829
========== ========== ==========
</TABLE>
Nonaccrual loans totaled $2,143,000, $2,480,000 at June 30, 1998 and 1997.
Interest not recognized on nonaccrual loans totaled approximately $94,400,
$172,000 and $109,000 for the years then ended June 30, 1998, 1997 and 1996.
There were no impaired loans at June 30, 1998 and 1997 or during the fiscal
years ended June 30, 1998, 1997 and 1996.
NOTE 4 - RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Association has granted loans to
executive officers, directors, and their related business interests. A summary
of related party loan activity is as follows for the year ended June 30, 1998:
<TABLE>
<CAPTION>
<S> <C>
Balance at beginning of period $695,688
New loans 343,145
Repayments (59,995)
--------
Balance at end of period $978,838
========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-16
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
NOTES TO FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 5 - PREMISES AND EQUIPMENT
Premises and equipment consists of the following:
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Land and improvements $ 1,076,403 $ 1,076,403
Buildings and improvements 4,522,645 4,499,798
Leasehold improvements 959,540 948,618
Furniture and equipment 6,466,648 6,257,427
Construction in process 137,376 190,207
----------- -----------
Total cost 13,162,612 12,972,453
Accumulated depreciation (7,263,799) (6,526,073)
----------- -----------
$ 5,898,813 $ 6,446,380
=========== ===========
</TABLE>
At June 30, 1998, the Association is obligated for rental commitments under non-
cancelable operating leases on real estate and equipment as follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $ 344,576
2000 262,076
2001 214,753
2002 210,451
2003 186,451
Thereafter 1,274,243
----------
$2,492,550
==========
</TABLE>
NOTE 6 - ACCRUED INTEREST RECEIVABLE
Accrued interest receivable at June 30, is summarized as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Investment securities $ 461,348 $ 647,200
Mortgage backed
and related securities 1,061,572 956,187
Loans receivable 312,416 285,611
---------- ----------
$1,835,336 $1,888,998
========== ==========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-17
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
NOTES TO FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 7 - DEPOSITS
Deposits consist of the following:
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Noninterest-bearing demand $ 5,216,944 $ 4,066,290
Savings 67,401,498 71,191,247
NOW 34,140,895 32,699,421
Money Market 68,733,365 57,801,995
Certificates of deposit 259,969,021 247,174,991
------------ ------------
$435,461,723 $412,933,944
============ ============
</TABLE>
The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 is $53,224,874 and $42,399,697 at June 30, 1998 and 1997. Deposits in
excess of $100,000 are not insured by the FDIC.
At June 30, 1998, scheduled maturities of certificates of deposit are as
follows:
<TABLE>
<CAPTION>
<S> <C>
1999 $167,818,397
2000 51,160,680
2001 17,703,267
2002 6,715,124
2003 1,633,548
Thereafter 14,938,005
------------
$259,969,021
============
</TABLE>
Interest expense on deposits is summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Savings $ 1,661,053 $ 1,782,357 $ 2,012,822
NOW 556,529 591,428 634,090
Money Market 2,743,742 2,109,814 1,308,307
Certificates of deposit 14,898,302 14,011,761 13,926,169
----------- ----------- -----------
$19,859,626 $18,495,360 $17,881,388
=========== =========== ===========
</TABLE>
NOTE 8 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
Securities sold under agreements to repurchase are secured by mortgage-backed
securities with a carrying value and fair value of approximately $62,608,000 at
June 30, 1998 and $16,836,000 at June 30, 1997.
Securities sold under agreements to repurchase are financing arrangements that
mature within three years. Information concerning securities sold under
agreements to repurchase is summarized as follows:
- --------------------------------------------------------------------------------
(Continued)
F-18
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
NOTES TO FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 8 - SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE (Continued)
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Average daily balance during the year $45,044,000 $ 8,470,000
Average interest rate during the year 5.76% 5.67%
Maximum month-end balance during the year $60,430,000 $16,000,000
</TABLE>
NOTE 9 - ADVANCES FROM FEDERAL HOME LOAN BANK
The association had the following outstanding Federal Home Loan Bank ("FHLB")
advances at June 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998
----------------------------------
Rate at
Amount June 30, Maturity
----------- --------- ----------
<S> <C> <C> <C>
LIBOR indexed advance $20,000,000 5.54% 06/30/2000
LIBOR indexed advance 6,000,000 5.59 12/01/2000
Amortizing term advance 1,668,719 5.20 05/01/2003
Amortizing term advance 1,147,881 5.30 07/01/2003
Amortizing term advance 1,178,121 5.20 09/01/2003
Amortizing term advance 3,258,081 6.30 02/01/2007
Amortizing term advance 4,013,449 6.05 12/01/2010
Amortizing term advance 7,553,809 6.05 12/01/2010
-----------
$44,820,060
===========
1997
----------------------------------
Cash management advance $ 675,000 5.75% 9/23/1997
Cash management advance 175,000 5.75 9/25/1997
Cash management advance 650,000 5.75 9/26/1997
LIBOR indexed advance 20,000,000 5.54 6/30/2000
LIBOR indexed advance 6,000,000 5.59 12/1/2000
Amortizing term advance 1,959,068 5.20 5/1/2003
Amortizing term advance 1,339,586 5.30 7/1/2003
Amortizing term advance 1,368,367 5.20 9/1/2003
Amortizing term advance 3,964,467 6.30 2/1/2007
Amortizing term advance 4,444,364 6.05 12/1/2010
Amortizing term advance 8,364,844 6.05 12/1/2010
Amortizing term advance 9,457,288 6.20 12/1/2010
-----------
$58,397,984
===========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-19
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
NOTES TO FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 9 - ADVANCES FROM FEDERAL HOME LOAN BANK (Continued)
At June 30, 1998, scheduled principal payments on FHLB advances are as follows:
<TABLE>
<CAPTION>
Year ended June 30,
-------------------
<S> <C>
1999 $ 2,185,521
2000 22,188,640
2001 8,197,754
2002 2,212,920
2003 2,202,090
Thereafter 7,833,135
-----------
$44,820,060
===========
</TABLE>
All advances are collateralized by the Association's FHLB stock and residential
mortgage loans totaling $67,230,000 and $87,597,000 at June 30, 1998 and 1997.
Based on the Association investment in FHLB stock, the maximum dollar amount of
FHLB advance borrowings available at June 30, 1998 was $88,290,000.
NOTE 10 - INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Current provision $2,918,267 $1,200,000 $2,052,739
Deferred provision (benefit) (420,339) 15,175 209,680
---------- ---------- ----------
$2,497,928 $1,215,175 $2,262,419
========== ========== ==========
</TABLE>
The differences between the financial statement provision and amounts computed
by applying the statutory federal income tax rate of 34% to income before taxes
are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Income tax computed at the
statutory federal rate $2,301,892 $1,169,334 $2,179,981
Add (subtract) tax effect of
miscellaneous items 196,036 45,841 82,438
---------- ---------- ----------
$2,497,928 $1,215,175 $2,262,419
========== ========== ==========
Effective tax rate 38.0% 35.3% 35.3%
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-20
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
NOTES TO FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 10 - INCOME TAXES (Continued)
The tax effects of principal temporary differences and the resulting deferred
tax assets and liabilities that comprise the net deferred tax balance are as
follows at June 30:
<TABLE>
<CAPTION>
1998 1997
------------- -----------
<S> <C> <C>
Items giving rise to deferred tax assets:
Deferred loan fees and costs $ 525,309 $ 472,088
Nonaccrual loan interest 32,097 58,441
Write down of marketable equity security - 51,680
Accrued retirement 137,037 160,542
Deferred compensation 68,104 26,319
Other 27,848 24,967
Items giving rise to deferred tax liabilities:
FHLB stock dividend (605,653) (596,775)
Franchise taxes (139,174) (124,272)
Depreciation (467,544) (467,544)
Bad debt (26,298) (469,712)
Unrealized gain on securities available for sale (821,379) (28,974)
Other (26,214) (30,561)
------------ ----------
Net deferred liability ($1,295,867) ($923,801)
============ ==========
</TABLE>
The Association has sufficient taxes paid in prior years and available for
recovery to warrant recording the full deferred tax asset without a valuation
allowance.
Retained earnings at June 30, 1998, include approximately $11,600,000 for which
no provision for federal income taxes has been made. This amount represents the
tax bad debt reserve at June 30, 1988, which is the end of the Association's
base year for purposes of calculating the bad debt deduction for tax purposes.
If this portion of retained earnings is used in the future for any purpose other
than to absorb bad debts, the amount used will be added to future taxable
income. The unrecorded deferred tax liability on the above amount at June 30,
1998 was approximately $3,900,000.
Tax expense (benefit) attributable to securities gains (losses) approximated
$46,000, ($318,000) and ($9,000) for the years ended June 30, 1998, 1997 and
1996.
- --------------------------------------------------------------------------------
(Continued)
F-21
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
NOTES TO FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 11 - EMPLOYEE BENEFIT PLANS
The Association sponsors a defined benefit pension plan that covers
substantially all employees. The plan calls for benefits to be paid to eligible
employees at retirement based primarily upon years of service with the
Association and compensation rates near retirement. Contributions to the plan
reflect benefits attributed to employees' services to date, as well as services
expected to be earned in the future. Plan assets consist primarily of
certificates of deposits with the Association and insurance contracts.
The following sets forth the funded status of the plan as of March 31, 1998 and
1997 and the amounts recognized in the accompanying Statements of Financial
Condition at June 30, 1998 and 1997.
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Present values using actuarial assumptions:
Accumulated benefit obligation, based on current
compensation:
Vested $ 2,044,689 $ 2,369,415
Non vested 80,459 49,936
----------- -----------
Total $ 2,125,148 $ 2,419,351
=========== ===========
Projected benefit obligation, using compensation
increase assumptions $ 3,943,041 $ 3,744,281
Plan assets at fair value 1,415,664 2,032,070
----------- -----------
Projected benefit obligation in excess of plan assets (2,527,377) (1,712,211)
Unrecognized obligation from accounting transition 158,537 105,120
Unrecognized net gain in assumptions or plan assets 1,619,661 904,860
----------- -----------
Recorded pension liability $ 749,179 $ 702,231
=========== ===========
</TABLE>
Pension expense and related year-end assumptions consist of the following:
<TABLE>
<CAPTION>
1998 1997 1996
-------- ----------- -----------
<S> <C> <C> <C>
Service cost--benefits earned $225,414 $ 230,080 $ 186,752
Interest cost on benefit obligation 224,829 232,512 202,334
Actual return on plan assets (34,891) (133,399) (119,357)
Net amortization and deferral (41,800) 21,779 2,042
-------- ----------- -----------
Pension expense $373,552 $ 350,972 $ 271,771
======== =========== ===========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-22
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
NOTES TO FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 11 - EMPLOYEE BENEFIT PLANS (Continued)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Weighted average discount rate 6.93% 6.93% 6.60%
Rate of increase in future compensation 5.00% 5.00% 5.00%
Expected long-term return on plan assets 7.00% 7.00% 7.00%
</TABLE>
The Association also sponsors a salary reduction profit sharing plan under
section 401(k) of the Internal Revenue Code. The plan covers substantially all
full-time employees. Contributions to the plan are based on the salary
reduction of the participants and a matching contribution at the discretion of
the Association. The expense related to this plan was $54,000, $58,000 and
$48,000 for the years ended June 30, 1998, 1997 and 1996.
NOTE 12 - COMMITMENTS AND FINANCIAL INSTRUMENTS WITH
OFF-BALANCE-SHEET RISK
The Association is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to make loans. The
Association's exposure to credit loss in case of nonperformance by the other
party to the financial instrument for commitments to make loans is represented
by the contractual amount of those instruments. The Association follows the
same credit policy to make such commitments as is followed for those loans
recorded in the financial statements.
As of June 30, 1998, variable rate commitments to make loans or fund outstanding
lines of credit amounted to approximately $1.9 million and fixed-rate
commitments amounted to $22.0 million. The interest rates on variable-rate
commitments ranged from 6.625% to 7.375% and interest rates on fixed-rate
commitments ranged from 6.625% to 8.5% at June 30, 1998. As of June 30, 1997,
commitments to extend credit totaled approximately $13.9 million. Since loan
commitments may expire without being used, the amounts do not necessarily
represent future cash commitments.
NOTE 13 - SAVINGS ASSOCIATION INSURANCE FUND RECAPITALIZATION
Included in federal deposit insurance premium expense in the Statement of Income
for the year ended June 30, 1997 is $2,461,000 for a special assessment
resulting from legislation passed and enacted into law on September 30, 1996 to
recapitalize the Savings Association Insurance Fund of the Federal Deposit
Insurance Corporation. Thrifts such as the Association paid a one-time
assessment in November, 1996 of $0.657 for each 100 in deposits as of March 31,
1995. Because of the recapitalization, the Association began paying lower
deposit insurance premiums in January, 1997.
- --------------------------------------------------------------------------------
(Continued)
F-23
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
NOTES TO FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 14 - REGULATORY CAPITAL
The Association is subject to regulatory capital requirements administered by
federal banking agencies. Capital adequacy guidelines and prompt corrective
action regulations involve quantitative measures of assets, liabilities, and
certain off-balance-sheet items calculated under regulatory accounting
practices. Capital amounts and classifications are also subject to qualitative
judgments by regulators about components, risk weightings, and other factors,
and the regulators can lower classifications in certain cases. Failure to meet
various capital requirements can initiate regulatory action that could have a
direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as is asset growth and
expansion, and plans for capital restoration are required. The minimum
requirements are:
<TABLE>
<CAPTION>
Capital to risk-
weighted assets
----------------- Tier 1 capital
Total Tier 1 to average assets
------- -------- ------------------
<S> <C> <C> <C>
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
</TABLE>
At June 30, 1998, management believes the Association complies with all
regulatory capital requirements. Based on the computed regulatory capital
ratios, the Association is considered well capitalized under the Federal Deposit
Insurance Act. No conditions or events have occurred after June 30, 1998 that
management believes have changed the Associations category.
- --------------------------------------------------------------------------------
(Continued)
F-24
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
NOTES TO FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 14 - REGULATORY CAPITAL (Continued)
At year end, actual capital levels (in millions) and minimum required levels
were:
<TABLE>
<CAPTION>
Minimum Required
To Be Well
Minimum Required Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Regulations
---------------- ------------------ --------------------
Amount Ratio Amount Ratio Amount Ratio
------- ------- --------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
1998
- ----
Total capital (to risk weighted assets) $60,418 21.8% $22,134 8.0% $27,667 10.0%
Tier 1 capital (to risk weighted assets) $57,763 20.9% $11,067 4.0% $16,600 6.0%
Tier 1 capital (to adjusted total assets) $57,763 9.5% $24,279 4.0% $30,349 5.0%
Tangible capital (to adjusted total assets) $57,763 9.5% $ 9,105 1.5% N/A
1997
- ----
Total capital (to risk weighted assets) $54,967 23.8% $18,434 8.0% $23,043 10.0%
Tier 1 capital (to risk weighted assets) $53,659 23.3% $ 9,217 4.0% $13,826 6.0%
Tier 1 capital (to adjusted total assets) $53,659 9.8% $21,905 4.0% $27,381 5.0%
Tangible capital (to adjusted total assets) $53,659 9.8% $ 8,214 1.5% N/A
</TABLE>
A reconciliation of GAAP capital at June 30, 1998 is as follows:
<TABLE>
<CAPTION>
Total Tier I Tangible
------- -------- --------
<S> <C> <C> <C>
GAAP Capital $59,357 $59,357 $59,357
Unrealized loss on securities available for sale (1,594) (1,594) (1,594)
Allowable allowance for loan losses 2,655
-------
$60,418 $57,763 $57,763
======= ======= =======
</TABLE>
NOTE 15 - FAIR VALUES OF FINANCIAL INSTRUMENTS
The following table shows the estimated fair value and the related carrying
value of the Associations financial instruments at June 30, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------------------------- --------------------------
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and cash equivalents $ 6,668,000 $ 6,668,000 $ 6,757,000 $ 6,757,000
Federal Funds sold 1,565,000 1,565,000 210,000 210,000
Securities available
for sale 211,185,000 211,185,000 202,677,000 202,677,000
Securities held to
maturity 28,295,000 28,519,000 44,875,000 44,798,000
Loans receivable, net 353,012,000 368,109,000 285,212,000 283,734,000
Accrued interest receivable 1,835,000 1,835,000 1,889,000 1,889,000
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-25
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
NOTES TO FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 15 - FAIR VALUES OF FINANCIAL INSTRUMENTS (Continued)
<TABLE>
<CAPTION>
LIABILITIES
<S> <C> <C> <C> <C>
Demand and savings deposits (175,493,000) (175,493,000) (165,725,000) (165,725,000)
Time deposits (259,969,000) (260,580,000) (247,175,000) (246,722,000)
Repurchase agreements (60,430,000) (60,888,000) (16,000,000) (16,000,000)
FHLB advances (44,820,000) (44,774,000) (58,398,000) (58,288,000)
Advances by borrowers
for taxes and insurance (1,983,000) (1,983,000) (1,701,000) (1,701,000)
Accrued interest payable (1,090,000) (1,090,000) (704,000) (704,000)
</TABLE>
For purposes of the above disclosures of estimated fair value, the following
assumptions were used. The estimated fair value for cash and cash equivalents
and federal funds sold is considered to approximate cost. The estimated fair
value of investment and mortgage-backed securities is based on quoted market
values for the individual securities or for equivalent securities. Carrying
value is considered to approximate fair value for loans that contractually
reprice at intervals of six months or less, for short-term borrowings, for
deposit liabilities subject to immediate withdrawal and accrued interest. The
fair values of fixed rate loans, loans that reprice less frequently than each
six months, time deposits and Federal Home Loan Bank borrowings have been
approximated by a discount rate value technique utilizing estimated market
interest rates as of June 30, 1998 and 1997. The fair values of unrecorded
commitments at June 30, 1998 and 1997 are not material.
While these estimates of fair value are based on management's judgment of the
most appropriate factors, there is no assurance that were the Association to
have disposed of such items at June 30, 1998 and 1997, the estimated fair values
would necessarily have been achieved at these dates, since market values may
differ depending on various circumstances. The estimated fair values at June
30, 1998 and 1997 should not necessarily be considered to apply at subsequent
dates.
Other assets and liabilities of the Association may have value but are not
included in the above disclosures, such as property and equipment. In addition,
nonfinancial instruments typically not recognized in these financial statements
nevertheless may have value, but are not included in the above disclosures.
These include, among other items, the estimated earnings power of core deposit
accounts, the earnings potential of loan servicing rights, the value of a
trained work force, customer goodwill, and similar items.
- --------------------------------------------------------------------------------
(Continued)
F-26
<PAGE>
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
NOTES TO FINANCIAL STATEMENTS
June 30, 1998, 1997 and 1996
- --------------------------------------------------------------------------------
NOTE 16 - ADOPTION OF PLAN OF CONVERSION
On June 15, 1998, the Board of Directors of the Association, subject to
regulatory approval and approval by the members of the Association, unanimously
adopted a Plan of Conversion from a federally chartered mutual savings and loan
association to a federally chartered stock savings and loan association with the
concurrent formation of a holding company. The Holding Company will acquire 100
percent of the Association's common stock. The conversion is expected to be
accomplished through amendment of the Association's charter and the sale of the
Holding Company's common stock in an amount equal to the pro forma market value
of the Association after giving effect to the conversion. A subscription
offering of the shares of the Holding Company's common stock will be offered to
the Association's depositors, then to an employee stock benefit plan and then to
other members. Any shares of the Holding Company's common stock not sold in the
subscription offering may be offered for sale to the general public.
In connection with the Association's Plan of Conversion, the Association
intends to establish a charitable foundation. The foundation will be funded
concurrent with the sale of Common Stock sold in the Conversion through a
contribution of the Company stock.
At the time of the conversion, the Association will establish a liquidation
account in the amount equal to its regulatory capital as of the latest
practicable date before the conversion at which such regulatory capital can be
determined. The liquidation account will be maintained for the benefit of
eligible depositors who continue to maintain their accounts at the Association
after the conversion. The liquidation account will be reduced annually to the
extent that eligible depositors have reduced their qualifying deposits.
Subsequent increases will not restore an eligible account holder's interest in
the liquidation account. In the event of a complete liquidation, each eligible
depositor will be entitled to receive a distribution from the liquidation
account in an amount proportionate to the current adjusted qualifying balances
for accounts then held. The Association may not pay dividends that would reduce
stockholders' equity below the required liquidation account balance.
Under Office of Thrift Supervision (OTS) regulations, limitations have been
imposed on all "capital distributions" by savings institutions, including cash
dividends. The regulation establishes a three-tiered system of restrictions,
with the greatest flexibility afforded to thrifts that are both well capitalized
and given favorable qualitative examination ratings by the OTS.
Conversion costs will be deferred and deducted from the proceeds of the shares
sold in the conversion. If the conversion is not completed, all costs will be
charged to expense. At June 30, 1998, no costs have been deferred or expensed.
- --------------------------------------------------------------------------------
F-27
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by First Place Financial Corp., First Federal Savings and Loan
Association of Warren or Charles Webb & Company. This Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy any of the
securities offered hereby to any person in any jurisdiction in which such offer
or solicitation is not authorized or in which the person making such offer or
solicitation is not qualified to do so, or to any person to whom it is unlawful
to make such offer or solicitation in such jurisdiction. Neither the delivery of
this Prospectus nor any sale hereunder shall under any circumstances create any
implication that there has been no change in the affairs of First Place
Financial Corp. or First Federal Savings and Loan Association of Warren since
any of the dates as of which information is furnished herein or since the date
hereof.
-------------------------
TABLE OF CONTENTS
Page
----
Summary.....................................................................
Selected Consolidated Financial and Other Data of the Association...........
Risk Factors................................................................
First Place Financial Corp..................................................
First Federal Savings and Loan Association of Warren........................
Regulatory Capital Compliance...............................................
Use of Proceeds.............................................................
Dividend Policy.............................................................
Market for the Common Stock Capitalization..................................
Pro Forma Data..............................................................
Comparison of Valuation and Pro Forma Information with No Foundation........
Consolidated Statements of Income...........................................
Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................
Business of the Company.....................................................
Business of the Association ................................................
Federal and State Taxation..................................................
Regulation..................................................................
Management of the Company...................................................
Management of the Association...............................................
The Conversion..............................................................
Restrictions on Acquisition of the Company and the Association..............
Description of Capital Stock of the Company.................................
Description of Capital Stock of the Association.............................
Transfer Agent and Registrar................................................
Change in Accountants.......................................................
Experts.....................................................................
Legal and Tax Opinions......................................................
Additional Information......................................................
Index to Financial Statements...............................................
-------------------------
Until ____, 1998 or 25 days after commencement of the Syndicated Community
Offering, if any, whichever is later, all dealers effecting transactions in the
registered securities, may be required to deliver a Prospectus. This is in
addition to the obligation of dealers to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
================================================================================
================================================================================
9,077,065 Shares
[LOGO]
FIRST PLACE FINANCIAL CORP.
(Proposed Holding Company for
First Federal Savings and Loan Association of Warren)
COMMON STOCK
(par value $0.01 per share)
----------
PROSPECTUS
----------
Charles Webb & Company
A Division of Keefe, Bruyette & Woods, Inc.
_________ __, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.(1)
<TABLE>
<CAPTION>
<S> <C>
OTS filing fee................................... $ 14,400
SEC filing fee(1)................................ 43,696
NASD filing fee(1)............................... 14,254
Nasdaq listing fee(2)............................ 81,625
Printing, postage and mailing.................... 250,000
Legal fees and expenses.......................... 450,000
Accounting fees and expenses..................... 100,000
Appraiser's fees and expenses (including
business plan)................................. 33,000
Marketing fees and selling commissions (2)....... 983,000
Underwriter's expenses (including underwriter's
counsel fees)(1).............................. 15,000
Proxy solicitation and record management
fees and expenses............................. 30,000
Transfer agent fees and expenses................. 10,000
Certificate printing............................. 10,000
Telephone, temporary help and other
equipment...................................... 10,000
Miscellaneous.................................... 5,025
----------
TOTAL............................................ $2,050,000
==========
</TABLE>
____________________
(1) Fees based upon the registration of 14,812,000 shares at $10.00
per share.
(2) Based upon the registration of 11,241,250 shares at $10.00 per share. All
other expenses are estimated.
Item 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with the General Corporation Law of the State of Delaware (being
Chapter 1 of Title 8 of the Delaware Code), Articles 10 and 11 of the
Registrant's Certificate of Incorporation provide as follows:
TENTH:
A. Each person who was or is made a party or is threatened to be made a party
to or is otherwise involved in any action, suit or proceeding, whether civil,
criminal, administrative or investigative (hereinafter a "proceeding"), by
reason of the fact that he or she is or was a Director or an Officer of the
Corporation or is or was serving at the request of the Corporation as a
Director, Officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to an
employee benefit plan (hereinafter an "indemnitee"), whether the basis of such
proceeding is alleged action in an official capacity as a Director, Officer,
employee or agent, or in any other capacity while serving as a Director,
Officer, employee or agent, shall be indemnified and held harmless by the
Corporation to the fullest extent authorized by the Delaware General Corporation
Law, as the same exists or may hereafter be amended (but, in the case of any
such amendment, only to the extent that such amendment permits the Corporation
to provide broader indemnification rights than such law permitted the
Corporation to provide prior to such amendment), against all expense, liability
and loss (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid in settlement) reasonably incurred or suffered by
such indemnitee in connection therewith; provided, however, that, except as
provided in Section C hereof with respect to proceedings to enforce rights to
<PAGE>
indemnification, the Corporation shall indemnify any such indemnitee in
connection with a proceeding against the Corporation (or part thereof) initiated
by such indemnitee only if such proceeding (or part thereof) was authorized by
the Board of Directors of the Corporation.
B. The right to indemnification conferred in Section A of this Article TENTH
shall include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition (hereinafter
an "advancement of expenses"); provided, however, that, if the Delaware General
Corporation Law requires, an advancement of expenses incurred by an indemnitee
in his or her capacity as a Director or Officer (and not in any other capacity
in which service was or is rendered by such indemnitee, including, without
limitation, services to an employee benefit plan) shall be made only upon
delivery to the Corporation of an undertaking (hereinafter an "undertaking"), by
or on behalf of such indemnitee, to repay all amounts so advanced if it shall
ultimately be determined by final judicial decision from which there is no
further right to appeal (hereinafter a "final adjudication") that such
indemnitee is not entitled to be indemnified for such expenses under this
Section or otherwise. The rights to indemnification and to the advancement of
expenses conferred in Sections A and B of this Article TENTH shall be contract
rights and such rights shall continue as to an indemnitee who has ceased to be a
Director, Officer, employee or agent and shall inure to the benefit of the
indemnitee's heirs, executors and administrators.
C. If a claim under Section A or B of this Article TENTH is not paid in full by
the Corporation within sixty days after a written claim has been received by the
Corporation, except in the case of a claim for an advancement of expenses, in
which case the applicable period shall be twenty days, the indemnitee may at any
time thereafter bring suit against the Corporation to recover the unpaid amount
of the claim. If successful in whole or in part in any such suit, or in a suit
brought by the Corporation to recover an advancement of expenses pursuant to the
terms of an undertaking, the indemnitee shall be entitled to be paid also the
expenses of prosecuting or defending such suit. In (i) any suit brought by the
indemnitee to enforce a right to indemnification hereunder (but not in a suit
brought by the indemnitee to enforce a right to an advancement of expenses) it
shall be a defense that, and (ii) in any suit by the Corporation to recover an
advancement of expenses the Corporation shall be entitled to recover such
expenses upon a final adjudication that, the indemnitee has not met any
applicable standard for indemnification set forth in the Delaware General
Corporation Law. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such suit that indemnification of the
indemnitee is proper in the circumstances because the indemnitee has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the indemnitee
has not met such applicable standard of conduct, shall create a presumption that
the indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses under this Article TENTH or otherwise shall be on the
Corporation.
