<PAGE>
As filed with the Securities and Exchange Commission on September 23, 1998
Registration No. 333-__________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GRAND CENTRAL FINANCIAL CORP.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 6035 BEING APPLIED FOR
(State or other jurisdiction of incorporation or (Primary Standard (IRS Employer Identification No.)
organization) Classification Code Number)
</TABLE>
GRAND CENTRAL FINANCIAL CORP.
601 MAIN STREET
WELLSVILLE, OHIO 43968
(330) 532-1517
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
WILLIAM R. WILLIAMS
CHIEF EXECUTIVE OFFICER
GRAND CENTRAL FINANCIAL CORP.
601 MAIN STREET
WELLSVILLE, OHIO 43968
(330) 532-1517
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
DOUGLAS P. FAUCETTE, ESQUIRE
JOHN R. HALL, ESQUIRE
BRIAN K. LEE, ESQUIRE
MULDOON, MURPHY & FAUCETTE
5101 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20016
(202) 362-0840
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 number of the earlier effective
registration statement for the same offering. /_/
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. /_/
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. /_/
<TABLE>
<CAPTION>
================================================================================================================
Title of each Class of Amount to Proposed Maximum Proposed Maximum Amount of
Securities to be Registered be Registered Offering Price per Aggregate Offering Registration Fee
Unit Price
(1)
- ----------------------------- -------------- -------------------- --------------------- --------------------
<S> <C> <C> <C> <C>
Common Stock 2,645,000
$0.01 par Value Shares $10.00 $26,450,000 $7,803
=================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
<PAGE>
[To be used in connection with the Syndicated Community Offering only]
SYNDICATED PROSPECTUS SUPPLEMENT
GRAND CENTRAL FINANCIAL CORP.
(PROPOSED HOLDING COMPANY FOR CENTRAL FEDERAL SAVINGS
AND LOAN ASSOCIATION OF WELLSVILLE)
__________ SHARES OF COMMON STOCK
Grand Central 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 sold upon the
conversion (the "Conversion") of Central Federal Savings and Loan Association of
Wellsville, Wellsville, Ohio (the "Association") from a federally chartered
mutual savings association to a federally chartered stock savings association
and the issuance of the Association's outstanding capital stock to the Company
pursuant to a plan of conversion, (the "Plan of Conversion"). The remaining
__________ shares of the Common Stock to be sold in the Conversion have been
subscribed for in subscription and community offerings (the "Subscription and
Community Offerings") by holders of deposit accounts with the Association with a
balance of $50 or more as of December 31, 1996, by the Central Federal Savings
and Loan Association of Wellsville Employee Stock Ownership Plan, a tax-
qualified employee benefit plan, and related trust (the "ESOP"), by holders of
deposit accounts with the Association with a balance of $50 or more as of
______________, 1998, by certain other account holders and borrowers of the
Association 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
sold 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 _______________, 199_, 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 _______________,
199_. 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
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
<PAGE>
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, 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 $200,000 at the Purchase Price and no person, together
with associates of and persons acting in concert with such person, may purchase
more than 1% of the total number of shares sold in the Conversion. See "Plan of
Conversion - Subscription Rights and Limitations on Common 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, a
Division of Keefe, Bruyette & Woods, Inc. ("Webb") 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 not exceed 5.5% 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 listed on the Nasdaq National
Market ("Nasdaq") under the symbol "GCFC." 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, DEPARTMENT OF THE
TREASURY, OR ANY OTHER FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, NOR
HAS SUCH COMMISSION, OFFICE, 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 FEDERALLY INSURED OR GUARANTEED.
<PAGE>
<TABLE>
<CAPTION>
MAXIMUM AS
MINIMUM ADJUSTED
1,700,000 2,645,000
PER SHARE SHARES SHARES
---------------- ----------- -----------
<S> <C> <C> <C>
Public offering price............... $10.00 $17,000,000 $26,450,000
Estimated underwriting commissions
and other expenses............... $0.34 to $0.45 $ 771,320 $ 920,000
Estimated proceeds to Company....... $9.55 to $9.66 $16,228,680 $25,530,000
</TABLE>
---------------------------------------------
CHARLES WEBB & COMPANY
A DIVISION OF KEEFE, BRUYETTE & WOODS, INC.
---------------------------------------------
The date of this Prospectus is _____________, 1998.
<PAGE>
PROSPECTUS
GRAND CENTRAL FINANCIAL CORP.
(PROPOSED HOLDING COMPANY FOR
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF WELLSVILLE)
UP TO 2,645,000 SHARES OF COMMON STOCK
This offering is made as part of the plan of conversion of Central Federal
Savings and Loan Association of Wellsville, Wellsville, Ohio, from a mutual to a
stock association. In this conversion, the Association will become a wholly-
owned subsidiary of Grand Central Financial Corp. No shares will be sold if the
minimum number of shares are not subscribed for or if the necessary approvals
from the banking regulatory authorities and the members of the Association are
not received.
There is currently no public market for the common stock. The Company has
received conditional approval for the common stock to be listed on the Nasdaq
National Market, under the symbol "GCFC", upon completion of the conversion.
Investing in the common stock involves certain risks. See "Risk Factors"
beginning on page 10.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or passed upon the
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
THESE SHARES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE OFFICE OF THRIFT
SUPERVISION OR ANY OTHER FEDERAL AGENCY, NOR HAS SUCH OFFICE OR OTHER AGENCY
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
THE SHARES 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. THE COMMON
STOCK IS SUBJECT TO INVESTMENT RISK, INCLUDING THE POSSIBLE LOSS OF PRINCIPAL
INVESTED.
<TABLE>
<CAPTION>
MINIMUM MAXIMUM AS ADJUSTED
1,700,000 2,645,000
PER SHARE SHARES SHARES
----------------------- ----------------------- ------------------------
<S> <C> <C> <C>
Public offering price.......................... $10.00 $17,000,000 $26,450,000
Estimated underwriting commissions
and other expenses........................ $0.34 to $0.45 $ 771,320 $ 920,000
Estimated proceeds to Company.................. $9.55 to $9.66 $16,228,680 $25,530,000
</TABLE>
The shares are offered first in a Subscription Offering to persons who have
specified priorities of subscription rights based on their relationship with the
Association. IN ORDER TO PURCHASE SHARES PURSUANT TO A SUBSCRIPTION RIGHT, YOU
MUST SUBMIT A PROPERLY COMPLETED SUBSCRIPTION ORDER FORM AND CERTIFICATION,
TOGETHER WITH PAYMENT FOR THE SHARES, TO THE ASSOCIATION PRIOR TO THE EXPIRATION
DATE, 12:00 NOON, EASTERN TIME, ON _______________, 1998, UNLESS EXTENDED.
To the extent sufficient shares to complete the conversion are not sold in the
Subscription Offering, the remaining shares will be offered for sale in a
Community Offering and, if necessary, other public offering.
Charles Webb & Company, a division of Keefe, Bruyette & Woods, Inc. has agreed
to assist the Company in selling the shares, but does not guarantee that at
least the minimum number of shares will be sold.
==================================================
CHARLES WEBB & COMPANY
A DIVISION OF KEEFE, BRUYETTE & WOODS, INC.
==================================================
The date of this Prospectus is _____________, 1998.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.......................................................................
Selected Financial and Other Data of the Association..........................
Risk Factors..................................................................
Grand Central Financial Corp..................................................
Central Federal Savings and Loan Association of Wellsville....................
Regulatory Capital Compliance.................................................
Use of Proceeds...............................................................
Dividend Policy...............................................................
Market for the Common Stock...................................................
Capitalization................................................................
Pro Forma Data................................................................
Statements of Income..........................................................
Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................................
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..................................................
Experts.......................................................................
Legal and Tax Opinions........................................................
Additional Information........................................................
Index to Financial Statements.................................................
</TABLE>
This document contains forward-looking statements which involve risks and
uncertainties. Grand Central Financial Corp.'s actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to,
those discussed in "Risk Factors" beginning on page 10 of this document.
2
<PAGE>
- --------------------------------------------------------------------------------
INSERT MAP PAGE HERE
- --------------------------------------------------------------------------------
3
<PAGE>
- --------------------------------------------------------------------------------
SUMMARY
This summary highlights selected information from this document and
does not contain all the information that you need to know before making an
informed investment decision. To understand the stock offering fully, you
should read carefully this entire Prospectus, including the financial statements
and the notes to the financial statements of Central Federal Savings and Loan
Association of Wellsville. References in this document to the "Association"
refer to Central Federal Savings and Loan Association of Wellsville. References
in this document to the "Company" refer to Grand Central Financial Corp.
GRAND CENTRAL FINANCIAL CORP..... Grand Central Financial Corp., a Delaware
corporation, was recently organized to become
a savings and loan holding company and own
all of the capital stock of Central Federal
Savings and Loan Association of Wellsville to
be issued upon its conversion from mutual to
stock form. To date, the Company has not
engaged in any business.
The Company's office is located at 601 Main
Street, Wellsville, Ohio 43968 and its
telephone number is (330) 532-1517. The
Association's executive office has the same
address and phone number.
CENTRAL FEDERAL SAVINGS AND LOAN
ASSOCIATION OF WELLSVILLE........ The Association is a federally chartered
mutual savings and loan association. At June
30, 1998, the Association had total assets of
$121.7 million, total deposits of $78.9
million and total equity of $14.4 million.
The Association currently operates six
banking offices in Columbiana, Mahoning and
Jefferson Counties in Ohio. The Association
historically has operated as a community-
oriented banking institution primarily
providing single-family residential mortgage
loans and a variety of retail deposit
products to consumers.
THE CONVERSION................... The Association has adopted a Plan of
Conversion which is subject to requirements
of the Office of Thrift Supervision (the
"OTS"), which is the primary federal banking
regulator of the Association. The conversion,
which hereafter is referred to as the
"Conversion," is governed by the Plan and has
three major components, as follows:
(i) The conversion of the Association to
stock form;
(ii) The acquisition by the Company of all
of the outstanding capital stock of the
Association; and
(iii) The sale by the Company of common
stock.
For more details regarding the Conversion,
see "The Conversion--General."
TERMS OF THE OFFERING............ The shares of common stock are 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 in the
Association as of December 31, 1996;
(ii) Employee plans, consisting of the
Employee Stock Ownership Plan of the Company
and the Association (the "ESOP");
- --------------------------------------------------------------------------------
4
<PAGE>
- --------------------------------------------------------------------------------
(iii) Supplemental Eligible Account Holders in the
Association as of September 30, 1998 who are not
entitled to a first priority subscription right; and
(iv) Other Members in the Association as of November
__, 1998 who are not entitled to a higher priority
subscription right.
Shares of common stock not subscribed for by persons
having priority subscription rights will be offered
to certain members of the general public in a
concurrent Community Offering, with priority given
to natural persons residing in Columbiana, Mahoning
and Jefferson Counties of Ohio. For more
information regarding the offerings, see "The
Conversion--Subscription Offering and Subscription
Rights" and "--Community Offering."
EXPIRATION DATE OF
SUBSCRIPTION OFFERING..... Subscription rights will expire if not exercised and
all orders to purchase common stock in the
Subscription Offering must be received by 12:00
noon, Eastern time, on ________, 1998, unless
extended, which is the "Expiration Date."
NONTRANSFERABILITY OF
SUBSCRIPTION RIGHTS....... The subscription rights are not transferable.
NUMBER OF SHARES OFFERED... The Company is offering between a minimum of
1,700,000 shares and a maximum of 2,300,000 shares
of common stock, or up to an adjusted maximum of
2,645,000 shares if the maximum number of shares is
increased.
The number of shares offered is based upon an
independent appraisal prepared by Keller & Company,
Inc. ("Keller") dated as of September 18, 1998,
which estimates that the aggregate pro forma market
value of the common stock to be sold ranged from
$17.0 million to $23.0 million. (This range is
referred to as the "Estimated Price Range"). Keller
is an independent appraisal firm experienced in
appraisals of savings institutions.
The final aggregate estimated pro forma market value
of the common stock to be sold will be determined at
the time of closing of the Subscription and
Community Offerings, or if all shares are not sold
in the Subscription and Community Offerings, the
closing of the Syndicated Community Offering. Such
estimated aggregate pro forma market value is
subject to change due to changes in market and
general financial and economic conditions.
The maximum number of shares to be sold may be
increased by up to 15%, the adjusted maximum, if the
aggregate estimated pro forma market value of the
common stock to be sold is increased.
HOW TO ORDER STOCK......... If you are entitled to a subscription right, you may
order shares in the Subscription Offering by
delivering to the Association a properly executed
stock order and certification form together with
full payment for the shares ordered on or prior to
the Expiration Date. ONCE TENDERED, SUBSCRIPTION
ORDERS CANNOT BE REVOKED OR MODIFIED WITHOUT THE
CONSENT OF THE ASSOCIATION. All order forms should
be accompanied or preceded by a Prospectus. Please
make sure you review the Prospectus carefully. 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, no prospectus will be mailed
any later than five days prior to the
- --------------------------------------------------------------------------------
5
<PAGE>
- --------------------------------------------------------------------------------
Expiration Date or hand delivered any later than two
days prior to such date. The Association is not
obligated to accept subscriptions not submitted on
an original stock order form.
IMPORTANT: To ensure that your subscription rights
are properly identified, you must list 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.
Persons wishing to order shares in the Community
Offering also must submit a properly executed stock
order and certification form prior to the expiration
date for the Community Offering.
For more information on how to order stock, see "The
Conversion--Procedure for Purchasing Shares in
Subscription and Community Offerings."
FORM OF PAYMENT FOR SHARES. Payment for subscriptions may be made:
(i) in cash (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 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.
NUMBER OF SHARES THAT MAY
BE ORDERED............... Minimum: 25 shares ($250).
Maximum:
. No Eligible Account Holder, Supplemental Eligible
Account Holder or Other Member may purchase in
the Subscription Offering more than $200,000 of
common stock.
. No person, together with associates or persons
acting in concert with such person, may purchase
in the Community Offering more than $200,000 of
common stock.
. No person, together with associates or persons
acting in concert with such person, may purchase
in the aggregate more than 1% of the common stock
to be sold. However, the ESOP may purchase up to
10% of the Common Stock to be issued in
connection with the Conversion. It is intended
that the ESOP will purchase 8% of the Common
Stock issued.
USE OF PROCEEDS............ The Company will use 50% of the net proceeds from
the sale of common stock to purchase all of the
common stock of the Association to be issued in the
Conversion. The portion of net proceeds retained by
the Company will be used for general business
activities, including the loan of funds to the ESOP
to enable the ESOP to purchase 8% of the stock
issued in connection with the Conversion. The
Company intends initially to use the funds for
general corporate purposes, including investment in
single-family residential mortgage
- --------------------------------------------------------------------------------
6
<PAGE>
- --------------------------------------------------------------------------------
loans and other loans and investment in short- to
intermediate-term securities and mortgage-backed
securities. In addition, under appropriate market
conditions, the Company may repay advances from
the Federal Home Loan Bank of Cincinnati ("FHLB-
Cincinnati"). See "Use of Proceeds."
DIVIDEND POLICY............. No decision has been made by the Company with
respect to the payment of dividends if any.
