<PAGE>
As filed with the Securities and Exchange Commission on September 9, 1998
Registration No. 333-
-----
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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
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 14,812,000 (1)
$.01 par Value Shares $10.00 $148,120,000 $43,696
=======================================================================================================
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 securities of First Place Financial Corp. to be purchased by First
Federal Savings and Loan Association of Warren 401(k) Plan are included in
the amount shown for Common Stock. Accordingly, no separate fee is required
for the participation interests. In accordance with Rule 457(h) of the
Securities Act, as amended, the aggregate offering amount has been
calculated on the basis of the number of shares of Common Stock that may be
purchased with the current assets of such Plan.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
<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(5) $ $ $ $
- -----------------------------------------------------------------------------------------------------
Total Midpoint $ $ $ $
- -----------------------------------------------------------------------------------------------------
Total Maximum(5) $ $ $ $
- -----------------------------------------------------------------------------------------------------
Total Maximum, As Adjusted(6) $ $ $ $
=====================================================================================================
</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)
11,960,000 Shares of Common Stock
First Place Financial Corp. (the "Company" or "First Place"), a Delaware
corporation, is offering up to 11,960,000 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 13,754,000 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 $0.22 $9.78
- -----------------------------------------------------------------------------------------------------------------------------
Midpoint Per Share $10.00 $0.20 $9.80
- -----------------------------------------------------------------------------------------------------------------------------
Maximum Per Share $10.00 $0.19 $9.81
- -----------------------------------------------------------------------------------------------------------------------------
Total Minimum(1) $88,400,000 $1,975,000 $86,425,000
- -----------------------------------------------------------------------------------------------------------------------------
Total Midpoint(1) $104,000,000 $2,100,000 $101,900,000
- -----------------------------------------------------------------------------------------------------------------------------
Total Maximum(1) $119,600,000 $2,275,000 $117,325,000
- -----------------------------------------------------------------------------------------------------------------------------
Total Maximum, as adjusted(4) $137,540,000 $2,275,000 $135,265,000
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Determined in accordance with an independent appraisal prepared by
Keller & Company, Inc. ("Keller") dated August 14, 1998, which states
that the aggregate estimated pro forma market value of the Common Stock
being issued in the Conversion ranged from $95.2 million to $128.8
million with a midpoint of $112.0 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 $88.4 million to $119.6 million (the "Estimated
Price Range") or between 8,840,000 and 11,960,000 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 $875,000 and $1.2 million 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 TOTALLING $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 TOTALLING $50 OR MORE AS OF ________,
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 __________, 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, all of whom are existing Directors of
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 8,840,000 and
11,960,000 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 13,754,000 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, which
states that the estimated pro forma market value of the
Common Stock ranged from $95.2 million to $128.8
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 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 may
also use a portion of the net proceeds to renovate or
rebuild its main office building. The renovation or
reconstruction of the Association's main office is
currently estimated to cost up to $15.0 million. 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 Company
intends to adopt a stock benefit plan which would
provide for the granting of Common Stock to officers,
directors and employees of the Association and Company
in an amount equal to 4% of the Common Stock issued in
the Conversion, including shares issued to the
Foundation (the "Stock Program"). The Company also
intends to adopt a stock option plan which would
provide the Company with the ability to grant options
to officers, directors and employees of the Association
and Company to purchase Common Stock equal to 10% of
the number of shares of Common Stock issued in the
Conversion, including shares issued to the Foundation
(the "Stock Option Plan"). 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 4.6% or
3.4% 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 24.2%
or 23.1% 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>
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.
12
<PAGE>
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 considering
closing its Lordstown, Ohio, plant, which employs approximately 6,400 people in
the Warren/Youngstown area. While 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 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 would be effective in 2003. The reports state that
decision on the future of the Lordstown plant could be made as early as November
of 1998. 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, 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 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 21.5%. The
Company's ability to deploy this new capital through investments in interest-
13
<PAGE>
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
As the year 2000 approaches, a critical business issue has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. In brief, many existing application software
products in the marketplace were designed to only accommodate a two digit date
position which represents the year (e.g., '95 is stored on the system and
represents the year 1995). The Association has been identifying potential
problems associated with the year 2000 issue and is in the process of
implementing a plan designed to ensure that all software used in connection with
the Association's business will manage and manipulate data involving the
transition with dates from 1999 to 2000 without functional or data abnormality
and without inaccurate results related to such data. In addition, the
Association recognizes that its ability to be "Year 2000" compliant, to some
extent, is dependent upon the cooperation of its vendors. The Association is
requiring its computer systems and software vendors to represent that the
products provided are or will be Year 2000 compliant and has planned a program
of testing for compliance. There can be no assurances that such plan or the
performance by the Association's vendors will be effective to remedy all
potential problems. To the extent the Association's systems are not fully Year
2000 compliant, there can be no assurance that potential systems interruptions
or the cost necessary to update software would not have a material adverse
effect on the Company's business, financial condition, results of operations and
business prospects. Further, any Year 2000 failures on the part of the
Association's customers could result in additional expense or loss to the
Association. The Association's plan also contemplates working with its
customers to address any potential Year 2000 problems.
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 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 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 4.6% or 3.4%
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 who also
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
13,754,000 shares of Common Stock at the Purchase Price for an aggregate
purchase price of up to $137.5 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
680,000, 800,000 and 920,000 shares, with a value of $6.8 million, $8.0 million
and $9.2 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 12,880,000 shares issued and outstanding of which the
Foundation will own 920,000 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 $6.8 million to $9.2 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 $9.2 million in Common Stock (based on the maximum of the
Estimated Price Range), the Company estimates a net tax effected expense of $6.1
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 $2.0 million,
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
$9.2 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 $88.4 million and $119.6 million, with a midpoint of $104.0 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 $112.0 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 74.40% and 16.95x, 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 $122.0 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 74.26% and 16.95x, 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 $103.7 million and $140.3 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 $18.0 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 14.8%, 14.8% and 33.3%, respectively. On a consolidated basis,
the Company's pro forma stockholders' equity would be $150.5 million, or
approximately 21.6% 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 $13.44 and $0.59,
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 $169.2 million, or approximately 23.5% 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." The Company and the Foundation will take the necessary steps to
provide such requirement in the Foundation's corporate governance documents. As
such, the Company does not believe the Foundation will have an anti-takeover
effect on the Company. 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 $137.5 million or less than $88.4 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.
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Stock-Based Benefits to Management, Employment Contracts and Change in Control
Payments
Stock Program. The Company intends to adopt the Stock Program which would
provide stock grants of Common Stock to non-employee directors and selected
officers and employees of the Company and Association 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 380,800 shares and
515,200 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 952,000 shares and 1,288,000 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 $___ 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."
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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
------------------------------------------------------------------
8,840,000 Shares 10,400,000 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% $91,146 14.2% $96,867 15.0%
======= ==== ======= ==== ======= ====
Tangible Capital:
Capital Level(4).......... $57,763 9.5% $89,552 14.0% $95,273 14.8%
Requirement(5)............ 9,117 1.5 9,594 1.5 9,680 1.5
------- ---- ------- ---- ------- ----
Excess.................... $48,646 8.0% $79,958 12.5% $85,593 13.3%
======= ==== ======= ==== ======= ====
Core Capital:
Capital Level(4).......... $57,763 9.5% $89,552 14.0% $95,273 14.8%
Requirement(5)............ 18,234 3.0 19,188 3.0 19,359 3.0
------- ---- ------- ---- ------- ----
Excess.................... $39,529 6.5% $70,364 11.0% $75,914 11.8%
======= ==== ======= ==== ======= ====
Risk-Based Capital:
Capital Level(4)(6)....... $60,418(7) 21.8% $92,207 31.7% $97,928 33.3%
Requirement............... 22,134 8.0 23,288 8.0 23,496 8.0
------- ---- ------- ---- ------- ----
Excess.................... $38,284 13.8% $68,919 23.7% $74,432 25.3%
======= ==== ======= ==== ======= ====
<CAPTION>
Pro Forma at June 30, 1998 Based Upon the Sale at $10.00 Per Share
------------------------------------------------------------------
13,754,000 Shares
11,960,000 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).............. $102,564 15.7% $109,215 16.6%
======== ==== ======== ====
Tangible Capital:
Capital Level(4).......... $100,970 15.5% $107,621 16.4%
Requirement(5)............ 9,765 1.5 9,865 1.5
-------- ---- -------- ----
Excess.................... $ 91,205 14.0% $ 97,756 14.9%
======== ==== ======== ====
Core Capital:
Capital Level(4).......... $100,970 15.5% $107,621 16.4%
Requirement(5)............ 19,530 3.0 19,730 3.0
-------- ---- -------- ----
Excess.................... $ 81,440 12.5% $ 87,891 13.4%
======== ==== ======== ====
Risk-Based Capital:
Capital Level(4)(6)....... $103,625 35.0% $110,276 36.8%
Requirement............... 23,703 8.0 23,945 8.0
-------- ---- -------- ----
Excess.................... $ 79,922 27.0% $ 86,331 28.8%
======== ==== ======== ====
</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 - 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 $75.0
million and $101.9 million (or $117.5 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 $75.0 million to $101.9 million, the Company expects to
utilize between $37.5 million and $50.9 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
which the Association currently intends to utilize 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 may also use a
portion of the net proceeds to renovate or rebuild its main office building.
The renovation or reconstruction of the Association's main office building is
currently estimated to cost up to $15.0 million. 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. 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 $75.0 million to $101.9
million will be between $37.5 million and $50.9 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 8,840,000 shares or 11,960,000 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 $7.6 million or
$10.3 million, respectively (or $11.8 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.
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.
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
--------------------------------------------------------------
13,754,000
8,840,000 10,400,00 11,960,000 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)............. - 95 112 129 148
Additional paid-in capital(3)...................... - 86,330 101,788 117,196 135,117
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........................ - 6,800 8,000 9,200 10,580
Less:
Foundation contribution expense, net (5)........... - 4,488 5,280 6,072 6,983
Common Stock acquired by the
ESOP(6).......................................... - 7,616 8,960 10,304 11,850
Common Stock acquired by the
Stock Program(7)................................. - 3,808 4,480 5,152 5,925
-------- -------- -------- -------- --------
Total stockholders' equity............................ $ 59,357 $136,670 $150,537 $164,354 $180,444
======== ======== ======== ======== ========
</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
680,000, 800,000, 920,000 and 1,058,000 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 5.23%,
which is the arithmetic average of the weighted average yield earned by the
Association on its interest-earning assets and the weighted average rate paid on
its deposits during such period (as required by OTS regulations). 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
-------------------------------------------------------------------------------
8,840,000 10,400,000 13,754,000
Shares Sold Shares Sold at 11,960,000 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............................. $ 88,400 $ 104,000 $ 119,600 $ 137,540
Plus: Shares issued to the Foundation
(equal to 7.7% of stock issued in
Conversion)........................ 6,800 8,000 9,200 10,580
--------- ----------- ----------- -----------
Pro forma market capitalization............ $ 95,200 $ 112,000 $ 128,800 $ 148,120
========= =========== =========== ===========
Gross proceeds............................. $ 88,400 $ 104,000 $ 119,600 $ 137,540
Less: Offering expenses and
commissions...................... (1,975) (2,100) (2,275) (2,275)
--------- ----------- ----------- -----------
Estimated net proceeds..................... 86,425 101,900 117,325 135,265
Less: Common Stock purchased
by ESOP.......................... (7,616) (8,960) (10,304) (11,850)
Common Stock purchased by
Stock Program..................... (3,808) (4,480) (5,152) (5,925)
--------- ----------- ----------- -----------
Estimated net proceeds, as adjusted.... $ 75,001 $ 88,460 $ 101,869 $ 117,490
========= =========== =========== ===========
Net income(1):
Historical............................. $ 4,072 $ 4,072 $ 4,072 $ 4,072
Pro forma income on net proceeds,
as adjusted......................... 2,589 3,053 3,516 4,056
Less: Pro forma ESOP adjustment(2)........ (335) (394) (453) (521)
Pro forma Stock Program
adjustment(3)...................... (503) (591) (680) (782)
--------- ----------- ----------- -----------
Pro forma net income.............. $ 5,823 $ 6,140 $ 6,455 $ 6,825
========= =========== =========== ===========
Per share net income(1):
Historical............................. $ 0.47 $ 0.40 $ 0.34 $ 0.30
Pro forma income on net proceeds,
as adjusted......................... 0.29 0.29 0.29 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.... $ 0.66 $ 0.59 $ 0.54 $ 0.50
========= =========== =========== ===========
Stockholders' equity(4):
Historical.............................. $ 59,357 $ 59,357 $ 59,357 $ 59,357
Estimated net proceeds.................. 86,425 101,900 117,325 135,265
Plus: Shares issued to Foundation...... 6,800 8,000 9,200 10,580
Less: After tax cost of Foundation.... (4,488) (5,280) (6,072) (6,983)
Less: Common Stock acquired
by ESOP(2)..................... (7,616) (8,960) (10,304) (11,850)
Less: Common Stock acquired
by Stock Program(3)............ (3,808) (4,480) (5,152) (5,925)
--------- ----------- ----------- -----------
Pro forma stockholders'
equity(3)(5)(6).................... $ 136,670 $ 150,537 $ 164,354 $ 180,444
========= =========== =========== ===========
Stockholders' equity per share(4)(7):
Historical............................. $ 6.24 $ 5.30 $ 4.61 $ 4.01
Estimated net proceeds................. 9.08 9.10 9.11 9.13
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).............. $ 14.36 $ 13.44 $ 12.76 $ 12.18
========= =========== =========== ===========
Offering price as a percentage of
pro forma stockholders' equity
per share.............................. 69.66% 74.40% 78.37% 82.09%
Offering price to pro forma net
earnings per share(8).................. 15.15x 16.95x 18.52x 20.00x
</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 $4.5 million, $5.3
million, $6.1 million and $7.0 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 $0.05, $0.12,
$0.17 and $0.21, at the minimum, midpoint, maximum and maximum, as
adjusted, respectively. Per share net income data is based on 8,809,173,
10,363,733, 11,918,293 and 13,706,037 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 50,773, 59,733, 68,693 and 78,997 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 380,800, 448,000, 515,200
and 592,480 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 $0.65, $0.58, $0.53 and $0.49 at the
minimum, midpoint, maximum and 15% above the maximum of the range,
respectively and pro forma stockholders' equity per share would be
$14.19, $13.31, $12.65 and $12.10 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 952,000, 1,120,000, 1,288,000 and 1,481,200
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 $0.63, $0.57, $0.52 and $0.48, respectively,
and the pro forma stockholders' equity per share would be $13.96, $13.13,
$12.51 and $11.98, 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 9,520,000, 11,200,000,
12,880,000 and 14,812,000 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 $122.0 million, at the
midpoint, which is approximately $10.0 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 $18.0 million
increase, or 17.31%, 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 $13.47 and $0.59,
respectively, at the midpoint of the estimate, assuming no Foundation, and
$13.44 and $0.59, respectively, with the Foundation. The pro forma price to book
ratio and the pro forma price to earnings ratio are 74.26% and 16.95x,
respectively, at the midpoint of the estimate, assuming no Foundation and are
74.40% and 16.95x, 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.. $ 88,400 $103,700 $104,000 $122,000 $119,600 $140,300 $137,540 $161,345
Pro forma market
capitalization............ 95,200 103,700 112,000 122,000 128,800 140,300 148,120 161,345
Total assets............... 686,711 702,574 700,578 719,211 714,395 735,848 730,485 754,981
Total liabilities.......... 550,041 550,041 550,041 550,041 550,041 550,041 550,041 550,041
Pro forma stockholders'
equity.................... 136,670 152,534 150,537 169,171 164,354 185,808 180,444 204,940
Pro forma consolidated net
earnings.................. 5,823 6,233 6,140 6,620 6,455 7,008 6,825 7,455
Pro forma stockholders'
equity per share.......... 14.36 14.31 13.44 13.47 12.76 12.84 12.18 12.30
Pro forma consolidated net
earnings per share........ 0.66 0.66 0.59 0.59 0.54 0.54 0.50 0.50
Pro Forma Pricing Ratios:
Offering price as a
percentage of pro
forma stockholders'
equity per share...... 69.66% 69.89% 74.40% 74.26% 78.37% 77.86% 82.09% 81.29%
Offering price to pro
forma net earnings per
share.................... 15.15x 15.15x 16.95x 16.95x 18.52x 18.52x 20.00x 20.00x
Pro Forma Market
Capitalization to assets. 13.86% 14.76% 15.99% 16.96% 18.03% 19.07% 20.28% 21.37%
Pro Forma Financial Ratios:
Return on assets.......... 0.85% 0.89% 0.88% 0.92% 0.90% 0.95% 0.93% 0.99%
Return on stockholders'
equity................... 4.26 4.09 4.08 3.91 3.93 3.77 3.78 3.64
Stockholders' equity to
assets................... 19.90 21.71 21.49 23.52 23.01 25.25 24.70 27.15
</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 in an effort to better manage
interest rate risk and add flexibility to balance sheet management policy.
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 leveraging is done in
such a manner to ensure that the cash flows of both the assets and the
liabilities are closely matched. 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,
--------------------------------------------------------------------------------------------
1998 1997 1996
--------------------------------------------------------------------------------------------
Average Average Average
Average Yield/ Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost Balance Interest Cost
--------------------------------------------------------------------------------------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Interest-bearing deposits in other
financial institutions............ $ 4,107 $ 306 7.45% $ 10,452 $ 623 5.96% $ 3,110 $ 191 6.14%
Taxable securities(1).............. 40,264 2,441 6.04 47,337 2,751 5.71 45,785 2,691 5.80
Nontaxable securities(1)(2)........ 1,234 66 8.29 437 32 11.09 457 32 10.61
Mortgage-backed securities(1)...... 200,866 13,581 6.84 188,362 12,805 6.76 193,599 13,124 6.73
Loans receivable - net............. 315,726 25,736 8.15 267,928 21,872 8.16 247,699 20,135 8.13
FHLB stock......................... 4,869 352 7.23 4,683 330 7.05 3,749 263 7.02
-------- ------- -------- ------- -------- -------
Total interest-earning assets.... 567,066 42,482 7.52 519,199 38,413 7.37 494,399 36,436 7.34
Noninterest-earning assets:
Cash and amounts due from
depository institutions........... 9,780 9,366 4,953
Premises and equipment, net........ 6,183 5,589 4,958
Other noninterest-earning assets... 2,304 (1,727) 2,023
-------- -------- --------
Total assets.................... $585,333 $532,427 $506,333
======== ======== ========
Interest-bearing liabilities:
NOW and money market accounts...... $ 95,871 3,300 3.44 $ 84,388 2,701 3.20 $ 70,183 1,942 2.77
Savings accounts................... 68,945 1,661 2.41 72,132 1,782 2.47 77,953 2,013 2.58
Time deposits...................... 251,130 14,898 5.93 238,859 14,013 5.87 232,955 13,927 5.98
Repurchase agreements.............. 45,044 2,596 5.76 8,470 480 5.67 - - -
FHLB advances...................... 52,396 3,057 5.83 68,596 3,953 5.76 68,615 3,976 5.79
-------- ------- -------- ------- -------- -------
Total interest-bearing
liabilities.................... 513,386 25,512 4.97 472,445 22,929 4.85 449,706 21,858 4.86
Noninterest-bearing liabilities... 13,739 9,368 7,944
-------- -------- --------
Total liabilities.................. 527,125 481,813 457,650
Retained earnings.................. 58,208 50,614 48,683
-------- -------- --------
Total liabilities and retained
earnings....................... $585,333 $532,427 $506,333
======== ======== ========
Net interest income/interest rate
spread............................... $16,970 2.55% $15,484 2.52% $14,578 2.48%
======= ====== ======= ====== ======= ======
Net interest margin (net interest
income as a percent of average
interest-earning assets)............. 3.00% 2.97% 2.94%
====== ====== ======
Average interest-earning assets to 110.46% 109.90% 109.94%
interest-bearing liabilities......... ====== ====== ======
</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 reprise 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 requirement. 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%.
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. 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.
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.
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.
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<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. 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. Management believes the allowance for loan losses is adequate to
absorb potential 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 accrued in 1997. 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 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 $11.6 million.
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<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
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
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<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.
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
The Association's operations, like those of most financial institutions,
depend almost entirely on computer systems. The Association is addressing the
potential problems associated with the possibility that the computers which
control or operate the Association's operating systems, facilities and
infrastructure may not be programmed to read four-digit date codes and, upon
arrival of the year 2000, may recognize the two-digit code of "00" as the year
1900, causing systems to fail to function or to generate erroneous data. The
Association is working with the companies that supply or service its computer-
operated or dependent systems to identify and remedy any year-2000 related
problems.
It is anticipated that all reprogramming efforts will be complete by
December 31, 1998, allowing adequate time for testing. The Association has not
identified any material expenses which are reasonably likely to be incurred in
connection with year-2000 issues and the Association does not expect to incur
significant expense to implement corrective measures. No assurance can be
given, however, that significant expense will not be incurred in future periods.
In the event that the Association is ultimately required to purchase replacement
computer systems, programs and equipment, or that substantial expense must be
incurred to make the Association's current systems, programs and equipment year-
2000 compliant, the Association's net income and financial condition could be
adversely affected. While the Association is working to ensure that its
computer-dependent operations are year-2000 compliant, no assurance can be given
that some year-2000 problems will not occur.
In addition to possible expense related to its own systems, the Association
could incur losses if year-2000 issues adversely affect the Association's
depositors or borrowers. Such problems could include delayed loan payments due
to year-2000 problems affecting any of the Association's significant borrowers
or impairing the payroll systems of large employers in the Association's market
area. Because the Association is not dependent on a small number of large
commercial customers, the Association does not expect any significant or
prolonged year-2000 related difficulties due to year-2000 problems on the part
of its customers that will affect net earnings or cash flows.
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.
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<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, although the Company may elect to adopt the statement earlier.
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.
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<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.
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<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.
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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................. 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.
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
49
<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) totalled $2.0 million, or
0.6% of the Association's total loans and 3.1% of consumer loans; and automobile
loans totalled $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
51
<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.
52
<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.
53
<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:
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 0.60% 0.86% 0.44% 0.41% 0.33%
total loans (1).....................
Nonperforming assets as a percent of 0.35 0.45 0.22 0.21 0.18
total assets(2).....................
</TABLE>
__________
(1) Loans represent loans receivable, net, excluding the allowance for
loan losses.
(2) 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 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
54
<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%
</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.
55
<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 mortgaged-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 mortgaged-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
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%
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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.
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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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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. Additionally, the Board has retained a former director as a
consultant who receives $300 for each Board meeting attended.
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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 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 25 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 certain 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 $___________.
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. However, it is management's belief that
substantially all of the Association's employees would be retained in their
current positions in the event of a change in control, and that any amount
payable under the Severance Plan would be considerably less than the total
amount that could possibly be paid under the Severance Plan.
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. 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. 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.
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 1,288,000 shares based
upon the issuance of 12,880,000 shares), for issuance under the Incentive Option
Plan.
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 515,200 shares based upon the issuance of 12,880,000 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, 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 collectability 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 collectability 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 0.74% 70,000 0.54%
Robert P. Grace....................... 250,000 25,000 0.26 25,000 0.19
George J. Gentithes................... 750,000 75,000 0.79 75,000 0.58
Thomas M. Humphries................... 500,000 50,000 0.53 50,000 0.39
Steven R. Lewis....................... 400,000 40,000 0.42 40,000 0.31
Robert S. McGeough.................... 250,000 25,000 0.26 25,000 0.19
E. Jeffrey Rossi...................... 400,000 40,000 0.42 40,000 0.31
William W. Watson..................... 500,000 50,000 0.53 50,000 0.39
All directors and executive officers
as a group (11 persons)............. $4,350,000 435,000 4.57% 435,000 3.38%
========== ======= ==== ======= ====
</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 three members, all 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 0.5%, 0.2% and 0.3%,
respectively, or 1.0% 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. 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. 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
9,520,000, 11,200,000 and 12,880,000 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 680,000, 800,000, 920,000 and 1,058,000 shares,
respectively, which would have a market value of $6.8 million, $8.0 million,
$9.2 million and $10.6 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 1,530,000, 1,800,000, 2,070,000 and 2,380,500
shares, or $15.3 million, $18.0 million, $20.7 million and $23.8 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 $9.2 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 $6.1 million. If the Foundation had been established at June 30, 1998, the
Association would have recorded a net loss of $2.0 million, 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
$150.5 million, or 21.5% of pro forma consolidated assets and the Association's
pro forma tangible, core and risk-based capital ratios would be 14.8%, 14.8% and
33.3%, 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 $1.3 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; and (vii) 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 $102.6 million or a ratio of
GAAP capital to adjusted assets, on a pro forma basis, of 15.7% 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 21.2% 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, the estimated pro forma
market value of the Common Stock, being offered for sale ranged from a minimum
of $88.4 million to a maximum of $119.6 million with a midpoint of $104.0
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 $88.4 million to $119.6
million, with a midpoint of $104.0 million, and the Company expects to sell
between 8,840,000 and 11,960,000 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 13,754,000 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 $88.4 million to
a maximum, as increased by 15%, of $137.5 million, the number of shares of
Common Stock expected to be sold in the Conversion is between a minimum of
8,840,000 shares and a maximum, as adjusted by 15%, of 13,754,000 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 920,000 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 12,880,000 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 ________, 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 ________, 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
consistent with OTS regulations. Pursuant to the Plan and OTS regulations,
certain deposits do not qualify as "savings accounts," including but not limited
to noninterest-bearing demand accounts, (primarily noninterest-bearing checking
accounts) and mortgage escrow deposits, maintained at the Association.
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 761,600 shares and 1,030,400 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 (_______, 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 ________,
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 3.4%
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 23.1% 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.
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
12,880,000 shares of Common Stock (or 14,812,000 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."
117
<PAGE>
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 replace 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-1
Independent Auditors' Report for the Years Ended June 30, 1997 and
1996.............................................................. F-2
Statements of Financial Condition as of June 30, 1998 and 1997..... F-3
Statements of Income for the Years Ended June 30, 1998, 1997 and
1996.............................................................. F-4
Statements of Retained Earnings for the Years Ended June 30, 1998,
1997 and 1996..................................................... F-5
Statements of Cash Flows for the Years Ended June 30, 1998,
1997 and 1996...................................................... F-6 to F-7
Notes to Financial Statements...................................... F-8 to F-26
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.
<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-1
<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.
<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
------------ ------------
RETAINED EARNINGS
Retained earnings, substantially restricted 57,762,916 53,690,574
Unrealized gain on available for sale securities, net 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-3
<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
Security gains (losses), 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-4
<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-5
<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-6
<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-7
<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-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 (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-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)
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. 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-10
<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-11
<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-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)
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-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)
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-14
<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, $1,830,000 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-15
<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-16
<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.
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>
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-17
<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
Mortgage matched advance 1,668,719 5.20 05/01/2003
Mortgage matched advance 1,147,881 5.30 07/01/2003
Mortgage matched advance 1,178,121 5.20 09/01/2003
Mortgage matched advance 3,258,081 6.30 02/01/2007
Mortgage matched advance 4,013,449 6.05 12/01/2010
Mortgage matched 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
Mortgage matched advance 1,959,068 5.20 5/1/2003
Mortgage matched advance 1,339,586 5.30 7/1/2003
Mortgage matched advance 1,368,367 5.20 9/1/2003
Mortgage matched advance 3,964,467 6.30 2/1/2007
Mortgage matched advance 4,444,364 6.05 12/1/2010
Mortgage matched advance 8,364,844 6.05 12/1/2010
Mortgage matched advance 9,457,288 6.20 12/1/2010
-----------
$58,397,984
===========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-18
<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
========== ========== ==========
</TABLE>
- --------------------------------------------------------------------------------
(Continued)
F-19
<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-20
<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-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 (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-22
<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-23
<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>
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-24
<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-25
<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.
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-26
<PAGE>
================================================================================
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by 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.
================================================================================
================================================================================
11,960,000 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(1)............................ 90,505
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 (1)....... 1,200,000
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.................................... 4,145
----------
TOTAL............................................ $2,275,000
==========
</TABLE>
____________________
(1) Actual expenses based upon the registration of 14,812,000 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 Draft Opinion of Patton Boggs LLP re: legality
5.1 Draft Opinion of Potter Anderson & Corroon LLP re: legality
8.0 Draft 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)
99.2 Draft Gift Instrument to First Federal of Warren Community Foundation
- --------------------------------------------------------------------------------
*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
September 9, 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.
Name Date
---- ----
/s/ Paul A. Watson September 9, 1998
- --------------------------------------------
Paul A. Watson
Chairman of the Board
/s/ Steven R. Lewis September 9, 1998
- --------------------------------------------
Steven R. Lewis
President, Chief Executive Officer and
Director (principal executive officer)
/s/ Richard K. Smith September 9, 1998
- --------------------------------------------
Richard K. Smith
Vice President-Treasurer
(principal accounting and financial officer)
/s/ Robert P. Grace September 9, 1998
- --------------------------------------------
Robert P. Grace
Director
/s/ George J. Gentithes September 9, 1998
- --------------------------------------------
George J. Gentithes
Director
/s/ Thomas M. Humphries September 9, 1998
- --------------------------------------------
Thomas M. Humphries
Director
/s/ Robert S. McGeough September 9, 1998
- --------------------------------------------
Robert S. McGeough
Director
<PAGE>
/s/ E. Jeffrey Rossi September 9, 1998
- --------------------------------------------
E. Jeffrey Rossi
Director
/s/ William W. Watson September 9, 1998
- --------------------------------------------
William W. Watson
Director
<PAGE>
As filed with the Securities and Exchange Commission on September 9, 1998
Registration No. 33-_____
_______________________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
EXHIBITS
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)
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 Draft Opinion of Patton Boggs LLP re: legality
5.1 Draft Opinion of Potter Anderson & Corroon LLP re: legality
8.0 Draft 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)
99.2 Draft Gift Instrument to First Federal of Warren Community Foundation
- --------------------------------------------------------------------------------
*To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
EXHIBIT 1.1 ENGAGEMENT LETTER BETWEEN FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF WARREN AND CHARLES WEBB & COMPANY
<PAGE>
Exhibit 1.1
[LETTERHEAD OF KEEFE, BRUYETTE & WOODS, INC.]
Charles Webb & Company
A Division of
KEEFE, BRUYETTE & WOODS, INC.
March 23, 1998
Mr. Steven R. Lewis Mr. Paul A. Watson
President and Chief Executive Officer Chairman of the Board
First Federal Savings and Loan Association of Warren
185 East Market Street
Warren, Ohio 44481
Gentlemen:
This proposal is in connection with First Federal Savings and Loan Association
of Warren (the "Association") intention to acquire a stock financial institution
(the "Acquisition") and in connection therewith convert from a mutual to a
capital stock form of organization (the "Conversion"). In order to effect the
Conversion, it is contemplated that all of the Association's common stock to be
outstanding pursuant to the Conversion will be issued to a holding company (the
"Company") to be formed by the Association, and that the Company will offer and
sell shares of its common stock first to eligible persons (pursuant to the
Association's Plan of Conversion) in a Subscription and Community Offering. In
order to effect the Acquisition, it is contemplated that the Company will issue
cash, its stock, or a combination thereof, immediately following the Conversion.
Charles Webb & Company ("Webb"), a Division of Keefe, Bruyette and Woods, Inc.
("KBW"), will act as the Association's and the Company's exclusive financial
advisor and marketing agent in connection with the Acquisition/Conversion. This
letter sets forth selected terms and conditions of our engagement.
1. Merger & Acquisition Services. As the Association's and Company's financial
------------------------------
advisor, Webb will perform the following services:
a) prepare a summary of recent merger and acquisition trends in the
financial services industry, including tactics employed by others and
typical terms and values applied;
b) advise the Association as to the structure and form of a proposed
Acquisition Transaction;
c) make presentations to the Board of Directors about the Acquisition
Transaction;
<PAGE>
Mr. Steven R. Lewis
Mr. Paul A. Watson
March 23, 1998
Page 2 of 9
d) perform financial analyses of the Association and prospective Target
in the context of a possible Acquisition Transaction;
e) counsel the Association as to strategy and tactics for initiating
discussions and negotiations with the prospective Target and
participate in such discussions and negotiations;
f) coordinate and participate in (i) initial discussions between the
Association and prospective Target and (ii) "due diligence"
investigations of Association and prospective Target;
g) assuming an agreement in principle is reached for a Transaction,
assist you in negotiating a letter of intent, memorandum of
understanding and a definitive acquisition agreement;
h) assist the Association in any proceedings relating to regulatory
approvals required for a Transaction;
i) if requested by the Association, rendering an opinion at the time of
execution of an agreement and an update of such opinion as of the date
of mailing the proxy statement ("Opinion") as to whether or not the
consideration to be paid in a proposed Transaction is fair to the
Company from a financial point of view: and
j) render such other financial advisory and investment banking services
as are customary in such engagements and as may be agreed upon by Webb
and the Association.
2. Conversion/Advisory Services. As the Association's and Company's financial
----------------------------
advisor and marketing agent, Webb will provide the Association and the
Company with a comprehensive program of conversion services designed to
promote an orderly, efficient, cost-effective and long-term stock
distribution. Webb will provide financial and logistical advice to the
Association and the Company concerning the offering and related issues. Webb
will assist the Association and provide conversion enhancement services
intended to maximize stock sales in the Subscription Offering and to
residents of the Association's market area, if necessary, in the Community
Offering.
Webb shall provide financial advisory services to the Association which are
typical in connection with an equity offering and include, but are not
limited to, overall financial analysis of the Association with a focus on
identifying factors which impact the valuation of the common stock and
provide the appropriate recommendations for the betterment of the equity
valuation.
<PAGE>
Mr. Steven R. Lewis
Mr. Paul A. Watson
March 23, 1998
Page 3 of 9
Additionally, post conversion financial advisory services will include advice
on shareholder relations, Nasdaq listing, dividend policy (for both regular
and special dividends), stock repurchase strategy and communication with
market makers. Prior to the closing of the offering, Webb shall furnish to
client a Post-Conversion reference manual which will include specifics
relative to these items. (The nature of the services to be provided by Webb
as the Association's and the Company's financial advisor and marketing agent
are further described in Exhibit A attached hereto.)
3. Due Diligence Review. Prior to filing the Registration Statement,
--------------------
Acquisition Application and Application for Conversion or any offering or other
documents naming Webb as the Association's and the Company's financial advisor
and marketing agent, Webb and its representatives will undertake substantial
investigations to learn about the Association's and the Target's business and
operations ("due diligence review") in order to confirm information provided to
us and to evaluate information to be contained in the Association's and/or the
Company's offering documents. The Association agrees that it will make
available to Webb all relevant information, whether or not publicly available,
which Webb reasonably requests, and will permit Webb to discuss with management
the operations and prospects of the Association. Webb will treat all material
non-public information as confidential. The Association acknowledges that Webb
will rely upon the accuracy and completeness of all information received from
the Association, its officers, directors, employees, agents and representatives,
accountants and counsel including this letter to serve as the Association's and
the Company's financial advisor and marketing agent.
4. Regulatory Filings. The Association and/or the Company will cause
------------------
appropriate offering documents to be filed with all regulatory agencies
including, the Securities and Exchange Commission ("SEC"), the National
Association of Securities Dealers ("NASD"), Federal Deposit Insurance
Corporation ("FDIC"), Office of Thrift Supervision ("OTS") and such state
securities commissioners as may be determined by the Association.
5. Agency Agreement. The specific terms of the conversion services, conversion
----------------
offering enhancement and syndicated offering services contemplated in this
letter shall be set forth in an Agency Agreement between Webb and the
Association and the Company to be executed prior to commencement of the
offering, and dated the date that the Company's Prospectus is declared effective
and/or authorized to be disseminated by the appropriate regulatory agencies, the
SEC, the NASD, the OTS, the FDIC, and such state securities commissioners and
other regulatory agencies as required by applicable law.
6. Representations, Warranties and Covenants. The Agency Agreement will
-----------------------------------------
provide for customary representations, warranties and covenants by the
Association and Webb, and for the
<PAGE>
Mr. Steven R. Lewis
Mr. Paul A. Watson
March 23, 1998
Page 4 of 9
Company to indemnify Webb and their controlling persons (and, if applicable, the
members of the selling group and their controlling persons), provided however,
that the Association and the Company will not be liable in any such case to the
extent that any request for indemnification (i) arises out of or is based upon
any untrue statement of a material fact or the omission of a material fact
required to be stated therein or necessary to make the statements therein not
misleading contained in any proxy statement or prospectus (preliminary or
final), or any amendment thereto, or any of the applications, notices, filings
or documents related thereto made in reliance on and in conformity with written
information furnished to the Association by Webb expressly for use therein, or
(ii) is attributable to the negligence, willful misconduct or bad faith of Webb,
provided that the Association or Company is not providing indemnification or
reimbursement to any other person for liabilities arising from such person's
negligence, willful misconduct or bad faith, and for Webb to indemnify the
Association and the Company against certain liabilities, including, without
limitation, liabilities under the Securities Act of 1933.
7. Fees. For the services hereunder, the Association and/or Company shall pay
----
the following fees to Webb at closing unless stated otherwise:
(a) For general advisory services relating to the acquisition, conversion
or such other matters requested by the Association, the Association
shall pay Webb an annual Management Fee of $25,000. Such fee may be
paid at the Association's option either in four consecutive quarterly
installments of $6,250 commencing with the signing of this letter or
on a per diem basis for worked performed billed at our hourly rates.
Such fees shall be deemed to have been earned when due. Should the
Acquisition or Conversion be terminated for any reason not
attributable to the action or inaction of Webb, Webb shall have earned
and be entitled to be paid fees accruing through the stage at which
point the termination occurred.
(b) With respect to the Acquisition Transaction, a Success Fee of .50% of
the total fair market value of any securities issued and any non-cash
and cash consideration paid as of the closing of the Acquisition
Transaction, including any amounts paid by the Company or the Target
to any stock benefit plans maintained by the Target or an affiliate or
paid to any holders of any options or stock appreciation rights
granted by the Target, whether or not vested, provided that for
purposes of determining the amounts paid with respect to such options
or appreciation rights, as the case may be, which remain unexercised
immediately prior to the closing of the subject Transaction, the
amount paid with respect to such stock options or appreciation rights,
shall be deemed to equal the difference between the aggregate value to
be paid to, or received by, the holders of such options and rights and
the aggregate exercise price of such options and rights. The
Acquisition Success Fee
<PAGE>
Mr. Steven R. Lewis
Mr. Paul A. Watson
March 23, 1998
Page 5 of 9
shall be due and payable at the closing of such Acquisition.
Notwithstanding the above, the aggregate Acquisition fee payable shall
not exceed $500,000.
(c) For delivery of a fairness opinion pursuant to an Acquisition
Transaction, Webb shall receive a fee of $25,000, payable upon the
issuance of the fairness opinion to the Board at the time the
definitive agreement is signed; provided that such fee shall be deemed
earned at the time of the events described whether or not a
Transaction is eventually consummated. (Such fairness opinion fees
shall be deducted from amount due under 7 (b) above.)
(d) With respect to the Conversion, a Success Fee of 1.25% of the
aggregate Purchase Price of Common Stock sold in the conversion,
excluding shares purchased by the Association's officers, directors,
or employees (or members of their immediate families) plus any ESOP,
tax-qualified or stock based compensation plans (except IRA's) or
similar plan created by the Association for some or all of its
directors or employees. The aggregate Purchase Price for purposes of
this calculation shall not exceed the "Maximum" of the appraisal range
(i.e., 15% above the "Midpoint" of the appraisal).
(e) If any shares of the Company's stock remain available after the
subscription 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 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 that 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 by them. Webb will pass onto selected broker-dealers, who assist
in the syndicated community offering, 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 effected with the
assistance of a broker/dealer other than Webb 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 7(e), such fees shall be in lieu of, and
not in addition to, payment pursuant to subparagraph 7(d).
(f) The Association shall reimburse Webb for its out-of-pocket expenses
incurred in connection with the Acquisition or the Conversion,
including costs of travel, meals and lodging, photocopying, telephone,
facsimile and courier, provided that such expenses shall not exceed
$15,000.
<PAGE>
Mr. Steven R. Lewis
Mr. Paul A. Watson
March 23, 1998
Page 6 of 9
In addition, the Association shall reimburse Webb for the fees and
expenses paid by Webb to Webb's counsel, including such counsel's
reasonable out-of-pocket expenses for costs of travel, meals and
lodging, photocopying, telephone, facsimile and couriers. Such fees
and expenses will be agreed upon by Webb and the Association prior to
the execution of the Agency Agreement. The selection of such counsel
will be done by Webb, with the approval of the Association.
Notwithstanding anything to the contrary, the fees set forth in Section 7(b),
(d) and (e) shall not be deemed earned by Webb or payable by the Association
unless and until such time as the Acquisition and/or the Conversion is
completed.
The Association hereby grants to Webb a right of first refusal to provide the
above referenced Acquisition and Conversion services at competitive rates of
compensation, as agreed upon by the Association and Webb.
For purposes of Paragraph 7 (b) above, "total fair market value" of securities
and non-cash consideration shall have the following meaning: (i) in the case of
an exchange of common stock in a transaction in which the number of shares of
the Company to be received by the shareholders of Target will vary in a manner
designed to produce a fixed value to be received in exchange for each share of
Target, the "total fair market value" shall mean the maximum number of shares of
Company stock to be exchanged in such transaction, multiplied by the value per
share specified in the agreement between Company and the Target; (ii) in the
case of an exchange of common stock in a transaction in which the number of
shares of the Company to be received in exchange for each share of the Target is
fixed and the value of such shares may vary, the "total fair market value" shall
mean (A) for securities traded on a national securities exchange, the average of
the closing prices, as reported on such national securities exchange, for the 20
trading days ending on the fifth trading day prior to the closing of the
transaction, multiplied by the maximum number of shares of common stock of the
Company issuable upon conversion of Target's common stock (and any securities
convertible into common stock) in the transaction, and (B) for securities quoted
on a national quotation service, the average of the closing bid and ask prices
of the securities for a period of 20 trading days ending on the fifth trading
day prior to the closing of the transaction, multiplied by the maximum number of
shares of common stock of the Company issuable upon conversion of Target's
common stock (and any securities convertible into common stock) in the
transaction; and (C) for any securities not traded on a national securities
exchange or quoted by a national quotation service, the "total fair market
value" shall mean the fair market value as determined by mutual agreement of
Company and Webb, provided that if such securities are promissory notes, the
securities shall be valued at face value; and (iii) in the case of an
Acquisition to occur simultaneously with or immediately after the Conversion,
"fair market value" shall mean the per share price of the Company's stock as
sold in the conversion, multiplied by the maximum number of shares of
<PAGE>
Mr. Steven R. Lewis
Mr. Paul A. Watson
March 23, 1998
Page 7 of 9
common stock of the Company issuable upon conversion of Target's common stock
(and any securities convertible into common stock) in the transaction.
8. Additional Services. Webb further agrees to provide financial advisory
-------------------
assistance to the Company and the Association for a period of one year following
completion of the Conversion, including formation of a dividend policy and share
repurchase program, assistance with shareholder reporting and shareholder
relations matters, general advice on mergers and acquisitions and other related
financial matters, without the payment by the Company and the Association of any
fees in addition to those set forth in Section 7 hereof. Nothing in this
Agreement shall require the Company and the Association to obtain such services
from Webb. Following this initial one year term, if both parties wish to
continue the relationship, a fee will be negotiated and an agreement entered
into at that time.
9. Expenses. The Association will bear those expenses of the proposed offering
--------
customarily borne by issuers, including, without limitation, regulatory filing
fees, SEC, "Blue Sky," and NASD filing and registration fees; the fees of the
Association's accountants, attorneys, appraiser, transfer agent and registrar,
printing, mailing and marketing, conversion agent fees and syndicate expenses
associated with the Conversion; the fees and expenses set forth in Section 7;
and fees for "Blue Sky" legal work. If Webb incurs expenses on behalf of the
Association for any of the aforementioned matters, the Association will
reimburse Webb for such expenses.
10. Conditions. Webb's willingness and obligation to proceed hereunder shall
----------
be subject to, among other things, satisfaction of the following conditions in
Webb's opinion, which opinion shall have been formed in good faith by Webb after
reasonable determination and consideration of all relevant factors: (a) legally
sufficient disclosure of all relevant material, financial and other information
in the disclosure documents; (b) no material adverse change in the condition or
operations of the Association subsequent to the execution of the agreement; and
(c) no adverse market conditions at the time of offering which in Webb's opinion
make the sale of the shares by the Company inadvisable.
11. Preparation of Acquisition/Stock Offering Documents. The Association, the
---------------------------------------------------
Company and their counsel will draft the Acquisition Agreement, Application for
Acquisition, Registration Statement, Application for Conversion, Prospectus and
other documents to be used in connection with the Conversion and Acquisition.
Webb will attend meetings to review these documents and advise you on their form
and content. Webb and its counsel will draft appropriate agency agreement and
related documents as well as marketing materials other than the Prospectus.