D. The rights to indemnification and to the advancement of expenses conferred
in this Article TENTH shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, the Corporation's Certificate
of Incorporation, Bylaws, agreement, vote of stockholders or Disinterested
Directors or otherwise.
E. The Corporation may maintain insurance, at its expense, to protect itself
and any Director, Officer, employee or agent of the Corporation or subsidiary or
Affiliate or another corporation, partnership, joint venture, trust or other
enterprise against any expense, liability or loss, whether or not the
Corporation would have the power to indemnify such person against such expense,
liability or loss under the Delaware General Corporation Law.
F. The Corporation may, to the extent authorized from time to time by the Board
of Directors, grant rights to indemnification and to the advancement of expenses
to any employee or agent of the Corporation to the fullest extent of the
provisions of this Article TENTH with respect to the indemnification and
advancement of expenses of Directors and Officers of the Corporation.
<PAGE>
ELEVENTH:
- ---------
A Director of this Corporation shall not be personally liable to the Corporation
or its stockholders for monetary damages for breach of fiduciary duty as a
Director, except for liability: (i) for any breach of the Director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv)
for any transaction from which the Director derived an improper personal
benefit. If the Delaware General Corporation Law is amended to authorize
corporate action further eliminating or limiting the personal liability of
Directors, then the liability of a Director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Any repeal or modification of the foregoing paragraph by the stockholders of the
Corporation shall not adversely affect any right or protection of a Director of
the Corporation existing at the time of such repeal or modification.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
<PAGE>
Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits and financial statement schedules filed as a part of this
Registration Statement are as follows:
(a) List of Exhibits (Filed herewith unless otherwise noted)
1.1 Engagement Letter between First Federal Savings and Loan Association of
Warren and Charles Webb & Company*
1.2 Draft Form of Agency Agreement
2.1 Plan of Conversion (including the Federal Stock Charter and Bylaws of
First Federal Savings and Loan Association of Warren)*
3.1 Certificate of Incorporation of First Place Financial Corp.*
3.2 Bylaws of First Place Financial Corp.*
3.3 Federal Stock Charter and Bylaws of First Federal Savings and Loan
Association of Warren (See Exhibit 2.1 hereto)*
4.0 Draft Stock Certificate of First Place Financial Corp.*
5.0 Opinion of Patton Boggs LLP re: legality+
5.1 Opinion of Potter Anderson & Corroon LLP re: legality+
8.0 Opinion of Patton Boggs LLP re: Federal Tax Matters
8.1 Opinion of Crowe, Chizek and Company LLP re: State Tax Matters*
10.1 First Federal Savings and Loan Association of Warren Employee Stock
Ownership Plan*
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.3 Form of Employment Agreement between First Federal Savings and Loan
Association of Warren and Steven R. Lewis
10.4 Form of Employment Agreement between First Place Financial Corp. and
Steven R. Lewis
10.5 Form of Change in Control Agreements between First Federal Savings and
Loan Association of Warren and certain executive officers
10.6 Form of Change in Control Agreements between First Place Financial Corp.
and certain executive officers
10.7 Form of First Federal Savings and Loan Association of Warren Employee
Severance Compensation Plan*
16.1 Letter of Packer, Thomas & Co. re: change in accountants*
23.1 Consent of Crowe, Chizek and Company LLP
23.2 Consent of Packer, Thomas & Co.
23.3 Consent of Patton Boggs LLP*
23.4 Consent of Potter Anderson & Corroon LLP*
23.5 Consent and Subscription Rights Opinion of Keller & Company, Inc.*
24.1 Powers of Attorney*
27.0 Financial Data Schedule*
99.1 Appraisal Report of Keller & Company, Inc. (P)*
99.1(a) Updated Appraisal Report of Keller & Company, Inc. (P)
99.2 Draft Gift Instrument to First Federal of Warren Community Foundation
- --------------------------------------------------------------------------------
*Previously filed.
+To be filed by amendment.
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
(b) Financial Statement Schedules
All schedules have been omitted as not applicable or not required under the
rules of Regulation S-X.
Item 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. 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) To include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new Registration Statement relating to the securities
offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the Offering.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to trustees, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a trustee, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
trustee, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
<PAGE>
CONFORMED
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Warren, State of Ohio, on
November 3, 1998.
FIRST PLACE FINANCIAL CORP.
By: /s/ Steven R. Lewis
--------------------------------------
Steven R. Lewis
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Date
---- ----
<S> <C>
* November 3, 1998
- --------------------------------------------
Paul A. Watson
Chairman of the Board
/s/ Steven R. Lewis November 3, 1998
- --------------------------------------------
Steven R. Lewis
President, Chief Executive Officer and
Director (principal executive officer)
/s/ Richard K. Smith November 3, 1998
- --------------------------------------------
Richard K. Smith
Vice President-Treasurer
(principal accounting and financial officer)
* November 3, 1998
- --------------------------------------------
Robert P. Grace
Director
* November 3, 1998
- --------------------------------------------
George J. Gentithes
Director
* November 3, 1998
- --------------------------------------------
Thomas M. Humphries
Director
* November 3, 1998
- --------------------------------------------
Robert S. McGeough
Director
</TABLE>
<PAGE>
<TABLE>
<S> <C>
* November 3, 1998
- --------------------------------------------
E. Jeffrey Rossi
Director
* November 3, 1998
- --------------------------------------------
William W. Watson
Director
</TABLE>
- ------------------------
* Signed pursuant to a power of attorney filed with the Commission as
Exhibit 24.1 on September 9, 1998.
<PAGE>
As filed with the Securities and Exchange Commission on November 3, 1998
Registration No. 33-63099
_______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
EXHIBITS
TO PRE-EFFECTIVE AMENDMENT
NO. 1 TO THE
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------------
FIRST PLACE FINANCIAL CORP.
(Exact name of registrant as specified in its certificate of incorporation)
_______________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
List of Exhibits (Filed herewith unless otherwise noted)
<TABLE>
<S> <C>
1.1 Engagement Letter between First Federal Savings and Loan Association of
Warren and Charles Webb & Company*
1.2 Draft Form of Agency Agreement
2.1 Plan of Conversion (including the Federal Stock Charter and Bylaws of
First Federal Savings and Loan Association of Warren)*
3.1 Certificate of Incorporation of First Place Financial Corp.*
3.2 Bylaws of First Place Financial Corp.*
3.3 Federal Stock Charter and Bylaws of First Federal Savings and Loan
Association of Warren (See Exhibit 2.1 hereto)*
4.0 Draft Stock Certificate of First Place Financial Corp.*
5.0 Opinion of Patton Boggs LLP re: legality+
5.1 Opinion of Potter Anderson & Corroon LLP re: legality+
8.0 Opinion of Patton Boggs LLP re: Federal Tax Matters
8.1 Opinion of Crowe, Chizek and Company LLP re: State Tax Matters*
10.1 First Federal Savings and Loan Association of Warren Employee Stock
Ownership Plan*
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.3 Form of Employment Agreement between First Federal Savings and Loan
Association of Warren and Steven R. Lewis
10.4 Form of Employment Agreement between First Place Financial Corp. and
Steven R. Lewis
10.5 Form of Change in Control Agreements between First Federal Savings and
Loan Association of Warren and certain executive officers
10.6 Form of Change in Control Agreements between First Place Financial
Corp. and certain executive officers
10.7 Form of First Federal Savings and Loan Association of Warren Employee
Severance Compensation Plan*
16.1 Letter of Packer, Thomas & Co. re: change in accountants*
23.1 Consent of Crowe, Chizek and Company LLP
23.2 Consent of Packer, Thomas & Co.
23.3 Consent of Patton Boggs LLP*
23.4 Consent of Potter Anderson & Corroon LLP*
23.5 Consent and Subscription Rights Opinion of Keller & Company, Inc.*
24.1 Powers of Attorney*
27.0 Financial Data Schedule*
99.1 Appraisal Report of Keller & Company, Inc. (P)*
99.1(a) Updated Appraisal Report of Keller & Company, Inc. (P)
99.2 Draft Gift Instrument to First Federal of Warren Community Foundation
</TABLE>
- --------------------------------------------------------------------------------
* Previously filed.
+ To be filed by amendment.
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
EXHIBIT 1.2 DRAFT FORM OF AGENCY AGREEMENT
<PAGE>
Exhibit 1.2
FIRST PLACE FINANCIAL CORP.
Up to 13,754,000 Shares
COMMON STOCK
($0.01 Par Value)
Subscription Price $10.00 Per Share
FORM OF
-------
AGENCY AGREEMENT
----------------
November __, 1998
Charles Webb & Company,
a division of Keefe, Bruyette & Woods, Inc.
211 Bradenton Drive
Dublin, Ohio 43017-5034
Ladies and Gentlemen:
First Place Financial Corp., a Delaware corporation (the "Company") and
First Federal Savings and Loan Association of Warren, a federally chartered
mutual savings and loan association (the "Association," which shall include all
references to the Association in the mutual or stock form, as indicated by the
context), with its deposit accounts insured by the Savings Association Insurance
Fund ("SAIF") administered by the Federal Deposit Insurance Corporation
("FDIC"), hereby confirm their agreement with Charles Webb & Company, a division
of Keefe, Bruyette & Woods, Inc. ("Webb") as follows:
SECTION 1. THE OFFERING. The Association, in accordance with its plan of
------------
conversion, adopted by its Board of Directors of the Association (the "Plan"),
intends to convert from a federally chartered mutual savings and loan
association to a federally chartered stock savings and loan association, and to
issue all of its issued and outstanding capital stock to the Company. In
addition, pursuant to the Plan, the Company will offer and sell up to 13,754,000
shares of its common stock, par value $0.01 per share (the "Shares" or "Common
Stock"), in a subscription offering (the "Subscription Offering") to (1)
depositors of the Association with savings accounts of $100 or more as of March
31, 1997 ("Eligible Account Holders"), (2) the Company's and Association's
Employee Stock Ownership Plan ("ESOP"), (3) depositors of the Association with
savings accounts of $100 or more as of September 30, 1998 ("Supplemental
Eligible Account Holders") and (4) other members (borrowers and depositors) of
the Association as of the Voting Record Date, _______ __, 1998 ("Other
Members"). Subject to the prior subscription rights of the above-listed
parties, the Company is offering for sale in a direct community offering (the
"Community Offering" and, when
<PAGE>
referred to together with the Subscription Offering, the "Subscription and
Community Offering") conducted concurrently with the Subscription Offering, the
Shares not so subscribed for or ordered in the Subscription Offering to certain
members of the general public to whom a copy of the Prospectus (as hereinafter
defined) is delivered, with a preference given to natural persons who are
residents of Trumbull and Mahoning Counties of Ohio (the "Local Community")
("Preferred Subscribers") (all such offerees being referred to in the aggregate
as "Eligible Offerees"). It is anticipated that shares not subscribed for in the
Subscription and Community Offering will be offered to members of the general
public on a best efforts basis by a selling group of broker-dealers managed by
Webb (the "Syndicated Community Offering") (the Subscription Offering, Community
Offering and Syndicated Community Offering are collectively referred to as the
"Offering"). It is acknowledged that the purchase of Shares in the Offering is
subject to the maximum and minimum purchase limitations as described in the Plan
and that the Company and the Association may reject, in whole or in part, any
orders received in the Community Offering or Syndicated Community Offering.
Collectively, these transactions are referred to herein as the "Conversion."
In connection with the Conversion and pursuant to the terms of the Plan as
described in the Prospectus, immediately following the consummation of the
Conversion, subject to the approval of the members of the Association and
compliance with certain conditions as may be imposed by regulatory authorities,
the Company will contribute newly issued Common Stock equal to 7.7% of such
Shares sold in the Conversion to the First Federal of Warren Community
Foundation (the "Foundation") such shares hereinafter being referred to as the
("Foundation Shares").
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (File No. 333-_______) (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 thereof, if any, and such amended
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 became 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.
In accordance with the Part 563b of the Regulations Applicable to All
Savings Associations (the "Conversion Regulations"), the Association has filed
with the Office of Thrift Supervision (the "OTS") an Application for Conversion
on Form AC (the "Conversion Application"), including the prospectus, and has
filed such amendments thereto, if any, as may have been required by the OTS.
The Conversion Application has been approved by the OTS and the related
Prospectus has been authorized for use by the OTS. In addition, the Company has
filed with the OTS an application to become a savings and loan holding company
and for approval to acquire the Association.
2
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SECTION 2. RETENTION OF WEBB; COMPENSATION; SALE AND DELIVERY OF THE
---------------------------------------------------------
SHARES. Subject to the terms and conditions herein set forth, the Company and
- ------
the Association hereby appoint Webb (i) as their exclusive financial advisory
and marketing agent to utilize its best efforts to solicit subscriptions for
Shares of the Common Stock and to advise and assist the Company and the
Association with respect to the Company's sale of the Shares in the Offering and
(ii) to participate in the Offering in the areas of market making, research
coverage and syndicate formation (if necessary).
On the basis of the representations, warranties, and agreements herein
contained, but subject to the terms and conditions herein set forth, Webb
accepts such appointment and agrees to consult with and advise the Company and
the Association as to the matters set forth in the letter agreement ("Letter
Agreement"), dated March 23, 1998, between the Association and Webb (a copy of
which is attached hereto as Exhibit A). It is acknowledged by the Company and
the Association that Webb shall not be required to purchase any Shares and shall
not be obligated to take any action which is inconsistent with all applicable
laws, regulations, decisions or orders. In the event of a Syndicated Community
Offering, Webb will assemble and manage a selling group of 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 ("Selected Dealers' Agreement"), the form of which
is set forth as Exhibit B to this Agreement.
The obligations of Webb pursuant to this Agreement shall terminate upon the
completion or termination or abandonment of the Plan by the Company or upon
termination of the Offering, but in no event later than March 31, 1999 (the "End
Date"). All fees or expenses due to Webb but unpaid will be payable to Webb 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 Association and Webb may agree to renew this Agreement under
mutually acceptable terms.
In the event the Company is unable to sell a minimum of 8,840,000 Shares
(or such lesser amount approved by the OTS) within the period herein provided,
this Agreement shall terminate and the Company shall refund to any persons who
have subscribed for any of the Shares, the full amount which it may have
received from them 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 otherwise set forth in this Section 2 and in
Sections 6, 8 and 9 hereof.
In the event the Offering is terminated for any reason not attributable to
the action or inaction of Webb, Webb shall be paid the fees and expenses due to
the date of such termination pursuant to subparagraphs (a) and (d) below.
If all conditions precedent to the consummation of the Conversion,
including, without limitation, the sale of all Shares required by the Plan to be
sold, are satisfied, the Company agrees to issue, or have issued, the Shares
sold in the Offering and to 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, provided however, that no funds shall be released
to the Company
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until the conditions specified in Section 7 hereof shall have been complied with
to the reasonable satisfaction of Webb and its counsel. The release of Shares
against payment therefor shall be made at 10:00 a.m., Eastern Time, on a date
and at a place acceptable to the Company, the Association and Webb or such other
time or place as shall be agreed upon by the Company, the Association and Webb.
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, or have released or delivered, the Shares sold in the Offering, in
accordance with the terms herein, is called the "Closing Date."
Webb shall receive the following compensation for their services hereunder:
(a) A management fee to Webb in the amount of $25,000 payable in four
consecutive [MONTHLY] installments of $10,000 commencing on March 23, 1998. As
of the date of this Agreement, $_______ had been received by Webb.
(b) A success fee of 1.25% of the dollar amount of Common Stock sold in the
Subscription and Community Offering, excluding Common Stock purchased by
directors, officers and employees (and members of their immediate families) of
the Association and by the ESOP and any tax-qualified or stock-based
compensation plan and any similar plan created by the Association for some or
all of its directors or employees, payable on the Closing Date. [THE MANAGEMENT
FEE OF $25,000 REFERRED TO IN SUBPARAGRAPH (A) ABOVE WILL BE APPLIED AGAINST THE
SUCCESS FEE].
(c) If any shares of the Company's stock remain available after the
Subscription and Community Offering, at the request of the Association, Webb
will seek to form a syndicate of registered broker-dealers to assist in the sale
of such shares of Common Stock on a best efforts basis, subject to the terms and
conditions set forth in the selected dealers agreement. Webb will endeavor to
distribute the Common Stock among dealers in a fashion which best meets the
distribution objectives of the Association and the Plan of Conversion. Webb
will be paid a fee not to exceed 5.5% of the aggregate Purchase Price of the
shares of Common Stock sold pursuant to the selected dealers agreement and then
will pass on to selected broker-dealers who assist in the syndicated community
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. Fees with respect to purchases affected with the assistance
of a broker/dealer shall be transmitted by Webb to such broker/dealer. The
decision to utilize selected broker-dealers will be made by the Association upon
consultation with Webb. In the event, with respect to any stock purchases, fees
are paid pursuant to this subparagraph 2(c), such fees shall be in lieu of, and
not in addition to, payment pursuant to subparagraph 2(b).
(d) The Association and the Company hereby agree to reimburse Webb, from
time to time upon Webb's request, for its reasonable out-of-pocket expenses and
the reasonable fees and expenses of its counsel (such fees of counsel will not
be incurred without the prior approval of the Association). Webb's reasonable
out-of-pocket expenses shall not exceed $15,000 and the fees and expenses of
counsel shall no exceed $________. The Association will bear the expenses of
the Offering customarily borne by issuers including, without limitation, OTS,
SEC, "Blue Sky," and
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NASD filing and registration fees; the fees of the Association's accountants,
conversion agent, attorneys, appraiser, transfer agent and registrar, printing,
mailing and marketing expenses associated with the Conversion; and the fees set
forth under this Section 2.
Full payment of Webb's actual and accountable expenses, advisory fees and
compensation shall be made in next day funds on the earlier of the Closing Date
or a determination by the Association to terminate or abandon the Plan.
Webb will provide financial advisory assistance for a period of one year
following completion of the Conversion as set forth in the Letter Agreement.
Following this initial one-year term, if Webb and the Company wish to continue
the relationship, a fee will be negotiated and an agreement entered into at that
time.
Section 3. PROSPECTUS: OFFERING. The Shares are to be initially offered
--------------------
in the Offering at the Purchase Price as defined and set forth on the cover page
of the Prospectus.
SECTION 4. REPRESENTATIONS AND WARRANTIES. The Company and the
------------------------------
Association jointly and severally represent and warrant to Webb on the date
hereof as follows:
(a) The Registration Statement was declared effective by the Commission on
November __, 1998. At the time the Registration Statement, including the
Prospectus contained therein (including any amendment or supplement thereto),
became effective, the Registration Statement complied 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 (including
any amendment or supplement thereto), and any information regarding the Company
or the Association contained in Sales Information (as such term is defined in
Section 8 hereof) authorized by the Company or the Association 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; provided, however, that the representations and
warranties in this Section 4(a) shall not apply to statements or omissions made
in reliance upon and in conformity with written information furnished to the
Company or the Association by Webb expressly regarding Webb for use in the
Prospectus under the captions "The Conversion-Marketing and Underwriting
Arrangements" or statements in or omissions from any Sales Information (as
defined below) or information filed pursuant to state securities or blue sky
laws or regulations regarding Webb.
(b) The Conversion Application which was prepared by the Company and the
Association and filed with the OTS was approved by the OTS on November __, 1998,
including the waiver of certain provisions of the Conversion Regulations
specified in such approval with respect to the establishment of and contribution
to the Foundation, and the related Prospectus has been authorized for use by the
OTS. At the time of the approval of the Conversion Application, including the
Prospectus (including any amendment or supplement thereto), by the OTS and at
all times
5
<PAGE>
subsequent thereto until the Closing Date, the Conversion Application, including
any amendment or supplement thereto), does not include 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 4(b) shall not apply to
statements or omissions made in reliance upon and in conformity with written
information furnished to the Company or the Association by the Agent or its
counsel expressly regarding the Agent for use in the Prospectus contained in the
Conversion Application under the caption "The Conversion-Marketing and
Underwriting Arrangements" or statements in or omissions from any sales
information or information filed pursuant to state securities or blue sky laws
or regulations regarding the Agent. The Holding Company Application for approval
pursuant to the HOLA and the regulations promulgated thereunder (the "Control
Act Regulations"), has been prepared by the Association and the Company in
material conformity with the requirements of the Control Act Regulations and has
been filed with the OTS. A conformed copy of the Holding Company Application has
been delivered to the Agent.
(c) The Company has filed with the OTS an Application H-(e)1-S (the
"Holding Company Application") under the Home Owners' Loan Act, as amended, (the
"HOLA") and the regulations promulgated thereunder.
(d) No order has been issued by the Commission, the FDIC or the OTS
preventing or suspending the use of the Prospectus and no action by or before
any such government entity to revoke any approval, authorization or order of
effectiveness related to the Conversion is, to the best knowledge of the Company
or the Association, pending or threatened.
(e) At the Closing Date, the Plan will have been adopted by the Boards of
Directors of the Company and the Association and approved by the members of the
Association, and the offer and sale of the Shares and all actions in connection
with the contribution to the Foundation will have been conducted in all material
respects in accordance with the Plan, the Conversion Regulations, and all other
applicable laws, regulations, decisions and orders, including all terms,
condition, requirements and provisions precedent to the Conversion imposed upon
the Company or the Association by the OTS, the Commission, or any other
regulatory authority and in the manner described in the Prospectus. Upon
completion of the sale by the Company of the Shares contemplated by the
Prospectus, (i) the Association will be converted pursuant to the Plan to a
federally chartered stock savings and loan association, (ii) all of the issued
and outstanding capital stock of the Association will be owned by the Company,
and (iii) the Company will have no direct subsidiaries other than the
Association. The Conversion will have been effected in all material respects in
accordance with all applicable statutes, regulations, decisions and orders; and
upon consummation of the Conversion, the liquidation account for the benefit of
Eligible Account Holders will be duly established in accordance with the
requirements of the Conversion Regulations.
6
<PAGE>
No person has sought to obtain review of the final action of the OTS in
approving the Plan or in approving the Conversion or the Holding Company
Application pursuant to the Conversion Regulations, the HOLA, or any other
applicable statute or regulation.
(f) At the time of their use, the Proxy Statement and any other proxy
solicitation materials will comply in all material respects with the applicable
provisions of the Conversion Regulations and will not contain an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in the light of the circumstances under which
they were made, not misleading. The Company and the Association will promptly
file the Prospectus and any supplemental sales literature with the OTS. The
Prospectus and all supplemental sales literature, as of the date the
Registration Statement became effective and at the Closing Date referred to in
Section 2, complied and will comply in all material respects with the applicable
requirements of the Conversion Regulations and, at or prior to the time of
their first use, will have received all required authorizations of the OTS for
use in final form.
(g) The Association has been duly organized and is a validly existing
federally chartered savings and loan association in the mutual form of
organization and upon consummation of the Conversion will become a duly
organized and validly existing federally chartered savings and loan association
in the capital stock form of organization, in both instances duly authorized to
conduct its business and own its property as described in the Registration
Statement and the Prospectus; the Association has obtained all material
licenses, permits and other governmental authorizations currently required for
the conduct of its business; all such licenses, permits and governmental
authorizations are in full force and effect, and the Association is in all
material respects complying with all laws, rules, regulations and orders
applicable to the operation of its business; the Association is duly qualified
as a foreign corporation to transact business and is in good standing in each
jurisdiction in which its ownership of property or leasing of property or the
conduct of its business requires such qualification, unless the failure to be so
qualified in one or more of such jurisdictions would not have a material adverse
effect on the financial condition, or the business, operations or income of the
Association. The Association does not own equity securities or any equity
interest in any other business enterprise except as described in the Prospectus
or as would not be material to the operations of the Association.
(h) 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, and the Company is qualified to do business as a foreign corporation
in each jurisdiction in which the conduct of its business requires such
qualification, except where the failure to so qualify would not have a material
adverse effect on the financial condition, or the business, operations or income
of the Company. The Company has obtained all material licenses, permits and
other governmental authorizations currently required for the conduct of its
business; all such licenses, permits and governmental authorizations are in full
force and effect, and the Company is in all material respects complying with all
laws, rules, regulations and orders applicable to the operation of its business.
7
<PAGE>
(i) The Association has no active subsidiaries.
(j) The Association is a member of the Federal Home Loan Association of
Cincinnati ("FHLB-Cincinnati"). The deposit accounts of the Association are
insured by the FDIC up to the applicable limits; and no proceedings for the
termination or revocation of such insurance are pending or, to the best
knowledge of the Association, threatened.
(k) The Company and the Association have good and marketable title to all
real property and other assets material to the business of the Company and the
Association and to those properties and assets described in the Registration
Statement and the Prospectus as owned by them, free and clear of all liens,
charges, encumbrances or restrictions, except such as are described in the
Registration Statement and the Prospectus or are not material to the business of
the Company and the Association, taken as a whole; and all of the leases and
subleases material to the business of the Company and the Association under
which the Company or the Association hold properties, including those described
in the Registration Statement and Prospectus, are valid and binding agreements
of the Company or the Association, enforceable in accordance with their terms,
subject, as to enforceability, to Bankruptcy, insolvency, reorganization,
moratorium and other laws of general applicability relating to or affecting
creditors' rights, and to general principles of equity.
(l) The Company and the Association have all such power, authority,
authorizations, approvals and orders as may be required to enter into this
Agreement, to carry out the provisions and conditions hereof and to issue and
sell (i) the capital stock of the Association to the Company and (ii) the Shares
to be sold by the Company as provided herein and as described in the Prospectus
and to issue and contribute the Foundation Shares, as provided herein and as
described in the Prospectus except approval or confirmation by the OTS of the
final appraisal of the Association. 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 Company and the Association
and this Agreement has been validly executed and delivered by the Company and
the Association and is valid, legal and binding agreement of the Company and the
Association enforceable in accordance with its terms (except as the
enforceability thereof may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws relating to or affecting the enforcement of
creditors' rights generally or the rights of creditors of savings and loan
holding companies, the accounts of whose subsidiaries are insured by the FDIC or
by general equity principles regardless of whether such enforceability is
considered in proceeding in equity or at law, and except to the extent if any,
that the provisions of Sections 8 and 9 hereof my be unenforceable as against
public policy).
(m) The Company and the Association are not in violation of any directive
received from the FDIC or the OTS 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 (including, without limitation, regulations,
decisions, directives and orders of the FDIC and the OTS), and, except as set
forth in the Registration Statement and the Prospectus, there is no action, suit
or proceeding before
8
<PAGE>
or by any court, regulatory authority or governmental agency or body, pending
or, to the knowledge of the Company and the Association, threatened, which would
materially and adversely affect the Conversion, the performance of this
Agreement or the consummation of the transactions contemplated in the Plan and
as described in the Registration Statement and the Prospectus or which would
result in any material adverse change in the financial condition, results of
operations or business prospects of the Company and the Association, taken as a
whole.
(n) The Association has obtained opinions of its special counsel, Patton
Boggs, L.L.P. with respect to the legality of the Securities issued and the
federal income tax consequences of the Conversion and has obtained an opinion of
Crowe Chizek and Company L.L.P. ("Crowe Chizek") regarding the Ohio income tax
consequences of the Conversion, copies of which are filed as exhibits to the
Registration Statement; the summaries of the aforesaid opinions as disclosed in
the Prospectus are accurate and complete in all material respects; and the facts
and representations upon which such opinions are based are truthful, accurate
and complete in all material respects, and neither the Association nor the
Company has taken or will take any action inconsistent therewith.