Additionally, in connection with the Conversion,
the Company and the Association have committed to
the OTS that during the one-year period following
the Conversion, the Company will not make any
distribution to stockholders that, for federal tax
purposes, would be treated as a return of capital
without prior approval of the OTS.
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 the ESOP, stock options and other
stock-related benefit programs. Subsequent to the
Conversion, the Company intends to adopt a Stock-
Based Incentive Plan for the benefit of directors,
officers and employees of the Company and
Association. If the Stock-Based Incentive Plan is
adopted within one year after the Conversion, the
plan will be subject to stockholders' approval at
a meeting of stockholders which may not be held
earlier than six months after the Conversion. The
Stock-Based Incentive Plan would provide for the
award at no cost to the recipients of shares of
common stock in an amount equal to 4% of the
common stock issued in connection with the
Conversion, and the grant of options to purchase
common stock in an amount equal to 10% of the
Common Stock issued in the Conversion.
Additionally, certain officers of the Company and
the Association will be provided with employment
agreements which provide such officers with
employment rights and/or payments upon their
termination of service following a change in
control. The Stock-Based Incentive Plan may also
provide participants with benefits upon a change
in control of the Company or the Association.
VOTING CONTROL OF OFFICERS
AND DIRECTORS.............. Directors and executive officers of the
Association and the Company expect to purchase
approximately 11.8% or 8.7% of the shares of
common stock to be issued in the Conversion, based
on the estimated minimum and maximum of such
shares, respectively. Additionally, assuming the
implementation of the ESOP and the Stock-Based
Incentive Plan, directors, executive officers and
employees have the potential to control the voting
of approximately 30.6% or 27.9% of the common
stock to be issued in the Conversion, based on the
minimum and maximum of such shares, respectively.
NO BOARD RECOMMENDATIONS.... The Association's Board of Directors and the
Company's Board of Directors make no
recommendation 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 the
Conversion, please call the Conversion Center at
(330) 505-1765.
- --------------------------------------------------------------------------------
7
<PAGE>
SELECTED FINANCIAL AND OTHER DATA OF THE ASSOCIATION
The selected financial and other data of the Association set forth below is
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, AT DECEMBER 31,
------------------------------ --------------------------------------------------------
1998(1) 1997(1) 1997 1996 1995 1994 1993
-------------- ------------ --------- ---------- ---------- --------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED FINANCIAL DATA:
Total assets............................ $121,641 $124,842 $118,265 $124,186 $110,412 $116,707 $121,643
Cash and cash equivalents............... 3,433 3,680 5,846 5,238 4,640 3,408 8,613
Loans, net (2).......................... 60,562 53,622 57,886 49,517 48,233 48,748 47,774
Securities held-to-maturity (3):
Mortgage-related securities, net..... 34,076 35,554 27,987 37,893 38,485 44,262 53,640
Investment securities, net........... 1,497 6,496 3,489 5,499 -- -- --
Securities available-for-sale (3):
Mortgage-related securities, net..... 5,947 9,411 7,629 10,093 11,871 13,945 6,956
Investment securities, net............ 10,208 10,835 10,189 10,879 2,948 2,000 678
Deposits................................ 78,909 75,339 76,983 75,828 71,991 71,274 71,218
FHLB advances........................... 27,680 34,997 26,161 34,277 24,524 32,726 38,256
Total equity............................ 14,331 13,665 14,165 13,243 13,224 12,063 11,503
Real estate owned, net.................. -- -- -- -- -- -- --
Nonperforming assets and
troubled debt restructurings.......... 138 117 199 45 24 126 165
</TABLE>
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
--------------------------------- ------------------------------------------------------
1998(1) 1997(1) 1997 1996 1995 1994 1993
----------------- -------------- -------------- -------- --------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Total interest income...................... $4,412 $4,433 $8,803 $8,613 $8,117 $7,989 $7,675
Interest expense........................... 2,536 2,656 5,273 5,197 4,771 4,372 4,401
------ ------ ------ ------ ------ ------ ------
Net interest income..................... 1,876 1,777 3,530 3,416 3,346 3,617 3,274
Provision for loan losses.................. 150 -- -- -- 42 48 48
------ ------ ------ ------ ------ ------ ------
Net interest income after provision
for loan losses...................... 1,726 1,777 3,530 3,416 3,304 3,569 3,226
Noninterest income:
Net gain (loss) on sale of
securities............................. 4 -- -- (9) -- -- 192
Other................................... 158 115 241 178 157 253 296
------ ------ ------ ------ ------ ------ ------
Total noninterest income.............. 162 115 241 169 157 253 488
Noninterest expense(4)..................... 1,692 1,359 2,883 3,252 2,485 2,411 2,416
------ ------ ------ ------ ------ ------ ------
Income before income taxes................. 196 533 888 333 976 1,411 1,298
Income taxes............................... 45 156 207 46 307 432 407
------ ------ ------ ------ ------ ------ ------
Cumulative effect of accounting change.... -- -- -- -- -- -- (24)
------ ------ ------ ------ ------ ------ ------
Net income.............................. $ 151 $ 377 $ 681 $ 287 $ 669 $ 979 $ 867
====== ====== ====== ====== ====== ====== ======
</TABLE>
(See footnotes on next page)
8
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE SIX
MONTHS ENDED
JUNE 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
--------------------------- -------------------------------------------------
1998(1) 1997(1) 1997 1996 1995 1994 1993
-------------- ----------- -------- -------- --------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED OPERATING RATIOS AND OTHER DATA (5):
PERFORMANCE RATIOS:
Average yield on interest-earning assets (6)......... 7.49% 7.44% 7.42% 7.37% 7.26% 7.03% 7.53%
Average rate paid on interest-bearing
liabilities......................................... 4.85 4.93 4.94 4.93 4.75 4.19 4.57
Average interest rate spread (7)..................... 2.64 2.53 2.48 2.44 2.51 2.84 2.96
Net interest margin (8).............................. 3.19 2.98 2.98 2.92 2.99 3.18 3.21
Ratio of interest-earning assets to
interest-bearing liabilities...................... 112.64 110.43 111.22 110.89 111.39 109.00 105.88
Efficiency ratio(9).................................. 83.19 71.83 76.45 90.48 70.94 62.30 67.68
Noninterest expense as a percent of
average assets.................................... 2.82 2.22 2.36 2.71 2.22 2.05 2.23
Return on average assets............................. 0.25 0.61 0.56 0.24 0.60 0.83 0.80
Return on average equity............................. 2.11 5.70 5.00 2.19 5.26 8.21 7.27
Ratio of average equity to average assets............ 11.80 10.78 11.16 10.94 11.37 10.14 10.99
REGULATORY CAPITAL RATIOS: (10)
Tangible capital ratio............................... 11.72 11.09 11.95 10.80 11.91 10.32 9.43
Core capital ratio................................... 11.72 11.09 11.95 10.80 11.91 10.32 9.43
Risk-based capital ratio............................. 23.22 25.83 27.39 28.38 30.90 27.80 25.59
ASSET QUALITY RATIOS:
Nonperforming loans and troubled debt
restructurings as a percent of total loans
(11)............................................. 0.23 0.22 0.35 0.09 0.05 0.26 0.34
Nonperforming assets and troubled debt
restructurings as a percent of total assets
(12)............................................. 0.11 0.09 0.17 0.04 0.02 0.12 0.14
Allowance for loan losses as a percent
of total loans..................................... 0.61 0.43 0.40 0.46 0.51 0.43 0.37
Allowance for loan losses as a percent of
nonperforming loans and troubled debt
restructurings (2)(11)............................ 2.72x 1.97x 1.16x 5.09x 10.38x 1.67x 1.07x
FULL SERVICE OFFICES AT END OF PERIOD.................... 5 4 4 4 3 3 3
</TABLE>
______________________________
(1) The data presented for the six months ended June 30, 1998 and 1997 was
derived from unaudited financial statements and reflect, in the opinion of
management, all adjustments (consisting only of normal recurring
adjustments) which are necessary to present fairly the results for such
interim periods. Interim results at and for the six months ended June 30,
1998, are not necessarily indicative of the results that may be expected
for the fiscal year ending December 31, 1998.
(2) Loans, net, represents gross loans receivable and loans held for sale net
of the allowance for loan losses, loans in process and deferred loan
origination fees. The allowance for loan losses at June 30, 1998 and 1997
and December 31, 1997, 1996 , 1995, 1994 and 1993 was $228,000, $231,000,
$231,000, $229,000, $249,000, $211,000 and $177,000, respectively.
(3) The Association adopted Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," during fiscal 1994.
(4) Includes a one-time special assessment of $449,000 in order to recapitalize
the SAIF fund in fiscal 1996.
(5) 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 monthly balances during the indicated periods. Ratios for
interim periods are stated on an annualized basis.
(6) Calculations of yield are presented on a taxable equivalent basis using the
Federal income tax rate of 34%.
(7) The average 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.
(8) The net interest margin represents net interest income as a percent of
average interest-earning assets.
(9) Equals non-interest expense divided by net interest income plus non-
interest income (excluding gains or losses on securities transactions).
(10) For definitions and further information relating to the Association's
regulatory capital requirements, see "Regulation -- Capital Requirements."
See "Regulatory Capital Compliance" for the Association's pro forma capital
levels as a result of the Offerings.
(11) Non-performing loans consist of all non-accrual loans and all other loans
90 days or more past due. It is the policy of the Association to cease
accruing interest on loans 90 days or more past due (unless the loan
principal and interest are determined by management to be fully secured and
in the process of collection) and to charge off all accrued interest. See
"Business of the Association--Lending Activities-- Delinquencies and
Classified Assets."
(12) Non-performing assets consist of non-performing loans, other repossessed
assets and REO.
9
<PAGE>
RISK FACTORS
The following risk factors, in addition to those discussed elsewhere in
this Prospectus, should be considered by investors in deciding whether to
purchase the Common Stock offered hereby.
ABOVE AVERAGE 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 investments, and its interest expense on interest-bearing liabilities, such
as deposits and borrowings. 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 in response to such movements.
A significant portion of the Association's assets consist of fixed-rate
residential mortgage loans. At June 30, 1998, the Association had $53.3 million
of fixed-rate mortgage loans, or 87.21% of the Association's gross loans
receivable, with average weighted maturities of 18.3 years. The Association's
emphasis on fixed-rate mortgage loans is due to the consumer preference for
fixed-rate mortgage loans in the Association's market area. Investment in
fixed-rate mortgage loans generally results in increased interest rate risk as
such loans generally do not reprice as quickly as adjustable-rate mortgage loans
during periods of rising interest rates. In addition, the Association generally
has accepted deposits for considerably shorter terms than its fixed-rate
mortgage loans. At June 30, 1998, the Association had $25.6 million of
certificate accounts maturing in less than twelve months. Consequently,
management expects that the yield on interest-earning assets of the Association
will adjust to changes in interest rates at a slower rate than the cost of the
Association's interest-bearing liabilities, and that any significant increase in
interest rates will have an adverse effect on the Association's results of
operations. The Association attempts to offset the risks associated with its
predominantly fixed-rate loan portfolio by investing in adjustable-rate
mortgage-backed and other securities and by maintaining a relatively high level
of capital. At June 30, 1998, the Association had a $10 million, 15-year bond
issued by FHLB-Cincinnati paying a rate of interest of 7.0%. The relatively
long term of the bond as compared with the relatively short term of the
Association's FHLB advances contributed to the Association's above average risk
from rising interest rates. Moreover, because the bond may be repaid early and
the Association may not be able to reinvest the funds at as high an interest
rate, such early repayment could adversely affect the Association's net interest
income. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Management of Market Risk."
Increases in market interest rates would result in an increase in the
interest rates on the Association's adjustable-rate loans, thereby causing
higher loan payment amounts by the borrowers which, in turn, may result in
elevated delinquencies on such loans. Increases in the level of interest rates
may also adversely affect the value of the Association's investment and
mortgage-backed securities and other interest-earning assets and, in turn, its
results of operations or retained earnings. At June 30, 1998, the Association's
held-to-maturity and available-for-sale securities, including investment
securities, and mortgage-backed securities, had an estimated fair value of
$51.3 million, which was $300,000 less than their amortized cost. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Management of Market Risk," "Business of the Association--Lending
Activities--Single-Family Mortgage Lending" and "--Investment Activities."
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<PAGE>
LOW RETURN ON EQUITY FOLLOWING THE CONVERSION
At June 30, 1998, the Association's ratio of average equity to average
assets was 11.80%. 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 maximum, as adjusted, of the Estimated
Price Range, the Company's ratio of equity to assets would be approximately
24.01%. The Company's ability to deploy this new capital through investments in
interest-earning 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. 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.
Additionally, due to the implementation of stock-based benefit plans such as the
ESOP and the Stock-Based Incentive Plan, the Company's future compensation
expense will be increased, thereby adversely affecting its net income and return
on equity.
CONCENTRATION IN REAL ESTATE LENDING IN EASTERN OHIO
At June 30, 1998, 74.16% of the Association's total gross loan portfolio
was secured by real estate, substantially all of which is located in the
Association's primary market area in Eastern Ohio. The Association's primary
market area includes the counties of Columbiana, Mahoning and Jefferson, which
have experienced relatively slow growth in the last several years. In recent
years, the Association has expanded its market area through the establishment of
additional branches within those counties. The success of that expansion policy
will depend on whether the increased operating expenses resulting from the
additional branches can be offset by growth of the Association's business within
its market area. In addition, the recent closing of two large industrial plants
in neighboring Trumbull County may also impact the Bank's market area. See
"Business of the Association - Market Area and Competition" and "- Lending
Activities." Accordingly, a substantial decline in real estate values, the onset
of other recessionary economic conditions or the loss of a large employer in the
Association's primary market area could adversely affect the Association's
operating results and financial condition by, among other things, requiring
increased provisions for loan losses and increased non-interest expense
associated with the management and disposition of real estate owned as well as
decreasing demand for single-family mortgage loans.
INCREASED CREDIT RISKS ASSOCIATED WITH CONSUMER LOANS
At June 30, 1998, $15.4 million, or 25.20% of the Association's total gross
loan portfolio consisted of consumer loans. Of these loans, $12.5 million or
20.42% of the Association's total loans consisted of new and used automobile
loans. Loans secured by rapidly depreciable assets such as automobiles entail
greater risks than single-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, consumer loan 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. Because a significant portion
of the Association's automobile loans are originated on the Association's behalf
by dealers at the time of sale, the volume of such loans is substantially
dependent on the Association's maintaining relationships with such dealers.
Also, because loan underwriting is accomplished without benefit of direct
interaction between the borrower and the Association's lending officers,
underwriting risks associated with such loans may be greater than with loans
originated directly by the Association.
11
<PAGE>
COMPETITION
The Association faces significant competition in its market area both in
attracting deposits and in originating loans. The Association's primary market
area is a competitive market for financial services. The Association faces
direct competition from a number of financial institutions, many with a state-
wide or regional presence, and, in some cases, a national presence. This
competition arises from other savings institutions, commercial banks, 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 the Association. See "Business of the Association
- -- Market Area and Competition."