12. Benefit. This Agreement shall inure to the benefit of the parties hereto
-------
and their respective successors and to the parties indemnified pursuant to the
terms and conditions of the Agency Agreement and their successors, and the
obligations and liabilities assumed hereunder by
<PAGE>
Mr. Steven R. Lewis
Mr. Paul A. Watson
March 23, 1998
Page 8 of 9
the parties hereto shall be binding upon their respective successors provided,
however, that this Agreement shall not be assignable by Webb.
13. Definitive Agreement. This letter reflects Webb's present intention of
--------------------
proceeding to work with the Association on its proposed Acquisition and
Conversion. It does not create a binding obligation on the part of the
Association, the Company or Webb except as to the agreement to maintain the
confidentiality of non-public information set forth in Section 3, the payment of
certain fees and expenses as set forth in Section 7 and the assumption of
expenses as set forth in Section 9, and the mutual indemnification provisions
set forth in Section 6, all of which shall constitute the binding obligations of
the parties hereto and which shall survive the termination of this Agreement or
the completion of the services furnished hereunder and shall remain operative
and in full force and effect. You further acknowledge that any report or
analysis rendered by Webb pursuant to this engagement is rendered for use solely
by the management of the Association and its agents in connection with the
Acquisition or the Conversion. Accordingly, you agree that you will not provide
any such information to any other person without our prior written consent.
<PAGE>
Mr. Steven R. Lewis
Mr. Paul A. Watson
March 23, 1998
Page 9 of 9
Webb acknowledges that in offering the Company's stock no person will be
authorized to give any information or to make any representation not contained
in the offering prospectus and related offering materials filed as part of a
registration statement to be declared effective in connection with the offering.
Accordingly, Webb agrees that in connection with the offering it will not give
any unauthorized information or make any unauthorized representation. We will
be pleased to elaborate on any of the matters discussed in this letter at your
convenience. If the foregoing correctly sets forth our mutual understanding,
please so indicate by signing and returning the original copy of this letter to
the undersigned.
Very truly yours,
CHARLES WEBB & COMPANY,
A DIVISION OF KEEFE, BRUYETTE & WOODS, INC.
By: /s/ John Bruno
-----------------------------
John Bruno
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF WARREN
By: /s/ Steven R. Lewis Date: 4/9/98
-------------------------------- ------------------
Steven R. Lewis
President and Chief Executive Officer
By: /s/ Paul A. Watson Date: 3-18-98
-------------------------------- ------------------
Paul A. Watson
Chairman of the Board
<PAGE>
EXHIBIT A
---------
CONVERSION SERVICES PROPOSAL
TO FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF WARREN
Charles Webb & Company provides thrift institutions converting from mutual to
stock form of ownership with a comprehensive program of conversion services
designed to promote an orderly, efficient, cost-effective and long-term stock
distribution. The following list is representative of the conversion services,
if appropriate, we propose to perform on behalf of the Association.
General Services
- ----------------
Assist management and legal counsel with the design of the transaction
structure.
Analyze and make recommendations on bids from printing, transfer agent, and
appraisal firms.
Assist officers and directors in obtaining bank loans to purchase stock, if
requested.
Assist in drafting and distribution of press releases as required or
appropriate.
Conversion Offering Enhancement Services
- ----------------------------------------
Establish and manage Stock Information Center at the Association. Stock
Information Center personnel will track prospective investors; record stock
orders; mail order confirmations; provide the Association's senior management
with daily reports; answer customer inquiries; and handle special situations as
they arise.
Assign Webb's personnel to be at the Association through completion of the
Subscription and Community Offerings to manage the Stock Information Center. If
so desired by the Association, Webb's personnel will also meet with prospective
shareholders at individual and community information meetings, solicit local
investor interest through a tele-marketing campaign, answer inquiries, and
otherwise assist in the sale of stock in the Subscription and Community
Offerings. This effort will be led by a Principal of Webb/KBW.
Provide proxy solicitation, member vote tabulation and act as inspector of
election at the special meeting of members.
Create target investor list based upon review of the Association's depositor
base.
Provide intensive financial and marketing input for drafting of the prospectus.
<PAGE>
Conversion Offering Enhancement Services- Continued
- ---------------------------------------------------
Prepare other marketing materials, including prospecting letters and brochures,
and media advertisements.
Arrange logistics of community information meeting(s) as required.
Prepare audio-visual presentation by senior management for community information
meeting(s).
Prepare management for question-and-answer period at community information
meeting(s).
Attend and address community information meeting(s) and be available to answer
questions.
Broker-Assisted Sales Services.
- ------------------------------
Arrange for broker information meeting(s) as required.
Prepare audio-visual presentation for broker information meeting(s).
Prepare script for presentation by senior management at broker information
meeting(s).
Prepare management for question-and-answer period at broker information
meeting(s).
Attend and address broker information meeting(s) and be available to answer
questions.
Produce confidential broker memorandum to assist participating brokers in
selling the Association's common stock.
Aftermarket Support Services.
- ----------------------------
Webb, through Keefe, Bruyette & Woods, Inc., will provide market making and on-
going research of the Company. In addition, Webb will use its best efforts to
secure a commitment from at least two additional NASD firms to provide market
making services.
Conversion Agent Services
- -------------------------
Webb will subcontract the services of a conversion agent for aggregation of
accounts. The services provided such conversion agent will be a part of a
separate agreement between the Association and such third party.
<PAGE>
EXHIBIT 2.1 PLAN OF CONVERSION (INCLUDING THE FEDERAL STOCK CHARTER AND
BYLAWS OF FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN)
<PAGE>
PLAN OF CONVERSION
FOR
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
WARREN, OHIO
AS ADOPTED ON
JUNE 15, 1998
<PAGE>
PLAN OF CONVERSION
1. INTRODUCTION
This Plan of Conversion ("Plan") provides for the conversion of First
Federal Savings and Loan Association of Warren ("ASSOCIATION") from a federally-
chartered mutual savings association to a federally-chartered capital stock
savings association. The Board of Directors of the ASSOCIATION currently
contemplates that all of the stock of the ASSOCIATION shall be held by a
Delaware corporation (the "Holding Company"). The Board of Directors has
carefully considered the alternatives available to the ASSOCIATION with respect
to its corporate structure and has determined that a mutual to stock conversion
as described in this Plan is in the best interests of the ASSOCIATION, its
depositors and the community served by the ASSOCIATION. The Board of Directors
believes that the decline in mutuality is placing mutual savings associations,
such as the ASSOCIATION, at a disadvantage to the increasing base of stock
thrift and commercial bank institutions. The restructuring of the ASSOCIATION
into the capital stock form of organization will enable the ASSOCIATION to
compete more effectively with commercial banks and other financial institutions
for new business opportunities, and as a stock institution, to increase its
equity capital base and access the capital markets when needed and to enhance
the ASSOCIATION'S ability to expand its franchise and the products it offers.
The use of the Holding Company would also provide greater organizational and
operating flexibility. Shares of capital stock of the ASSOCIATION will be sold
to the Holding Company and the Holding Company will offer the Conversion Stock
upon the terms and conditions set
<PAGE>
forth herein to the Eligible Account Holders, the Employee Plans established by
the ASSOCIATION or Holding Company, Supplemental Eligible Account Holders and
Other Members in the respective priorities set forth in this Plan. Any shares of
Conversion Stock not subscribed for by the foregoing classes of persons will be
offered for sale to certain members of the public either directly by the
ASSOCIATION and the Holding Company through a Community Offering or a Syndicated
Community Offering or through a combination thereof. In addition to the
foregoing, the ASSOCIATION and the Holding Company, as part of this Plan, intend
to implement stock option plans and other stock benefit plans and will provide
employment or severance agreements to certain management employees and certain
other compensation to the directors, officers and employees of the ASSOCIATION
as described in the prospectus for the Conversion Stock.
In furtherance of the ASSOCIATION's long term commitment to its community,
the Plan provides for the establishment of a charitable foundation as part of
the Conversion. The charitable foundation is intended to complement the
ASSOCIATION's existing community reinvestment activities in a manner that will
allow the communities in which the ASSOCIATION operates to share in the
potential growth and profitability of the Holding Company. Consistent with the
ASSOCIATION's goals, the Holding Company intends to donate to the charitable
foundation from its authorized but unissued common stock up to 8% of the number
of shares sold in the Conversion. It is intended that the ASSOCIATION's Board
of Directors will serve as the Board of Directors of the charitable foundation.
The establishment of the charitable foundation is subject to the approval of the
Voting Members of the ASSOCIATION. In the
2
<PAGE>
event the charitable foundation is not approved, the ASSOCIATION may determine
to complete the Conversion without the charitable foundation.
This Plan, which has been unanimously approved by the Board of Directors of
the ASSOCIATION, must also be approved by the affirmative vote of a majority of
the total number of outstanding votes entitled to be cast by Voting Members of
the ASSOCIATION at a special meeting to be called for that purpose. Prior to
the submission of this Plan to the Voting Members for consideration, the Plan
must be approved by the Office of Thrift Supervision.
2. DEFINITIONS
For the purposes of this Plan, the following terms have the following
meanings:
Account Holder - The term Account Holder means any Person holding a Savings
--------------
Account in the ASSOCIATION.
Acting in Concert - The term "Acting in Concert" means (i) knowing
-----------------
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise; or
(iii) a person or company which acts in concert with another person or company
shall also be deemed to be acting in concert with any person or company who is
also acting in concert with that other party, except that any tax-qualified
employee stock benefit plan will not be deemed to be acting in concert with its
trustee or a person who serves in a similar capacity solely for the purpose of
determining whether stock held by the trustee and stock held by the plan will be
aggregated.
3
<PAGE>
Actual Purchase Price - The term Actual Purchase Price means the per share
---------------------
price at which the Conversion Stock is ultimately sold in accordance with the
terms hereof.
Associate - The term Associate when used to indicate a relationship with
---------
any person, means (i) any corporation or organization (other than the
ASSOCIATION or a majority-owned subsidiary of the ASSOCIATION) of which such
person is an officer or partner or is, directly or indirectly, the beneficial
owner of 10 percent or more of any class of equity securities, (ii) any trust or
other estate in which such person has a substantial beneficial interest or as to
which such person serves as trustee or in a similar fiduciary capacity except
that, the term "Associate" does not include any Non-Tax-Qualified Employee Stock
Benefit Plan or any Tax-Qualified Employee Stock Benefit Plan in which a person
has a substantial beneficial interest or serves as a trustee or in a similar
fiduciary capacity, and except that, for purposes of aggregating total shares
that may be held by Officers and Directors the term "Associate" does not include
any Tax-Qualified Employee Stock Benefit Plan, and (iii) any relative or spouse
of such person, or any relative of such spouse, who has the same home as such
person or who is a Director or Officer of the ASSOCIATION or the Holding
Company, if utilized, or any of its parents or subsidiaries.
Association - The term ASSOCIATION means First Federal Savings and Loan
-----------
Association of Warren.
Community Offering - The term Community Offering means the offering for
------------------
sale to certain members of the general public directly by the Holding Company of
any shares of Conversion Stock not subscribed for in the Subscription Offering.
The Community Offering may run concurrently with the Subscription Offering.
4
<PAGE>
Conversion Stock - The term Conversion Stock means the $.01 par value
----------------
common stock offered and issued by the Holding Company.
Director - The term Director means a member of the Board of Directors of
--------
the ASSOCIATION and, where applicable, a member of the Board of Directors of the
Holding Company.
Eligible Account Holder - The term Eligible Account Holder means any person
-----------------------
holding a Qualifying Deposit on the Eligibility Record Date.
Eligibility Record Date - The term Eligibility Record Date means the date
-----------------------
for determining Eligible Account Holders in the ASSOCIATION and is March 31,
1997.
Employees - The term Employees means all Persons who are employed by the
---------
ASSOCIATION but does not include an Officer or Director.
Employee Plans - The term Employee Plans means the Tax Qualified Employee
--------------
Stock Benefit Plans of the ASSOCIATION.
Estimated Price Range - The term Estimated Price Range means the range of
---------------------
the estimated pro forma market value of the Conversion Stock as determined by
the Independent Appraiser prior to the Subscription Offering and as it may be
amended from time to time thereafter.
FDIC - The term FDIC means the Federal Deposit Insurance Corporation.
----
Holding Company - The term Holding Company means the Delaware corporation
---------------
formed for the purpose of acquiring all of the shares of capital stock of the
ASSOCIATION to be issued upon its conversion to stock form. Shares of common
stock of the Holding Company will be issued in the conversion to Participants
and others in a Subscription, Community or Syndicated Community offering, or
through a combination thereof.
5
<PAGE>
Independent Appraiser - The term Independent Appraiser means an independent
---------------------
appraiser retained by the ASSOCIATION to prepare an appraisal of the pro forma
market value of the Conversion Stock.
Local Community - The term Local Community means the Counties of Trumbull
---------------
and Mahoning.
Member - The term Member means any Person or entity who qualifies as a
------
member of the ASSOCIATION pursuant to its charter and bylaws.
OTS - The term OTS means Office of Thrift Supervision of the Department of
---
the Treasury.
Officer - The term Officer means an executive officer of the ASSOCIATION
-------
which includes the Chief Executive Officer, President, Executive Vice President,
Senior Vice Presidents, Vice Presidents in charge of principal business
functions, Secretary, Treasurer and Controller and any Person performing
functions similar to those performed by the foregoing persons.
Order Form - The term Order Form means the form sent by the ASSOCIATION to
----------
any Participant or Person containing a description of the alternatives available
to such Person under the Plan and by which any such Person may make elections
regarding subscriptions for Conversion Stock in the Subscription and Community
Offerings.
6
<PAGE>
Other Member - The term Other Member means any person who is a Member of
------------
the ASSOCIATION (other than an Eligible Account Holder or Supplemental Eligible
Account Holder) at the close of business on the Voting Record Date.
Participants - The term Participants means the Eligible Account Holders,
------------
Employee Plans, Supplemental Eligible Account Holders and Other Members.
Person - The term Person means an individual, a corporation, a partnership,
------
an association, a joint-stock company, a trust (including Individual Retirement
Accounts and KEOGH Accounts), any unincorporated organization, a government or
political subdivision thereof or any other entity.
Plan - The term Plan means this Plan of Conversion of the ASSOCIATION as it
----
exists on the date hereof and as it may hereafter be amended in accordance with
its terms.
Preferred Subscribers - The term Preferred Subscribers means those members
---------------------
of the general public who are natural persons residing in the ASSOCIATION'S
Local Community.
Qualifying Deposit - The term Qualifying Deposit means the balance of each
------------------
Savings Account of $50 or more in the ASSOCIATION at the close of business on
the Eligibility Record Date or the Supplemental Eligibility Record Date,
whichever may be the case. Savings Accounts with total deposit balances of less
than $50 shall not constitute a Qualifying Deposit.
SEC - The term SEC refers to the United States Securities and Exchange
---
Commission.
Savings Account - The term Savings Account includes savings accounts as
---------------
that term is defined in Section 561.42 of the Rules and Regulations of the OTS,
withdrawable accounts, including certificates of deposit, and demand accounts
which are defined in Section 561.16 of the Rules and Regulations of the OTS.
7
<PAGE>
Special Meeting of Members - The term Special Meeting of Members means the
--------------------------
special meeting and any adjournments thereof held to consider and vote upon this
Plan.
Subscription Offering - The term Subscription Offering means the offering
---------------------
of Conversion Stock for subscription through Order Forms to Participants.
Subscription Price - The term Subscription Price means the amount per share
------------------
of Conversion Stock to be paid initially by Participants in the Subscription
Offering and persons in the Community Offering.
Supplemental Eligibility Record Date - The Supplemental Eligibility Record
------------------------------------
Date shall be the last day of the calendar quarter preceding the OTS' approval
of the application for conversion.
Supplemental Eligible Account Holder - The term Supplemental Eligible
------------------------------------
Account Holder means any person (other than an Eligible Account Holder) holding
a Qualifying Deposit, except officers, directors and their associates, as of the
Supplemental Eligibility Record Date.
Syndicated Community Offering - The term Syndicated Community Offering
-----------------------------
means the offering of Conversion Stock following the Subscription and Community
Offerings through a syndicate of broker-dealers.
Tax-Qualified Employee Stock Benefit Plan - The term Tax-Qualified Employee
-----------------------------------------
Stock Benefit Plan means any defined benefit plan or defined contribution plan,
such as an employee stock ownership plan, stock bo nus plan, profit-sharing plan
or other plan, which, with its related trust, meets the requirements to be
"qualified" under Section 401 of the Internal Revenue Code. A "Non-Tax-
Qualified Employee Stock Benefit Plan" is any defined benefit plan or defined
contribution plan which is not so qualified.
8
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Voting Members - The term Voting Members means those persons qualifying as
--------------
voting members of the ASSOCIATION pursuant to its charter and bylaws.
Voting Record Date - The term Voting Record Date means the date fixed by
------------------
the Directors in accordance with OTS regulations for determining eligibility to
vote at the Special Meeting of Members.
3. PROCEDURE FOR CONVERSION
After approval of the Plan by the Board of Directors of the ASSOCIATION,
the Plan shall be submitted together with all other requisite material to the
OTS for its approval. Notice of the adoption of the Plan by the Board of
Directors of the ASSOCIATION and the submission of the Plan to the OTS for its
approval will be published in a newspaper having general circulation in each
community in which an office of the ASSOCIATION is located and copies of the
Plan will be made available at each office of the ASSOCIATION for inspection by
the Members. The ASSOCIATION also will cause to be published a notice of the
filing with the OTS of an application to convert in accordance with the
provisions of the Plan. Following approval by the OTS, the Plan will be
submitted to a vote of the Voting Members at the Special Meeting of Members
called for that purpose. Upon approval of the Plan by a majority of the total
outstanding votes of the Voting Members, the ASSOCIATION will take all other
necessary steps pursuant to applicable laws and regulations to convert the
ASSOCIATION to stock form. The conversion must be completed within 24 months of
the approval of the Plan by the Voting Members, unless a longer time period is
permitted by governing laws and regulations.
9
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The Board of Directors of the ASSOCIATION intends to take all necessary
steps to establish the charitable foundation and to fund such charitable
foundation in the manner set forth in Section 7A hereof, subject to the approval
of the Voting Members.
The Conversion Stock will not be insured by the FDIC. The ASSOCIATION will
not knowingly lend funds or otherwise extend credit to any Person to purchase
shares of the Conversion Stock.
4. HOLDING COMPANY APPLICATIONS AND APPROVALS
The Holding Company shall make timely applications for any requisite
regulatory approvals, including an Application on Form H-(e)1 or an H-(e)1-S, if
available to the Holding Company, to be filed with the OTS and a Registration
Statement on Form S-1 to be filed with the SEC. The ASSOCIATION shall be a
wholly-owned subsidiary of the Holding Company.
5. SALE OF CONVERSION STOCK
The Conversion Stock will be offered simultaneously in the Subscription
Offering to the Eligible Account Holders, Employee Plans, Supplemental Eligible
Account Holders and Other Members in the respective priorities set forth in
Sections 8 through 11 of this Plan. The Subscription Offering may be commenced
as early as the mailing of the Proxy Statement for the Special Meeting of
Members and must be commenced in time to complete the Conversion within the time
period specified in Section 3.
Any shares of Conversion Stock not subscribed for in the Subscription
Offering will be offered for sale in the Community Offering as provided in
Section 12 of this Plan. The Subscription Offering may be commenced prior to
the Special Meeting of Members and, in that event, the Community Offering may
also be commenced prior to the Special Meeting of Members. The offer and sale
of Conversion Stock prior to the Special Meeting of Members shall, however, be
conditioned upon approval of the Plan by the Voting Members.
10
<PAGE>
If feasible, any shares of Conversion Stock remaining after the
Subscription and Community Offerings may be sold in a Syndicated Community
Offering, as provided in Section 13 of this Plan in a manner that will achieve
the widest distribution of the Conversion Stock as determined by the
ASSOCIATION. The sale of all Conversion Stock subscribed for in the
Subscription and Community Offerings will be consummated simultaneously on the
date the sale of Conversion Stock in the Syndicated Community Offering is
consummated and only if all unsubscribed for Conversion Stock is sold.
6. NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK
The total number of shares (or a range thereof) of Conversion Stock to be
issued and offered for sale will be determined jointly by the Board of Directors
of the ASSOCIATION and the Board of Directors of the Holding Company immediately
prior to the commencement of the Subscription and Community Offerings, subject
to adjustment thereafter if necessitated by market or financial conditions, with
the approval of the OTS, if necessary. In particular, the total number of
shares may be increased by up to 15% of the number of shares offered in the
Subscription and Community Offering if the Estimated Price Range is increased
subsequent to the commencement of the Subscription and Community Offering due to
regulatory considerations or to reflect changes in market conditions or general
or economic conditions.
11
<PAGE>
All shares sold in the Conversion will be sold at a uniform price per share
referred to in this Plan as the Actual Purchase Price. The aggregate purchase
price for all shares of Conversion Stock will not be inconsistent with the
estimated consolidated pro forma market value of the ASSOCIATION and the Holding
Company. The estimated consolidated pro forma market value of the ASSOCIATION
and the Holding Company will be determined for such purpose by the Independent
Appraiser. Prior to the commencement of the Subscription and Community
Offerings, an Estimated Price Range will be established, which range will vary
within 15% above to 15% below the midpoint of such range. The number of shares
of Conversion Stock to be issued and the purchase price per share may be
increased or decreased by the ASSOCIATION and the Holding Company. In the event
that the aggregate purchase price of the Conversion Stock is below the minimum
of the Estimated Price Range, or materially above the maximum of the Estimated
Price Range, resolicitation of purchasers may be required provided that up to a
15% increase above the maximum of the Estimated Price Range will not be deemed
material so as to require a resolicitation. Up to a 15% increase in the number
of shares to be issued which is supported by an appropriate change in the
estimated pro forma market value of the ASSOCIATION and the Holding Company will
not be deemed to be material so as to require a resolicitation of subscriptions.
In the event that the aggregate purchase price of the Conversion Stock is below
the minimum of the Estimated Price Range or in excess of 15% above the maximum
of the Estimated Price Range, and a resolicitation is required, such
resolicitation shall be effected in such manner and within such time as the
ASSOCIATION shall establish, with the approval of the OTS, if required.
12
<PAGE>
Based upon the independent valuation as updated prior to the commencement
of the Subscription and Community Offerings, the Board of Directors of the
Holding Company and the Board of Directors of the ASSOCIATION will fix the
Subscription Price and the range of the number of shares to be offered. If upon
completion of the Subscription and Community Offerings all of the Conversion
Stock is subscribed for, or if because of a limited number of unsubscribed
shares or otherwise a Syndicated Community Offering cannot be effected, the
total number of shares of Conversion Stock to be issued and sold will be jointly
determined by the ASSOCIATION and Holding Company as follows: (a) the estimated
aggregate pro forma market value of the ASSOCIATION and the Holding Company
immediately after conversion as determined by the Independent Appraiser,
expressed in terms of a specific aggregate dollar amount rather than as a range,
upon completion of the Subscription and Community Offerings or other sale of all
of the Conversion Stock, shall be divided by (b) the Actual Purchase Price.
If there is a Syndicated Community Offering of shares of Conversion Stock
not subscribed for in the Subscription and Community Offerings, the price per
share at which the Conversion Stock is sold in such Syndicated Community
Offering shall be the Subscription Price.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the ASSOCIATION and Holding Company and to the OTS that, to the best
knowledge of the Independent Appraiser, nothing of a material nature has
occurred which, taking into account all relevant factors, would cause the
Independent Appraiser to conclude that the aggregate value of the Conversion
Stock at the Actual Purchase Price is incompatible with its estimate of the
aggregate consolidated pro forma market value of the Holding Company and the
ASSOCIATION. If such confirmation is not received, the ASSOCIATION may cancel
the Subscription and Community Offerings and/or the Syndicated Community
Offering, extend the Conversion, establish a new Subscription Price Range and/or
Estimated Price Range, extend, reopen or hold new Subscription and Community
Offerings and/or Syndicated Community Offering or take such other action as the
OTS may permit.
13
<PAGE>
The Conversion Stock to be issued in the Conversion shall be fully paid and
nonassessable.
7. PURCHASE BY THE HOLDING COMPANY OF THE STOCK OF THE ASSOCIATION
Upon the consummation of the sale of all of the Conversion Stock, the
Holding Company will purchase from the ASSOCIATION all of the capital stock of
the ASSOCIATION to be issued by the ASSOCIATION in the Conversion.
The Holding Company will apply to the OTS to retain up to 50% of the
proceeds of the Conversion. The ASSOCIATION believes that the Conversion
proceeds will provide economic strength to the Holding Company and the
ASSOCIATION for the future in a highly competitive and regulated environment and
would facilitate expansion through acquisitions, diversification into other
related businesses and for other business and investment purposes, including the
payment of dividends and future repurchases of Conversion Stock as permitted by
the OTS.
14
<PAGE>
7A. ESTABLISHMENT AND FUNDING OF CHARITABLE FOUNDATION
As part of the Conversion, the 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 Internal Revenue Code ( the "Foundation") and to
donate to the Foundation up to 8% of the number of shares of Common Stock sold
in the Conversion. The Foundation is being formed in connection with the
Conversion in order to complement the ASSOCIATION's existing community
reinvestment activities and to share with the communities in which the
ASSOCIATION operates a part of the ASSOCIATION's financial success as a locally
headquartered, community minded, financial services institution. The funding of
the Foundation with Common Stock of the Holding Company accomplishes this goal
as it enables such communities to share in the potential growth and
profitability of the Holding Company and the ASSOCIATION over the long-term.
The Foundation will be dedicated to the promotion of charitable purposes
within the communities in which the ASSOCIATION operates, and may include but
not be limited to, grants or donations to support housing assistance,
scholarships, local education, not-for-profit medical facilities, 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 maintain its 501(c)(3) qualification,
the Foundation may sell, on an annual basis, a limited portion of the Common
Stock contributed to it by the Holding Company.
15
<PAGE>
The board of directors of the Foundation will be responsible for
establishing the polices of the Foundation with respect to grants or donations,
consistent with the stated purposes of the Foundation.
The establishment and funding of the Foundation as part of the Conversion
is subject to the approval of the Voting Members by an affirmative vote of a
majority of the votes eligible to be cast by Voting Members in person or by
proxy at the Special Meeting. In the event that the ASSOCIATION's Members
approve this Plan, but not the charitable foundation, the ASSOCIATION may
determine to complete the Conversion without the establishment of the Foundation
and may do so without amending this Plan or obtaining any further vote of the
ASSOCIATION's Members. Failure of the Voting Members to approve the Foundation
may materially affect the pro forma market value of the ASSOCIATION and the
Holding Company. In such an event, the ASSOCIATION and Holding Company may
establish a new Estimated Price Range and commence a resolicitation of
subscribers. For comparison purposes, Voting Members will be provided with a
projection of the pro forma market value of the Conversion Stock, an Estimated
Price Range and certain selected pro forma financial data that would result if
the Conversion were consummated without establishment of the charitable
foundation.
8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS
(FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, as first priority and
without payment, nontransferable subscription rights to subscribe for shares of
Conversion Stock equal to an amount up to the greater of: the amount permitted
to be subscribed for in the Community Offering which amount, pursuant to Section
12, currently is $250,000 of the Conversion Stock offered, but which may be
16
<PAGE>
increased to 5% of the Conversion Stock offered or decreased to less than
$250,000 without the further approval of members or resolicitation of
subscribers; one-tenth of one percent (.10%) of the total offering of shares of
Conversion Stock; or fifteen times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares of Conversion Stock
to be issued by a fraction of which the numerator is the amount of the
Qualifying Deposit of the Eligible Account Holder and the denominator is the
total amount of Qualifying Deposits of all Eligible Account Holders, in each
case on the Eligibility Record Date, subject to the maximum purchase limitation
specified in Section 14A and the minimum purchase limitation specified in
Section 14C 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%.
B. 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 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 Holders. 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
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<PAGE>
Account Holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied.
C. Subscription rights as Eligible Account Holders received by Directors
and Officers and their Associates which are based on deposits made by such
persons during the twelve (12) months preceding the Eligibility Record Date
shall be subordinated to the Subscription Rights of all other Eligible Account
Holders.
9. SUBSCRIPTION RIGHTS OF THE EMPLOYEE PLANS (SECOND PRIORITY)
The Employee Plans shall receive, without payment, as a second priority
after the filling of subscriptions of Eligible Account Holders, nontransferable
subscription rights to purchase in the Subscription Offering the number of
shares of Conversion Stock requested by such Employee Plans. If, after the
filling of subscriptions of Eligible Account Holders, a sufficient number of
shares are not available to fill the subscriptions by such Employee Plans, the
subscription by such Employee Plans shall be filled to the maximum extent
possible; provided, however, that in the event of an increase in the total
number of shares issued due to an increase in the Estimated Price Range of up to
15%, the additional shares may be sold to the Employee Plans subject to the
provisions of Section 14.
The Employee Plans shall not be deemed to be an associate or affiliate of
or Person Acting in Concert with any Director or Officer of the Holding Company
or the ASSOCIATION.
18
<PAGE>
10. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD
PRIORITY)
A. Each Supplemental Eligible Account Holder shall receive, as third
priority and without payment, nontransferable subscription rights to subscribe
for shares of Conversion Stock equal to an amount up to the greater of: the
amount permitted to be subscribed for in the Community Offering which amount,
pursuant to Section 12, currently is $250,000 of the Conversion Stock offered,
but which may be increased to 5% of the Conversion Stock offered or decreased to
less than $250,000 without the further approval of members or resolicitation of
subscribers; one-tenth of one percent (.10%) of the total offering of Conversion
Stock; or fifteen times the product (rounded down to the next whole number)
obtained by multiplying the total number of shares of Conversion Stock to be
issued by a fraction of which the numerator is the amount of the Qualifying
Deposit of the Supplemental Eligible Account Holder and the denominator is the
total amount of the Qualifying Deposits of all Supplemental Eligible Account
Holders in the ASSOCIATION on the Supplemental Eligibility Record Date, subject
to the maximum purchase limitation specified in Section 14A and the minimum
purchase limitation specified in Section 14C 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%.
B. 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 shares eligible for subscription, the remaining 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
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<PAGE>
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
remaining Supplemental Eligible Account Holders, the excess shall be reallocated
(one or more times as necessary) among those remaining 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.
C. Subscription rights received by an Eligible Account Holder pursuant to
Section 8 shall be applied in partial satisfaction of the subscription rights to
be received as a Supplemental Eligible Account Holder pursuant to this Section
10.
11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
A. Each Other Member shall receive, without payment, as a fourth priority
after the filling of subscriptions of the Eligible Account Holders, the Employee
Plans, and the Supplemental Eligible Account Holders, nontransferable
subscription rights to subscribe for shares of Conversion Stock equal to an
amount up to the greater of: the amount permitted to be subscribed for in the
Community Offering which amount, pursuant to Section 12, currently is $250,000
of the Conversion Stock offered, but which may be increased to 5% of the
20
<PAGE>
Conversion Stock offered or decreased to less than $250,000 without the further
approval of members or resolicitation of subscribers; or one-tenth of one
percent (.10%) of the total offering of shares of Conversion Stock, subject to
the maximum purchase limitation specified in Section 14A and the minimum
purchase limitation specified in Section 14C 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%.
B. In the event that Other Members exercise subscription rights for a
number of shares of Conversion Stock in excess of the total number of shares
eligible for subscription, the remaining shares of Conversion Stock shall 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. 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.
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12. COMMUNITY OFFERING (FIFTH PRIORITY)
If less than the total number of shares of Conversion Stock to be
subscribed for in the Conversion are sold in the Subscription Offering, it is
expected that shares remaining unsubscribed for will be made available for
purchase in the Community Offering to certain members of the general public,
with preference given to Preferred Subscribers, who may subscribe together with
any Associate or group of persons Acting in Concert for up to $250,000 of the
shares of Conversion Stock offered subject to the Maximum Overall Purchase
Limitation as specified in Section 14A and the minimum purchase limitation
specified in Section 14C 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%;
provided, however, that the amount permitted to be purchased in the Community
Offering may be increased to 5% of the Conversion Stock offered or decreased to
less than $250,000 without the further approval of members or resolicitation of
subscribers. The shares may be made available in the Community Offering through
a direct community marketing program which may provide for utilization of a
broker, dealer, consultant or investment banking firm, experienced and expert in
the sale of savings institution securities. Such entities may be compensated on
a fixed fee basis or on a commission basis, or a combination thereof. The
ASSOCIATION shall make distribution of the Conversion Stock to be sold in the
Community Offering in such a manner as to promote the widest distribution of
Conversion Stock. The ASSOCIATION reserves the right to reject any or all
orders, in whole or in part, which are received in the Community Offering.
If the Preferred Subscribers in the Community Offering, whose orders would
otherwise be accepted, subscribe for more shares than are available for
purchase, the shares available to them will be allocated among the Preferred
22
<PAGE>
Subscribers in the manner which permits each such person to the extent possible,
to purchase the number of shares necessary to make his total allocation of
Conversion Stock equal to the lesser of 100 shares or the number of shares
subscribed for by such person with preference given to Preferred Subscribers.
Thereafter, unallocated shares will be allocated among the Preferred Subscribers
whose subscriptions remain unsatisfied on a 100 shares per order basis until all
such orders have been filled or the remaining shares have been a llocated. To
the extent that there are shares remaining after all subscriptions by Preferred
Subscribers, any remaining shares will be allocated among members of the general
public using the foregoing allocation as applied to Preferred Subscribers. The
ASSOCIATION may establish all other terms and conditions of such offer. It is
expected that the Community Offering will commence concurrently with the
Subscription Offering. The Community Offering must be completed within 45 days
after the completion of the Subscription Offering unless otherwise extended by
the OTS.
13. SYNDICATED COMMUNITY OFFERING
If feasible, all shares of Conversion Stock not subscribed for in the
Subscription and Community Offerings may be sold in a Syndicated Community
Offering, subject to such terms, conditions and procedures as may be determined
by the ASSOCIATION, in a manner that will achieve the widest distribution of the
Conversion Stock subject to the right of the ASSOCIATION to accept or reject in
whole or in part all subscriptions in the Syndicated Community Offering. In the
Syndicated Community Offering, any person together with any Associate or group
of persons Acting in Concert may purchase up to $250,000 of the total number of
23
<PAGE>
shares of Conversion Stock offered subject to the maximum purchase limitation
specified in Section 14A and the minimum purchase limitation specified in
Section 14C 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%; provided, however,
that this amount may be increased to 5% of the Conversion Stock offered or
decreased to less than $250,000 without the further approval of members or
resolicitation of subscribers. The shares purchased by any Person together with
any Associate or group of persons Acting in Concert pursuant to Section 12 shall
be counted toward meeting the maximum percentage of shares permitted to be
purchased pursuant to this Section. Provided that the Subscription Offering has
commenced, the ASSOCIATION may commence the Syndicated Community Offering at any
time after the mailing to the Members of the Proxy Statement to be used in
connection with the Special Meeting of Members, provided that the completion of
the offer and sale of the Conversion Stock shall be conditioned upon the
approval of this Plan by the Voting Members. If the Syndicated Community
Offering is not sooner commenced pursuant to the provisions of the preceding
sentence, the Syndicated Community Offering will be commenced as soon as
practicable following the date upon which the Subscription and Community
Offerings terminate.
Alternatively, if a Syndicated Community Offering is not held, the
ASSOCIATION shall have the right to sell any shares of Conversion Stock
remaining following the Subscription and Community Offerings in an underwritten
firm commitment public offering. The provisions of Section 14 hereof shall not
be applicable to sales to underwriters for purposes of such an offering but
shall be applicable to the sales by the underwriters to the public. The price
to be paid by the underwriters in such an offering shall be equal to the Actual
Purchase Price less an underwriting discount to be negotiated among such
underwriters and the ASSOCIATION, which will in no event exceed an amount deemed
to be acceptable by the OTS.
24
<PAGE>
If for any reason a Syndicated Community Offering or an underwritten firm
commitment public offering of shares of Conversion Stock not sold in the
Subscription and Community Offerings cannot be effected, or in the event that
any insignificant residue of shares of Conversion Stock is not sold in the
Subscription and Community Offerings or in the Syndicated Community Offering or
an underwritten firm commitment public offering, other purchase arrangements
will be made for the sale of unsubscribed shares by the ASSOCIATION, if
possible. Such other purchase arrangements will be subject to the approval of
the OTS.
14. LIMITATION ON PURCHASES
In addition to the maximum amount of Conversion Stock that may be
subscribed for as set forth in Sections 8, 10, 11, 12 and 13, the following
limitations shall apply to all purchases of shares of Conversion Stock:
A. The maximum number of shares of Conversion Stock which may be subscribed
for or purchased in all categories in the Conversion by any Person or
Participant together with any Associate or group or persons Acting in Concert
shall not exceed 1.0% of the Conversion Stock offered (the "Maximum Overall
Purchase Limitation"), except for the Employee Stock Ownership Plan which may
subscribe for up to 8% of the Conversion Stock issued and except for certain
Eligible Account Holders and Supplemental Eligible Account Holders which may
subscribe for or purchase shares in accordance with Sections 8 and 10 herein,
respectively; provided, however, in the event that the Maximum Overall Purchase
Limitation is increased to more than 2.0% of the shares of Conversion Stock
25
<PAGE>
offered, orders for Conversion Stock in the Community Offering and in the
Syndicated Community Offering (or, alternatively an underwritten firm commitment
public offering), if any, shall, as determined by the ASSOCIATION, first be
filled to a maximum of 2.0% of the total number o f shares of Conversion Stock
offered and thereafter remaining shares shall be allocated on an equal number of
shares basis per order until all orders have been filled.
B. The maximum number of shares of Conversion Stock which may be purchased
in all categories in the Conversion by Officers and Directors of the ASSOCIATION
and their Associates in the aggregate shall not exceed 25% of the total number
of shares of Conversion Stock issued.
C. A minimum of 25 shares of Conversion Stock must be purchased by each
Person purchasing shares in the Conversion to the extent those shares are
available; provided, however, that in the event the minimum number of shares of
Conversion Stock purchased times the price per share exceeds $500, then such
minimum purchase requirement shall be reduced to such number of shares of
Conversion Stock which when multiplied by the price per share shall not exceed
$500, as determined by the Board.
If the number of shares of Conversion Stock otherwise allocable pursuant to
Sections 8, 10, 11, 12 and 13, to any Person or that Person's Associates would
be in excess of the maximum number of shares permitted as set forth above, the
number of shares of Conversion Stock allocated to each such person shall be
reduced to the lowest limitation applicable to that Person, and then the number
of shares allocated to each group consisting of a Person and that Person's
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<PAGE>
Associates shall be reduced so that the aggregate allocation to that Person and
his or her Associates complies with the above maximums, and such maximum number
of shares shall be reallocated among that Person and his or her Associates as
they may agree, or in the absence of an agreement, in proportion to the shares
subscribed for by each (after first applying the maximums applicable to each
Person, separately).
Depending upon market or financial conditions, the Board of Directors of
the ASSOCIATION and the Holding Company, without further approval of the
Members, may decrease or increase the purchase limitations in this Plan,
provided that the maximum purchase limitations may not be increased to a
percentage in excess of 5% and that the Maximum Overall Purchase Limitation may
not be decreased to less than 1% of the Conversion Stock offered.
Notwithstanding the foregoing, the Maximum Overall Purchase Limitation may be
increased up to 9.99% provided that orders for Conversion Stock exceeding 5% of
the shares being offered shall not exceed, in the aggregate, 10% of the total
offering. If the ASSOCIATION and the Holding Company increases the maximum
purchase limitations, the ASSOCIATION and the Holding Company are only required
to resolicit Persons who subscribed for the maximum purchase amount and may, in
the sole discretion of the ASSOCIATION and the Holding Company resolicit certain
other large subscribers.
In the event shares of Conversion stock are sold in excess of the maximum
of the Estimated Price Range (the "Adjusted Maximum"), such shares will be
allocated in the following order of priority: (i) to fill the Employee Plans'
subscription to the Adjusted Maximum; (ii) in the event that there is an
oversubscription at the Eligible Account Holder level, to fill unfulfilled
subscriptions of Eligible Account Holders exclusive of the Adjusted Maximum in
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accordance with Section 8; (iii) in the event there is an oversubscription at
the Supplemental Eligible Account Holder level, to fill unfulfilled
subscriptions of Supplemental Eligible Account Holders exclusive of the Adjusted
Maximum in accordance with Section 10; (iv) in the event that there is an
oversubscription at the Other Member level, to fill unfulfilled subscriptions of
Other Members exclusive of the Adjusted Maximum in accordance with Section 11;
and (v) to fill unfulfilled Subscriptions in the Community Offering exclusive of
the Adjusted Maximum in accordance with Section 12.
For purposes of this Section 14, the Directors and Officers of the
ASSOCIATION and the Holding Company shall not be deemed to be Associates or a
group affiliated with each other or otherwise Acting in Concert solely as a
result of their being Directors or Officers of the ASSOCIATION or the Holding
Company.
Each Person purchasing Conversion Stock in the Conversion shall be deemed
to confirm that such purchase does not conflict with the above purchase
limitations contained in this Plan.
For a period of three years following the Conversion, no Officer, Director
or their Associates shall purchase, without the prior written approval of the
OTS, any outstanding shares of common stock of the Holding Company except from a
broker-dealer registered with the SEC. This provision shall not apply to
negotiated transactions involving more than one percent of the outstanding
shares of common stock of the Holding Company, the exercise of any options
pursuant to a stock option plan or purchases of common stock of the Holding
Company made by or held by any Tax-Qualified Employee Stock Benefit Plan or Non-
Tax-Qualified Employee Stock Benefit Plan of the ASSOCIATION or the Holding
Company (including the Employee Plans) which may be attributable to any Officer
or Director. As used herein, the term "negotiated transaction" means a
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transaction in which the securities are offered and the terms and arrangements
relating to any sale are arrived at through direct communications between the
seller or any person acting on its behalf and the purchaser or his investment
representative. The term "investment representative" shall mean a professional
investment advisor acting as agent for the purchaser, independent of the seller,
and not acting on behalf of the seller in connection with the transaction.
15. PAYMENT FOR CONVERSION STOCK
All payments for Conversion Stock subscribed for in the Subscription,
Community and Syndicated Community Offerings must be delivered in full to the
ASSOCIATION, together with a properly completed and executed Order Form, or
purchase order in the case of the Syndicated Community Offering, on or prior to
the expiration date specified on the Order Form or purchase order, as the case
may be, unless such date is extended by the ASSOCIATION; provided, however, that
if the Employee Stock Ownership Plan subscribes for shares during the
Subscription Offering, such plan will not be required to pay for the shares at
the time it subscribes but rather may pay for such shares of Conversion Stock
subscribed for by such plan at the Actual Purchase Price upon consummation of
the Conversion, provided that there is in force from the time of its
subscription until the consummation of the Conversion, a loan commitment from
the Holding Company or an unrelated financial institution to lend to the
Employee Stock Ownership Plan, at such time, the aggregate Subscription Price of
the shares for which it subscribed. The ASSOCIATION may make scheduled
discretionary contributions to an Employee Stock Ownership Plan provided such
contributions do not cause the ASSOCIATION to fail to meet its regulatory
capital requirement.
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Notwithstanding the foregoing, the ASSOCIATION and the Holding Company
shall have the right, in their sole discretion, to permit institutional
investors to submit contractually irrevocable orders in the Community Offering
and to thereafter submit payment for the Conversion Stock for which they are
subscribing in the Community Offering at any time prior to 48 hours before the
completion of the Conversion, unless such 48 hour period is waived by the
ASSOCIATION and the Holding Company, in their sole discretion.
Payment for Conversion Stock subscribed for shall be made either by check
or money order. Alternatively, subscribers in the Subscription and Community
Offerings may pay for the shares subscribed for by authorizing the ASSOCIATION
on the Order Form to make a withdrawal from the subscriber's Savings Account at
the ASSOCIATION in an amount equal to the purchase price of such shares. Such
authorized withdrawal, whether from a savings passbook or certificate account,
shall be without penalty as to premature withdrawal. If the authorized
withdrawal is from a certificate account, and the remaining balance does not
meet the applicable minimum balance requirement, the certificate shall be
canceled at the time of withdrawal, without penalty, and the remaining balance
will earn interest at the passbook rate. Funds for which a withdrawal is
authorized will remain in the subscriber's Savings Account but may not be used
by the subscriber until the Conversion Stock has been sold or the 45-day period
(or such longer period as may be approved by the OTS) following the Subscription
and Community Offering has expired, whichever occurs first. Thereafter, the
withdrawal will be given effect only to the extent necessary to satisfy the
subscription (to the extent it can be filled) at the purchase price per share.
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Interest will continue to be earned on any amounts authorized for withdrawal
until such withdrawal is given effect. Interest will be paid by the ASSOCIATION
at not less than the passbook annual rate on payments for Conversion Stock
received by check or money order. Such interest will be paid from the date
payment is received by the ASSOCIATION until consummation or termination of the
Conversion. If for any reason the Conversion is not consummated, all payments
made by subscribers in the Subscription, Community and Syndicated Community
Offerings will be refunded to them with interest. In case of amounts authorized
for withdrawal from Savings Accounts, refunds will be made by canceling the
authorization for withdrawal. The ASSOCIATION is prohibited by regulation from
knowingly making any loans or granting any lines of credit for the purchase of
stock in the Conversion, and therefore, will not do so.