(o) The financial statements and schedules and notes related thereto which
are included in the Prospectus fairly present the financial condition, results
of operations, retained earnings and cash flows of the Association 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 Commission, applicable accounting requirements of Title 12
of the Code of Regulations and generally accepted accounting principles. Such
financial statements have been prepared in accordance with generally accepted
accounting principles consistently applied through the periods involved except
as noted therein, present fairly in all material respects the information
required to be stated therein and are consistent with the most recent financial
statements and other reports filed by the Association with the OTS and the FDIC.
The other financial, statistical and pro forma information and related notes
(except the appraisal data) included in the Prospectus present fairly the
information shown therein on a basis consistent with the audited and unaudited
consolidated financial statements of the Association included in the Prospectus,
and as to the pro forma adjustments, the adjustments made therein have been
properly applied on the basis described therein.
(p) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus: (i) there has not been any material
adverse change in the financial condition of the Company or the Association
considered as one enterprise, or in the financial condition, results of
operations or business prospects of the Company or the Association, whether or
not arising in the ordinary course of business; (ii) except as disclosed in the
Registration Statement and Prospectus, there has not been any material increase
in the long term debt of the Association or in loans past due 90 days or more or
real estate acquired by foreclosure, by deed-in-lieu of foreclosure or deemed
in-substance foreclosure or any material decrease in retained earnings or total
assets of the Association nor has the Company or the Association issued any
securities (other than as contemplated by this Agreement) or incurred any
liability or obligation for borrowing other than in the ordinary course of
business and (iii) there have not been any material
9
<PAGE>
transactions entered into by the Company or the Association, except with respect
to those transactions entered into in the ordinary course of business.
(q) The capitalization, liabilities, assets, properties and business of the
Company and the Association conform in all material respects to the descriptions
thereof contained in the Prospectus.
(r) Neither the Company nor the Association has any material contingent
liabilities, except as set forth in the Prospectus.
(s) As of the date hereof, neither the Company nor the Association is in
violation of its articles of incorporation or bylaws or charter or bylaws, as
applicable (and the Association will not be in violation of its charter or
bylaws in capital stock form at the time of consummation of the Conversion), or
in default in the performance or observance of any material obligation,
agreement, covenant, or condition contained in any material contract, lease,
loan agreement, indenture or other instrument to which it is a party or by which
it or any other instrument to which it is a party or by which it or any of its
property may be bound; 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 Company and the Association and
this Agreement has been validly executed and delivered by the Company and the
Association and is the valid, legal and binding Agreement of the Company and the
Association enforceable in accordance with its terms, except as the
enforceability thereof may be limited by (i) bankruptcy, insolvency, or other
laws now or hereafter in effect affecting the enforceability of the rights of
creditors generally or the rights of creditors of federally chartered savings
associations and their holding companies, (ii) general equitable principles, and
(iii) applicable law with respect to the indemnification and/or contribution
provisions contained herein (regardless of whether such enforceability is
considered in a proceeding in equity or at law). The consummation of the
transactions herein contemplated will not: (i) conflict with or constitute a
breach of, or default under, the articles of incorporation and bylaws of the
Company or the charter and bylaws of the Association (in either mutual or
capital stock form), or any material contract, lease or other instrument to
which the Company or the Association is a party, or any applicable law, rule,
regulation or order; (ii) violate any authorization, approval, judgement,
decree, order, statute, rule or regulation applicable to the Company or the
Association, except for such violation which would not have a material adverse
effect on the financial condition and results of operations of the Company and
the Association on a consolidated basis; 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 Company or the
Association.
(t) 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 the Company or the
Association, 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 of agreement to which the Company or the
Association is a party or by which any of them or any of their property is bound
or affected except such defaults which would not have a material adverse effect
on the financial
10
<PAGE>
condition or results of operations of the Company and the Association on a
consolidated basis; 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
Company and the Association, threatened any action or proceeding wherein the
Company, the Association would be alleged to be in default thereunder under
circumstances where such action or proceeding, if determined adversely to the
Company or the Association would have a material adverse effect on the Company
and the Association, taken as a whole.
(u) Upon consummation of the Conversion and the contribution of the
Foundation Shares as described in the Prospectus, 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; the Shares and the Foundation Shares will have been duly and
validly authorized for issuance and, when issued and delivered by the Company
pursuant to the Plan against payment of the consideration calculated as set
forth in the Plan and in the Prospectus, will be duly and validly issued, fully
paid and non-assessable; no preemptive rights exist except for shares purchased
by the ESOP with funds borrowed from the Company to the extent payment therefor
in cash has not been received by the Company; except to the extent that
subscription rights and priorities pursuant thereto exist pursuant to the Plan,
with respect to the Shares or the Foundation Shares; and the terms and
provisions of the Shares and the Foundation 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 Company and the Association, upon
the issuance of the Shares and the Foundation Shares, good title to the Shares
and the Foundation 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) Neither the Company nor the Association is required to obtain any
approval or notice of non-objection from any regulatory or supervisory or other
public authority in connection with the execution and delivery of this Agreement
or the issuance of the Shares and the Foundation Shares, except for the approval
of the Commission and the OTS and any necessary qualification, notification,
registration or exemption under the securities or blue sky laws of the various
states in which the Shares are to be offered, and except as may be required
under the rules and regulations of the NASD.
(w) Crowe Chizek, which has certified the consolidated financial statements
of the Association included in the Prospectus as of June 30, 1998 and 1997 and
for each of the years in the three-year period ended June 30, 1998, has advised
the Company and the Association in writing that they are, with respect to the
Company and the Association, independent public accountants within the meaning
of the Code of Professional Ethics of the American Institute of Certified Public
Accountants as required by the 1933 Act and the 1933 Act Regulations and Title
12 of the Code of Federal Regulations and Section 571.2(c)(3).
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(x) Kellar and Company, Inc. (the "Keller") which has prepared the
Association's Conversion Valuation Appraisal Report as of August 14, 1998 (as
amended, updated or supplemented) (the "Appraisal"), has advised the Company in
writing that it is independent of the Company and the Association within the
meaning of the Conversion Regulations.
(y) The Company and the Association have timely filed all required federal,
state and local tax returns for the last five years or such shorter period as
may be applicable; the Company and the Association have paid all taxes that have
become due and payable in respect of such returns, except where permitted to be
extended; and no deficiency has been asserted with respect thereto by any taxing
authority and, to the best knowledge of the Association, adequate reserves have
been made for similar future tax liabilities.
(z) The Company and the Association are in compliance in all material
respects with the applicable financial record-keeping 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 Company and the Association, neither the
Company, the Association nor employees of the Company or the Association have
made any payment of funds of the Company or the Association as a loan for the
purchase of the Shares.
(bb) To the knowledge of the Company and the Association, all of the loans
represented as assets on the most recent consolidated financial statements or
consolidated selected financial information of the Company and the Association
included in the Prospectus meet or are exempt from all requirements of federal,
state or local law pertaining to lending, including without limitation, truth in
lending (including requirements of Regulations Z and 12 C.F.R. Part 226), real
estate settlement procedures, consumer credit protection, equal credit
opportunity and all disclosure laws applicable to such loans, except for
violations which, if asserted, would not result in a material adverse effect on
the financial condition, results of operations or business of the Company and
the Association, taken as a whole.
(cc) Prior to the Conversion, the Association was not authorized to issue
shares of capital stock and neither the Company nor the Association has: (i)
issued any securities within the last 18 months (except for notes to evidence
other Association loans and reverse repurchase agreements or other liabilities
in the ordinary course of business or as described in the Prospectus); (ii) had
any material dealings within the 12 months prior to the date hereof with any
member of the NASD, or any person related to or associated with such member,
other than discussions and meetings relating to the proposed Offering and
routine purchases and sales of United States government and agency securities;
(iii) entered into a financial or management consulting agreement except as
contemplated hereunder and except for the Letter Agreement set forth in
Exhibit A; and (iv) engaged any intermediary between Webb and the Company and
the Association in connection with the offering of the Shares, and no person is
being compensated in any manner for such service.
12
<PAGE>
(dd) The Company and the Association have not relied upon Webb or Webb's
counsel or other advisors for any legal, tax or accounting advice in connection
with the Conversion.
(ee) The Company is not required to be registered under the Investment
Company Act of 1940, as amended.
(ff) At the Closing Date referred to in Section 2, the Foundation will be
duly incorporated and validly existing as a non-stock corporation in good
standing under the laws of the State of Delaware with corporate power and
authority to own, lease and operate its properties and to conduct its business
as described in the Prospectus; the Foundation will not be a savings and loan
holding company within the meaning of the HOLA as a result of the issuance of
Foundation Shares to it in accordance with the terms of the Plan and in the
amounts as described in the Prospectus; no approvals are required to establish
the Foundation and to contribute the shares of Common Stock thereto as described
in the Prospectus other than those received from the OTS; except as specifically
disclosed in the Prospectus and the Proxy Statement, there are no agreements
and/or understandings, written or oral, between the Company and/or the
Association and the Foundation with respect to the control, directly or
indirectly, over the voting and the acquisition or disposition of the Foundation
Shares.
Any certificates signed by an officer of the Company or the Association
pursuant to the conditions of this Agreement and delivered to Webb or its
counsel that refers to this Agreement shall be deemed to be a representation and
warranty by the Company or the Association to Webb as to the matters covered
thereby with the same effect as if such representation and warranty were set
forth herein.
SECTION 5. REPRESENTATIONS AND WARRANTIES OF WEBB.
--------------------------------------
(a) Webb represents and warrants to the Company and the Association that:
(i) Keefe, Bruyette & Woods, Inc. is a corporation and is validly
existing 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 Association and the Company hereunder.
(ii) 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 Webb,
and this Agreement has been duly and validly executed and
delivered by Webb and is the legal, valid and binding agreement
of Webb, enforceable in accordance with its terms, except as may
be limited by Bankruptcy, insolvency or other laws affecting the
enforceability of the rights of creditors generally and judicial
limitations on the right of specific performance and except as
the enforceability of indemnification and contribution provisions
may be limited by applicable securities laws.
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(iii) Each of Webb and its employees, 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.
(iv) The execution and delivery of this Agreement by Webb, the
consummation of the transactions contemplated hereby and
compliance with the terms and provisions hereof will not conflict
with, or result in a breach of, any of the terms, provisions 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 Webb or any agreement,
indenture or other instrument to which Webb is a party or by
which it or its property is bound.
(v) No approval of any regulatory or supervisory or other public
authority is required in connection with Webb's execution and
delivery of this Agreement, except as may have been received.
(vi) There is no suit or proceeding or charge or action before or by
any court, regulatory authority or government agency or body or,
to the best knowledge of Webb, pending or threatened, which might
materially adversely affect Webb's performance under this
Agreement.
SECTION 5.1 COVENANTS OF THE COMPANY AND THE ASSOCIATION. The Company and
--------------------------------------------
the Association hereby jointly and severally covenant with Webb as follows:
(a) The Company will not, at any time after the date the Registration
Statement is declared effective, file any amendment or supplement to the
Registration Statement without providing Webb and its counsel an opportunity to
review such amendment or supplement or file any amendment or supplement to which
amendment or supplement Webb or its counsel shall reasonably object.
(b) The Association will not, at any time after the Conversion Application
is approved by the OTS, file any amendment or supplement to such Conversion
Application without providing Webb and its counsel an opportunity to review such
amendment or supplement or file any amendment or supplement to which amendment
or supplement Webb or its counsel shall reasonably object.
(c) The Company will not, at any time before the Holding Company
Application is approved by the OTS, file any amendment or supplement to such
Holding Company Application without providing Webb and its counsel an
opportunity to review such amendment or supplement or file any amendment or
supplement to which amendment or supplement Webb or its counsel shall reasonably
object.
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(d) The Company and the Association will use their best efforts to cause
any post-effective amendment to the Registration Statement to be declared
effective by the Commission and any post-effective amendment to the Conversion
Application to be approved by the OTS and will immediately upon receipt of any
information concerning the events listed below notify Webb: (i) when the
Registration Statement, as amended, has become effective; (ii) when the
Conversion Application, as amended, has been approved by the OTS; (iii) when the
Holding Company Application, as amended, has been approved by the OTS; (iv) of
any comments from the Commission, the OTS or any other governmental entity with
respect to the Conversion or the transactions contemplated by this Agreement;
(v) of the request 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 additional information;
(vi) of the issuance by the Commission, the OTS or any other governmental entity
of any order or other action suspending the Offering or the use of the
Registration Statement or the Prospectus or any other filing of the Company or
the Association under the Conversion Regulations, or other applicable law, or
the threat of any such action; (vii) the issuance by the Commission, the OTS or
any state authority of any stop order suspending the effectiveness of the
Registration Statement or the approval of the Conversion Application or Holding
Company Application, or of the initiation or threat of initiation or threat of
any proceedings for any such purpose; or (viii) of the occurrence of any event
mentioned in paragraph (i) below. The Company and the Association will make
every reasonable effort (i) to prevent the issuance by the Commission, the OTS,
or any state authority of any such order and, if any such order shall at any
time be issued, (ii) to obtain the lifting thereof at the earliest possible
time.
(e) The Company and the Association will deliver to Webb 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. Further, the Company and the
Association will deliver such additional copies of the foregoing documents to
counsel to Webb as may be required for any NASD filings.
(f) The Company and the Association will furnish to Webb, from time to time
during the period when the Prospectus (or any later prospectus related to this
offering) 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 amended or supplemented) as Webb 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"). The Company authorizes Webb to use the Prospectus (as amended or
supplemented, if amended or supplemented) in any lawful manner contemplated by
the Plan in connection with the sale of the Shares by Webb.
(g) The Company and the Association will comply with any and all material
terms, conditions, requirements and provisions with respect to the Conversion
and the establishment and operation of the Foundation imposed by the Commission,
the OTS, the Conversion Regulations, or the HOLA, and by the 1933 Act, the 1933
Act Regulations, the 1934 Act and the 1934 Act Regulations to be complied with
prior to or subsequent to the Closing Date and when the Prospectus
15
<PAGE>
is required to be delivered, the Company and the Association will comply, at
their own expense, with all material requirements imposed upon them by the
Commission, the OTS, the Conversion Regulations, or the HOLA, and by the 1993
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. The Company and the
Association shall use their best efforts to ensure that the Foundation submits
within the timeframes required by applicable law a request to the Internal
Revenue Service to be recognized as a tax-exempt organization under Section
501(c)(3) of the Internal Revenue Code of 1986, as amended (the "Code"); the
Company and the Association will take no action which will result in the
possible loss of the Foundation's tax-exempt status; and neither the Company nor
the Association will contribute any additional assets to the Foundation until
such time that such additional contributions will be deductible for federal and
state income tax purposes.
(h) If, at any time during the period when the Prospectus relating to the
Shares is required to be delivered, any event relating to or affecting the
Company or the Association shall occur, as a result of which it is necessary or
appropriate, in the opinion of counsel for the Company and the Association 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 to a purchaser,
the Company and the Association will, at their expense, prepare and file with
the Commission, the OTS and furnish to Webb a reasonable number of copies of an
amendment or amendments of, or a supplement or supplements to, the Registration
Statement and Prospectus (in form and substance satisfactory to Webb and its
counsel after a reasonable time for review) which will amend or supplement the
Registration Statement and Prospectus so that as amended or supplemented it will
not contain an untrue statement of a material fact or omit to state a material
fact necessary in order to make the statements therein, in light of the
circumstances existing at the time the Prospectus is delivered to a purchaser,
not misleading. For the purpose of this Agreement, the Company and the
Association each will timely furnish to Webb such information with respect to
itself as Webb may from time to time reasonably request.
(i) At the Closing Date referred to in Section 2, the Plan will have been
adopted by the Board of Directors of the Company and the Association and the
offer and sale of the Shares and the contribution of the Foundation Shares will
have been conducted in all material respects in accordance with the Plan, the
Conversion Regulations, the HOLA and all other applicable laws, regulations,
decisions and orders, including all terms, conditions, requirements and
provisions precedent to the Conversion imposed upon the Company or the
Association by the Commission, OTS, or any other regulatory authority and in the
manner described in the Prospectus.
(j) Upon completion of the sale by the Company of the Shares contemplated
by the Prospectus, (i) the Association will be converted pursuant to the Plan to
a federally chartered stock savings and loan association, (ii) all of the
authorized and outstanding capital stock of the Association will be owned by the
Company, and (iii) the Company will have no direct subsidiaries other than the
Association. The Conversion will have been effected in all material respects in
16
<PAGE>
accordance with all applicable statutes, regulations, decisions and orders; and,
except with respect to the filing of certain post-sale, post-Conversion reports,
and documents in compliance with the 1933 Act Regulations, and all terms,
conditions, requirements and provisions with respect to the Conversion (except
those that are conditions subsequent) imposed by the Commission and the OTS,
if any, will have been complied with by the Company and the Association in all
material respects or appropriate waivers will have been obtained and all
material notice and waiting periods will have been satisfied, waived or elapsed.
(k) The Company and the Association will take all necessary actions, in
cooperation with Webb, and furnish to whomever Webb may direct, such information
as may be required to qualify or register the Shares for offering and sale by
the Company or to exempt such Shares from registration, or to exempt the Company
as a broker-dealer and its officers, directors and employees as broker-dealers
or agents under the applicable securities or blue sky laws of such jurisdictions
in which the Shares are to be offered and sold as Webb and the Company and the
Association 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. In each
jurisdiction where any of the Shares shall have been qualified or registered as
above provided, the Company will make and file such statements and reports in
each fiscal period as are or may be required by the laws of such jurisdiction.
(l) The liquidation account for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders will be duly established and maintained in
accordance with the requirements of the OTS and such Eligible Account Holders
and Supplemental Eligible Account Holders who continue to maintain their savings
accounts in the Association will have an inchoate interest in their pro rata
portion of the liquidation account which shall have a priority superior to that
of the holders of the Common Shares in the event of a complete liquidation of
the Association.
(m) The Company and the Association will not sell or issue, contract to
sell or otherwise dispose of, for a period of 180 days after the Closing Date,
without Webb's prior written consent, any shares of Common Stock other than the
Shares or the Foundation Shares or other than in connection with any plan or
arrangement described in the Prospectus
(n) The Company shall register its Common Stock under Section 12(b) of the
1934 Act concurrent with the Offering pursuant to the Plan and shall request
that such registration be effective no later than upon completion of the
Conversion. For a period of not less than three (3) years following Conversion,
the Company shall not deregister the shares or such shorter period as may be
required by the OTS.
(o) During the period during which the Company's Common Stock is registered
under the 1934 Act or for three years from the date hereof, whichever period is
greater, the Company will furnish to its stockholders as soon as practicable
after the end of each fiscal year an annual report of the Company (including a
consolidated balance sheet and statements of consolidated income, stockholders'
equity and cash flows of the Company and its subsidiaries as at the end of and
for such
17
<PAGE>
year, certified by independent public accountants in accordance with Regulation
S-X under the 1933 Act and the 1934 Act).
(p) During the period of three years from the date hereof, the Company will
furnish to Webb: (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 Association as Webb
may reasonably request; and (iii) from time to time, such other nonconfidential
information concerning the Company or the Association as Webb may reasonably
request.
(q) The Company and the Association will use the net proceeds from the sale
of the Shares in the manner set forth in the Prospectus under the caption "Use
of Proceeds."
(r) Other than as permitted by the Conversion Regulations, the 1933 Act,
the 1933 Act Regulations, and the laws of any state in which the Shares are
registered or qualified for sale or exempt from registration, neither the
Company nor the Association will distribute any prospectus or other offering
material in connection with the offer and sale of the Shares.
(s) The Company will use its best efforts to (i) encourage and assist a
market maker to establish and maintain a market for the Shares and (ii) list the
Shares on a national or regional securities exchange or on the Nasdaq National
Market of the Nasdaq Stock Market effective on or prior to the Closing Date.
(t) The Association will 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 Association'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 Association
will 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 Association 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.
18
<PAGE>
(u) Prior to the Closing Date, the Holding Company Application shall have
been approved by the OTS. The Company will promptly take all necessary action
to register as a savings and loan holding company under the HOLA within 90 days
of the Closing Date.
(v) The Company and the Association will take such actions and furnish such
information as are reasonably requested by Webb in order for Webb to ensure
compliance with the NASD's "Interpretation Relating to Free Riding and
Withholding."
(w) The Association will not amend the Plan of Conversion without notifying
Webb prior thereto.
(x) The Company shall assist Webb, if necessary, in connection with the
allocation of the Shares in the event of an oversubscription and shall provide
Webb with any information necessary in allocating the Shares in such event and
such information shall be accurate and reliable in all material respects.
(y) Prior to the Closing Date, the Company and the Association will inform
Webb of any event or circumstances of which it is aware as a result of which the
Registration Statement, the Conversion Application and/or Prospectus, as then
amended or supplemented, would contain an untrue statement of a material fact or
omit to state a material fact necessary in order to make the statements therein
not misleading.
(z) The facts and representations provided to Patton Boggs, L.L.P. by the
Bank and the Company and upon which Patton Boggs, L.L.P. will base its opinion
under Section 7(c)(1) are and will be truthful, accurate and complete.
(aa) The Company and the Association shall use their best efforts to ensure
that the Foundation submits within the timeframes required by applicable law a
request to the Internal Revenue Service to be recognized as a tax-exempt
organization under Section 501(c)(3) of the Internal Revenue Code of 1986, as
amended (the "Code"); the Company and the Association will take no action which
will result in the possible loss of the Foundation's tax-exempt status; and
neither the Company nor the Association will contribute any additional assets to
the Foundation until such time that such additional contributions will be
deductible for federal and state income tax purposes.
SECTION 5.2 COVENANTS OF WEBB. Webb hereby covenants with the Company and
-----------------
the Association as follows:
(a) During the period when the Prospectus is delivered, Webb will comply,
in all material respects and at its own expense, with all requirements imposed
upon it by the Commission and the NASD, including to the extent applicable, by
the 1933 Act and the 1934 Act and the rules and regulations promulgated
thereunder.
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(b) Webb will distribute copies of the Prospectus and Sales Information in
connection with the sales of the Common Stock only in accordance with NASD and
Commission regulations, the 1933 Act and the rules and regulations promulgated
thereunder.
SECTION 6. PAYMENT OF EXPENSES. Whether or not the Conversion is
-------------------
completed or the sale of the Shares by the Company is consummated, the Company
and the Association jointly and severally agree to pay or reimburse Webb for:
(a) all filing fees in connection with all filings with the NASD; (b) any stock
issue or transfer taxes which may be payable with respect to the sale of the
Shares; (c) all reasonable expenses of the Conversion, including but not limited
to, the Company's and the Association's attorneys' fees, transfer agent,
registrar and other agent charges, fees relating to auditing and accounting or
other advisors and costs of printing all documents necessary in connection with
the Conversion and (d) all reasonable out-of-pocket expenses incurred by Webb
not to exceed $15,000, and all legal fees not to exceed $_______. Such out-of-
pocket expenses include, but are not limited to, travel, communications and
postage. However, such out-of-pocket expenses do not include expenses incurred
with respect to the matters set forth in (a) and (b) above. In the event the
Company is unable to sell a minimum of 8,840,000 Shares or the Conversion is
terminated or otherwise abandoned, the Company and the Association shall
reimburse Webb in accordance with Section 2 hereof.
SECTION 7. CONDITIONS TO WEBB'S OBLIGATIONS. Webb's obligations
--------------------------------
hereunder, as to the Shares to be issued at the Closing Date, are subject, to
the extent not waived by Webb, to the condition that all representations and
warranties of the Company and the Association 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 Company and the Association
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 Company and the Association shall have
conducted the Conversion in all material respects in 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.
(b) The Registration Statement shall have been declared effective by the
Commission, and the Conversion Application approved by the OTS not later than
5:30 p.m. on the date of this Agreement, or with Webb's consent at a later time
and date; and at the Closing Date, the Holding Company Application shall have
been approved by the OTS and 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 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 Company's or the Association's knowledge threatened by the
Commission, the OTS or any other federal or state authority.
20
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(c) At the Closing Date, Webb shall have received:
(1) The favorable opinion, dated as of the Closing Date and addressed
to Webb and for its benefit, of Patton Boggs, L.L. P., special
counsel for the Company and the Association, in form and
substance to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the
laws of the State of Delaware and has full corporate
power and authority to own, lease and operate its
properties and to conduct its business as described in
the Registration Statement and the Prospectus and to
enter into and perform its obligations under this
Agreement. The Company is duly qualified as a foreign
corporation to transact business and is in good
standing in each jurisdiction where it owns or leases
any material properties or conducts any material
business as described in the Registration Statement and
the Prospectus, unless the failure to so qualify would
not have a material adverse effect on the consolidated
financial condition, results of operations or business
of the Company.
(ii) The Association is organized and is validly existing as
a federally chartered savings and loan association in
mutual form of organization and upon the Conversion
will become an organized and validly existing federally
chartered savings Association in capital stock form of
organization, in both instances duly authorized to
conduct its business and own its property as described
in the Registration Statement and Prospectus. All of
the outstanding capital stock of the Association will
be duly authorized and, upon payment therefor, will be
validly issued, fully paid and non-assessable and, to
the best of such counsel's knowledge, will be owned by
the Company, free and clear of any liens, encumbrances,
claims or other restrictions.
(iii) The Association is a member of the FHLB-Cincinnati. The
Association is an insured depository institution under
the provisions of Section 4(a) of the FDI Act, as
amended, and no proceedings for the termination or
revocation of such insurance are, to the best of such
counsel's knowledge, pending or threatened; the
description of the liquidation account as set forth in
the Prospectus under the caption "The Conversion-
Liquidation Rights" to the extent that such
21
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information constitutes matters of law and legal
conclusions has been reviewed by such counsel and is
accurate in all material respects.
(iv) Upon consummation of the Conversion, and issuance of
the Foundation Shares to the Foundation immediately
upon completion thereof, subject to compliance with all
conditions imposed upon the Foundation and the
contribution thereto by the OTS under the terms of the
OTS's approval of the Conversion, the authorized,
issued and outstanding capital stock of the Company
will be within the range set forth in the Prospectus
under the caption "Capitalization," and except for
shares issued upon incorporation of the Company, which
such shares will be canceled upon the successful
consummation of the Conversion, no shares of Common
Stock have been issued prior to the Closing Date; at
the time of the Conversion, the Shares and the
Foundation Shares will have been duly and validly
authorized for issuance, and when the Shares have been
issued and delivered by the Company pursuant to the
Plan against payment of the consideration calculated as
set forth in the Plan and the Prospectus, and when the
Foundation Shares have been issued and contributed by
the Company pursuant to the Gift Instrument will be
duly and validly issued and fully paid and non-
assessable; the issuance of the Shares and the
Foundation Shares is not subject to statutory
preemptive rights (except for Subscription Rights
granted pursuant to the Plan) and the terms and
provisions of the Shares and the Foundation Shares
conform in all material respects to the description
thereof contained in the Prospectus. To the best of
such counsel's knowledge, upon the issuance of the
Shares and the Foundation Shares, good title to the
Shares and the Foundation 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 OTS has approved the Holding Company Application
and, to the best of such counsel's knowledge, no action
is pending or threatened respecting the Holding Company
Application or the acquisition by the Company of all of
the Association's issued and outstanding capital stock;
the Holding Company Application complies as to form in
all material respects with the HOLA.
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(vi) The OTS has approved the Conversion Application and, to
the best of such counsel's knowledge, no action is
pending or threatened respecting the OTS's approval of
the Conversion Application; the Conversion Application
complies as to form in all material respects with the
Conversion Regulations except in such instances wherein
the OTS has waived such compliance.