STOCK-BASED BENEFITS TO MANAGEMENT AND DIRECTORS, EMPLOYMENT CONTRACTS AND
CHANGE IN CONTROL PAYMENTS
Stock-Based Incentive Plan. The Company intends to adopt a Stock-Based
Incentive Plan which would provide for the granting of options to purchase
common stock ("Stock Options"), awards of common stock ("Stock Awards"), and
certain related rights to eligible officers, employees and directors of the
Company and Association. While the Company currently anticipates granting Stock
Options and Stock Awards under a single plan, it may establish separate plans to
provide for such awards. In the event such plan is adopted within one year
after conversion, OTS regulations require the plan to be approved by
stockholders at a meeting of stockholders which may be held no earlier than six
months after completion of the Conversion. It is anticipated the Stock-Based
Incentive Plan will provide for the granting of options to purchase shares of
Common Stock equal to 10% of the shares of Common Stock issued in the Conversion
(170,000 shares and 230,000 shares at the minimum and maximum of the Estimated
Price Range, respectively) and the granting of Stock Awards in an amount equal
to 4% of the shares of Common Stock issued in the Conversion (68,000 shares and
92,000 shares at the minimum and maximum of the Estimated Price Range,
respectively). Shares of common stock used to satisfy such awards will be
acquired by the Plan or a trust established for the Plan either through open
market purchases or from authorized but unissued Common Stock. See "--Possible
Dilutive Effect of Stock-Based Incentive Plan."
Under the Stock-Based Incentive Plan, Stock Awards would be granted in the
form of non-transferable, non-assignable shares of Common Stock. The Board of
Directors intends to appoint an independent trustee who will vote unallocated
stock awards in the same proportion as it receives instructions from recipients
with respect to allocated shares which have not been earned and distributed.
The trustee will not vote allocated shares which have not been distributed if it
does not receive instructions from the recipient.
It is anticipated that the exercise price of Stock Options granted under the
Stock-Based Incentive Plan will be equal to the fair market value of the
underlying Common Stock on the date of grant. Such options will permit such
officers and directors to benefit from any increase in the market value of the
shares in excess of the exercise price at the time of exercise. Officers and
directors receiving Stock Options will not be required to pay for the shares
until the date of exercise. The granting of Stock Awards will result in
additional compensation expense to the Company and, accordingly, may result in
an increase in the overall compensation expense in future periods. See
"Management of the Association--Benefits."
Although no specific award determinations have been made, the Company
anticipates that it will provide Stock Awards and/or Stock Options to directors,
officers and employees to the extent permitted by applicable regulations.
Current OTS regulations provide that, with respect to any non-tax qualified
stock benefit plan, such as the Stock-Based Incentive Plan, which is implemented
within one year after consummation of the Conversion, no individual may receive
more than 25% of the shares or options of any
12
<PAGE>
such plan and non-employee directors may not receive more than 5% individually,
or 30% in the aggregate, of the shares or options awarded under any such plan.
Such regulations also provide that any awards granted under such a Plan may not
vest at a rate greater than 20% per year except in limited circumstances. It is
also anticipated that the Stock-Based Incentive Plan will provide for cash
payments to participants in the event of a change in control of the Company or
Association.
The Board of Directors, in determining specific allocations and grants of
Stock Awards and Stock Options, will consider various factors, including but not
limited to, the financial condition of the Company, current and past performance
of plan participants and tax and securities law and regulation requirements.
Employee Stock Ownership Plan. In connection with the Conversion, certain
officers and employees of the Association and the Company will obtain the
benefit of stock ownership through the establishment of the ESOP, which is a
tax-qualified plan for the benefit of all eligible employees, including
executive officers, of the Association. The ESOP intends to purchase in the
Subscription Offering 8% of the Common Stock issued in the Conversion, or
136,000 shares and 184,000 shares at the minimum and maximum of the Estimated
Price Range. The ESOP will be funded over time by the Association and the
Association will allocate shares of Common Stock to employees of the Association
who are Participants in the ESOP at no cost to the ESOP beneficiaries. See
"Management of the Association - Benefits - Employee Stock Ownership Plan and
Trust."
Employment Contracts and Change in Control Provisions. Employment agreements
with certain officers and the employee severance compensation plan provide for
benefits and cash payments in the event of a change in control of the Company or
the Association. The provisions in such agreements and plan would provide the
recipient with a change in control payment in the event of the recipient's
involuntary or, in certain circumstances, voluntary termination of employment
subsequent to a change in control of the Company or the Association. In
addition to any payments which may be made under the Stock-Based Incentive Plan
upon a change in control, these provisions may have the effect of increasing the
cost of acquiring the Company, thereby discouraging future attempts to take over
the Company or the 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 an employee severance compensation plan would be approximately
$2.78 million. However, the actual amount to be paid in the event of a change
in control of the Company or Association 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," "-- Employee Severance Compensation Plan" and "--
Benefits."
POSSIBLE DILUTIVE EFFECT OF STOCK-BASED INCENTIVE PLAN
Following the Conversion, the Stock-Based Incentive Plan will acquire an
amount of shares equal to 4% of the shares of Common Stock issued in the
Conversion, either through open market purchases or the issuance of authorized
but unissued shares of Common Stock from the Company. If the Stock-Based
Incentive Plan is funded by the issuance of authorized but unissued shares, the
voting interests of existing stockholders at that time will be diluted by 3.8%.
Also following the Conversion, directors, officers and employees will be granted
stock options under the Stock-Based Incentive Plan in an amount equal to 10% of
the Common Stock issued in the Conversion. The exercise of such stock options
may be satisfied by the issuance of authorized but unissued shares. Under
certain circumstances, such options may be exercised and sold on the same day,
thereby eliminating any risk to officers and directors in exercising options in
the event that the market price exceeds the exercise price. If all of the stock
options were to be exercised using
13
<PAGE>
authorized but unissued Common Stock and the stock awards granted under the
Stock-Based Incentive Plan were funded with authorized but unissued shares, the
voting interests of existing stockholders at that time would be diluted at that
time by 12.3%.
CERTAIN ANTI-TAKEOVER PROVISIONS WHICH MAY DISCOURAGE TAKEOVER ATTEMPTS
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, non-cumulative voting for directors,
limits on the calling of special meetings, limits on voting shares 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 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 Board of Directors, and thus, generally may serve to perpetuate
existing management. For a more detailed discussion of these provisions, see
"Restrictions on Acquisitions of the Company and the Association."
Voting Control of Officers and Directors. Directors and officers of the
Association and the Company expect to purchase approximately 11.8% or 8.7% of
the shares of Common Stock to be issued in the Conversion, based upon the
minimum and the maximum of the Estimated Price Range, respectively, exclusive of
shares that may be attributable to directors and officers through the Stock-
Based Incentive Plan (exclusive of shares to be issued upon the exercise of
options) and the ESOP, which plans may give directors, officers and employees
the potential to control the voting of an additional 18.8% of the Company's
Common Stock assuming such plans were funded with authorized but unissued
shares. 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."
ABSENCE OF MARKET FOR COMMON STOCK
The Company and the Association have never issued capital stock. The Company
has received conditional approval to have its Common Stock listed on the Nasdaq
National Market under the symbol "GCFC" upon completion of the Conversion.
However, there can be no assurance that an active and liquid trading market for
the Common Stock will develop or, once developed, will continue, nor can there
be any assurances 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 the Common Stock."
POSSIBLE INCREASE IN ESTIMATED PRICE RANGE AND NUMBER OF SHARES ISSUED
The number of shares to be issued in the Conversion may be increased as a
result of an increase in the Estimated Price Range of up to 15% due to
regulatory considerations, changes in market conditions or general financial and
economic conditions following the commencement of the Subscription and Community
14
<PAGE>
Offerings. In the event that the Estimated Price Range is so increased, it is
expected that the Company will issue up to 2,645,000 shares of Common Stock at
the Purchase Price for an aggregate purchase price of up to $26.5 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.
FINANCIAL INSTITUTION REGULATION AND POSSIBLE LEGISLATION
The Association is subject to extensive regulation and supervision as a
federal savings association. In addition, the Company, as a savings association
holding company, is subject to extensive regulation and supervision. Such
regulations, which affect the Association on a daily basis, may be changed at
any time, and the interpretation of the relevant law and regulations is also
subject to change by the authorities who examine the Association and interpret
those laws and regulations. Any change in the regulatory structure or the
applicable statutes or regulations, whether by the OTS, the FDIC or the
Congress, could have a material impact on the Company, the Association, their
operations or the Association's Conversion. See "Regulation."
The Deposit Insurance Funds Act of 1996 (the "Funds Act"), which was enacted
in September 1996, provides that the BIF (the deposit insurance fund that covers
most commercial bank deposits) and the SAIF will merge on January 1, 1999, if
there are no more savings associations as of that date. Several bills have been
introduced in the current Congress that would eliminate the federal thrift
charter and the OTS. A bill originally reported by the House Banking Committee
would have required federal thrifts to become national banks or state banks
within two years of enactment or they would have become national banks by
operation of law. OTS would have been abolished and its functions transferred
to the bank regulatory agencies. The bill as passed by the House of
Representatives, however, did not provide for the elimination of the federal
thrift charter or OTS, but did provide that unitary savings and loan holding
companies existing or applied for after March 31, 1998 would not have the
ability to engage in unlimited activities but would be subject to the activities
restrictions applicable to multiple savings and loan holding companies. Unitary
holding companies existing or applied for before 1998 would be grandfathered and
could continue to engage in unlimited activities and could transfer the
grandfather rights to acquirors of the holding company. The Senate has not
acted on the legislation but if such legislation was enacted, the Company would
not qualify for unlimited activities but would be subject to the activities
restrictions applicable to multiple savings and loan holding companies. The
Association is unable to predict whether the legislation will be enacted or,
given such uncertainty, determine the extent to which the legislation, if
enacted, would affect its business. The Association is also unable to predict
whether the SAIF and BIF will eventually be merged or the federal thrift charter
eliminated, and what effect, if any, such legislation would have on the
Association.
YEAR 2000 COMPLIANCE
As the year 2000 approaches, an important business issue has emerged
regarding how existing application software programs and operating systems can
accommodate this date value. Many existing application software products were
designed to accommodate only two-digits. For example, "98" is stored on the
system to represent 1998. Accordingly, the Association's operating system may
recognize "00" as the year 1900 rather than 2000, causing the system to fail or
generate erroneous information. The Association has not identified any material
expenses which are reasonably likely to be incurred by the Association in
connection with year-2000 issues and the Association does not expect to incur
significant expense to implement corrective measures. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- Year
2000 Compliance."
15
<PAGE>
POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OF SUBSCRIPTION
RIGHTS
The Association has received an opinion from Keller which states that,
pursuant to Keller's valuation, subscription rights granted to Eligible Account
Holders, Supplemental Eligible Account Holders and Other Members have no value.
However, such valuation is not binding on the Internal Revenue Service ("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 rights may be taxable as ordinary income or capital gain to those
Eligible Account Holders, Supplemental Eligible Account Holders or Other Members
who receive and/or exercise the subscription rights in an amount equal to such
value. 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."
RISK OF DELAYED OFFERING
The Company and the Association expect to complete the Conversion within the
time periods indicated in this Prospectus. Nevertheless, it is possible,
although not anticipated, that adverse market, economic or regulatory
conditions, or other factors could significantly delay the completion of the
Conversion and result in increased Conversion costs or in changes in the
Conversion valuation. The Subscription and Community Offerings could be
extended to ______________, 1999 before subscribers would have the right to
confirm, modify or rescind their subscriptions. If the Subscription and
Community Offerings are extended beyond ______________, 1999, all subscribers
will have the right to confirm, modify or rescind their subscriptions and to
have their subscription funds returned promptly, with interest at a rate equal
to the Association's interest rate paid on passbook accounts, or to have their
withdrawal authorization terminated. See "The Conversion."
GRAND CENTRAL FINANCIAL CORP.
The Company was recently organized under Delaware law at the direction of the
Board of Directors of the Association for the purpose of acquiring all of the
capital stock to be issued by the Association. The Company has applied to the
OTS to become a savings and loan holding company, and, as such, will be subject
to regulation by the OTS. See "The Conversion - General." After completion of
the Conversion, the Company will conduct business initially as a unitary savings
and loan holding company. See "Regulation - Holding Company Regulation." Upon
consummation of the Conversion, the Company's assets will consist of all of the
outstanding shares of the Association's capital stock issued to the Company in
the Conversion and that portion of the net proceeds of the Offerings retained by
the Company. The Company intends to use part of the net proceeds it retains to
make a loan directly to the ESOP to enable the ESOP to purchase 8% of the Common
Stock in the Conversion. See "Use of Proceeds." The Company will have no
significant liabilities. The management of the 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 officers, 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 with additional flexibility to diversify, should it decide to do so, its
business activities through existing or newly-formed subsidiaries, or through
acquisitions of other financial institutions and financial services related
companies. Although there are no current arrangements, understandings or
agreements, written or oral, regarding any such opportunities or transactions,
the Company will be in a position after the Conversion, subject to
16
<PAGE>
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 net proceeds
retained by the Company and earnings thereon or, alternatively, through
dividends from the Association.
The Company's executive offices are located at the home office of the
Association at 601 Main Street, Wellsville, Ohio 43968 and its telephone number
is (330) 532-1517.
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF WELLSVILLE
The Association was organized in 1892, and has operated for over one hundred
years as a community-oriented savings institution. The Association's primary
market area consists of the areas in and surrounding the Village of Wellsville
and includes portions of the counties of Columbiana, Mahoning and Jefferson
Counties in Eastern Ohio. The Association conducts its business from its home
office located in Wellsville, Ohio, and its five full service branch offices,
four of which have been opened since 1996.
The Association's business has been and continues to be attracting deposits
from the general public in its primary market area and investing such deposits
and other funds, generated from operations, and FHLB advances, primarily in
conventional mortgage loans secured by single-family residences. At June 30,
1998, $42.7 million, or 69.91%, of the Association's gross loans receivable
generally consisted of fixed-rate single-family mortgage loans. In addition,
the Association invests in consumer loans, primarily automobile loans originated
directly or on the Association's behalf by automobile dealers at the time of
sale. To a significantly lesser extent, the Association invests in home equity,
multi-family, commercial real estate, construction (primarily to individual
borrowers for the construction of owner-occupied residential properties) and
land loans. In addition to its lending activities, the Association also invests
in mortgage-backed securities, primarily those guaranteed or insured by
government agencies such as Ginnie Mae, Fannie Mae and Freddie Mac, and other
investment grade securities.
The Association is subject to extensive regulation, supervision and
examination by the OTS, its primary regulator, and the FDIC, which insures its
deposits. As of June 30, 1998, the Association exceeded all regulatory capital
requirements with tangible, core and risk-based capital of $14.3 million, $14.3
million and $14.6 million, respectively. Additionally, the Association's
regulatory capital was in excess of the amount necessary to be "well-
capitalized" under the Federal Deposit Insurance Corporation Improvement Act of
1992 ("FDICIA"). See "Regulatory Capital Compliance" and "Regulation." The
Association is a member of the FHLB - Cincinnati which is one of the twelve
regional banks which comprise the FHLB system.