16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the Prospectus prepared by the Holding Company
and ASSOCIATION has been declared effective by the OTS and the SEC, Order Forms
will be distributed to all Eligible Account Holders, the Employee Plans, the
Supplemental Eligible Account Holders and Other Members at their last known
addresses appearing on the records of the ASSOCIATION for the purpose of
subscribing to shares of Conversion Stock in the Subscription Offering and will
be made available for use by those Persons entitled to purchase in the Community
Offering. Notwithstanding the foregoing, the ASSOCIATION may elect to send
Order Forms only to those Persons who request them after such notice as is
approved by the OTS and is adequate to apprise all Eligible Account Holders, the
Employee Plans, Supplemental Eligible Account Holders and Other Members of the
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pendency of the Subscription Offering has been given. Such notice may be
included with the proxy sta tement for the Special Meeting of Members and may
also be included in a notice of the pendency of the Conversion and the Special
Meeting of Members sent to all Eligible Account Holders and Supplemental
Eligible Account Holders in accordance with regulations of the OTS.
Each Order Form will be preceded or accompanied by the Prospectus
describing the Holding Company, the ASSOCIATION, the Conversion Stock and the
Subscription and Community Offerings. Each Order Form will contain, among other
things, the following:
A. A specified date by which all Order Forms must be received by the
ASSOCIATION, which date shall be not less than twenty (20), nor more than forty-
five (45) days, following the date on which the Order Forms are mailed by the
ASSOCIATION, and which date will constitute the termination of the Subscription
Offering;
B. The Subscription Price per share for shares of Conversion Stock to be
sold in the Subscription and Community Offerings;
C. A description of the minimum and maximum number of shares of Conversion
Stock which may be subscribed for pursuant to the exercise of subscription
rights or otherwise purchased in the Community Offering;
D. Instructions as to how the recipient of the Order Form is to indicate
thereon the number of shares of Conversion Stock for which such person elects to
subscribe and the available alternative methods of payment therefor;
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E. An acknowledgment that the recipient of the Order Form has received a
final copy of the Prospectus prior to execution of the Order Form;
F. A statement to the effect that all subscription rights are
nontransferable, will be void at the end of the Subscription Offering, and can
only be exercised by delivering within the subscription period such properly
completed and executed Order Form, together with check or money order in the
full amount of the purchase price as specified in the Order Form for the shares
of Conversion Stock for which the recipient elects to subscribe in the
Subscription Offering (or by authorizing on the Order Form that the ASSOCIATION
withdraw said amount from the subscriber's Savings Account at the ASSOCIATION)
to the ASSOCIATION;
G. A statement to the effect that the executed Order Form, once received by
the ASSOCIATION, may not be modified or amended by the subscriber without the
consent of the ASSOCIATION; and
H. A statement with respect to the residence of the subscriber.
Notwithstanding the above, the ASSOCIATION and the Holding Company will not
accept orders received on photocopied or facsimilied order forms.
17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORMS: INSUFFICIENT PAYMENT
In the event Order Forms (a) are not delivered and are returned to the
ASSOCIATION by the United States Postal Service or the ASSOCIATION is unable to
locate the addressee, (b) are not received back by the ASSOCIATION or are
received by the ASSOCIATION after the expiration date specified thereon, (c) are
defectively filled out or executed, (d) are not accompanied by the full required
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payment, except in the case of institutional investors in the Community
Offering, by delivering irrevocable orders together with a legally binding
commitment to pay in cash, check, money order or wire transfer the full amount
of the purchase price prior to 48 hours before the completion of the Conversion
for the shares of Conversion Stock subscribed for (including cases in which
savings accounts from which withdrawals are authorized are insufficient to cover
the amount of the required payment), or (e) are not mailed pursuant to a "no
mail" order placed in effect by the account holder, the subscription rights of
the person to whom such rights have been granted will lapse as though such
person failed to return the contemplated Order Form within the time period
specified thereon; provided, however, that the ASSOCIATION may, but will not be
required to, waive any immaterial irregularity on any Order Form or require the
submission of corrected Order Forms or the remittance of full payment for
subscribed shares by such date as the ASSOCIATION may specify. The
interpretation of the ASSOCIATION of terms and conditions of the Plan and of the
Order Forms will be final, subject to the authority of the OTS.
18. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION
A. All shares of Conversion Stock purchased by Directors or Officers of the
ASSOCIATION or the Holding Company in the Conversion shall be subject to the
restriction that, except as provided in Section 18B, below, or as may be
approved by the OTS, no interest in such shares may be sold or otherwise
disposed of for value for a period of one (l) year following the date of
purchase.
B. The restriction on disposition of shares of Conversion Stock set forth
in Section 18A above shall not apply to the following:
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i) Any exchange of such shares in connection with a merger or acquisition
involving the ASSOCIATION or the Holding Company which has been approved by the
OTS; and
ii) Any disposition of such shares following the death of the person to
whom such shares were initially sold under the terms of the Plan.
C. With respect to all shares of Conversion Stock subject to restrictions
on resale or subsequent disposition, each of the following provisions shall
apply:
i) Each certificate representing shares restricted within the meaning of
Section 18A, above, shall bear a legend prominently stamped on its face giving
notice of the restriction;
ii) Instructions shall be issued to the stock transfer agent for the
Holding Company not to recognize or effect any transfer of any certificate or
record of ownership of any such shares in violation of the restriction on
transfer; and
iii) Any shares of capital stock of the Holding Company, issued with respect
to a stock dividend, stock split, or otherwise with respect to ownership of
outstanding shares of Conversion Stock subject to the restriction on transfer
hereunder shall be subject to the same restriction as is applicable to such
Conversion Stock.
19. VOTING RIGHTS OF STOCKHOLDERS
Upon conversion, the Holding Company, as the holder of the capital stock of
the ASSOCIATION shall have the exclusive voting rights with respect to the
ASSOCIATION as specified in its charter. The holders of the common stock of the
Holding Company shall have the exclusive voting rights with respect to the
Holding Company.
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20. ESTABLISHMENT OF LIQUIDATION ACCOUNT
The ASSOCIATION shall establish at the time of conversion a liquidation
account in an amount equal to its net worth as of the latest practicable date
prior to conversion ("Liquidation Account"). 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 shall, 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 at the Eligibility Record Date and/or
Supplemental Eligibility Record Date or to such balance as it may be
subsequently reduced, as hereinafter provided.
In the unlikely event of a complete liquidation of the 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 subaccount balance for his Savings Account then held,
before any liquidation distribution may be made to any holders of the
ASSOCIATION's capital stock. No merger, consolidation, bulk purchase of assets
with assumption of Savings Accounts and other liabilities, or similar
transactions with an FDIC-issued institution, in which the 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.
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The initial subaccount balance for a Savings Account held by an Eligible
Account Holder and Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the Liquidation Account by a fraction, the
numerator of which is the amount of such Eligible Account Holder's and/or
Supplemental Eligible Account Holder's Qualifying Deposit and the denominator of
which is the total amount of all Qualifying Deposits of all Eligible Account
Holders and Supplemental Eligible Account Holders in the ASSOCIATION. Such
initial subaccount balance shall not be increased, but shall be subject to
downward adjustment as described below. For Savings Accounts in existence at
both dates, separate subaccounts shall be determined on the basis of the
Qualifying Deposits in such Savings Account on such record dates. Such initial
subaccount balances shall not be increased but shall be subject to downward
adjustment as described below.
If, at the close of business on any annual closing date, commencing on or
after the effective date of Conversion, the deposit balance in the Savings
Account of an Eligible Account Holder or Supplemental Eligible Account Holder is
less than the lesser of (i) the balance in the Savings Account at the close of
business on any other annual closing date subsequent to the Eligibility Record
Date or Supplemental Eligibility Record Date, or (ii) the amount of the
Qualifying Deposit in such Savings Account, the subaccount balance for such
Savings Acco unt shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of
such downward adjustment, the subaccount balance shall not be subsequently
increased, notwithstanding any subsequent increase in the deposit balance of the
related Savings Account. If any such Savings Account is closed, the related
subaccount shall be reduced to zero.
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The creation and maintenance of the Liquidation Account shall not operate
to restrict the use or application of any of the net worth accounts of the
ASSOCIATION.
21. TRANSFER OF SAVINGS ACCOUNTS AND CONTINUITY OF THE ASSOCIATION
Upon Conversion, each Savings Account Holder having a Savings Account at
the ASSOCIATION prior to the Conversion will continue to have a Savings Account,
without payment therefor, in the same amount and subject to the same terms and
conditions (except for voting and liquidation rights) as in effect prior to the
Conversion.
After the Conversion, the ASSOCIATION will succeed to all the rights,
interests, duties and obligations of the ASSOCIATION before the Conversion,
including but not limited to all rights and interests of the ASSOCIATION in and
to its assets and properties, whether real, personal or mixed. The ASSOCIATION
will continue to be a member of the Federal Home Loan Bank System and all its
insured savings deposits will continue to be insured by the FDIC to the extent
provided by applicable law.
22. RESTRICTIONS ON ACQUISITION OF THE ASSOCIATION AND HOLDING COMPANY
A. In accordance with OTS regulations, for a period of three years from the
date of consummation of the Conversion, no Person, other than the Holding
Company, shall directly or indirectly offer to acquire or acquire the beneficial
ownership of more than 10% of any class of an equity security of the ASSOCIATION
without the prior written consent of the OTS.
B. 1. The charter of the ASSOCIATION contains a provision stipulating that
no person, except the Holding Company, for a period of five years following the
date of the Conversion shall directly or indirectly offer to acquire or acquire
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the beneficial ownership of more than 10% of any class of an equity security of
the ASSOCIATION, without the prior written approval of the OTS. In addition,
such charter may also provide that for a period of five years following the
Conversion, shares beneficially owned in violation of the above-described
charter provision shall not be entitled to vote and shall not be voted by any
person or counted as voting stock in connection with any matter submitted to
stockholders for a vote. In addition, special meetings of the stockholders
relating to changes in control or amendment of the charter may only be called by
the Board of Directors, and shareholders shall not be permitted to cumulate
their votes for the election of directors.
2. The Certificate of Incorporation of the Holding Company will contain
a provision stipulating that in no event shall any record owner of any
outstanding shares of the Holding Company's common stock who beneficially owns
in excess of 10% of such outstanding shares be entitled or permitted to any vote
in respect to any shares held in excess of 10%. In addition, the Certificate of
Incorporation and Bylaws of the Holding Company provide for staggered terms of
the directors, noncumulative voting for directors, supermajority voting
requirements, limitations on the calling of special meetings, a fair price
provision for certain business combinations and certain notice requirements.
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C. For the purposes of this Section 22:
i) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock company, a
trust, an unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution;
ii) The term "offer" includes every offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value;
iii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise; and
iv) The term "security" includes non-transferable subscription rights
issued pursuant to a plan of conversion as well as a "security" as defined in 15
U.S.C. e 78c(a)(10).
23. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
The ASSOCIATION or the Holding Company shall not declare or pay a cash
dividend on, or repurchase any of, their capital stock if the effect thereof
would cause the ASSOCIATION's regulatory capital to be reduced below (i) the
amount required for the Liquidation Account or (ii) the federal regulatory
capital requirement in Section 567.2 of the Rules and Regulations of the OTS.
Otherwise, the ASSOCIATION and the Holding Co mpany may declare dividends, make
capital distributions or repurchase its capital stock in accordance with
applicable law and regulations.
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24. AMENDMENT OF PLAN
If deemed necessary or desirable, 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 vote of the ASSOCIATION's Board of Directors, and at any time
thereafter by such vote of such Board of Directors with the concurrence of the
OTS. Any amendment to the Plan made after approval by the Members with the
approval of the OTS shall not necessitate further approval by the Members unless
otherwise required by the OTS. The Plan may be terminated by majority vote of
the ASSOCIATION's Board of Directors at any time prior to the Special Meeting of
Members to vote on the Plan, and at any time thereafter with the concurrence of
the OTS.
By adoption of the Plan, the Members of the ASSOCIATION authorize the Board
of Directors to amend or terminate the Plan under the circumstances set forth in
this Section.
25. CHARTER AND BYLAWS
By voting to adopt the Plan, members of the ASSOCIATION will be voting to
adopt a Federal Stock Savings Association Charter and Bylaws for a Federal Stock
Savings Association attached as Exhibits I and II to this Plan. The effective
date of the ASSOCIATION's stock charter and bylaws shall be the date of issuance
and sale of the Conversion Stock as specified by the OTS.
26. CONSUMMATION OF CONVERSION
The Conversion of the ASSOCIATION shall be deemed to take place and be
effective upon the completion of all requisite organizational procedures for
obtaining a Federal Stock Savings Association Charter for the ASSOCIATION and
sale of all Conversion Stock.
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27. REGISTRATION AND MARKETING
Within the time period required by applicable laws and regulations, the
Holding Company will register the securities issued in connection with the
Conversion pursuant to the Securities Exchange Act of 1934 and will not
deregister such securities for a period of at least three years thereafter,
except that the maintenance of registration for three years requirement may be
fulfilled by any successor to the Holding Company. In addition, the Holding
Company will use its best efforts to encourage and assist a market-maker to
establish and maintain a market for the Conversion Stock and to list those
securities on a national or regional securities exchange or the Nasdaq Stock
Market.
28. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
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 shares of Conversion Stock pursuant to the Plan reside. However, no such
Person will be issued subscription rights or be permitted to purchase shares of
Conversion Stock in the Subscription Offering if such Person resides in a
foreign country or in a state of the United States with respect to which both of
the following apply: A. a small number of Persons otherwise eligible to
subscribe for shares under the Plan reside in such state and; B. the issuance
of subscription rights or the offer or sale of shares of Conversion Stock to
such Persons would require the Holding Company, under the securities laws of
such state, to register as a broker, dealer, salesman or agent or to register or
otherwise qualify its securities for sale in such state and such registration or
qualification would be impracticable for reasons of cost or otherwise.
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29. EXPENSES OF CONVERSION
The ASSOCIATION shall use its best efforts to assure that expenses incurred
by it in connection with the Conversion shall be reasonable.
30. CONDITIONS TO CONVERSION
The Conversion of the ASSOCIATION pursuant to this Plan is expressly
conditioned upon the following:
a) Prior receipt by the ASSOCIATION of rulings of the United States
Internal Revenue Service and any applicable state taxing authority, or opinions
of counsel, substantially to the effect that the Conversion will not result in
any adverse federal or state tax consequences to Eligible Account Holders or to
the ASSOCIATION and the Holding Company before or after the Conversion;
b) The sale of all of the Conversion Stock offered in the Conversion; and
c) The completion of the Conversion within the time period specified in
Section 3 of this Plan.
31. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the
ASSOCIATION shall be final, subject to the authority of the OTS.
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EXHIBIT I
FEDERAL STOCK CHARTER
FOR
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
SECTION 1. CORPORATE TITLE
The full corporate title of the institution is First Federal Savings and
Loan Association of Warren.
SECTION 2. OFFICE
The home office shall be located in the City of Warren, State of Ohio.
SECTION 3. DURATION
The duration of the ASSOCIATION is perpetual.
SECTION 4. PURPOSE AND POWERS
The purpose of the ASSOCIATION is to pursue any or all of the lawful
objectives of a Federal savings association chartered under Section 5 of the
Home Owners' Loan Act and to exercise all the express, implied, and incidental
powers conferred thereby and by all acts amendatory thereof and supplemental
thereto, subject to the Constitution and laws of the United States as they are
now in effect, or as they may hereafter be amended, and subject to all lawful
and applicable rules, regulations, and orders of the Office of Thrift
Supervision ("Office").
SECTION 5. CAPITAL STOCK
The total number of shares of all classes of the capital stock which the
ASSOCIATION has authority to issue is thirty-six million (36,000,000) of which
thirty-three million (33,000,000) shall be common stock, par value $1.00 per
share and of which three million (3,000,000) shall be preferred stock, par value
$1.00 per share. The shares may be issued from time to time as authorized by
the Board of Directors without further approval of shareholders except as
otherwise provided in this Section 5 or to the extent that such approval is
required by governing law, rule, or regulation. The consideration for the
issuance of the shares shall be paid in full before their issuance and shall not
be less than the par value. Neither promissory notes nor future services shall
constitute payment or part payment for the issuance of shares of the
ASSOCIATION. The consideration for the shares shall be cash, tangible or
intangible property (to the extent direct investment in such property would be
permitted), labor or services actually
<PAGE>
performed for the ASSOCIATION, or any combination of the foregoing. In the
absence of actual fraud in the transaction, the value of such property, labor,
or services, as determined by the Board of Directors of the ASSOCIATION, shall
be conclusive. Upon payment of such consideration, such shares shall be deemed
to be fully paid and nonassessable. In the case of a stock dividend, that part
of the surplus of the ASSOCIATION which is transferred to stated capital upon
the issuance of shares as a share dividend shall be deemed to be the
consideration for their issuance.
Except for shares issuable in connection with the conversion of the
ASSOCIATION from the mutual to the stock form of capitalization, no shares of
capital stock (including shares issuable upon conversion, exchange, or exercise
of other securities) shall be issued, directly or indirectly, to officers,
directors, or controlling persons of the ASSOCIATION other than as part of a
general public offering or as qualifying shares to a director, unless their
issuance or the plan under which the would be issued has been approved by a
majority of the total votes eligible to be cast at a legal meeting.
Nothing contained in this Section 5 (or in any supplementary sections
hereto) shall entitle the holders of any class or series of capital stock to
vote as a separate class or series or to more than one vote per share, except
as to the cumulation of votes for the election of directors: provided, that
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this restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of the
Board of Directors, less than a majority thereof, in the event of
default in the payment of dividends on any class or series of
preferred stock;
(ii) To any provision which would require the holders of preferred stock,
voting as a class or series, to approve the merger or consolidation
of the ASSOCIATION with another corporation or the sale, lease, or
conveyance (other than by mortgage or pledge) of properties or
business in exchange for securities of a corporation other than the
ASSOCIATION if the preferred stock is exchanged for securities of
such other corporation; Provided, that no provision may require such
approval for transactions undertaken with the assistance or pursuant
to the direction of the Office, the Federal Deposit Insurance
Corporation, or the Resolution Trust Corporation;
(iii) To any amendment which would adversely change the specific terms of
any class or series of capital stock as set forth in this Section 5
(or any supplementary sections hereto), including any amendment which
would create or enlarge any class or series ranking prior thereto in
rights and preferences. An amendment which increases the number of
authorized shares of any class or series of capital stock, or
substitutes the surviving ASSOCIATION in a merger or consolidation
for the ASSOCIATION shall not be considered to be such an adverse
change.
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A description of the difference classes and series (if any) of the
ASSOCIATION's capital stock and a statement of the designations, and the
relative rights, preferences, and limitations of the shares of each class of and
series (if any) of capital stock are as follows:
A. Common Stock. Except as provided in this Section 5 (or in any
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supplementary sections hereto) the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of common
stock shall be entitled to one vote for each share held by such
holder, except as to the cumulation of votes for the election of
directors.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of
stock having preference over the common stock as to the payment of
dividends, the full amount of dividends and of sinking fund, or
retirement fund, or other retirement payments, if any, to which such
holders are respectively entitled in preference to the common stock,
then dividends may be paid on the common stock and on any class or
series of stock entitled to participate therewith as to dividends out
of any assets legally available for the payment of dividends.
In the event of any liquidation, dissolution, or winding up of the
ASSOCIATION, the holders of the common stock (and the holders of any
class or series of stock entitled to participate with the common stock
in the distribution of assets) shall be entitled to receive, in cash
or in kind, the assets of the ASSOCIATION available for distribution
remaining after: (i) payment or provision for payment of the
ASSOCIATION's debts and liabilities; (ii) distributions or provision
for distributions in settlement of its liquidation account; and (iii)
distributions or provision for distributions to holders of any class
or series of stock having preference over the common stock in the
liquidation, dissolution, or winding up of the ASSOCIATION. Each
share of common stock shall have the same relative rights as and be
identical in all respects with all the other shares of common stock.
B. Preferred Stock. The ASSOCIATION may provide in supplementary
---------------
sections to its charter for one or more classes of preferred stock,
which shall be separately identified. The shares of any class may be
divided into and issued in series, with each series separately
designated so as to distinguish the shares thereof from the shares of
all other series and classes. The terms of each series shall be set
forth in a supplementary section to the charter. All shares of the
same class shall be identical except as to the following relative
rights and preferences, as to which there may be variations between
different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and,
if so, from which
I-3
<PAGE>
date(s), the payment date(s) for dividends, and the participating
or other special rights, if any, with respect to dividends;
(c) The voting powers, full or limited, if any, of the shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price(s) at which, and the terms and conditions on which,
such shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the event
of voluntary or involuntary, liquidation, dissolution, or winding
up of the ASSOCIATION;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled, the
amount of such fund and the manner of its application, including
the price(s) at which such shares may be redeemed or purchased
through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock
of the ASSOCIATION and, if so, the conversion price(s) or the
rate(s) of exchange, and the adjustments thereof, if any, at
which such conversion or exchange, may be made, and any other
terms and conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial
preferred stock and whether such shares may be reissued as shares
of the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the same
relative rights as and be identical in all respects with all the other shares of
the same series.
The Board of Directors shall have authority to divide, by the adoption of
supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established by a
supplementary charter section adopted by the Board of Directors, the ASSOCIATION
shall file with the
I-4
<PAGE>
Secretary of the Office a dated copy of that supplementary section of this
charter establishing and designating the series and fixing and determining the
relative rights and preferences thereof.
SECTION 6. PREEMPTIVE RIGHTS
Holders of the capital stock of the ASSOCIATION shall not be entitled to
preemptive rights with respect to any shares of the ASSOCIATION which may be
issued.
SECTION 7. LIQUIDATION ACCOUNT
Pursuant to the requirements of the Office's regulations (12 C.F.R.
563b.3), the ASSOCIATION shall establish and maintain a liquidation account for
the benefit of its savings account holders as of March 31, 1997 and
____________, 1998, respectively ("eligible savers"). In the event of a
complete liquidation of the ASSOCIATION, it shall comply with such regulations
with respect to the amount and the priorities on liquidation of each of the
ASSOCIATION's eligible saver's inchoate interest in the liquidation account, to
the extent it is still in existence; Provided, that an eligible saver's inchoate
interest in the liquidation account shall not entitle such eligible saver to any
voting rights at meetings of the ASSOCIATION's shareholders.
SECTION 8. CERTAIN PROVISIONS APPLICABLE FOR FIVE YEARS
Notwithstanding anything contained in the ASSOCIATION's charter or bylaws
to the contrary, for a period of five years from the date of consummation of the
conversion of the ASSOCIATION from mutual to stock form, the following
provisions shall apply:
A. Beneficial Ownership Limitation. No person shall directly or
-------------------------------
indirectly offer to acquire or acquire the beneficial ownership of
more than 10 percent of any class of any equity security of the
ASSOCIATION. This limitation shall not apply to a transaction in
which the ASSOCIATION forms a holding company in conjunction with
conversion, or thereafter, if such formation i s without change in the
respective beneficial ownership interests of the ASSOCIATION's
shareholders other than pursuant to the exercise of any dissenter and
appraisal rights, the purchase of shares by underwriters in connection
with a public offering, or the purchase of shares by a tax-qualified
employee stock benefit plan which is exempt from the approval
requirements under Section 574.3(c)(1)(vi) of the Office Regulations.
In the event shares are acquired in violation of this Section 8, all
shares beneficially owned by any person in excess of 10% shall be
considered "excess shares" and shall not be counted as shares entitled
to vote and shall not be voted by any person or counted as voting
shares in connection with any matters submitted to the shareholders
for a vote.
For the purposes of this Section 8, the following definitions apply:
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(i) The term "person" includes an individual, a group acting in concert,
a corporation, a partnership, an association, a joint stock company,
a trust, any unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring,
holding or disposing of the equity securities of the ASSOCIATION.
(ii) The term "offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request or
invitation for tenders of, a security or interest in a security for
value.
(iii) The term "acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(iv) The term "acting in concert" means (a) knowing participation in a
joint activity or conscious parallel action towards a common goal
whether or not pursuant to an express agreement, or (b) a combination
or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or
otherwise.
B. Cumulative Voting Limitation. Shareholders shall not be permitted to
----------------------------
cumulate their votes for the election of directors.
C. Call for Special Meetings. Special meetings of shareholders relating
-------------------------
to changes in control of the ASSOCIATION or amendments to its charter
shall be called only at the direction of the Board of Directors.
SECTION 9. DIRECTORS
The ASSOCIATION shall be under the direction of a Board of Directors. The
authorized number directors, as stated in the ASSOCIATION's bylaws, shall be not
be fewer than five nor more than 15 except when a greater number is approved by
the Office or its delegates.
SECTION 10. AMENDMENT OF CHARTER
Except as provided in Section 5, no amendment, addition, alteration,
change, or repeal of this charter shall be made, unless such is first proposed
by the Board of Directors of the ASSOCIATION, then preliminary approved by the
Office, which preliminary approval may be granted by the Office pursuant to
regulations specifying pre-approved charter amendments, and thereafter approved
by the shareholders by a majority of the total votes eligible to be cast at a
legal meeting. Any amendment, addition, alteration, change or repeal so acted
upon shall be effective upon filing with the Office in accordance with the
regulatory procedures or on such other date as the Office may specify in its
preliminary approval.
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<PAGE>
As adopted by the ASSOCIATION's members on , 1998, to be
---------------
effective on the date the ASSOCIATION converts from mutual to stock form of
organization.
<TABLE>
<CAPTION>
<S> <C>
Attest: By:
---------------------- ---------------------
Mary Ann Roberts Steven R. Lewis
Corporate Secretary President and
Chief Executive Officer
OFFICE OF THRIFT SUPERVISION
Attest: By:
--------------------- ---------------------
Corporate Secretary to the
Office of Thrift Supervision
Declared effective on
the day of , 1998.
--- ----------------
</TABLE>
I-7
<PAGE>
EXHIBIT II
BYLAWS OF FIRST FEDERAL SAVINGS AND
LOAN ASSOCIATION OF WARREN
ARTICLE I. HOME OFFICE
The home office of First Federal Savings and Loan Association of Warren
("ASSOCIATION"), is 185 East Market Street, Warren, Ohio.
ARTICLE II. SHAREHOLDERS
Section 1. Place of Meetings. All annual and special meetings of
----------------------------
shareholders shall be held at the home office of the ASSOCIATION or at such
other place in the State in which the principal place of business of the
ASSOCIATION is located as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the
--------------------------
ASSOCIATION for the election of directors and for the transaction of any other
business of the ASSOCIATION shall be held annually within 120 days after the end
of the ASSOCIATION's fiscal year as the board of directors may determine.
Section 3. Special Meetings. For a period of five years from the date of
----------------------------
the completion of the conversion of the ASSOCIATION from mutual to stock form,
special meetings of the shareholders relating to a change in control of the
ASSOCIATION or to an amendment of the Charter of the ASSOCIATION may be called
only by the board of directors. Thereafter, special meetings of the
shareholders for any purpose or purposes, unless otherwise prescribed by the
regulations of the Office of Thrift Supervision ("OTS"), may be called at any
time by the chairman of the board, the president, or a majority of the board of
directors, and shall be called by the chairman of the board, the president or
the secretary upon the written request of the holders of not less than one-tenth
of all the outstanding capital stock of the ASSOCIATION entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the
meeting and shall be delivered at the home office of the ASSOCIATION addressed
to the chairman of the board, the president or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
------------------------------
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the OTS or these bylaws. The
board of directors shall designate, when present, either the chairman of the
board or president to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day and
-----------------------------
hour of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 10 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, the secretary, or the directors calling the meeting,
to each shareholder of record entitled to vote at such meeting. If mailed, such
notice
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<PAGE>
shall be deemed to be delivered when deposited in the mail, addressed to the
shareholder at the address as it appears on the stock transfer books or records
of the ASSOCIATION as of the record date prescribed in Section 6 of this Article
II, with postage prepaid. When any shareholders' meeting, either annual or
special, is adjourned for 30 days or more, notice of the adjourned meeting shall
be given as in the case of an original meeting. It shall not be necessary to
give any notice of the time and place of any meeting adjourned for less than 30
days or of the business to be transacted at the meeting, other than an
announcement at the meeting at which such adjournment is taken.
Section 6. Fixing of Record Date. For the purpose of determining
--------------------------------
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more
than 60 days and, in case of a meeting of shareholders, not fewer than 10 days
prior to the date on which the particular action requiring such determination
of shareholders, is to be taken. When a determination of shareholders entitled
to vote at any meeting of shareholders has been made as provided in this
section, such determination shall apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the
-----------------------
shareholders, the officer or agent having charge of the stock transfer books for
shares of the ASSOCIATION shall make a complete list of the shareholders
entitled to vote at such meeting, or any adjournment, arranged in alphabetical
order, with the address and the number of shares held by each. This list of
shareholders shall be kept on file at the home office of the ASSOCIATION and
shall be subject to inspection by any shareholder at any time during usual
business ho urs, for a period of 20 days prior to such meeting. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
subject to the inspection by any shareholder during the entire time of the
meeting. The original stock transfer book shall constitute prima facie evidence
of the shareholders entitled to examine such list or transfer books or to vote
at any meeting of shareholders.
In lieu of making the shareholder list available for inspection by
shareholders as provided in the preceding paragraph, the board of directors may
elect to follow the procedures prescribed in (S)552.6(d) of the OTS's
Regulations as now or hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the ASSOCIATION
-----------------
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum.
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<PAGE>
Section 9. Proxies. At all meetings of shareholders, a shareholder may
------------------
vote by proxy executed in writing by the shareholder or by his duly authorized
attorney in fact. Proxies solicited on behalf of the management shall be voted
as directed by the shareholder or, in the absence of such direction, as
determined by a majority of the board of directors. No proxy shall be valid
more than eleven months from the date of its execution except for a proxy
coupled with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When
----------------------------------------------------------------
ownership stands in the name of two or more persons, in the absence of written
directions to the ASSOCIATION to the contrary, at any meeting of the
shareholders of the ASSOCIATION any one or more of such shareholders may cast,
in person or by proxy, all votes to which such ownership is entitled. In the
event an attempt is made to cast conflicting votes, in person or by proxy, by
the several persons in whose names shares of stock stand, the vote or votes to
which those persons are entitled shall be cast as directed by a majority of
those holding such and present in person or by proxy at such meeting, but no
votes shall be cast for such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in the
-----------------------------------------------
name of another corporation may be voted by any officer, agent or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian or conservator may be voted by him, either in
person or by proxy, without a transfer of such shares into his name. Shares
standing in the name of a trustee may be voted by him, either in person or by
proxy, but no trustee shall be entitled to vote shares held by him without a
transfer of such shares into his name. Shares standing in the name of a
receiver may be voted by such receiver, and shares held by or under the control
of a receiver may be voted by such receiver without the transfer into his name
if authority to do so is contained in an appropriate order of the court or other
public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the ASSOCIATION, nor
shares held by another corporation, if a majority of the shares entitled to vote
for the election of directors of such other corporation are held by the
ASSOCIATION, shall be voted at any meeting or counted in determining the total
number of outstanding shares at any given time for purposes of any meeting.
Section 12. Cumulative Voting. Except as otherwise provided in the
-----------------------------
ASSOCIATION's charter, every shareholder entitled to vote at an election for
directors shall have the right to vote, in person or by proxy, the number of
shares owned by the shareholder for as many persons as there are directors to be
elected and for whose election the shareholder has a right to vote, or to
cumulate the votes by giving one candidate as many votes as the number of such
directors to be
II-3
<PAGE>
elected multiplied by the number of shares shall equal or by
distributing such votes on the same principle among any number of candidates.
Section 13. Inspectors of Election. In advance of any meeting of
-----------------------------------
shareholders, the board of directors may appoint any persons other than nominees
for office as inspectors of election to act at such meeting or any adjournment.
The number of inspectors shall be either one or three. Any such appointment
shall not be altered at the meeting. If inspectors of election are not so
appointed, the chairman of the board or the president may, or on the request of
not fewer than 10 percent of the votes represented at the meeting shall, make
such appo intment at the meetings. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails
or refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting, or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the OTS, the duties of such
inspectors shall include: determining the number of shares and the voting power
of each share, the shares represented at the meeting, the existence of a quorum,
and the authenticity, validity and effect of proxies, receiving votes, ballots,
or consents; hearing and determining all challenges and questions in any way
arising in connection with the rights to vote; counting and tabulating all votes
or consents; determining the result; and such acts as may be proper to conduct
the election or vote with fairness to all shareholders.
Section 14. Nominating Committee. The board of directors shall act as a
--------------------------------
nominating committee for selecting the management nominees for election as
directors. Except the case of a nominee substituted as a result of the death or
other incapacity of a management nominee, the nominating committee shall deliver
written nominations to the secretary at least 20 days prior to the date of the
annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the ASSOCIATION. No nominations for
directors except those made by the nominating committee shall be voted upon at
the annual meeting unless other nominations by shareholders are made in writing
and delivered to the secretary of the ASSOCIATION at least five days prior to
the date of the annual meeting. Upon delivery, such nominations shall be posted
in a conspicuous place in each office of the ASSOCIATION. Ballots bearing the
names of all persons nominated by the nominating committee and by shareholders
shall be provided for use at the annual meeting. However, if the nominating
committee shall fail or refuse to act at least 20 days prior to the annual
meeting, nominations for directors may be made at the annual meeting by any
shareholder entitled to vote and shall be voted upon.
Section 15. New Business. Any new business to be taken up at the annual
------------------------
meeting shall be stated in writing and filed with the secretary of the
ASSOCIATION at least 5 days before the date of the annual meeting, and all
business so stated, proposed, and filed shall be considered at the annual
meeting, but no other proposal shall be acted upon at the annual meeting. Any
shareholder may make any other proposal at the annual meeting and the same may
be discussed and considered, but unless stated in writing and filed with the
secretary at least 5 days before the meeting, such proposal shall be laid over
for action at an adjourned, special, or annual meeting of
II-4
<PAGE>
the shareholders taking place 30 days or more thereafter. This provision shall
not prevent the consideration and approval or disapproval at the annual meeting
of reports of officers, directors and committees; but in connection with such
reports no new business shall be acted upon at such annual meeting unless stated
and filed as herein provided.
Section 16. Informal Action by Shareholders. Any action required to be
-------------------------------------------
taken at a meeting of shareholders, or any other act on which may be taken at a
meeting of the shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III. BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the ASSOCIATION
-------------------------
shall be under the direction of its board of directors. The board of directors
shall annually elect a chairman of the board and a president from among its
members and shall designate, when present, either the chairman of the board or
the president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of eight
--------------------------
(8) members and shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected and qualified. One class shall be
elected by ballot annually.
Section 3. Regular Meetings. A regular meeting of the board of directors
---------------------------
shall be held without other notice than this bylaw immediately after, and at the
same place as, the annual meeting of shareholders. The board of directors may
provide, by resolution, the time and place, within the ASSOCIATION's normal
lending territory, for the holding of additional regular meetings without other
notice than such resolution.
Section 4. Qualification. Each director shall at all times be the
------------------------
beneficial owner of not less than 100 shares of capital stock of the ASSOCIATION
unless the ASSOCIATION is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the board of directors
---------------------------
may be called by or at the req uest of the chairman of the board, the president
or one-third of the directors. The persons authorized to call special meetings
of the board of directors may fix any place, within the ASSOCIATION's normal
lending territory, as the place for holding any special meeting of the board of
directors called by such persons.
Members of the board of directors may participate in special meetings by
means of conference telephone, or by means of similar communications equipment
by which all persons participating in the meeting can hear each other. Such
participation shall constitute presence in person but shall not constitute
attendance for the purpose of compensation pursuant to Section 12 of this
Article.
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<PAGE>
Section 6. Notice. Written notice of any special meeting shall be given
------------------
to each director at least two days prior thereto when delivered personally or by
telegram, or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall
be deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed, or when delivered to the telegraph company if sent by
telegram. Any director may waive notice of any meeting by a writing filed with
the secretary. The attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where a director attends a meeting for
the express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice or waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by Section
-----------------
2 of this Article III shall constitute a quorum for the transaction of business
at any meeting of the board of directors, but if less than such majority is
present at a meeting, a majority of the directors present may adjourn the
meeting from time to time. Notice of any adjourned meeting shall be given in
the same manner as prescribed by Section 6 of this Article III.
Section 8. Manner of Acting. The act of the majority of the directors
---------------------------
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the OTS or
by these bylaws.
Section 9. Action Without a Meeting. Any action required or permitted to
-----------------------------------
be taken by the board of directors at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors.
Section 10. Resignation. Any director may resign at any time by sending a
-----------------------
written notice of such resignation to the home office of the ASSOCIATION
addressed to the chairman of the board or president. Unless otherwise specified
such resignation shall take effect upon receipt by the chairman of the board or
president. More than three consecutive absences from regular meetings of the
board of directors, unless excused by resolution of the board of directors,
shall automatically constitute a resignation, effective when such resignation is
accepted by the board of directors.
Section 11. Vacancies. Any vacancy occurring in the board of directors may
---------------------
be filled by the affirmative vote of a majority of the remaining directors,
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by election by the board of directors for a
term of office continuing only until the next election of directors by the
shareholders.
Section 12. Compensation. Directors, as such, may receive a stated salary
-------------------------
for their services. By resolution of the board of directors, a reasonable fixed
sum, and reasonable expenses of attendance, if any, may be allowed for actual
attendance at each regular or special meeting of the board of directors.
Members of either standing or special committees may be
II-6
<PAGE>
allowed such compensation for actual attendance at committee meetings as the
board of directors may determine.
Section 13. Presumption of Assent. A director of the ASSOCIATION who is
----------------------------------
present at a meeting of the board of directors at which action on any
ASSOCIATION matter is taken shall be presumed to have assented to the action
taken unless his dissent or abstention shall be entered in the minutes of the
meeting or unless he shall file a written dissent to such action with the person
acting as the secretary of the meeting before the adjournment thereof or shall
forward such dissent by registered mail to the secretary of the ASSOCIATION
within five days after the date a copy of the minutes of the meeting is
received. Such right to dissent shall not apply to a director who voted in
favor of such action.
Section 14. Removal of Directors. At a meeting of shareholders called
---------------------------------
expressly for that purpose, any director may be removed for cause by a vote of
the holders of a majority of the shares then entitled to vote at an election of
directors. Whenever the holders of the shares of any class are entitled to
elect one or more directors by the provisions of the Charter or supplemental
sections thereto, the provisions of this section shall app ly, in respect to the
removal of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class and not to the vote of the outstanding shares
as a whole.
Section 15. Age Limitations on Directors. No person seventy-two years of
------------------------------------------
age shall be eligible for election, reelection, appointment or reappointment to
the board of directors. No director shall serve as such beyond the annual
meeting immediately following the director becoming seventy-two years of age.
This age limitation does not apply to an advisory or emeritus director.
ARTICLE IV. EXECUTIVE AND OTHER COMMITTEES
Section 1. Appointment. The board of directors, by resolution adopted by a
----------------------
majority of the full board, may designate the chief executive officer and two or
more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility, imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of directors
--------------------
is not in session, shall have and may exercise all of the authority of the board
of directors except to the extent, if any, that such authority shall be limited
by the resolution appointing the executive committee; and except also that the
executive committee shall not have the authority of the board of directors with
reference to: the declaration of dividends; the amendment of the Charter or
bylaws of the ASSOCIATION, or recommending to the shareholders a plan of merger,
consolidation, or conversion; the sale, lease or other disposition of all or
substantially all of the property and assets of the ASSOCIATION otherwise than
in the usual and regular course of its business; a voluntary dissolution of the
ASSOCIATION; a revocation of any of the foregoing; or the approval of a
transaction in which any member of the executive committee, directly or
indirectly, has any material beneficial interest.
II-7
<PAGE>
Section 3. Tenure. Subject to the provisions of Section 8 of this Article
-----------------
IV, each member of the executive committee shall hold office until the next
regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
Section 4. Meetings. Regular meetings of the executive committee may be
-------------------
held without notice at such times and places as the executive committee may fix
from time to time by resolution. Special meetings of the executive committee
may be called by any member thereof upon not less than one day's notice stating
the place, date and hour of the meetings, which notice may be written or oral.
Any member of the executive committee may waive notice of any meeting and no
notice of any meeting need be given to any member thereof who attends in person.
The notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee
-----------------
shall constitute a quorum for the transaction of business at any meeting
thereof, and action of the executive committee must be authorized by the
affirmative vote of a majority of the members present at a meeting at which a
quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted to
-----------------------------------
be taken by the executive committee at a meeting may be taken without a meeting
if a consent in writing the setting forth the action so taken, shall be signed
by all of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be filled
--------------------
by a resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive committee
-----------------------------------
may be removed at any time with or without cause by resolution adopted by a
majority of the full board of directors. Any member of the executive committee
may resign from the executive committee at any time by giving written notice to
the president or secretary of the ASSOCIATION. Unless otherwise specified, such
resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
--------------------
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by resolution
----------------------------
establish an audit, loan, or other committees composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
ASSOCIATION and may prescribe the duties, constitution and procedures thereof.
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<PAGE>
ARTICLE V. OFFICERS
Section l. Positions. The officers of the ASSOCIATION shall be the
--------------------
president, one or more vice pres idents, a secretary and a treasurer, each of
whom shall be elected by the board of directors. The board of directors may
also designate the chairman of the board as an officer. The president shall be
the chief executive officer, unless the board of directors designates the
chairman of the board as chief executive officer. The president shall be a
director of the ASSOCIATION. The offices of the secretary and treasurer may be
held by the same person and a vice president may also be either the secretary or
the treasurer. The board of directors may designate one or more vice presidents
as executive vice president or senior vice president. The board of directors
may also elect or authorize the appointment of such other officers as the
business of the ASSOCIATION may require. The officers shall have such authority
and perform such duties as the board of directors may from time to time
authorize or determine. In the absence of action by the board of directors, the
officers shall have such powers and duties as generally pertain to their
respective offices.
Section 2. Election and Term of Office. The officers of the ASSOCIATION
--------------------------------------
shall be elected annually at the first meeting of the board of directors held
after each annual meeting of the shareholders. If the election of officers is
not held at such meeting, such election shall be held as soon thereafter as
possible. Each officer shall hold office until a successor has been duly
elected and qualified or until the officer's death, resignation or removal in
the manner hereinafter provided. Election or appointment of an officer,
employee or agent shall not of itself create contractual rights. The board of
directors may authorize the ASSOCIATION to enter into an employment contract
with any officer in accordance with regulations of the OTS; but no such contract
shall impair the right of the board of directors to remove any officer at any
time in accordance with Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the board of directors
-------------------
whenever in its judgment the best interests of the ASSOCIATION will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
--------------------
resignation, removal, disqualification or otherwise, may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be fixed
-----------------------
from time to time by the board of directors.
Section 6. Age Limitation on Officers. No person sixty-five (65) years of
---------------------------------------
age or older who has been an officer employed in an executive or high
policymaking position for a period of two or more years and is eligible for
immediate non-forfeitable annual retirement benefits from an ASSOCIATION pension
plan which equals in the aggregate the amount as set forth by any applicable age
discrimination and employment law shall be eligible for election, reelection,
II-9
<PAGE>
appointment or reappointment as an officer of the ASSOCIATION to act in an
executive or high policymaking position.
ARTICLE VI. CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 1. Contracts. To the extent permitted by regulations of the OTS,
--------------------
and except as otherwise prescribed by these bylaws with respect to certificates
for shares, the board of directors may authorize any officer, employee, or agent
of the ASSOCIATION to enter into any contract or execute and deliver any
instrument in the name of and on behalf of the ASSOCIATION. Such authority may
be general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the
----------------
ASSOCIATION and no evidence of indebtedness shall be issued in its name unless
authorized by the board of directors. Such authority may be general or confined
to specific instances.
Section 3. Checks, Drafts, Etc. All checks, drafts or other orders for the
------------------------------
payment of money, notes or other evidences of indebtedness issued in the name of
the ASSOCIATION shall be signed by one or more officers, employees or agents of
the ASSOCIATION in such manner as shall from time to time be determined by the
board of directors.
Section 4. Deposits. All funds of the ASSOCIATION not otherwise employed
---------------------
shall be deposited from time to time to the credit of the ASSOCIATION in any
duly authorized depositories as the board of directors may select.
ARTICLE VII. CERTIFICATES FOR SHARES
AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of
----------------------------------
capital stock of the ASSOCIATION shall be in such form as shall be determined by
the board of directors and approved by the OTS. Such certificates shall be
signed by the chief executive officer or by any other officer of the ASSOCIATION
authorize d by the board of directors, attested by the secretary or an assistant
secretary, and sealed with the corporate seal or a facsimile thereof. The
signatures of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar,
other than the ASSOCIATION itself or one of its employees. Each certificate for
shares of capital stock shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares are issued, with the
number of shares and date of issue, shall be entered on the stock transfer books
of the ASSOCIATION. All certificates surrendered to the ASSOCIATION for
transfer shall be canceled and no new certificate shall be issued until the
former certificate for a like number of shares has been surrendered and
canceled, except that in case of a lost or destroyed certificate, a new
certificate may be issued upon such terms and indemnity to the ASSOCIATION as
the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of the
-----------------------------
ASSOCIATION shall be made only on its stock transfer books. Authority for such
transfer shall be given only by
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<PAGE>
the holder of record or by his legal representative, who shall furnish proper
evidence of such authority, or by his attorney authorized by a duly executed
power of attorney and filed with the ASSOCIATION. Such transfer shall be made
only on surrender for cancellation of the certificate for such shares. The
person in whose name shares of capital stock stand on the books of the
ASSOCIATION shall be deemed by the ASSOCIATION to be the owner for all purposes.