(vii) The execution and delivery of the Agreement and the
consummation of the transactions contemplated hereby,
including the establishment of the Foundation and the
issuance and contribution thereto of the Foundation
Shares pursuant to the Gift Instrument, have been duly
and validly authorized by all necessary action on the
part of the Company and the Association; and the
Agreement is a valid and binding obligation of the
Company and the Association, enforceable in accordance
with its terms, except as the enforceability thereof
may be limited by (i) bankruptcy, insolvency, or other
laws now or hereafter in effect affecting the
enforceability of the rights of creditors generally or
the rights of creditors of federally chartered savings
and loan associations and their holding companies, (ii)
general principles of equity, (iii) applicable law with
respect to the indemnification and/or contribution
provisions contained herein, (regardless of whether
such enforceability is considered in a proceeding in
equity or at law); and such action will not result in
any violation of the provisions of the articles of
incorporation, bylaws or charter, as applicable, of the
Company or the Association or any applicable federal
law, act, or regulation.
(viii) The Plan, including the establishment of and the
issuance of the Foundation Shares to the Foundation,
has been duly adopted and approved by the required vote
of the directors of the Company and the Association
and, based upon the certificate of the inspector of
election, approved by the voting members of the
Association.
(ix) Subject to the satisfaction of the conditions to the
OTS' approval of the Conversion, no further approval,
authorization, consent or other order of any public
board or body is required in connection with the
execution and delivery of the Agreement, the issuance
of the Shares, the establishment of and issuance of the
Foundation Shares to the
23
<PAGE>
Foundation and the consummation of the Conversion,
except as may be required under the securities or blue
sky laws of various jurisdictions (as to which no
opinion need be rendered).
(x) The Registration Statement is effective under the 1933
Act and no stop order suspending the effectiveness has
been issued under the 1933 Act or, to the best of such
counsel's knowledge, proceedings therefor pending or
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, complied as to form in all material
respects with the requirements of the Conversion
Regulations, federal law and all applicable rules and
regulations promulgated thereunder (other than the
financial statements, the notes thereto, and other
tabular, financial statistical and appraisal data
included therein, as to which no opinion need be
rendered).
(xii) At the time that the Registration Statement became
effective, (i) the Registration Statement (as amended
or supplemented, if so amended or supplemented) (other
than the financial statements, the notes thereto and
other tabular, financial, statistical and appraisal
data included therein or omitted therefrom, 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, and (ii) the Prospectus
(other than the financial statements, the notes thereto
and other tabular, financial, statistical and appraisal
data included therein or omitted therefrom, as to which
no opinion need be rendered) complied as to form in all
material respects with the requirements of the 1933
Act, the 1933 Act Regulations, the Conversion
Regulations and federal law.
(xiii) The terms and provisions of the Shares of the Company
conform, in all material respects, to the description
thereof contained in the Registration Statement and
Prospectus, and the form of certificate used to
evidence the Shares complies with applicable law.
24
<PAGE>
(xiv) 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) To the best of such counsel's knowledge, the Company
and the Association have conducted the Conversion and
the establishment and funding of the Foundation in all
material respects in accordance with applicable
requirements of the Plan, the Conversion Regulations,
HOLA and all other applicable regulations, decisions
and orders thereunder, including all material
applicable terms, conditions, requirements and
conditions precedent to the Conversion imposed upon the
Company or the Association by the OTS and, to the best
of such counsel's knowledge, no person has sought to
obtain review of the final action of the OTS in
approving or not objecting to the Conversion
Application (which includes the Plan which provides for
the establishment of the Foundation) or of the OTS in
approving the Holding Company Application.
(xvi) To the best of such counsel's knowledge, the Company
and the Association have obtained all material
licenses, permits and other governmental authorizations
for the conduct of their businesses and to the best of
such counsel's knowledge all such licenses, permits and
other governmental authorizations are in full force and
effect, and the Company and the Association are in all
material respects complying therewith, except where the
failure to have such licenses, permits and other
governmental authorizations or the failure to be in
compliance therewith would not have a material adverse
affect on the business or operations of the Association
and the Company, taken as a whole.
(xvii) The Company's certificate of incorporation and bylaws
comply in all material respects with the Delaware
General Corporation Law. The Association's charter and
bylaws in mutual form and, upon the completion of the
Conversion, in stock form, comply in all material
respects with the HOLA and the regulation promulgated
thereunder.
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(xviii) To the best of such counsel's knowledge, neither the
Company nor the Association is in violation of any
directive from the OTS or the FDIC to make any material
change in the method of conducting its respective
business.
(xix) The information in the Prospectus under the captions
"Risk Factors," "Federal and State Taxation," (with
respect to Federal taxation only) "Regulation and
Supervision," "The Conversion," "Restrictions on
Acquisition of the Company and the Association,"
"Description of Capital Stock of the Company" and
"Description of Capital Stock of the Association" 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 correct in all material respects.
The description of the Conversion process under the
caption "The Conversion" in the Prospectus has been
reviewed by such counsel and is in all material
respects correct. The discussion of Delaware and
Federal statutes or regulations described or referred
to in the Prospectus are accurate summaries. The
information regarding the federal tax opinion under the
caption "The Conversion-Tax Effects" has been reviewed
by such counsel and constitutes an accurate summary of
the opinion rendered by such counsel to the Company and
the Association with respect to such matters subject to
the qualifications and limitations noted therein.
(xx) The Foundation has been duly incorporated and is
validly existing as a non-stock corporation in good
standing under the laws of the State of Delaware with
corporate power and authority to own, lease and operate
its properties and to conduct its business as described
in the Prospectus; the Foundation is not a savings and
loan holding company within the meaning of the HOLA as
a result of the issuance of shares of Common Stock to
it in accordance with the terms of the Plan and in the
amounts as described in the Prospectus; no approvals
are required to establish the Foundation and to
contribute the shares of Common Stock thereto as
described in the Prospectus other than those set forth
in any written notice or order of approval of the
Conversion, Conversion Application or the Holding
Company Application copies of which were provided to
Webb prior to the Closing Date.
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In rendering such opinion, such counsel may rely as to all matters of fact
on certificates of officers or directors of the Company and the Association and
certificates of public officials, and as to state law matters, such counsel may
rely upon the opinion of Ohio counsel and their opinion.
In addition, such counsel shall provide a letter to Webb stating that
nothing has come to their attention that would lead them to believe that the
Conversion Application and the Registration Statement, or any amendment or
supplement thereto (other than the financial statements, the notes thereto, and
other tabular, financial, statistical and appraisal data included therein or
omitted therefrom as to which no statement need be made), as of the date of
approval or effectiveness, as the case may be, and the Prospectus, as of its
date and as of the Closing Date, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(2) The favorable opinion, dated as of the Closing Date and addressed
to Webb and for their benefit, of [LOCAL COUNSEL], the
Association's local counsel, in form and substance to the effect
that:
(i) to the best of such counsel's knowledge, the Company and the
Association have good and marketable title to all properties
and assets which are material to the business of the Company
and the Association 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 such as are described
in the Registration Statement and Prospectus, or are not
material in relation to the business of the Company and the
Association considered as one enterprise;
(ii) to the best of such counsel's knowledge, all of the leases
and subleases material to the business of the Company and
the Association under which the Company and the Association
hold properties, as described in the Registration Statement
and Prospectus, are in full force and effect;
(iii) the Association is duly qualified to transact business in
each jurisdiction in which its ownership of property or
leasing of property or the conduct of its business requires
such qualification, unless the failure to be so qualified in
one or more of such jurisdictions would not have a material
adverse effect on the financial condition, or the business,
operations or income of the Association;
(iv) to the best of such counsel's knowledge, the execution and
delivery of the Agreement, the occurrence of the obligations
therein set forth
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<PAGE>
and the consummation of the transactions contemplated
therein will not conflict with or constitute a breach of, or
default under, or result in the creation or imposition of
any lien, charge or encumbrance upon any property or assets
of the Company or the Association pursuant to any contract,
indenture, mortgage, loan agreement, note, lease or other
instrument described in the Prospectus or filed as an
exhibit to the Registration Statement to which the Company
or the Association is a party or by which any of them may be
bound, or to which any of the property or assets of the
Company or the Association is subject (other than the
establishment of a liquidation account) and such action will
not result in any violation of any court order, writ,
injunction or decree naming the Company or the Association;
(v) to the best of such counsel's knowledge, the Company and the
Association have obtained all material licenses, permits and
other governmental authorizations currently required for the
conduct of their businesses and to the best of such
counsel's knowledge, all such licenses, permits and other
governmental authorizations are in full force and effect,
and the Company and the Association are in all material
respects complying therewith, except where the failure to
have such licenses, permits and other governmental
authorizations or the failure to be in compliance therewith
would not have a material adverse affect on the business or
operations of the Association and the Company, taken as a
whole;
(vi) there are no legal or governmental proceedings pending or to
the best of such counsel's knowledge, threatened which are
required to be disclosed in the Registration Statement and
Prospectus, other than those disclosed therein, and to the
best of such counsel's knowledge, all pending legal and
governmental proceedings to which the Company and the
Association is a party or of which any of their property is
the subject, which are not described in the Registration
Statement and the Prospectus, including ordinary routine
litigation incidental to the Company's or the Association's
business, are, considered in the aggregate, not material;
and
(vii) neither the Company nor the Association is in violation of
its articles of incorporation, bylaws or charter nor, to the
best of 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 the
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<PAGE>
Company or the Association is a party or by which the
Company or the Association or any of their 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 Association, taken as a
whole).
(3) The favorable opinion, dated as of the Closing Date, of Elias,
Matz, Tiernan & Herrick L.L.P., Webb's counsel, with respect to
such matters as Webb may reasonably require. Such opinion may
rely upon the opinions of counsel to the Company and the
Association, and as to matters of fact, upon certificates of
officers and directors of the Company and the Association
delivered pursuant hereto or as such counsel shall reasonably
request.
(d) At the Closing Date, Webb shall receive a certificate of the Chief
Executive Officer and the Chief Financial Officer of the Company and a
certificate of the Chief Executive Officer and the Chief Financial Officer of
the Association, both dated as of such Closing Date, to the effect that: (i)
they have reviewed the Prospectus and, in their opinion, 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 date the Prospectus became
authorized for final use, no material adverse change in the financial condition,
or in the earnings, capital, properties or business of the Company and the
Association has occurred and, to their knowledge, 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) since the respective dates as of which information is
given in the Registration Statement and Prospectus, there has been no material
adverse change in the financial condition, results of operations or business
prospects of the Company and the Association, independently, or of the Company
and the Association considered as one enterprise, whether or not arising in the
ordinary course of business; (iv) the representations and warranties in Section
4 are true and correct with the same force and effect a though expressly made at
and as of the Closing Date; (v) the Company and the Association have complied in
all material respects 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 Conversion; (vi) no stop order suspending the effectiveness of the
Registration Statement is pending or, to the best knowledge of the Company or
the Association, threatened by the Commission or any state authority; (vii) no
order suspending the Offering, the Conversion, the acquisition of all of the
shares of the Association by the Company or the effectiveness of the Prospectus
has been issued and no proceedings for that purpose are pending or, to the best
knowledge of the Company or the Association, threatened by the OTS, the FDIC,
the Commission or any other federal or state authority; and (viii) to the best
knowledge of the Company or the Association, no person has sought to obtain
review of the final action of the OTS approving the Plan.
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<PAGE>
(e) Prior to and at the Closing Date: (i) in the reasonable opinion of
Webb, there shall have been no material adverse change in the financial
condition, or in the earnings or business of the Association independently, or
of the Company or the Association considered as one enterprise, from that as of
the latest dates as of which such condition is set forth in the Prospectus other
than transactions referred to or contemplated therein; (iii) the Company or the
Association shall not have received from the OTS or the FDIC any direction (oral
or written) to make any material change in the method of conducting their
business with which it has not complied (which direction, if any, shall have
been disclosed to Webb) or which materially and adversely would affect the
business, operations or financial condition or income of the Company and the
Association considered as one enterprise; (iv) the Company and the Association
shall not have been in material default (nor shall an event have occurred which,
with notice or lapse of time or both, would constitute a default) under any
material provision of any agreement or instrument relating to any outstanding
indebtedness; (v) 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 Company or the Association,
threatened against the Company or the Association or affecting any of their
properties wherein an unfavorable decision, ruling or finding would materially
and adversely affect the business operations, financially condition or income of
the Company and the Association considered as one enterprise; and (vi) the
Shares have been qualified or registered for offering and sale or exempted
therefore under the securities or blue sky laws of the jurisdictions as Webb
shall have requested and as agreed to by the Company and the Association.
(f) Concurrently with the execution of this Agreement, Webb shall receive a
letter from Crowe Chizek dated as of the date of the Prospectus and addressed to
Webb: (i) confirming that Crowe Chizek is a firm of independent public
accountants within the meaning of the 1933 Act and stating in effect that in
Crowe Chizek's opinion the consolidated financial statements of the Association
as of June 30, 1997 and 1998 and for each of the three years in the period ended
June 30, 1998, as are included in the Prospectus and covered by its opinion
included therein, comply as to form in all material respects with the applicable
accounting requirements and related published rules and regulations of the 1933
Act; (ii) a statement from Crowe Chizek in effect that, on the basis of certain
agreed upon procedures (but not an audit in accordance with generally accepted
auditing standards) consisting of a reading of the latest available unaudited
interim consolidated financial statements of the Association prepared by the
Association, a reading of the minutes of the meetings of the Board of Directors
and members of the Association and consultations with officers of the
Association responsible for financial and accounting matters, nothing came to
their attention which caused them to believe that: (A) the unaudited
consolidated financial statements included in the Prospectus, are not in
conformity with the 1933 Act and generally accepted accounting principles
applied on a basis substantially consistent with that of the audited
consolidated financial statements included in the Prospectus; or (B) during the
period from the date of the latest unaudited consolidated financial statements
included in the Prospectus to a specified date not more than three business days
prior to the date of the Prospectus, except as has been described in the
Prospectus, other than normal deposit fluctuations, there was any material
increase in consolidated long-term debt, short-term debt, real estate owned or
real estate acquired by deed in lieu of foreclosure by the Association; or (C)
there was any decrease in consolidated total assets, allowance for estimated
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<PAGE>
losses on loans, total savings deposits or capital of the Association at the
date of such letter as compared with amounts shown in the latest unaudited
consolidated statement of condition included in the Prospectus; and (iii) a
statement from Crowe Chizek that, in addition to the audit referred to in their
opinion included in the Prospectus and the performance of the procedures
referred to in clause (ii) of this subsection (f), they have compared with the
general accounting records of the Association, which are subject to the internal
controls of the Association, the accounting system and other data prepared by
the Association, directly from such accounting records, to the extent specified
in such letter, such amounts and/or percentages set forth in the Prospectus as
Webb may reasonably request; and they have reported on the results of such
comparisons.
(g) At the Closing Date, Webb shall receive a letter from Crowe Chizek
dated the Closing Date, addressed to Webb, confirming the statements made by
them in the letter delivered by it 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, Webb shall receive a letter from Keller, dated the
date thereof and addressed to counsel for Webb, (i) confirming that said firm is
independent of the Company and the Association and is experienced and expert in
the area of corporate appraisals and (ii) stating that its opinion of the
aggregate pro forma market value of the Company and the Association expressed in
its Appraisal dated as of August 14, 1998, and most recently updated, remains in
effect.
(i) The Company and the Association 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, Webb shall receive: (i) a copy of the
letter from the OTS approving the Conversion 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 Association in mutual form; (iv) certificates of good
standing from the State of Delaware evidencing the good standing of the Company;
(v) a certificate from the FDIC evidencing the Association's insurance of
accounts; (vi) a certificate of the FHLB-Cincinnati evidencing the Association's
membership thereof; and (vii) a copy of the letter from the OTS approving the
Company's Holding Company Application;
(k) As soon as available after the Closing Date, Webb shall receive, upon
request, a copy of the Association's federal stock charter.
(l) 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
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<PAGE>
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 NASD or by
order of the Commission or any other governmental authority; (ii) a general
moratorium on the operations of commercial Associations or federal or state
savings associations or a general moratorium on the withdrawal of deposits from
commercial Associations or federal savings associations declared by federal
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 if the effect of such a decline, in Webb'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.
(m) At or prior to the Closing Date, counsel to the Agent shall have been
furnished with such documents and opinions as they may reasonably require for
the purpose of enabling them to pass upon the sale of the Shares and the
issuance of the Foundation Shares as herein contemplated and related proceedings
or in order to evidence the occurrence or completeness of any of the
representations or warranties, or the fulfillment of any of the conditions,
herein contained; and all proceedings taken by the Company or the Bank in
connection with the Conversion and the sale of the Shares and the issuance of
the Foundation Shares as herein contemplated shall be satisfactory in form and
substance to Webb and its counsel.
SECTION 8. INDEMNIFICATION.
----------------
(a) The Company and the Association jointly and severally agree to
indemnify and hold harmless Webb, its officers, directors, agents, servants and
employees and each person, if any, who controls Webb 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 reasonable and documented settlement expenses), joint or several, that Webb
or any of them may suffer or to which Webb and any such persons may become
subject under all applicable federal or state laws or otherwise, and to promptly
reimburse Webb and any such persons upon written demand for any expense
(including reasonable and documented fees and disbursements of counsel) incurred
by Webb or any of them in connection with investigating, preparing 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 based upon any untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement (or any amendment or supplement
thereto), preliminary or final Prospectus (or any amendment or supplement
thereto), the Conversion Application (or any amendment or supplement thereto),
the Holding Company Application or any blue sky application or other instrument
or document executed by the Company or the Association or based upon written
information supplied by the Company or the Association 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,
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<PAGE>
advertisement, oral statement or communication ("Sales Information") prepared,
made or executed by or on behalf of the Company or the Association with their
consent or based upon written or oral information furnished by or on behalf of
the Company or the Association, 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; (ii) 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 (iii) arise from any theory of liability whatsoever relating to
or arising from or based upon the Registration Statement (or any amendment or
supplement thereto), preliminary or final Prospectus (or any amendment or
supplement thereto), the Conversion 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 Webb's
gross negligence, bad faith or willful misconduct (as determined in a final
judgment by a court of competent jurisdiction) or 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), preliminary or final Prospectus (or any amendment or
supplement thereto), the Conversion Application, any Blue Sky Application or
Sales Information made in reliance upon and in conformity with information
furnished in writing to the Company or the Association by Webb regarding Webb or
statistical information regarding national averages provided by Webb for the
Sales Information and provided further that such indemnification shall be to the
----------------
extent permitted by Sections 23A and 23B of the Federal Reserve Act, as amended.
(b) Webb agrees to indemnify and hold harmless the Company and the
Association, their directors and officers and each person, if any, who controls
the Company or the Association 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 reasonable and
documented settlement expenses), joint or several, which it, or any of them, may
suffer or to which it, or any of them may become subject under all applicable
federal and state laws or otherwise, and to promptly reimburse the Company, the
Association, and any such persons upon written demand for any expenses
(including reasonable and documented fees and disbursements of counsel) incurred
by it, or any of them, in connection with investigating, preparing 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 preliminary or final 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 Webb's obligations under this
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Section 8(b) shall exist only if and only to the extent that such untrue
statement or alleged untrue statement was made in, or such material fact or
alleged material fact was omitted from, the
33
<PAGE>
Registration Statement (or any amendment or supplement thereto), the preliminary
or final Prospectus (or any amendment or supplement thereto) or the Conversion
Application (or any amendment or supplement thereto), or Sales Information in
reliance upon and in conformity with information furnished in writing to the
Company or the Association by Webb regarding Webb or statistical information
regarding national averages provided by Webb for the Sales Information.
Provided, that it is agreed and understood that the only information furnished
in writing to the Company or the Association by the Agent regarding the Agent is
set forth in the Prospectus under the caption "The Conversion Marketing and
Underwriting Arrangements."
(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 assumed 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 reasonable 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, 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 contained in this Section 8 and in Section 9 hereof and
the representations and warranties of the Company and the Association 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 Webb or its officers,
directors or controlling persons, agents or employees or by or on behalf of the
Company or the Association or any officers, directors or controlling persons,
agents or employees of the Company or the Association; (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 Company, the Association or Webb, the Company,
the Association and Webb 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,
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but after deducting any contribution received by the Company, the Association or
Webb from persons other than the other party thereto, who may also be liable for
contribution) in such proportion so that Webb are responsible for that portion
represented by the percentage that the fees paid to Webb pursuant to Section 2
of this Agreement (not including expenses) bears to the gross proceeds received
by the Company from the sale of the Shares in the Offering and the Company and
the Association 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 Company and the Association on the one hand and Webb 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 Company and the
Association on the one hand and Webb on the other from the Offering (before
deducting expenses). 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 or alleged omission to state a material fact relates to
information supplied by the Company and/or the Association on the one hand or
Webb 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 Company, the Association and Webb 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 Webb shall not be required to contribute any amount
which in the aggregate exceeds the amount paid (excluding reimbursable expenses)
to Webb under this Agreement. It is understood that the above stated limitation
on Webb's liability for contribution is essential to Webb and that Webb 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 ll(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 Company and the Association
under this Section 9 and under Section 8 shall be in addition to any liability
which the Company and the Association may otherwise have. For purposes of this
Section 9, each of Webb's, the Company's or the Association's officers and
directors and each person, if any, who controls Webb or the Company or the
Association within the meaning of the 1933 Act and the 1934 Act shall have the
same rights to contribution as Webb, the Company or the Association. 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,
will 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 otherwise than under
this Section 9.
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SECTION 10. SURVIVAL OF AGREEMENTS REPRESENTATIONS AND INDEMNITIES. The
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respective indemnities of the Company, the Association and Webb and the
representations and warranties and other statements of the Company, the
Association and Webb 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 Webb, the
Company, the Association 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 Webb, the Company, the Association, and
any such controlling person shall be entitled to the benefit of the respective
agreements, indemnities, warranties and representations.
SECTION 11. TERMINATION. Webb may terminate its obligations under this
-----------
Agreement by giving the notice indicated below in this Section 11 at any time
after this Agreement becomes effective as follows:
(a) In the event the Company fails to sell all of the Shares by March 31,
1999, 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 Association 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 for payment
by the Company and/or the Association as set forth in Sections 2(a) and (d), 6,
8 and 9 hereof.
(b) 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 Webb's obligations hereunder may be
cancelled by Webb by notifying the Company and the Association of such
cancellation in writing 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, 6, 8 and 9 hereof.
(c) If Webb elects to terminate this Agreement with respect to it as
provided in this Section, the Company and the Association shall be notified
promptly by such Agent by telephone or telegram, confirmed by letter.
The Company and the Association may terminate this Agreement with respect
to Webb in the event Webb is in material breach of the representations and
warranties or covenants contained in Section 5 and such breach has not been
cured after the Company and the Association have provided Webb with notice of
such breach.
This Agreement may also be terminated by mutual written consent of the
parties hereto.
SECTION 12. NOTICES. All communications hereunder, except as herein
-------
otherwise specifically provided, shall be mailed in writing and if sent to Webb
shall be mailed, delivered or telegraphed and confirmed to Charles Webb &
Company, 211 Bradenton, Dublin, Ohio 43017-5034, Attention:
36
<PAGE>
John Bruno, Esq. (with a copy to Elias, Matz, Tiernan & Herrick L.L.P., 734 15th
Street, N.W., Washington, D.C. 20005, Attention: John P. Soukenik, Esq.) and, if
sent to the Company and the Association, shall be mailed, delivered or
telegraphed and confirmed to the Company and the Association at First Place
Financial Corp., 185 East Market Street, Warren , Ohio 44482, Attention: Steven
R. Lewis, President and Chief Executive Officer, (with a copy to Patton Boggs,
L.L.P., 2550 M Street, NW, Washington, D.C. 20037, Attention: Joseph Passaic,
Esq.).
SECTION 13. PARTIES. The Company and the Association shall be entitled to
-------
act and rely on any request, notice, consent, waiver or agreement purportedly
given on behalf of Webb when the same shall have been given by the undersigned.
Webb shall be entitled to act and rely on any request, notice, consent, waiver
or agreement purportedly given on behalf of the Company or the Association, when
the same shall have been given by the undersigned or any other officer of the
Company or the Association. This Agreement shall inure solely to the benefit
of, and shall be binding upon, Webb, the Company, the Association, 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. It is understood and agreed that this Agreement, including Exhibit A
thereto, is the exclusive agreement among the parties hereto, and supersedes any
prior agreement among the parties and may not be varied except in writing signed
by all the parties.
SECTION 14. CLOSING. The closing for the sale of the Shares shall take
-------
place on the Closing Date at such location as mutually agreed upon by Webb and
the Company and the Association. At the closing, the Company and the
Association shall deliver to Webb in next day funds the commissions, fees and
expenses due and owing to Webb as set forth in Sections 2 and 6 hereof and the
opinions and certificates required hereby and other documents deemed reasonably
necessary by Webb shall be executed and delivered to effect the sale of the
Shares as contemplated hereby and pursuant to the terms of the Prospectus.
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.
SECTION 16. CONSTRUCTION. This Agreement shall be construed in accordance
------------
with the laws of the State of Ohio.
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 a binding agreement.
37
<PAGE>
If the foregoing correctly sets forth the arrangement among the Company,
the Association and Webb, please indicate acceptance thereof in the space
provided below for that purpose, whereupon this letter and Webb's acceptance
shall constitute a binding agreement.
Very truly yours,
FIRST PLACE FINANCIAL CORP. FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF WARREN
By: _____________________________ By: _____________________________
Steven R. Lewis Steven R. Lewis
President and Chief Executive President and Chief Executive
Officer Officer
Accepted as of the date first above written
CHARLES WEBB & COMPANY, A DIVISION OF KEEFE,
BRUYETTE & WOODS, INC.
By: ____________________________
John Bruno
Senior Vice President
38
<PAGE>
EXHIBIT 8.0 OPINION OF PATTON BOGGS LLP RE: FEDERAL TAX MATTERS
<PAGE>
EXHIBIT 8.0
October 27, 1998
(202) 457-6000
Board of Directors
First Federal Savings and Loan Association of Warren
185 East Market Street
Warren, Ohio 44482
Board of Directors
First Place Financial Corporation
185 East Market Street
Warren, Ohio 44482
Re: Certain Federal Tax Consequences of the Conversion of First Federal Savings
and Loan Association of Warren from a Federally Chartered Mutual Savings
and Loan Association to a Federally Chartered Stock Savings and Loan
Association and the Issuance of Common Stock of First Federal Savings and
Loan Association of Warren to First Place Financial Corporation, pursuant
to a Plan of Conversion, and the Sale of First Place Financial Corporation
Common Stock
Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax consequences of
the plan of conversion of First Federal Savings and Loan Association of Warren
(the "Association") from a federally chartered mutual savings and loan
association to a federally chartered stock savings and loan association, the
issuance of the Association's common stock to First Place Financial Corporation,
a Delaware corporation (the "Company" or the "Holding Company"), and the sale of
Holding Company common stock pursuant to the plan of conversion adopted by the
Board of Directors on June 15, 1998 (collectively, the "Plan of Conversion" or
"Conversion").
The proposed transaction is described in the section of this letter entitled
"STATEMENT OF FACTS."
Our opinions are based on the STATEMENT OF FACTS, the representations described
in the section of the letter entitled "REPRESENTATIONS," and our examination of
such corporate records, certificates and other documents as we have considered
necessary or
<PAGE>
Board of Directors
October 27, 1998
Page 2
appropriate for this opinion. In such examination, we have accepted, and not
independently verified, the authenticity of all original documents, the accuracy
of all copies, and the genuineness of all signatures. Unless otherwise noted,
section references are to the Internal Revenue Code of 1986 as amended (the
"Code") as in effect as of the date of this letter. Capitalized terms not
defined in this letter have the meanings assigned to them in the Plan of
Conversion.