The Association's executive offices are located at its home office at 601
Main Street, Wellsville, Ohio 43968 and its telephone number is (330) 532-1517.
17
<PAGE>
REGULATORY CAPITAL COMPLIANCE
At June 30, 1998, the Association exceeded all regulatory capital
requirements. See "Regulation - Federal Savings Institution Regulation -Capital
Requirements." Set forth below is a summary of the Association's compliance with
regulatory capital standards as of June 30, 1998, on a 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 and that such net proceeds
are invested in assets that carry a 20% risk-weighting, such as short-term
interest-bearing deposits. For purposes of the table below, the amount expected
to be borrowed by the ESOP and the cost of the shares expected to be acquired by
the Stock Programs are deducted from pro forma regulatory capital.
<TABLE>
<CAPTION>
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF WELLSVILLE
PRO FORMA AT JUNE 30, 1998, BASED UPON SALE AT $10.00 PER SHARE
-----------------------------------------------------------------------
1,700,000 SHARES 2,000,000 SHARES
(MINIMUM OF (MIDPOINT OF
HISTORICAL ESTIMATED ESTIMATED
AT JUNE 30, 1998 PRICE RANGE) PRICE RANGE)
------------------------------ ---------------------------------------------------------------------
PERCENT PERCENT PERCENT
OF OF OF
AMOUNT ASSETS(2) AMOUNT ASSETS(2) AMOUNT ASSETS(2)
-------------- ------------- --------------- ----------------- --------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
GAAP Capital................. $14,331 11.8% $20,500 16.0% $21,619 17.5%
Tangible Capital:
Capital Level(3).......... $14,245 11.7% $20,414 16.0% $21,533 16.7%
Requirement............... 1,824 1.5% 1,916 1.5% 1,933 1.5%
------- ---- ------- ---- ------- ----
Excess.................... $12,421 10.2% $18,498 14.5% $19,600 15.2%
======= ==== ======= ==== ======= ====
Core Capital:
Capital Level(3).......... $14,245 11.7% $20,414 16.0% $21,533 16.7%
Requirement(4)............ 3,647 3.0% 3,832 3.0% 3,866 3.0%
------- ---- ------- ---- ------- ----
Excess.................... $10,598 8.7% $16,582 13.0% $17,667 13.7%
======= ==== ======= ==== ======= ====
Total Risk-Based Capital:
Capital Level(3).......... $14,620 23.2% $20,789 31.4% $21,908 32.8%
Requirement............... 5,037 8.0% 5,292 8.0% 5,338 8.0%
------- ---- ------- ---- ------- ----
Excess.................... $ 9,583 15.2% $15,497 23.4% $16,570 24.8%
======= ==== ======= ==== ======= ====
<CAPTION>
-----------------------------------------------------------------------------
2,645,000 SHARES
2,300,000 SHARES (15% ABOVE
(MINIMUM OF MAXIMUN
ESTIMATED OF ESTIMATED
PRICE RANGE) PRICE RANGE)(1)
---------------------------------- ---------------------------------------
PERCENT PERCENT
OF OF
AMOUNT ASSETS(2) AMOUNT ASSETS(2)
-------------- ------------------- ---------------- --------------------
<S> <C> <C> <C> <C>
GAAP Capital................ $22,738 17.5% $24,026 18.3%
Tangible Capital:
Capital Level(3)......... $22,652 17.4% $23,940 18.3%
Requirement.............. 1,950 1.5% $ 1,969 1.5%
------- ---- ------- ----
Excess................... $20,702 15.9% $21,971 16.8%
======= ==== ======= ====
Core Capital:
Capital Level(3)......... $22,652 17.4% $23,940 18.3%
Requirement(4)........... 3,900 3.0% $ 3,938 3.0%
------- ---- ------- ----
Excess................... $18,752 14.4% $20,002 15.3%
======= ==== ======= ====
Total Risk-Based Capital:
Capital Level(3)......... $23,027 34.2% $24,315 35.8%
Requirement.............. 5,384 8.0% $ 5,437 8.0%
------- ---- ------- ----
Excess................... $17,643 26.2% $18,878 27.8%
======= ==== ======= ====
</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, changes in market conditions or
general financial and economic conditions following the commencement of the
Subscription and Community Offerings.
(2) Tangible capital levels are shown as a percentage of tangible assets. Core
capital levels are shown as a percentage of total adjusted assets. Risk-
based capital levels are shown as a percentage of risk-weighted assets.
(3) Certain deductions and additions are made to equity as calculated under
generally accepted accounting principles ("GAAP") to determine regulatory
capital. The general valuation allowance of $375,000 is added to GAAP
capital to arrive at total risk-based capital. Assumes net proceeds are
invested in assets that carry a risk weighting of 51.6%, the average risk
weighting of the Association's assets at June 30, 1998.
(4) The current OTS core capital requirement for savings associations is 3% of
total adjusted assets. The OTS has proposed core capital requirements
which would require a core capital ratio of 3% of total adjusted assets for
thrifts that receive the highest supervisory rating for safety and
soundness and a 4% to 5% core capital ratio requirement for all other
thrifts. See "Regulation - Federal Savings Institution Regulation -
Capital Requirements."
18
<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 $14.4 million
and $19.6 million (or $22.6 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 Offering. Such proceeds will be added to the Association's general funds
to be used for general corporate purposes, including investment in single-family
residential mortgage loans and other loans and investment in short- to
intermediate-term securities and mortgage-backed securities. In addition, under
appropriate market conditions, the Company may repay advances from the FHLB-
Cincinnati. The Association has no current arrangements, understandings or
agreements regarding any such transactions. The Association has not yet
determined the approximate amount of net proceeds to be used for any of the
purposes mentioned above.
Net proceeds to be retained by the Company after the purchase of the capital
stock of the Association, and including the loan to the ESOP, are estimated to
be between $14.4 million and $19.6 million (or $22.6 million if the Estimated
Price Range is increased by 15%). The net proceeds retained by the Company will
initially be invested primarily in short- to intermediate-term securities and
mortgage-backed securities. The Company intends to use a portion of the net
proceeds to make a loan directly to the ESOP to enable the ESOP to purchase 8.0%
of the Common Stock issued in the Conversion. Based upon the issuance of
1,700,000 shares and 2,300,000 shares at the minimum and maximum of the
Estimated Price Range, the amount of the loan to the ESOP would be $1.4 million
or $1.8 million, respectively (or $2.1 million if the Estimated Price Range is
increased by 15%) to be repaid over a 12-year period at the prevailing prime
rate of interest, which is currently 8.5%. See "Management of the Association -
Benefits - Employee Stock Ownership Plan and Trust."
The net proceeds retained by the Company may also be used to support the
future expansion of operations through the acquisition of other savings
associations and commercial banks or diversification into other banking related
businesses. The Company may use a portion of the net proceeds to fund the Stock
Programs. The Company has 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
generally not be restricted as to the types of business activities in which it
may engage, provided that the Association continues to be a qualified thrift
lender ("QTL"). See "Regulation - Holding Company Regulation" for a description
of certain regulations and proposed 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 the Common
Stock for three years except for (i) an offer to all stockholders on a pro rata
basis, (ii) the repurchase of qualifying shares of a director, or (iii) a
purchase in the open market by an employee stock benefit plan. Notwithstanding
the foregoing and except as provided below, 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
19
<PAGE>
5% of its outstanding capital stock during a twelve-month period, (ii) the
repurchases do not cause the Association to become "undercapitalized" 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 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.
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 and tax and other considerations. See "The
Conversion - Certain Restrictions on Purchase or Transfer of Shares after
Conversion."
In connection with the Conversion, the Company and the Association have
committed to the OTS that, during the one-year period following consummation of
the Conversion, the Company will not make any distribution to stockholders that,
for federal tax purposes, would be treated as a return of capital without prior
approval of the OTS.
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. The Company is newly formed and has conducted no operations to
date. The Board of Directors intends to consider a policy of paying dividends
on the Common Stock in the future. No decision has been made as to the amount
or timing of such dividends, if any. Declarations of dividends by the Board of
Directors 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.
20
<PAGE>
The Association will not be permitted to pay dividends 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 - Federal Taxation - Distributions" and "Regulation - Federal Savings
Institution Regulation - Limitation on Capital Distributions."
Unlike the Association, the Company is not subject to OTS regulatory
restrictions on the payment of dividends to its stockholders. 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. Since the Company initially will have no
significant source of income other than dividends from the Association and
earnings from the net proceeds retained by the Company, the payment of dividends
by the Company may be dependent, in part, upon dividends from the Association
which is subject to various tax and regulatory restrictions on the payment of
dividends. Additionally, in connection with the Conversion, the Company and
Association have committed to the OTS that during the one-year period following
the consummation of the Conversion, the Company will not make any distribution
to stockholders that, for federal tax purposes, would be treated as a return of
capital without prior approval of the OTS.
MARKET FOR THE COMMON STOCK
The Company was recently formed and has never issued capital stock. The
Association, as a mutual institution, has never issued capital stock. The
Company has received conditional approval to have its Common Stock quoted on the
Nasdaq National Market under the symbol "GCFC" subject to the completion of the
Conversion and compliance with certain conditions including the presence of at
least three registered and active market makers. The Company will seek to
encourage and assist at least three market makers to make a market in its Common
Stock. Keefe, Bruyette & Woods, Inc. has agreed to make a market for the Common
Stock following consummation of the Conversion, although it has no obligation to
do so, and will assist the Company in seeking to encourage at least two
additional market makers to establish and maintain a market in the Common Stock.
Making a market involves maintaining bid and ask quotations and being able, as
principal, to effect transactions in reasonable quantities at those quoted
prices, subject to various securities laws and other regulatory requirements.
There can be no assurance that the Common Stock will be able to meet the
applicable listing criteria in order to maintain its quotation on the Nasdaq
National Market or that an active and liquid trading market will develop or, if
developed, will be maintained. A public market having the desirable
characteristics of depth, liquidity and orderliness, however, depends upon the
presence in the marketplace of both willing buyers and sellers of Common Stock
at any given time, which is not within the control of the Company. No assurance
can be given that an investor will be able to resell the Common Stock at or
above the Purchase Price of the Common Stock after the Conversion. See "Risk
Factors - Absence of Market for Common Stock."
21
<PAGE>
CAPITALIZATION
The following table presents the unaudited historical consolidated
capitalization of the Association at June 30, 1998, and the pro forma
consolidated capitalization of the Company after giving effect to the
Conversion, 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
--------------------------------------------------------------------
2,645,000
1,700,000 2,000,000 2,300,000 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)
------------------ --------------- --------------- -------------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Total deposits(2)......................... $ 78,909 $ 78,909 $ 78,909 $ 78,909 $ 78,909
FHLB advances............................. 27,680 27,680 27,680 27,680 27,680
-------- ---------- ---------- ---------- ----------
Total................................ $106,589 $ 106,589 $ 106,589 $ 106,589 $ 106,589
======== ========== ========== ========== ==========
Stockholders' equity:
Preferred Stock, $0.01 par value,
1,000,000 shares authorized;
none to be issued.................... $ -- $ -- $ -- $ -- $ --
Common Stock, $0.01 par value,
6,000,000 shares authorized;
shares to be issued as reflected..... -- 17 20 23 26
Additional paid-in capital(3)........... -- 16,400 19,356 22,312 25,711
Retained earnings(4).................... 14,270 14,270 14,270 14,270 14,270
Unrealized loss on securities
available for sale................. 61 61 61 61 61
Common Stock acquired by the
ESOP(5).............................. -- (1,360) (1,600) (1,840) (2,116)
Common Stock acquired by the
Stock Programs(6).................... -- (680) (800) (920) (1,058)
-------- ---------- ---------- ---------- ----------
Total stockholders' equity................ $ 14,331 $ 28,708 $ 31,307 $ 33,906 $ 36,894
======== ========== ========== ========== ==========
</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 conditions 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) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock-Based Incentive Plans intended to be adopted by
the Company and presented for approval of stockholders at a meeting of
stockholders following the Conversion. If approved by the stockholders of
the Company, an amount equal to 10% of the shares of Common Stock issued in
the Conversion will be reserved for issuance upon the exercise of options
to be granted under the Stock-Based Incentive Plan. See "Risk Factors -
Possible Dilutive Effect of Stock-Based Incentive Plan," Footnote 3 to the
tables under "Pro Forma Data" and "Management of the Association - Benefits
- Stock-Based Incentive Plan."
(4) The retained earnings of the Association will be substantially restricted
after the Conversion. See "The Conversion - Liquidation Rights" and
"Regulation - Federal Savings Institution Regulation - Limitations on
Capital Distributions." Does not reflect the payment of any possible
future dividends. See "Dividend Policy."
(5) Assumes that 8.0% of the shares offered for sale in the Conversion will be
purchased by the ESOP and that the funds used to acquire such 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 - Benefits - Employee Stock Ownership Plan and Trust."
(6) Assumes that an amount equal to 4.0% of the shares of Common Stock issued
in the Conversion is purchased by the Stock-Based Incentive Plan subsequent
to the Conversion through open market purchases. The Common Stock
purchased by the Stock-Based Incentive Plan is reflected as a reduction of
stockholder's equity. Implementation of the Stock-Based Incentive Plan is
subject to the approval of the Company's stockholders at a meeting
following the Conversion. See "Risk Factors - Possible Dilutive Effect of
Stock-Based Incentive Plan," Footnote 2 to the tables under "Pro Forma
Data" and "Management of the Association - Benefits - Stock-Based Incentive
Plan."
22
<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 $14.4 million and $19.6 million (or $22.6 million in the
event the Estimated Price Range is increased by 15% based upon the following
assumptions: (i) 100% of the shares of Common Stock will be sold in the
Subscription and Community Offerings; (ii) directors, officers and employees of
the Association and members of their immediate families (collectively,
"Affiliates") will purchase an aggregate of 200,000 shares of Common Stock;
(iii) Webb will receive a fee equal to 1.3% of the aggregate Purchase Price of
the shares sold in the Subscription and Community Offerings, excluding shares
purchased by Affiliates and the ESOP for which there is no fee; and (iv)
Conversion expenses, excluding the marketing fees paid to Webb, will be
approximately $594,000. Actual Conversion expenses may vary from those
estimated.
Pro forma consolidated net earnings of the Company for the six months ended
June 30, 1998, and for the year ended December 31, 1997, have been calculated as
if the Common Stock had been sold at the beginning of the respective periods and
the net proceeds had been invested at 5.29% and 5.35%, respectively, 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 periods (as required by OTS regulations). The tables below do not
reflect the effect of withdrawals from deposit accounts for the purchase of
Common Stock or the effect of any possible use of the net conversion proceeds.