ARTICLE VIII. FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the ASSOCIATION shall end on June 30 of each year. The
ASSOCIATION shall be subject to an annual audit as of the end of its fiscal year
by independent public accountants appointed by and responsible to the board of
directors. The appointment of such accountants shall be subject to annual
ratification by the shareholders.
ARTICLE IX. DIVIDENDS
Subject to the terms of the ASSOCIATION's Charter and the regulations and
orders of the OTS, the board of directors may, from time to time, declare, and
the ASSOCIATION may pay, dividends on its outstanding shares of capital stock.
ARTICLE X. CORPORATE SEAL
The board of directors shall provide an ASSOCIATION seal, which shall be
two concentric circles between which shall be the name of the ASSOCIATION. The
year of incorporation or an emblem may appear in the center.
ARTICLE XI. AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of the
OTS at any time by a majority vote of the full board of directors, or by a
majority vote of the votes cast by the shareholders of the ASSOCIATION at any
legal meeting.
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<PAGE>
EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF FIRST PLACE FINANCIAL CORP.
<PAGE>
CERTIFICATE OF INCORPORATION
OF
FIRST PLACE FINANCIAL CORP.
FIRST: The name of the Corporation is First Place Financial Corp.
(hereinafter sometimes referred to as the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent at that
address is The Corporation Trust Company.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of the State of Delaware.
FOURTH:
A. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is thirty-six million
(36,000,000) consisting of:
1. Three million (3,000,000) shares of Preferred Stock, par value
one cent ($.01) per share (the "Preferred Stock"); and
2. Thirty-three million (33,000,000) shares of Common Stock, par
value one cent ($.01) per share (the "Common Stock").
B. The Board of Directors is authorized, subject to any limitations
prescribed by law, to provide for the issuance of the shares of Preferred
Stock in series, and by filing a certificate pursuant to the applicable law
of the State of Delaware (such certificate being hereinafter referred to as
a "Preferred Stock Designation"), to establish from time to time the number
of shares to be included in each such series, and to fix the designation,
powers, preferences, and rights (including, without limitation, voting
rights) of the shares of each such series and any qualifications,
limitations or restrictions thereof. The number of authorized shares of
Preferred Stock may be increased or decreased (but not below the number of
shares thereof then outstanding) by the affirmative vote of the holders of
a majority of the Common Stock, without a vote of the holders of the
Preferred Stock, or of any series thereof, unless a vote of any such
holders is required pursuant to the terms of any Preferred Stock
Designation.
C. 1. Notwithstanding any other provision of this Certificate of
Incorporation, in no event shall any record owner of any
outstanding Common Stock which is beneficially owned, directly
or indirectly, by a person who, as
<PAGE>
of any record date for the determination of stockholders
entitled to vote on any matter, beneficially owns in excess of
10% of the then-outstanding shares of Common Stock (the
"Limit"), be entitled, or permitted to any vote in respect of
the shares beneficially owned by such person in excess of the
Limit. The number of votes which may be cast by any record
owner by virtue of the provisions hereof in respect of Common
Stock beneficially owned by such person beneficially owning
shares in excess of the Limit shall be a number equal to the
total number of votes which a single record owner of all Common
Stock beneficially owned by such person would be entitled to
cast, (subject to the provisions of this Article FOURTH)
multiplied by a fraction, the numerator of which is the number
of shares of such class or series which are both beneficially
owned by such person and owned of record by such record owner
and the denominator of which is the total number of shares of
Common Stock beneficially owned by such person owning shares in
excess of the Limit.
2. The following definitions shall apply to this Section C of
this Article FOURTH:
a. "Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended, as in effect
on the date of filing of this Certificate of Incorporation.
b. "Beneficial ownership" shall be determined pursuant to Rule
13d-3 of the General Rules and Regulations under the
Securities Exchange Act of 1934, as amended, (or any
successor rule or statutory provision), or, if said Rule
13d-3 shall be rescinded and there shall be no successor
rule or provision thereto, pursuant to said Rule 13d-3 as
in effect on the date of filing of this Certificate of
Incorporation; provided, however, that a person shall, in
any event, also be deemed the "beneficial owner" of any
Common Stock:
(1) which such person or any of its affiliates
beneficially owns, directly or indirectly; or
(2) which such person or any of its affiliates has:
(i) the right to acquire (whether such right is
exercisable immediately or only after the passage of
time), pursuant to any agreement, arrangement or
understanding (but shall not be deemed to be the
beneficial owner of any voting shares solely by reason
of an agreement, contract, or other arrangement with
2
<PAGE>
this Corporation to effect any transaction which is
described in any one or more of clauses 1 through 5 of
Section A of Article EIGHTH of this Certificate of
Incorporation ("Article EIGHTH")), or upon the
exercise of conversion rights, exchange rights,
warrants, or options or otherwise, or (ii) sole or
shared voting or investment power with respect thereto
pursuant to any agreement, arrangement, understanding,
relationship or otherwise (but shall not be deemed to
be the beneficial owner of any voting shares solely by
reason of a revocable proxy granted for a particular
meeting of stockholders, pursuant to a public
solicitation of proxies for such meeting, with
respect to shares of which neither such person nor
any such Affiliate is otherwise deemed the beneficial
owner); or
(3) which are beneficially owned, directly or indirectly,
by any other person with which such first mentioned
person or any of its Affiliates acts as a partnership,
limited partnership, syndicate or other group pursuant
to any agreement, arrangement or understanding for the
purpose of acquiring, holding, voting or disposing of
any shares of capital stock of this Corporation;
and provided further, however, that: (1) no Director or
Officer of this Corporation (or any Affiliate of any such
Director or Officer) shall, solely by reason of any or all
of such Directors or Officers acting in their capacities as
such, be deemed, for any purposes hereof, to beneficially
own any Common Stock beneficially owned by any other such
Director or Officer (or any Affiliate thereof); and (2)
neither any employee stock ownership or similar plan of
this Corporation or any subsidiary of this Corporation, nor
any trustee with respect thereto or any Affiliate of such
trustee (solely by reason of such capacity of such
trustee), shall be deemed, for any purposes hereof, to
beneficially own any Common Stock held under any such plan.
For purposes only of computing the percentage of beneficial
ownership of Common Stock of a person, the outstanding
Common Stock shall include shares deemed owned by such
person through application of this subsection but shall not
include any other Common Stock which may be issuable by
this Corporation pursuant to any agreement, or upon
exercise of conversion rights, warrants or options, or
otherwise. For all other purposes, the outstanding Common
Stock shall include only Common Stock then outstanding and
shall not include any Common Stock which may be issuable by
this Corporation
3
<PAGE>
pursuant to any agreement, or upon the exercise of
conversion rights, warrants or options, or otherwise.
c. The "Limit" shall mean 10% of the then-outstanding shares
of Common Stock.
d. A "person" shall include an individual, a firm, a group
acting in concert, a corporation, a partnership, an
association, a joint venture, a pool, a joint stock
company, a trust, an unincorporated organization or similar
company, a syndicate or any other group if such other group
was formed for the purpose of acquiring, holding or
disposing of securities or any other entity.
3. The Board of Directors shall have the power to construe and
apply the provisions of this section and to make all
determinations necessary or desirable to implement such
provisions, including but not limited to matters with respect
to: (i) the number of shares of Common Stock beneficially owned
by any person; (ii) whether a person is an affiliate of
another; (iii) whether a person has an agreement, arrangement,
or understanding with another as to the matters referred to in
the definition of beneficial ownership; (iv) the application of
any other definition or operative provision of the section to
the given facts; or (v) any other matter relating to the
applicability or effect of this section.
4. The Board of Directors shall have the right to demand that any
person who is reasonably believed to beneficially own Common
Stock in excess of the Limit (or holds of record Common Stock
beneficially owned by any person in excess of the Limit) supply
the Corporation with complete information as to: (i) the record
owner(s) of all shares beneficially owned by such person who is
reasonably believed to own shares in excess of the Limit; and
(ii) any other factual matter relating to the applicability or
effect of this section as may reasonably be requested of such
person.
5. Except as otherwise provided by law or expressly provided in
this Section C, the presence, in person or by proxy, of the
holders of record of shares of capital stock of the Corporation
entitling the holders thereof to cast a majority of the votes
(after giving effect, if required, to the provisions of this
Section C) entitled to be cast by the holders of shares of
capital stock of the Corporation shall constitute a quorum at
all meetings of the stockholders, and every reference in this
Certificate of Incorporation to a majority or other proportion
of capital stock (or the holders thereof) for purposes of
determining any quorum requirement or any requirement for
stockholder consent or approval shall be deemed to
4
<PAGE>
refer to such majority or other proportion of the votes (or the
holders thereof) then entitled to be cast in respect of such
capital stock.
6. Any constructions, applications, or determinations made by the
Board of Directors pursuant to this section in good faith and
on the basis of such information and assistance as was then
reasonably available for such purpose shall be conclusive and
binding upon the Corporation and its stockholders.
7. In the event any provision (or portion thereof) of this Section
C shall be found to be invalid, prohibited or unenforceable for
any reason, the remaining provisions (or portions thereof) of
this Section shall remain in full force and effect, and shall
be construed as if such invalid, prohibited or unenforceable
provision had been stricken herefrom or otherwise rendered
inapplicable, it being the intent of this Corporation and its
stockholders that each such remaining provision (or portion
thereof) of this Section C remain, to the fullest extent
permitted by law, applicable and enforceable as to all
stockholders, including stockholders owning an amount of stock
over the Limit, notwithstanding any such finding.
FIFTH: The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its Directors and stockholders:
A. The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers
and authority expressly conferred upon them by statute or by this
Certificate of Incorporation or the Bylaws of the Corporation, the
Directors are hereby empowered to exercise all such powers and do all such
acts and things as may be exercised or done by the Corporation.
B. The Directors of the Corporation need not be elected by written
ballot unless the Bylaws so provide.
C. Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting
of stockholders of the Corporation and may not be effected by any consent
in writing by such stockholders.
D. Special meetings of stockholders of the Corporation may be called
only by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board or as otherwise provided in the Bylaws. The
term "Whole Board" shall mean the total number of authorized directorships
(whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board for
adoption).
5
<PAGE>
E. Where a separate vote by holders of a class or classes of stock
is required, a majority of the shares of such class or classes present in
person or by proxy (after giving effect to the provisions of Article
FOURTH) shall constitute a quorum entitled to take action with respect to
that vote on that matter.
SIXTH:
A. The number of Directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board except that in the absence of such designation
shall be eight. The Directors shall be divided into three classes, as
nearly equal in number as reasonably possible, with the term of office of
the first class to expire at the first annual meeting of stockholders, the
term of office of the second class to expire at the annual meeting of
stockholders one year thereafter and the term of office of the third class
to expire at the annual meeting of stockholders two years thereafter with
each Director to hold office until his or her successor shall have been
duly elected and qualified. At each annual meeting of stockholders
following such initial classification and election, Directors elected to
succeed those Directors whose terms expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders
after their election with each Director to hold office until his or her
successor shall have been duly elected and qualified.
B. Subject to the rights of holders of any series of Preferred Stock
outstanding, the newly created directorships resulting from any increase in
the authorized number of Directors or any vacancies in the Board of
Directors resulting from death, resignation, retirement, disqualification,
removal from office or other cause may be filled only by a majority vote of
the Directors then in office, though less than a quorum, and Directors so
chosen shall hold office for a term expiring at the annual meeting of
stockholders at which the term of office of the class to which they have
been chosen expires. No decrease in the number of Directors constituting
the Board of Directors shall shorten the term of any incumbent Director.
C. Advance notice of stockholder nominations for the election of
Directors and of business to be brought by stockholders before any meeting
of the stockholders of the Corporation shall be given in the manner
provided in the Bylaws of the Corporation.
D. Subject to the rights of holders of any series of Preferred Stock
then outstanding, any Director, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the
affirmative vote of the holders of at least 80 percent of the voting power
of all of the then-outstanding shares of capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving
effect to the provisions of subsection C of Article FOURTH of this
Certificate of Incorporation ("Article FOURTH")), voting together as a
single class.
6
<PAGE>
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
repeal Bylaws of the Corporation. Any adoption, amendment or repeal of the
Bylaws of the Corporation by the Board of Directors shall require the approval
of a majority of the Whole Board. The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation; provided, however, that,
in addition to any vote of the holders of any class or series of stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to adopt, amend or repeal any provisions of the Bylaws of the
Corporation.
EIGHTH:
A. In addition to any affirmative vote required by law or this
Certificate of Incorporation, and except as otherwise expressly provided in
this Article EIGHTH:
1. any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with: (i) any Interested
Stockholder (as hereinafter defined); or (ii) any other
corporation (whether or not itself an Interested Stockholder)
which is, or after such merger or consolidation would be, an
Affiliate (as hereinafter defined) of an Interested
Stockholder; or
2. any sale, lease, exchange, mortgage, pledge, transfer or other
disposition (in one transaction or a series of transactions) to
or with any Interested Stockholder, or any Affiliate of any
Interested Stockholder, of any assets of the Corporation or any
Subsidiary having an aggregate Fair Market Value (as
hereinafter defined) equaling or exceeding 25% or more of the
combined assets of the Corporation and its Subsidiaries; or
3. the issuance or transfer by the Corporation or any Subsidiary
(in one transaction or a series of transactions) of any
securities of the Corporation or any Subsidiary having an
aggregate Fair Market Value (as hereinafter defined) equaling
or exceeding 25% of the combined Fair Market Value of the
outstanding common stock of the Corporation and its
Subsidiaries, to any Interested Stockholder or any Affiliate of
any Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) except for any
issuance or transfer pursuant to an employee benefit plan of
the Corporation or any Subsidiary thereof; or
4. the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of an
Interested Stockholder or any Affiliate of any Interested
Stockholder; or
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<PAGE>
5. any reclassification of securities (including any reverse stock
split), or recapitalization of the Corporation, or any merger
or consolidation of the Corporation with any of its
Subsidiaries or any other transaction (whether or not with or
into or otherwise involving an Interested Stockholder) which
has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of
equity or convertible securities of the Corporation or any
Subsidiary which is directly or indirectly owned by any
Interested Stockholder or any Affiliate of any Interested
Stockholder;
shall require the affirmative vote of the holders of at least 80% of the
voting power of the then-outstanding shares of stock of the Corporation
entitled to vote generally in the election of Directors (after giving
effect to the provisions of Article FOURTH) (the "Voting Stock"), voting
together as a single class. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that a lesser
percentage may be specified, by law or by any other provisions of this
Certificate of Incorporation or any Preferred Stock Designation in any
agreement with any national securities exchange or otherwise.
The term "Business Combination" as used in this Article EIGHTH shall
mean any transaction which is referred to in any one or more of
paragraphs 1 through 5 of Section A of this Article EIGHTH.
B. The provisions of Section A of this Article EIGHTH shall not be
applicable to any particular Business Combination, and such Business
Combination shall require only such vote (if any) as is otherwise required
by law or this Certificate of Incorporation, if, in the case of any
Business Combination that does not involve any cash or other consideration
being received by the stockholders of the Corporation solely in their
capacity as stockholders of the Corporation, the condition specified in the
following paragraph 1 is met or, in the case of any other Business
Combination, all of the conditions specified in either of the following
paragraphs 1 or 2 are met:
1. The Business Combination shall have been approved by a majority
of the Disinterested Directors (as hereinafter defined).
2. All of the following conditions shall have been met:
a. The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business
Combination of consideration other than cash to be received
per share by the holders of Common Stock in such Business
Combination shall at least be equal to the higher of the
following:
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<PAGE>
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting dealers'
fees, paid by the Interested Stockholder or any of its
Affiliates for any shares of Common Stock acquired by
it: (i) within the two-year period immediately prior
to the first public announcement of the proposal of
the Business Combination (the "Announcement Date"); or
(ii) in the transaction in which it became an
Interested Stockholder, whichever is higher; or
(2) the Fair Market Value per share of Common Stock on the
Announcement Date or on the date on which the
Interested Stockholder became an Interested
Stockholder (such latter date is referred to in this
Article EIGHTH as the "Determination Date"), whichever
is higher.
b. The aggregate amount of the cash and the Fair Market Value
as of the date of the consummation of the Business
Combination of consideration other than cash to be received
per share by holders of shares of any class of outstanding
Voting Stock other than Common Stock shall be at least
equal to the highest of the following (it being intended
that the requirements of this subparagraph (b) shall be
required to be met with respect to every such class of
outstanding Voting Stock, whether or not the Interested
Stockholder has previously acquired any shares of a
particular class of Voting Stock):
(1) (if applicable) the Highest Per Share Price (as
hereinafter defined), including any brokerage
commissions, transfer taxes and soliciting dealers'
fees, paid by the Interested Stockholder for any
shares of such class of Voting Stock acquired by it:
(i) within the two-year period immediately prior to
the Announcement Date; or (ii) in the transaction in
which it became an Interested Stockholder, whichever
is higher; or
(2) (if applicable) the highest preferential amount per
share to which the holders of shares of such class of
Voting Stock are entitled in the event of any
voluntary or involuntary liquidation, dissolution or
winding up of the Corporation; or
(3) the Fair Market Value per share of such class of
Voting Stock on the Announcement Date or on the
Determination Date, whichever is higher.
c. The consideration to be received by holders of a particular
class of outstanding Voting Stock (including Common Stock)
shall be in cash or
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<PAGE>
in the same form as the Interested Stockholder has
previously paid for shares of such class of Voting Stock.
If the Interested Stockholder has paid for shares of any
class of Voting Stock with varying forms of consideration,
the form of consideration to be received per share by
holders of shares of such class of Voting Stock shall be
either cash or the form used to acquire the largest number
of shares of such class of Voting Stock previously acquired
by the Interested Stockholder. The price determined in
accordance with subparagraph B.2 of this Article EIGHTH
shall be subject to appropriate adjustment in the event of
any stock dividend, stock split, combination of shares or
similar event.
d. After such Interested Stockholder has become an Interested
Stockholder and prior to the consummation of such Business
Combination: (1) except as approved by a majority of the
Disinterested Directors (as hereinafter defined), there
shall have been no failure to declare and pay at the
regular date therefor any full quarterly dividends (whether
or not cumulative) on any outstanding stock having
preference over the Common Stock as to dividends or
liquidation; (2) there shall have been: (i) no reduction in
the annual rate of dividends paid on the Common Stock
(except as necessary to reflect any subdivision of the
Common Stock), except as approved by a majority of the
Disinterested Directors; and (ii) an increase in such
annual rate of dividends as necessary to reflect any
reclassification (including any reverse stock split),
recapitalization, reorganization or any similar transaction
which has the effect of reducing the number of outstanding
shares of the Common Stock, unless the failure to so
increase such annual rate is approved by a majority of the
Disinterested Directors, and (3) neither such Interested
Stockholder or any of its Affiliates shall have become the
beneficial owner of any additional shares of Voting Stock
except as part of the transaction which results in such
Interested Stockholder becoming an Interested Stockholder.
e. After such Interested Stockholder has become an Interested
Stockholder, such Interested Stockholder shall not have
received the benefit, directly or indirectly (except
proportionately as a stockholder), of any loans, advances,
guarantees, pledges or other financial assistance or any
tax credits or other tax advantages provided, directly or
indirectly, by the Corporation, whether in anticipation of
or in connection with such Business Combination or
otherwise.
f. A proxy or information statement describing the proposed
Business Combination and complying with the requirements of
the Securities Exchange Act of 1934, as amended, and the
rules and regulations thereunder (or any subsequent
provisions replacing such Act, and the
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<PAGE>
rules or regulations thereunder) shall be mailed to
stockholders of the Corporation at least 30 days prior to
the consummation of such Business Combination (whether or
not such proxy or information statement is required to be
mailed pursuant to such Act or subsequent provisions) .
C. For the purposes of this Article EIGHTH:
1. A "Person" shall include an individual, a firm, a group acting
in concert, a corporation, a partnership, an association, a
joint venture, a pool, a joint stock company, a trust, an
unincorporated organization or similar company, a syndicate or
any other group if such other group was formed for the purpose
of acquiring, holding or disposing of securities or any other
entity.
2. "Interested Stockholder" shall mean any person (other than the
Corporation or any Holding Company or Subsidiary thereof) who
or which:
a. is the beneficial owner, directly or indirectly, of more
than 10% of the voting power of the outstanding Voting
Stock; or
b. is an Affiliate of the Corporation and at any time within
the two-year period immediately prior to the date in
question was the beneficial owner, directly or indirectly,
of 10% or more of the voting power of the then outstanding
Voting Stock; or
c. is an assignee of or has otherwise succeeded to any shares
of Voting Stock which were at any time within the two-year
period immediately prior to the date in question
beneficially owned by any Interested Stockholder, if such
assignment or succession shall have occurred in the course
of a transaction or series of transactions not involving a
public offering within the meaning of the Securities Act of
1933, as amended.
3. For purposes of this Article EIGHTH, "beneficial ownership"
shall be determined in the manner provided in Section C of
Article FOURTH hereof.
4. "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as in
effect on the date of filing of this Certificate of
Incorporation.
11
<PAGE>
5. "Subsidiary" means any corporation of which a majority of any
class of equity security is owned, directly or indirectly, by
the Corporation; provided, however, that for the purposes of
the definition of Interested Stockholder set forth in
Paragraph 2 of this Section C, the term "Subsidiary" shall mean
only a corporation of which a majority of each class of equity
security is owned, directly or indirectly, by the Corporation.
6. "Disinterested Director" means any member of the Board of
Directors who is unaffiliated with the Interested Stockholder
and was a member of the Board of Directors prior to the time
that the Interested Stockholder became an Interested
Stockholder, and any Director who is thereafter chosen to fill
any vacancy of the Board of Directors or who is elected and
who, in either event, is unaffiliated with the Interested
Stockholder and in connection with his or her initial
assumption of office is recommended for appointment or election
by a majority of Disinterested Directors then on the Board of
Directors.
7. "Fair Market Value" means:
a. in the case of stock, the highest closing sales price of
the stock during the 30-day period immediately preceding
the date in question of a share of such stock on the
National Association of Securities Dealers Automated
Quotation System or any system then in use, or, if such
stock is admitted to trading on a principal United States
securities exchange registered under the Securities
Exchange Act of 1934, as amended, Fair Market Value shall
be the highest sale price reported during the 30-day period
preceding the date in question, or, if no such quotations
are available, the Fair Market Value on the date in
question of a share of such stock as determined by the
Board of Directors in good faith, in each case with respect
to any class of stock, appropriately adjusted for any
dividend or distribution in shares of such stock or any
stock split or reclassification of outstanding shares of
such stock into a greater number of shares of such stock or
any combination or reclassification of outstanding shares
of such stock into a smaller number of shares of such
stock; and
b. in the case of property other than cash or stock, the Fair
Market Value of such property on the date in question as
determined by the Board of Directors in good faith.
8. Reference to "Highest Per Share Price" shall in each case with
respect to any class of stock reflect an appropriate adjustment
for any dividend or
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<PAGE>
distribution in shares of such stock or any stock split or
reclassification of outstanding shares of such stock into a
greater number of shares of such stock or any combination or
reclassification of outstanding shares of such stock into a
smaller number of shares of such stock.
9. In the event of any Business Combination in which the
Corporation survives, the phrase "consideration other than cash
to be received" as used in Subparagraphs (a) and (b) of
Paragraph 2 of Section B of this Article EIGHTH shall include
the shares of Common Stock and/or the shares of any other class
of outstanding Voting Stock retained by the holders of such
shares.
D. A majority of the Disinterested Directors of the Corporation shall
have the power and duty to determine for the purposes of this Article
EIGHTH, on the basis of information known to them after reasonable inquiry:
(a) whether a person is an Interested Stockholder; (b) the number of shares
of Voting Stock beneficially owned by any person; (c) whether a person is
an Affiliate or Associate of another; and (d) whether the assets which are
the subject of any Business Combination have, or the consideration to be
received for the issuance or transfer of securities by the Corporation or
any Subsidiary in any Business Combination has an aggregate Fair Market
Value equaling or exceeding 25% of the combined Fair Market Value of the
Common Stock of the Corporation and its Subsidiaries. A majority of the
Disinterested Directors shall have the further power to interpret all of
the terms and provisions of this Article EIGHTH.
E. Nothing contained in this Article EIGHTH shall be construed to
relieve any Interested Stockholder from any fiduciary obligation imposed by
law.
F. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, but in addition to any affirmative vote of the holders of
any particular class or series of the Voting Stock required by law, this
Certificate of Incorporation or any Preferred Stock Designation, the
affirmative vote of the holders of at least 80 percent of the voting power
of all of the then-outstanding shares of the Voting Stock (after giving
effect to the provisions of Article FOURTH), voting together as a single
class, shall be required to alter, amend or repeal this Article EIGHTH.
NINTH: The Board of Directors of the Corporation, when evaluating any offer
of another Person (as defined in Article EIGHTH hereof) to: (A) make a tender
or exchange offer for any equity security of the Corporation; (B) merge or
consolidate the Corporation with another corporation or entity; or (C) purchase
or otherwise acquire all or substantially all of the properties and assets of
the Corporation, may, in connection with the exercise of its judgment in
determining what is in the best interest of the Corporation and its
stockholders, give due consideration to all relevant factors, including, without
limitation, those factors that Directors of any subsidiary of the Corporation
may consider in evaluating any action that may result in a
13
<PAGE>
change or potential change in the control of the subsidiary, and the social and
economic effect of acceptance of such offer: on the Corporation's present and
future customers and employees and those of its Subsidiaries (as defined in
Article EIGHTH hereof); on the communities in which the Corporation and its
Subsidiaries operate or are located; on the ability of the Corporation to
fulfill its corporate objective as a savings and loan holding company under
applicable laws and regulations; and on the ability of its subsidiary savings
institution to fulfill the objectives of a stock form savings institution under
applicable statutes and regulations.
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 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 and "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
14
<PAGE>
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
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<PAGE>
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.
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.
TWELFTH: The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation in the manner
prescribed by the laws of the State of Delaware and all rights conferred upon
stockholders are granted subject to this reservation; provided, however, that,
notwithstanding any other provision of this Certificate of Incorporation or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any vote of the holders of any class or series of the stock of this
Corporation required by law or by this Certificate of Incorporation, the
affirmative vote of the holders of at least 80 percent of the voting power of
all of the then-outstanding shares of the capital stock of the Corporation
entitled to vote generally in the election of Directors (after giving effect to
the provisions of Article FOURTH), voting together as a single class, shall be
required to amend or repeal this Article TWELFTH, Section C of Article FOURTH,
Sections C or D of Article FIFTH, Article SIXTH, Article SEVENTH, Article EIGHTH
or Article TENTH.
THIRTEENTH: The name and mailing address of the sole incorporator are as
follows:
<TABLE>
<CAPTION>
Name Mailing Address
---- ---------------
<S> <C>
Michael Tumas Potter Anderson & Corroon LLP
PO Box 951
Wilmington, Delaware 19899
</TABLE>
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<PAGE>
I, THE UNDERSIGNED, being the incorporator, for the purpose of forming
a corporation under the laws of the State of Delaware, do make, file and record
this Certificate of Incorporation and do certify that the facts herein stated
are true, and accordingly, have hereto set my hand this 21st day of August,
1998.
/s/ Michael Tumas
------------------------------------
Incorporator
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<PAGE>
EXHIBIT 3.2 BYLAWS OF FIRST PLACE FINANCIAL CORP.
<PAGE>
FIRST PLACE FINANCIAL CORP.
BYLAWS
ARTICLE I - STOCKHOLDERS
Section 1. Annual Meeting.
--------- --------------
An annual meeting of the stockholders, for the election of Directors to
succeed those whose terms expire and for the transaction of such other business
as may properly come before the meeting, shall be held at such place, on such
date, and at such time as the Board of Directors shall each year fix, which date
shall be within thirteen (13) months subsequent to the later of the date of
incorporation or the last annual meeting of stockholders.
Section 2. Special Meetings.
--------- ----------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, special meetings of stockholders of the Corporation
may be called only by the Board of Directors pursuant to a resolution adopted by
a majority of the total number of Directors which the Corporation would have if
there were no vacancies on the Board of Directors (hereinafter the "Whole
Board").
Section 3. Notice of Meetings.
--------- ------------------
Written notice of the place, date, and time of all meetings of the
stockholders shall be given, not less than ten (10) nor more than sixty (60)
days before the date on which the meeting is to be held, to each stockholder
entitled to vote at such meeting, except as otherwise provided herein or
required by law (meaning, here and hereinafter, as required from time to time by
the Delaware General Corporation Law or the Certificate of Incorporation of the
Corporation).
When a meeting is adjourned to another place, date or time, written notice
need not be given of the adjourned meeting if the place, date and time thereof
are announced at the meeting at which the adjournment is taken; provided,
however, that if the date of any adjourned meeting is more than thirty (30) days
after the date for which the meeting was originally noticed, or if a new record
date is fixed for the adjourned meeting, written notice of the place, date, and
time of the adjourned meeting shall be given in conformity herewith. At any
adjourned meeting, any business may be transacted which might have been
transacted at the original meeting.
Section 4. Quorum.
--------- ------
Except as otherwise provided by law or expressly provided in Section C of
Article FOURTH of the Corporation's Certificate of Incorporation, the presence,
in person or by proxy, of the holders
<PAGE>
of record of shares of capital stock of the Corporation entitling the holders
thereof to cast a majority of the votes (after giving effect, if required, to
the provisions of Section C of Article FOURTH of the Corporation's Certificate
of Incorporation) entitled to be cast by the holders of shares of capital stock
of the Corporation shall constitute a quorum at all meetings of the
stockholders. Where a separate vote by a class or classes is required, a
majority of the shares of such class or classes present in person or represented
by proxy and entitled to vote (after giving effect to the provisions of Article
FOURTH of the Corporation's Certificate of Incorporation) shall constitute a
quorum entitled to take action with respect to that vote on that matter.
If a quorum shall fail to attend any meeting, the chairman of the meeting or
the holders of a majority of the shares of stock entitled to vote who are
present, in person or by proxy, may adjourn the meeting to another place, date,
or time.
If a notice of any adjourned special meeting of stockholders is sent to all
stockholders entitled to vote thereat, stating that it will be held with those
present in person or by proxy constituting a quorum, then except as otherwise
required by law, those present in person or by proxy at such adjourned meeting
shall constitute a quorum, and all matters shall be determined by a majority of
the votes cast at such meeting.
Section 5. Organization.
--------- ------------
Such person as the Board of Directors may have designated or, in the absence
of such a person, the Chairman of the Board of the Corporation or, in his or her
absence, such person as may be chosen by the holders of a majority of the shares
entitled to vote who are present, in person or by proxy, shall call to order any
meeting of the stockholders and act as chairman of the meeting. In the absence
of the Secretary of the Corporation, the secretary of the meeting shall be such
person as the chairman appoints.
Section 6. Conduct of Business.
--------- -------------------
(a) The chairman of any meeting of stockholders shall determine the
order of business and the procedures at the meeting, including such regulation
of the manner of voting and the conduct of discussion as seem to him or her in
order. The date and time of the opening and closing of the polls for each
matter upon which the stockholders will vote at the meeting shall be announced
at the meeting.
(b) At any annual meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting: (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
Corporation who is entitled to vote with respect thereto and who complies with
the notice procedures set forth in this Section 6(b). For business to be
properly brought before an annual meeting by a stockholder, the business must
relate to a proper subject matter for stockholder action and the stockholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a stockholder's notice must be delivered or mailed
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<PAGE>
to and received at the principal executive offices of the Corporation not less
than ninety (90) days prior to the date of the annual meeting; provided,
however, that in the event that less than one hundred (100) days' notice or
prior public disclosure of the date of the meeting is given or made to
stockholders, notice by the stockholder to be timely must be received not later
than the close of business on the 10th day following the day on which such
notice of the date of the annual meeting was mailed or such public disclosure
was made. A stockholder's notice to the Secretary shall set forth as to each
matter such stockholder proposes to bring before the annual meeting: (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting; (ii)
the name and address, as they appear on the Corporation's books, of the
stockholder proposing such business; (iii) the class and number of shares of the
Corporation's capital stock that are beneficially owned by such stockholder; and
(iv) any material interest of such stockholder in such business.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
brought before or conducted at an annual meeting except in accordance with the
provisions of this Section 6(b). The Officer of the Corporation or other person
presiding over the annual meeting shall, if the facts so warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Section 6(b) and, if he should so
determine, he shall so declare to the meeting and any such business so
determined to be not properly brought before the meeting shall not be
transacted.
At any special meeting of the stockholders, only such business shall be
conducted as shall have been brought before the meeting by or at the direction
of the Board of Directors.
(c) Only persons who are nominated in accordance with the procedures
set forth in these Bylaws shall be eligible for election as Directors.
Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of stockholders at which directors are to be elected
only: (i) by or at the direction of the Board of Directors; or (ii) by any
stockholder of the Corporation entitled to vote for the election of Directors at
the meeting who complies with the notice procedures set forth in this Section
6(c). Such nominations, other than those made by or at the direction of the
Board of Directors, shall be made by timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice shall be delivered or
mailed to and received at the principal executive offices of the Corporation not
less than ninety (90) days prior to the date of the meeting; provided, however,
that in the event that less than one hundred (100) days' notice or prior
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close of
business on the 10th day following the day on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such stockholder's
notice shall set forth: (i) as to each person whom such stockholder proposes to
nominate for election or re-election as a Director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); and (ii) as to the stockholder giving
the notice (x) the name and address, as they appear on the Corporation's books,
of such stockholder and (y) the class and number of shares of the Corporation's
capital stock that are beneficially owned by such stockholder. At the
3
<PAGE>
request of the Board of Directors, any person nominated by the Board of
Directors for election as a Director shall furnish to the Secretary of the
Corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee. The Officer of the Corporation or
other person presiding at the meeting shall, if the facts so warrant, determine
that a nomination was not made in accordance with such provisions and, if he or
she shall so determine, he or she shall so declare to the meeting and the
defective nomination shall be disregarded.
Section 7. Proxies and Voting.
--------- ------------------
At any meeting of the stockholders, every stockholder entitled to vote may
vote in person or by proxy authorized by an instrument in writing filed in
accordance with the procedure established for the meeting. Any facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the original
writing or transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of the
entire original writing or transmission.
All voting, including on the election of Directors but excepting where
otherwise required by law or by the governing documents of the Corporation, may
be made by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or his or her proxy, a stock vote shall be taken.
Every stock vote shall be taken by ballot, each of which shall state the name of
the stockholder or proxy voting and such other information as may be required
under the procedures established for the meeting. The Corporation shall, in
advance of any meeting of stockholders, appoint one or more inspectors to act at
the meeting and make a written report thereof. The Corporation may designate
one or more persons as alternate inspectors to replace any inspector who fails
to act. If no inspector or alternate is able to act at a meeting of
stockholders, the person presiding at the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before entering upon the
discharge of his duties, shall take and sign an oath faithfully to execute the
duties of inspector with strict impartiality and according to the best of his
ability.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or the Certificate of Incorporation, all
other matters shall be determined by a majority of the votes cast.
Section 8. Stock List.
--------- ----------
A complete list of stockholders entitled to vote at any meeting of
stockholders, arranged in alphabetical order for each class of stock and showing
the address of each such stockholder and the number of shares registered in his
or her name, shall be open to the examination of any such stockholder, for any
purpose germane to the meeting, during ordinary business hours for a period of
at least ten (10) days prior to the meeting, either at a place within the city
where the meeting is to be held, which place shall be specified in the notice of
the meeting, or if not so specified, at the place where the meeting is to be
held.
4
<PAGE>
The stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such stockholder
who is present. This list shall presumptively determine the identity of the
stockholders entitled to vote at the meeting and the number of shares held by
each of them.
Section 9. Consent of Stockholders in Lieu of Meeting.
--------- ------------------------------------------
Subject to the rights of the holders of any class or series of preferred
stock of the Corporation, any action required or permitted to be taken by the
stockholders of the Corporation must be effected at an annual or special meeting
of stockholders of the Corporation and may not be effected by any consent in
writing by such stockholders.
ARTICLE II - BOARD OF DIRECTORS
Section 1. General Powers, Number, Term of Office and Limitations.
--------- ------------------------------------------------------
The business and affairs of the Corporation shall be under the direction of
its Board of Directors. The number of Directors who shall constitute the Whole
Board shall be such number as the Board of Directors shall from time to time
have designated, except that in the absence of such designation shall be eight.
The Board of Directors shall annually elect a Chairman of the Board from among
its members who shall, when present, preside at its meetings.
The Directors, other than those who may be elected by the holders of any
class or series of Preferred Stock, shall be divided, with respect to the time
for which they severally hold office, into three classes, with the term of
office of the first class to expire at the first annual meeting of stockholders,
the term of office of the second class to expire at the annual meeting of
stockholders one year thereafter and the term of office of the third class to
expire at the annual meeting of stockholders two years thereafter, with each
Director to hold office until his or her successor shall have been duly elected
and qualified. At each annual meeting of stockholders, Directors elected to
succeed those Directors whose terms then expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election, with each Director to hold office until his or her successor
shall have been duly elected and qualified.
Section 2. Vacancies and Newly Created Directorships.
--------- -----------------------------------------
Subject to the rights of the holders of any class or series of Preferred
Stock, and unless the Board of Directors otherwise determines, newly created
directorships resulting from any increase in the authorized number of directors
or any vacancies in the Board of Directors resulting from death, resignation,
retirement, disqualification, removal from office or other cause may be filled
only by a majority vote of the Directors then in office, though less than a
quorum, and Directors so chosen shall hold office for a term expiring at the
annual meeting of stockholders at which the term of office of the class to which
they have been elected expires and until such Director's successor shall have
5
<PAGE>
been duly elected and qualified. No decrease in the number of authorized
directors constituting the Board shall shorten the term of any incumbent
Director.
Section 3. Regular Meetings.
--------- ----------------
Regular meetings of the Board of Directors shall be held at such place or
places, on such date or dates, and at such time or times as shall have been
established by the Board of Directors and publicized among all Directors. A
notice of each regular meeting shall not be required.
Section 4. Special Meetings.
--------- ----------------
Special meetings of the Board of Directors may be called by one-third (1/3)
of the Directors then in office (rounded up to the nearest whole number), by the
Chairman of the Board or the President or, in the event that the Chairman of the
Board or President are incapacitated or otherwise unable to call such meeting,
by the Secretary, and shall be held at such place, on such date, and at such
time as they, or he or she, shall fix. Notice of the place, date, and time of
each such special meeting shall be given each Director by whom it is not waived
by mailing written notice not less than five (5) days before the meeting or by
telegraphing or telexing or by facsimile transmission of the same not less than
twenty-four (24) hours before the meeting. Unless otherwise indicated in the
notice thereof, any and all business may be transacted at a special meeting.
Section 5. Quorum.
--------- ------
At any meeting of the Board of Directors, a majority of the Whole Board
shall constitute a quorum for all purposes. If a quorum shall fail to attend
any meeting, a majority of those present may adjourn the meeting to another
place, date, or time, without further notice or waiver thereof.
Section 6. Participation in Meetings By Conference Telephone.
--------- -------------------------------------------------
Members of the Board of Directors, or of any committee thereof, may
participate in a meeting of such Board or committee by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other and such participation shall
constitute presence in person at such meeting.
Section 7. Conduct of Business.
--------- -------------------
At any meeting of the Board of Directors, business shall be transacted in
such order and manner as the Board may from time to time determine, and all
matters shall be determined by the vote of a majority of the Directors present,
except as otherwise provided herein or required by law. Action may be taken by
the Board of Directors without a meeting if all members thereof consent thereto
in writing, and the writing or writings are filed with the minutes of
proceedings of the Board of Directors.
6
<PAGE>
Section 8. Powers.
--------- ------
The Board of Directors may, except as otherwise required by law, exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation.
Section 9. Compensation of Directors.
--------- -------------------------
Directors, as such, may receive, pursuant to resolution of the Board of
Directors, fixed fees and other compensation for their services as Directors,
including, without limitation, their services as members of committees of the
Board of Directors.
Section 10. Age Limitations on Directors.
----------- ----------------------------
No person seventy-two years of age shall be eligible for election,
reelection, appointment or reappointment to the Board of Directors. No director
shall serve as such beyond the annual meeting of the Corporation immediately
following the director becoming seventy-two years of age. This age limitation
does not apply to an advisory or emeritus director.
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
--------- ------------------------------------
The Board of Directors may from time to time designate committees of the
Board, with such lawfully delegable powers and duties as it thereby confers, to
serve at the pleasure of the Board and shall, for these committees and any
others provided for herein, elect a Director or Directors to serve as the member
or members, designating, if it desires, other Directors as alternate members who
may replace any absent or disqualified member at any meeting of the committee.
In the absence or disqualification of any member of any committee and any
alternate member in his or her place, the member or members of the committee
present at the meeting and not disqualified from voting, whether or not he or
she or they constitute a quorum, may by unanimous vote appoint another member of
the Board of Directors to act at the meeting in the place of the absent or
disqualified member.
Section 2. Conduct of Business.
--------- -------------------
Each committee may determine the procedural rules for meeting and conducting
its business and shall act in accordance therewith, except as otherwise provided
herein or required by law. Adequate provision shall be made for notice to
members of all meetings. The quorum requirements for each such committee shall
be a majority of the members of such committee unless otherwise determined by
the Board of Directors by a majority vote of the Board of Directors which such
quorum determined by a majority of the Board may be one-third of such members
and all matters considered by such committees shall be determined by a majority
vote of the members present.
7
<PAGE>
Action may be taken by any committee without a meeting if all members thereof
consent thereto in writing, and the writing or writings are filed with the
minutes of the proceedings of such committee.
Section 3. Nominating Committee.
---------- --------------------
The Board of Directors shall appoint a Nominating Committee of the Board,
consisting of not less than three (3) members. The Nominating Committee shall
have authority: (a) to review any nominations for election to the Board of
Directors made by a stockholder of the Corporation pursuant to Section 6(c)(ii)
of Article I of these Bylaws in order to determine compliance with such Bylaw;
and (b) to recommend to the Whole Board nominees for election to the Board of
Directors to replace those Directors whose terms expire at the annual meeting of
stockholders next ensuing.
ARTICLE IV - OFFICERS
Section 1. Generally.
--------- ---------
(a) The Board of Directors as soon as may be practicable after the
annual meeting of stockholders shall choose a Chairman of the Board, Chief
Executive Officer, a President, one or more Vice Presidents, a Secretary and a
Treasurer and from time to time may choose such other officers as it may deem
proper. The Chairman of the Board shall be chosen from among the Directors.
Any number of offices may be held by the same person.
(b) The term of office of all Officers shall be until the next annual
election of Officers and until their respective successors are chosen but any
Officer may be removed from office at any time by the affirmative vote of a
majority of the authorized number of Directors then constituting the Board of
Directors.
(c) All Officers chosen by the Board of Directors shall have such
powers and duties as generally pertain to their respective Offices, subject to
the specific provisions of this ARTICLE IV. Such officers shall also have such
powers and duties as from time to time may be conferred by the Board of
Directors or by any committee thereof.
(d) The Board of Directors may, except as otherwise required by law,
remove any Officer of the Corporation with or without cause, and from time to
time, devolve the powers and duties of any Officer upon any other person for the
time being, and to confer upon any Officer of the Corporation the power to
appoint, remove or suspend subordinate officers, employees and agents.
8
<PAGE>
Section 2. Chairman of the Board of Directors.
--------- ----------------------------------
The Chairman of the Board shall, subject to the provisions of these Bylaws
and to the direction of the Board of Directors, serve in general executive
capacity and unless the Board has designated another person, when present, shall
preside at all meetings of the stockholders of the Corporation. The Chairman of
the Board shall perform all duties and have all powers which are commonly
incident to the office of Chairman of the Board or which are delegated to him or
her by the Board of Directors. He or she shall have power to sign all stock
certificates, contracts and other instruments of the Corporation which are
authorized.
Section 3. President and Chief Executive Officer.
--------- -------------------------------------
The President and Chief Executive Officer (the "President") shall have
general responsibility for the management and control of the business and
affairs of the Corporation and shall perform all duties and have all powers
which are commonly incident to the office of President and Chief Executive
Officer or which are delegated to him or her by the Board of Directors. Subject
to the direction of the Board of Directors, the President and Chief Executive
Officer shall have power to sign all stock certificates, contracts and other
instruments of the Corporation which are authorized and shall have general
supervision of all of the other Officers (other than the Chairman of the Board),
employees and agents of the Corporation.
Section 4. Vice President.