STATEMENT OF FACTS
The Association is a federally chartered mutual savings association. As a
mutual savings and loan association, the Association has never been authorized
to issue stock. Instead, the proprietary interest in the reserves and undivided
profits of the Association belong to the deposit account holders of the
Association, herein after sometimes referred to as "depositors." A depositor of
the Association has a right to share, pro rata, with respect to the withdrawal
value of his respective deposit account in any liquidation proceeds distributed
in the event the Association is ever liquidated. In addition, a depositor of
the Association is entitled to interest on his account balance as fixed and paid
by the Association.
In order to provide organizational and economic strength to the Association, the
Board of Directors has adopted the Plan of Conversion whereby the Association
will convert into a federally chartered stock savings and loan association (the
"Converted Association"), the common stock of which will be held entirely by a
newly created Holding Company, First Place Financial Corporation. As part of
the Conversion, the Association will issue all of its common stock to the
Holding Company. Holding Company will issue and sell its common stock ("the
Conversion Stock") in accordance with the Plan of Conversion.
As part of the Plan of Conversion, rights to subscribe for the purchase of
Conversion Stock (the "Subscription Offering") will be granted in the form of
nontransferable subscription rights for up to 9,077,065 shares (which may be
increased to 10,638,625 shares) of Conversion Stock in the following order of
descending priority: (i) the Bank's Eligible Account Holders; (ii) the ESOP;
(iii) the Bank's Supplemental Eligible Account Holders; and (iv) certain Other
Members. The Company will offer the shares of Conversion Stock not subscribed
for in the Subscription Offering for sale in a community offering (the
"Community Offering") to certain members of the general public. The aggregate
sales price of the Conversion Stock will be based on an independent appraiser's
valuation of the estimated pro forma market value of the Common Stock of the
Converted Association held by Holding Company. The Conversion of the
Association
<PAGE>
Board of Directors
October 27, 1998
Page 3
and sale of the Conversion Stock will be subject to approval by the Office of
Thrift Supervision and the approval of the Voting Members.
As part of the Conversion, the Association will establish a liquidation account
in an amount equal to its net worth as of the latest practicable date prior to
Conversion. The liquidation account will be maintained by the Association for
the benefit of the Eligible Account Holders and Supplemental Eligible Account
Holders who continue to maintain their savings accounts at the Association.
Each Eligible Account Holder and Supplemental Eligible Account Holder will, with
respect to his savings account, hold a related inchoate interest in a portion of
the liquidation account balance, in relation to his savings account balance on
the Eligibility Record Date or the Supplemental Eligibility Record Date or to
such balance as it may be subsequently reduced.
In the unlikely event of a complete liquidation of the Converted Association
(and only in such event), following all liquidation payments to creditors
(including those to account holders to the extent of their savings accounts)
each Eligible Account Holder and Supplemental Eligible Account Holder shall be
entitled to receive a liquidating distribution from the liquidation account, in
the amount of the then adjusted sub-account balance for his savings account then
held, before any liquidation distribution may be made to Holding Company as the
sole shareholder of the Converted Association's common stock. No merger,
consolidation, purchase of bulk assets with assumption of savings accounts and
other liabilities, or similar transaction with an FDIC institution, in which the
Converted Association is not the surviving institution, shall be deemed to be a
complete liquidation for this purpose. In such transactions, the liquidation
account shall be assumed by the surviving institution.
As part of the Conversion, Holding Company and the Association intend to
establish a charitable foundation that will qualify as an exempt organization
under section 501(c)(3) of the Code (the "Foundation") and to donate to the
Foundation from authorized, but unissued, shares of Conversion Stock an amount
up to 7.7% of the number of shares of Conversion Stock sold in the Conversion.
The Foundation is intended to further the Converted Association's long term
commitment to its community. The Plan of Conversion provides that the
Foundation is intended to complement the Association's existing community
reinvestment activities so as to allow the local community to share in the
growth and profitability of the Holding Company and the Converted Association
over the long term. In the event that the Foundation does not qualify as an
organization exempt from tax under section 501(c)(3), the Association may
determine to complete the Conversion without creating the Foundation.
<PAGE>
Board of Directors
October 27, 1998
Page 4
The Foundation will be dedicated to the promotion of charitable purposes
including community development and grants or donations to support housing
assistance, not-for-profit community groups and other types of organizations or
civic minded projects. The Foundation will annually distribute total grants to
assist charitable organizations or to fund projects within its local community
of not less than 5% of the average fair value of Foundation assets each year.
In order to serve the purposes for which it was formed and to maintain its
section 501(c)(3) qualification, under the Plan of Conversion, the Foundation
may sell, on an annual basis, a limited portion of the Conversion Stock
contributed to it by the Holding Company.
REPRESENTATIONS
You have provided the following representations concerning this transaction:
(a) The fair market value of the withdrawable deposit accounts plus
interests in the liquidation account of the Converted Association to be held by
Eligible Account Holders and Supplemental Eligible Account Holders immediately
after the Plan of Conversion will be equal to the fair market value of the
withdrawable deposit accounts (plus the related interest in the residual equity
of the Association) deemed to be exchanged therefor.
(b) If a depositor's total deposits in the Association equal or exceed $50
as of the Eligibility Record Date or Supplemental Eligibility Record Date, then
the full amount of that depositor's total deposits will be eligible to
participate in the liquidation account. The fair market value of the deposit
accounts of the Association which have a balance of less than $50 on the
Eligibility Record Date or Supplemental Eligibility Record Date will be less
than 1% of the total fair market value of all deposit accounts of the
Association.
(c) Immediately following the Conversion, the Eligible Account Holders and
Supplemental Eligible Account Holders of the Association will own all of the
outstanding interests in the liquidation account and will own such interests
solely by reason of their ownership of deposits in the Association immediately
before the Conversion.
(d) After the Conversion, the Converted Association will continue the
business of the Association in the same manner as prior to the Conversion. The
Converted Association has no plan or intention and the Holding Company has no
plan or intention to cause the Converted Association to sell its assets other
than in the ordinary course of business.
<PAGE>
Board of Directors
October 27, 1998
Page 5
(e) The Holding Company has no plan or intention to sell, liquidate or
otherwise dispose of the stock of the Converted Association.
(f) The Holding Company has no current plan or intention to redeem or
otherwise acquire any of the Conversion Stock issued in the Conversion.
(g) Immediately after the Conversion, the Converted Association will
possess the same assets and liabilities of the Association immediately prior to
the Conversion, plus the net proceeds from the sale of th e Converted
Association's common stock to the Holding Company.
(h) None of the shares of the Conversion Stock to be purchased by the
depositors of the Association in the Conversion will be issued or acquired at a
discount. However, shares may be granted to certain Directors and employees as
incentive compensation through the Employee Plans. Compensation to be paid to
such Directors and employees, taking into account any shares granted, will be
commensurate with amounts paid to third parties bargaining at arm's length for
similar services.
(i) The fair market value of the assets of the Association, which will be
held by the Converted Association in the Conversion, will equal or exceed the
sum of the liabilities of the Association which will be assumed by the Converted
Association and any liabilities to which the Association's assets are subject.
The Association has not incurred any liabilities other than in the ordinary
course of business.
(j) The Association is not under the jurisdiction of a bankruptcy or
similar court in any Title 11 or similar case within the meaning of the Code.
(k) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders, or others in lieu of (i) nontransferable
subscription rights, or (ii) an interest in the liquidation account of the
Converted Association.
(l) Depositors will pay the expenses of the Conversion solely applicable
to them, if any. The Holding Company and the Association will each pay expenses
of the transaction attributable to them and will not pay any expenses solely
attributable to the depositors or to the Holding Company shareholders.
<PAGE>
Board of Directors
October 27, 1998
Page 6
(m) The exercise price of the subscription rights received by the
Association's Eligible Account Holders, Supplemental Eligible Account Holders,
and other holders of subscription rights to purchase Conversion Stock will be
equal to the fair market value of the stock of the Holding Company at the time
of the completion of the Conversion as determined by an independent appraisal.
OPINION
Based solely on the foregoing representations and information and assuming the
Conversion occurs in accordance with the Plan, it is our opinion that:
(1) The Conversion of the Association from a mutual savings and loan
association to a stock savings and loan association will be a tax-free
reorganization within the meaning of section 368(a)(1)(F) of the Code (Rev. Rul.
80-105, 1980-1 C.B. 78). Neither the Association nor the Converted Association
will recognize gain or loss as a result of the Conversion. The Association and
the Converted Association shall each be "a party to a reorganization" within the
meaning of section 368(b) of the Code.
(2) No gain or loss will be recognized by the Converted Association or the
Holding Company on the receipt by the Converted Association of money from the
Holding Company in exchange for shares of the Converted Association's common
stock or by the Holding Company upon the receipt of money from the sale of
Conversion Stock (section 1032(a)).
(3) The basis of the deposit accounts in the Converted Association to be
received by the Eligible Account Holders and Supplemental Eligible Account
Holders will be the same as the basis of their deposit accounts in the
Association surrendered in exchange therefor (section 1012).
(4) The basis of each Eligible Account Holder's or Supplemental Account
Holder's interest in the liquidation account of the Converted Association will
be zero (Rev. Rul. 71-233, 1971-1 C.B. 113).
(5) No gain or loss will be recognized by an Eligible Account Holder or
Supplemental Eligible Account Holder on the receipt of an interest in the
liquidation account and/or nontransferable subscription rights to purchase
shares of stock in the Holding Company to the extent the interest in the
liquidation account and the nontransferable subscription rights received have no
fair market value. (We understand
<PAGE>
Board of Directors
October 27, 1998
Page 7
that you hav e received a letter from Keller & Company, Inc. indicating that the
subscription rights have no fair market value. In various private letter
rulings, the Internal Revenue Service has stated that interests similar to
interests in the liquidation account have no fair market value. Neither the
Keller & Company letter nor private letter rulings issued to other taxpayers are
binding on the Service. We express no legal opinion on the fair market value of
liquidation accounts or nontransferable subscription rights or on whether gain
will be recognized if the interests in the liquidation account or
nontransferable subscription rights have value.)
(6) Eligible Account Holders and Supplemental Eligible Account Holders will
not realize any taxable income as a result of the exercise by them of the
nontransferable subscription rights (Rev. Rul. 56-572, 1956-2 C.B. 182).
(7) The basis to the stockholders of the Holding Company Common Stock
purchased in the Conversion will be the purchase price paid therefor (section
1012).
SCOPE OF OPINION
Since this letter is rendered in advance of the closing of this transaction, we
have assumed that the transaction will be consummated in accordance with the
Plan of Conversion, that all of the information and representations referred to
herein will continue to be accurate as of the date of the closing, and that all
of the documents as presented to us will be executed without any material
changes. We have also assumed the accuracy of the representations made by the
Association of which we have made no independent investigation thereof. Any
changes in the transaction could cause us to modify our opinion.
The opinions contained herein are rendered only with respect to the specific
matters discussed herein and we express no opinion with respect to any other
legal, federal, state, local or foreign aspect of these transactions. If any of
the information upon which we have relied is incorrect, or if changes in the
relevant facts occur after the date hereof, our opinion could be affected
thereby. In particular, if the subscription rights are subsequently found to
have a fair market value, income may be recognized by various recipients of the
subscription rights and the Company and/or the Association may be taxable on the
distribution of the subscription rights.
Moreover, our opinion is based on case law, the Code, Treasury Regulations
thereunder, and Internal Revenue Service rulings and other administrative
guidance as they now exist. These authorities are all subject to change, and
such change may be made with retroactive
<PAGE>
Board of Directors
October 27, 1998
Page 8
effect. We can give no assurance that, after such change, our opinion would not
be different. We undertake no responsibility to update or supplement our
opinion. This opinion is not binding on the Internal Revenue Service and there
can be no assurance, and none is hereby given, that the Internal Revenue Service
will not take a position contrary to one or more of the positions reflected in
the foregoing opinion, or that our opinion will be upheld by the courts if
challenged by the Internal Revenue Service.
We express no opinion as to any state or local income tax consequences of the
Conversion or federal, state, or local income tax consequences of the formation
of the Foundation. We understand that the accounting firm of Crowe, Chizek and
Company LLP will be addressing the state tax consequences of the Conversion in a
separate letter. We understand that Crowe, Chizek and Company LLP will also be
addressing the federal, state, and local income tax consequences of the
formation of the Foundation.
CONSENT
We consent to the inclusion of this opinion as an exhibit to the Form AC and
Form S-1 Registration Statement of Holding Company and the references to the
summary of this opinion in such Form AC and Form S-1 Registration Statement. In
addition, we consent to Crowe, Chizek and Company LLP's reliance on this letter
solely for the purpose of issuing an opinion on the Ohio tax consequences of the
Conversion.
Sincerely,
/s/ PATTON BOGGS LLP
PATTON BOGGS LLP
gjs/jkw/spc
<PAGE>
EXHIBIT 10.2 DRAFT ESOP LOAN COMMITMENT LETTER AND ESOP LOAN DOCUMENTS
<PAGE>
Exhibit 10.2
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
EMPLOYEE STOCK OWNERSHIP TRUST
LOAN AND SECURITY AGREEMENT
First Place Financial Corp.
185 East Market Street
Warren, Ohio 44482
_____, 199_
Gentlemen:
The undersigned, _______________________ ("Trustee"), not individually but
solely as Trustee under the First Federal Savings and Loan Association of Warren
Employee Stock Ownership Trust (the "Trust") effective [_________, 1998] (the
"Borrower"), applies to you for your commitment, subject to all of the terms and
conditions hereof and on the basis of the representations hereinafter set forth,
to make a loan available to the Borrower as hereinafter set forth. First Place
Financial Corp. is hereinafter referred to as the "Lender". The term
"Association" as used herein refers to First Federal Savings and Loan
Association of Warren, as the sponsoring employer of First Federal Savings and
Loan Association of Warren Employee Stock Ownership Plan (the "ESOP").
SECTION ONE. THE TERM LOAN.
1.1 AMOUNT AND TERMS. By its acceptance hereof the Lender agrees, subject
----------------
to all of the terms and conditions hereof and on the basis of the
representations hereinafter set forth, to make a loan (the "Loan") of up to
_______________________________ ($ ____________) (the "Commitment"), such
proceeds to be used by the Borrower entirely to finance the purchase of shares
("Shares") of the common stock, par value $.01 of First Place Financial Corp., a
Delaware corporation in connection with the public offering being conducted as
part of the conversion of the Association from the mutual into the stock form of
organization.
The Loan is intended to be an "exempt loan" as described in Section 4975(d)
of the Internal Revenue Code of 1986, as amended (the "Code"), as defined in
Section 54.4975-7(b) of the Treasury Regulations (the "Regulations"), as
described in Section 408(b)(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") and as described in Department of Labor Regulations
Section 2550.408b-3 (collectively, the "Exempt Loan Rules").
1.2 THE NOTE. The disbursement of the Loan pursuant to Section 1.1
--------
hereof shall be made against and evidenced by a promissory note of the Borrower
in the form annexed hereto as Exhibit A (the "Note"), such Note to bear interest
as hereinafter provided, and shall become due and payable in fifteen (15) equal
annual installments
-1-
<PAGE>
consisting of both principal and interest amortized over a fifteen (15) year
period in an amount sufficient to repay the Loan plus interest, commencing on
_____ __, 1998 and on the last Business Day of each and every ____________ each
year, except that the final installment in the amount of all principal and
interest not sooner paid shall be due on _____ __, __ the final maturity
thereof.
Without regard to the principal amount of the Note stated on its face, the
actual principal amount at any time outstanding and owed by the Borrower on
account of the Note shall be the amount of the disbursement of the Loan made by
the Lender under Section 1.1 hereof less all payments of principal actually
received by the Lender. The amount of such disbursement made by the Lender and
any repayments of principal thereof shall be recorded by the Lender on its books
or records or, at its option, endorsed on the reverse side of the Note by the
Lender and the unpaid principal balance at any time so recorded or endorsed by
the Lender shall be prima facie evidence in any court or other proceedings
brought to enforce the Note of the principal amount remaining unpaid thereon.
1.3 EXEMPT LOAN RULES. Notwithstanding anything to the contrary
-----------------
contained in this Loan and Security Agreement (the "Agreement") or in the Note,
the Borrower shall be obligated to make repayments of the Loan only to the
extent that such repayments when added to the repayments theretofore made during
the applicable plan year would not exceed an amount which would cause the
limitations of Section 415 of the Code to be exceeded for any ESOP participant.
Except as set forth in the next succeeding sentence and to the extent
permitted by applicable law, including, without limitation, the Exempt Loan
Rules, the principal amount of the Loan and any interest thereon shall be
payable solely from contributions (other than contributions of employer
securities) made to the Trust in accordance with the ESOP, and cash dividends
received on the Shares, to enable the Borrower to pay its obligations under the
Loan and from earnings attributable to the Shares and the investment of such
contributions and dividends.
The Lender acknowledges and agrees that it shall have no other recourse
against the Borrower for repayment of the Loan and that it shall have no
recourse against assets of the ESOP included in the Trust other than pursuant to
Sections 3 and 8 hereof.
-2-
<PAGE>
SECTION TWO. INTEREST AND FEES.
2.1 INTEREST RATE. The Loan shall bear interest (which the Borrower
-------------
hereby promises to pay) prior to maturity (whether by lapse of time,
acceleration or otherwise) at a rate per annum equal at all times to the
Interest Rate as defined in Section 10.3 hereof.
2.2 BASIS AND PAYMENT DATES. All interest accruing on the Note prior to
-----------------------
maturity shall be due and payable on an annual basis on the last Business Day of
each year (commencing ____________, 199_) and at maturity (unless prepaid in
whole prior to such date, then on the date of such prepayment in whole) and
interest accruing after maturity shall be due and payable upon demand. All
interest on the Note shall be computed on the basis of a year of 360 days.
SECTION THREE. COLLATERAL.
3.1 GRANT OF SECURITY INTEREST-PLEDGED SHARES. The Borrower hereby
-----------------------------------------
grants, pledges and assigns to the Lender all shares of the issued and
outstanding common stock, par value $.01 per share all of which were either (i)
purchased by the Borrower from the proceeds of the disbursement of the Loan;
(ii) acquired by the Borrower with the proceeds of a prior exempt loan within
the meaning of Section 54.4975-7(b) of the Regulations, and pledged as
collateral for such prior exempt loan, where the balance of such prior exempt
loan has been repaid with the proceeds of the disbursement of the Loan (the
"Pledged Shares" being hereinafter referred to as the "Collateral"). The
Pledged Shares shall be evidenced by a stock certificate. The assignment and
pledge herein granted and provided for is made and given to secure and shall
secure the prompt payment of principal of and interest on the Note as and when
the same becomes due and payable and the payment, observance and performance of
any and all obligations and liabilities arising under or provided for in this
Agreement or the Note or any of them in each instance as the same may be amended
or modified and whether now existing or hereafter arising.
3.2 FURTHER ASSURANCES. The Borrower covenants and agrees that it will
------------------
at any time and from time to time as requested by the Lender execute and deliver
such further instruments and do and perform such other acts as the Lender may
reasonably deem necessary or desirable to provide for or perfect the lien of the
Lender in the Collateral hereunder.
3.3 VOTING. Upon the occurrence of a Default or an Event of Default
------
hereunder, the Lender shall have the right to transfer the Collateral or any
part thereof into its name or into the name of its nominee. The Lender shall
not be entitled to vote the Pledged Shares unless and until an Event of Default
has occurred and so long as the same shall not have been waived by the Lender.
3.4 PARTIAL RELEASES. The Lender agrees, provided always that no Default
-----------------
or Event of Default shall have occurred and be continuing, as promptly as is
practicable after _____________ in each year (the period commencing ___________
and ending on
-3-
<PAGE>
________________ being herein after referred to as a "Plan Year"), to release
that number of Pledged Shares then being held to secure the Loan which is equal
to the number of such Pledged Shares held as of the last day of the Plan Year
multiplied by a fraction, the numerator of which is the aggregate amount of all
principal and interest payments made on the Note during the Plan Year and the
denominator of which is the sum of the numerator plus the unpaid principal and
interest of the Note as of the last day of such Plan Year.
SECTION FOUR. PAYMENTS.
4.1 PLACE AND APPLICATION. All payments of principal, interest, fees and
---------------------
all other amounts payable hereunder shall be made to the Lender at 185 East
Market Street, Warren, Ohio 44482, for the account of the Lender (or at such
other place for the account of the Lender as the Lender may from time to time in
writing specify to the Borrower) in immediately available and freely
transferable funds at the place of payment. All payments shall be paid in full
without setoff or counterclaim and without reduction for and free from any and
all taxes, levies, duties, fees, charges, deductions, withholdings, restrictions
or conditions of any nature imposed by any government or any political
subdivision or taxing authority thereof.
4.2 PREPAYMENTS. The Borrower shall have the privilege of prepaying in
-----------
whole or in part the Note at any time upon giving three (3) Business Days' prior
notice to the Lender, each such prepayment to be made by the payment of the
principal amount to be prepaid and accrued interest thereon to the date fixed
for prepayment. All such prepayments shall be made without premium or penalty.
Prepayments shall first be applied to the several installments of the Note in
the inverse order of their respective maturities.
SECTION FIVE. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Lender as follows:
5.1 The Trust is a duly organized, validly existing employee stock
ownership trust.
5.2 The proceeds of the disbursement of the Loan shall be applied in their
entirety to the payment of the purchase price for the Pledged Shares.
5.3 The Borrower has full right, power and authority to enter into this
Agreement, to make the borrowings hereunder provided for, to issue the Note in
evidence thereof and to perform each and all of the matters and things herein
and therein provided for and this Agreement does not, and the Note when issued
will not, nor will the performance or observance by the Borrower of any of the
matters or things herein or therein provided, contravene any provision of law or
the Trust or any other covenant or agreement affecting the Trust or any of its
assets. As of the date of the disbursement of
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the Loan, the Pledged Shares will be fully paid and non-assessable and the
Pledged Shares will be owned by the Borrower free and clear of all liens,
charges and encumbrances whatsoever, except for any lien of Lender provided for
herein.
5.4 Except as disclosed to the Lender in writing, there is no litigation
or governmental proceeding pending, nor to the knowledge of the Borrower
threatened, against the ESOP and Trust.
5.5 The ESOP and Trust have no material liabilities, whether absolute or
contingent, except for those heretofore disclosed to the Lender.
5.6 The Association has taken such actions as are required by applicable
law to be taken by it to establish the ESOP and the Trust.
5.7 There is no action, suit, investigation or proceeding pending, or to
the best knowledge of the Association, threatened against or affecting the ESOP
before any court or governmental department, agency or instrumentality.
SECTION SIX. REPRESENTATIONS AND WARRANTIES OF THE LENDER
The Lender represents and warrants that:
6.1 The Lender is a corporation duly organized under the laws of the State
of Delaware, and is validly existing and in good standing under the laws of the
State of Delaware. The Lender has full power and authority and legal right to
make and perform this Agreement.
6.2 The execution, delivery and performance by the Lender of this
Agreement have been duly authorized by all necessary action by the Lender and is
not and will not violate any provisions of law applicable to the Lender, any
rules, regulations or orders applicable to the Lender or any judgments or
decrees binding upon the Lender. This Agreement is a valid and legally binding
obligation of the Lender enforceable against the Lender in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights
generally and the general principles of equity (regardless of whether considered
in a proceeding at law or in equity).
6.3 No authorizations, approvals or consents of, and no filings or
registrations with, any governmental regulatory authority or agency are required
for the execution, delivery or performance by the Lender of this Agreement, or
any transaction contemplated hereby, or for the validity or enforceability
against the Lender hereof except as have already been received or accomplished.
6.4 The execution, delivery and performance of the Agreement and the
consummation of the transactions contemplated hereby will not violate, conflict
with or constitute a default under (i) any of the provisions of the Lender's
Certificate of
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<PAGE>
Incorporation or Bylaws, (ii) any provision of any agreement, instrument, order,
arbitration award, judgment or decree to which the Lender is a party or by which
it is or its assets are bound or (iii) any statute, rule or regulation of any
federal, state or local government or agency applicable to the Lender, except in
any such case (i), (ii), or (iii) above, for any such conflicts, violations,
defaults which either individually or in the aggregate do not have a material
adverse effect on the business properties of the Lender and its subsidiaries,
taken as a whole.
6.5 The Loan will be an "exempt loan" as that term is defined under
Section 54.4975-7(b)(1)(iii) of the Regulations, provided the ESOP Committee
determines that the interest rate is not more than reasonable; and the
transactions contemplated by this Agreement are not "prohibited transactions"
within the meaning of Section 4975 of the Code or Section 406(a) of ERISA.
6.6 Except as otherwise provided in this Agreement, the Shares are not
subject to any restriction on transfer under applicable Federal securities law
and may be freely traded over-the-counter.
SECTION SEVEN. CONDITIONS PRECEDENT.
The obligation of the Lender to make the Loan shall be subject to
satisfaction of the following conditions precedent:
7.1 The Lender shall have received executed originals of this Agreement
and the Note duly signed and properly completed.
7.2 The Lender shall have received either (i) the certificate evidencing
all the Pledged Shares together with duly executed blank stock power therefore
or (ii) if such Pledged Shares are not yet available, a duly executed agreement
to pledge such stock in the form attached hereto as Exhibit B (in which event
such certificate and stock power will be delivered within 10 days of the date of
the Lender makes the Loan).
7.3 The Lender shall have received copies (executed or certified, as may
be appropriate) of all legal documents or proceedings taken in connection with
the execution and delivery of this Agreement and the Note.
SECTION EIGHT. COVENANTS.
Borrower covenants and agrees that so long as any amount remains unpaid on
the Note or the Commitment is outstanding, except to the extent compliance in
any case or cases is waived in writing by the Lender:
8.1 COMPLIANCE. The Borrower will comply with all requirements of the
----------
Code, ERISA and any other law, rule or regulation applicable to it as such laws,
rules or regulations affect the ESOP or the Trust.
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<PAGE>
8.2 REPORTS.
-------
(a) The Borrower will maintain a system of accounting for the ESOP and
the Trust in accordance with sound accounting practice and will, from time
to time, furnish to the Lender and its duly authorized representatives,
such information and data with respect to the financial condition of the
ESOP and the Trust as the Lender may reasonably request.
(b) Without any request the Borrower will furnish to the Lender
promptly after knowledge thereof shall have come to the attention of the
Borrower, written notice of the occurrence of any Default or Event of
Default hereunder or of any threatened or pending litigation or
governmental proceeding against the Plan or the Trust.
8.3 DETERMINATION LETTER. The Association shall apply for a
--------------------
determination letter from the Internal Revenue Service that the Plan and the
Trust, taken together, qualify as an employee stock ownership plan for purposes
of Section 4975(e)(7) of the Code and the rules and regulations thereunder.
SECTION NINE. EVENTS OF DEFAULT AND REMEDIES.
9.1 EVENT OF DEFAULT. Any one or more of the following shall constitute
----------------
an Event of Default hereunder:
(a) The Borrower shall default in the payment of principal and/or
interest in respect of the Note or any other amounts payable under this
Agreement when due;
(b) Any representation, warranty or statement made by the Borrower
herein or in connection with the making of the Loan proves to be incorrect
in any material respect as of the date of the issuance or making thereof;
(c) The Borrower shall default in the due performance or observance by
it of any term, covenant or agreement (other than those referred to in
subparts (a) and (b), inclusive, of this Section 9.1) contained in this
Agreement and such default shall continue unremedied for a period of 30
days after notice to the Borrower by the Lender or any other holder of the
Note;
(d) The ESOP is terminated prior to the expiration of the term of this
Agreement.