The pro forma after-tax yields for the Company and the Association are assumed
to be 3.49% for the six months ended June 30, 1998, based on an effective tax
rate of 34% and 3.53% for the year ended December 31, 1997, based on an
effective tax rate of 34%. Historical and pro forma net earnings per share
amounts have been calculated by dividing historical and pro forma amounts by the
indicated number of shares of Common Stock issued, as adjusted to give effect to
the purchase of shares by the ESOP. Historical and pro forma stockholders'
equity per share amounts have been calculated by dividing historical and pro
forma amounts by the indicated number of shares of Common Stock issued. No
effect has been given in the pro forma stockholders' equity calculations for the
assumed earnings on the net 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
computed in accordance with GAAP. 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 tables summarize historical data of the Association and pro
forma data of the Company at or for the six months ended June 30, 1998, and at
or for the year ended December 31, 1997, 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 tables below
give effect to the Stock Programs, 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 tables and "Management of the
Association - Benefits - Stock-Based Incentive Plan." No effect has been given
in the tables to the possible issuance of additional shares reserved for future
issuance pursuant to the Stock Option Plans which are expected 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 give any effect to the
liquidation account to be established for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders or the bad debt reserve in
liquidation. See Footnote 3 to the tables below, "The Conversion - Liquidation
Rights" and "Management of the Association - Benefits - Stock-Based Incentive
Plan."
23
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE SIX MONTHS ENDED JUNE 30, 1998
---------------------------------------------------------------------
1,700,000 2,000,000 2,300,000 2,645,000
SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD
AT $10.00 AT $10.00 AT $10.00 AT $10.00
PER SHARE PER SHARE PER SHARE PER SHARE (15%
(MINIMUM (MIDPOINT (MAXIMUM ABOVE MAXIMUM
OF ESTIMATED OF ESTIMATED OF ESTIMATED OF ESTIMATED
PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE)(5)
--------------- -------------- ---------------- ---------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross proceeds................................... $ 17,000 $ 20,000 $ 23,000 $ 26,450
Less: Offering expenses and
commission.................................... (583) (624) (665) (713)
---------- ---------- ---------- ----------
Estimated net proceeds........................... 16,417 19,376 22,335 25,737
Less: Common Stock acquired by
ESOP.......................................... (1,360) (1,600) (1,840) (2,116)
Common Stock acquired by
Stock-Based Incentive Plan.................... (680) (800) (920) (1,058)
---------- ---------- ---------- ----------
Estimated net proceeds, as adjusted............. $ 14,377 $ 16,976 $ 19,575 $ 22,563
========== ========== ========== ==========
Consolidated net earnings:
Historical...................................... $ 151 $ 151 $ 151 $ 151
Pro forma adjustments:
Net income from proceeds......................... 251 296 342 394
ESOP (1)....................................... (37) (44) (51) (58)
Stock-Based Incentive Plan (2)................. (45) (53) (61) (70)
---------- ---------- ---------- ----------
Pro forma net income............................ $ 320 $ 350 $ 381 $ 417
========== ========== ========== ==========
Net earnings per share:
Historical...................................... $ 0.10 $ 0.08 $ 0.07 $ 0.06
Pro forma adjustments:
Net income from proceeds......................... 0.16 0.16 0.16 0.16
ESOP (1)....................................... (0.02) (0.02) (0.02) (0.02)
Stock-Based Incentive Plan (2)................. (0.03) (0.03) (0.03) (0.03)
---------- ---------- ---------- ----------
Pro forma net income............................ $ 0.21 $ 0.19 $ 0.18 $ 0.17
========== ========== ========== ==========
Number of shares using SOP 93-6................ 1,569,667 1,846,667 2,123,667 2,442,217
Stockholders' equity:
Historical...................................... $ 14,331 $ 14,331 $ 14,331 $ 14,331
Estimated net proceeds.......................... 16,417 19,376 22,335 25,737
Less: Common Stock acquired
by ESOP(1).................................. (1,360) (1,600) (1,840) (2,116)
Common Stock acquired by Stock-
Based Incentive Plan(2)..................... (680) (800) (920) (1,058)
---------- ---------- ---------- ----------
Pro forma stockholders'
equity(2)(3)(4)................................ $ 28,708 $ 31,307 $ 33,906 $ 36,894
========== ========== ========== ==========
Stockholders' equity per share:
Historical...................................... $ 8.43 $ 7.17 $ 6.23 $ 5.42
Estimated net proceeds.......................... 9.66 9.69 9.71 9.73
Less: Common Stock acquired
by ESOP(1).................................. (0.80) (0.80) (0.80) (0.80)
Common Stock acquired by Stock-
Based Incentive Plan(2)..................... (0.40) (0.40) (0.40) (0.40)
---------- ---------- ---------- ----------
Pro forma stockholders' equity
per share(2)(3)(4)............................. $ 16.89 $ 15.66 $ 14.74 $ 13.95
========== ========== ========== ==========
Offering price as a percentage of
pro forma stockholders' equity
per share...................................... 59.21% 63.86% 67.84% 71.68%
Number of shares................................. 1,700,000 2,000,000 2,300,000 2,645,000
Offering price to pro forma net earnings
per share..................................... 23.81x 26.32x 27.78x 29.41x
</TABLE>
(footnotes on following page)
24
<PAGE>
________________________
(1) It is assumed that 8.0% of the shares of Common Stock offered in the
Conversion 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 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 12 equal annual installments of principal and
interest. The pro forma net earnings assumes: (i) that the Association's
contribution to the ESOP is equivalent to the debt service requirement
(excluding interest, which is assumed to be paid to the Company and
therefore eliminated in consolidation) for the six months ended June 30,
1998, and was made at the end of the period; (ii) that 56,667, 66,667,
76,667 and 88,167 shares at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Price Range, respectively, were committed to
be released during the six months 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 - Benefits - Employee Stock Ownership Plan and Trust."
Under SOP 93-6, the Company will recognize compensation cost equal to the
fair value of the ESOP shares during the periods in which they become
committed to be released. To the extent that the fair value of the
Association's ESOP shares differs from the cost of such shares, this
differential will be charged or credited to equity.
(2) Gives effect to the Stock-Based Incentive Plan expected to be adopted by
the Company following the Conversion and presented for approval at a
meeting of stockholders. The Stock-Based Incentive Plan intends to acquire
an amount of Common Stock equal to 4.0% of the shares of Common Stock
issued in the Conversion, or 68,000, 80,000, 92,000 and 105,000 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-
Based Incentive Plan to purchase the shares will be contributed to the
Stock-Based Incentive Plan by the Association. In calculating the pro
forma effect of the Stock-Based Incentive Plan, it is assumed that the
required stockholder approval has been received, that the shares were
acquired by the Stock-Based Incentive Plan 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 Common Stock to the
Stock-Based Incentive Plan 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 $0.20, $0.19, $0.18 and $0.17 and
pro forma stockholders' equity per share would be $16.62, $15.44, $14.56
and $13.80. There can be no assurance that stockholder approval of the
Stock-Based Incentive Plan will be obtained, or that the actual purchase
price of the shares will be equal to the Purchase Price. See "Management
of the Association - Benefits - Stock-Based Incentive Plan."
(3) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock-Based Incentive Plan expected to be adopted by
the Company following the Conversion. The Company expects to present the
Stock-Based Incentive Plan for approval at a meeting of stockholders. If
the Stock-Based Incentive Plan is approved by stockholders, an amount equal
to 10% of the Common Stock issued in the Conversion, or 170,000, 200,000,
230,000 and 264,500 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-Based Incentive Plan. The issuance of Common Stock pursuant to the
exercise of options under the Stock-Based Incentive Plan will result in the
dilution of existing stockholders' interests. Assuming stockholder
approval of the Stock-Based Incentive Plan and 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 $0.20, $0.19, $0.18 and $0.17,
respectively, and the pro forma stockholders' equity per share would be
$16.26, $15.14, $14.31 and $13.59, respectively. See "Management of the
Association - Benefits - Stock-Based Incentive Plan."
(4) The retained earnings of the Association will continue to be substantially
restricted after the Conversion. See "Dividend Policy," "The Conversion -
Liquidation Rights" and "Regulation - Federal Savings Institution
Regulation - Limitation on Capital Distributions."
(5) 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, changes in market conditions or
general financial and economic conditions following the commencement of the
Subscription and Community Offerings.
25
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------------------
1,700,000 2,000,000 2,300,000 2,645,000
SHARES SOLD SHARES SOLD SHARES SOLD SHARES SOLD
AT $10.00 AT $10.00 AT $10.00 AT $10.00
PER SHARE PER SHARE PER SHARE PER SHARE (15%
(MINIMUM (MIDPOINT (MAXIMUM ABOVE MAXIMUM
OF ESTIMATED OF ESTIMATED OF ESTIMATED OF ESTIMATED
PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE)(5)
--------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross proceeds............................................ $ 17,000 $ 20,000 $ 23,000 $ 26,450
Less: Offering expenses and
commissions........................................... (583) (624) (665) (713)
---------- ---------- ---------- ----------
Estimated net proceeds.................................... 16,417 19,376 22,335 25,737
Less: Common Stock acquired by
ESOP............................................. (1,360) (1,600) (1,840) (2,116)
Common Stock acquired by
Stock-Based Incentive Plan....................... (680) (800) (920) (1,058)
---------- ---------- ---------- ----------
Estimated net proceeds, as adjusted..................... $ 14,377 $ 16,976 $ 19,575 $ 22,563
========== ========== ========== ==========
Consolidated net earnings:
Historical.............................................. $ 681 $ 681 $ 681 $ 681
Pro forma adjustments:
Net income from proceeds............................. 508 599 691 797
ESOP (1)............................................. (75) (88) (101) (116)
Stock-Based Incentive Plan (2)............................ (90) (106) (121) (140)
---------- ---------- ---------- ----------
Pro forma net income.................................... $ 1,024 $ 1,086 $ 1,150 $ 1,222
========== ========== ========== ==========
Net income per share:
Historical.............................................. $ 0.43 $ 0.37 $ 0.32 $ 0.28
Pro forma adjustments:
Net income from proceeds............................. 0.32 0.32 0.32 0.33
ESOP (1)............................................. (0.05) (0.05) (0.05) (0.05)
Stock-Based Incentive Plan (2)............................ (0.06) (0.06) (0.06) (0.06)
---------- ---------- ---------- ----------
Pro forma net income.................................... $ 0.64 $ 0.58 $ 0.53 $ 0.50
========== ========== ========== ==========
Number of shares using SOP 93-6........................... 1,575,333 1,853,333 2,131,333 2,451,033
Stockholders' equity:
Historical.............................................. $ 14,165 $ 14,165 $ 14,165 $ 14,165
Estimated net proceeds.................................. 16,417 19,376 22,335 25,737
Less: Common Stock acquired
by ESOP(1)..................................... (1,360) (1,600) (1,840) (2,116)
Common Stock acquired
by Stock-Based Incentive Plan(2)............... (680) (800) (920) (1,058)
---------- ---------- ---------- ----------
Pro forma stockholders'
equity(2)(3)(4)...................................... $ 28,542 $ 31,141 $ 33,740 $ 36,728
========== ========== ========== ==========
Stockholders' equity per share:
Historical.............................................. $ 8.33 $ 7.08 $ 6.16 $ 5.36
Estimated net proceeds.................................. 9.66 9.69 9.71 9.73
Less: Common Stock acquired
by ESOP(1)..................................... (0.80) (0.80) (0.80) (0.80)
Common Stock acquired
by Stock-Based Incentive Plan(2)............... (0.40) (0.40) (0.40) (0.40)
---------- ---------- ---------- ----------
Pro forma stockholders' equity
per share(2)(3)(4)................................... $ 16.79 $ 15.57 $ 14.67 $ 13.89
========== ========== ========== ==========
Offering price as a percentage of
pro forma stockholders' equity
per share............................................ 59.56% 64.23% 68.17% 71.99%
Offering price to pro forma net
earnings per share...................................... 15.63x 17.24x 18.87x 20.00x
</TABLE>
(footnotes on following page)
26
<PAGE>
________________________
(1) It is assumed that 8.0% of the shares of Common Stock offered in the
Conversion 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 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 12 equal annual installments of principal and
interest. The pro forma net earnings assumes: (i) that the Association's
contribution to the ESOP is equivalent to the debt service requirement
(excluding interest, which is assumed to be paid to the Company and
therefore eliminated in consolidation) for the year ended December 31,
1997, and was made at the end of the period; (ii) that 113,333, 133,333,
153,333 and 176,333 shares at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Price Range, respectively, were committed to
be released during the year ended December 31, 1997, 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 - Benefits - Employee Stock Ownership Plan and Trust."
Under SOP 93-6, the Company will recognize compensation cost equal to the
fair value of the ESOP shares during the periods in which they become
committed to be released. To the extent that the fair value of the
Association's ESOP shares differs from the cost of such shares, this
differential will be charged or credited to equity.
(2) Gives effect to the Stock-Based Incentive Plan expected to be adopted by
the Company following the Conversion and presented for approval at a
meeting of stockholders. The Stock-Based Incentive Plan intends to acquire
an amount of Common Stock equal to 4.0% of the shares of Common Stock
issued in the Conversion, or 68,000, 80,000, 92,000 and 105,800 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-
Based Incentive Plan to purchase the shares will be contributed to the
Stock-Based Incentive Plan by the Association. In calculating the pro
forma effect of the Stock-Based Incentive Plan, it is assumed that the
required stockholder approval has been received, that the shares were
acquired by the Stock-Based Incentive Plan 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 Common Stock to the
Stock-Based Incentive Plan 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 $0.64, $0.58, $0.53 and $0.49 and pro
forma stockholders' equity per share would be $16.53, $15.36, $14.49 and
$13.74. There can be no assurance that stockholder approval of the Stock-
Based Incentive Plan will be obtained, or that the actual purchase price of
the shares will be equal to the Purchase Price. See "Management of the
Association - Benefits - Stock-Based Incentive Plan."
(3) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Stock-Based Incentive Plan expected to be adopted by
the Company following the Conversion. The Company expects to present the
Stock-Based Incentive Plan for approval at a meeting of stockholders. If
the Stock-Based Incentive Plan is approved by stockholders, an amount equal
to 10% of the Common Stock issued in the Conversion, or 170,000, 200,000,
230,000 and 264,500 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-Based Incentive Plan. The issuance of Common Stock pursuant to the
exercise of options under the Stock-Based Incentive Plan will result in the
dilution of existing stockholders' interests. Assuming stockholder
approval of the Stock-Based Incentive Plan and 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 $0.62, $0.56, $0.52 and $0.48,
respectively, and the pro forma stockholders' equity per share would be
$16.17, $15.06, $14.24 and $13.53, respectively. See "Management of the
Association - Benefits - Stock-Based Incentive Plan."
(4) The retained earnings of the Association will continue to be substantially
restricted after the Conversion. See "Dividend Policy," "The Conversion -
Liquidation Rights" and "Regulation - Federal Savings Institution
Regulation - Limitation on Capital Distributions."
(5) 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, changes in market conditions or
general financial and economic conditions following the commencement of the
Subscription and Community Offerings.
27
<PAGE>
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF WELLSVILLE
STATEMENTS OF INCOME
The following Statements of Income of the Association for the fiscal years
ended December 31, 1997, 1996 and 1995 have been audited by Robb, Dixon,
Francis, Davis, Oneson & Company ("Robb, Dixon"), independent certified public
accountants, whose report thereon is included elsewhere in this Prospectus.