---------- --------------
The Vice President or Vice Presidents shall perform the duties of the
President in his absence or during his inability to act. In addition, the Vice
Presidents shall perform the duties and exercise the powers usually incident to
their respective offices and/or such other duties and powers as may be properly
assigned to them by the Board of Directors, the Chairman of the Board or the
President. A Vice President or Vice Presidents may be designated as Executive
Vice President or Senior Vice President.
Section 5. Secretary.
--------- ---------
The Secretary or Assistant Secretary shall issue notices of meetings, shall
keep their minutes, shall have charge of the seal and the corporate books, shall
perform such other duties and exercise such other powers as are usually incident
to such office and/or such other duties and powers as are properly assigned
thereto by the Board of Directors, the Chairman of the Board or the President.
Subject to the direction of the Board of Directors, the Secretary shall have the
power to sign all stock certificates.
Section 6. Treasurer.
---------- ----------
The Treasurer shall be the Comptroller of the Corporation and shall have the
responsibility for maintaining the financial records of the Corporation. He or
she shall make such disbursements of
9
<PAGE>
the funds of the Corporation as are authorized and shall render from time to
time an account of all such transactions and of the financial condition of the
Corporation. The Treasurer shall also perform such other duties as the Board of
Directors may from time to time prescribe. Subject to the direction of the Board
of Directors, the Treasurer shall have the power to sign all stock certificates.
Section 7. Assistant Secretaries and Other Officers.
--------- -----------------------------------------
The Board of Directors may appoint one or more Assistant Secretaries and
such other Officers who shall have such powers and shall perform such duties as
are provided in these Bylaws or as may be assigned to them by the Board of
Directors, the Chairman of the Board or the President.
Section 8. Action with Respect to Securities of Other Corporations.
---------- --------------------------------------------------------
Unless otherwise directed by the Board of Directors, the President or any
Officer of the Corporation authorized by the President shall have power to vote
and otherwise act on behalf of the Corporation, in person or by proxy, at any
meeting of stockholders of or with respect to any action of stockholders of any
other corporation in which this Corporation may hold securities and otherwise to
exercise any and all rights and powers which this Corporation may possess by
reason of its ownership of securities in such other corporation.
Section 9. Age Limitation on Officers.
--------- --------------------------
No person sixty-five (65) years of age or older who has been an officer
employed in an executive or high policymaking position for a period of two or
more years and is eligible for immediate non-forfeitable annual retirement
benefits from a Corporation pension plan which equals in the aggregate the
amount as set forth by any applicable age discrimination and employment law
shall be eligible for election, reelection, appointment or reappointment as an
officer of the Corporation to act in an executive or high policymaking position.
ARTICLE V - STOCK
Section 1. Certificates of Stock.
--------- ---------------------
Each stockholder shall be entitled to a certificate signed by, or in the
name of the Corporation by, the Chairman of the Board or the President, and by
the Secretary or an Assistant Secretary, or any Treasurer or Assistant
Treasurer, certifying the number of shares owned by him or her. Any or all of
the signatures on the certificate may be by facsimile.
Section 2. Transfers of Stock.
--------- ------------------
Transfers of stock shall be made only upon the transfer books of the
Corporation kept at an office of the Corporation or by transfer agents
designated to transfer shares of the stock of the Corporation. Except where a
certificate is issued in accordance with Section 4 of Article V of these
10
<PAGE>
Bylaws, an outstanding certificate for the number of shares involved shall be
surrendered for cancellation before a new certificate is issued therefor.
Section 3. Record Date.
--------- -----------
In order that the Corporation may determine the stockholders entitled to
notice of or to vote at any meeting of stockholders, or to receive payment of
any dividend or other distribution or allotment of any rights or to exercise any
rights in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date on which the resolution
fixing the record date is adopted and which record date shall not be more than
sixty (60) nor less than ten (10) days before the date of any meeting of
stockholders, nor more than sixty (60) days prior to the time for such other
action as hereinbefore described; provided, however, that if no record date is
fixed by the Board of Directors, the record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at the
close of business on the day next preceding the day on which notice is given or,
if notice is waived, at the close of business on the next day preceding the day
on which the meeting is held, and, for determining stockholders entitled to
receive payment of any dividend or other distribution or allotment or rights or
to exercise any rights of change, conversion or exchange of stock or for any
other purpose, the record date shall be at the close of business on the day on
which the Board of Directors adopts a resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
Section 4. Lost, Stolen or Destroyed Certificates.
--------- --------------------------------------
In the event of the loss, theft or destruction of any certificate of stock,
another may be issued in its place pursuant to such regulations as the Board of
Directors may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5. Regulations.
--------- -----------
The issue, transfer, conversion and registration of certificates of stock
shall be governed by such other regulations as the Board of Directors may
establish.
11
<PAGE>
ARTICLE VI - NOTICES
Section 1. Notices.
--------- -------
Except as otherwise specifically provided herein or required by law, all
notices required to be given to any stockholder, Director, Officer, employee or
agent shall be in writing and may in every instance be effectively given by hand
delivery to the recipient thereof, by depositing such notice in the mails,
postage paid, or by sending such notice by prepaid telegram or mailgram or other
courier. Any such notice shall be addressed to such stockholder, Director,
Officer, employee or agent at his or her last known address as the same appears
on the books of the Corporation. The time when such notice is received, if hand
delivered, or dispatched, if delivered through the mails or by telegram or
mailgram or other courier, shall be the time of the giving of the notice.
Section 2. Waivers.
--------- -------
A written waiver of any notice, signed by a stockholder, Director, Officer,
employee or agent, whether before or after the time of the event for which
notice is to be given, shall be deemed equivalent to the notice required to be
given to such stockholder, Director, Officer, employee or agent. Neither the
business nor the purpose of any meeting need be specified in such a waiver.
ARTICLE VII - MISCELLANEOUS
Section 1. Facsimile Signatures.
--------- --------------------
In addition to the provisions for use of facsimile signatures elsewhere
specifically authorized in these Bylaws, facsimile signatures of any officer or
officers of the Corporation may be used whenever and as authorized by the Board
of Directors or a committee thereof.
Section 2. Corporate Seal.
--------- --------------
The Board of Directors may provide a suitable seal, containing the name of
the Corporation, which seal shall be in the charge of the Secretary. If and
when so directed by the Board of Directors or a committee thereof, duplicates of
the seal may be kept and used by the Treasurer or by an Assistant Secretary or
an assistant to the Treasurer.
Section 3. Reliance Upon Books, Reports and Records.
--------- ----------------------------------------
Each Director, each member of any committee designated by the Board of
Directors, and each Officer of the Corporation shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the books of
account or other records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of its Officers or
employees, or committees of the Board of Directors so designated, or by any
other person as to matters which such Director or committee member reasonably
believes are within such other
12
<PAGE>
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
--------- -----------
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
--------- ------------
In applying any provision of these Bylaws which requires that an act be done
or not be done a specified number of days prior to an event or that an act be
done during a period of a specified number of days prior to an event, calendar
days shall be used, the day of the doing of the act shall be excluded, and the
day of the event shall be included.
Section 6. Adoption of Regulations.
---------- ------------------------
The Board of Directors may, except as otherwise required by law, adopt from
time to time regulations, not inconsistent with these Bylaws, for the management
of the Corporation's business and affairs.
ARTICLE VIII - AMENDMENTS
The Board of Directors may amend, alter or repeal these Bylaws at any
meeting of the Board, provided notice of the proposed change was given not less
than two (2) days prior to the meeting. The stockholders shall also have power
to amend, alter or repeal these Bylaws at any meeting of stockholders provided
notice of the proposed change was given in the notice of the meeting; provided,
however, that, notwithstanding any other provisions of the Bylaws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of the voting stock required by law, the Certificate of Incorporation,
any Preferred Stock Designation or these Bylaws, the affirmative votes of the
holders of at least 80% of the voting power of all the then-outstanding shares
of the Voting Stock, voting together as a single class, shall be required to
alter, amend or repeal any provisions of these Bylaws.
The above Bylaws are effective as of August 21, 1998, the date of incorporation
of First Place Financial Corp.
13
<PAGE>
EXHIBIT 4.0 DRAFT STOCK CERTIFICATE OF FIRST PLACE FINANCIAL CORP.
<PAGE>
COMMON STOCK COMMON STOCK
PAR VALUE $.01 SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
------
FIRST PLACE FINANCIAL CORP.
INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE
THIS CERTIFIES THAT
S P E C I M E N
is the owner of:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK $.01 PAR VALUE PER SHARE OF
FIRST PLACE FINANCIAL CORP.
The shares represented by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record thereof, or by his
duly authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Certificate of Incorporation of the Corporation and any amendments thereto
(copies of which are on file with the Transfer Agent), to all of which
provisions the holder by acceptance hereof, assents.
This certificate is not valid unless countersigned and registered by the
Transfer Agent and Registrar.
IN WITNESS THEREOF, FIRST PLACE FINANCIAL CORP. has caused this
certificate to be executed by the facsimile signatures of its duly authorized
officers and has caused a facsimile of its corporate seal to be hereunto
affixed.
Dated: [SEAL]
President Secretary
<PAGE>
FIRST PLACE FINANCIAL CORP.
The shares represented by this certificate are subject to a limitation
contained in the Certificate of Incorporation to the effect that in no event
shall any record owner of any outstanding common stock which is beneficially
owned, directly or indirectly, by a person who beneficially owns in excess of
10% of the outstanding shares of common stock (the "Limit") be entitled or
permitted to any vote in respect of shares held in excess of the Limit. This
summary is qualified in its entirety by reference to the Certificate of
Incorporation, copies of which are available from the Corporation.
The Board of Directors of the Corporation is authorized by resolution(s),
from time to time adopted, to provide for the issuance of serial preferred stock
in series and to fix and state the voting powers, designations, preferences and
relative, participating, optional, or other special rights of the shares of each
such series and the qualifications, limitations and restrictions thereof. The
Corporation will furnish to any shareholder upon request and without charge a
full description of each class of stock and any series thereof.
The shares represented by this certificate may not be cumulatively voted on
any matter. The affirmative vote of the holders of at least 80% of the voting
stock of the Corporation, voting together as a single class, shall be required
to approve certain business combinations and other transactions, pursuant to the
Certificate of Incorporation or to amend certain provisions of the Certificate
of Incorporation or Bylaws.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFTS MIN ACT - custodian
---------- ----------
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act
------------------------
(State)
JT TEN - as joint tenants with right
of survivorship and not as
tenants in common
Additional abbreviations may also be used though not in the above list.
For value received, hereby sell, assign and transfer unto
----------
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFICATION NUMBER OF TRANSFEREE
- ------------------------------------------------------------------------------
Please print or typewrite name and address including postal zip code of assign
shares of the common stock represented by the within Certificate, and do hereby
- -----------------------------------------
irrevocably constitute and appoint to transfer
---------------------------------------------------------------------------
the said stock on the books of the within-named Corporation with full power of substitution in the premises.
DATED
-----------------------------
- -----------------------------------------------
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT
MUST CORRESPOND WITH THE NAME AS WRITTEN
UPON THE FACE OF THE CERTIFICATE IN EVERY
PARTICULAR WITHOUT ALTERATION OR ENLARGEMENT
OR ANY CHANGE WHATEVER.
SIGNATURE GUARANTEED:
----------------------------------------------------------------
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR
INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS
AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE
GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15
</TABLE>
<PAGE>
EXHIBIT 5.0 DRAFT OPINION OF PATTON BOGGS LLP RE: LEGALITY
<PAGE>
, 1998
-------------
Board of Directors
First Place Financial Corp.
185 East Market Street
Warren, Ohio 44482
Re: The issuance of up to 14,812,000 shares of
First Place Financial Corp. Common Stock
Gentlemen:
You have requested our opinion concerning certain matters of Delaware law
in connection with the conversion of First Federal Savings and Loan Association
of Warren (the "Association"), a federally-chartered savings and loan
association, from the mutual form of ownership to the stock form of ownership
(the "Conversion"), and the related subscription offering, community offering
and syndicated community offering (the "Offerings") by First Place Financial
Corp., a Delaware corporation (the "Company"), of up to 12,880,000 shares
(including shares to be granted to a charitable foundation to be established by
the Company in connection with the Conversion (the "Foundation")) of its common
stock, par value $.01 per share ("Common Stock"), (14,812,000 shares if the
Estimated Valuation Range is increased up to 15% to reflect changes in market
and financial conditions following commencement of the Offerings).
In connection with your request for our opinion, you have provided to us
and we have reviewed the Company's certificate of incorporation filed with the
Delaware Secretary of State on August 14, 1998 (the "Certificate of
Incorporation"); the Company's Bylaws; the Company's Registration Statement on
Form S-1, as filed with the Securities and Exchange Commission on September 9,
1998 (the "Registration Statement"); a consent of the sole incorporator of the
Company; resolutions of the Board of Directors of the Company (the "Board")
concerning the organization of the Company, the Offerings and designation of a
Pricing Committee of the Board, and the form of stock certificate approved by
the Board to represent shares of Common Stock. We have also been furnished a
certificate of the Delaware Secretary of State certifying the Company's good
standing as a Delaware corporation. Capitalized terms used but not defined
herein shall have the meaning given them in the Certificate of Incorporation.
<PAGE>
Board of Directors
, 1998
- -----------------
Page 2
In rendering this opinion, we have relied upon the opinion of Potter
Anderson & Corroon LLP as to matters of Delaware law upon which opinion we
believe we are justified in relying. We have examined the opinion of Potter
Anderson & Corroon LLP, which opinion is in form satisfactory to us.
We understand that the Company will loan to the trust for the Association's
Employee Stock Ownership Plan (the "ESOP") the funds the ESOP Trust will use to
purchase shares of Common Stock for which the ESOP Trust subscribes pursuant to
the Offerings and for purposes of rendering the opinion set forth in paragraph 2
below, we assume that: (a) the Board of Directors of the Company has duly
authorized the Loan to the ESOP Trust (the "Loan"); (b) the ESOP serves a valid
corporate purpose for the Company; (c) the Loan will be made at an interest rate
and on other terms that are fair to the Company; (d) the terms of the Loan will
be set forth in customary and appropriate documents including, without
limitation, a promissory note representing the indebtedness of the ESOP Trust to
the Company as a result of the Loan; and (e) the closing for the Loan and for
the sale of Common Stock to the ESOP Trust will be held after the closing for
the sale of the other shares of Common Stock sold in the Offerings and the
receipt by the Company of the proceeds thereof.
Based upon and subject to the foregoing, and limited in all respects to
matters of Delaware law, it is our opinion that:
1. The Company has been duly organized and is validly existing in good
standing as a corporation under the laws of the State of Delaware.
2. Upon the due adoption by the Pricing Committee of a resolution fixing
the number of shares of Common Stock to be sold in the Offerings, the Common
Stock to be issued in the Offerings (including the shares to be issued to the
ESOP Trust and the shares to be granted to the Foundation) will be duly
authorized and, when such shares are sold and paid for in accordance with the
terms set forth in the Prospectus and such resolution of the Pricing Committee,
and certificates representing such shares in the form provided to us are duly
and properly issued, will be validly issued, fully paid and nonassessable.
The following provisions of the Certificate of Incorporation may not be
given effect by a court applying Delaware law, but in our opinion the failure to
give effect to such provisions will not affect the duly authorized, validly
issued, fully paid and nonassessable status of the Common Stock:
1. (a) Subsections C.3 and C.6 of Article FOURTH and Section D of Article
EIGHTH, which grant the Board the authority to construe and apply
the provisions of those Articles, subsection C.4 of Article
FOURTH, to the
<PAGE>
Board of Directors
,1998
- ----------------
Page 3
extent that subsection obligates any person to provide to the
Board the information such subsection authorizes the Board to
demand, and the provision of Subsection C.7 of Article EIGHTH
empowering the Board to determine the Fair Market Value of
property offered or paid for the Company's stock by an Interested
Stockholder, in each case to the extent, if any, that a court
applying Delaware law were to impose equitable limitations upon
such authority; and
(b) Article NINTH, which authorizes the Board to consider the effect
of any offer to acquire the Company on constituencies other than
stockholders in evaluating any such offer.
We consent to the filing of this opinion as an exhibit to the Registration
Statement on Form S-1 and the Form AC and to the use of the name of our firm
where it appears in the Registration Statement, Form AC and in the Prospectus.
Very truly yours,
Attachment: Opinion of Potter Anderson & Corroon LLP
<PAGE>
EXHIBIT 5.1 DRAFT OPINION OF POTTER ANDERSON & CORROON LLP RE: LEGALITY
<PAGE>
September __, 1998
[DRAFT OPINION OF POTTER ANDERSON & CORROON LLP]
Board of Directors
First Place Financial Corp.
185 East Market Street
Warren, OH 44482
Re: First Place Financial Corp.
---------------------------
Gentlemen:
We have acted as special Delaware counsel for First Place Financial
Corp., a Delaware corporation (the "Company") in connection with (i) the
conversion of First Federal Savings and Loan Association of Warren, a federally-
chartered mutual savings bank (the "Bank"), from the mutual form of ownership to
stock form of ownership (the "Conversion"), (ii) the subscription and community
offering (the "Offering"), in connection with the Conversion, by the Company of
up to 13,754,000 shares of its common stock, par value $.01 per share (the
"Common Stock"), and (iii) the issuance of up to 1,058,000 shares of Common
Stock (the "Foundation Shares") to First Federal of Warren Community Foundation,
a Delaware corporation (the "Foundation"), pursuant to the Gift Instrument,
dated as of September ___, 1998, relating to
<PAGE>
Board of Directors
First Place Financial Corp.
September __, 1998
Page 2
the gift from the Company to the foundation of the Foundation Shares (the "Gift
Instrument"). You have requested our opinion with respect to certain matters of
Delaware law in connection with the foregoing.
For purposes of giving the opinion hereinafter set forth, we have
conducted no independent factual investigation of our own, and have examined
only the following documents, which you have provided to us:
(1) A certified copy of the Certificate of Incorporation of the Company
(the "Company Certificate of Incorporation"), as filed in the Office
of the Secretary of State of the State of Delaware (the "Secretary of
State") on August 21, 1998;
(2) The Bylaws of the Company;
(3) The Registration Statement filed with the Securities and Exchange
Commission in connection with the Offering (the "Registration
Statement"), including the prospectus constituting a part thereof (the
"Prospectus");
(4) A consent of the sole incorporator of the Company dated August 21,
1998;
(5) the form of stock certificate approved by the Board to represent
shares of Common Stock;
(6) A copy of resolutions of the Board of Directors of the Company (the
"Board") adopted at a meeting of the Board held on August 24, 1998
concerning, among other things, the organization of the Company, the
Offering, and the designation of a Pricing Committee of the Board (the
"Pricing Committee");
(7) A copy of resolutions of the Board of Directors of the Company (the
"Board") adopted at a meeting of the Board held on August 24, 1998
<PAGE>
Board of Directors
First Place Financial Corp.
September __, 1998
Page 3
concerning, among other things, the Foundation and the issuance of the
Foundation Shares;
(8) A certified copy of the Certificate of Incorporation of the Foundation
(the "Foundation Certificate of Incorporation"), as filed in the
office of the Secretary of State on September ___, 1998;
(9) The Bylaws of the Foundation;
(10) A consent of the sole incorporator of the Foundation dated September
__, 1998;
(11) the Gift Instrument; and
(12) Certificates of good standing for the Company and the Foundation,
each dated __________ ___, 1998, obtained from the Secretary of
State.
We have assumed that all signatures on documents examined by us are genuine,
that all documents submitted to us as originals are authentic, and that all
documents submitted to us as copies are complete, accurate, and authentic copies
that conform to the originals. We have not reviewed any other documents other
than those expressly referenced above, and we have assumed that no provision of
any other document is inconsistent with or would otherwise alter our opinion
expressed herein.
Capitalized terms used but not defined herein shall have the meanings
given them in the Company Certificate of Incorporation.
Based upon and subject to the foregoing and further subject to the
assumptions, qualifications, limitations, and exceptions set forth herein, we
are of the opinion that:
<PAGE>
Board of Directors
First Place Financial Corp.
September __, 1998
Page 4
1. The Company has been duly incorporated and is validly existing in
good standing as a corporation under the laws of the State of Delaware, with the
corporate power and authority to own, lease, and operate its property and
conduct its business as now conducted as described in the Prospectus.
2. Upon the due adoption by the Pricing Committee of a resolution
fixing the price and number of shares of Common Stock to be sold in the Offering
in accordance with the terms set forth in the Prospectus, the Common Stock to be
issued in the Offering (including the shares to be issued to the ESOP) will be
duly authorized and, when such shares are sold and paid for in accordance with
the terms set forth in the Prospectus and such resolution of the Pricing
Committee, and certificates representing such shares in the form provided to us
are duly and properly issued, will be validly issued, fully paid, and
nonassessable, and no personal liability for the payment of the Company's debts
will arise solely by virtue of the ownership thereof.
3. The issuance and sale of Common Stock described in paragraph 2
above will not be in violation of or subject to any preemptive rights or other
similar rights arising by operation of Delaware law, the Company Certificate of
Incorporation, or, to the best of our knowledge, based solely on our review of
the Prospectus, otherwise.
4. 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 the corporate power and authority to own, lease, and operate its
properties and to conduct its business as described in the Prospectus.
<PAGE>
Board of Directors
First Place Financial Corp.
September __, 1998
Page 5
5. No approval of any Delaware governmental agency, bureau,
commission, department, or other organization is required as a condition to the
establishment of the Foundation and the issuance and sale of the Foundation
Shares to the Foundation as described in the Prospectus pursuant to the Gift
Instrument.
6. The Foundation Shares have been duly and validly authorized for
issuance and sale, and when issued and delivered by the Company in accordance
with the terms set forth in the Prospectus and as provided in the Gift
Instrument, against payment of the aggregate par value therefor, and when a
certificate representing such shares in the form provided to us is duly and
properly issued, such shares will be duly and validly issued, fully paid, and
nonassessable, and no personal liability for the payment of the Company's debts
will arise solely by virtue of the ownership thereof.
7. The issuance and sale of the Foundation Shares will not be in
violation of or subject to any preemptive rights or other similar rights arising
by operation of Delaware law, the Company Certificate of Incorporation, or, to
the best of our knowledge, based solely on our review of the Prospectus,
otherwise.
The opinions contained herein are subject to the following
assumptions, qualifications, limitations, and exceptions:
A. The opinions expressed herein are limited in all respects to
matters of Delaware corporate law. We have not considered, and have not
expressed any opinion with regard to, or as to the effect of, the Delaware
Securities Act (6 Del. C. (S)7301 et seq.) or the
---- -- -- ----
<PAGE>
Board of Directors
First Place Financial Corp.
September __, 1998
Page 6
requirements of any other law, rule, or regulation, state or federal, applicable
to the Bank, the Company, the Foundation, the Offering, the Conversion, or the
issuance of the Foundation Shares, including, without limitation, those
applicable to federally insured or state chartered savings banks or their
holding companies.
B. We have been advised by the Company that it will loan to the
Bank's Employee Stock Ownership Plan (the "ESOP") the funds the ESOP will use to
purchase the shares of Common Stock for which the ESOP has subscribed as part of
the Offering. In this regard, we have assumed, for purposes of rendering the
opinion set forth in paragraph 2 above, that:
(i) the Board has duly authorized the loan to the ESOP (the "Loan");
(ii) the Loan serves a valid corporate purpose;
(iii) the Loan will be made at an interest rate and on other terms
that are fair to the Company;
(iv) the terms of the Loan will be set forth in customary and
appropriate documents including, without limitation, a promissory note
representing the indebtedness of the ESOP to the Company as a result of the
Loan; and
(v) the closing for the Loan and for the sale of Common Stock to the
ESOP will be held after the closing for the sale of the other shares of Common
Stock sold in the Offering and the receipt by the Company of the proceeds
thereof.
<PAGE>
Board of Directors
First Place Financial Corp.
September __, 1998
Page 7
C. The following provisions of the Company Certificate of
Incorporation may not be given effect by a court applying Delaware law, but in
our opinion the failure to give effect to such provisions will not affect the
duly authorized, validly issued, fully paid, and nonassessable status of the
Common Stock:
(i) (a) Subsections C.3 and C.6 of Article FOURTH, which grant the
Board the authority to construe and apply certain provisions of Article FOURTH;
(b) Section D of Article EIGHTH, which grants a majority of Disinterested
Directors (as defined in Article EIGHTH, Subsection C.6) the authority to
construe and apply certain provisions of Article EIGHTH; and (c) the provision
of Section C.7 of Article EIGHTH, which empowers the Board to determine the Fair
Market Value of property offered or paid for the Company's stock by an
Interested Stockholder; in each case with respect to (a) through (c) above, to
the extent, if any, that a court applying Delaware law were to impose equitable
limitations upon the authority of the directors of the Company under such
provisions.
(ii) Subsection C.4 of Article FOURTH, to the extent such provision
obligates any person to provide to the Board the information that such
subsection authorizes the Board to demand, to the extent, if any, that a court
applying Delaware law were to impose equitable limitations upon the authority of
the directors of the Company under such provision.
(iii) Article NINTH, which purports to permit the Board to consider
the effect of any offer to acquire the Company on constituencies other than
stockholders in evaluating any such offer.
<PAGE>
Board of Directors
First Place Financial Corp.
September __, 1998
Page 8
This opinion is rendered solely for you benefit in connection with the
matters set forth herein and, without our prior written consent, may not be
furnished to, or quoted or relied upon by, any other person or entity for any
purpose. Patton Boggs, L.L.P. may rely on this opinion in connection with the
opinions it is delivering on the date hereof with respect to the matters set
forth herein.
Very truly yours,
340145v1
<PAGE>
EXHIBIT 8.0 DRAFT OPINION OF PATTON BOGGS LLP RE: FEDERAL TAX MATTERS
<PAGE>
Exhibit 8.0
(202) 457-6000
DRAFT
September 8, 1998
Board of Directors
First Federal Savings and Loan Association of Warren
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 Corp., pursuant to a Plan of Conversion, and the Sale of
First Place Financial Corp. Common Stock
Dear 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 capital 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
<PAGE>
Board of Directors
September 8, 1998
Page 2
considered necessary or 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, hereinafter 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 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 its capital stock to
the Holding Company. Holding Company will issue and sell its common stock ("the
Conversion Stock") in accordance with the Plan of Conversion. 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 Association
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
<PAGE>
Board of Directors
September 8, 1998
Page 3
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 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 any holders of the
Association's capital 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 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 Common Stock of the Holding
Company an amount up to 7.7% of the number of shares of Common 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.
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 Common Stock contributed
to it by the Holding Company.
<PAGE>
Board of Directors
September 8, 1998
Page 4
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 received
by Eligible Account Holders and Supplemental Eligible Account Holders under 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 surrendered in exchange therefor.
(b) If an individual's total deposits in the Association equal or exceed
$50 as of the Eligibility Record Date or Supplemental Eligibility Record Date,
then no amount of that individual's total deposits will be excluded from
participating in the liquidation account. The fair market value of the deposit
accounts of the Association which have a balance of less than $100 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 interest
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.
(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 and the Converted Association have no current plan
or intention to redeem or otherwise acquire any of the Conversion Stock issued
in the Conversion transaction.
(g) Immediately after the Conversion, the Converted Association will
possess the same assets and liabilities of the Association immediately prior to
the Conversion,
<PAGE>
Board of Directors
September 8, 1998
Page 5
plus the net proceeds from the sale of the Converted Association's common stock
to the Holding Company and any liability associated with indebtedness incurred
by the Employee Plans in the acquisition of Common Stock by the Employee Plans.
(h) The Association, Converted Association and the Holding Company are
corporations within the meaning of section 7701(a)(3) of the Code.
(i) None of the shares of the Conversion Stock to be purchased by the
depositor-employees of the Association in the Conversion will be issued or
acquired at a discount. However, shares may be given to certain Directors and
employees as incentive compensation through the Employee Plans. Compensation to
be paid to such Directors and depositor-employees will be commensurate with
amounts paid to third parties bargaining at arm's length for similar services.
(j) The fair market value of the assets of the Association, which will be
transferred to 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 transferred assets are
subject. Association has not incurred any liabilities other than in the
ordinary course of business.
(k) 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.
(l) 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.
(m) 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.
(n) 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 Holding Company Common
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.
<PAGE>
Board of Directors
September 8, 1998
Page 6
OPINION
Based solely on the foregoing representations and information and assuming
the Plan of 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 capital
stock or by the Holding Company upon the receipt of money from the sale of its
Common 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 that you have 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
<PAGE>
Board of Directors
September 8, 1998
Page 7
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, as well as all the information and representations
referred to herein. 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 Bank 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 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
<PAGE>
Board of Directors
September 8, 1998
Page 8
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,
PATTON BOGGS LLP
<PAGE>
EXHIBIT 8.1 OPINION OF CROWE, CHIZEK AND COMPANY LLP: RE STATE TAX MATTERS
<PAGE>
[LETTERHEAD OF CROWE CHIZEK]
September 1, 1998
Board of Directors
First Federal Savings and Loan Association of Warren
185 East Market Street
Warren, Ohio 44482
RE: Ohio business franchise tax and Ohio personal income tax opinion relating to
the proposed Conversion of First Federal Savings and Loan Association of
Warren, a federally-chartered mutual savings and loan association, to a
federally-chartered stock savings and loan association and the concurrent
acquisition of 100% of the newly-issued stock of such corporation by First
Place Financial Corp., a newly-formed Delaware holding company.
Ladies and Gentlemen:
Pursuant to your request, our opinion concerning certain Ohio business franchise
tax and Ohio personal income tax consequences of the proposed Conversion of
First Federal Savings and Loan Association of Warren, a federally-chartered
mutual savings and loan association ("Mutual") to a federally-chartered stock
savings and loan association ("Stock Institution") and the concurrent
acquisition of 100% of the newly-issued stock of such corporation by First Place
Financial Corp., a newly-formed Delaware corporation operating exclusively
within the State of Ohio ("Holding Company"), is set forth below.
STATEMENT OF FACTS
The facts and circumstances surrounding the proposed reorganization are quite
detailed and are described at length in the Plan of Conversion dated June 15,
1998. A summary of the proposed Conversion and the related assumptions regarding
such Conversion are documented in the federal tax opinion letter dated
September, 1998, as provided by Patton Boggs, L.L.P.
Our opinion is based solely upon our understanding that, pursuant to the Plan of
Conversion, Mutual will, through a series of transactions, convert from a
federally-chartered mutual savings and loan association to a federally-chartered
stock savings and loan association and issue 100% of its newly-issued stock to
Holding Company.
In addition, we have assumed, based solely on the opinion of Patton Boggs,
L.L.P., as presented in their letter dated September, 1998, for purposes of this
opinion, that the following federal tax consequences will result:
-------
<PAGE>
Board of Directors
September 1, 1998
Page 2
1) The Conversion of Mutual to Stock Institution will constitute a tax-free
reorganization under the Internal Revenue Code of 1986 as amended.
2) No gain or loss will be recognized for federal income tax purposes by
Mutual, Stock Institution or Holding Company as a result of the Conversion.
3) Taxable gain will be recognized for federal income tax purposes by the
depositors of Mutual and other recipients of stock subscription rights only
to the extent of the value, if any, of the subscription rights received.
OPINION
Based upon our analysis of applicable Ohio tax law and administrative rulings,
we have made the following determinations:
A) The income tax liability of a corporation, other than a bank or thrift,
conducting business and owning property within Ohio, is calculated by
reference to the separate federal taxable income of that corporation, with
certain modifications (Section 5733.04(I) of the Ohio Revised Code).
B) Banks and thrifts are not subject to the Ohio income tax (Section 5733.06(D)
of the Ohio Revised Code).
C) The net worth tax liability of any corporation, including banks and thrifts,
conducting business and owning property within Ohio, is determined by
reference to the balance sheet of the corporation as of the end of its
fiscal year or, under certain circumstances, as of December 31 of the year
preceding the first year such corporation is required to file an Ohio
franchise tax return (Sections 5733.05(A) and 5733.06(D) of the Ohio
Revised Code and Tax Commissioner's Rule 5703-5-03)
D) The income tax liability of an individual subject to the Ohio income tax on
personal income is calculated by reference to the federal Adjusted Gross
Income of that individual, with certain modifications (Section 5747.02 of
the Ohio Revised Code).
Based upon the above facts and the opinions provided in the federal tax opinion
letter dated September, 1998, as provided by Patton Boggs, L.L.P., we are of the
opinion that, if the Conversion is effected in accordance with the Plan of
Conversion, for Ohio tax purposes:
1) No gain or loss will be recognized by Mutual upon its Conversion from a
federally-chartered mutual savings and loan association to a federally-
chartered stock savings and loan association because such conversion will
have no effect on the federal taxable income of Mutual and because Mutual
is exempt from the Ohio income tax.
2) No gain or loss will be recognized by Holding Company or Stock Institution
upon the acquisition of the stock of Stock Institution by Holding Company
because such
<PAGE>
Board of Directors
September 1, 1998
Page 3
acquisition will have no effect on the federal taxable income of
either corporation.
3) No gain or loss will be recognized by Holding Company upon the receipt of
property in exchange for its newly issued shares of stock because such
receipt will have no effect on the federal taxable income of Holding
Company.
4) Taxable gain will be recognized by depositors and other recipients of
subscription rights only to the extent that such gain is recognized in the
depositors' and other recipients' federal Adjusted Gross Income.
Our opinion is based upon legal authorities currently in effect, which
authorities are subject to modification or challenge at any time and perhaps
with retroactive effect. Further, no opinion is expressed as to the tax
treatment of the transaction under the provisions of any of the other sections
of the Ohio Revised Code which may also be applicable thereto, or as to the tax
treatments of any conditions exiting at the time of, or effects resulting from,
the transaction which are not specifically covered by the opinions set forth
above.
Respectfully submitted,
/s/ Crowe, Chizek and Company LLP
Crowe, Chizek and Company LLP
<PAGE>
EXHIBIT 10.1 FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN EMPLOYEE
STOCK OWNERSHIP PLAN
<PAGE>
FORM OF
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF WARREN
EMPLOYEE STOCK OWNERSHIP PLAN
EFFECTIVE___________, 199__
<PAGE>
FORM OF
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF WARREN
EMPLOYEE STOCK OWNERSHIP PLAN
CERTIFICATION
I, Steven R. Lewis, President and Chief Executive Officer of First Federal
Savings and Loan Association of Warren, a federally chartered savings and loan
association (the "Association"), hereby certify that the attached First Federal
Savings and Loan Association of Warren Employee Stock Ownership Plan, effective
________, 199__ was adopted at a duly held meeting of the Board of Directors of
the Association on [DATE].
ATTEST: FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF WARREN
________________________ By: _____________________________________
Mary Ann Roberts Steven R. Lewis
Secretary President and Chief Executive Officer
DATE:_____________________________
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C O N T E N T S
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Section 1. Plan Identity...................................................... 1
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1.1 Name.......................................................... 1
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1.2 Purpose....................................................... 1
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1.3 Effective Date................................................ 1
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1.4 Fiscal Period................................................. 1
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1.5 Single Plan for All Employers................................. 1
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1.6 Interpretation of Provisions.................................. 1
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Section 2. Definitions........................................................ 1
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Section 3. Eligibility and Participation...................................... 9
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3.1 Initial Eligibility........................................... 9
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3.2 Terminated Employees.......................................... 9
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3.3 Certain Employees Ineligible.................................. 9
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3.4 Participation and Reparticipation............................. 9
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Section 4. Employer Contributions and Credits................................. 10
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4.1 Discretionary Contributions................................... 10
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4.2 Contributions for Stock Obligations........................... 10
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4.3 Definitions Related to Contributions.......................... 11
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4.4 Conditions as to Contributions................................ 11
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Section 5. Limitations on Contributions and Allocations....................... 12
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5.1 Limitation on Annual Additions................................ 12
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5.2 Coordinated Limitation With Other Plans....................... 12
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5.3 Effect of Limitations......................................... 13
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5.4 Limitations as to Certain Section 1042 Transactions........... 14
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Section 6. Trust Fund and Its Investment...................................... 16
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6.1 Creation of Trust Fund........................................ 16
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6.2 Stock Fund and Investment Fund................................ 16
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6.3 Acquisition of Stock.......................................... 17
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6.4 Participants' Option to Diversify............................. 17
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Section 7. Voting Rights and Dividends on Stock............................... 18
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7.1 Voting and Tendering of Stock................................. 18
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7.2 Dividends on Stock............................................ 18
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Section 8. Adjustments to Accounts............................................ 19
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8.1 Adjustments for Transactions.................................. 19
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8.2 Valuation of Investment Fund.................................. 19
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8.3 Adjustments for Investment Experience......................... 19
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8.4 Adjustments for Capital Changes............................... 19
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9.1 Deferred Vesting in Accounts.................................. 20
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9.2 Computation of Vesting Years.................................. 20
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9.3 Full Vesting Upon Certain Events.............................. 21
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9.4 Full Vesting Upon Plan Termination............................ 22
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9.5 Forfeiture, Repayment, and Restoration........................ 22
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9.6 Accounting for Forfeitures.................................... 22
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9.7 Vesting and Nonforfeitability................................. 22
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Section 10. Payment of Benefits................................................ 23
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10.1 Benefits for Participants.................................... 23
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10.2 Benefits on a Participant's Death............................ 23
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10.3 Marital Status............................................... 24
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10.4 Delay in Benefit Determination............................... 24
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10.5 Accounting for Benefit Payments.............................. 24
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10.6 Options to Receive and Sell Stock............................ 24
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10.7 Restrictions on Disposition of Stock......................... 25
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10.8 Direct Transfer of Eligible Plan Distributions............... 26
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Section 11. Rules Governing Benefit Claims and Review of Appeals............... 26
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11.1 Claim for Benefits........................................... 26
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11.2 Notification by Committee.................................... 26
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11.3 Claims Review Procedure...................................... 27
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Section 12. The Committee and Its Functions.................................... 27
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12.1 Authority of Committee....................................... 27
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12.2 Identity of Committee........................................ 28
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12.3 Duties of Committee.......................................... 28
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12.4 Valuation of Stock........................................... 28
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12.5 Compliance with ERISA........................................ 29
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12.6 Action by Committee.......................................... 29
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12.7 Execution of Documents....................................... 29
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12.8 Adoption of Rules............................................ 29
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12.9 Responsibilities to Participants............................. 29
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12.10 Alternative Payees in Event of Incapacity.................... 29
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12.11 Indemnification by Employers................................. 30
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12.12 Nonparticipation by Interested Member........................ 30
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Section 13. Adoption, Amendment, or Termination of the Plan.................... 30
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13.1 Adoption of Plan by Other Employers.......................... 30
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13.2 Adoption of Plan by Successor................................ 30
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13.3 Plan Adoption Subject to Qualification....................... 30
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13.4 Right to Amend or Terminate.................................. 31
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Section 14. Miscellaneous Provisions........................................... 31
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14.1 Plan Creates No Employment Rights............................ 31
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14.2 Nonassignability of Benefits................................. 31
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14.3 Limit of Employer Liability.................................. 32
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14.4 Treatment of Expenses........................................ 32
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14.5 Number and Gender............................................ 32
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14.6 Nondiversion of Assets....................................... 32
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14.7 Separability of Provisions................................... 32
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14.8 Service of Process........................................... 32
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14.9 Governing State Law.......................................... 32
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14.10 Special Rules for Persons Subject to Section 16(b)
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Requirements................................................. 32
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Section 15. Top-Heavy Provisions............................................... 33
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15.1 Determination of Top-Heavy Status............................ 33
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15.2 Minimum Contributions........................................ 34
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15.3 Minimum Vesting.............................................. 35
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FORM OF
FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF WARREN
EMPLOYEE STOCK OWNERSHIP PLAN
Section 1. Plan Identity.
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1.1 Name. The name of this Plan is "First Federal Savings and Loan
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Association of Warren Employee Stock Ownership Plan."
1.2 Purpose. The purpose of this Plan is to describe the terms and
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conditions under which contributions made pursuant to the Plan will be credited
and paid to the Participants and their Beneficiaries.
1.3 Effective Date. The Effective Date of this Plan is ________, 199__.
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1.4 Fiscal Period. This Plan shall be operated on the basis of a January
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1-December 31 fiscal year for the purposes of keeping the Plan's books and
records and distributing or filing any reports or returns required by law.
1.5 Single Plan for All Employers. This Plan shall be treated as a single
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plan with respect to all participating Employers for the purpose of crediting
contributions and forfeitures and distributing benefits, determining whether
there has been any termination of Service, and applying the limitations set
forth in Section 5.
1.6 Interpretation of Provisions. The Employers intend this Plan and the
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Trust to be a qualified stock bonus plan under Section 401(a) of the Code and an
employee stock ownership plan within the meaning of Section 407(d)(6) of ERISA
and Section 4975(e)(7) of the Code. The Plan is intended to have its assets
invested primarily in qualifying employer securities of one or more Employers
within the meaning of Section 407(d)(5) of ERISA and Section 4975 (e)(8) of the
Code, and to satisfy any requirement under ERISA or the Code applicable to such
a plan. Accordingly, the Plan and Trust Agreement shall be interpreted and
applied in a manner consistent with this intent and shall be administered at all
times and in all respects in a nondiscriminatory manner.
Section 2. Definitions. The following capitalized words and phrases shall
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have the meanings specified when used in this Plan and in the Trust Agreement,
unless the context clearly indicates otherwise:
"Account" means a Participant's interest in the assets accumulated under
this Plan, as expressed in terms of a separate account balance which is
periodically adjusted to reflect his Employer's contributions, the Plan's
investment experience, and distributions and forfeitures.
"Active Participant" means any Employee who has satisfied the eligibility
requirements of Section 3 and who qualifies as an Active Participant for a
particular Plan Year under Section 4.3.
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"Association" means First Federal Savings and Loan Association of Warren,
and any entity which succeeds to the business of the Association and adopts this
Plan as its own pursuant to Section 13.2.
"Beneficiary" means the person or persons who are designated by a
Participant to receive benefits payable under the Plan on the Participant's
death. In the absence of any designation, or if all the designated
Beneficiaries shall die before the Participant dies or shall die before all
benefits have been paid, the Participant's Beneficiary shall be his surviving
Spouse, if any, or his estate if he is not survived by a Spouse. The Committee
may rely upon the advice of the Participant's executor or administrator as to
the identity of the Participant's Spouse.
"Break in Service" means any five or more consecutive 12-month periods
beginning January 1 in which an Employee has 500 or fewer Hours of Service per
period. Solely for this purpose, an Employee shall be considered employed for
his normal hours of paid employment during a Recognized Absence, unless he does
not resume his Service at the end of the Recognized Absence. Further, if an
Employee is absent for any period (i) by reason of the Employee's pregnancy,
(ii) by reason of the birth of the Employee's child, (iii) by reason of the
placement of a child with the Employee in connection with the Employee's
adoption of the child, or (iv) for purposes of caring for such child for a
period beginning immediately after such birth or placement, the Employee shall
be credited with the Hours of Service which would normally have been credited
but for such absence, up to a maximum of 501 Hours of Service, in the first 12-
month period which would otherwise be counted toward a Break in Service.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the committee responsible for the administration of this
Plan in accordance with Section 12.
"Disability" means a condition which renders the Participant totally and
permanently disabled due to sickness or injury, such disability is likely to be
continuous and permanent, and such disability renders the Participant unable to
continue a like gainful occupation. In any event, the Committee's good faith
decision as to whether a Participant's Service has been terminated by Disability
shall be final and conclusive.
"Early Retirement" means retirement on or after a Participant's (i)
attainment of age 60 or the total of a Participant's age, when added to the
Participant's years of service recognized for purposes of vested service under
the Association's defined benefit retirement plan, equals or exceeds 75 years,
and (ii) with regard to Participant's who were employed by the Employer on or
after September 11, 1972, the Participant's completion of ten consecutive years
of vesting service under the Association's defined benefit retirement plan.
"Effective Date" means _____________, 199_.
2
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"Employee" means any individual who is or has been employed by the
Association. "Employee" also means an individual employed by a leasing
organization who, pursuant to an agreement between an Employer and the leasing
organization, has performed services for the Employer and any related persons
(within the meaning of Section 414(n)(6) of the Code) on a substantially full-
time basis for more than one year, if such services are of a type historically
performed by employees in the Employer's business field. However, such a
"leased employee" shall not be considered an Employee if (i) he participates in
a money purchase pension plan sponsored by the leasing organization which
provides for immediate participation, immediate full vesting, and an annual
contribution of at least 10 percent of the Employee's Total Compensation, and
(ii) leased employees do not constitute more than 20 percent of the Employer's
total work force (including leased employees, but excluding Highly Paid
Employees and any other employees who have not performed services for the
Employer on a substantially full-time basis for at least one year).
"Employer" means the Association or any affiliate within the purview of
Sections 414(b), (c) or (m) and 415(h) of the Code, any other corporation,
partnership, or proprietorship which adopts this Plan with the Association's
consent pursuant to Section 13.1, and any entity which succeeds to the business
of any Employer and adopts the Plan pursuant to Section 13.2.
"Entry Date" means January 1 and July 1.
"ERISA" means the Employee Retirement Income Security Act of 1974 (P.L. 93-
406, as amended).