9.2 LIMITATIONS ON USE OF TRUST ASSETS. When any Event of Default
----------------------------------
described in subsections (a) to (c), of Section 9.1 has occurred and is
continuing, the Lender or the holder of the Note shall have no rights to assets
of the Trust other than (i) contributions (other than contributions of employer
securities) that are made by the Lender to enable the Borrower to meet its
obligations pursuant to the Loan, cash
-7-
<PAGE>
dividends received by the Borrower on the Shares and earnings attributable to
the investment of such contributions and dividends and (ii) the Pledged Stock;
provided further, however, that the value of Trust assets transferred to the
Lender as a result of an Event of Default shall not exceed the amount of the
repayment then in default, and, provided further, that so long as the Lender is
a "party in interest" within the meaning of ERISA Section 3(14) or a
"disqualified person" within the meaning of Section 4975(e)(2) of the Code, a
transfer of Trust assets upon default shall be made only if, and to the extent
of, the Borrower's failure to meet the loan's payment schedule.
9.3 RIGHTS UPON AN EVENT OF DEFAULT. When any Event of Default has
-------------------------------
occurred and is continuing the Lender may, in addition to such other rights or
remedies as it may have, then or at any time or times thereafter exercise with
respect to the Collateral any and all of the rights, options and remedies of a
secured party under the Uniform Commercial Code of Ohio (the "UCC") including
without limitation the sale of all or any part of the Collateral at any brokers'
board or any public or private sale, provided, however that the Lender shall
only be able to exercise such rights and remedies to the extent of all interest
and principal payments which are due and payable as of the date of the Event of
Default and provided further that prior to such exercise the Lender shall
release from the Collateral so much thereof as it would have been required to
release under Section 3.4 hereof if the period from the previous ___________ to
the date of such release constituted a Plan Year and no Event of Default had
occurred. The net proceeds of any such sale, after deducting all costs and
expenses incurred in the collection, protection, sale and delivery of the
Collateral (which expenses Borrower promises to pay) shall be applied first to
the payment of any costs and expenses incurred by the Lender in selling or
otherwise disposing of the Collateral, second, to the payment of the principal
of and the interest on the Note, and, third, ratably as among any other items of
the indebtedness hereby secured. Any surplus remaining after the full payment
and satisfaction of the foregoing shall be returned to the Borrower or to
whomsoever a court of competent jurisdiction shall determine to be entitled
thereto. Any requirement of said UCC as to reasonable notice shall be met by
the Lender personally delivering or mailing notice (by certified mail - return
receipt requested) to the Borrower at its address as provided in Section 11.6
hereof at least ten (10) days prior to the event giving rise to the requirement
of such notice. In connection with any offer, solicitation or sale of the
Collateral, the Lender may restrict bidders and otherwise proceed in whatever
manner it reasonably believes appropriate in order to comply or assure
compliance with applicable legal requirements pertaining to the offer and sale
of securities of the same type as the Collateral.
9.4 ERISA RESTRICTIONS. The number of shares of Pledged Stock as to which
------------------
the Lender may exercise the rights set forth in this Section 9 may not exceed
that number of shares (then remaining subject to pledge hereunder) which is then
equal in current value to the amount in default under the Note. The remedies
set forth in this Section 9 may only be exercised to the extent consistent with
the restrictions on remedies set forth in Section 408(b)(3) of ERISA and the
regulations thereunder and Section 4975(d)(3) of the Code and the regulations
thereunder.
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<PAGE>
SECTION TEN. DEFINITIONS.
10.1 The term "Business Day" shall mean any day on which savings
institutions are generally open for business in Ohio other than a Saturday or
Sunday.
10.2 The term "Event of Default" shall mean any event condition specified
as such in Section 9.1 hereof and the term "Default" shall mean any event or
condition which, with the lapse of time, the giving of notice, or both would
constitute an Event of Default.
10.3 The term "Interest Rate" shall mean prime rate as published in the
Wall Street Journal on _______________, 1998.
Capitalized terms defined elsewhere in this Agreement shall have the
meanings as defined in all provisions hereof
SECTION ELEVEN. MISCELLANEOUS.
11.1 HOLIDAYS. If any principal of the Note shall fall due on Saturday,
---------
Sunday or on another day which is a legal holiday for savings institutions in
the State of Ohio, interest at the rate the Note bears for the period prior to
maturity shall continue to accrue on such principal from the stated due date
thereof to and including the next succeeding Business Day on which the same is
payable.
11.2 NO WAIVER, CUMULATIVE REMEDIES. No delay or failure on the part of
-- ---------------------------
the Lender or the part of the holder of the Note in the exercise of any power or
right shall preclude any other or further exercise thereof, or the exercise of
any other power or right, and the rights and remedies hereunder of the Lender
and of any holder of the Note are cumulative to, and not exclusive of, any
rights or remedies which any of them would otherwise have.
11.3 AMENDMENTS, ETC. No amendment, modification, termination or waiver
---------------
of any provision of this Agreement or of the Note nor consent to any departure
by the Borrower therefrom, shall in any event be effective unless the same shall
be in writing and signed by the Lender, and then such consent, modification or
waiver shall be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other further notice or demand in similar or
other circumstances.
11.4. SURVIVAL OF REPRESENTATIONS. All representations and warranties
---------------------------
made herein or in certificates given in connection with the Loan shall survive
the execution and delivery of this Agreement and of the Note, and shall continue
in full force and effect with respect to the date as of which they were made as
long as any credit is in use or available hereunder.
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<PAGE>
11.5 PAYMENTS. So long as the Lender is the holder of the Note, the
--------
Borrower will promptly and punctually pay the principal of and interest on the
Note without presentment of the Note and without any notation of any such
payment being made on the Note.
11.6 ADDRESSES FOR NOTICES. All communications provided for herein shall
---------------------
be in writing and shall be deemed to have been given or made when served
personally or when deposited in the United States mail addressed, if to the
Borrower at ____________________, ATTN: Trust Officer; if to the Lender at 185
East Market Street, Warren, Ohio 44482, or at such other address as shall be
designated by any party hereto in a written notice to each other party pursuant
to this Section 11.6.
11.7 HEADINGS. Article and Section headings used in this Agreement are
--------
for convenience or reference only and are not a part of this Agreement for any
other purpose.
11.8 SEVERABILITY OF PROVISIONS. Any provision of this Agreement which is
--------------------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such unenforceability without impairing the enforceability of
the remaining provisions hereof affecting the enforceability of such provision
in any other jurisdiction.
11.9 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, and by different parties hereto on separate counterparts, and all
such counterparts taken together shall be deemed to constitute one and the same
instrument.
11.10 BINDING NATURE, GOVERNING LAW, ETC. This Agreement shall be
-----------------------------------
binding upon the Borrower and its successors and assigns and shall inure to the
benefit of the Lender and the benefit of its successors and assigns, including
any subsequent holder of the Note. To the extent not preempted by Federal law,
this Agreement and the rights and duties of the parties hereto shall be
construed and determined in accordance with the laws of the State of Ohio
without regard to principles of conflicts of laws. This Agreement constitutes
the entire understanding of the parties with respect to the subject matter
hereof and any prior agreements, whether written or oral, with respect thereto
are superseded hereby.
11.11 CONCERNING THE BORROWER. The term "Borrower" as used herein shall
-----------------------
mean and include the undersigned as Trustee of the Trust and its successors in
trust not individually but solely as Trustee under that certain First Federal
Savings and Loan Association of Warren Employee Stock Ownership Trust effective
_________, 199_, by and between the undersigned and First Federal Savings and
Loan Association of Warren and this Agreement shall be binding upon the
undersigned and its successors and assigns and upon the trust estate. The
undersigned assumes no personal or individual liability or responsibility for
payment of the indebtedness evidenced by the Note or for observance or
performance of the covenants and agreements herein contained or for the
truthfulness of the representations and warranties herein contained, the
undersigned having executed this Agreement and the Note solely in its capacity
as trustee as aforesaid to bind the undersigned, its successors in trust and the
trust estates.
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<PAGE>
11.12 LIMITED LIABILITY. Anything contained herein or in the Note to the
-----------------
contrary notwithstanding, the sole and only recourse of the Lender and any other
holder of the Note for payment of the obligations hereunder and under the Note,
as against the Borrower for the payment of the obligations hereunder and under
the Note shall be to (i) the Collateral, (ii) contributions, other than employer
securities not constituting Collateral hereunder, made to the ESOP and the Trust
by sponsoring employers to enable the Borrower to meet its obligations hereunder
and under the Note, and (iii) earnings attributable to the Pledged Shares and to
the investment of such employer contributions, but only to the extent of the
failure of the Borrower to meet the payment schedule of the Loan provided for
herein. The Trust assets may be transferred to Lender upon the occurrence of a
Default or an Event of Default hereunder only upon and to the extent of the
failure of the Plan to meet the payment schedule of the Loan. In no event may
the value of the Trust assets so transferred exceed the amount of the default.
11.13 LENDER'S DUTY OF CARE. It is agreed and understood that the
---------------------
Lender's duty with respect to the Collateral shall be solely to use reasonable
care in the custody and preservation of the Collateral in the Lender's
possession, which shall not include any steps necessary to preserve rights
against prior parties.
All provisions in this Agreement shall be construed so as to maintain (i)
the ESOP as a qualified leveraged employee stock ownership plan under Sections
401(a) and 4975(e)(7) of the Code, (ii) the Trust as exempt from taxation under
Section 501(a) of the Code, and (iii) the Loan as an "exempt loan" under the
Exempt Loan Rules.
[Remainder of this page intentionally left blank]
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<PAGE>
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall constitute a contract between us for the uses and purposes
hereinabove set forth.
Dated as of this _____ day of ______________________, 1998.
_______________________, and its successors in trust,
as Trustee under that certain First Federal Savings and
Loan Association of Warren Employee Stock Ownership
Trust by and between the undersigned and First Federal
Savings and Loan Association of Warren.
By___________________________
Accepted and agreed to at Warren, Ohio as of the date last above written
FIRST PLACE FINANCIAL CORP.
By__________________________
Steven R. Lewis
President and Chief Executive Officer
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<PAGE>
EXHIBIT A
PROMISSORY NOTE
$ __________
Warren, Ohio
_________________, 1998
For VALUE RECEIVED, the undersigned, _____________________, not
individually but solely as Trustee under that certain First Federal Savings and
Loan Association of Warren Employee Stock Ownership Trust by and between the
undersigned ("Borrower") and First Federal Savings and Loan Association of
Warren promises to pay to the order of First Place Financial Corp. (the
"Lender") at its office at 185 East Market Street, Warren, Ohio 44482, the
principal sum of _____________________________ ($_______________ ), if less,
the aggregate principal amount of the loan made to the Borrower under Section
1.1 of the Loan and Security Agreement hereinafter referred to in fifteen
consecutive annual installments consisting of both principal and interest,
amortized over a fifteen (15) year period in an amount sufficient to repay the
Loan plus interest, payable annually commencing on _______, 199_, and on the
last Business Day of each and every ____________ in each year thereafter, except
that the final installment in the amount of all principal and interest not
sooner paid shall be due on ________, ____, the final maturity hereof.
The Borrower promises to pay interest (computed on the basis of a year of
360 days) at said office on the balance of principal from time to time remaining
outstanding and unpaid hereon at the rate per annum equal at all times to the
Interest Rate as defined in Section 10.3 of the Loan and Security Agreement (as
defined below) on the last Business Day of each and every _________________,
commencing _______, ____, and in each year thereafter and on the final maturity
date of this Note. On demand, the Borrower promises to pay interest on any
overdue principal hereof (whether by lapse of time, acceleration, or otherwise)
until paid at the stated rate.
This Note is issued under the terms and provisions of that certain First
Federal Savings and Loan Association of Warren Employee Stock Ownership Trust
Loan and Security Agreement bearing even date herewith by and between the
Borrower and the Lender (the "Loan and Security Agreement") and this Note and
the holder hereof are entitled to all the benefits and security provided for
thereby or referred to therein to which Loan and Security Agreement reference is
hereby made for a statement thereof.
This Note may be declared due prior to its express maturity and voluntary
prepayments may be made hereon, all in the events, on the terms and in the
manner as provided in such Loan and Security Agreement.
Recourse for the payment of this Note has been limited by the provisions of
the Loan and Security Agreement and this Note is expressly made subject to such
provisions. This Note shall be governed by and construed in accordance with the
laws of Ohio
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<PAGE>
without regard to principles of conflicts of laws. The Borrower hereby waives
presentment for payment and demand.
Upon the occurrence of an Event of Default as such term is defined in the
Loan and Security Agreement at the option of the Lender, all amounts payable by
the Borrower to the Lender under the terms of this Note may immediately become
due and payable by the Borrower to the Lender pursuant to the provisions of
Section 9.2 of the Loan and Security Agreement, and the Lender shall have all of
the rights, powers, and remedies available under the terms of this Note, any of
the other documents evidencing and securing this Loan and all applicable laws.
The Borrower and all endorsers, guarantors, and other parties who may now or in
the future be primarily or secondarily liable for the payment of the
indebtedness evidenced by this Note hereby severally waive presentment, protest
and demand, notice of protest, notice of demand and of dishonor and non-payment
of this Note and expressly agree that this Note and any payment hereunder may be
extended from time to time without in any way affecting the liability of the
Borrower, guarantors and endorsers.
_____________________, and its successors in trust, as
Trustee under that certain First Federal Savings and
Loan Association of Warren Employee Stock Ownership
Trust by and between the undersigned and First Federal
Savings and Loan Association of Warren.
By: _______________________
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EXHIBIT B
SECURITY AGREEMENT
INSTRUMENTS OR NEGOTIABLE DOCUMENTS TO BE DEPOSITED
For new value contemporaneously given by First Place Financial Corp.,
("Lender") to the undersigned ("Borrower"), the receipt whereof is hereby
acknowledged, the Borrower does hereby grant a security interest to said Lender
in the instruments or negotiable documents hereafter described ("Collateral"),
in all of which Collateral the Borrower warrants that the Borrower has good,
valid and effective rights to the ownership and possession thereof and to the
grant of the security interest hereby made:
______________ shares of the common stock, par value $.01 per share, of
First Place Financial Corp., a Delaware corporation.
Borrower agrees to deliver said collateral to said Lender not later than
the close of business on ___________________, ____, said date being within 10
days from the date hereof.
Said security interest secures the payment of all indebtedness and
liabilities as undertaken in the Loan and Security Agreement to which this is a
part, now existing or hereafter arising, and the Lender has all the rights with
respect to said Collateral and said security interest as more fully set forth in
the form of secured note or notes executed and delivered by the undersigned to
said Lender prior hereto or contemporaneously herewith.
This agreement, including matters of interpretation and construction, and the
rights of the Lender and the duties and obligations of the debt hereunder are to
be determined in accordance with the laws of the State of Ohio, particularly the
Uniform Commercial Code, except where preempted by federal law.
Dated at Warren, Ohio the ______ day of ________________, 1998.
______________________, and its successors in
trust, as Trustee under that certain First Federal
Savings and Loan Association of Warren Employee
Stock Ownership Trust by and between the
undersigned and First Federal Savings and Loan
Association of Warren.
By: _________________________________
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<PAGE>
[FIRST PLACE FINANCIAL CORP.]
_____________, 1998
Steven R. Lewis
President and Chief Executive Officer
First Federal Savings and Loan Association of Warren
185 East Market Street
Warren, Ohio 44482
Dear Mr. Lewis:
This letter confirms First Place Financial Corp.'s commitment to fund a
leveraged ESOP in an amount up to $_____________. The commitment is subject to
the following terms and conditions:
1. Lender: First Place Financial Corp. (the "Company").
-------
2. Borrower: First Federal Savings and Loan Association of Warren
--------
Employee Stock Ownership Plan (the "ESOP").
3. Trustee: _______________________.
-------
4. Security: Unallocated shares of stock of the Company held in the
--------
ESOP.
5. Maturity: Up to ____ years from takedown.
--------
6. Amortization: Equal principal payments on quarterly, semi-annual or
------------
annual basis; specific amount to be set prior to takedown upon
determination of total loan disbursements.
7. Pricing: The Prime Rate as published in the Wall Street Journal on
-------
the date of the loan transaction.
8. Interest Payments: Quarterly, semi-annual or annual 360 or 365 day
-----------------
basis.
9. Funding: In full by ____________, unless such date is waived by the
-------
Company.
10. Prepayment: Voluntary prepayments are permitted at any time.
-----------
11. Conditions Precedent to Closing: Receipt by the Company of all
--------------------------------
supporting loan documents in a form and with terms and conditions
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<PAGE>
satisfactory to the Company and its counsel. Consummation of the
transaction will also be contingent upon no material adverse change
occurring in the condition of First Federal Savings and Loan
Association of Warren or the Company.
12. Closing Date: Not later than ___________, unless such date is waived
------------
by the Company.
If the terms and conditions are agreeable to you, please indicate your
acceptance by signing the enclosed copy and returning it to my attention.
Sincerely,
Accepted on Behalf of First Federal
Savings and Loan Association of Warren
By: ______________________ Date: ___________________________
Steven R. Lewis
President and Chief Executive Officer
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<PAGE>
EXHIBIT 10.3 FORM OF EMPLOYMENT AGREEMENT BETWEEN FIRST FEDERAL SAVINGS AND
LOAN ASSOCIATION OF WARREN AND STEVEN R. LEWIS
<PAGE>
FORM OF
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of ____________, 1998 by
and among First Federal Savings and Loan Association of Warren (the
"Association"), a federally chartered savings and loan association, with its
principal administrative office at 185 East Market Street, Warren, Ohio, First
Place Financial Corp., a corporation organized under the laws of the State of
Delaware, the holding company for the Association (the "Holding Company"), and
Steven R. Lewis ("Executive").
WHEREAS, the Association 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 Association 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
President and Chief Executive Officer of the Association. Executive shall
render administrative and management services to the Association such as are
customarily performed by persons situated in a similar executive capacity.
During said period, Executive also agrees to serve, if elected, as an officer
and director of the Holding Company or any subsidiary of the Association.
2. TERMS AND DUTIES.
(a) The period of Executive's employment under 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 of this Agreement, and continuing on each anniversary
thereafter, the disinterested members of the board of directors of the
Association ("Board") may extend the Agreement an additional year such that the
remaining term of the Agreement shall be thirty-six (36) months unless the
Executive elects not to extend the term of this Agreement by giving written
notice in accordance with Section 8 of this Agreement. The Board will review
the Agreement and Executive's performance annually for purposes of determining
whether to extend the Agreement and the rationale and results thereof shall be
included in the minutes of the Board's meeting. The Board shall give notice to
the Executive as soon as possible after such review as to whether the Agreement
is to be extended.
<PAGE>
(b) During the period of Executive's 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 Association and participation in community and
civic organizations; provided, however, that, with the approval of the Board, as
evidenced by a resolution of such Board, from time to time, 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 Association, or materially
affect the performance of Executive's duties pursuant to this Agreement.
(c) Notwithstanding anything herein to the contrary, Executive's employment
with the Association may be terminated by the Association or the Executive
during the term of this Agreement, subject to the terms and conditions of this
Agreement.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Association shall pay Executive as compensation a salary of
$150,000 per year ("Base Salary"). Base Salary shall include any amounts of
compensation deferred by Executive under any qualified or unqualified plan
maintained by the Association. Such Base Salary shall be payable bi-weekly.
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 the Board or
by a Committee of the Board, delegated such responsibility by the Board. The
Committee or the Board may increase Executive's Base Salary. Any increase in
Base Salary shall become the "Base Salary" for purposes of this Agreement. In
addition to the Base Salary provided in this Section 3(a), the Association shall
also provide Executive, at no premium cost to Executive, with all such other
benefits as are provided uniformly to permanent full-time employees of the
Association.
(b) The Executive shall be entitled to participate in any 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 Association will not,
without Executive's prior written consent, make any changes in such plans,
arrangements or perquisites which would materially adversely affect Executive's
rights or benefits thereunder; except to the extent such changes are made
applicable to all Association employees on a non-discriminatory basis. Without
limiting the generality of the foregoing provisions of this Subsection (b),
Executive shall be entitled to participate in or receive benefits under any
employee benefit plans including but not limited to, retirement plans,
supplemental retirement plans, pension plans, profit-sharing plans, health-and-
accident plans, medical coverage or any other employee benefit plan or
arrangement made available by the Association 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 shall be entitled to incentive compensation and bonuses
as provided in any plan of the Association in which Executive is eligible to
participate. Nothing paid to the
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Executive under any such plan or arrangement will be deemed to be in lieu of
other compensation to which the Executive is entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Association shall pay or reimburse Executive for all reasonable travel
and other reasonable expenses incurred by Executive performing his obligations
under this Agreement and may provide such additional compensation in such form
and such amounts as the Board may from time to time determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during the 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 Association or the Holding Company of Executive's full-time
employment hereunder for any reason other than a termination governed by Section
5(a) hereof, or Termination for Cause, as defined in Section 7 hereof; (ii)
Executive's resignation from the Association's employ upon any (A) failure to
elect or reelect or to appoint or reappoint Executive as President and Chief
Executive Officer, unless consented to by the Executive, (B) 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 Section 1, above,
unless consented to by Executive, (C) a relocation of Executive's principal
place of employment by more than 30 miles from its location at the effective
date of this Agreement, unless consented to by the Executive, (D) a material
reduction in the benefits and perquisites to the Executive from those being
provided as of the effective date of this Agreement, unless consented to by the
Executive, (E) a liquidation or dissolution of the Association or Holding
Company, or (F) breach of this Agreement by the Association. Upon the
occurrence of any event described in clauses (A), (B), (C), (D), (E) or (F),
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 w ritten
notice given within six full months after the event giving rise to said right to
elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Association 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 a sum equal to the sum of:
(i) the amount of the remaining payments that the Executive would have earned if
he had continued his employment with the Association during the remaining term
of this Agreement at the Executive's Base Salary at the Date of Termination; and
(ii) the amount equal to the annual contributions that would have been made on
Executive's behalf to any employee benefit plans of the Association or the
Holding Company during the remaining term of this Agreement based on
contributions made (on an annualized basis) at the Date of Termination;
provided, however, that any payments pursuant to this subsection and subsection
- -------- -------
4(c) below shall not, in the aggregate, exceed three times Executive's average
annual compensation for the five most recent taxable years that Executive has
been employed by the Association or such lesser number of years in the event
that Executive shall have been employed by the Association for less
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than five years. In the event the Association is not in compliance with its
minimum capital requirements or if such payments pursuant to this subsection (b)
would cause the Association's capital to be reduced below its minimum regulatory
capital requirements, such payments shall be deferred until such time as the
Association or successor thereto is in capital compliance. At the election of
the Executive, which election is to be made prior to an Event of Termination,
such payments shall be made in a lump sum as of the Executive's Date of
Termination. In the event that no election is made, payment to Executive will be
made on a monthly basis in approximately equal installments during the remaining
term of the Agreement. Such payments shall not be reduced in the event the
Executive obtains other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Association will
cause to be continued life, medical and dental coverage substantially identical
to the coverage maintained by the Association or the Holding Company for
Executive prior to his termination at no premium cost to the Executive, except
to the extent such coverage may be changed in its application to all Association
or Holding Company employees. Such coverage shall cease upon the expiration of
the remaining term of this Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the
Association or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1 of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Association or the Holding Company within
the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal
Deposit Insurance Act and the Rules and Regulations promulgated by the Office of
Thrift Supervision ("OTS") (or its predecessor agency), as in effect on the date
hereof (provided, that in applying the definition of change in control as set
forth under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Association or the Holding
Company representing 25% or more of the Association's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Association purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Association or
the Holding Company, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Holding Company's stockholders was approved by the same Nominating
Committee serving under an Incumbent Board, shall be, for purposes of this
clause (B), considered as though he were a member of the Incumbent Board, or (C)
a plan of reorganization, merger, consolidation, sale of all or substantially
all the assets of the Association or the Holding Company or similar
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transaction occurs in which the Association or Holding Company is not the
resulting entity; provided, however, that such an event listed above will be
deemed to have occurred or to have been effectuated upon the receipt of all
required regulatory approvals not including the lapse of any statutory waiting
periods.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c), and (d) of this Section 5
upon his subsequent termination of employment within two years following the
Change in Control due to: (1) Executive's dismissal or (2) Executive's voluntary
resignation following any material demotion, loss of title, office or
significant authority or responsibility, material reduction in annual
compensation or benefits or relocation of his principal place of employment by
more than 30 miles from its location immediately prior to the Change in Control,
unless such termination is because of his death, disability, retirement or
termination for Cause.
(c) Upon Executive's entitlement to benefits pursuant to Section 5(b), the
Association shall pay Executive, or in the event of his subsequent death, his
beneficiary or beneficiaries, or his estate, as the case may be, a sum equal to
the greater of: (1) the payments due for the remaining term of the Agreement;
or (2) three (3) times Executive's average annual compensation for the five (5)
most recent taxable years that Executive has been employed by the Association or
such lesser number of years in the event that Executive shall have been employed
by the Association for less than five (5) years. Such average annual
compensation shall include Base Salary, commissions, bonuses, contributions on
Executive's behalf to any pension and/or profit sharing plan, severance
payments, retirement payments, directors or committee fees and fringe benefits
paid or to be paid to the Executive in any such year and payment of any expense
items without accountability or business purpose or that do not meet the
Internal Revenue Service requirements for deductibility by the Association;
provided, however, that any payment under this provision and subsection 5(d)
- -------- -------
below shall not exceed three (3) times the Executive's average annual
compensation. In the event the Association is not in compliance with its
minimum capital requirements or if such payments would cause the Association's
capital to be reduced below its minimum regulatory capital requirements, such
payments shall be deferred until such time as the Association or successor
thereto is in capital compliance. At the election of the Executive, which
election is to be made prior to a Change in Control, such payment shall be made
in a lump sum as of the Executive's Date of Termination. In the event that no
election is made, payment to the Executive will be made in approximately equal
installments on a monthly basis over a period of thirty-six (36) months
following the Executive's termination. Such payments shall not be reduced in
the event Executive obtains other employment following termination of
employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Association will cause to be continued life, medical and dental coverage
substantially identical to the coverage maintained by the Association for
Executive prior to his severance at no premium cost to the Executive, except to
the extent that such coverage may be changed in its application for all
Association employees on a non-discriminatory basis. Such coverage and payments
shall cease upon the expiration of thirty-six (36) months following the Date of
Termination.
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6. CHANGE OF CONTROL RELATED PROVISIONS
Notwithstanding the provisions of Section 5, in no event shall the
aggregate payments or benefits to be made or afforded to Executive under said
paragraphs (the "Termination Benefits") constitute an "excess parachute payment"
under Section 280G of the Internal Revenue Code of 1986, as amended, or any
successor thereto, and in order to avoid such a result, Termination Benefits
will be reduced, if necessary, to an amount (the "Non-Triggering Amount"), the
value of which is one dollar ($1.00) less than an amount equal to three (3)
times Executive's "base amount", as determined in accordance with said Section
280G. The allocation of the reduction required hereby among the Termination
Benefits provided by Section 5 shall be determined by Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, incompetence, willful misconduct, conduct
damaging the reputation of the Association or the Holding Company, any breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or final cease-and-desist o rder 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 Notice of Termination which shall
include a copy of a resolution duly adopted by the affirmative vote of not less
than a majority of the members of the Board at a meeting of the Board called and
held for that purpose (after reasonable notice to 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 the Date of Termination for Cause. During the period beginning
on the date of the Notice of Termination for Cause pursuant to Section 8 hereof
through the Date of Termination for Cause, stock options and related limited
rights granted to Executive under any stock option plan shall not be exercisable
nor shall any unvested awards granted to Executive under any stock benefit plan
of the Association, the Holding Company or any subsidiary or affiliate thereof,
vest. At the Date of Termination for Cause, such stock options and related
limited rights and any unvested awards shall become null and void and shall not
be exercisable by or delivered to Executive at any time subsequent to such
Termination for Cause.
8. NOTICE.
(a) Any purported termination by the Association 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.