With respect to the information for the six months ended June 30, 1998 and 1997
which is unaudited, in the opinion of management, all adjustments necessary for
a fair presentation of such interim periods have been included and are of a
normal recurring nature. Results for the six months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 1998. These Statements of Income should be read in
conjunction with the Financial Statements and notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED
JUNE 30 FOR THE YEAR ENDED DECEMEBER 31
---------------------------- --------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Interest income:
Loans.......................................................... $2,434 $2,091 $4,405 $4,068 $4,002
Mortgage-related securities.................................... 1,395 1,584 2,933 3,288 3,683
Investment securities:
Taxable..................................................... 510 706 1,347 1,093 248
Non-taxable................................................. 9 9 18 26 33
Interest-bearing deposits...................................... 64 43 100 138 151
------ ------ ------ ------ ------
Total interest income.................................... 4,412 4,433 8,803 8,613 8,117
------ ------ ------ ------ ------
Interest expense:
Deposits....................................................... 1,718 1,655 3,367 3,232 2,893
FHLB advances and other........................................ 818 1,001 1,906 1,965 1,878
------ ------ ------ ------ ------
Total interest expense...................................... 2,536 2,656 5,273 5,197 4,771
------ ------ ------ ------ ------
Net interest income............................................... 1,876 1,777 3,530 3,416 3,346
Provision for loan losses......................................... 150 -- -- -- 42
------ ------ ------ ------ ------
Net interest income after provision
for loan losses................................................ 1,726 1,777 3,530 3,416 3,304
Noninterest Income:
Service charges and other fees................................. 85 83 171 130 96
Gain (loss) on sale of:
Loans.................................................... 33 -- 5 4 2
Available-for-sale securities............................ 4 -- -- (9) --
Other.................................................... 40 32 65 44 59
------ ------ ------ ------ ------
Total noninterest income................................. 162 115 241 169 157
------ ------ ------ ------ ------
Noninterest expense:
Salaries and net employee benefits............................. 839 686 1,553 1,441 1,257
Occupancy costs................................................ 227 188 353 297 205
Data Processing................................................ 69 63 128 125 118
FDIC assessments............................................... 24 15 39 614 160
Franchise taxes................................................ 111 103 201 201 177
Other.......................................................... 422 304 609 574 568
------ ------ ------ ------ ------
Total noninterest expense................................... 1,692 1,359 2,883 3,252 2,485
------ ------ ------ ------ ------
Income before income taxes........................................ 196 533 888 333 976
Income taxes...................................................... 45 156 207 46 307
------ ------ ------ ------ ------
Net income........................................................ $ 151 $ 377 $ 681 $ 287 $ 669
====== ====== ====== ====== ======
</TABLE>
(See notes to the Financial Statements appearing elsewhere herein)
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company has only recently been formed and, accordingly, has no results
of operations. The Association's results of operations are dependent primarily
on net interest income, which is the difference between the interest income
earned on its loans, mortgage-backed securities, and securities 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
investment securities, as well as income from service charges and loan
originations. The Association's operating expenses principally consist of
employee compensation and benefits, occupancy, federal deposit-insurance
premiums 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. Future changes in
applicable law, regulations or government policies may materially impact the
Association.
MANAGEMENT STRATEGY
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 single-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. Management has sought in recent years to expand the business of the
Association by establishing additional branches to reach additional customers in
its market area. Management's efforts in increasing the Association's volume of
shorter-term consumer loans have been intended to help reduce interest rate
risk, as well as to build on the Association's residential mortgage business.
The Association's deposits are insured up to the maximum allowable amount by the
Savings Association Insurance Fund (the "SAIF"), and administered by the Federal
Deposit Insurance Corporation (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 OF MARKET RISK
General. Market risk is the risk of loss from adverse changes in market
prices and rates. The Company's market risk arises primarily from interest rate
risk inherent in its lending and deposit taking activities. The Association like
other financial institutions, is subject to interest rate risk to the extent
that its interest-earnings assets reprice differently than its interest-bearing
liabilities. One of the Association's principal financial objectives is to
29
<PAGE>
achieve long-term profitability while reducing and managing its exposure to
fluctuations in interest rates. To that end, management actively monitors and
manages its interest rate risk exposure.
The principal objective of the Association's interest rate risk management
function is to evaluate the interest rate risk included in certain balance sheet
accounts, determine the level of risk appropriate given the Association's
business strategy, operating environment, capital and liquidity requirements and
performance objectives, and manage the risk consistent with Board of Directors'
approved guidelines. Through such management, the Association seeks to reduce
the vulnerability of its operations to changes in interest rates. The
Association monitors its interest rate risk as such risk relates to its
operating strategies. The Association's Board of Directors has established an
Asset/Liability Committee, responsible for reviewing its asset/liability
policies and interest rate risk position, which meets on a monthly basis and
reports trends and interest rate risk position to the Board of Directors. The
extent of the movement of interest rates is an uncertainty that could have a
negative impact on the earnings of the Association. See "Risk Factors--
Sensitivity to Increases in Interest Rates."
The Association has sought to reduce exposure of its earnings to changes in
market interest rates by managing asset and liability maturities and interest
rates primarily by reducing the effective maturity of assets through the use of
adjustable-rate mortgage-backed securities and, subject to market conditions,
adjustable-rate mortgage loans and by extending the maturities of its interest-
bearing liabilities. In the current low interest rate environment, customer
demand for adjustable-rate mortgage loans has been limited. See "Business of
the Association--Investment Activities."
Net Portfolio Value. As part of its interest rate risk analysis, the
Association uses an interest rate sensitivity model which generates estimates of
the change in the Association's net portfolio value ("NPV") over a range of
interest rate scenarios and which is prepared by the OTS on a quarterly basis.
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. The OTS produces such analysis using its own model, based
upon data submitted on the Association's quarterly Thrift Financial Reports,
including estimated loan prepayment rates, reinvestment rates and deposit decay
rates. See "Regulation--Federal Savings Institution Regulation." The following
table sets forth the Association's NPV as of June 30, 1998, as calculated by the
OTS.
<TABLE>
<CAPTION>
NPV AS % OF PORTFOLIO
VALUE OF ASSETS
------------------------------------
CHANGE IN NET PORTFOLIO VALUE
INTEREST RATES ----------------------------------------------
IN BASIS POINTS % NPV
(RATE SHOCK) AMOUNT $ CHANGE CHANGE RATIO CHANGE (1)
- ---------------- ------------- -------------- -------------- --------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
400 $ 7,946 $(10,082) (56)% 7.09% (730)
300 10,473 (7,555) (42) 9.08 (531)
200 13,136 (4,892) (27) 11.05 (333)
100 15,763 (2,265) (13) 12.89 (149)
Static 18,028 - - 14.39 -
(100) 19,977 1,949 11 15.60 121
(200) 21,599 3,571 20 16.54 216
(300) 23,425 5,397 30 17.58 319
(400) 25,614 7,586 42 18.79 441
</TABLE>
____________________________
(1) Expressed in basis points.
30
<PAGE>
As illustrated in the table, the Association's NPV declines in a rising
interest rate environment. Specifically, the table indicates that, at June 30,
1998, the Association's NPV was 18.0 million (or 14.39% of the market value of
portfolio assets) and that, based upon the assumptions utilized, an immediate
increase in market interest rates of 200 basis points would result in a $4.9
million or 27% decline in the Association's NPV and would result in a 333 basis
point or 30.23% decline in the Association's NPV ratio to 11.05%. The
percentage decline in the Association's NPV at June 30, 1998 was within the
limit in the Association's Board-approved guidelines.
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 different
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 and early withdrawal levels would likely deviate
significantly from those assumed in calculating the table. Finally, the ability
of many borrowers to service their debt may decrease in case of an interest rate
increase. 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 attempting to originate adjustable-rate loans as market conditions
allow, purchasing adjustable-rate mortgage-backed securities, maintaining
capital well in excess of regulatory requirements and by selling fixed rate
single-family real estate loans, except such loans that bear an interest rate
above levels established from time to time by the Association's board of
directors based on current market rates.
ANALYSIS OF NET INTEREST INCOME
Net interest income represents the difference between income on interest-
earning assets and expense on interest-bearing liabilities. Net interest income
also depends upon the relative amounts of interest-earning assets and interest-
bearing liabilities and the interest rate earned or paid on them.
31
<PAGE>
AVERAGE BALANCE SHEET. The following table sets forth certain information
relating to the Association at and for the six months ended June 30, 1998 and
1997 and for the years ended December 31, 1997, 1996 and 1995. The average
yields and costs are derived by dividing income or expense by the average
balance of interest-earning assets or interest-bearing liabilities,
respectively, for the periods shown, except where otherwise noted, and reflect
annualized yields and costs. Average balances are derived from average monthly
balances. The yields and costs include fees which are considered adjustments to
yields.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
----------------------------------------
AT JUNE 30, 1998 1998
---------------------------- ----------------------------------------
AVERAGE
YIELD/ AVERAGE YIELD/
BALANCE RATE(6) BALANCE INTEREST RATE(6)
---------------------------- ----------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-bearing deposits.............. $ 1,217 5.80% $ 6,226 $ 64 2.07%
Investment securities(1):
Taxable............................ 51,497 6.72 50,719 1,814 7.22
Non-taxable(2)..................... 231 9.87 268 9 10.25
Loans, net(3).......................... 60,937 7.97 59,045 2,434 8.31
FHLB stock......................... 2,605 7.85 2,546 91 7.21
-------- -------- ------
Total interest-earning assets....... 116,487 118,804 4,412 7.49
Noninterest-earning assets............... 5,154 2,277
-------- --------
Total assets........................ $121,641 $121,081
======== ========
INTEREST-BEARING LIABILITIES:
Deposits:
NOW accounts........................... $ 7,953 2.50 $ 7,632 109 2.88
Money Market Accounts................. 2,585 3.00 2,635 45 3.44
Savings accounts....................... 23,945 3.10 23,427 358 3.08
Certificates of deposit................ 43,449 5.74 43,765 1,206 5.56
-------- -------- ------
Total deposits....................... 77,932 77,459 1,718 4.47
FHLB advances and other borrowings...... 27,680 5.86 28,009 818 5.89
-------- -------- ------
Total interest-bearing liabilities.... 105,612 105,468 2,536 4.85
------ -----
Noninterest-bearing liabilities......... 1,698 1,319
-------- --------
Total liabilities..................... 107,310 106,787
Equity.................................. 14,331 14,294
-------- --------
Total liabilities and equity.......... $121,641 $121,081
======== ========
Net interest-earning assets............. $ 10,875 $ 13,336
======== ========
Net interest income/interest rate
spread (4)......................... $1,876 2.64%
====== =====
Net interest margin as a percentage of
interest-earning assets (5)........ 3.19%
=====
Ratio of interest-earning assets to
interest-bearing liabilities....... 112.64
========
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30,
--------------------------------------
1997
--------------------------------------
AVERAGE
AVERAGE YIELD/
BALANCE INTEREST RATE(6)
--------------------------------------
<S> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-bearing deposits............... $ 2,643 $ 43 3.28%
Investment securities(1):
Taxable............................. 63,258 2,207 6.99
Non-taxable(2)...................... 305 9 9.03
Loans, net(3).......................... 51,312 2,091 8.22
FHLB stock......................... 2,370 83 7.06
-------- ------
Total interest-earning assets....... 119,888 4,433 7.46
Noninterest-earning assets............... 3,800
--------
Total assets.......................... $123,688
========
INTEREST-BEARING LIABILITIES:
Deposits:
NOW accounts........................... $ 7,698 110 2.88
Money Market Accounts................. 2,807 45 3.23
Savings accounts....................... 23,684 361 3.07
Certificates of deposit................ 40,201 1,139 5.71
-------- ------
Total deposits....................... 74,390 1,655 4.49
FHLB advances and other borrowings...... 34,177 1,001 5.91
-------- ------
Total interest-bearing liabilities.... 108,567 2,656 4.93
------ ----
Noninterest-bearing liabilities......... 1,782
--------
Total liabilities..................... 110,349
Equity.................................. 13,339
--------
Total liabilities and equity.......... $123,688
========
Net interest-earning assets............. $ 11,322
========
Net interest income/interest rate
spread (4)......................... $1,777 2.53%
====== ====
Net interest margin as a percentage of
interest-earning assets (5)........ 2.98%
====
Ratio of interest-earning assets to
interest-bearing liabilities....... 110.43
=======
</TABLE>
_________________________________
(1) Includes investment securities available-for-sale and held-to-maturity,
mortgage-related securities available-for-sale and held-to-maturity.
(2) Yield/Rate is presented on a taxable equivalent basis using the Federal
income tax marginal rate of 34%.
(3) Balances are net of deferred loan origination costs, undisbursed proceeds
of construction loans in process, and include nonperforming loans.
(4) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(5) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
(6) Stated on an annualized basis.
32
<PAGE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------
1997 1996
--------------------------------------- ------------------------------------
AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE
--------------------------------------- ------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS:
Interest-bearing deposits........... $ 2,892 $ 100 3.46% $ 3,382 $ 138 4.08%
Investment securities (1):
Taxable....................... 59,325 4,107 6.89 61,400 4,224 6.85
Non-taxable(2)................ 291 18 9.36 411 26 9.59
Loans (3)........................ 53,484 4,405 8.24 49,097 4,068 8.29
FHLB stock....................... 2,412 173 7.17 2,250 157 6.98
-------- ------ -------- ------
Total interest-earning assets. 118,404 8,803 7.42 116,540 8,613 7.37
Noninterest-earning assets............. 3,718 3,491
-------- --------
Total assets.................. $122,122 $120,031
======== ========
INTEREST-BEARING LIABILITIES:
Deposits:
NOW accounts..................... $ 7,611 200 2.63 $ 7,237 197 2.72
Money market accounts............ 2,741 92 3.36 2,888 95 3.29
Savings accounts................. 23,424 724 3.09 24,536 759 3.09
Certificates of deposit.......... 41,001 2,351 5.73 37,740 2,181 5.78
-------- ------ -------- ------
Total deposits............. 74,777 3,367 4.50 72,401 3,232 4.46
FHLB advances and other
borrowings....................... 31,907 1,906 5.97 32,953 1,965 5.96
-------- ------ -------- ------
Total interest-bearing
liabilities.................. 106,684 5,273 4.94 105,354 5,197 4.93
------ ---- ------ ----
Noninterest-bearing liabilities..... 1,814 1,550
-------- --------
Total liabilities............. 108,498 106,904
Equity.............................. 13,624 13,127
-------- --------
Total liabilities and equity.. $122,122 $120,031
======== ========
Net interest-earning assets......... $ 11,720 $ 11,186
======== ========
Net interest income/interest rate
spread (4)....................... $3,530 2.48% $3,416 2.44%
====== ==== ====== ====
Net interest margin as a percentage
of interest-earning assets (5).... 2.98% 2.92%
==== ====
Ratio of interest-earning assets
to interest-bearing liabilities... 111.22% 110.89%
======== ========
<CAPTION>
FOR THE YEAR ENDED DECEMBER, 31
-----------------------------------------
1995
-----------------------------------------
AVERAGE
AVERAGE YIELD/
BALANCE INTEREST RATE
-----------------------------------------
<S> <C> <C> <C>
INTEREST EARNING ASSETS:
Interest-bearing deposits........... $ 3,314 $ 151 4.56%
Investment securities (1):
Taxable....................... 56,810 3,788 6.65
Non-taxable(2)................ 530 33 9.43
Loans (3)........................ 48,919 4,002 8.18
FHLB stock....................... 2,100 143 6.81
-------- ------
Total interest-earning assets. 111,673 8,117 7.26
Noninterest-earning assets............. 2,854
--------
Total assets.................. $114,527
========
INTEREST-BEARING LIABILITIES:
Deposits:
NOW accounts..................... $ 7,446 218 2.93
Money market accounts............ 3,583 117 3.27
Savings accounts................. 25,282 781 3.09
Certificates of deposit.......... 33,383 1,777 5.32
-------- ------
Total deposits............. 69,694 2,893 4.15
FHLB advances and other
borrowings....................... 30,727 1,878 6.11
-------- ------
Total interest-bearing
liabilities.................. 100,421 $4,771 4.75
------ ----
Noninterest-bearing liabilities..... 1,386
--------
Total liabilities............. 101,807
Equity.............................. 12,720
--------
Total liabilities and equity.. $114,527
========
Net interest-earning assets......... $ 11,252
========
Net interest income/interest rate
spread (4)....................... $3,346 2.51%
====== ====
Net interest margin as a percentage
of interest-earning assets (5).... 2.99%
====
Ratio of interest-earning assets
to interest-bearing liabilities 111.39%
=======
</TABLE>
_________________________________
(1) Includes investment securities available-for-sale and held-to-maturity,
mortgage-related securities available-for-sale and held-to-maturity.