"Highly Paid Employee" means an Employee who: (A) owned more than five
percent of the outstanding equity interest or the outstanding voting interest in
any Employer during the year or the preceding year, or (B) for the preceding
year (i) had Total Compensation exceeding $80,000 (as adjusted pursuant to
Section 415(d) of the Code), and, (ii) if the Employer elects with respect to a
preceding year, was among the most highly compensated one-fifth of all Employees
for such preceding year. For this purpose:
(a) "Total Compensation" shall include any amount which is excludable
from the Employee's gross income for tax purposes pursuant to Sections 125,
402(e)(3), 402(h)(1)(B), or 403(b) of the Code.
(b) The number of Employees in "the most highly compensated one-fifth
of all Employees" shall be determined by taking into account all
individuals working for all related employer entities described in the
definition of "Service", but excluding any individual who has not completed
six months of Service, who normally works fewer than 17-1/2 hours per week
or in fewer than six months per year, who has not reached age 21, whose
employment is covered by a collective bargaining agreement, or who is a
nonresident alien who receives no earned income from United States sources.
3
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(c) A former Employee shall be treated as a highly compensated
employee if such Employee was a highly paid Employee when such Employee
separated from service, or if such Employee was a highly paid Employee at
any time after attaining age 55.
(d) The determination of who is a highly compensated Employee,
including the determinations of the number and identity of Employees in the
top-paid group and the compensation that is considered, will be made in
accordance with Section 414(q) of the Code and the regulations thereunder.
"Holding Company" means First Place Financial Corp., the holding company of
First Federal Savings and Loan Association of Warren, and any entity which
succeeds to the business of the Holding Company.
"Hours of Service" means hours to be credited to an Employee under the
following rules:
(a) Each hour for which an Employee is paid or is entitled to be paid
for services to an Employer is an Hour of Service.
(b) Each hour for which an Employee is directly or indirectly paid or
is entitled to be paid for a period of vacation, holidays, illness,
disability, lay-off, jury duty, temporary military duty, or leave of
absence is an Hour of Service. However, except as otherwise specifically
provided, no more than 501 Hours of Service shall be credited for any
single continuous period in which an Employee performs no duties. Further,
no Hours of Service shall be credited on account of payments made solely
under a plan maintained to comply with worker's compensation, unemployment
compensation, or disability insurance laws, or to reimburse an Employee for
medical expenses.
(c) Each hour for which back pay (ignoring any mitigation of damages)
is either awarded or agreed to by an Employer is an Hour of Service.
However, no more than 501 Hours of Service shall be credited for any single
continuous period during which an Employee would not have performed any
duties.
(d) Hours of Service shall be credited in any one period only under
one of the foregoing paragraphs (a), (b) and (c); an Employee may not get
double credit for the same period.
(e) If an Employer finds it impractical to count the actual Hours of
Service for any class or group of non-hourly Employees, each Employee in
that class or group shall be credited with 45 Hours of Service for each
weekly pay period in which he has at least one Hour of Service. However,
an Employee shall be credited only for his normal working hours during a
paid absence.
4
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(f) Hours of Service to be credited on account of a payment to an
Employee (including back pay) shall be recorded in the period of Service
for which the payment was made. If the period overlaps two or more Plan
Years, the Hours of Service credit shall be allocated in proportion to the
respective portions of the period included in the several Plan Years.
However, in the case of periods of 31 days or less, the Administrator may
apply a uniform policy of crediting the Hours of Service to either the
first Plan Year or the second.
(g) In all respects an Employee's Hours of Service shall be counted as
required by Section 2530.200b-2(b) and (c) of the Department of Labor's
regulations under Title I of ERISA.
"Investment Fund" means that portion of the Trust Fund consisting of assets
other than Stock.
"Matching Employer Contributions" means contributions made by the Employer
pursuant to Section 4.5 to a Participant's Matching Employer Contributions
Account.
"Normal Retirement Age" means a the later of the Participant's 65th
birthday or the fifth anniversary of the Participant's participation in the
Plan.
"Normal Retirement Date" means the first day of the month coincident with
or next following attainment of Normal Retirement Age.
"Participant" means any Employee who is participating in the Plan, or who
has previously participated in the Plan and still has a balance credited to his
Account.
"Plan" means First Federal Savings and Loan Association of Warren Employee
Stock Ownership Plan, as set forth herein, and as amended from time to time.
"Plan Year" means the 12 consecutive month period commencing January 1 and
ending December 31 of each year.
"Recognized Absence" means a period for which --
(a) an Employer grants an Employee a leave of absence for a limited
period, but only if an Employer grants such leaves on a
nondiscriminatory basis; or
(b) an Employee is temporarily laid off by an Employer because of a
change in business conditions; or
(c) an Employee is on active military duty, but only to the extent
that his employment rights are protected by the Military Selective
Service Act of 1967 (38 U.S.C. sec. 2021).
5
<PAGE>
"Service" means an Employee's period(s) of employment or self-employment
with an Employer, excluding for initial eligibility purposes any period in which
the individual was a nonresident alien and did not receive from an Employer any
earned income which constituted income from sources within the United States.
An Employee's Service shall include any service which constitutes service with a
predecessor employer within the meaning of Section 414(a) of the Code. An
Employee's Service shall also include any service with an entity which is not an
Employer, but only either (i) for a period after 1975 in which the other entity
is a member of a controlled group of corporations or is under common control
with other trades and businesses within the meaning of Sections 414(b) or 414(c)
of the Code, and a member of the controlled group or one of the trades and
businesses is an Employer, or (ii) for a period after 1979 in which the other
entity is a member of an affiliated service group within the meaning of Section
414(m) of the Code, and a member of the affiliated service group is an Employer.
"Spouse" means the individual, if any, to whom a Participant is lawfully
married on the date benefit payments to the Participant are to begin, or on the
date of the Participant's death, if earlier.
"Stock" means shares of the voting common stock or preferred stock meeting
the requirements of Section 409(e)(3) of the Code issued by an Employer or an
affiliated corporation.
"Stock Fund" means that portion of the Trust Fund consisting of Stock.
"Stock Obligation" means an indebtedness arising from any extension of
credit to the Plan or the Trust which was obtained for the purpose of buying
Stock and which satisfies the requirements set forth in Section 6.3.
"Total Compensation" means a Participant's wages, salary, overtime,
bonuses, commissions, and any other amounts received for personal services
rendered while in Service from any Employer or an affiliate (within the purview
of Section 414(b), (c), and (m) of the Code), plus his earned income from any
such entity as defined in Section 401(c)(2) of the Code if he is self-employed.
"Total Compensation" shall include (i) severance payments and amounts paid as a
result of termination, (ii) amounts excludable from gross income under Section
911 of the Code, (iii) amounts described in Sections 104(a)(3), 105(a), and
105(h) of the Code to the extent includable in gross income, (iv) amounts
received from an Employer for moving expenses which are not deductible under
Section 217 of the Code, (v) amounts includable in gross income in the year of,
and on account of, the grant of a nonqualified stock option, (vi) amounts
includable in gross income pursuant to Section 83(b) of the Code, and (vii)
amounts includable in gross income under an unfunded nonqualified plan of
deferred compensation, but shall exclude (viii) Employer contributions to or
amounts received from a funded or qualified plan of deferred compensation, (ix)
Employer contributions to a simplified employee pension account to the extent
deductible under Section 219 of the Code, (x) Employer contributions to a
Section 403(b) annuity contract, and (xi) amounts includable in gross income
pursuant to Section 83(a) of the Code, (xii) amounts includable in gross income
upon the exercise of nonqualified stock option or upon the disposition of stock
acquired under any stock option, and (xiii) any other amounts expended by the
Employer on the Participant's behalf which are excludable from his income or
6
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which receive special tax benefits. A Participant's Total Compensation shall
exclude any compensation in any limitation year in excess of the limit
currently in effect under Section 401(a)(17) of the Code.
"Trust" or "Trust Fund" means the trust fund created under this Plan.
"Trust Agreement" means the agreement between the Association and the
Trustee concerning the Trust Fund. If any assets of the Trust Fund are held in
a co-mingled Trust Fund with assets of other qualified retirement plans, "Trust
Agreement" shall be deemed to include the trust agreement governing that co-
mingled Trust Fund. With respect to the allocation of investment responsibility
for the assets of the Trust Fund, the provisions of Section 2 of the Trust
Agreement are incorporated herein by reference.
"Trustee" means one or more corporate persons and individuals selected from
time to time by the Association to serve as trustee or co-trustees of the Trust
Fund.
"Unallocated Stock Fund" means that portion of the Stock Fund consisting of
the Plan's holding of Stock which has been acquired in exchange for one or more
Stock Obligations and which has not yet been allocated to the Participant's
Accounts in accordance with Section 4.2.
"Valuation Date" means the last day of the Plan Year and each other date as
of which the Committee shall determine the investment experience of the
Investment Fund and adjust the Participants' Accounts accordingly.
"Valuation Period" means the period following a Valuation Date and ending
with the next Valuation Date.
"Vesting Year" means a unit of Service credited to a Participant pursuant
to Section 9.2 for purposes of determining his vested interest in his Account.
Section 3: Eligibility and Participation
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3.1 Initial Eligibility. An Employee shall enter the Plan as of the Entry
--------------------
Date coinciding with or on the next date an Employee completes an eligibility
computation period with the Employer, during which the Employee completes at
least 1,000 Hours of Service for the Employer and attains age 21.
However, if an Employee is not in active Service with an Employer on the
date he would otherwise first enter the Plan, his entry shall be deferred until
the next day he is in Service.
For purposes of this Plan, a Participant's initial eligibility computation
period shall be the twelve consecutive month period beginning with the day a
Participant first completes an Hour of Service. A Participant's subsequent
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eligibility computation periods shall be the Plan Year, commencing with the Plan
Year which includes the first anniversary of the day the Participant first
completed an Hour of Service.
3.2 Terminated Employees. No Employee shall have any interest or rights
---------------------
under this Plan if he is never in active Service with an Employer on or after
the Effective Date.
3.3 Certain Employees Ineligible. No Employee shall be eligible to
-----------------------------
participate in the Plan while he is employed by a division or subsidiary of the
Holding Company, other than the Association, unless such division or subsidiary
has, with the approval of the Association, adopted the Plan for its Employees.
Additionally, no Employee shall participate in the Plan while his Service is an
hourly-paid Employee, or is covered by a collective bargaining agreement between
an Employer and the Employee's collective bargaining representative if (i)
retirement benefits have been the subject of good faith bargaining between the
Employer and the representative and (ii) the collective bargaining agreement
does not provide for the Employee's participation in the Plan. No Employee
shall participate in the Plan while he is actually employed by a leasing
organization rather than an Employer.
3.4 Participation and Reparticipation. Subject to the satisfaction of the
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foregoing requirements, an Employee shall participate in the Plan during each
period of his Service from the date on which he first becomes eligible until his
termination. For this purpose, an Employee returning within five years of his
or her termination who previously satisfied the initial eligibility requirements
shall re-enter the Plan as of the date of his return to Service with an
Employer.
Section 4. Employer Contributions and Credits.
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4.1 Discretionary Contributions. Each Employer shall from time to time
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contribute, with respect to a Plan Year, such amounts as it may determine from
time to time. An Employer shall have no obligation to contribute any amount
under this Plan except as so determined in its sole discretion. The Employers'
contributions and available forfeitures for a Plan Year shall be credited as of
the last day of the year to the Accounts of the Active Participants in
proportion to their amounts of Cash Compensation while a Participant.
4.2 Contributions for Stock Obligations. If the Trustee, upon
------------------------------------
instructions from the Committee, incurs any Stock Obligation upon the purchase
of Stock, the Employer shall, subject to the provisions of the Association's
plan of conversion and any regulatory prohibitions, contribute for each Plan
Year an amount sufficient to cover all payments of principal and interest as
they come due under the terms of the Stock Obligation. If there is more than
one Stock Obligation, the Employers shall designate the one to which any
contribution is to be applied. The Employer's obligation to make contributions
under this Section 4.2 shall be reduced to the extent of any investment earnings
realized on such contributions and any dividends paid by the Employers on Stock
held in the Unallocated Stock Account, which earnings and dividends shall be
applied to the Stock Obligation related to that Stock.
8
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In each Plan Year in which Employer contributions, earnings on
contributions, or dividends on unallocated Stock are used as payments under a
Stock Obligation, a certain number of shares of the Stock acquired with that
Stock Obligation which is then held in the Unallocated Stock Fund shall be
released for allocation among the Participants. The number of shares released
shall bear the same ratio to the total number of those shares then held in the
Unallocated Stock Fund (prior to the release) as (i) the principal and interest
payments made on the Stock Obligation in the current Plan Year bears to (ii) the
sum of (i) above, and the remaining principal and interest payments required (or
projected to be required on the basis of the interest rate in effect at the end
of the Plan Year) to satisfy the Stock Obligation.
At the direction of the Committee, the current and projected payments of
interest under a Stock Obligation may be ignored in calculating the number of
shares to be released in each year if (i) the Stock Obligation provides for
annual payments of principal and interest at a cumulative rate that is not less
rapid at any time than level annual payments of such amounts for 10 years, (ii)
the interest included in any payment is ignored only to the extent that it would
be determined to be interest under standard loan amortization tables, and (iii)
the term of the Stock Obligation, by reason of renewal, extension, or
refinancing, has not exceeded 10 years from the original acquisition of the
Stock.
For these purposes, each Stock Obligation, the Stock purchased with it, and
any dividends on such Stock, shall be considered separately. The Stock released
from the Unallocated Stock Fund in any Plan Year shall be credited as of the
last day of the year to the Accounts of the Active Participants in proportion to
their amounts of Cash Compensation earned while a Participant as follows:
(i) first, subject to the limitations of Section 5.5 hereof, the
number of shares of Stock with a fair market value (valued as of
the time the Matching Employer Contributions are accrued under
the First Federal Savings and Loan Association of Warren 401(k)
Savings Plan equal to the Matching Employer Contribution made on
behalf of an Active Participant shall be credited to the
Participant's Matching Employer Contributions Account; and then
(ii) subject to the limitations of Section 5.5. hereof, the number of
shares of Stock that bears the same ratio as the Active
Participant's Cash Compensation bears to the aggregate Cash
Compensation of all Active Participants for the Plan Year shall
be credited to such Participant's Account.
4.3 Definitions Related to Contributions. For the purposes of this Plan,
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the following terms have the meanings specified:
"Active Participant" means a Participant who has satisfied the eligibility
requirements under Section 3 However, a Participant shall not qualify as an
9
<PAGE>
Active Participant unless (i) he is in active Service with an Employer as of the
last day of the Plan Year, or (ii) he is on a Recognized Absence as of that
date, or (iii) his Service terminated during the Plan Year by reason of Normal
Retirement, Early Retirement, Disability or death.
"Cash Compensation" means the Participant's base compensation reportable on
Form W-2. A Participant's Cash Compensation shall exclude any compensation in
excess of the limit currently in effect under Section 401(a)(17) of the Code.
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any provision of the Plan to the contrary, the annual
compensation of each employee taken in to account under the Plan shall not
exceed the Omnibus Budget Reconciliation Act of 1993 ("OBRA 1993") annual
compensation limit. The OBRA 1993 annual compensation limit is $150,000, as
adjusted by the Commissioner of the Internal Revenue Service for increases in
the cost-of-living in accordance with Section 401(a)(17)(B) of the Code. The
cost-of-living adjustment in effect for a calendar year applies to any period,
not exceeding 12 months, over which compensation is determined (the
"Determination Period") beginning in such calendar year. If a Determination
Period consists of fewer than 12 months, the OBRA 1993 annual compensation
limitation will be multiplied by a fraction, the numerator of which is the
number of months in the Determination Period, and the denominator of which is
12.
4.4 Conditions as to Contributions. Employers' contributions shall in any
-------------------------------
event be subject to the limitation set forth in Section 5. Contributions may be
made in the form of cash, or securities and other property to the extent
permissible under ERISA, including Stock, and shall be held by the Trustee in
accordance with the Trust Agreement. In addition to the provisions of Section
13.3 for the return of an Employer's contributions in connection with a failure
of the Plan to qualify initially under the Code, any amount contributed by an
Employer due to a good faith mistake of fact, or based upon a good faith but
erroneous determination of its deductibility under Section 404 of the Code,
shall be returned to the Employer within one year after the date on which the
contribution was originally made, or within one year after its nondeductibility
has been finally determined. However, the amount to be returned shall be
reduced to take account of any adverse investment experience within the Trust
Fund in order that the balance credited to each Participant's Account is not
less that it would have been if the contribution had never been made.
4.5 Matching Employer Contributions. For each Plan Year commencing with
--------------------------------
the ______ Plan Year, the Employer, in its sole discretion, may make a
contribution equal to a percentage of the Employee Basic Contributions made for
the Plan Year on behalf of each Participant under the terms of the First Federal
Savings and Loan Association of Warren 401(k) Savings Plan.
Section 5. Limitations on Contributions and Allocations.
---------------------------------------------
5.1 Limitation on Annual Additions. Notwithstanding the provisions of
-------------------------------
Section 4, the annual addition to a Participant's Accounts under this and
any other defined contribution plans maintained by the Employers or an
affiliate (within the purview of Sections 414(b), (c), and (m) and Section
415(h) of the Code, which affiliate shall be deemed an Employer for this
purpose) shall not exceed for any limitation year an amount equal to the
lesser of --
10
<PAGE>
5.1-1 $30,000, or the one-fourth of the dollar limitation currently
in effect under Section 415(b)(1)(A) of the Code; or
5.1-2 25 percent of the Participant's Total Compensation for such
limitation year.
For purposes of this Section 5.1 and the following Section 5.2, the "annual
addition" to a Participant's Accounts means the sum of (i) the Employer
contributions and Employee forfeitures credited to a Participant's Accounts with
respect to a limitation year, plus (ii) the Participant's total voluntary
contributions for that year. The $30,000 and Section 415(b)(1)(A) limitations
referred to shall, for each limitation year, be automatically adjusted to the
new dollar limitations determined by the Commissioner of Internal Revenue for
the calendar year beginning in that limitation year. Notwithstanding the
foregoing, if the special limitations on annual additions described in Section
415(c)(6) of the Code applies, the limitations described in this section shall
be adjusted accordingly. A "limitation year" means each 12 consecutive month
period beginning January 1.
5.2 Coordinated Limitation With Other Plans. For Plan Years commencing
----------------------------------------
prior to December 31, 1999, aside from the limitation prescribed by Section 5.1
with respect to the annual addition to a Participant's Accounts for any single
limitation year, if a Participant has ever participated in one or more defined
benefit plans maintained by an Employer or an affiliate, then the benefits
provided under the defined benefit plan on his account shall be limited on a
cumulative basis so that the sum of his defined contribution plan fraction and
his defined benefit plan fraction does not exceed one. For this purpose:
5.2-1 A Participant's defined contribution plan fraction with respect
to a Plan Year shall be a fraction, (i) the numerator of which is the sum
of the annual additions to his accounts under all defined contribution
plans (whether or not terminated) maintained by the Employer for the
current year and all prior limitation years (including annual additions of
the Participant's nondeductible employee contributions to all defined
benefit plans, whether or not terminated, maintained by an Employer, and
the annual additions attributable to all welfare benefit plans, individual
medical accounts, and simplified employee pensions maintained by the
Employer), and (ii) the denominator of which is the sum of the lesser of
the following amounts -A- and -B- determined for the current limitation
year and each prior limitation year of Service with an Employer: -A- is
1.25 times the dollar limitation determined under Section 415(c)(1)(A) of
the Code, or 1.0 times such dollar limitation if the Plan is top-heavy, and
-B- is 35 percent of the Participant's Total Compensation for such year.
If the Employee was a Participant as of the end of the first limitation
year beginning after December 31, 1986 in one or more defined contribution
plans maintained by an Employer which plan(s) were in existence on May 6,
1986, and if the sum of this fraction and the defined benefit fraction
(described below) would otherwise exceed 1.0 under the terms of this Plan,
the numerator of this fraction will be adjusted. To affect this
adjustment, an amount equal to the product of the excess of the sum of the
fractions over 1.0, multiplied by the denominator of this fraction shall be
11
<PAGE>
permanently subtracted from the numerator of this fraction. This
adjustment shall be calculated using the fractions as they would be
computed as of the end of the last limitation year beginning before January
1, 1987, and disregarding any changes in the terms and conditions of the
Plan made after May 5, 1986, but using the limitation applicable under
Section 415 of the Code for the first limitation year beginning on or after
January 1, 1987.
5.2-2 A Participant's defined benefit plan fraction with respect to a
limitation year shall be a fraction, (i) the numerator of which is his
projected annual benefit payable at normal retirement under the Employers'
defined benefit plans, and (ii) the denominator of which is the lesser of
(a) 1.25 times $90,000, or 1.0 times such dollar limitation if the Plan is
top-heavy, and (b) 1.4 times the Participant's average Total Compensation
during his highest-paid three consecutive limitation years.
Notwithstanding the preceding, for Plan Years commencing after December 31,
1999, this Section 5.2 shall no longer be applicable.
5.3 Effect of Limitations. The Committee shall take whatever action may
----------------------
be necessary from time to time to assure compliance with the limitations set
forth in Sections 5.1 and 5.2. Specifically, the Committee shall see that each
Employer restrict its contributions for any Plan Year to an amount which, taking
into account the amount of available forfeitures, may be completely allocated to
the Participants consistent with those limitations. Where the limitations would
otherwise be exceeded by any Participant, further allocations to the Participant
shall be curtailed to the extent necessary to satisfy the limitations. Where an
excessive amount is contributed on account of a mistake as to one or more
Participants' compensation, or there is an amount of forfeitures which may not
be credited in the Plan Year in which it becomes available, the amount shall be
held in a suspense account to be allocated in lieu of any Employer contributions
in future years until it is eliminated, and to be returned to the Employer if it
cannot be credited consistent with these limitations before the termination of
the Plan.
5.4 Limitations as to Certain Section 1042 Transactions. Aside from the
----------------------------------------------------
limitations set forth in Section 5.1 and 5.2, if the Plan acquires any Stock in
a transaction as to which a selling shareholder or the estate of a deceased
shareholder is claiming the benefit of Section 1042 of the Code, the Committee
shall see that none of such Stock, and no other assets in lieu of such Stock,
are allocated to the Accounts of certain Participants in order to comply with
Section 409(n) of the Code.
This restriction shall apply at all times to a Participant who owns (taking
into account the attribution rules under Section 318(a) of the Code, without
regard to the exception for employee plan trusts in Section 318(a)(2)(B)(i) more
than 25 percent of any class of stock of a corporation which issued the Stock
acquired by the Plan, or another corporation within the same controlled group,
as defined in Section 409(l)(4) of the Code (any such class of stock hereafter
called a "Related Class"). For this purpose, a Participant who owns more than 25
percent of any Related Class at any time within the one year preceding the
Plan's purchase of the Stock shall be subject to the restriction as to all
12
<PAGE>
allocations of the Stock, but any other Participant shall be subject to the
restriction only as to allocations which occur at a time when he owns more than
25 percent of any Related Class.
Further, this restriction shall apply to the selling shareholder claiming
the benefit of Section 1042 and any other Participant who is related to such a
shareholder within the meaning of Section 267(b) of the Code, during the period
beginning on the date on which the Plan purchases the Stock and ending 10 years
after the later of (i) the date of such purchase, and (ii) the date of the
allocation under Section 4.2 attributable to the final payment on whatever Stock
Obligations were incurred with the purchase.
This restriction shall not apply to any Participant who is a lineal
descendant of a selling shareholder if the aggregate amounts allocated under the
Plan for the benefit of all such descendants do not exceed five percent of the
Stock acquired from the shareholder.
5.5 Limitations as to Certain Participants. Aside from the limitations
---------------------------------------
set forth in Section 5.1 and 5.2, in no event shall more than one third of the
Employer contributions to the Plan (including Matching Employer Contributions)
be allocated to the Accounts of highly compensated Participants (within the
meaning of Section 414(q) of the Code). The Committee shall take whatever
action may be necessary from time to time to assure compliance with the
limitations set forth in this Section 5.5. Specifically, the Committee shall,
beginning with the Participants whose Cash Compensation amounts are in excess
of the limit under Section 401(a)(17) of the Code, reduce the amount of Cash
Compensation of such highly compensated Participants on a pro-rata basis per
individual that would otherwise be taken into account for purposes of allocating
benefits under Section 4.2 of this Plan. If, in order to satisfy this Section
5.5, such Participants' Cash Compensation amount per individual must be reduced
to an amount that is lower than the Cash Compensation amount of the next most
highly compensated Participant (the "breakpoint amount"), then, for purposes of
allocating benefits under Section 4.2 of the Plan, the Cash Compensation amounts
of all Participants shall be reduced to an amount not to exceed such breakpoint
amount.
5.6 Nondiscrimination Test for Matching Employer Contributions.
-----------------------------------------------------------
Notwithstanding anything herein to the contrary the Plan shall meet the
nondiscrimination test of Section 401(m) of the Code (described in Section 5.6-1
and applicable regulations) for each Plan Year. In order to meet the
nondiscrimination test, any or all of the following steps may be taken:
(a) At any time during the Plan Year, the Committee may limit the
amount of Matching Employer Contributions that may be made on
behalf of Highly Compensated Employees;
(b) The Committee may reduce the Matching Employer Contributions made
for the Plan Year to the extent necessary to meet the
requirements of Section 401(m) of Code, in the manner described
in Section 5.7;
13
<PAGE>
(c) The Committee may recommend to the Board that the Employer make an
additional Matching Employer Contribution to the Plan for the benefit
of Participants who are not Highly Compensated Employees. This
additional allocation may be made based on Participants' Total
Compensation; and
(d) The Committee may take any other steps that the Committee deems
appropriate.
5.6-1 For Plan Years beginning after to December 31, 1996, the
nondiscrimination requirements of Section 401(m) of the Code require that,
in each Plan Year, the Contribution Percentage (defined below) of the
eligible Highly Compensated Employees for such Plan Year does not exceed
the greater of:
(a) The Contribution Percentage of all other eligible Employees for
the preceding Plan Year multiplied by 1.25; or
(b) The lesser of the Contribution Percentage of all other eligible
Employees for the preceding Plan Year multiplied by 2, or the
Contribution Percentage of all other eligible Employees for the
preceding Plan Year plus 2 percentage points.
The Committee may elect to calculate the Contribution Percentages
using the Plan Year rather than the preceding Plan Year, provided however
that if the Committee so elects, the election may only be changed as
provided by the Secretary of the Treasury.
5.6-2 The Contribution Percentage for a group of Employees is the
average of the ratios, calculated separately for each Employee in the
group, of the amount of Matching Employer Contributions that are credited
under the Plan on behalf of each Employee for the Plan Year, to the
Employee's Compensation for the Plan Year. Use of the alternative
limitation shall be subject to the provisions of Treasury Regulation (S)
1.401(m)-2 regarding the multiple use of the alternative deferral tests set
forth in Sections 401(k) and 401(m) of the Code.
5.6-3 Notwithstanding the foregoing, if the test described in Section
56-1 is not satisfied for a Plan Year, the Committee may use any other test
permitted under Section 401(m) of the Code to determine whether the Plan
meets the nondiscrimination requirements of Section 401(m) of the Code.
Section 6. Trust Fund and Its Investment.
------------------------------
6.1 Creation of Trust Fund. All amounts received under the Plan from an
-----------------------
Employer and investments shall be held as the Trust Fund pursuant to the terms
of this Plan and of the Trust Agreement between the Association and the Trustee.
14
<PAGE>
The benefits described in this Plan shall be payable only from the assets of the
Trust Fund, and none of the Association, any other Employer, its board of
directors or trustees, its stockholders, its officers, its employees, the
Committee, and the Trustee shall be liable for payment of any benefit under this
Plan except from the Trust Fund.
6.2 Stock Fund and Investment Fund. The Trust Fund held by the Trustee
-------------------------------
shall be divided into the Stock Fund, consisting entirely of Stock, and the
Investment Fund, consisting of all assets of the Trust other than Stock. The
Trustee shall have no investment responsibility for the Stock Fund, but shall
accept any Employer contributions made in the form of Stock, and shall acquire,
sell, exchange, distribute, and otherwise deal with and dispose of Stock in
accordance with the instructions of the Committee.
6.3 Acquisition of Stock. From time to time the Committee may, in its
---------------------
sole discretion, direct the Trustee to acquire Stock from the issuing Employer
or from shareholders, including shareholders who are or have been Employees,
Participants, or fiduciaries with respect to the Plan. The Trustee shall pay for
such Stock no more than its fair market value, which shall be determined
conclusively by the Committee pursuant to Section 12.4. The Committee may
direct the Trustee to finance the acquisition of Stock by incurring or assuming
indebtedness to the seller or another party which indebtedness shall be called a
"Stock Obligation". Any Stock Obligation shall be subject to the following
conditions and limitations:
6.3-1 A Stock Obligation shall be for a specific term, shall not be
payable on demand except in the event of default, and shall bear a
reasonable rate of interest.
6.3-2 A Stock Obligation may, but need not, be secured by a
collateral pledge of either the Stock acquired in exchange for the Stock
Obligation, or the Stock previously pledged in connection with a prior
Stock Obligation which is being repaid with the proceeds of the current
Stock Obligation. No other assets of the Plan and Trust may be used as
collateral for a Stock Obligation, and no creditor under a Stock Obligation
shall have any right or recourse to any Plan and Trust assets other than
Stock remaining subject to a collateral pledge.
6.3-3 Any pledge of Stock to secure a Stock Obligation must provide
for the release of pledged Stock in connection with payments on the Stock
Obligations in the ratio prescribed in Section 4.2.
6.3-4 Repayments of principal and interest on any Stock Obligation
generally shall be made by the Trustee from cash contributions designated
for such payments, from earnings on such contributions, and from cash
dividends received on Stock held in the Unallocated Stock Fund.
6.4 Participants' Option to Diversify. The Committee shall provide for a
----------------------------------
procedure under which each Participant may, during the first five years of a
certain six-year period, elect to have up to 25 percent of the value of his
Account committed to alternative investment options within the Investment Fund.
15
<PAGE>
For the sixth year in this period, the Participant may elect to have up to 50
percent of the value of his Account committed to other investments. The six-
year period shall begin with the Plan Year following the first Plan Year in
which the Participant has both reached aged 55 and completed 10 years of
participation in the Plan; a Participant's election to diversify his Account
must be made within the 90-day period immediately following the last day of each
of the six Plan Years. The Committee shall see that the Investment Fund includes
a sufficient number of investment options to comply with Section 401(a)(28)(B)
of the Code. The Trustee shall comply with any investment directions received
from Participants in accordance with the procedures adopted from time to time by
the Committee under this Section 6.4.
Section 7. Voting Rights and Dividends on Stock.
-------------------------------------
7.1 Voting and Tendering of Stock. The Trustee generally shall vote all
------------------------------
shares of Stock held under the Plan. However, if any Employer has registration-
type class of securities within the meaning of Section 409(e)(4) of the Code, or
if a matter submitted to the holders of the Stock involves a merger,
consolidation, recapitalization, reclassification, liquidation, dissolution, or
sale of substantially all assets of an entity, then (i) the shares of Stock
which have been allocated to Participants' Accounts shall be voted by the
Trustee in accordance with the Participants' written instructions, and (ii) the
Trustee shall vote any shares of Stock which have been allocated to
Participants' Accounts but for which no written instructions have been received
and any unallocated Stock in a manner calculated to most accurately reflect the
instructions it has received from Participants regarding the allocated Stock.
In the event no shares of Stock have been allocated to Participants' Accounts at
the time Stock is to be voted, each Participant shall be deemed to have one
share of Stock allocated to his or her account for the sole purpose of providing
the Trustee with voting instructions. Notwithstanding any provision hereunder
to the contrary, all shares of Stock which have been allocated to Participants'
Accounts and for which the Trustee has received no written instructions and all
unallocated shares of Stock must be voted by the Trustee in a manner determined
by the Trustee to be solely in the interest of the Participants and
Beneficiaries. Whenever such voting rights are to be exercised, the Employers,
the Committee, and the Trustee shall see that all Participants and Beneficiaries
are provided with the same notices and other materials as are provided to other
holders of the Stock, and are provided with adequate opportunity to deliver
their instructions to the Trustee regarding the voting of Stock allocated to
their Accounts. The instructions of the Participants with respect to the voting
of allocated shares hereunder shall be confidential.
7.1-1 In the event of a tender offer, Stock shall be tendered by the
Trustee in the same manner as set forth above with respect to the voting of
Stock. Notwithstanding any provision hereunder to the contrary, Stock must
be tendered by the Trustee in a manner determined by the Trustee to be
solely in the interest of the Participants and Beneficiaries.
7.2 Dividends on Stock. Dividends on Stock which are received by the
-------------------
Trustee in the form of additional Stock shall be retained in the Stock Fund, and
shall be allocated among the Participant's Accounts and the Unallocated Stock
Fund in accordance with their holdings of the Stock on which the dividends have
16
<PAGE>
been paid. Dividends on Stock credited to Participants' Accounts which are
received by the Trustee in the form of cash shall, at the direction of the
Company paying the dividends, either (i) be credited to the Accounts in
accordance with Section 8.3 and invested as part of the Investment Fund, (ii) be
distributed immediately to the Participants in proportion with the Participants'
Account balance; (iii) be distributed to the Participants within 90 days of the
close of the Plan Year in which paid in proportion with the Participants'
Account balance; or (iv) be used to repay principal and interest on the Stock
Obligation used to acquire Stock on which the dividends were paid. Dividends on
Stock held in the Unallocated Stock Fund which are received by the Trustee in
the form of cash shall be applied as soon as practicable to payments of
principal and interest under the Stock Obligation incurred with the purchase of
the Stock.
Section 8. Adjustments to Accounts.
------------------------
8.1 Adjustments for Transactions. An Employer contribution pursuant to
-----------------------------
Section 4.1 shall be credited to the Participants' Accounts as of the last day
of the Plan Year for which it is contributed. Stock released from the
Unallocated Stock Fund upon the Trust's repayment of a Stock Obligation pursuant
to Section 4.2 shall be credited to the Participants' Accounts as of the last
day of the Plan Year in which the repayment occurred. Any excess amounts
remaining from the use of, or the use of the proceeds of, a sale of Stock from
the Unallocated Stock Fund to repay a Stock Obligation shall be allocated as of
the last day of the Plan Year in which the repayment occurred among the
Participants' Accounts as earnings, in proportion to the opening balance in each
Account and shall not be deemed annual additions within the meaning of Section
415(c)(2) of the Code. Any benefit which is paid to a Participant or
Beneficiary pursuant to Section 10 shall be charged to the Participant's Account
as of the first day of the Valuation Period in which it is paid. Any forfeiture
or restoration shall be charged or credited to the Participant's Account as of
the first day of the Valuation Period in which the forfeiture or restoration
occurs pursuant to Section 9.6.
8.2 Valuation of Investment Fund. As of each Valuation Date, the Trustee
-----------------------------
shall prepare a balance sheet of the Investment Fund, recording each asset
(including any contribution receivable from an Employer) and liability at its
fair market value. Any liability with respect to short positions or options and
any item of accrued income or expense and unrealized appreciation or
depreciation shall be included; provided, however, that such an item may be
estimated or excluded if it is not readily ascertainable unless estimating or
excluding it would result in a material distortion. The Committee shall then
determine the net gain or loss of the Investment Fund since the preceding
Valuation Date, which shall mean the entire income of the Investment Fund,
including realized and unrealized capital gains and losses, net of any expenses
to be charged to the general Investment Fund and excluding any contributions by
the Employer. The determination of gain or loss shall be consistent with the
balance sheets of the Investment Fund for the current and preceding Valuation
Dates.
8.3 Adjustments for Investment Experience. Any net gain or loss of the
--------------------------------------
Investment Fund during a Valuation Period, as determined pursuant to Section
8.2, shall be allocated as of the last day of the Valuation Period among the
Participants' Accounts in proportion to the opening balance in each Account, as
17
<PAGE>
adjusted for benefit payments and forfeitures during the Valuation Period,
without regard to whatever Stock may be credited to an Account.
8.4 Adjustments for Capital Changes. In the event of any change in the
-------------------------------
outstanding shares of Stock by reason of any stock dividend or split,
recapitalization, merger, consolidation, spin-off, reorganization, combination
or exchange of shares, or other similar corporate change, or other increase or
decrease in such shares effected without receipt or payment of consideration by
the bank issuing the Stock, the Committee shall adjust the number of shares of
Stock allocated to the Participants' Accounts to prevent dilution or enlargement
of such Accounts.
Section 9. Vesting of Participants' Interests.
-----------------------------------
9.1 Deferred Vesting in Accounts. A Participant's vested interest in his
-----------------------------
Account shall be based on his Vesting Years in accordance with the following
table, subject to the balance of this Section 9:
<TABLE>
<CAPTION>
Vesting Percentage of
Years Interest Vested
------- ---------------
<S> <C>
Less than 2 years 0%
2 years 20%
3 years 40%
4 years 60%
5 years 80%
6 years or more 100%
</TABLE>
9.2 Computation of Vesting Years. For purposes of this Plan, a "Vesting
-----------------------------
Year" means each 12-month period beginning with his initial Service with the
Employer. However, a Participant's Vesting Years shall be computed subject to
the following conditions and qualifications:
(a) A Participant's vested interest in his Account accumulated before
a Break in Service shall be determined without regard to any Service
after the Break. Notwithstanding the foregoing, in the event a
Participant has an eligibility computation period (as defined in
Section 3.1 of the Plan) during which he performs 500 or fewer Hours
of Service (a "one year Break in Service"), and then returns to
Service prior to having a Break in Service, his Service performed both
before and after his break in employment shall be taken into account
in determining his Vesting Years. Generally, if a Participant has a
Break in Service before his interest in his Account has become vested
to some extent, he shall lose credit for any Vesting Year before the
Break in Service. However, if a Participant separates from Service
before his interest in his Account has become vested to some extent,
and returns to Service after a Break in Service, the Participant's
18
<PAGE>
Vesting Years both prior to and after the Break in Service will count
as Vesting Years for his Account accumulated after the Break if the
number of the Participant's consecutive one year breaks in Service is
less than the number of years of Service prior to the Break in
Service.
(b) Unless otherwise specifically excluded, a Participant's Vesting
Years shall include any period of active military duty to the extent
required by the Military Selective Service Act of 1967 (38 U.S.C.
Section 2021).
9.3 Full Vesting Upon Certain Events. Notwithstanding Section 9.1, a
---------------------------------
Participant's interest in his Account shall fully vest on the Participant's
Normal Retirement Date, provided the Participant is in Service on or after that
date. The Participant's interest shall also fully vest in the event that his
Service is terminated by Early Retirement, Disability or by death or upon the
occurrence of a Change in Control of the Association or the Holding Company.
For purposes of this Section 9.3, a Change in Control of the Association or
the Holding Company 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 Association or the Company within the meaning of the Home Owners'
Loan Act of 1933, as amended ("HOLA") 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 such rules and regulations the Board shall
substitute its judgment for that of the OTS); (iii) without limitation such a
Change in Control shall be deemed to have occurred at such time as (A) any
"person" (as the term is used in Sections 13(d) and 14(d) of the Exchange Act)
is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Association or the
Holding Company representing 20% or more of the Association's or the Holding
Company's outstanding securities except for any securities of the Association
purchased by the Holding Company in connection with the conversion of the
Association to the stock form and any securities purchased by any tax qualified
employee benefit plan of the Association; or (B) individuals who constitute the
Board of Directors 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) solicitations of shareholders 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
19
<PAGE>
class of securities then subject to the plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Association or
the Holding Company shall be distributed; or (E) a tender offer is made for 20%
or more of the voting securities of the Association or the Holding Company.
9.4 Full Vesting Upon Plan Termination. Notwithstanding Section 9.1, a
-----------------------------------
Participant's interest in his Account shall fully vest if he is in active
Service upon termination of this Plan or upon the permanent and complete
discontinuance of contributions by his Employer. In the event of a partial
termination, the interest of each Participant who is in Service shall fully vest
with respect to that part of the Plan which is terminated.
9.5 Forfeiture, Repayment, and Restoration. If a Participant's Service
---------------------------------------
terminates before his interest in his Account is fully vested, that portion
which has not vested shall be forfeited if he either (i) receives a distribution
of his entire vested benefit, or (ii) has a Break in Service. If a Participant
who has received his entire vested interest returns to Service before he has a
Break in Service, he may repay to the Trustee an amount equal to the
distribution. The Participant may repay such amount at any time within five
years after he has returned to Service. The amount shall be credited to his
Account as of the last day of the Plan Year in which it is repaid; an additional
amount equal to the portion of his Account which was previously forfeited shall
be restored to his Account at the same time from other Employees' forfeitures
and, if such forfeitures are insufficient, from a special contribution by his
Employer for that year. In the case of a terminated Participant who does not
receive a distribution of his entire vested interest and whose Service resumes
after a Break in Service, any undistributed balance from his prior participation
which was not forfeited shall be maintained as a fully vested subaccount with
his Account. If a portion of a Participant's Account is forfeited, assets other
that Stock must be forfeited before any Stock may be forfeited. In the case of
a Participant who has incurred a Break in Service and then returns to Service,
all years of Service after the Break in Service will be disregarded for the
purpose of vesting his Account accrued before the Break in Service, but both
pre-Break and post-Break Service will count for the purpose of vesting the
Participant's Account that accrues after the Break in Service. If a
Participant's Service terminates prior to his Account having become vested, such
Participant shall be deemed to have received a distribution of his entire vested
interest as of the Valuation Date next following his termination of Service.
9.6 Accounting for Forfeitures. A forfeiture shall be charged to the
---------------------------
Participant's Account as of the first day of the first Valuation Period in which
the forfeiture becomes certain pursuant to Section 9.5. Except as otherwise
provided in that Section, a forfeiture shall be added to the contributions of
the terminated Participant's Employer which are to be credited to other
Participants pursuant to Section 4.1 as of the last day of the Plan Year in
which the forfeiture becomes certain.
9.7 Vesting and Nonforfeitability. A Participant's interest in his
------------------------------
Account which has become vested shall be nonforfeitable for any reason.
20
<PAGE>
Section 10. Payment of Benefits.
--------------------
10.1 Benefits for Participants. A Participant whose Service ends for
--------------------------
any reason shall receive the vested portion of his Account in a single payment
on a date selected by the Committee. That date shall be on or before the 60th
day after the end of the Plan Year in which his Service ends. Notwithstanding
the foregoing, if the balance credited to his Account exceeds $3,500, his
benefits shall not be paid before the latest of his 65th birthday or the tenth
anniversary of the year in which he commenced participation in the Plan, unless
he elects an early payment date in a written election filed with the Committee.
A Participant may modify such an election at any time, provided any new benefit
payment date is at least 30 days after a modified election is delivered to the
Committee. Such an election is not valid unless it is made after the Participant
has received the required notice under Section 1.411(a)-11(c) of the Income Tax
Regulations that provides a general description of the material features of a
lump sum distribution and the Participant's right to defer receipt of his
benefit. The Notice shall be provided no less than 30 days and no more than 90
days before the first day on which all events have occurred which entitle the
Participant to such benefit. Written consent of the Participant to the
distribution generally may not be made within 30 days of the date the
Participant receives the notice and shall not be made more than 90 days from the
date the Participant receives the notice. However, a distribution may be made
less than 30 days after the notice provided under Section 1.411(a)-11(c) of the
Income Tax Regulations is given, if:
(a) the Committee clearly informs the Participant that he has a right
to period of at least 30 days after receiving the notice to consider
the decision of whether or not to elect a distribution (and if
applicable, a particular distribution option), and
(b) the Participant, after receiving the notice, affirmatively elects
a distribution.
In all events, a Participant's benefits shall be paid by April 1st of the
calendar year in which he reaches age 71-1/2. A Participant's benefits from
that portion of his Account committed to the Investment Fund shall be calculated
on the basis of the most recent Valuation Date before the day of payment.
For Plan Years beginning after December 31, 1996, with respect to all
Participants other than those who are 5% owners within the meaning of Section
416 of the Code, such Participant's benefits shall be paid by April 1st of the
later of (i) the calendar year in which he reaches age 71-1/2, or (ii) the
calendar year in which he retires. With respect to all Participants who are 5%
owners within the meaning of Section 416 of the Code, such Participants benefits
shall be paid by April 1st of the calendar year in which he reaches age 71-1/2.
10.2 Benefits on a Participant's Death. If a Participant dies before
----------------------------------
his benefits are paid pursuant to Section 10.1, the balance credited to his
Account shall be paid to his Beneficiary in a single distribution on or before
the 60th day after the end of the Plan Year in which he died. The benefits from
that portion of the Account committed to the Investment Fund shall be calculated
on the basis of the most recent Valuation Date before the date of payment.
21
<PAGE>
If a married Participant dies before his benefit payments begin, then
unless he has specifically elected otherwise the Committee shall cause the
balance in his Account to be paid to his Spouse. No election by a married
Participant of a different Beneficiary shall be valid unless the election is
accompanied by the Spouse's written consent, which (i) must acknowledge the
effect of the election, (ii) must explicitly provide either that the designated
Beneficiary may not subsequently be changed by the Participant without the
Spouse's further consent, or that it may be changed without such consent, and
(iii) must be witnessed by the Committee, its representative, or a notary
public. This requirement shall not apply if the Participant establishes to the
Committee's satisfaction that the Spouse may not be located.