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(b) "Date of Termination" shall mean the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and,
provided further, that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, in the event the Executive is
terminated for reasons other than Termination for Cause, the Association will
continue to pay Executive his Base Salary in effect when the notice giving rise
to the dispute was given until the earlier of: (1) the resolution of the
dispute in accordance with this Agreement or (2) the expiration of the remaining
term of this Agreement as determined as of the Date of Termination. Amounts paid
under this Section are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Association. Executive shall, upon reasonable
notice, furnish such information and assistance to the Association as may
reasonably be required by the Association in connection with any litigation in
which it or any of its subsidiaries or affiliates is, or may become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE OF ASSOCIATION BUSINESS.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Association for a
period of one (1) year following such termination in any city, town or county in
which the Executive's normal business office is located and the Association has
an o ffice or has filed an application for regulatory approval to establish an
office, determined as of the effective date of such termination, except as
agreed to pursuant to a resolution duly adopted by the Board. 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 Association. The parties hereto,
recognizing that irreparable injury will result to the Association, its business
and property in the event of Executive's breach of this Subsection 10(a) agree
that in the event of any such breach by Executive, the Association, 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,
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agents, servants, employees and all persons acting for or under the direction of
Executive. Nothing herein will be construed as prohibiting the Association from
pursuing any other remedies available to the Association 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 Association and
affiliates thereof, as it may exist from time to time, is a valuable, special
and unique asset of the business of the Association. Executive will not, during
or after the term of his employment, disclose any knowledge of the past,
present, planned or considered business activities of the Association 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 Association. Further, Executive may disclose
information regarding the business activities of the Association to the OTS and
the Federal Deposit Insurance Corporation ("FDIC") pursuant to a formal
regulatory request. In the event of a breach or threatened breach by Executive
of the provisions of this Section, the Association 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
Association 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 Association from pursuing any other remedies
available to the Association for such breach or threatened breach, including the
recovery of damages from Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the Association. The Holding Company, however,
unconditionally guarantees payment and provision of all amounts and benefits due
hereunder to Executive and, if such amounts and benefits due from the
Association are not timely paid or provided by the Association, such amounts and
benefits shall be paid or provided by the Holding Company.
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated ____________, 1998,
between Executive and the Holding Company, such compensation payments and
benefits paid by the Holding Company will be subtracted from any amounts due
simultaneously to Executive under similar provisions of this Agreement.
Payments pursuant to this Agreement and the Holding Company Agreement shall be
allocated in proportion to the services rendered and time expended on such
activities by Executive as determined by the Holding Company and the Association
on a quarterly basis.
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12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Association or any
predecessor of the Association 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.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Association and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. REQUIRED PROVISIONS.
(a) The Association may terminate Executive's employment at any time, but
any termination by the Association, 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 7
hereinabove.
(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the conduct of the Association's affairs by a notice
served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act, 12
U.S.C. (S)1818(e)(3) or (g)(1); the Association's obligations under this
contract shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Association
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may in its discretion: (i) pay Executive all or part of the compensation
withheld while their contract obligations were suspended; and (ii) reinstate (in
whole or in part) any of the obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Association under this contract
shall terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Association is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. (S)1813(x)(1), all obligations of the
Association under this contract shall terminate as of the date of default, but
this paragraph shall not affect any vested rights of the contracting parties.
(e) All obligations of the Association under this contract shall be
terminated, except to the extent determined that continuation of the contract is
necessary for the continued operation of the institution: (i) by the Director
of the OTS (or his designee), or the FDIC, at the time the FDIC enters into an
agreement to provide assistance to or on behalf of the Association under the
authority contained in Section 13(c) of the Federal Deposit Insurance Act, 12
U.S.C. (S)1823(c); or (ii) by the Director of the OTS (or his designee) at the
time the Director (or his designee) approves a supervisory merger to resolve
problems related to the operations of the Association or when the Association 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), 12 C.F.R. Part 359 and 12 C.F.R. (S) 545.121 and any rules and
regulations promulgated thereunder.
16. REINSTATEMENT OF BENEFITS UNDER SECTION 15(b).
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice described
in Section 15(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Association will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 5 of this Agreement upon the
Association's receipt of a dismissal of charges in the Notice.
17. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
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18. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
19. GOVERNING LAW.
The validity, interpretation, performance and enforcement of this Agreement
shall be governed by the laws of the State of Ohio, but only to the extent not
superseded by federal law.
20. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by Executive within fifty
(50) miles from the location of the Association, 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.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of Executive, whether by judgment,
arbitration or settlement, Executive shall be entitled to the payment of all
back-pay, including salary, bonuses and any other cash compensation, fringe
benefits and any compensation and benefits due Executive under this Agreement.
21. PAYMENT OF COSTS AND LEGAL FEES.
All reasonable costs and 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 Association if Executive is successful on the merits
pursuant to a legal judgment, arbitration or settlement.
22. INDEMNIFICATION.
(a) The Association shall provide Executive (including his heirs, executors
and administrators) wi th coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) as permitted under federal law against all
expenses and liabilities reasonably incurred by him in connection with or
arising out of any action, suit or proceeding in which he may be involved by
reason of his having been a director or officer of the Association (whether or
not he continues to be a director or officer at the time of incurring such
expenses or liabilities), such expenses and
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liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 U.S.C. (S)1828(k), 12 C.F.R. Part 359
and 12 C.F.R. (S)545.121 and any rules or regulations promulgated thereunder.
23. SUCCESSOR TO THE ASSOCIATION.
The Association 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 Association or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Association's obligations under this Agreement, in the same manner and to the
same extent that the Association would be required to perform if no such
succession or assignment had taken place.
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, First Federal Savings and Loan Association of Warren
and First Place Financial Corp. have caused this Agreement to be executed and
their seals to be affixed hereunto by their duly authorized officers and
directors, and Executive has signed this Agreement, on the ___ day of
____________, 1998.
ATTEST: FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF WARREN
_____________________ By:____________________
Mary Ann Roberts Paul A. Watson
Secretary Chairman of the Board
for the Entire Board of Directors
[SEAL]
ATTEST: FIRST PLACE FINANCIAL CORP.
(Guarantor)
_____________________ By:____________________
Mary Ann Roberts Paul A. Watson
Secretary Chairman of the Board
for the Entire Board of Directors
[SEAL]
WITNESS:
_____________________ ____________________
Mary Ann Roberts Steven R. Lewis
Secretary Executive
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EXHIBIT 10.4 FORM OF EMPLOYMENT AGREEMENT BETWEEN FIRST PLACE FINANCIAL CORP.
AND STEVEN R. LEWIS
<PAGE>
FORM OF
FIRST PLACE FINANCIAL CORP.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of ___________, 1998 by
and between First Place Financial Corp. (the "Holding Company"), a corporation
organized under the laws of Delaware, with its principal offices at 185 East
Market Street, Warren, Ohio, and Steven R. Lewis ("Executive"). Any reference
to "Institution" herein shall mean First Federal Savings and Loan Association of
Warren or any successor thereto.
WHEREAS, the Holding Company wishes to assure itself of the services of
Executive for the period provided in this Agreement; and
WHEREAS, the Executive is willing to serve in the employ of the Holding
Company on a full-time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of Executive's employment hereunder, Executive agrees to
serve as President and Chief Executive Officer of the Holding Company. The
Executive shall render administrative and management services to the Holding
Company such as are customarily performed by persons in a similar executive
capacity. During said period, Executive also agrees to serve, if elected, as an
officer or director of any subsidiary of the Holding Company.
2. TERMS.
(a) The period of Executive's employment under 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 date of the execution of this Agreement, the term of this Agreement shall be
extended for one day each day until such time as the board of directors of the
Holding Company (the "Board") or Executive elects not to extend the term of the
Agreement by giving written notice to the other party in accordance with Section
8 of this Agreement, in which case the term of this Agreement shall be fixed and
shall end on the third anniversary of the date of such written notice.
(b) During the period of Executive's 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 Holding Company and its direct or indirect
<PAGE>
subsidiaries ("Subsidiaries") and participation in community, professional and
civic organizations; 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 Holding Company or its
Subsidiaries, or materially affect the performance of Executive's duties
pursuant to this Agreement.
(c) Notwithstanding anything herein contained to the contrary, Executive's
employment with the Holding Company may be terminated by the Holding Company or
Executive during the term of this Agreement, subject to the terms and conditions
of this Agreement. However, Executive shall not perform, in any respect,
directly or indirectly, during the pendency of his temporary or permanent
suspension or termination from the Institution, duties and responsibilities
formerly performed at the Institution as part of his duties and responsibilities
as President and Chief Executive Officer of the Holding Company.
3. COMPENSATION AND REIMBURSEMENT.
(a) The Executive shall be entitled to a salary from the Holding Company
or its Subsidiaries of $150,000 per year ("Base Salary"). Base Salary shall
include any amounts of compensation deferred by Executive under any qualified or
unqualified plan maintained by the Holding Company and its Subsidiaries. Such
Base Salary shall be payable bi-weekly. 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 the Board or by a Committee of the Board delegated
such responsibility by the Board. The Committee or the Board may increase
Executive's Base Salary. Any increase in Base Salary shall become the "Base
Salary" for purposes of this Agreement. In addition to the Base Salary provided
in this Section 3(a), the Holding Company shall also provide Executive, at no
premium cost to Executive, with all such other benefits as provided uniformly to
permanent full-time employees of the Holding Company and its Subsidiaries.
(b) The Executive shall be entitled to participate in any 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 Holding Company and its
Subsidiaries will not, without Executive's prior written consent, make any
changes in such plans, arrangements or perquisites which would materially
adversely affect Executive's rights or benefits thereunder, except to the extent
that such changes are made applicable to all Holding Company and Institution
employees eligible to participate in such plans, arrangements and perquisites on
a non-discriminatory basis. Without limiting the generality of the foregoing
provisions of this Subsection (b), Executive shall be entitled to participate in
or receive benefits under any employee benefit plans including, but not limited
to, retirement plans, supplemental retirement plans, pension plans, profit-
sharing plans, health-and-accident plans, medical coverage and any other
employee benefit plan or arrangement made available by the Holding Company and
its Subsidiaries in the future to its senior executives and key management
employees, subject to and on a basis consistent with the terms, conditions
<PAGE>
and overall administration of such plans and arrangements. Executive shall be
entitled to incentive compensation and bonuses as provided in any plan of the
Holding Company and its Subsidiaries in which Executive is eligible to
participate. Nothing paid to the Executive under any such plan or arrangement
will be deemed to be in lieu of other compensation to which the Executive is
entitled under this Agreement.
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3 and other compensation provided for by paragraph (b) of this Section
3, the Holding Company shall pay or reimburse Executive for all reasonable
travel and other reasonable expenses incurred in the performance of Executive's
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 the 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 Holding Company of Executive's full-time employment hereunder
for any reason other than termination governed by Section 5(a) hereof, or for
Cause, as defined in Section 7 hereof; (ii) Executive's resignation from the
Holding Company's employ, upon (A) any failure to elect or reelect or to appoint
or reappoint Executive as President and Chief Executive Officer unless consented
to by the Executive, (B) a material change in Executive's function, duties, or
responsibilities with the Holding Company or its Subsidiaries, which change
would cause Executive's position to become one of lesser responsibility,
importance, or scope from the position and attributes thereof described in
Section 1, above, unless consented to by the Executive, (C) a relocation of
Executive's principal place of employment by more than 30 miles from its
location at the effective date of this Agreement, unless consented to by the
Executive, (D) a material reduction in the benefits and perquisites to the
Executive from those being provided as of the effective date of this Agreement,
unless consented to by the Executive, (E) a liquidation or dissolution of the
Holding Company or the Institution, or (F) breach of this Agreement by the
Holding Company. Upon the occurrence of any event described in clauses (A),
(B), (C), (D), (E) or (F), 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 six full calendar months after
the event giving rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, on the Date of
Termination, as defined in Section 8, the Holding Company shall be obligated to
pay Executive, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, a sum equal to the sum of:
(i) the amount of the remaining payments that the Executive would have earned if
he had continued his employment with the Institution during the remaining term
of this Agreement at the Executive's Base Salary at the Date of Termination; and
(ii) the amount equal to the annual contributions that would have been made on
Executive's behalf to any employee benefit plans of the Institution or the
Holding Company during the remaining term of this
<PAGE>
Agreement based on contributions made (on an annualized basis) at the Date of
Termination. At the election of the Executive, which election is to be made
prior to an Event of Termination, such payments shall be made in a lump sum. In
the event that no election is made, payment to the Executive will be made on a
monthly basis in approximately equal installments during the remaining term of
the Agreement. Such payments shall not be reduced in the event the Executive
obtains other employment following termination of employment.
(c) Upon the occurrence of an Event of Termination, the Holding Company
will cause to be continued life, medical and dental coverage substantially
equivalent to the coverage maintained by the Holding Company or its Subsidiaries
for Executive prior to his termination at no premium cost to the Executive.
Such coverage shall cease upon the expiration of the remaining term of this
Agreement.
5. CHANGE IN CONTROL.
(a) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Institution shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Institution or the Holding Company within the meaning
of the Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance
Act, and the Rules and Regulations promulgated by the Office of Thrift
Supervision (or its predecessor agency), as in effect on the date hereof
(provided, that in applying the definition of change in control as set forth
under the rules and regulations of the OTS, the Board shall substitute its
judgment for that of the OTS); or (iii) without limitation such a Change in
Control shall be deemed to have occurred at such time as (A) any "person" (as
the term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act),
directly or indirectly, of voting securities of the Institution or the Holding
Company representing 20% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Holding Company
or its Subsidiaries, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Company's stockholders was approved by a Nominating Committee solely
composed of members which are Incumbent Board members, shall be, for purposes of
this clause (B), considered as though he were a member of the Incumbent Board,
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Institution or the Holding Company or
similar transaction occurs or is effectuated in which the Institution or Holding
Company is not the resulting entity; provided, however, that such an event
listed above will be deemed to have occurred or to have been effectuated upon
the receipt of all required federal regulatory approvals not including the lapse
of any statutory waiting periods, or (D) a proxy statement has been distributed
soliciting proxies from stockholders of the Holding Company, by someone other
than
<PAGE>
the current management of the Holding Company, seeking stockholder approval
of a plan of reorganization, merger or consolidation of the Holding Company or
Institution wi th one or more corporations as a result of which the outstanding
shares of the class of securities then subject to such plan or transaction are
exchanged for or converted into cash or property or securities not issued by the
Institution or the Holding Company shall be distributed, or (E) a tender offer
is made for 20% or more of the voting securities of the Institution or Holding
Company then outstanding.
(b) If a Change in Control has occurred pursuant to Section 5(a) or the
Board has determined that a Change in Control has occurred, Executive shall be
entitled to the benefits provided in paragraphs (c) and (d) of this Section 5
upon his subsequent termination of employment at any time during the term of
this Agreement due to (i) Executive's dismissal, or (ii) Executive's voluntary
resignation following any material demotion, loss of title, office or
significant authority or responsibility, reduction in the annual compensation or
reduction in benefits or relocation of his principal place of employment by more
than 30 miles from its location immediately prior to the change in control,
unless such termination is because of his death or termination for Cause.
(c) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Holding Company 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 greater of:
(i) the payments due for the remaining term of the Agreement; or (ii) three (3)
times Executive's average annual compensation for the five (5) preceding taxable
years. Such annual compensation shall include Base Salary, commissions,
bonuses, contributions on behalf of Executive to any pension and profit sharing
plan, severance payments, directors or committee fees and fringe benefits paid
or to be paid to the Executive during such years. At the election of the
Executive, which election is to be made prior to a Change in Control, such
payment shall be made in a lump sum. In the event that no election is made,
payment to the Executive will be made on a monthly basis in approximately equal
installments during the remaining term of the Agreement. Such payments shall
not be reduced in the event Executive obtains other employment following
termination of employment.
(d) Upon the Executive's entitlement to benefits pursuant to Section 5(b),
the Company will cause to be continued life, medical and dental coverage
substantially equivalent to the coverage maintained by the Institution for
Executive at no premium cost to Executive prior to his severance. Such coverage
and payments shall cease upon the expiration of thirty-six (36) months following
the Change in Control.
6. CHANGE OF CONTROL RELATED PROVISIONS.
(a) Notwithstanding the provisions of Section 5, in the event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive, which are deemed to be parachute payments as defined in Section
280G of the Internal Revenue Code of 1986, as amended (the "Code") or any
successor thereof, (the "Termination
<PAGE>
Benefits") would be deemed to include an "excess parachute payment" under
Section 280G of the Code; and
(ii) if such Termination Benefits were reduced to an amount (the "Non-
Triggering Amount"), the value of which is one dollar ($1.00) less than an
amount equal to three (3) times Executive's "base amount," as determined in
accordance with said Section 280G and the Non-Triggering Amount less the
product of the marginal rate of any applicable state and federal income tax
and the Non-Triggering Amount would be greater than the aggregate value of
the Termination Benefits (without such reduction) minus (i) the amount of
tax required to be paid by the Executive thereon by Section 4999 of the
Code and further minus (ii) the product of the Termination Benefits and the
marginal rate of any applicable state and federal income tax,
then the Termination Benefits shall be reduced to the Non-Triggering Amount.
The allocation of the reduction required hereby among the Termination Benefits
shall be determined by the Executive.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, willful misconduct, conduct damaging the
reputation of the Holding Company or the Institution, any breach of fiduciary
duty involving personal profit, intentional failure to perform stated duties,
willful violation of any law, rule, regulation (other than traffic violations or
similar offenses), final cease and desist order or material breach of any
provision of this Agreement. Notwithstanding the foregoing, Executive shall not
be deemed to have been terminated for Cause unless and until there shall have
been delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than three-fourths
of the members of the Board at a meeting of the Board called and held for that
purpose (after reasonable notice to Executive and an opportunity for him,
together with counsel, to be heard before the Board), finding that in the good
faith opinion of the Board, Executive was guilty of conduct justifying
Termination for Cause and specifying the particulars thereof in detail. The
Executive shall not have the right to receive compensation or other benefits for
any period after Termination for Cause. During the period beginning on the
date of the Notice of Termination for Cause pursuant to Section 8 hereof through
the Date of Termination, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the
Institution, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination, such stock options and related limited rights and
any such unvested awards shall become null and void and shall not be exercisable
by or delivered to Executive at any time subsequent to such Termination for
Cause.
8. NOTICE.
(a) Any purported termination by the Holding Company or by Executive shall
be communicated by Notice of Termination to the other party hereto. For
purposes of this
<PAGE>
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 the date specified in the Notice of
Termination (which, in the case of a Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given).
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by the Executive in which case the
Date of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal therefrom having expired and no appeal having been perfected)
and provided further that the Date of Termination shall be extended by a notice
of dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute, the Holding Company will
continue to pay Executive his full compensation in effect when the notice giving
rise to the dispute was given (including, but not limited to, Base Salary) and
continue him as a participant in all compensation, benefit and insurance plans
in which he was participating when the notice of dispute was given, until the
dispute is finally resolved in accordance with this Agreement. Amounts paid
under this Section are in addition to all other amounts due under this Agreement
and shall not be offset against or reduce any other amounts due under this
Agreement.
9. POST-TERMINATION OBLIGATIONS.
All payments and benefits to Executive under this Agreement shall be
subject to Executive's compliance with this Section 9 for one (1) full year
after the earlier of the expiration of this Agreement or termination of
Executive's employment with the Holding Company. Executive shall, upon
reasonable notice, furnish such information and assistance to the Holding
Company as may reasonably be required by the Holding Company in connection with
any litigation in which it or any of its subsidiaries or affiliates is, or may
become, a party.
10. NON-COMPETITION AND NON-DISCLOSURE.
(a) Upon any termination of Executive's employment hereunder pursuant to
Section 4 hereof, Executive agrees not to compete with the Holding Company or
its Subsidiaries for a period of one (1) year following such termination in any
city, town or county in which the Executive's normal business office is located
and the Holding Company or any of its Subsidiaries has an office or has filed an
application for regulatory approval to establish an office, determined as of the
effective date of such termination, except as agreed to pursuant to a resolution
duly adopted by the Board. Executive agrees that during such period and within
said cities, towns and
<PAGE>
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 Holding Company or
its Subsidiaries. The parties hereto, recognizing that irreparable injury will
result to the Holding Company or its Subsidiaries, its business and property in
the event of Executive's breach of this Subsection 10(a) agree that in the event
of any such breach by Executive, the Holding Company or its Subsidiaries, will
be entitled, in addition to any other remedies and damages available, to an
injunction to restrain the violation hereof by Executive, Executive's partners,
agents, servants, employees and all persons acting for or under the direction of
Executive. Executive represents and admits that in the event of the termination
of his employment pursuant to Section 7 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 Holding Company or its
Subsidiaries, 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 Holding Company or its Subsidiaries from pursuing any other
remedies available to the Holding Company or its Subsidiaries for such breach or
threatened breach, including the recovery of damages from Executive.
(b) Executive recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the Holding Company and
its Subsidiaries as it may exist from time to time, is a valuable, special and
unique asset of the business of the Holding Company and its Subsidiaries.
Executive will not, during or after the term of his employment, disclose any
knowledge of the past, present, planned or considered business activities of the
Holding Company and its Subsidiaries thereof to any person, firm, corporation,
or other entity for any reason or purpose whatsoever unless expressly authorized
by the Board of Directors or required by law. Notwithstanding the foregoing,
Executive may disclose any knowledge of banking, financial and/or economic
principles, concepts or ideas which are not solely and exclusively derived from
the business plans and activities of the Holding Company. In the event of a
breach or threatened breach by the Executive of the provisions of this Section,
the Holding Company will be entitled to an injunction restraining Executive from
disclosing, in whole or in part, the knowledge of the past, present, planned or
considered business activities of the Holding Company or its Subsidiaries or
from rendering any services to any person, firm, corporation, other entity to
whom such knowledge, in whole or in part, has been disclosed or is threatened to
be disclosed. Nothing herein will be construed as prohibiting the Holding
Company from pursuing any other remedies available to the Holding Company for
such breach or threatened breach, including the recovery of damages from
Executive.
11. SOURCE OF PAYMENTS.
(a) All payments provided in this Agreement shall be timely paid in cash
or check from the general funds of the Holding Company subject to Section 11(b).
(b) Notwithstanding any provision herein to the contrary, to the extent
that payments and benefits, as provided by this Agreement, are paid to or
received by Executive under the Employment Agreement dated _____________, 1998,
between Executive and the Institution, such compensation payments and benefits
paid by the Institution will be subtracted from any
<PAGE>
amount due simultaneously to Executive under similar provisions of this
Agreement. Payments pursuant to this Agreement and the Institution Agreement
shall be allocated in proportion to the level of activity and the time expended
on such activities by the Executive as determined by the Holding Company and the
Institution on a quarterly basis.
12. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the Holding Company or any
predecessor of the Holding Company and Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation inuring to the
Executive of a kind elsewhere provided. No provision of this Agreement shall be
interpreted to mean that Executive is subject to receiving fewer benefits than
those available to him without reference to this Agreement.
13. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
Executive and the Holding Company and their respective successors and assigns.
14. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
15. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
<PAGE>
16. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware,
unless otherwise specified herein.
18. ARBITRATION.
Any dispute or controversy arising under or in connection with this
Agreement shall be settled exclusively by arbitration, conducted before a panel
of three arbitrators sitting in a location selected by the Executive within
fifty (50) miles from the location of the Institution, 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 w ith this Agreement.
In the event any dispute or controversy arising under or in connection with
Executive's termination is resolved in favor of the Executive, whether by
judgment, arbitration or settlement, Executive shall be entitled to the payment
of all back-pay, including salary, bonuses and any other cash compensation,
fringe benefits and any compensation and benefits due Executive under this
Agreement.
19. PAYMENT OF LEGAL FEES.
All reasonable legal fees paid or incurred by Executive pursuant to any
dispute or question of interpretation relating to this Agreement shall be paid
or reimbursed by the Holding Company, if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
20. INDEMNIFICATION.
(a) The Holding Company shall provide Executive (including his heirs,
executors and administrators) with coverage under a standard directors' and
officers' liability insurance policy at its expense and shall indemnify
Executive (and his heirs, executors and administrators) to the fullest extent
permitted under Delaware law against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
<PAGE>
(b) Any payments made to Executive pursuant to this Section are subject to
and conditioned upon compliance with 12 U.S.C. Section 1828(k) and 12 C.F.R.
Part 359 and any rules or regulations promulgated thereunder.
21. SUCCESSOR TO THE HOLDING COMPANY.
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, First Place Financial Corp. has caused this Agreement
to be executed and its seal to be affixed hereunto by its duly authorized
officer and its directors, and Executive has signed this Agreement, on the
____ day of _______, 1998.
ATTEST: FIRST PLACE FINANCIAL CORP.
________________________ By: __________________________________
Mary Ann Roberts Paul A. Watson
Secretary Chairman of the Board of Directors
For the Entire Board of Directors
[SEAL]
WITNESS:
________________________ By: __________________________________
Mary Ann Roberts Steven R. Lewis
Secretary Executive
<PAGE>
EXHIBIT 10.5 FORM OF CHANGE IN CONTROL AGREEMENTS BETWEEN FIRST FEDERAL
SAVINGS AND LOAN ASSOCIATION OF WARREN AND CERTAIN EXECUTIVE
OFFICERS
<PAGE>
FORM OF
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of __________, 1998 by and among First
Federal Savings and Loan Association of Warren (the "Association"), a federally
chartered savings association, with its principal administrative office at 185
East Market Street, Warren, Ohio, ___________________ ("Executive"), and First
Place Financial Corp. (the "Holding Company"), a corporation organized under the
laws of the State of Ohio which is the holding company of the Association.
WHEREAS, the Association recognizes the substantial contribution Executive
has made to the Association and wishes to protect Executive's position therewith
for the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Association.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The period 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 Association (the "Board") may extend the Agreement for an
additional year. The Board will review the Agreement and Executive's
performance annually 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. CHANGE IN CONTROL.
-----------------
(a) Upon the occurrence of a Change in Control of the Association or the
Holding Company (as herein defined) followed by the termination of Executive's
employment within two years following the Change in Control, other than for
Cause, as defined in Section 2(c) hereof, the provisions of Section 3 shall
apply. Upon the occurrence of a Change in Control, Executive shall have the
right to elect to voluntarily terminate his employment within two years
following the Change in Control following any material demotion, loss of title,
office or significant authority, material reduction in his annual compensation
or benefits, or relocation of his principal place of employment by more than 30
miles from its location immediately prior to the Change in Control; provided,
however, the Executive may consent in writing to any such demotion, loss,
reduction or relocation. The effect of any written consent of the Executive
under this Section 2(a) shall be strictly limited to the terms specified in such
written consent.
<PAGE>
(b) For purposes of this Agreement, a "Change in Control" of the
Association or Holding Company shall mean an event of a nature that: (i) would
be required to be reported in response to Item 1 of the Current Report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"); or (ii)
results in a Change in Control of the Association or the Holding Company within
the meaning of the Home Owners' Loan Act of 1933, as amended, the Federal
Deposit Insurance Act, or Office of Thrift Supervision ("OTS") (or its
predecessor agency), as in effect on the date of this Agreement (provided, that
in applying the definition of change in control as set forth under the Rules and
Regulations of the OTS, the Board shall substitute its judgment for that of the
OTS); or (iii) without limitation such a Change in Control shall be deemed to
have occurred at such time as (A) any "person" (as the term is used in Sections
13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial owner" (as
defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of voting
securities of the Association or the Holding Company representing 25% or more of
the Association's or the Holding Company's outstanding voting securities or
right to acquire such securities except for any voting securities of the
Association purchased by the Holding Company and any voting securities purchased
by any employee benefit plan of the Association or the Holdi ng Company, or (B)
individuals who constitute the Board on the date hereof (the "Incumbent Board")
cease for any reason to constitute at least a majority thereof, provided that
any person becoming a director subsequent to the date hereof whose election was
approved by a vote of at least three-quarters of the directors comprising the
Incumbent Board, or whose nomination for election by the Holding Company's
stockholders was approved by the same Nominating Committee serving under an
Incumbent Board, shall be, for purposes of this clause (B), considered as though
he were a member of the Incumbent Board, or (C) a plan of reorganization,
merger, consolidation, sale of all or substantially all the assets of the
Association or the Holding Company or similar transaction occurs in which the
Association or Holding Company is not the resulting entity, or (D) a proxy
statement has been distributed soliciting proxies from stockholders of the
Holding Company, by someone other than the current management of the Holding
Company, seeking stockholder approval of a plan of reorganization, merger or
consolidation of the Holding Company or Association or similar transaction with
one or more corporations as a result of which the outstanding shares of the
class of securities then subject to such plan or transaction are exchanged for
or converted into cash or property or securities not issued by the Association
or the Holding Company, or (E) a tender offer is made for 20% or more of the
voting securities of the Stock Association or Holding Company then outstanding.