(2) Yield/Rate is presented on a taxable equivalent basis using the Federal
income tax marginal rate of 34%.
(3) Balances are net of deferred loan origination costs, undisbursed proceeds
of construction loans in process, and include nonperforming loans.
(4) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
(5) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
33
<PAGE>
RATE/VOLUME ANALYSIS. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected the Association's interest income
and interest expense during the periods indicated. Information is provided in
each category with respect to: (i) changes attributable to changes in volume
(changes in volume multiplied by prior rate); (ii) changes attributable to
changes in rate (changes in rate multiplied by prior volume); and (iii) the net
change. The changes attributable to the combined impact of volume and rate have
been allocated on a proportional basis between changes in rate and volume.
<TABLE>
<CAPTION>
SIX MONTHS ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1998 DECEMBER 31, 1997 DECEMBER 31, 1996
COMPARED TO COMPARED TO COMPARED TO
SIX MONTHS ENDED YEAR ENDED YEAR ENDED
JUNE 30, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------- ---------------------- -----------------------
INCREASE (DECREASE) INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO DUE TO DUE TO
---------------------- --------------------- ----------------------
RATE VOLUME NET RATE VOLUME NET RATE VOLUME NET
---------- ---------- ------- --------------------- ------ ---------------------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Interest-earning deposits........ $(20) $ 41 $ 21 $(19) $ (19) $ (38) $(16) $ 3 $ (13)
Investment securities:
Taxable....................... 70 (463) (393) 28 (145) (117) 118 318 436
Non-taxable................... 2 (2) -- 3 (11) (8) 4 (11) (7)
Loans............................ 24 319 343 (24) 361 337 51 15 66
FHLB............................. 2 6 8 4 12 16 4 10 14
---- ----- ----- ---- ----- ----- ---- ---- -----
Total interest-earning
assets..................... $ 78 $ (99) $ (21) $ (8) $ 198 $ 190 $161 $335 $ 496
==== ===== ===== ==== ===== ===== ==== ==== =====
INTEREST-BEARING LIABILITIES:
Deposits:
NOW accounts.................. $ -- $ (1) $ (1) $ (7) $ 10 $ 3 $(15) $ (6) $( 21)
Money market accounts......... 3 (3) -- 2 (5) (3) 1 (23) (22)
Savings accounts.............. 1 (4) (3) (1) (34) (35) 1 (23) (22)
Certificates of deposit....... (32) 99 67 (17) 187 170 160 244 404
FHLB advances and other
borrowings................. (3) (180) (183) 3 (62) (59) (47) 134 87
---- ----- ----- ---- ----- ----- ---- ---- -----
Total interest-bearing
liabilities............. $(31) $ (89) $(120) $(20) $ 96 $ 76 $100 $326 $ 426
==== ===== ===== ==== ===== ===== ==== ==== =====
Increase(decrease) in net
interest income.................. $109 $ (10) $ 99 $ 12 $ 102 $ 114 $ 61 $ 9 $ 70
==== ===== ===== ==== ===== ===== ==== ==== =====
</TABLE>
34
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1998 AND DECEMBER 31, 1997
Total assets of the Association were $121.6 million at June 30, 1998,
compared to $118.3 million at December 31, 1997, representing an increase of
$3.3 million, or 2.85%. This increase was primarily attributable to increases in
both total securities and total loans, which was partially offset by a decrease
in cash and cash equivalents. The increase in loans and securities was funded by
increases in both deposits and advances from FHLB-Cincinnati. The changes in the
balance sheets and the factors that caused the changes are discussed below.
Securities. Total securities increased $2.4 million, or 4.87%, from $49.3
million at December 31, 1997 to $51.7 million at June 30, 1998. The increase
was the result of the Association using funds obtained through FHLB advances and
increased deposits to fund securities and loan growth.
Loans. Loans increased $2.7 million, or 4.70% from $60.6 million at
December 31, 1997 to $60.6 million at June 30, 1998. Average loans comprised
49.70% of average interest-earning assets in 1998 compared to 45.17% at December
31, 1997.
Deposits and Borrowings. The Association's deposits are obtained primarily
from individuals and businesses in its market area. Total deposits increased
$1.9 million, or 2.47%, from $77.0 million at December 31, 1997 to $78.9 million
at June 30, 1998. The growth was primarily in certificates of deposit, which
increased $1.2 million, or 2.85%. Advances from the FHLB-Cincinnati used to
purchase securities and fund loan demand increased $1.6 million, or 6.13%
during the period.
COMPARISON OF RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1997
General. Net income for the six months ended June 30, 1998 decreased by
$226,000 or 59.95% from $377,000 for the six months ended June 30, 1997 to
$151,000 for the six months ended June 30, 1998. The decrease was primarily
due to the increase in noninterest expense and the provision for loan losses.
The decrease was partially offset by increases in net interest income and non-
interest income and a decrease in federal income tax expense.
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-earning assets and interest expense incurred on interest-
bearing liabilities. Net interest income is primarily affected by the volumes,
interest rates and composition of interest-earning assets and interest-bearing
liabilities.
Net interest income increased approximately $99,000, or 5.57%, from $1.8
million for the six months ended June 30, 1997 to $1.9 million for the six
months ended June 30, 1998. The primary component of this change was $120,000,
or 4.52%, decrease in interest expense. The decrease in interest expense
consisted of a $180,000 decrease due to decreased average volume of interest-
bearing liabilities and a $60,000 increase due to increasing average interest
rates. The decrease in interest expense of $120,000 was partially offset by a
$21,000, or 0.47%, decrease in interest income.
Average loans outstanding during the six months ended June 30, 1998
increased $7.7 million, or 15.07%, compared to the six months ended June 30,
1997, while average securities decreased $12.6 million, or 19.79%, compared to
the prior period. During the six months ended June 30, 1998, the Association
experienced increases in yield on assets of 3 basis points and decreases in
yield for the cost of liabilities of 8 basis points, resulting in the $99,000
increase in net interest income. Net interest margin increased 21 basis
35
<PAGE>
points from 2.98% for the six months ended June 30, 1997 to 3.19% for the six
months ended June 30, 1998. The Association's average interest rate spread
increased 11 basis points from 2.53% for the six months ended June 30, 1997 to
2.64% for the six months ended June 30, 1998.
The tables appearing elsewhere in this prospectus 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 $150,000 from $0 for the six months
ended June 30, 1997 to $150,000 for the six months ended June 30, 1998. At
June 30, 1998, the allowance for loan losses totalled 0.61% of total loans
compared to 0.43% at June 30, 1997. The increase in the provision and the
allowance for loan losses is due in part to a $50,000 specific allocation for a
commercial loan for which the collection of the principal is in doubt. The
remaining increase in the provision was due to the continued increase in
consumer lending, a significant portion of which is from indirect lending.
While the Association has had a relatively low amount of charge-offs from its
consumer loan portfolio, management believed that national increases in the
level of consumer bankruptcies and the growth in consumer lending in areas of
the Association's market served by the Association's newer branches suggested
the need to increase the overall level of the allowance for loan losses.
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.
Noninterest Income. The Association experienced a $47,000, or 40.87%,
increase in noninterest income for the six months ended June 30, 1998, as
compared with the six months ended June 30, 1997. The increase was primarily
due to loan sales which generated net gains of $33,000 in 1998, whereas no such
gains were generated in 1997.
Noninterest Expense. Noninterest expense increased $333,000, or 24.50%,
primarily due to the increase in salaries and benefits of $153,000, or 22.30%,
compared to 1997, and due to the increase in net occupancy expense of $39,000,
or 20.74%, compared to 1997. The increase in both salaries and benefits and net
occupancy expense were a direct result of the two branch offices opened during
October, 1997 and February, 1998. The branches are leased facilities located in
Phar-Mor stores and have allowed the Association to expand its market area by
entering the Youngstown and Boardman markets. Salaries and benefits and net
occupancy costs are expected to increase as a result of the additional branches
and due to an additional in-store Phar-Mor branch which opened during the third
quarter of 1998. Additional costs will also arise from the stock benefit plans
discussed elsewhere in this prospectus. See "Management of the Association--
Benefits."
Income Taxes. The provision for income taxes totaled $45,000 at June 30,
1998 compared to $156,000 at June 30, 1997, due to the decrease in income before
income taxes.
36
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT DECEMBER 31, 1997 AND DECEMBER 31, 1996
Total assets of the Association were $118.3 million at December 31, 1997,
compared to $124.2 million at December 31, 1996, representing a decrease of $5.9
million, or 4.75%. This decline was primarily attributable to decreases in
total securities, which was partially offset by an increase in total loans. The
decline resulted in a reduction in advances from the FHLB-Cincinnati, which was
partially offset by an increase in deposits. The changes in the balance sheets
and the factors that caused the changes are discussed below.
Securities. Total securities decreased $15.0 million, or 23.33%, from $64.3
million at December 31, 1996 to $49.3 million at December 31, 1997. The
decrease was the result of the Association using funds obtained through
maturities and paydowns of investment and mortgage-backed securities to fund
loan growth and reduce advances from the FHLB-Cincinnati.
Loans. Loans increased $8.3 million, or 16.73% from $49.6 million at December
31, 1996 to $57.9 million at December 31, 1997. Average loans comprised 45.17%
of interest-earning assets at December 31, 1997 compared to 42.13% at December
31, 1996. The increase in loans was primarily due to the increase of $4.8
million, or 13.28%, of single-family loans and $4.5 million, or 49.30% increase
in consumer loans. The increase in single-family loans is due to the continued
emphasis in growing the company's core loan product. The increase in consumer
loans is directly related to an increase in indirect automobile lending as the
Association continues to expand its dealer relationships and continues to
emphasize increasing the consumer loan portfolio. Management continues to seek
growth in both the single-family loan and consumer loan portfolios. See "Risk
Factors -- Increased Credit Risks Associated with Consumer Loans."
Deposits and Borrowings. The Association's deposits are obtained primarily
from individuals and businesses in its market area. Total deposits increased
$1.2 million, or 1.58%, from $75.8 million at December 31, 1996 to $77.0 million
at December 31, 1997. The growth was primarily in certificates of deposit,
which increased $2.2 million, or 5.50%. Advances from the FHLB decreased $8.1
million, or 23.91% during the period.
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997 AND
DECEMBER 31, 1996
General. Net income for the year ended December 31, 1997 increased by
$394,000 or 137.28% from $287,000 for the year ended December 31, 1996 to
$681,000 for the year ended December 31, 1997. The increase was primarily due
to an increase in net interest income and other income and the one-time $449,000
SAIF assessment in 1996. Excluding the one-time SAIF assessment, net income for
1996 would have been $583,000.
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 volumes,
interest rates and composition of interest-earning assets and interest-bearing
liabilities.
Net interest income increased approximately $114,000, or 3.34%, from $3.4
million for the year ended December 31, 1996 to $3,530,000 for the year ended
December 31, 1997. The primary component of this change was $190,000, or 2.21%,
increase in interest income. The increase in interest income consisted of a
$198,000 increase due to increased average volume of interest-earning assets and
an $8,000
37
<PAGE>
decrease due to decreasing average interest rates. The increase in interest
income was partially offset by a $76,000, or 1.46%, increase in interest
expense.
Average loans outstanding for the year ended December 31, 1997 increased $4.4
million, or 8.94%, compared to average loans outstanding for the year ended
December 31, 1996, while average securities decreased $2.2 million, or 3.55%,
compared to the prior year. For the year ended December 31, 1997, the
Association experienced an increase in average yield on assets of 5 basis points
and an increase in the average cost of liabilities of 1 basis point, resulting
in a $114,000 increase in net interest income over net interest income for the
year ended December 31, 1996. Average net interest margin increased 6 basis
points from 2.92% for the year ended December 31, 1996 to 2.98% for the year
ended December 31, 1997. The Association's average interest rate spread
increased 4 basis points from 2.44% for the year ended December 31, 1996 to
2.48% for the year ended December 31, 1997.
The tables appearing elsewhere in this prospectus 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 changes 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 was $0 for each of the years ending December 31,
1996 and December 31, 1997. At December 31, 1997, the allowance for loan losses
represented 0.40% of total loans compared to 0.46% at December 31, 1996.
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.
Noninterest Income. The Association experienced a $72,000, or 42.60%,
increase in noninterest income for the year ended December 31, 1997 over the
year ended December 31, 1996. The increase was primarily due to a $41,000
increase in service charges and fees compared to the prior year due to
restructuring and increasing fees on certain deposit accounts and transactions.
The increase in both salaries and benefits and net occupancy expense were
related to the full year impact of the branch office opened in Wintersville
during the first half of 1996 and due to the branch office located in Boardman
opened during the fourth quarter of 1997.
Noninterest Expense. Noninterest expense for the year ended December 31, 1997
decreased $369,000, or 11.35%, as compared with the year ended December 31,
1996, primarily due to $449,000 expensed during fiscal 1996 for the assessment
to recapitalize the SAIF, which was not repeated in 1997. The decrease in FDIC
expense was partially offset by increases in salaries and employee benefits of
$112,000, or 7.77%, and an increase in net occupancy expense of $56,000, or
18.86%. The increases in both salaries and benefits and net occupancy expense
were a result of the branch office opened in October 1997.
Income Taxes. The provision for income taxes totaled $207,000 for the year
ended December 31, 1997 compared to $46,000 for the year ended December 31,
1996, due to the increase in income before income taxes.