10.3 Marital Status. The Committee shall from time to time take
---------------
whatever steps it deems appropriate to keep informed of each Participant's
marital status. Each Employer shall provide the Committee with the most
reliable information in the Employer's possession regarding its Participants'
marital status, and the Committee may, in its discretion, require a notarized
affidavit from any Participant as to his marital status. The Committee, the
Plan, the Trustee, and the Employers shall be fully protected and discharged
from any liability to the extent of any benefit payments made as a result of the
Committee's good faith and reasonable reliance upon information obtained from a
Participant and his Employer as to his marital status.
10.4 Delay in Benefit Determination. If the Committee is unable to
-------------------------------
determine the benefits payable to a Participant or Beneficiary on or before the
latest date prescribed for payment pursuant to Section 10.1 or 10.2, the
benefits shall in any event be paid within 60 days after they can first be
determined, with whatever makeup payments may be appropriate in view of the
delay.
10.5 Accounting for Benefit Payments. Any benefit payment shall be
--------------------------------
charged to the Participant's Account as of the first day of the Valuation Period
in which the payment is made.
10.6 Options to Receive and Sell Stock. Unless ownership of virtually
----------------------------------
all Stock is restricted to active Employees and qualified retirement plans for
the benefit of Employees pursuant to the certificates of incorporation or by-
laws of the Employers issuing Stock, a terminated Participant or the Beneficiary
of a deceased Participant may instruct the Committee to distribute the
Participant's entire vested interest in his Account in the form of Stock. In
that event, the Committee shall apply the Participant's vested interest in the
Investment Fund to purchase sufficient Stock from the Stock Fund or from any
owner of stock to make the required distribution. In all other cases, the
Participant's vested interest in the Stock Fund shall be distributed in shares
of Stock, and his vested interest in the Investment Fund shall be distributed in
cash.
Any Participant who receives Stock pursuant to Section 10.1, and any person
who has received Stock from the Plan or from such a Participant by reason of the
Participant's death or incompetency, by reason of divorce or separation from the
Participant, or by reason of a rollover contribution described in Section 402(c)
of the Code, shall have the right to require the Employer which issued the Stock
to purchase the Stock for its current fair market value (hereinafter referred to
as the "put right"). The put right shall be exercisable by written notice to
22
<PAGE>
the Committee during the first 60 days after the Stock is distributed by the
Plan, and, if not exercised in that period, during the first 60 days in the
following Plan Year after the Committee has communicated to the Participant its
determination as to the Stock's current fair market value. However, the put
right shall not apply to the extent that the Stock, at the time the put right
would otherwise be exercisable, may be sold on an established market in
accordance with federal and state securities laws and regulations. If the put
right is exercised, the Trustee may, if so directed by the Committee in its sole
discretion, assume the Employer's rights and obligations with respect to
purchasing the Stock.
The Employer or the Trustee, as the case may be, may elect to pay for the
Stock in equal periodic installments, not less frequently than annually, over a
period not longer than five years from the 30th day after the put right is
exercised, with adequate security and interest at a reasonable rate on the
unpaid balance, all such terms to be set forth in a promissory note delivered to
the seller with normal terms as to acceleration upon any uncured default.
Nothing contained herein shall be deemed to obligate any Employer to
register any Stock under any federal or state securities law or to create or
maintain a public market to facilitate the transfer or disposition of any Stock.
The put right described herein may only be exercised by a person described in
the second preceding paragraph, and may not be transferred with any Stock to any
other person. As to all Stock purchased by the Plan in exchange for any Stock
Obligation, the put right be nonterminable. The put right for Stock acquired
through a Stock Obligation shall continue with respect to such Stock after the
Stock Obligation is repaid or the Plan ceases to be an employee stock ownership
plan. Except as provided above, in accordance with the provisions of Sections
54.4975-7(b)(4) of the Treasury Regulations, no Stock acquired with the proceeds
of a Stock Obligation may be subject to any put, call or other option or buy-
sell or similar arrangement while held by and when distributed from the Plan,
whether the Plan is then an employee stock ownership plan.
10.7 Restrictions on Disposition of Stock. Except in the case of
-------------------------------------
Stock which is traded on an established market, a Participant who receives Stock
pursuant to Section 10.1, and any person who has received Stock from the Plan or
from such a Participant by reason of the Participant's death or incompetency, by
reason of divorce or separation from the Participant, or by reason of a rollover
contribution described in Section 402(c) of the Code, shall, prior to any sale
or other transfer of the Stock to any other person, first offer the Stock to the
issuing Employer and to the Plan at its current fair market value. This
restriction shall apply to any transfer, whether voluntary, involuntary, or by
operation of law, and whether for consideration or gratuitous. Either the
Employer or the Trustee may accept the offer within 14 days after it is
delivered. Any Stock distributed by the Plan shall bear a conspicuous legend
describing the right of first refusal under this Section 10.7, as well as any
other restrictions upon the transfer of the Stock imposed by federal and state
securities laws and regulations.
10.8 Direct Transfer of Eligible Plan Distributions. A Participant or
----------------------------------------------
Beneficiary may direct that an "eligible rollover distribution" (as defined
below) included in such payment be paid directly to an "eligible retirement
plan" (as defined below).
23
<PAGE>
To effect such a direct transfer, the Participant or Beneficiary must
notify the Committee that a direct transfer is desired and provide to the
Committee the eligible retirement plan to which the payment is to be made. Such
notice shall be made in such form and at such time as the Committee may
prescribe. Upon receipt of such notice, the Committee shall direct the Trustee
to make a trustee-to-trustee transfer of the eligible rollover distribution to
the eligible retirement plan so specified.
For purposes of this Section 10.8, an "eligible rollover distribution"
shall have the meaning set forth in Section 402(c)(4) of the Code and any
regulations promulgated thereunder. To the extent such meaning is not
inconsistent with the above references, an eligible rollover distribution shall
mean any distribution of all or any portion of the Participant's Account, except
that such term shall not include any distribution which is one of a series of
substantially equal periodic payments (not less frequently than annually) made
(i) for the life (or life expectancy) of the Participant or the joint lives (or
joint life expectancies) of the Participant and a designated Beneficiary, or
(ii) for a period of ten years or more. Further, the term "eligible rollover
distribution shall not include any distribution required to be made under
Section 401(a)(9) of the Code.
For purposes of this Section 10.8, an "eligible retirement plan" shall have
the meaning set forth in Section 402(c)(8) of the Code and any regulations
promulgated thereunder. To the extent such meaning is not inconsistent with the
above references, an eligible retirement plan shall mean: (i) an individual
retirement account described in Section 408(a) of the Code; (ii) an individual
retirement annuity described in Section 408(b) of the Code (other than an
endowment contract), (iii) a qualified trust described in Section 401(a) of the
Code and exempt under Section 501(a) of the Code, and (iv) an annuity plan
described in Section 403(a) of the Code.
Section 11. Rules Governing Benefit Claims and Review of Appeals.
-----------------------------------------------------
11.1 Claim for Benefits. Any Participant or Beneficiary who qualifies
-------------------
for the payment of benefits shall file a claim for his benefits with the
Committee on a form provided by the Committee. The claim, including any election
of an alternative benefit form, shall be filed at least 30 days before the date
on which the benefits are to begin. If a Participant or Beneficiary fails to
file a claim by the 30th day before the date on which benefits become payable,
he shall be presumed to have filed a claim for payment for the Participant's
benefits in the standard form prescribed by Sections 10.1 or 10.2
11.2 Notification by Committee. Within 90 days after receiving a
--------------------------
claim for benefits (or within 180 days, if special circumstances require an
extension of time and written notice of the extension is given to the
Participant or Beneficiary within 90 days after receiving the claim for
benefits), the Committee shall notify the Participant or Beneficiary whether the
claim has been approved or denied. If the Committee denies a claim in any
respect, the Committee shall set forth in a written notice to the Participant or
Beneficiary:
(i) each specific reason for the denial;
24
<PAGE>
(ii) specific references to the pertinent Plan provisions on which
the denial is based;
(iii) a description of any additional material or information which
could be submitted by the Participant or Beneficiary to support
his claim, with an explanation of the relevance of such
information; and
(iv) an explanation of the claims review procedures set forth in
Section 11.3.
11.3 Claims Review Procedure. Within 60 days after a Participant or
-----------------------
Beneficiary receives notice from the Committee that his claim for benefits has
been denied in any respect, he may file with the Committee a written notice of
appeal setting forth his reasons for disputing the Committee's determination.
In connection with his appeal the Participant or Beneficiary or his
representative may inspect or purchase copies of pertinent documents and records
to the extent not inconsistent with other Participants' and Beneficiaries'
rights of privacy. Within 60 days after receiving a notice of appeal from a
prior determination (or within 120 days, if special circumstances require an
extension of time and written notice of the extension is given to the
Participant or Beneficiary and his representative within 60 days after receiving
the notice of appeal), the Committee shall furnish to the Participant or
Beneficiary and his representative, if any, a written statement of the
Committee's final decision with respect to his claim, including the reasons for
such decision and the particular Plan provisions upon which it is based.
Section 12. The Committee and Its Functions.
--------------------------------
12.1 Authority of Committee. The Committee shall be the "plan
-----------------------
administrator" within the meaning of ERISA and shall have exclusive
responsibility and authority to control and manage the operation and
administration of the Plan, including the interpretation and application of its
provisions, except to the extent such responsibility and authority are otherwise
specifically (i) allocated to the Association, the Employers, or the Trustee
under the Plan and Trust Agreement, (ii) delegated in writing to other persons
by the Association, the Employers, the Committee, or the Trustee, or (iii)
allocated to other parties by operation of law. The Committee shall have
exclusive responsibility regarding decisions concerning the payment of benefits
under the Plan. The Committee shall have full investment responsibility with
respect to the Investment Fund except to the extent, if any, specifically
provided in the Trust Agreement. In the discharge of its duties, the Committee
may employ accountants, actuaries, legal counsel, and other agents (who also may
be employed by an Employer or the Trustee in the same or some other capacity)
and may pay their reasonable expenses and compensation.
12.2 Identity of Committee. The Committee shall consist of three or
----------------------
more individuals selected by the Association. Any individual, including a
director, trustee, shareholder, officer, or Employee of an Employer, shall be
eligible to serve as a member of the Committee. The Association shall have the
power to remove any individual serving on the Committee at any time without
cause upon 10 days written notice, and any individual may resign from the
25
<PAGE>
Committee at any time upon 10 days written notice to the Association. The
Association shall notify the Trustee of any change in membership of the
Committee.
12.3 Duties of Committee. The Committee shall keep whatever records
--------------------
may be necessary to implement the Plan and shall furnish whatever reports may be
required from time to time by the Association. The Committee shall furnish to
the Trustee whatever information may be necessary to properly administer the
Trust. The Committee shall see to the filing with the appropriate government
agencies of all reports and returns required of the plan Committee under ERISA
and other laws.
Further, the Committee shall have exclusive responsibility and authority
with respect to the Plan's holdings of Stock and shall direct the Trustee in all
respects regarding the purchase, retention, sale, exchange, and pledge of Stock
and the creation and satisfaction of Stock Obligations. The Committee shall at
all times act consistently with the Association's long-term intention that the
Plan, as an employee stock ownership plan, be invested primarily in Stock.
Subject to the direction of the Committee with respect to Stock Obligations
pursuant to the provision of Section 4.2, and subject to the provisions of
Sections 6.4 and 10.6 as to Participants' rights under certain circumstances to
have their Accounts invested in Stock or in assets other than Stock, the
Committee shall determine in its sole discretion the extent to which assets of
the Trust shall be used to repay Stock Obligations, to purchase Stock, or to
invest in other assets to be selected by the Committee or an investment manager.
No provision of the Plan relating to the allocation or vesting of any interests
in the Stock Fund or the Investment Fund shall restrict the Committee from
changing any holdings of the Trust, whether the changes involve an increase or a
decrease in the Stock or other assets credited to Participants' Accounts. In
determining the proper extent of the Trust's investment in Stock, the Committee
shall be authorized to employ investment counsel, legal counsel, appraisers, and
other agents to pay their reasonable expenses and compensation.
12.4 Valuation of Stock. If the valuation of any Stock is not
-------------------
established by reported trading on a generally recognized public market, the
Committee shall have the exclusive authority and responsibility to determine its
value for all purposes under the Plan. Such value shall be determined as of
each Valuation Date, and on any other date as of which the Plan purchases or
sells such Stock. The Committee shall use generally accepted methods of valuing
stock of similar corporations for purposes of arm's length business and
investment transactions, and in this connection the Committee shall obtain, and
shall be protected in relying upon, the valuation of such Stock as determined by
an independent appraiser experienced in preparing valuations of similar
businesses.
12.5 Compliance with ERISA. The Committee shall perform all acts
----------------------
necessary to comply with ERISA. Each individual member or employee of the
Committee shall discharge his duties in good faith and in accordance with the
applicable requirements of ERISA.
12.6 Action by Committee. All actions of the Committee shall be
--------------------
governed by the affirmative vote of a number of members which is a majority of
the total number of members currently appointed, including vacancies. The
26
<PAGE>
members of the Committee may meet informally and may take any action without
meeting as a group.
12.7 Execution of Documents. Any instrument executed by the Committee
-----------------------
shall be signed by any member or employee of the Committee.
12.8 Adoption of Rules. The Committee shall adopt such rules and
------------------
regulations of uniform applicability as it deems necessary or appropriate for
the proper administration and interpretation of the Plan.
12.9 Responsibilities to Participants. The Committee shall determine
---------------------------------
which Employees qualify to enter the Plan. The Committee shall furnish to each
eligible Employee whatever summary plan descriptions, summary annual reports,
and other notices and information may be required under ERISA. The Committee
also shall determine when a Participant or his Beneficiary qualifies for the
payment of benefits under the Plan. The Committee shall furnish to each such
Participant or Beneficiary whatever information is required under ERISA (or is
otherwise appropriate) to enable the Participant or Beneficiary to make whatever
elections may be available pursuant to Sections 6 and 10, and the Committee
shall provide for the payment of benefits in the proper form and amount from the
assets of the Trust Fund. The Committee may decide in its sole discretion to
permit modifications of elections and to defer or accelerate benefits to the
extent consistent with applicable law and the best interests of the individuals
concerned.
12.10 Alternative Payees in Event of Incapacity. If the Committee
------------------------------------------
finds at any time that an individual qualifying for benefits under this Plan is
a minor or is incompetent, the Committee may direct the benefits to be paid, in
the case of a minor, to his parents, his legal guardian, a custodian for him
under the Uniform Transfers to Minors Act, or the person having actual custody
of him, or, in the case of an incompetent, to his Spouse, his legal guardian, or
the person having actual custody of him, the payments to be used for the
individual's benefit. The Committee and the Trustee shall not be obligated to
inquire as to the actual use of the funds by the person receiving them under
this Section 12.10, and any such payment shall completely discharge the
obligations of the Plan, the Trustee, the Committee, and the Employers to the
extent of the payment.
12.11 Indemnification by Employers. Except as separately agreed in
-----------------------------
writing, the Committee, and any member or employee of the Committee, shall be
indemnified and held harmless by the Employers, jointly and severally, to the
fullest extent permitted by law against any and all costs, damages, expenses,
and liabilities reasonably incurred by or imposed upon it or him in connection
with any claim made against it or him or in which it or he may be involved by
reason of its or his being, or having been, the Committee, or a member or
employee of the Committee, to the extent such amounts are not paid by insurance.
12.12 Nonparticipation by Interested Member. Any member of the
--------------------------------------
Committee who also is a Participant in the Plan shall take no part in any
determination specifically relating to his own participation or benefits, unless
his abstention would leave the Committee incapable of acting on the matter.
27
<PAGE>
Section 13. Adoption, Amendment, or Termination of the Plan.
------------------------------------------------
13.1 Adoption of Plan by Other Employers. With the consent of the
------------------------------------
Association, any entity may become a participating Employer under the Plan by
(i) taking such action as shall be necessary to adopt the Plan, (ii) becoming a
party to the Trust Agreement establishing the Trust Fund, and (iii) executing
and delivering such instruments and taking such other action as may be necessary
or desirable to put the Plan into effect with respect to the entity's Employees.
13.2 Adoption of Plan by Successor. In the event that any Employer
------------------------------
shall be reorganized by way of merger, consolidation, transfer of assets or
otherwise, so that an entity other than an Employer shall succeed to all or
substantially all of the Employer's business, the successor entity may be
substituted for the Employer under the Plan by adopting the Plan and becoming a
party to the Trust Agreement. Contributions by the Employer shall be
automatically suspended from the effective date of any such reorganization until
the date upon which the substitution of the successor entity for the Employer
under the Plan becomes effective. If, within 90 days following the effective
date of any such reorganization, the successor entity shall not have elected to
become a party to the Plan, or if the Employer shall adopt a plan of complete
liquidation other than in connection with a reorganization, the Plan shall be
automatically terminated with respect to Employees of the Employer as of the
close of business on the 90th day following the effective date of the
reorganization, or as of the close of business on the date of adoption of a plan
of complete liquidation, as the case may be.
13.3 Plan Adoption Subject to Qualification. Notwithstanding any
---------------------------------------
other provision of the Plan, the adoption of the Plan and the execution of the
Trust Agreement are conditioned upon their being determined initially by the
Internal Revenue Service to meet the qualification requirements of Section
401(a) of the Code, so that the Employers may deduct currently for federal
income tax purposes their contributions to the Trust and so that the
Participants may exclude the contributions from their gross income and recognize
income only when they receive benefits. In the event that this Plan is held by
the Internal Revenue Service not to qualify initially under Section 401(a), the
Plan, may be amended retroactively to the earliest date permitted by U.S.
Treasury Regulations in order to secure qualification under Section 401(a). If
this Plan is held by the Internal Revenue Service not to qualify initially under
Section 401(a) either as originally adopted or as amended, each Employer's
contributions to the Trust under this Plan (including any earnings thereon)
shall be returned to it and this Plan shall be terminated. In the event that
this Plan is amended after its initial qualification and the Plan as amended is
held by the Internal Revenue Service not to qualify under Section 401(a), the
amendment may be modified retroactively to the earliest date permitted by U.S.
Treasury Regulations in order to secure approval of the amendment under Section
401(a).
13.4 Right to Amend or Terminate. The Association intends to continue
----------------------------
this Plan as a permanent program. However, each participating Employer
separately reserves the right to suspend, supersede, or terminate the Plan at
28
<PAGE>
any time and for any reason, as it applies to that Employer's Employees, and the
Association reserves the right to amend, suspend, supersede, merge, consolidate,
or terminate the Plan at any time and for any reason, as it applies to the
Employees of all Employers. No amendment, suspension, supersession, merger,
consolidation, or termination of the Plan shall reduce any Participant's or
Beneficiary's proportionate interest in the Trust Fund, or shall divert any
portion of the Trust Fund to purposes other than the exclusive benefit of the
Participants and their Beneficiaries prior to the satisfaction of all
liabilities under the Plan. Except as is required for purposes of compliance
with the Code or ERISA, each as amended from time to time, neither the
provisions of Section 4.1 and 4.2 relating to the crediting of contributions,
forfeitures and shares of Stock released from the Unallocated Stock Fund, nor
any other provision of the Plan relating to the allocation of benefits to
Participants, may be amended more frequently than once every six months.
Moreover, there shall not be any transfer of assets to a successor plan or
merger or consolidation with another plan unless, in the event of the
termination of the successor plan or the surviving plan immediately following
such transfer, merger, or consolidation, each participant or beneficiary would
be entitled to a benefit equal to or greater than the benefit he would have been
entitled to if the plan in which he was previously a participant or beneficiary
had terminated immediately prior to such transfer, merger, or consolidation.
Following a termination of this Plan by the Association, the Trustee shall
continue to administer the Trust and pay benefits in accordance with the Plan as
amended from time to time and the Committee's instructions.
Section 14. Miscellaneous Provisions.
-------------------------
14.1 Plan Creates No Employment Rights. Nothing in this Plan shall be
----------------------------------
interpreted as giving any Employee the right to be retained as an Employee by an
Employer, or as limiting or affecting the rights of an Employer to control its
Employees or to terminate the Service of any Employee at any time and for any
reason, subject to any applicable employment or collective bargaining
agreements.
14.2 Nonassignability of Benefits. No assignment, pledge, or other
-----------------------------
anticipation of benefits from the Plan will be permitted or recognized by the
Employers, the Committee, or the Trustee. Moreover, benefits from the Plan shall
not be subject to attachment, garnishment, or other legal process for debts or
liabilities of any Participant or Beneficiary, to the extent permitted by law.
This prohibition on assignment or alienation shall apply to any judgment,
decree, or order (including approval of a property settlement agreement) which
relates to the provision of child support, alimony, or property rights to a
present or former Spouse, child or other dependent of a Participant pursuant to
a State domestic relations or community property law, unless the judgment,
decree, or order is determined by the Committee to be a qualified domestic
relations order within the meaning of Section 414(p) of the Code.
14.3 Limit of Employer Liability. The liability of the Employers with
----------------------------
respect to Participants under this Plan shall be limited to making contributions
to the Trust from time to time, in accordance with Section 4.
29
<PAGE>
14.4 Treatment of Expenses. All expenses incurred by the Committee
----------------------
and the Trustee in connection with administering this Plan and Trust Fund shall
be paid by the Trustee from the Trust Fund to the extent the expenses have not
been paid or assumed by the Employers or by the Trustee.
14.5 Number and Gender. Any use of the singular shall be interpreted
------------------
to include the plural, and the plural the singular. Any use of the masculine,
feminine, or neuter shall be interpreted to include the masculine, feminine, or
neuter, as the context shall require.
14.6 Nondiversion of Assets. Except as provided in Sections 5.3 and
-----------------------
13.3, under no circumstances shall any portion of the Trust Fund be diverted to
or used for any purpose other than the exclusive benefit of the Participants and
their Beneficiaries prior to the satisfaction of all liabilities under the Plan.
14.7 Separability of Provisions. If any provision of this Plan is
---------------------------
held to be invalid or unenforceable, the other provisions of the Plan shall not
be affected but shall be applied as if the invalid or unenforceable provision
had not been included in the Plan.
14.8 Service of Process. The agent for the service of process upon
-------------------
the Plan shall be the president of the Association, or such other person as may
be designated from time to time by the Association.
14.9 Governing State Law. This Plan shall be interpreted in
--------------------
accordance with the laws of the State of Ohio to the extent those laws are
applicable under the provisions of ERISA.
14.10 Special Rules for Persons Subject to Section 16(b) Requirements.
---------------------------------------------------------------
Notwithstanding anything herein to the contrary, any former Participant who is
subject to the provisions of Section 16(b) of the Securities Exchange Act of
1934, who becomes eligible to again participate in the Plan, may not become a
Participant prior to the date that is six months from the date such former
Participant terminated participation in the Plan.
In addition, any person subject to the provisions of Section 16(b) of the
1934 Act receiving a distribution of Stock from the Plan must hold such Stock
for a period of six months commencing with the date of distribution. However,
this restriction will not apply to Stock distributions made in connection with
death, retirement, disability or termination of employment, or made pursuant to
the terms of a qualified domestic relations order.
Section 15. Top-Heavy Provisions.
---------------------
15.1 Determination of Top-Heavy Status. The Committee shall determine
----------------------------------
on a regular basis whether each Plan Year is or is not a "Top-Heavy Year" for
purposes of implementing the provisions of Sections 15.2, and 15.3, which apply
only to the extent the Plan is top-heavy or super top-heavy within the meaning
of Section 416 and the Treasury Regulations promulgated thereunder. In making
this determination, the Committee shall use the following definitions and
principles:
30
<PAGE>
15.1-1 The "Employer" includes all business entities which are
considered commonly controlled or affiliated within the meaning of Sections
414(b), 414(c), and 414(m) of the Code.
15.1-2 The "plan aggregation group" includes each qualified
retirement plan maintained by the Employer (i) in which a Key Employee is a
Participant during the Plan Year, (ii) which enables any plan described in
clause (i) to satisfy the requirements of Section 401(a)(4) or 410 of the
Code, or (iii) which provides contributions or benefits comparable to those
of the plans described in clauses (i) and (ii) and which is designated by
the Committee as part of the plan aggregation group.
15.1-3 The "determination date," with respect to the first Plan Year
of any plan, means the last day of that Plan Year, and with respect to each
subsequent Plan Year, means the last day of the preceding Plan Year. If
any other plan has a determination date which differs from this Plan's
determination date, the top-heaviness of this Plan shall be determined on
the basis of the other plan's determination date falling within the same
calendar years as this Plan's determination date.
15.1-4 A "Key Employee," with respect to a Plan Year, means an
Employee who at any time during the five years ending on the top-heavy
determination date for the Plan Year has received compensation from an
Employer and has been (i) an officer of the Employer having Total
Compensation greater than 50 percent of the limit then in effect under
Section 415(b)(1)(A) of the Code, (ii) one of the 10 Employees owning the
largest interests in the Employer having Total Compensation greater than
the limit then in effect under Section 415(c)(1)(A), (iii) an owner of more
than five percent of the outstanding equity interest or the outstanding
voting interest in any Employer, or (iv) an owner of more than one percent
of the outstanding equity interest or the outstanding voting interest in an
Employer whose Total Compensation exceeds $150,000. In determining which
individuals are Key Employees, the rules of Section 416(i) of the Code and
Treasury Regulations promulgated thereunder shall apply. The Beneficiary
of a Key Employee shall also be considered a Key Employee.
15.1-5 A "Non-key Employee" means an Employee who at any time during
the five years ending on the top-heavy determination date for the Plan Year
has received compensation from an Employer and who has never been a Key
Employee, and the Beneficiary of any such Employee.
15.1-6 The "aggregated benefits" for any Plan Year means (i) the
adjusted account balances in defined contribution plans on the
determination date, plus (ii) the adjusted value of accrued benefits in
defined benefit plans, calculated as of the annual valuation date
coinciding with or next preceding the determination date, with respect to
Key Employees and Non-key Employees under all plans within the plan
aggregation group which includes this Plan. For this purpose, the
"adjusted account balance" for and the "adjusted value of accrued benefit"
31
<PAGE>
for any Employee shall be increased by all plan distributions made with
respect to the Employee during the five years ending on the determination
date. Further, the adjusted account balance under a plan shall not include
any amount attributable to a rollover contribution or similar transfer to
the plan initiated by an Employee and made after 1983, unless both plans
involved are maintained by the Employer, in which event the transferred
amount shall be counted in the transferee plan and ignored for all purposes
in the transferor plan. Finally, the adjusted value of accrued benefits
under any defined benefit plan shall be determined by assuming whichever
actuarial assumptions were applied by the Pension Benefit Guaranty
Corporation to determine the sufficiency of plan assets for plans
terminating on the valuation date.
15.1-7 This Plan shall be "top-heavy" for any Plan Year in which the
aggregated benefits of the Key Employees exceed 60 percent of the total
aggregated benefits for both Key Employees and Non-key Employees.
15.1-8 This Plan shall be "super top-heavy" for any Plan Year in
which the aggregated benefits of the Key Employees exceed 90 percent of the
total aggregated benefits for both Key Employees and Non-key Employees.
15.1-9 A "Top-Heavy Year" means a Plan Year in which the Plan is top-
heavy.
15.2 Minimum Contributions. For any Top-Heavy Year, each Employer
----------------------
shall make a special contribution on behalf of each Participant to the extent
that the total allocations to his Account pursuant to Section 4 is less than the
lesser of (i) four percent of his Total Compensation for that year, or (ii) the
highest ratio of such allocation to Total Compensation received by any Key
Employee for that year. For purposes of the special contribution of this
Section 15.2, a Key Employee's Total Compensation shall include amounts the Key
Employee elected to defer under a qualified 401(k) arrangement. Such a special
contribution shall be made on behalf of each Participant who is employed by an
Employer on the last day of the Plan Year, regardless of the number of his Hours
of Service, and shall be allocated to his Account.
For any Plan Year when (1) the Plan is top-heavy and (2) a Non-key Employee
is a Participant in both this Plan and a defined benefit plan included in the
plan aggregation group which is top heavy, the sum of the Employer contributions
and forfeitures allocated to the Account of each such Non-key Employee shall be
equal to at least five percent (5%) of such Non-key Employee's Total
Compensation for that year.
32
<PAGE>
15.3 Minimum Vesting. If a Participant's vested interest in his
----------------
Account is to be determined in a Top-Heavy Year, it shall be based on the
following "top-heavy table":
<TABLE>
<CAPTION>
Vesting Percentage of
Years Interest Vested
------- ---------------
<S> <C>
fewer than 3 0
3 or more 100%
</TABLE>
33
<PAGE>
TRUST AGREEMENT
BETWEEN
FIRST FEDERAL SAVINGS AND
LOAN ASSOCIATION OF WARREN
AND
________________________
FOR THE
FIRST FEDERAL SAVINGS
AND LOAN ASSOCIATION OF WARREN
EMPLOYEE STOCK OWNERSHIP TRUST
<PAGE>
CONTENTS
Page No.
<TABLE>
<CAPTION>
<S> <C> <C>
Section 1 Creation of Trust 1
Section 2 Investment of Trust Fund and
Administrative Powers of the
Trustee 2
Section 3 Compensation and Indemnification
of Trustee and Payment of Expenses
and Taxes 7
Section 4 Records and Valuation 8
Section 5 Instructions from Committee 8
Section 6 Change of Trustees 9
Section 7 Miscellaneous 9
</TABLE>
2
<PAGE>
This TRUST AGREEMENT dated_____________ BETWEEN First Federal Savings and
Loan Association of Warren, a federally-chartered savings and loan association
with its principal office at 185 East Market Street, Warren, Ohio 44482
(hereinafter called the "Company"), AND ________________, with offices
at________________ (hereinafter called the "Trustee"),
W I T N E S S E T H T H A T:
WHEREAS, effective____________, the Company approved and adopted an
employee stock ownership plan for the benefit of its employees, First Federal
Savings and Loan Association of Warren Employee Stock Ownership Plan,
(hereinafter called the "Plan"); and
WHEREAS, the Company has authorized the execution of this Trust Agreement
and has appointed_________________ as Trustee of the Trust Fund created pursuant
to the Plan; and
WHEREAS,________________ has agreed to act as trustee and to hold and
administer the assets of the Plan in accordance with the terms of this Trust
Agreement;
NOW, THEREFORE, the Company and the Trustee agree as follows:
Section 1. Creation of Trust.
------------------
1.1 Trustee.________________ shall be trustee of the Trust Fund created in
-------
accordance with and in furtherance of the Plan, and shall serve as Trustee until
its removal or resignation in accordance with Section 6.
1.2 Trust Fund. The Trustee hereby agrees to accept contributions from
-----------
the Employer as defined in the Plan and amounts transferred from other qualified
retirement plans from time to time in accordance with the terms of the Plan.
All such property and contributions, together with income thereon and increments
thereto, shall constitute the "Trust Fund" to be held in accordance with the
terms of the Trust Agreement.
1.3 Incorporation of Plan. An instrument entitled "First Federal Savings
----------------------
and Loan Association of Warren Employee Stock Ownership Plan" is incorporated
herein by reference, and this Trust Agreement shall be interpreted consistently
with that Plan. All words and phrases defined in that Plan shall have the same
meaning when used in this Trust Agreement.
1.4 Name. The name of this trust shall be "First Federal Savings and Loan
-----
Association of Warren Employee Stock Ownership Trust."
1.5 Nondiversion of Assets. In no event shall any part of the corpus or
-----------------------
income of the Trust Fund be used for, or diverted to, purposes other than for
the exclusive benefit of the Participants and their Beneficiaries prior to the
satisfaction of all liabilities under the Plan, except to the extent that assets
may be returned to the Employer in accordance with the Plan where the Plan fails
to qualify initially under Section 401(a) of the Code, or where they are
attributable to contributions made by mistake of fact or conditioned upon their
deductibility.
<PAGE>
Section 2. Investment of Trust Fund and Administrative Powers of the
---------------------------------------------------------
Trustee.
- --------
2.1 Stock and Other Investments. The basic investment policy of the Plan
----------------------------
shall be to invest primarily in Stock of the Employer for the exclusive benefit
of the Participants and their Beneficiaries. The Committee shall have full and
complete investment authority and responsibility with respect to the purchase,
retention, sale, exchange, and pledge of Stock and the payment of Stock
Obligations, and the Trustee shall not deal in any way with Stock except in
accordance with the written instructions of the Committee. The Trustee shall
invest, or keep invested, all or a portion of the Trust Fund in Stock, and shall
pay Stock Obligations out of assets of the Trust Fund, as instructed from time
to time by the Committee. The Trustee shall invest any balance of the Trust
Fund (the "Investment Fund") in such other property as the Committee, in its
sole discretion, shall deem advisable, subject to any delegation of such
investment responsibility pursuant to Section 2.2. Nothing contained herein
shall provide investment discretion authority or any like kind responsibility in
regard to the assets of the Trust Fund.
In connection with instructions to acquire Stock, the Trustee may purchase
newly issued or outstanding Stock from an Employer or any other holders of
Stock, including Participants, Beneficiaries, and Plan fiduciaries. All
purchases and sales of Stock shall be made by the Trustee at fair market value
as determined by the Committee in good faith and in accordance with any
applicable requirement under ERISA. Such purchases may be made with assets of
the Trust Fund, with funds borrowed for this purpose (with or without guarantees
of repayment to the lender by an Employer), or by any combination of the
foregoing.
Notwithstanding any other provision of this Trust Agreement or the Plan,
neither the Committee nor Trustee shall make any purchase, sale, exchange,
investment, pledge, valuation, or loan, or take any other action involving those
assets for which it is responsible which (i) is inconsistent with the policy of
the Plan and Trust, (ii) is inconsistent with the prudence and diversification
requirements set forth in Sections 404(a)(1)(B) and (C) of ERISA (to the extent
such requirements apply to an employee stock ownership plan and trust), (iii) is
prohibited by Section 406 or 407 of ERISA, or (iv) would impair the
qualification of the Plan or the exemption of the Trust under Sections 401 and
501 of the Code.
2.2 Delegation of Investment Responsibility. The Committee may, by
----------------------------------------
written notice, direct the Trustee to segregate any portion or all of the
Investment Fund into one or more separate accounts for each of which full
investment responsibility will be delegated to an investment manager appointed
in such notice pursuant to Section 402(c)(3) of ERISA (hereinafter a "Manager").
For any separate account where the Trustee is to maintain custody of the assets,
the Trustee and the Manager shall agree upon procedures for the transmittal of
investment instructions from the Manager to the Trustee, and the Trustee may
provide the Manager with such documents as may be necessary to authorize the
Manager to effect transactions directly on behalf of the segregated account.
2
<PAGE>
Further, the Committee may, by written notice, direct the Trustee to
segregate any portion or all of the Investment Fund into one or more separate
accounts for each of which full investment responsibility will be delegated to
an insurance company through one or more group annuity contracts, deposit
administration contracts, or similar contracts, which may provide for
investments in any commingled separate accounts established under such
contracts. An insurance company shall be a Manager with respect to any amounts
held under such a contract except to the extent the insurer's assets are not
deemed assets of the Plan and Trust Fund pursuant to Section 401(b)(2) of ERISA.
The allocation of amounts held under such a contract among the insurer's general
account and one or more individual or commingled separate accounts shall be
determined by the Company except as otherwise agreed by the Company and the
insurer.
Any Manager shall have all of the powers given to the Trustee pursuant to
Section 2.3 with respect to the portion of the Trust Fund committed to its
investment discretion and control. The Trustee shall be responsible for the
safekeeping of any assets which remain in its custody, but in no event shall the
Trustee be under any duty to question or make any inquiry or suggestion
regarding the action or inaction of a Manager or an insurer or the advisability
of acquiring, retaining, or disposing of any asset of a segregated account. The
Employer shall indemnify and hold the Trustee harmless from any and all costs,
damages, expenses, and liabilities which the Trustee may incur by reason of any
action taken or omitted to be taken by the Trustee upon directions from the
Committee, a Manager, or an insurer pursuant to this Section 2.2.
2.3 Trustee Powers. In addition to and not by way of limitation upon the
---------------
fiduciary powers granted to it by law, the Trustee shall have the following
specific powers, subject to the limitations set forth in Section 2.1:
2.3-1 to receive, hold, manage, invest and reinvest the money or other
property which constitutes the Trust Fund, without distinction between principal
and income;
2.3-2 to hold funds uninvested temporarily without liability for interest
thereon, and to deposit funds in one or more savings or similar accounts with
any banks and savings and loan associations which are insured by an
instrumentality of the federal government, including the Trustee if it is such
an institution.
2.3-3 at the direction of the Committee, to invest or reinvest the whole
or any portion of the money or other property which constitutes the Trust Fund
in such common or preferred stocks, investment trust shares, mutual funds,
commingled trust funds, partnership interests, bonds, notes, or other evidences
of indebtedness, and real and personal property as the Trustee in its absolute
judgment and discretion may deem to be for the best interests of the Trust Fund,
regardless of nondiversification to the extent that such nondiversification is
clearly prudent, and regardless of whether any such investment or property is
authorized by law regarding the investment of trust funds, of a wasting asset
nature, temporarily nonincome producing, or within or without the United States;
3
<PAGE>
2.3-4 to invest in common and preferred stocks, bonds, notes, or other
obligations of any corporation or business enterprise in which an Employer or
its owners may own an interest;
2.3-5 at the direction of the Committee, to exchange any investment or
property, real or personal, for other investments or properties at such time and
upon such terms as the Trustee shall deem proper;
2.3-6 at the direction of the Committee, to sell, transfer, convey or
otherwise dispose of any investment or property, real or personal, for cash or
on credit, in such manner and upon such terms and conditions as the Trustee
shall deem advisable, and no person dealing with the Trustee shall be under any
duty to inquire as to the validity, expediency, or propriety of any such sale or
as to the application of the purchase money paid to the Trustee;
2.3-7 to hold any investment or property in the name of the Trustee, with
or without the designation of any fiduciary capacity, or in name of a nominee,
or unregistered, or in such other form that title may pass by delivery;
provided, however, that the Trustee's records always show that such investment
or property belongs to the Trust Fund and the Trustee shall not be relieved
hereby of its responsibility to maintain safe custody of the Trust Fund;
2.3-8 to organize one or more corporations to hold, manage, or liquidate
any property, including real estate, owned or acquired by the Trust Fund if in
the sole discretion of the Trustee the organization of such corporation or
corporations is for the best interest of the Trust;
2.3-9 to extend the time for payment of, to modify, to renew, or to
release security from any mortgage, note or other evidence of indebtedness, or
to take advantage of or waive any default; to foreclose mortgages and bid in
property under foreclosure or to take title to property by conveyance in lieu of
foreclosure, either with or without the payment of additional consideration;
2.3-10 to vote in person or by proxy all stocks and other securities
having voting privileges; to exercise or refrain from exercising any option or
privilege with respect to stocks and other securities, including any right or
privilege to subscribe for or otherwise to acquire stocks and other securities;
or to sell any such right or privilege; to assent to and join in any plan of
refinance, merger, consolidation, reorganization or liquidation of any
corporation or other enterprise in which this Trust may have an interest, to
deposit stocks and other securities with any committee formed to effectuate the
same, to pay any expense incidental thereto, to exchange stocks and other
securities for those which may be issued pursuant to any such plan, and to
retain as an investment the stocks and other securities received by the Trustee;
and to deposit any investment in a voting trust; notwithstanding the preceding,
participants and beneficiaries shall be entitled to direct the manner in which
stock allocated to their respective accounts are to be voted on all matters.
All stock which has been allocated to participant's accounts for which the
Trustee has received no written direction and all unallocated Employer
securities will be voted by the Trustee in direct proportion to any participant
directions received and solely in the interest
4
<PAGE>
of the participants and beneficiaries. Whenever such voting rights are to be
exercised, the Employer, the Committee and the Trustee shall see that all
participants and beneficiaries are provided with adequate opportunity to deliver
their instructions to the Trustee regarding voting of stock allocated to their
accounts. The instructions of the participants with respect to the voting of
allocated shares hereunder shall be confidential;
2.3-11 to abandon any property, real or personal, which the Trustee shall
consider to be worthless or not of sufficient value to warrant its keeping or
protecting; to abstain from the payment of taxes, water rents, assessments,
repairs, maintenance, and upkeep of any such property; to permit any such
property to be lost by tax sale or other proceedings, and to convey any such
property for a nominal consideration or without consideration;
2.3-12 to borrow money from an Employer or from others (including the
Trustee), and to enter into installment contracts, for the purchase of Stock
upon such terms and conditions and at such reasonable rates of interest as the
Committee may deem to be advisable, to issue its promissory notes as Trustee to
evidence such debt, to secure the payment of such notes by pledging any property
of the Trust Fund, and to authorize the holders of any such notes to pledge them
to secure obligations of the holders and in connection therewith to repledge any
assets of the Trust as security therefor; provided that, with respect to any
extension of credit to the Trust involving, as a lender or guarantor, an
Employer or another "disqualified person" within the meaning of Section
4975(e)(2) of the Code --
(a) each loan or installment contract is primarily for the benefit of
Participants and Beneficiaries of the Plan;
(b) any interest on a loan or installment contract does not exceed a
reasonable rate;
(c) the proceeds of any loan shall be used only to acquire Stock, to repay
the loan, or to repay a previous loan meeting these conditions, and the
subject of any installment contract shall be only the Trust's purchase
of Stock;
(d) any collateral pledged to a creditor by the Trustee shall consist only
of the assets purchased with borrowed funds or received in accordance
with an installment contract and the creditor shall have no recourse
against the Trust Fund except with respect to the collateral (although
the creditor may have recourse against an Employer as guarantor);
(e) payments with respect to a loan or installment contract shall be made
only from those amounts contributed by the Employer to the Trust Fund,
from amounts earned on such contributions, and from cash dividends
received on unallocated Stock held by the Trust as collateral for such
an obligation; and
(f) upon the payment of any portion of balance due on a loan or upon any
installment payment, a proportionate part of any assets originally
pledged as collateral for such indebtedness shall be released from
encumbrance in accordance with Section 4.2 of the Plan and the
Committee shall at least annually advise the Trustee of the number of
shares of Stock so released and the proper allocation of such shares
under the terms of the Plan;
5
<PAGE>
2.3-13 to manage and operate any real property which shall at any time
constitute an asset of the Trust Fund; to make repairs, alterations, and
improvements thereto; to insure such property against loss by fire or other
casualty; to lease or grant options for the sale of such property, which lease
or option may be for a period of time which may extend beyond the life of this
Trust; and to take any other action or enter into any other contract respecting
such property which is consistent with the best interests of the Trust;
2.3-14 to pay any and all reasonable and normal expenses incurred in
connection with the exercise of any power, right, authority or discretion
granted herein, and, upon prior notice to the Company, to employ and compensate
agents, investment counsel, custodians, actuaries, attorneys, and accountants in
such connection;
2.3-15 to employ and consult with any legal counsel, who also may be
counsel to an Employer or the Administrator, with respect to the meaning or
construction of this Trust Agreement, the extent of the Trustee's obligations
and duties hereunder, and whether the Trustee should take or decline to take a
particular action hereunder, and the Trustee shall be fully protected with
respect to any action taken or omitted by it in good faith pursuant to such
advice;
2.3-16 to defend any action or proceeding instituted against the Trust
Fund, to institute any action on behalf of the Trust Fund, and to compromise or
submit to arbitration any dispute concerning the Trust Fund;
2.3-17 to make, execute, acknowledge and deliver any and all documents of
transfer and conveyance and any and all other instruments that may be necessary
or appropriate to carry out the powers herein granted;
2.3-18 to commingle the Trust Fund created pursuant hereto, in whole or in
part, in a single trust with all or any portion of any other trust fund,
assigning an undivided interest to each such commingled trust fund, provided
that such commingled trust is itself exempt from taxation pursuant to Section
501(a) of the Code, or its successor Section; and provided further that the
trust agreement governing such commingled trust shall be deemed incorporated by
reference in the Plan;
2.3-19 where two or more trusts governed by this Trust Agreement have an
undivided interest in any property, to credit the income from such property to
such trusts in proportion to their undivided interests, and when non pro rata
distributions of property or money are made from such trusts, to make
appropriate adjustments to the undivided fractional interests of such trusts;
2.3-20 to invest all or any portion of the Trust Fund in one or more group
annuity contracts, deposit administration contracts, and other such contracts
with insurance companies, including any commingled separate accounts established
under such contracts;
6
<PAGE>
2.3-21 generally, with respect to all cash, stocks and other securities,
and property, both real and personal, received or held in the Trust Fund by the
Trustee, to exercise all the same rights and powers as are or may be lawfully
exercised by persons owning cash, or stocks and other securities, or such
property in their own right; and to do all other acts, whether or not expressly
authorized, which it may deem necessary or proper for the protection of the
Trust Fund; and
2.3-22 whenever more than two persons shall qualify to act as co-trustees,
to exercise and perform every power (including discretionary powers), authority
or duty by the concurrence of a majority of them the same effect as if all had
joined therein, except that the unanimous vote of such persons shall be
necessary to determine the number (one or more) and identity of persons who may
sign checks, make withdrawals from financial institutions, have access to safe
deposit boxes, or direct the sale of trust assets and the disposition of the
proceeds.