(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 personal dishonesty,
incompetence, willful misconduct, conduct damaging the reputation of the
Association or the Holding Company, any breach of fiduciary duty involving
personal profit, intentional failure to perform stated duties, willful violation
of any law, rule or regulation (other than traffic violations or similar
offenses) or final cease and desist order, or material breach of any provision
of this Agreement. Notwithstanding the foregoing, Executive shall not be deemed
to have been Terminated for Cause unless and until there shall have been
delivered to him a Notice of Termination which shall include a copy of a
resolution duly adopted by the affirmative vote of not less than a majority of
the members of the
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<PAGE>
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 the Date of
Termination for Cause. During the period beginning on the date of the Notice of
Termination for Cause pursuant to Section 4 hereof through the Date of
Termination for Cause, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the
Association, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination for Cause, such stock options and related limited
rights and such unvested awards shall become null and void and shall not be
exercisable by or delivered to Executive at any time subsequent to such Date of
Termination for Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed by the termination
of the Executive's employment within two years following the Change in Control
due to: (1) Executive's dismissal or (2) Executive's voluntary termination
pursuant to Section 2(a), unless such termination is due to Termination for
Cause, the Association and the Holding Company shall pay Executive, or in the
event of his subsequent death, his beneficiary or beneficiaries, or his estate,
as the case may be, a sum equal to two (2) times Executive's average annual
compensation for the five most recent taxable years that Executive has been
employed by the Association or such lesser number of years in the event that
Executive shall have been employed by the Association for less than five years.
Such average annual compensation shall include base salary, commissions,
bonuses, any other cash compensation, contributions or accruals on behalf of
Executive to any pension and profit sharing plan, benefits received or to be
received under any stock-based benefit plan, severance payments, director or
committee fees and fringe benefits paid or to be paid to the Executive in any
such year and payment of any expense items without accountability or business
purpose or that do not meet the Internal Revenue Service requirements for
deductibility by the Bank; provided, however, that any payment under this
------------------
provision and subsection 3(b) below shall not exceed three (3) times the
Executive's average annual compensation. At the election of Executive, which
election is to be made prior to a Change in Control, such payment shall be made:
(a) in a lump sum, (b) on a bi-weekly basis in approximately equal installments
over a period of twenty-four (24) months, or (c) on an annual basis in
approximately equal installments over a period of twenty-four (24) months.
(b) Upon the occurrence of a Change in Control of the Association or the
Holding Company followed by Executive's voluntary or involuntary termination of
employment within two years following the Change in Control, other than for
Termination for Cause, the Association shall cause to be continued life and
medical coverage substantially identical to the coverage maintained by the
Association or Holding Company for Executive prior to his severance, except to
the extent such coverage may be changed in its application to all Association or
Holding Company employees on a nondiscriminatory basis. Such coverage and
payments shall cease upon the expiration of twenty-four (24) full calendar
months from the Date of Termination.
3
<PAGE>
(c) Notwithstanding the preceding paragraphs of this Section 3, in no event
shall the aggregate payments or benefits to be made or afforded to Executive
under said paragraphs (the "Termination Benefits") constitute an "excess
parachute payment" under Section 280G of the Code or any successor thereto, and
in order to avoid such a result Termination Benefits will be reduced, if
necessary, to an amount (the "Non-Triggering Amount"), the value of which is one
dollar ($1.00) less than an amount equal to three (3) times Executive's "base
amount," as determined in accordance with said Section 280G. The allocation of
the reduction required hereby among the Termination Benefits provided by the
preceding paragraphs of this Section 3 shall be determined by Executive.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Association or by Executive in
connection with a Change in Control 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 the date specified in the Notice of
Termination (which, in the instance of Termination for Cause, shall not be less
than thirty (30) days from the date such Notice of Termination is given);
provided, however, that if a dispute regarding the Executive's termination
exists, the "Date of Termination" shall be determined in accordance with Section
4(c) of this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith and the party giving such
notice pursues the resolution of such dispute with reasonable diligence.
Notwithstanding the pendency of any such dispute in connection with a Change in
Control, in the event that the Executive is terminated for reasons other than
Termination for Cause, the Association will continue to pay Executive his full
compensation in effect when the notice giving rise to the dispute was given
(including, but not limited to, his current annual salary) and continue him as a
participant in all compensation, benefit and insurance plans in which he was
participating when the notice of dispute was given, until the earlier of: (1)
the resolution of the dispute in accordance with this Agreement; or (2) the
expiration of the remaining term of this Agreement as determined as of the Date
of Termination. Amounts paid under this Section 4(c) are in addition to all
other amounts due under this Agreement and shall not be offset against or reduce
any other amounts due under this Agreement.
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<PAGE>
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the
Association. Further, the Holding Company guarantees such payment an d
provision of all amounts and benefits due hereunder to Executive and, if such
amounts and benefits due from the Association are not timely paid or provided by
the Association, such amounts and benefits shall be paid or provided by the
Holding Company.
6. 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 Association 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.
Nothing in this Agreement shall confer upon Executive the right to continue
in the employ of Association or shall impose on the Association any obligation
to employ or retain Executive in its employ for any period.
7. 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 Association and their respective successors and assigns.
8. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
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<PAGE>
9. EFFECT OF ACTION UNDER HOLDING COMPANY AGREEMENT.
-------------------------------------------------
Notwithstanding any provision herein to the contrary, to the extent that
payments and benefits are paid to or received by Executive under the Holding
Company Agreement between Executive and Holding Company, the amount of such
payments and benefits paid by the Holding Company will be subtracted from any
amount due simultaneously to Executive under similar provisions of this
Agreement.
10. REQUIRED REGULATORY PROVISIONS.
------------------------------
(a) The board of directors may terminate Executive's employment at any
time, but any termination by the board of directors, 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 hereinabove.
(b) If Executive is suspended from office and/or temporarily prohibited
from participating in the c onduct of the Association's affairs by a notice
served under Section 8(e)(3) or 8(g)(1) of the Federal Deposit Insurance Act (12
U.S.C. (S)1818(e)(3) or (g)(1)), the Association's obligations under this
contract shall be suspended as of the date of service, unless stayed by
appropriate proceedings. If the charges in the notice are dismissed, the
Association may in its discretion (i) pay Executive all or part of the
compensation withheld while their contract obligations were suspended and (ii)
reinstate (in whole or in part) any of the obligations which were suspended.
(c) If Executive is removed and/or permanently prohibited from
participating in the conduct of the Association's affairs by an order issued
under Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act (12 U.S.C.
(S)1818(e)(4) or (g)(1)), all obligations of the Association under this contract
shall terminate as of the effective date of the order, but vested rights of the
contracting parties shall not be affected.
(d) If the Association is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, all obligations of the Association under this
contract shall terminate as of the date of default, but this paragraph shall not
affect any vested rights of the contracting parties.
(e) All obligations under this contract shall be terminated, except to the
extent determined that continuation of the contract is necessary for the
continued operation of the association: (i) by the Director of the Office of
Thrift Supervision (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 Association under the authority contained in Section 13(c) of the
Federal Deposit Insurance Act; or (ii) by the Director of the Office of Thrift
Supervision (or his or her designee) at the time the Director (or his or her
designee) approves a supervisory merger to resolve problems related to operation
of the Association or when the Association is determined
6
<PAGE>
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 rules and regulations promulgated thereunder.
11. REINSTATEMENT OF BENEFITS UNDER SECTION 10(b).
----------------------------------------------
In the event Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Association's affairs by a notice described
in Section 10(b) hereof (the "Notice") during the term of this Agreement and a
Change in Control, as defined herein, occurs, the Association will assume its
obligation to pay and Executive will be entitled to receive all of the
termination benefits provided for under Section 3 of this Agreement upon the
Association's receipt of a dismissal of charges in the Notice.
12. 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.
13. 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. In addition, references to the
masculine shall apply equally to the feminine.
14. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Ohio but only to the
extent not preempted by Federal law.
15. 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 Executive within fifty
(50) miles from the location of the Association's main office, 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
7
<PAGE>
the Date of Termination during the pendency of any dispute or controversy
arising under or in connection with this Agreement.
16. PAYMENT OF COSTS AND LEGAL FEES.
-------------------------------
All reasonable costs and 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 Association (which payments are guaranteed by the
Holding Company pursuant to Section 5 hereof) if Executive is successful
pursuant to a legal judgment, arbitration or settlement.
17. INDEMNIFICATION.
---------------
(a) The Association shall provide Executive (including his heirs, executors
and administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense and shall indemnify Executive (and his
heirs, executors and administrators) to the fullest extent permitted under
Federal law against all expenses and liabilities reasonably incurred by him in
connection with or arising out of any action, suit or proceeding in which he may
be involved by reason of his having been a director or officer of the
Association (whether or not he continues to be a director or officer at the time
of incurring such expenses or liabilities), such expenses and liabilities to
include, but not be limited to, judgments, court costs and attorneys' fees and
the cost of reasonable settlements.
(b) Any payments made to Executive pursuant to this Section are subject to
and conditional upon compliance with 12 C.F.R. (S)545.121 and any rules or
regulations promulgated thereunder.
18. SUCCESSOR TO THE ASSOCIATION.
----------------------------
The Association 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 Association, expressly and
unconditionally to assume and agree to perform the Association's obligations
under this Agreement, in the same manner and to the same extent that the
Association would be required to perform if no such succession or assignment had
taken place.
8
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, First Federal Savings and Loan Association of Warren
and First Place Financial Corp. have caused this Agreement to be executed by
their duly authorized officers, and Executive has signed this Agreement, on the
______ day of ____________, 1998.
ATTEST: FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF WARREN
_______________________________ By:___________________________
Mary Ann Roberts Steven R. Lewis
Secretary President and Chief Executive Officer
SEAL
ATTEST: FIRST PLACE FINANCIAL CORP.
(Guarantor)
______________________________ By:___________________________
Mary Ann Roberts Steven R. Lewis
Secretary President and Chief Executive Officer
SEAL
WITNESS:
______________________________ ___________________________
Mary Ann Roberts
Secretary Executive
9
<PAGE>
EXHIBIT 10.6 FORM OF CHANGE IN CONTROL AGREEMENTS BETWEEN FIRST PLACE
FINANCIAL CORP. AND CERTAIN EXECUTIVE OFFICERS
<PAGE>
FORM OF
FIRST PLACE FINANCIAL CORP.
CHANGE IN CONTROL AGREEMENT
This AGREEMENT is made effective as of __________, 1998, by and between
First Place Financial Corp. (the "Holding Company"), a corporation organized
under the laws of the State of Delaware, with its principal office at 185 East
Market Street, Warren, Ohio, and __________ ("Executive"). The term
"Institution" refers to First Federal Savings and Loan Association of Warren, a
wholly-owned subsidiary of the Holding Company or any successor thereto.
WHEREAS, the Holding Company recognizes the substantial contribution
Executive has made to the Holding Company and wishes to protect his position
therewith for the period provided in this Agreement; and
WHEREAS, Executive has agreed to serve in the employ of the Holding Company
or an affiliate thereof.
NOW, THEREFORE, in consideration of the contribution and responsibilities
of Executive, and upon the other terms and conditions hereinafter provided, the
parties hereto agree as follows:
1. TERM OF AGREEMENT.
-----------------
The period 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 date of the execution of
this Agreement, the term of this Agreement shall be extended for one day each
day until such time as the board of directors of the Holding Company (the
"Board") or Executive elects not to extend the term of the Agreement by giving
written notice to the other party in accordance with Section 4 of this
Agreement, in which case the term of this Agreement shall be fixed and shall end
on the third anniversary of the date of such written notice.
2. CHANGE IN CONTROL.
-----------------
(a) Upon the occurrence of a Change in Control of the Holding Company (as
herein defined) followed at any time during the term of this Agreement by the
termination of Executive's employment, the provisions of Section 3 shall apply.
Upon the occurrence of a Change in Control, Executive shall have the right to
elect to voluntarily terminate his employment at any time during the term of
this Agreement following any material demotion, loss of title, office or
significant authority, material reduction in annual compensation or material
reduction in benefits, or relocation of his principal place of employment by
more than 30 miles from its location immediately prior to the Change in Control
unless such termination is because of death or termination for Cause.
<PAGE>
(b) For purposes of this Agreement, a "Change in Control" of the Holding
Company or the Institution shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act, or
the Rules and Regulations promulgated by the Office of Thrift Supervision
("OTS") (or its predecessor agency), as in effect on the date hereof (provided,
that in applying the definition of change in control as set forth under the
Rules and Regulations of the OTS, the Board shall substitute its judgment for
that of the OTS); or (iii) without limitation such a Change in Control shall be
deemed to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
indirectly, of voting securities of the Institution or the Holding Company
representing 25% or more of the Institution's or the Holding Company's
outstanding voting securities or right to acquire such securities except for any
voting securities of the Institution purchased by the Holding Company and any
voting securities purchased by any employee benefit plan of the Holding Co mpany
or its Subsidiaries, or (B) individuals who constitute the Board on the date
hereof (the "Incumbent Board") cease for any reason to constitute at least a
majority thereof, provided that any person becoming a director subsequent to the
date hereof whose election was approved by a vote of at least three-quarters of
the directors comprising the Incumbent Board, or whose nomination for election
by the Company's stockholders was approved by a Nominating Committee solely
composed of members which are Incumbent Board members, shall be, for purposes of
this clause (B), considered as though he were a member of the Incumbent Board,
or (C) a plan of reorganization, merger, consolidation, sale of all or
substantially all the assets of the Institution or the Holding Company or
similar transaction occurs or is effectuated in which the Institution or Holding
Company is not the resulting entity; or (D) a proxy statement has been
distributed soliciting proxies from stockholders of the Holding Company, by
someone other than the current management of the Holding Company, seeking
stockholder approval of a plan of reorganization, merger or consolidation of the
Holding Company or Institution with one or more corporations as a result of
which the outstanding shares of the class of securities then subject to such
plan or transaction are exchanged for or converted into cash or property or
securities not issued by the Institution or the Holding Company shall be
distributed, or (E) a tender offer is made for 20% or more of the voting
securities of the Institution or Holding Company then outstanding.
(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: 1) Executive's personal
dishonesty, willful misconduct, conduct damaging the reputation of the
Institution or the Holding Company, breach of fiduciary duty involving personal
profit, intentional failure to perform stated duties, willful violation of any
law, rule, regulation (other than traffic violations or similar offenses), final
cease and desist order or material breach of any provision of this Agreement
which results in a material loss to the Institution or the Holding Company, or
2) Executive's conviction of a crime or act involving moral turpitude or a final
judgment rendered against Executive based upon actions of Executive
2
<PAGE>
which involve moral turpitude. For the purposes of this Section, no act, or the
failure to act, on Executive's part shall be "willful" unless done, or omitted
to be done, not in good faith and without reasonable belief that the action or
omission was in the best interests of the Bank or its affiliates.
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. During the period beginning on the date
of the Notice of Termination for Cause pursuant to Section 4 hereof through the
Date of Termination, stock options and related limited rights granted to
Executive under any stock option plan shall not be exercisable nor shall any
unvested awards granted to Executive under any stock benefit plan of the
Institution, the Holding Company or any subsidiary or affiliate thereof, vest.
At the Date of Termination, such stock options and related limited rights and
any such unvested awards shall become null and void and shall not be exercisable
by or delivered to Executive at any time subsequent to such Termination for
Cause.
3. TERMINATION BENEFITS.
--------------------
(a) Upon the occurrence of a Change in Control, followed at any time during
the term of this Agreement by the voluntary or involuntary termination of
Executive's employment, other than for Termination for Cause, the Holding
Company 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, a
sum equal to two (2) times Executive's average annual compensation for the five
most recent taxable years that Executive has been employed by the Institution or
such lesser number of years in the event that Executive shall have been employed
by the Institution for less than five years. Such annual compensation shall
include base salary, commissions, bonuses, any other cash compensation,
contributions or accruals on behalf of Executive to any pension and profit
sharing plan, severance payments, director or committee fees and fringe benefits
paid or to be paid to the Executive during such years. At the election of
Executive which election is to be made prior to a Change in Control, such
payment shall be made in a lump sum. In the event that no election is made,
payment to Executive will be made on a monthly basis in approximately equal
installments during the remaining term of this Agreement.
(b) Upon the occurrence of a Change in Control of the Institution or the
Holding Company followed at any time during the term of this Agreement by
Executive's termination of employment, other than for Termination for Cause, the
Holding Company shall cause to be continued life and medical coverage
substantially identical to the coverage maintained by the Institution for
Executive prior to his severance, except to the extent such coverage may be
changed in its application to all Institution employees. Such coverage and
payments shall cease upon expiration of twenty-four (24) full calendar months
following the Date of Termination.
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<PAGE>
(c) Notwithstanding the preceding paragraphs of this Section 3, in the
event that:
(i) the aggregate payments or benefits to be made or afforded to
Executive, which are deemed to be parachute payments as defined in
Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code") or any successor thereof, (the "Termination Benefits") would
be deemed to include an "excess parachute payment" under Section 280G
of the Code; and
(ii) if such Termination Benefits were reduced to an amount (the "Non-
Triggering Amount"), the value of which is one dollar ($1.00) less
than an amount equal to three (3) times Executive's "base amount," as
determined in accordance with said Section 280G and the Non-Triggering
Amount less the product of the marginal rate of any applicable state
and federal income tax and the Non Triggering Amount would be greater
than the aggregate value of the Termination Benefits (without such
reduction) minus (i) the amount of tax required to be paid by the
Executive thereon by Section 4999 of the Code and further minus (ii)
the product of the Termination Benefits and the marginal rate of any
applicable state and federal income tax,
then the Termination Benefits shall be reduced to the Non-Triggering Amount.
The allocation of the reduction required hereby among the Termination Benefits
shall be determined by the Executive.
4. NOTICE OF TERMINATION.
---------------------
(a) Any purported termination by the Holding Company, 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 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 the date specified in the Notice of
Termination (which, in the case of Termination for Cause, shall not be less than
thirty (30) days from the date such Notice of Termination is given); provided,
however, that if a dispute regarding the Executive's termination exists, the
"Date of Termination" shall be determined in accordance with Section 4(c) of
this Agreement.
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, the Date of Termination shall be the
date on which the dispute is finally determined, either by mutual written
agreement of the parties, by a binding arbitration award, or by a final
judgment, order or decree of a court of competent jurisdiction (the time for
appeal therefrom having expired and no appeal having been perfected) and
provided further that the Date of Termination shall be extended by a notice of
dispute only if such notice is given in good faith
4
<PAGE>
and the party giving such notice pursues the resolution of such dispute with
reasonable diligence. Notwithstanding the pendency of any such dispute in
connection with a Change in Control, in the event that the Executive is
terminated for reasons other than Termination for Cause, the Institution will
continue to pay Executive the payments and benefits due under this Agreement in
effect when the notice giving rise to the dispute was given (including, but not
limited to his annual salary) until the earlier of: (1) the resolution of the
dispute in accordance with this Agreement; or (2) the expiration of the
remaining term of this Agreement as determined as of the Date of Termination.
5. SOURCE OF PAYMENTS.
------------------
It is intended by the parties hereto that all payments provided in this
Agreement shall be paid in cash or check from the general funds of the Holding
Company. Further, the Holding Company guarantees such payment and provision of
all amounts and benefits due hereunder to Executive and, if such amount and
benefits due from the Institution are not timely paid or provided by the
Institution, such amounts and benefits shall be paid and provided by the Holding
Company.
6. 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 Holding Company 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.
Nothing in this Agreement shall confer upon Executive the right to continue
in the employ of the Holding Company or shall impose on the Holding Company any
obligation to employ or retain Executive in its employ for any period.
7. 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 Holding Company and their respective successors and assigns.
5
<PAGE>
8. MODIFICATION AND WAIVER.
-----------------------
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there be any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future or as to any act other than that
specifically waived.
9. EFFECT OF ACTION UNDER INSTITUTION AGREEMENT.
---------------------------------------------
Notwithstanding any provision herein to the contrary, to the extent that
payments and benefits are paid to or received by Executive under the Institution
Agreement between Executive and Institution, the amount of such payments and
benefits paid by the Institution will be subtracted from any amount due
simultaneously to Executive under similar provisions of this Agreement.
10. 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 for ce and effect.
11. 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. In addition, references herein to the
masculine shall apply to both the masculine and the feminine.
12. GOVERNING LAW.
-------------
The validity, interpretation, performance, and enforcement of this
Agreement shall be governed by the laws of the State of Delaware.
13. 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 Executive within fifty
(50) miles from the location of the Holding Company, in accordance with the
rules of the American Arbitration Association then in effect. Judgment
6
<PAGE>
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.
14. PAYMENT OF COSTS AND 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 Holding Company if Executive is successful pursuant to a
legal judgment, arbitration or settlement.
15. INDEMNIFICATION.
---------------
The Holding Company 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 Delaware law and as provided in the Holding Company's
certificate of incorporation against all expenses and liabilities reasonably
incurred by him in connection with or arising out of any action, suit or
proceeding in which he may be involved by reason of his having been a director
or officer of the Holding Company (whether or not he continues to be a director
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgments, court costs and
attorneys' fees and the cost of reasonable settlements.
16. SUCCESSOR TO THE HOLDING COMPANY.
--------------------------------
The Holding Company shall require any successor or assignee, whether direct
or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Institution or the Holding
Company, expressly and unconditionally to assume and agree to perform the
Holding Company's obligations under this Agreement, in the same manner and to
the same extent that the Holding Company would be required to perform if no such
succession or assignment had taken place.
7
<PAGE>
SIGNATURES
IN WITNESS WHEREOF, First Place Financial Corp. has caused this Agreement
to be executed by its duly authorized officer, and Executive has signed this
Agreement, on the ___ day of ______________, 1998.
ATTEST: FIRST PLACE FINANCIAL CORP.
__________________________________ By: _________________________________
Mary Ann Roberts Steven R. Lewis
Secretary President and Chief Executive
Officer
WITNESS:
__________________________________ _________________________________
Mary Ann Roberts [NAME]
Secretary Executive
Seal
8
<PAGE>
EXHIBIT 23.1 CONSENT OF CROWE, CHIZEK AND COMPANY LLP
<PAGE>
ACCOUNTANTS' CONSENT
We have issued our report dated July 22, 1998, accompanying the financial
statements of First Federal Savings and Loan Association of Warren as of and for
the year ended June 30, 1998, included in the Amendment No. 1 to the Form S-1 to
be filed with the Securities and Exchange Commission and the Amendment No. 1 to
the Form AC to be filed with the Office of Thrift Supervision on or about
October 28, 1998. We consent to the use of our report and our name as it appears
in the Prospectus under the caption "Experts."
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
Cleveland, Ohio
November 2, 1998
<PAGE>
EXHIBIT 23.2 CONSENT OF PACKER, THOMAS & CO.
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We have issued our report dated September 9, 1997, accompanying the financial
statements of First Federal Savings and Loan Association of Warren as of and for
the years ended June 30, 1997 and 1996, included in Pre-Effective Amendment
No. 1 to the Registration Statement on Form S-1 of First Place Financial Corp.
to be filed with the Securities and Exchange Commission and the Form AC to be
filed with the Office of Thrift Supervision on or about November 2, 1998. We
consent to the use of our report and our name as it appears in the Prospectus
under the caption "Experts".
/s/ Packer, Thomas & Co.
Warren, Ohio Packer, Thomas & Co.
November 2, 1998
<PAGE>
EXHIBIT 99.2 DRAFT GIFT INSTRUMENT TO FIRST FEDERAL OF WARREN COMMUNITY
FOUNDATION
<PAGE>
EXHIBIT 99.2
GIFT INSTRUMENT
CHARITABLE GIFT TO THE
FIRST FEDERAL OF WARREN COMMUNITY FOUNDATION
First Place Financial Corp., Warren, Ohio (the "Company"), desires to make
a gift of its common stock, par value $.01 per share to the First Federal of
Warren Community Foundation (the "Foundation"), a nonprofit corporation
organized under the laws of the State of Delaware. The purpose of the donation
is to establish a bond between the Company and the community in which it and its
affiliates operate to enable the community to share in the potential growth and
success of the Company and its affiliates over the long term. To that end, the
Company now gives, transfers, and delivers to the Foundation
________________________ shares of its common stock, par value $.01 per share,
for total consideration of $__________ (which shall be equal to the aggregate
par value of such shares), subject to the following conditions:
1. The Foundation will use the donation solely for charitable purposes,
including community development, in the communities in which the Company and its
affiliates operate in accordance with the provisions of the Foundation's
Certificate of Incorporation.
2. Consistent with the Company's intent to form a long-term bond between
the Company and the community, the amount of Common Stock that may be sold by
the Foundation in any one year shall not exceed 5% of the market value of the
assets held by the Foundation, except that this restriction will not prohibit
the board of directors of the Foundation from selling a greater amount of Common
Stock in any one year if the board of directors of the Foundation determines
that the failure to sell a greater amount of the Common Stock held by the
Foundation would: (a) result in a long-term reduction of the value of the
Foundation's assets relative to their then current value that would jeopardize
the Foundation's capacity to carry out its charitable purposes; or (b) otherwise
jeopardize the Foundation's tax-exempt status.
3. The Common Stock contributed to the Foundation by the Company shall, for
so long as such shares are held by the Foundation, be considered by the Company
to be voted in the same ratio as all other shares of Common Stock of the Company
which are voted on each and every proposal considered by stockholders of the
Company, provided, however, that if this Condition No. 3 is waived by the Office
of Thrift Supervision pursuant to Office of Thrift Supervision Order No. ______,
dated ___________, 1998 (a copy of which is attached hereto), then this
Condition No. 3 shall become void and of no effect.
4. The Certificate of Incorporation and Bylaws of the Foundation shall
provide that, for a period of five (5) years from the date of conversion from
the mutual to stock form of organization of First Federal Savings and Loan
Association of Warren (the "Association"), one (1) director must be an
individual who is not an officer and/or director of the Company or the
Association and who is a civic or community leader within Trumbull or Mahoning
Counties, Ohio or their contiguous localities and is not an associate of any
officer or director of the Company or its affiliates or subsidiaries. For
purposes of this paragraph, the term "associate"
<PAGE>
when used to indicate a relationship with any person means any relative or
spouse of such person, or any relative of such spouse who is a director or
officer of the Company or the Association, or any of its parents or
subsidiaries.
5. The Certificate of Incorporation and Bylaws of the Foundation shall
provide that, for a period of five (5) years from the date of conversion from
the mutual to stock form of organization of the Association, one (1) director
must be an individual who is a member of the Board of Directors of the
Association.
Dated:_________, 1998 FIRST PLACE FINANCIAL CORP.
By: _______________________
Steven R. Lewis
President and
Chief Executive Officer
Accepted and Agreed:
First Federal of Warren Community Foundation
By: _____________________________________
Steven R. Lewis
President and Chief Executive Officer