2.4 Brokerage. If permitted in writing by the Committee, the Trustee
----------
shall have the power and authority to be exercised in its sole discretion at any
time and from time to time to issue and place orders for the purchase or sale of
securities with qualified brokers and dealers. Such orders may be placed with
such qualified brokers and/or dealers who also provide investment information or
other research or statistical services to the Trustee in its capacity as a
fiduciary or investment manager for other clients.
Section 3. Compensation and Indemnification of Trustee and Payment of
----------------------------------------------------------
Expenses and Taxes.
- -------------------
3.1 Fees and Expenses from Fund. Compensation of Trustee. In
---------------------------
consideration for rendering services pursuant to this Trust Agreement the
Trustee shall be paid fees in accordance with the Trustee's fee schedule as in
effect from time to time. Fee changes resulting in fee increases shall be
effective upon not less than 30 days' notice to the Company. In addition, the
Trustee shall be reimbursed for any reasonable expenses, including reasonable
attorneys' fees, incurred in the administration of the Trust created hereby.
Fees and expenses shall be allocated to Participant Accounts, if any, unless
paid directly by the Employer. All compensation and expenses of the Trustee
shall be paid out of the Trust Fund or by the Employer as specified in the Plan.
If and to the extent the Trust Fund shall not be sufficient, such compensation
and expenses shall be paid by the Employer upon demand. If payment is due but
not paid by the Employer, such amount shall be paid from the assets of the
Trust Fund. The Trustee is hereby empowered to withdraw all such compensation
and expenses which are 60 days past due from the Trust Fund, and, in furtherance
thereof, liquidate any assets of the Trust Fund, without further authorization
or direction from or by any person.
3.2 Indemnification. Notwithstanding any other provision of this Trust
----------------
Agreement, any individual designated as a trustee hereunder shall be indemnified
and held harmless by the Employer to the fullest extent permitted by law against
any and all costs, damages, expenses and liabilities including, but not limited
to attorneys' fees and disbursements reasonably incurred by
7
<PAGE>
or imposed upon such individual in connection with any claim made against him or
in which he may be involved by reason of his being, or having been, a trustee
hereunder, to the extent such amounts are not satisfied by insurance maintained
by the Employer, except liability which is adjudicated to have resulted from the
gross negligence or willful misconduct of the Trustee by reason of any action so
taken. Further, any corporate trustee and its officers, directors and agents may
be indemnified and held harmless by the Employer to the fullest extent permitted
by law against any and all costs, damages, expenses and liabilities including,
but not limited to attorneys' fees and disbursements reasonably incurred by or
imposed upon such persons and/or corporation in connection with any claim made
against it or them or in which it or them may be involved by reason of its
being, or having been, a trustee hereunder as may be agreed between the Employer
and such trustee, except liability which is adjudicated to have resulted from
the gross negligence or willful misconduct of the Trustee by reason of any
action so taken.
3.3 Expenses. All expenses of administering this Trust and the Plan,
---------
whether incurred by the Trustee or the Committee, shall be paid by the Trustee
from the Trust Fund to the extent such expenses shall not have been assumed by
the Employer.
3.4 Taxes. All taxes that may be levied or assessed upon or in respect of
------
the Trust Fund shall be paid from the Trust Fund. The Trustee shall notify the
Committee of any proposed or final assessments of taxes and may assume that any
such taxes are lawfully levied or assessed unless the Committee advises it in
writing to the contrary within fifteen days after receiving the above notice
from the Trustee. In such case, the Trustee, if requested by the Committee in
writing, shall contest the validity of such taxes in any manner deemed
appropriate by the Committee; the Employer may itself contest the validity of
any such taxes, in which case the Committee shall so notify the Trustee and the
Trustee shall have no responsibility or liability respecting such contest. If
either party to this Agreement contests any such proposed levy or assessments,
the other party shall provide such information and cooperation as the party
conducting the contest shall reasonably request.
Section 4. Records and Valuation.
----------------------
4.1 Records. The Trustee, and any investment manager appointed pursuant
--------
to Section 2.2, shall maintain accurate and detailed records and accounts of all
investments, receipts, disbursements and other transactions made by it with
respect to the Trust Fund, and all accounts, books and records relating thereto
shall be open at all reasonable time to inspection and audit by the Committee
and the Employer.
4.2 Valuation. From time to time upon the request of the Committee, but
----------
at least annually as of the last day of each Plan Year, the Trustee shall
prepare a balance sheet of the Investment Fund in accordance with Section 8.2 of
the Plan and shall deliver copies of the balance sheet to the Committee and the
Employer.
8
<PAGE>
4.3 Discharge of Trustee. Ninety days after the filing of any balance
---------------------
sheet under Section 4.2 or any accounting under Section 6, the Trustee shall be
forever released and discharged from any liability or accountability other than
for gross negligence or wilful misconduct on the part of the Trustee to anyone
with respect to the transactions shown or reflected in such balance sheet or
accounting, except with respect to any acts or transactions as to which the
Committee, within such ninety-day period, files written objections with the
Trustee. The written approval of the Committee of any balance sheet or
accounting so filed by the Trustee, or the Committee's failure to file written
objections within ninety days, shall be a settlement of such balance sheet or
accounting as against all persons, and shall forever release and discharge the
Trustee from any liability of accountability to anyone with respect to the
transactions shown or reflected in such balance sheet or accounting other than
liability arising out of the Trustee's gross negligence or wilful misconduct.
If a statement of objections is filed by the Committee and the Committee is
satisfied that its objections should be withdrawn or if the balance sheet or
accounting is adjusted to its satisfaction, the Committee shall indicate its
approval of the balance sheet or accounting in a written statement filed with
the Trustee and the Trustee shall be forever released and discharged from any
liability of accountability to anyone in accordance with the immediately
preceding sentence. If an objection is not settled by the Committee and the
Trustee, the Trustee may start a proceeding for a judicial settlement of the
balance sheet or accounting in any court of competent jurisdictions; the only
parties that need be joined in such a proceeding are the Trustee, the Committee,
the Employer and any other parties whose participation is required by law.
4.4 Right to Judicial Settlement. Nothing in this Agreement shall prevent
-----------------------------
the Trustee from having its account settled by a court of competent jurisdiction
at any time. The only parties that need be joined in any such proceeding are
the Employer, the Committee, the Trustee and any other parties whose
participation is required by law.
Section 5. Instructions from Committee.
----------------------------
5.1 Certification of Members and Employees. From time to time the Company
---------------------------------------
shall certify to the Trustee in writing the names of the individuals comprising
the Committee and shall furnish to the Trustee specimens of their signatures and
the signatures of their agents, if any. The Trustee shall be entitled to
presume that the identities of such individuals and their agents are unchanged
until it receives a certification from the Company notifying it of any changes.
5.2 Instructions to Trustee.
------------------------
(a) The Trustee shall pay benefits and administrative expenses under the
Plan only when it receives (and in accordance with) written instructions of the
Committee indicating the amount of the payment and the name and address of the
recipient in accordance with the terms of the Plan. The Trustee need not
inquire into whether any payment the Committee instructs it to make is
consistent with the terms of the Plan or applicable law or otherwise proper.
Any payment made by the Trustee in accordance with such instructions shall be a
complete discharge and acquittance to the Trustee. If the Committee advises the
Trustee that benefits have become
9
<PAGE>
payable with respect to a Participant's interest in the Trust Fund but does not
instruct the Trustee as to the manner of payment, the Trustee shall hold the
Participant's interest in the Trust until it receives written instructions from
the Committee as to the manner of payment. The Trustee shall not pay benefits
from the Trust Fund without such instructions, even though it may be informed
from other sources, including, without limitation, a Participant or Beneficiary,
that benefits are payable under the Plan. The Trustee shall have no
responsibility to determine when, to whom or in what amount benefits and
expenses are payable under the Plan. Further, the Trustee shall have no power,
authority or duty to interpret the Plan or inquire into the decisions or
determinations of the Committee, or to question the instructions given to it by
the Committee. If the Committee so directs, the Trustee shall segregate amounts
payable with respect to the interest in the Plan of any Participant and
administer them separately from the rest of the Trust Fund in accordance with
the Committee's instructions.
(b) The Trustee may require the Committee to certify in writing that any
payment of benefits or expenses it instructs the Trustee to make pursuant to
Section 5.2(a) above is: (i) in accordance with the terms of the Plan and/or
(ii) one which the Committee is authorized by the Plan and any other applicable
instruments to direct and/or (iii) made for the exclusive purpose of providing
benefits to Participants and Beneficiaries, or defraying reasonable expenses of
Plan administration and/or (iv) not made to a party in interest (within the
meaning of ERISA Section 3(14)), and/or (v) not a prohibited transaction (within
the meaning of Code Section 4975 and ERISA Section 406). If the Trustee
requests, instructions to pay benefits shall be made by the Committee on forms
prepared by the Trustee to include any or all of the above representations. The
Trustee shall be fully protected in relying on the truth of any such
representation by the Committee and shall have no duty to investigate whether
such representations are correct or to see to the application of any amounts
paid to and received by the recipient.
5.3 Plan Change. In the event of an amendment, merger, division, or
------------
termination of the Plan, the Trustee shall continue to disburse funds and to
take other proper actions in accordance with the instructions of the Committee.
Section 6. Change of Trustees.
-------------------
The Company may at any time remove any person or entity serving as a
trustee hereunder by giving to such person or entity written notice of removal
and, if applicable, the name and address of the successor trustee. Any person
or entity serving as a trustee hereunder may resign at any time by giving
written notice to the Company. Any such removal or resignation shall take
effect within 30 days after notice has been given by the trustee or by the
Company, as the case may be. Within those 30 days, the removed or resigned
trustee shall transfer, pay over and deliver any portion of the Trust Fund in
its possession or control (less an appropriate reserve for any unpaid fees,
expenses, and liabilities) and all pertinent records to the successor or
remaining trustee; provided, however, that any assets which are invested in a
collective fund or in some other manner which prevents their immediate transfer
shall be transferred and delivered to the successor trustee as soon as may be
practicable. Thereafter, the removed or resigned trustee shall
10
<PAGE>
have no liability for the Trust Fund or for its administration by the successor
or remaining trustee, but shall render an accounting to the Committee of its
administration of the Trust Fund to the date on which its trusteeship shall have
been terminated. The Company may also, upon 30 days' notice to each person
currently serving as a trustee, appoint one or more persons to serve as co-
trustees hereunder.
Section 7. Miscellaneous.
--------------
7.1 Right to Amend. This Trust Agreement may be amended from time to time
---------------
by an instrument executed by the Company; provided, however, that any amendment
affecting the powers, duties or liabilities of the Trustee must be approved by
the Trustee, and provided, further, that no amendment may divert any portion of
the Trust Fund to purposes other than the exclusive benefit of the Participants
and their Beneficiaries prior to the satisfaction of all liabilities for
benefits. Any amendment shall apply to the Trust Fund as constituted at the
time of the amendment as well as to that portion of the Trust Fund which is
subsequently acquired.
7.2 Compliance with ERISA. In the exercise of its powers and the
----------------------
performance of its duties, the Trustee shall act in good faith and in accordance
with the applicable requirements under ERISA. Except as may be otherwise
required by ERISA, the Trustee shall not be required to furnish any bond in any
jurisdiction for the performance of its duties and, if a bond is required
despite this provision, no surety shall be required on it.
7.3 Nonresponsibility for Funding. The Trustee shall be under no duty to
------------------------------
enforce the payment of any contributions and shall not be responsible for the
adequacy of the Trust Fund to satisfy any obligations for benefits, expenses,
and liabilities under the Plan.
7.4 Reports. The Trustee shall file any report which it is required by
--------
law to file with any governmental authority with respect to this Trust, and the
Committee shall furnish to the Trustee whatever information is necessary to
prepare the report.
7.5 Dealings with Trustee. Persons dealing with the Trustee, including
----------------------
but not limited to banks, brokers, dealers, and insurers, shall be under no
obligation to inquire concerning the validity of anything which the Trustee
purports to do, nor need any person see to the proper application of any money
paid or any property transferred upon the order of the Trustee or to inquire
into the Trustee's authority as to any transaction.
7.6 Limitation Upon Responsibilities. The Trustee shall have no
---------------------------------
responsibilities with respect to the Plan or Trust other than those specifically
enumerated or explicitly allocated to it under this Trust Agreement or the
provisions of ERISA. All other responsibilities are retained and shall be
performed by one or more of the Employer, the Committee, and such advisors or
agents as they choose to engage.
11
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The Trustee may execute any of the trusts or powers hereof and perform any
of its duties by or through attorneys, agents, receivers or employees and shall
not be answerable for the conduct of the same if chosen with reasonable care and
shall be entitled to advice of counsel concerning all matters of trust hereof
and the duties hereunder, and may in all cases pay such reasonable compensation
to all such attorneys, agents, receivers and employees as may reasonably be
employed in connection with the trusts hereof. The Trustee may act upon the
opinion or advice of any attorney (who may be the attorney for the trustee or
attorney for the Committee), approved by the Trustee in the exercise of
reasonable care. The Trustee shall not be responsible for any loss or damage
resulting from any action or non-action in good faith in reliance upon such
opinion or advice.
The Trustee shall be protected in acting upon any notice, request, consent,
certificate, order, affidavit, letter, telegram or other paper or document
believed to be genuine and correct and to have been signed or sent by the proper
person or persons, and the Trustee shall be under no duty to make any
investigation or inquiry as to any statement contained in any such writing but
may accept the same as conclusive evidence of the truth and accuracy of the
statements therein contained.
The Trustee shall not be liable for other than its gross negligence or
willful misconduct. Except in the case of gross negligence or wilful misconduct
on the part of the Trustee, the Trustee in its corporate capacity shall not be
liable for claims of any persons in any manner regarding the Plan; such claims
shall be limited to the Trust Fund. Unless the Trustee participates knowingly
in, or knowingly undertakes to conceal, an act or omission of the Committee or
any other fiduciary, knowing such act or omission to be a breach of fiduciary
responsibility, the Trustee shall be under no liability for any loss of any kind
which may result by reason of such act or omission.
Before taking any action hereunder at the request or direction of the
Committee, the Trustee may require that indemnity in form and amount
satisfactory to the Trustee be furnished for the reimbursement of any and all
costs and expenses to which it may be put including, without limitation,
reasonable attorneys' fees and to protect it against all liability, except
liability which is adjudicated to have resulted from the gross negligence or
willful misconduct of the Trustee by reason of any action so taken.
No provision of this Agreement shall require the Trustee to expend or risk
its own funds or otherwise incur any financial liability in the performance of
any of its duties hereunder, or in the exercise of any of its rights or powers,
if it shall have reasonable grounds for believing that repayment of such funds
or adequate indemnity against such risk or liability is not reasonably assured
to it.
7.7 Qualification of Plan and Trust. The Trustee shall be fully protected
--------------------------------
in assuming that the Plan and Trust meet the requirements of Code Section 401
and 501, respectively, and all the
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applicable provisions of ERISA unless it is advised to the contrary in
writing by the Committee or a governmental agency.
7.8 Party in Interest Information. The Employer shall provide the Trustee
------------------------------
with such information concerning the relationship between any person or
organization and the Plan as the Trustee reasonably requests in order to
determine whether such person or organization is a party in interest with
respect to the Plan within the meaning of ERISA Section 3(14).
7.9 Disputes. If a dispute arises as to the payment of any funds or
---------
delivery of any assets by the Trustee, the Trustee may withhold such payment or
delivery until the dispute is determined by a court of competent jurisdiction or
finally settled in writing by the parties concerned.
7.10 Successor Trustees. This Trust Agreement shall apply to any person
-------------------
who shall be appointed to succeed the person currently appointed as the Trustee;
and any reference herein to the Trustee shall be deemed to include any one or
more individuals or corporations or any combination thereof who or which hall at
any time act as a co-trustee or as the sole trustee.
7.11 Governing State Law. This Trust Agreement shall be interpreted in
--------------------
accordance with the laws of the State of Ohio to the extent those laws may be
applicable under the provisions of ERISA.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ATTEST: FIRST FEDERAL SAVINGS AND LOAN
ASSOCIATION OF WARREN
______________________________ By: _____________________________________
Mary Ann Roberts Steven R. Lewis
Corporate Secretary President and Chief Executive Officer
ATTEST: _____________________________________
as TRUSTEE
______________________________ By: _____________________________________
14
<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
2
<PAGE>
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 25 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
3
<PAGE>
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
4
<PAGE>
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 at any time during the term of
this Agreement due to: (1) Executive's dismissal or (2) Executive's voluntary
resignation following any 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 25
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.
5
<PAGE>
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.
6
<PAGE>
(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,
7
<PAGE>
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.
8
<PAGE>
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
9
<PAGE>
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.
10
<PAGE>
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
11
<PAGE>
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
13
<PAGE>
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 25 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 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 25
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 at any time during the term of this
Agreement by the termination of Executive's employment, 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 at any time during the term of
this Agreement following any 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 25 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
2
<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 at any time during
the term of this Agreement by the termination of the Executive's employment 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 at any time during the term of this Agreement by
Executive's voluntary or involuntary termination of employment, 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.
4
<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.
5
<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 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 25
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.
3
<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 10.7 FORM OF FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
EMPLOYEE SEVERANCE COMPENSATION PLAN
<PAGE>
FORM OF
FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION OF WARREN
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of the First Federal Savings and Loan Association of Warren
Employee Severance Compensation Plan is to assure for First Federal Savings and
Loan Association of Warren (the "Association") the services of Employees of the
Association in the event of a Change in Control (capitalized terms are defined
in section 2.1) of First Place Financial Corp. (the "Holding Company") or the
Association. The benefits contemplated by the Plan recognize the value to the
Association of the services and contributions of the Employees of the
Association and the effect upon the Association resulting from the uncertainties
of continued employment, reduced Employee benefits, management changes and
relocations that may arise in the event of a Change in Control of the
Association or the Holding Company. The Association's and the Holding Company's
Boards of Directors believe that it is in the best interests of the Association
and the Holding Company to provide Employees of the Association who have been
with the Association for a minimum of five years with such benefits in order to
defray the costs and changes in Employee status that could follow a Change in
Control. The Board of Directors believes that the Plan will also aid the
Association in attracting and retaining highly qualified individuals who are
essential to its success and the Plan's assurance of fair treatment of the
Association's Employees will reduce the distractions and other adverse effects
on Employees' performance in the event of a Change in Control.
ARTICLE I
ESTABLISHMENT OF PLAN
1.1 Establishment of Plan
---------------------
As of the Effective Date of the Plan as defined herein, the Association
hereby establishes an employee severance compensation plan to be known as the
"First Federal Savings and Loan Association of Warren Employee Severance
Compensation Plan." The purposes of the Plan are as set forth above.
1.2 Applicability of Plan
---------------------
The benefits provided by this Plan shall be available to all Employees of
the Association, who, at or after the Effective Date, meet the eligibility
requirements of Article III, except for those executive officers who have
entered into, or who enter into in the future, and continue to be subject to an
employment or change in control agreement with the Employer.
<PAGE>
1.3 Contractual Right to Benefits
-----------------------------
This Plan establishes and vests in each Participant a contractual right to
the benefits to which each Participant is entitled hereunder, enforceable by the
Participant against the Employer, Association, or both.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
-----------
Whenever used in the Plan, the following terms shall have the meanings set
forth below.
(a) "Annual Compensation" of a Participant means and includes all wages,
salary, bonus, and cash compensation, if any, paid (including accrued amounts)
by an Employer as consideration for the Participant's service during the 12
months ended the date as of which Annual Compensation is to be determined, which
are or would be includable in the gross income of the Participant receiving the
same for federal income tax purposes.
(b) "Association" means First Federal Savings and Loan Association of
Warren or any successor as provided for in Article VII hereof.
(c) "Change in Control" 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 Association or the Holding Company within the meaning
of the Home Owners' Loan Act of 1933, as amended ("HOLA") 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 such rules and
regulations 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 securities of
the Association or the Holding Company representing 20% or more of the
Association's or the Holding Company's outstanding securities except for any
securities of the Association purchased by the Holding Company in connection
with the conversion of the Association to the stock form and any securities
purchased by any tax qualified employee benefit plan of the Association; or (B)
individuals who constitute the Board of Directors 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
2
<PAGE>
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) solicitations of shareholders 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 the plan or transaction are exchanged for or
converted into cash or property or securities not issued by the Association or
the Holding Company shall be distributed; or (E) a tender offer is made for 20%
or more of the voting securities of the Association or the Holding Company.
(d) "Disability" means the permanent and total inability by reason of
mental or physical infirmity, or both, of an employee to perform the work
customarily assigned to him. Additionally, a medical doctor selected or approved
by the Board of Directors must advise the Board that it is either not possible
to determine if or when such Disability will terminate or that it appears
probable that such Disability will be permanent during the remainder of said
employees lifetime.
(e) "Effective Date" means the date the Plan is approved by the Board of
Directors of the Association, or such other date as the Board shall designate in
its resolution approving the Plan.
(f) "Employee" means any full-time Employee of the Association or any
subsidiary thereof who has completed at least one year of service with the
Association, or any subsidiary thereof, provided, however, that any Employee who
is covered or hereinafter becomes covered by an employment contract or change in
control agreement with the Employer shall not be considered to be an Employee
for purposes of this Plan.
(g) "Expiration Date" means a date ten (10) years from the Effective Date
unless earlier terminated pursuant to Section 8.2 or extended pursuant to
Section 8.1.
(h) "Employer" means the Association or a subsidiary of the Association or
a parent of the Association which has adopted the Plan pursuant to Article VI
hereof.
(i) "Holding Company" means First Place Financial Corp., the holding
company of the Association, and any entity which succeeds to the business of the
Holding Company.
(j) "Just Cause" shall mean termination because of Participant's personal
dishonesty, incompetence, willful misconduct, any breach of fiduciary duty
involving personal profit, intentional failure or unjustified neglect to perform
stated duties, conviction of or pleading guilty or nolo contendere to any crime
or offense punishable as a felony or to any crime or offense involving moral
turpitude, or violation of any final cease-and desist order. In determining
3
<PAGE>
incompetence, the acts or omissions shall be measured against standards
generally prevailing in the savings institutions industry.
(k) "Leave of Absence" and "LOA" mean (i) the taking of an authorized or
approved leave of absence under the provisions of the federal Family and Medical
Leave Act ("FMLA"), (ii) any state law providing qualitatively similar benefits
as the FMLA, or (iii) a leave of absence authorized under the policies of the
Association. "Leave of Absence" and "LOA" are defined in this paragraph for the
exclusive purposes of this Plan.
(l) "Payment" means the payment of severance compensation as provided in
Article IV hereof.
(m) "Participant" means an Employee who meets the eligibility requirements
of Article III.
(n) "Plan" means First Federal Savings and Loan Association of Warren
Employee Severance Compensation Plan.
(o) "Year of Service" means each consecutive 12 month period, beginning
with an Employee's date of hire and running without a termination of employment
in which an Employee is credited with at least one hour of service in each of
the 12 calendar months in such period. The taking of a LOA shall not eliminate a
period of time from being a Year of Service if such period of time otherwise
qualifies as such. Further if a particular 12 month period of time would not
otherwise qualify under the Plan as a Year of Service because one hour of
service is not credited during each month of such period due to the taking of a
LOA, then such period of time shall be deemed to be a Year of Service for all
other sections of this Plan.
2.2 Applicable Law
--------------
The laws of the State of Ohio shall be the controlling law in all matters
relating to the Plan to the extent not preempted by Federal law.
2.3 Severability
------------
If a provision of this Plan shall be held illegal or invalid, the
illegality or invalidity shall not affect the remaining parts of the Plan and
the Plan shall be construed and enforced as if the illegal or invalid provision
had not been included.
4
<PAGE>
ARTICLE III
ELIGIBILITY
3.1 Participation
-------------
The term Participant shall include all Employees of the Association who
have completed at least one (1) Year of Service with the Association at the time
of any termination pursuant to Section 4.2 herein. Notwithstanding the
foregoing, persons who have entered into and continue to be covered by an
employment contract or change in control agreement with the Employer shall not
be entitled to participate in this Plan.
3.2 Duration of Participation
-------------------------
A Participant shall cease to be a Participant in the Plan when the
Participant ceases to be an Employee of an Employer, unless such Participant is
entitled to a Payment as provided in the Plan. A Participant entitled to
receipt of a Payment shall remain a Participant in this Plan until the full
amount of such Payment has been paid to the Participant.
ARTICLE IV
PAYMENTS
4.1 Right to Payment
----------------
A Participant shall be entitled to receive from its respective Employer a
Payment in the amount provided in Section 4.3 if there has been a Change in
Control of the Association or the Holding Company and if, within one (1) year
thereafter, the Participant's employment by an Employer shall terminate for any
reason specified in Section 4.2, whether the termination is voluntary or
involuntary. A Participant shall not be entitled to a Payment if termination
occurs by reason of death, voluntary retirement, voluntary termination other
than for reasons specified in Section 4.2, Disability, or for Just Cause.
4.2 Reasons for Termination
-----------------------
Following a Change in Control, a Participant shall be entitled to a Payment
if employment by an Employer is terminated, voluntarily or involuntarily, for
any one or more of the following reasons:
(a) The Employer reduces the Participant's base salary or rate of
compensation as in effect immediately prior to the Change in Control.
5
<PAGE>
(b) The Employer materially changes Participant's function, duties or
responsibilities which would cause Participant's position to be one of lesser
responsibility, importance or scope with the Employer than immediately prior to
the change in control.
(c) The Employer requires the Participant to change the location of
the Participant's job or office, so that such Participant will be based at a
location more than thirty (30) miles from the location of the Participant's job
or office immediately prior to the Change in Control provided that such new
location is not closer to Participant's home.
(d) The Employer materially reduces the benefits and perquisites
available to the Participant immediately prior to the Change in Control,
provided, however, that a material reduction in benefits and perquisites
generally provided to all Employees of the Association on a nondiscriminatory
basis would not trigger a payment pursuant to this Plan.
(e) A successor to the Association fails or refuses to assume the
Association's obligations under this Plan, as required by Article VII.
(f) The Association or any successor to the Association breaches any
other provisions of this Plan.
(g) The Employer terminates the employment of a Participant at or
after a Change in Control other than for Just Cause.
4.3 Amount of Payment
-----------------
(a) Each Participant entitled to a Payment under this Plan shall
receive from the Association, a lump sum cash payment equal to one-twelfth of
Annual Compensation for each year of service up to a maximum of 100% of Annual
Compensation.
(b) Notwithstanding the provisions of (a) above, if a Payment to a
Participant who is a Disqualified Individual shall be in an amount which
includes an Excess Parachute Payment, the Payment hereunder to that Participant
shall be reduced to the maximum amount which does not include an Excess
Parachute Payment. The terms "Disqualified Individual" and "Excess Parachute
Payment" shall have the same meaning as defined in Section 280G of the Internal
Revenue Code of 1986, as amended, or any successor section thereof.
The Participant shall not be required to mitigate damages on the amount of
the Payment by seeking other employment or otherwise, nor shall the amount of
such Payment be reduced by any compensation earned by the Participant as a
result of employment after termination of employment hereunder.
6
<PAGE>
4.4 Time of Payment
---------------
The Payment to which a Participant is entitled shall be paid to the
Participant by the Employer or the successor to the Employer, in cash and in
full, not later than twenty (20) business days after the termination of the
Participant's employment. If any Participant should die after termination of
the employment but before all amounts have been paid, such unpaid amounts shall
be paid to the Participant's named beneficiary, if living, otherwise to the
personal representative on behalf of or for the benefit of the Participant's
estate.
ARTICLE V
OTHER RIGHTS AND BENEFITS NOT AFFECTED
5.1 Other Benefits
--------------
Neither the provisions of this Plan nor the Payment provided for hereunder
shall reduce any amounts otherwise payable, or in any way diminish the
Participant's rights as an Employee of an Employer, whether existing now or
hereafter, under any benefit, incentive, retirement, stock option, stock bonus,
stock ownership or any employment agreement or other plan or arrangement.
5.2 Employment Status
-----------------
This Plan does not constitute a contract of employment or impose on the
Participant or the Participant's Employer any obligation to retain the
Participant as an Employee, to change the status of the Participant's
employment, or to change the Employer's policies regarding termination of
employment.
ARTICLE VI
PARTICIPATING EMPLOYERS
6.1 Upon approval by the Board of Directors of the Association, this Plan
may be adopted by any Subsidiary or Parent of the Association. Upon such
adoption, the Subsidiary or Parent shall become an Employer hereunder and the
provisions of the Plan shall be fully applicable to the Employees of that
Subsidiary or Parent. The term "Subsidiary" means any corporation in which the
Association, directly or indirectly, holds a majority of the voting power of its
outstanding shares of capital stock. The term "Parent" means any corporation
which holds a majority of the voting power of the Association's outstanding
shares of capital stock.
7
<PAGE>
ARTICLE VII
SUCCESSOR TO THE ASSOCIATION
7.1 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 plan, 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.
ARTICLE VIII
DURATION, AMENDMENT AND TERMINATION
8.1 Duration
--------
If a Change in Control has not occurred, this Plan shall expire as of the
Expiration Date, unless sooner terminated as provided in Section 8.2, or unless
extended for an additional period or periods by resolution adopted by the Board
of Directors of the Association.
Notwithstanding the foregoing, if a Change in Control occurs this Plan
shall continue in full force and effect, and shall not terminate or expire until
such date as all Participants who become entitled to Payments hereunder shall
have received such Payments in full.
8.2 Amendment and Termination
-------------------------
The Plan may be terminated or amended in any respect by resolution adopted
by a majority of the Board of Directors of the Association, unless a Change in
Control has previously occurred. If a Change in Control occurs, the Plan no
longer shall be subject to amendment, change, substitution, deletion, revocation
or termination in any respect whatsoever.
8.3 Form of Amendment
-----------------
The form of any proper amendment or termination of the Plan shall be a
written instrument signed by a duly authorized officer or officers of the
Association, certifying that the amendment or termination has been approved by
the Board of Directors. A proper amendment of the Plan automatically shall
effect a corresponding amendment to each Participant's rights hereunder. A
proper termination of the Plan automatically shall effect a termination of all
Participants' rights and benefits hereunder.
8
<PAGE>
8.4 No Attachment
-------------
(a) Except as required by law, no right to receive payments under this
Plan 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 such action shall be null, void,
and of no effect.
(b) This Plan shall be binding upon, and inure to the benefit of,
Employee and the Association and their respective successors and assigns.
ARTICLE IX
LEGAL FEES AND EXPENSES
9.1 All reasonable legal fees and other expenses paid or incurred by a
party hereto pursuant to any dispute or question of interpretation relating to
this Plan shall be paid or reimbursed by the prevailing party in any legal
judgment, arbitration or settlement.
ARTICLE X
REQUIRED PROVISIONS
10.1 The Association may terminate the Employee's employment at any time,
but any termination by the Association, other than Termination for Cause, shall
not prejudice Employee's right to compensation or other benefits under this
Agreement. Employee shall not have the right to receive compensation or other
benefits for any period after termination for Just Cause as defined in Section
2.1 hereinabove.
10.2 If the Employee is suspended 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 may in
its discretion (i) pay the Employee 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.
10.3 If the Employee 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.
9
<PAGE>
10.4 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.
ARTICLE XI
ADMINISTRATIVE PROVISIONS
11.1 Plan Administrator. The administrator of the Plan shall be under the
-------------------
supervision of the Board of Directors of the Association or a Committee
appointed by the Board (the "Board"). It shall be a principal duty of the Board
to see that the Plan is carried out in accordance with its terms, for the
exclusive benefit of persons entitled to participate in the Plan without
discrimination among them. The Board will have full power to administer the
Plan in all of its details subject, however, to the requirements of ERISA. For
this purpose, the Board's powers will include, but will not be limited to, the
following authority, in addition to all other powers provided by this Plan: (a)
to make and enforce such rules and regulations as it deems necessary or proper
for the efficient administration of the Plan; (b) to interpret the Plan, its
interpretation thereof in good faith to be final and conclusive on all persons
claiming benefits under the Plan; (c) to decide all questions concerning the
Plan and the eligibility of any person to participate in the Plan; (d) to
compute the amount of Payment that will be payable to any Participant or other
person in accordance with the provisions of the Plan, and to determine the
person or persons to whom such benefits will be paid; (e) to authorize
Payments; (f) to appoint such agents, counsel, accountants, consultants and
actuaries as may be required to assist in administering the Plan; and (g) to
allocate and delegate its responsibilities under the Plan and to designate other
persons to carry out any of its responsibilities under the Plan, any such
allocation, delegation or designation to be by written instrument and in
accordance with Section 405 of ERISA.
11.2 Named fiduciary. The Board will be a "named fiduciary" for purposes
----------------
of Section 402(a)(1) of ERISA with authority to control and manage the operation
and administration of the Plan, and will be responsible for complying with all
of the reporting and disclosure requirements of Part 1 of Subtitle B of Title I
of ERISA.
11.3 Claims and review procedures.
-----------------------------
(a) Claims procedure. If any person believes he is being denied any
-----------------
rights or benefits under the Plan, such person may file a claim in writing with
the Board. If any such claim is wholly or partially denied, the Board will
notify such person of its decision in writing. Such notification will be written
in a manner calculated to be understood by such person and will contain (i)
specific reasons for the denial, (ii) specific reference to pertinent Plan
provisions, (iii) a description of any additional material or information
necessary for such person to perfect such claim and an explanation of why such
material or information is necessary and (iv)
10
<PAGE>
information as to the steps to be taken if the person wishes to submit a request
for review. Such notification will be given within 90 days after the claim is
received by the Board (or within 180 days, if special circumstances require an
extension of time for processing the claim, and if written notice of such
extension and circumstances is given to such person within the initial 90 day
period). If such notification is not given within such period, the claim will be
considered denied as of the last day of such period and such person may request
a review of his claim.
(b) Review procedure. Within 60 days after the date on which a person
-----------------
receives a written notice of a denied claim (or, if applicable, within 60 days
after the date on which such denial is considered to have occurred) such person
(or his duly authorized representative) may (i) file a written request with the
Board for a review of his denied claim and of pertinent documents and (ii)
submit written issues and comments to the Board. The Board will notify such
person of its decision in writing. Such notification will be written in a
manner calculated to be understood by such person and will contain specific
reasons for the decision as well as specific references to pertinent Plan
provisions. The decision on review will be made within 60 days after the
request for review is received by the Board (or within 120 days, if special
circumstances require an extension of time for processing the requests such as
an election by the Board to hold a hearing, and if written notice of such
extension and circumstances is given to such person within the initial 60 day
period). If the decision on review is not made within such period, the claim
will be considered denied.
11.4 Nondiscriminatory exercise of authority. Whenever, in the
----------------------------------------
administration of the Plan, any discretionary action by the Board is required,
the Board shall exercise its authority in a nondiscriminatory manner so that all
persons similarly situated will receive substantially the same treatment.
11.5 Indemnification of Board. The Association will indemnify and defend
-------------------------
to the fullest extent permitted by law any person serving on the Board or as a
member of a committee designated as Board (including any person who formerly
served as a Board member or as a member of such committee) against all
liabilities, damages, costs and expenses (including attorneys fees and amounts
paid in settlement of any claims approved by the Association) occasioned by any
act or omission to act in connection with the Plan, if such act or omission is
in good faith.
11.6 "Plan Year" means the period beginning on the Effective Date and
-----------
ending on _____________ and the 12 consecutive-month period ending each year
thereafter.
11.7 Benefits solely from general assets. The benefits provided hereunder
------------------------------------
will be paid solely from the general assets of the Association. Nothing herein
will be construed to require the Association or the Board to maintain any fund
or segregate any amount for the benefit of any Participant, and no Participant
or other person shall have any claim against, right to, or security or other
interest in, any fund, account or asset of the Association from which any
payment under the Plan may be made.
11
<PAGE>
Having been adopted by its Board of Directors on __________________, this Plan
is executed by its duly authorized officers this __th day of __________, 199__.
Attest FIRST FEDERAL SAVINGS AND LOAN ASSOCIATION
OF WARREN
______________________________ By: ___________________________
Mary Ann Roberts Steven R. Lewis
Secretary President and Chief Executive Officer
12
<PAGE>
EXHIBIT 16.1 LETTER OF PACKER, THOMAS & CO. RE: CHANGE IN ACCOUNTANTS
<PAGE>
Exhibit 16.1
U.S. Securities and Exchange Commission
450 Fifth Street, NW
Washington, D.C. 20549
Ladies and Gentlemen:
We have read the section titled "Change in Accountants" set forth in the
Prospectus which is a part of the Registration Statement on Form S-1 of First
Place Financial Corp. relating to the change of independent auditors made on
June 29, 1998. With respect to the comments made in such section, we agree with
the statements contained therein.
/s/ Packer, Thomas & Co.
Packer, Thomas & Co.
Warren, Ohio
September 9, 1998
<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 S-1 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 September 9, 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
September 9, 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 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 September 9, 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.
September 9, 1998
<PAGE>
EXHIBIT 23.3 CONSENT OF PATTON BOGGS LLP
<PAGE>
CONSENT
We hereby consent to the references to this firm and our opinions in: the
Registration Statement on Form S-1 filed by First Place Financial Corp., Warren,
Ohio, and all amendments thereto; in the Form H-(e)1 for First Place Financial
Corp., and all amendments thereto; and in the Application for Conversion on Form
AC filed by First Federal Savings and Loan Association of Warren (the
"Association"), and all amendments thereto, relating to the conversion of the
Association from a federally-chartered mutual savings and loan association to a
federally-chartered stock savings and loan association, the concurrent issuance
of the Association's outstanding capital stock to First Place Financial Corp., a
holding company formed for such purpose, and the offering of First Place
Financial Corp.'s common stock.
PATTON BOGGS LLP
By: /s/ Joseph G. Passaic, Jr.
--------------------------
Joseph G. Passaic, Jr.
Dated this 9th day of
September, 1998
<PAGE>
EXHIBIT 23.4 CONSENT OF POTTER ANDERSON & CORROON LLP
<PAGE>
September 8, 1998
Board of Directors
First Place Financial Corp.
185 East Market Street
Warren, OH 44482
Re: First Place Financial Corp.
---------------------------
Gentlemen:
We hereby consent to the filing of our opinion to you concerning certain
matters of Delaware law in connection with the subscription and community
offering (the "Offering") by First Place Financial Corp., a Delaware corporation
(the "Company"), of shares of its common stock, par value $.01 per share, in
draft or final form, as an exhibit to (i) the Registration Statement filed with
the Securities and Exchange Commission by the Company in connection with the
Offering, and all amendments thereto, and (ii) the Application for Conversion
filed with the Office of Thrift Supervision in connection with the conversion of
First Federal Savings and Loan Association of Warren, a federally-chartered
savings and loan association, from the mutual form of ownership to stock form of
ownership, and all amendments thereto, and to the reference to this firm in the
"Legal Matters" section of the Prospectus relating to the Offering.
Very truly yours,
/s/ Potter Anderson & Carroon LLP
MAP:rma
340250
<PAGE>
EXHIBIT 23.5 CONSENT AND SUBSCRIPTION RIGHTS OPINION OF KELLER & COMPANY, INC.
<PAGE>
Exhibit 23.5
KELLER & COMPANY, INC.
555 METRO PLACE NORTH
SUITE 524
DUBLIN, OHIO 43017
(614) 766-1426
(614) 766-1459 FAX
September 9, 1998
The Board of Directors
First Federal Savings and Loan Association
185 E. Market Street
Warren, Ohio 44481
Re: Subscription Rights - Conversion of First Federal Savings and Loan
Association
Gentlemen:
The purpose of this letter is to provide an opinion of the value of the
subscription rights of the "to be issued" common stock of First Place Financial
Corp. (the "Corporation"), Warren, Ohio in regard to the conversion of First
Federal Savings and Loan Association ("First Federal" or the "Association") from
a federal-chartered mutual savings and loan association to a federal-chartered
stock savings and loan association.
Because the Subscription Rights to purchase shares of Common Stock in First
Place Financial Corp. , which are to be issued to the depositors of First
Federal Savings and Loan Association, and the other members of the Association
and will be acquired by such recipients without cost, will be nontransferable
and of short duration and will afford the recipients the right only to purchase
shares of Common Stock at the same price as will be paid by members of the
general public in a Direct Community Offering, we are of the opinion that:
(1) The Subscription Rights will have no ascertainable fair market value,
and;
(2) The price at which the Subscription Rights are exercisable will not be
more or less than the fair market value of the shares on the date of
the exercise.
Further, it is our opinion that the Subscription Rights will have no economic
value on the date of distribution or at the time of exercise, whether or not a
community offering takes place.
Sincerely,
KELLER & COMPANY, INC.
/s/ Michael R. Keller
Michael R. Keller
President
<PAGE>
EXHIBIT 24.1 POWERS OF ATTORNEY
<PAGE>
CONFORMED
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Steven R. Lewis and Richard K. Smith as the true
and lawful attorneys-in-fact and agents with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities to sign any or all amendments to the Application for Conversion on
Form AC and the Form S-1 Registration Statement, and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the Office
of Thrift Supervision or the U.S. Securities and Exchange Commission,
respectively, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and things requisite and
necessary to be done as fully to all intents and purposes as he might or could
do in person, hereby ratifying and confirming all that said attorneys-in-fact
and agents or his substitute or substitutes, may lawfully do or cause to be done
by virtue hereof.
Pursuant to the requirements of Part 563b of the OTS Rules and Regulations
and the Securities Act of 1933, as amended, and any rules and regulations
promulgated thereunder, the foregoing Powers of Attorney prepared in conjunction
with the Application for Conversion on Form AC and the Form S-1 Registration
Statement have been duly signed by the following persons in the capacities and
on the dates indicated.
NAME DATE
---- ----
/s/ Steven R. Lewis September 9, 1998
- ----------------------------------
Steven R. Lewis
President, Chief Executive Officer
and Director
(principal executive officer)
First Place Financial Corp.
President, Chief Executive Officer
and Director
(principal executive officer)
First Federal Savings and Loan Association of Warren
/s/ Richard K. Smith September 9, 1998
- ----------------------------------
Richard K. Smith
Vice President
(principal financial and accounting officer)
First Place Financial Corp.
Vice President and Treasurer
(principal accounting and financial officer)
First Federal Savings and Loan Association of Warren
<PAGE>
/s/ Paul A. Watson September 9, 1998
- ----------------------------------
Paul A. Watson
Chairman of the Board
First Place Financial Corp.
Chairman of the Board
First Federal Savings and Loan Association of Warren
/s/ George J. Gentithes September 9, 1998
- ----------------------------------
George J. Gentithes
Director
First Place Financial Corp.
Director
First Federal Savings and Loan Association of Warren
/s/ Robert P. Grace September 9, 1998
- ----------------------------------
Robert P. Grace
Director
First Place Financial Corp.
Director
First Federal Savings and Loan Association of Warren
/s/ Thomas M. Humphies September 9, 1998
- ----------------------------------
Thomas M. Humphries
Director
First Place Financial Corp.
Director
First Federal Savings and Loan Association of Warren
/s/ Robert S. McGeough September 9, 1998
- ----------------------------------
Robert S. McGeough
Director
First Place Financial Corp.
Director
First Federal Savings and Loan Association of Warren
/s/ E. Jeffrey Rossi September 9, 1998
- ----------------------------------
E. Jeffrey Rossi
Director
First Place Financial Corp.
Director
First Federal Savings and Loan Association of Warren
/s/ William W. Watson September 9, 1998
- ----------------------------------
William W. Watson
Director
First Place Financial Corp.
Director
First Federal Savings and Loan Association of Warren
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS IN THE FORM S-1 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 6,668
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,565
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 211,185
<INVESTMENTS-CARRYING> 28,295
<INVESTMENTS-MARKET> 28,519
<LOANS> 353,012
<ALLOWANCE> 3,027
<TOTAL-ASSETS> 609,398
<DEPOSITS> 435,462
<SHORT-TERM> 0
<LIABILITIES-OTHER> 9,329
<LONG-TERM> 105,250
0
0
<COMMON> 0
<OTHER-SE> 59,357
<TOTAL-LIABILITIES-AND-EQUITY> 609,398
<INTEREST-LOAN> 25,736
<INTEREST-INVEST> 16,746
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 42,482
<INTEREST-DEPOSIT> 19,860
<INTEREST-EXPENSE> 25,512
<INTEREST-INCOME-NET> 16,970
<LOAN-LOSSES> 1,779
<SECURITIES-GAINS> 135
<EXPENSE-OTHER> 10,372
<INCOME-PRETAX> 6,570
<INCOME-PRE-EXTRAORDINARY> 6,570
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,072
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 7.52
<LOANS-NON> 2,143
<LOANS-PAST> 2,143
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,723
<CHARGE-OFFS> 516
<RECOVERIES> 41
<ALLOWANCE-CLOSE> 3,027
<ALLOWANCE-DOMESTIC> 3,027
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 659
</TABLE>
<PAGE>
EXHIBIT 99.2 DRAFT GIFT INSTRUMENT TO FIRST FEDERAL OF WARREN COMMUNITY
FOUNDATION
<PAGE>
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,
or total consideration of $__________, 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.
Dated:_________, 1998 _______________________
By: _____________________
Steven R. Lewis
President and
Chief Executive Officer