38
<PAGE>
COMPARISON OF RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1996 AND
DECEMBER 31, 1995
General. Net income for the year ended December 31, 1996 decreased by $382,000
or 57.10% from $669,000 for the year ended December 31, 1995 to $287,000 for the
year ended December 31, 1996. The decrease was primarily due to the increase in
noninterest expense partially offset by an increase in net interest income and a
decrease in tax expense. The increase in noninterest expense was substantially
due to the one-time SAIF assessment during 1996. Excluding the one-time SAIF
assessment, net income for 1996 was $583,000.
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-earning assets and interest expense incurred on interest-
bearing liabilities. Net interest income is primarily affected by the volumes,
interest rates and composition of interest-earning assets and interest-bearing
liabilities.
Net interest income increased approximately $70,000, or 2.09%, from $3,346,000
for the year ended December 31, 1995 to $3,416,000 for the year ended December
31, 1996. The primary component of this change was a $496,000, or 6.11%,
increase in interest income. The increase in interest income consisted of a
$335,000 increase due to increased average volume of interest-earning assets and
a $161,000 increase due to increasing average interest rates. The increase in
interest income was partially offset by a $426,000, or 8.93%, increase in
interest expense.
Average securities for the year ended December 31, 1996 increased $4.5
million, or 7.80%, compared to the year ended December 31, 1995, while average
loans outstanding increased $178,000, or 0.36%, compared to the prior year. In
1996, the Association experienced increases in yields on assets of 11 basis
points and an increase in the cost of liabilities of 18 basis points, resulting
in the $70,000 increase in net interest income. Net interest margin decreased 7
basis points from 2.99% for the year ended December 31, 1995 to 2.92% for the
year ended December 31, 1996. The Association's average interest rate spread
decreased seven basis points from 2.51% for the year ended December 31, 1995 to
2.44% for the year ended December 31, 1996.
The tables appearing elsewhere in this prospectus 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 was $42,000 for the year ended December 31, 1995
and $0 for the year ended December 31, 1996. At December 31, 1996, the
allowance for loan losses represented 0.46% of total loans compared to 0.51% at
December 31, 1995. 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.
39
<PAGE>
Noninterest Income. The Association experienced a $12,000, or 7.64%, increase
in noninterest income for the year ended December 31, 1996, as compared with the
year ended December 31, 1995. The increase was primarily due to a $21,000
increase in service charges and fees compared to the prior year based on an
increase in both individual fees and the volume of transactions.
Noninterest Expense. Noninterest expense increased $767,000, or 30.87%, for
the year ended December 31, 1996 as compared with the year ended December 31,
1995, primarily due to a $454,000 increase in FDIC expense due to a one time
assessment of $449,000 to recapitalize the SAIF. The increase in noninterest
expense was also due to higher salaries and employee benefit costs of $184,000,
or 14.64%, and an increase in net occupancy expense of $92,000, or 44.88%. The
increase in both salaries and benefits and net occupancy expense was a result of
the new branch office opened in Wintersville during the first half of 1996.
Income Taxes. The provision for income taxes totaled $46,000 for the year
ended December 31, 1996 compared to $307,000 for the year ended December 31,
1995, due to a decrease in income before income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Association's primary sources of funds are deposits and other borrowings
including FHLB advances from the FHLB-Cincinnati, 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-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
Association maintains a liquidity ratio above the regulatory requirement. This
requirement, which may be varied at the direction of the OTS depending upon
economic conditions and deposit flows, is based upon a percentage of deposits
and short-term borrowings. The required ratio is currently 4.0%. The
Association's average regulatory liquidity ratios were 8.36%, 10.99%, 10.26%,
6.14% and 5.61% for the years ended December 31, 1997, 1996, 1995, 1994 and 1993
and 5.12% and 10.09% for the six months ended June 30, 1998 and 1997,
respectively. Management expects the Association's regulatory liquidity ratio
to increase immediately after the consummation of the Conversion because the
bulk of the net conversion proceeds will initially be invested in short-term
investment securities.
The Association's cash flows are comprised of three primary classifications:
cash flows from operating activities, investing activities and financing
activities. Cash flows provided by operating activities were $1.0 million and
$600,000 for the six months ended June 30, 1998 and 1997, respectively, and were
$1.7 million, $0.8 million and $1.7 million for the years ended December 31,
1997, 1996 and 1995, respectively. Net cash from investing activities consisted
primarily of disbursements for loan originations and the purchase of investments
and mortgage-backed securities, offset by principal collections on loans and
proceeds from maturation of investments and paydowns on mortgage-backed
securities. Net cash from financing activities consisted primarily of activity
in deposit accounts. The net increase in deposits was $1.9 million for the six
months ended June 30, 1998, and $1.2 million, $3.8 million and $0.7 million for
the years ended December 31, 1997, 1996 and 1995, respectively.
At June 30, 1998, the Association exceeded all of its regulatory capital
requirements with a tangible capital level of $14.3 million, or 11.78%, of
adjusted total assets, which is above the required level of $1.8 million, or
1.50%; core capital of $14.3 million, or 11.78%, of adjusted total assets, which
is above the
40
<PAGE>
required level of $4.8 million, or 4.00%; and risk-based capital of $14.6
million, or 23.09%, of risk-weighted assets, which is above the required level
of $5.0 million, or 8.00%. See "Regulatory Capital Compliance."
The Association's most liquid assets are cash and short-term investments. The
levels of these assets are dependent on the Association's operating, financing,
lending and investing activities during any given period. At June 30, 1998,
cash and short-term investments totalled $3.4 million. The Association has
other sources of liquidity if a need for additional funds arises, including
securities maturing within one year and the repayment of loans. The Association
may also utilize FHLB advances or the sale of securities available for sale as a
source of funds. At June 30, 1998, the Association had advances outstanding
from the FHLB-Cincinnati of $27.7 million and $16.2 million of securities
available for sale.
At June 30, 1998, the Association had outstanding commitments to originate
loans of $4.7 million compared to $3.4 million at December 31, 1997. The
Association anticipates that it will have sufficient funds available to meet its
current loan origination commitments. See "Business of the Association -
General." Certificate accounts which are scheduled to mature in less than one
year from June 30, 1998 totalled $25.6 million. The Association expects that a
substantial portion of the maturing certificate accounts will be retained by the
Association at maturity. However, if a substantial portion of these deposits
are not retained, the Association may utilize FHLB advances, or raise interest
rates on deposits to attract new accounts, which may result in higher levels of
interest expense.
YEAR 2000 COMPLIANCE
As the year 2000 approaches, an important business issue has emerged regarding
how existing application software programs and operating systems can accommodate
this date value. Many existing application software products were designed to
accommodate only two-digits. For example, "98" is stored on the system to
represent 1998. Accordingly, the Association's operating system may recognize
"00" as the year 1900 rather than 2000, causing the system to fail or generate
erroneous information. Although there can be no assurance that the Association
and its vendors will be successful in remedying all potential problems, the
Association has been identifying potential problems associated with the "Year
2000" issue and has implemented 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 data from 1999 to 2000 without functional or data
abnormality and without inaccurate results related to such 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 substantially
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 by the Association 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 the event that such problems did occur, the Association would
undertake manual processing procedures on an interim basis.
41
<PAGE>
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's loan portfolio is highly diversified with
regard to individual borrowers and types of businesses, the Association does not
expect any significant or prolonged year-2000 related difficulties that will
affect net earnings or cash flows.
IMPACT OF NEW ACCOUNTING STANDARDS
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 1995. 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, 1995,
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 1995, 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 1996 was not material to the 1996 financial
statements and the impact of the complete adoption in 1998 was not material to
the 1998 financial statements.
In June 1996, 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.
In June 1996, 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.
42
<PAGE>
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 ASSOCIATION
GENERAL
The Association's principal business is to operate as a community-oriented
savings and loan association. The Association attracts retail deposits from the
general public in the areas surrounding its offices and invests those deposits,
together with funds generated from operations, primarily in fixed-rate single-
family residential mortgage loans and investments in mortgage-backed securities.
The Association also invests in consumer loans, primarily automobile loans, and
on a limited basis, home equity loans, and construction and land loans. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Management Strategy." The Association's revenues are derived
principally from interest on its mortgage loans and consumer loans, and interest
and dividends on its investments and mortgage-backed securities. The
Association's primary sources of funds are deposits, FHLB advances and principal
and interest payments on loans and securities.
MARKET AREA AND COMPETITION
The Association's primary market area includes Columbiana, Mahoning and
Jefferson Counties in Eastern Ohio. In recent years, the market area has
experienced higher unemployment rates than in Ohio and the United States and a
slightly decreasing population. Per capita income and median household income
in the market area are lower and have increased at a lower rate than in Ohio and
the United States.
The Association's primary market area is a competitive market for financial
services and the Association faces significant competition both in making loans
and in attracting deposits. The Association faces direct competition from a
number of financial institutions operating in its market area, many with a
state-wide or regional presence, and in some cases, a national presence. Many
of these financial institutions are significantly larger and have greater
financial resources than the Association. The Association's competition for
loans comes principally from savings institutions, mortgage banking companies,
commercial banks and credit unions. Its most direct competition for deposits
has historically come from savings institutions and commercial banks. In
addition, the Association faces increasing competition for deposits and other
financial products from non-bank institutions such as brokerage firms and
insurance companies in mutual funds and annuities. Competition may also
increase as a result of the lifting of restrictions on the interstate operations
of financial institutions.
43
<PAGE>
LENDING ACTIVITIES
Loan Portfolio Composition. The Association's loan portfolio consists
primarily of conventional first mortgage loans secured by single-family
residences. At June 30, 1998, the Association had gross loans receivable of
$61.1 million, of which $42.7 million were single-family, residential mortgage
loans, or 69.91% of the Association's gross loans receivable. The remainder of
the portfolio consisted of: consumer loans of $15.4 million, or 25.20% of gross
loans receivable; $1.6 million of construction and land loans, or 2.63% of gross
loans receivable; $1.0 million of multi-family mortgage loans, or 1.62% of gross
loans receivable; and $0.4 million of commercial real estate loans, or 0.64% of
gross loans receivable. At that same date, 87.21% of the Association's loan
portfolio had fixed interest rates. The Association had $689,000 in single-
family residential mortgage loans held for sale at June 30, 1998.
The types of loans that the Association may originate are subject to
federal and state law and regulations. Interest rates charged by the
Association on loans are affected by the demand for such loans and the supply of
money available for lending purposes and the rates offered by competitors.
These factors are, in turn, affected by, among other things, economic
conditions, fiscal policies of the federal government, the monetary policies of
the Federal Reserve Board, and legislative tax policies.
44
<PAGE>
The following table sets forth the composition of the Association's loan
portfolio in dollar amounts and as a percentage of the portfolio at the dates
indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT JUNE 30, ---------------------------------------------------------------
1998 1997 1996
---------------------- -------------------------- --------------------- ------------
PERCENT PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL AMOUNT
-------- ---------- -------- --------- -------- ---------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Real estate loans:
Single-family(1)..................... $42,712 69.91% $42,429 72.80% $38,498 77.14% $37,060
Multi-family and commercial.......... 990 1.62 1,006 1.73 1,448 2.90 2,176
Construction......................... 1,607 2.63 1,017 1.74 612 1.23 -
------- ------ ------- ------ ------- ------ -------
Total real estate loans........ 45,309 74.16 44,452 76.27 40,558 81.27 39,236
------- ------ ------- ------ ------- ------ -------
Consumer loans:
Home equity loans.................... 2,132 3.49 2,227 3.82 1,598 3.20 928
Automobile........................... 12,473 20.42 10,585 18.16 6,879 13.79 6,834
Other................................ 788 1.29 710 1.22 580 1.16 845
------- ------ ------- ------ ------- ------ -------
Total consumer loans........... 15,393 25.20 13,522 23.20 9,057 18.15 8,607
------- ------ ------- ------ ------- ------ -------
Commercial loans........................ 394 0.64 308 0.53 290 0.58 791
------- ------ ------- ------ ------- ------ -------
Total loans....................... 61,096 100.00% 58,282 100.00% 49,905 100.00% 48,634
====== ====== ======
Less:
Deferred loan origination fees....... (159) (165) (159) (152)
and discounts
Allowance for loan losses............ (375) (231) (229) (249)
------- ------- ------- -------
Total loans, net.................. $60,562 $57,886 $49,517 $48,233
======= ======= ======= =======
<CAPTION>
------------------------------------------------------------------
1995 1994 1993
--------------- ---------------------- -------------------------
PERCENT PERCENT PERCENT
OF TOTAL AMOUNT OF TOTAL AMOUNT OF TOTAL
-------------- --------------------- -------------------------
<S> <C> <C> <C> <C> <C>
Real estate loans:
Single-family(1)........................... 76.20% $37,070 75.49% $36,581 76.04%
Multi-family and commercial................ 4.47 2,952 6.01 4,005 8.33
Construction............................... - - - - -
------ ------- ------ ------- ------
Total real estate loans.............. 80.67 40,022 81.50 40,586 84.37
------ ------- ------ ------- ------
Consumer loans:
Home equity loans.......................... 1.91 828 1.68 584 1.21
Automobile................................. 14.05 6,320 12.87 4,849 10.08
Other...................................... 1.74 1,080 2.20 1,205 2.51
------ ------- ------ ------- ------
Total consumer loans................. 17.70 8,228 16.75 6,638 13.80
------ ------- ------ ------- ------
Commercial loans.............................. 1.63 858 1.75 880 1.83
------ ------- ------ ------- ------
Total loans............................. 100.00% 49,108 100.00% 48,104 100.00%
====== ======= ======
Less:
Deferred loan origination fees............. (149) (153)
and discounts
Allowance for loan losses.................. (211) (177)
------- -------
Total loans, net........................ $48,748 $47,774
======= =======
</TABLE>
_____________________________________
(1) Includes loans held for sale.
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<PAGE>
LOAN MATURITY. The following table shows the remaining contractual
maturity of the Association's total loans at June 30, 1998. The table does not
include the effect of future principal prepayments.
<TABLE>
<CAPTION>
AT JUNE 30, 1998
---------------------------------------------------------------------------------------
MULTI-
FAMILY AND
SINGLE COMMERCIAL TOTAL
FAMILY REAL ESTATE CONSTRUCTION (1) CONSUMER COMMERCIAL LOANS
---------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Amounts due in:
One year or less......................... $ 1,097 $ -- $ -- $ 994 $146 $ 2,237
After one year: --
More than one year to three years...... 219 162 -- 3,772 -- 4,153
More than three years to five years.... 780 20 -- 10,122 -- 10,922
More than five years to 10 years....... 5,031 263 -- 491 82 5,867
More than 10 years to 15 years......... 18,392 410 -- -- 166 18,968
More than 15 years..................... 17,193 135 1,607 14 -- 18,949
------- ---- ------ ------- ---- -------
Total amount due...................... $42,712 $990 $1,607 $15,393 $394 $61,096
======= ==== ======= ======= ==== =======
</TABLE>
_______________________
(1) Construction loans, which consist of loans to the owner for the
construction of single-family residences, automatically convert to
permanent financing upon completion of the construction phase.
The following table sets forth, at June 30, 1998, the dollar amount of
loans contractually due after June 30, 1999, and whether such loans have fixed
interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
DUE AFTER JUNE 30, 1999
-----------------------------------------------------
FIXED ADJUSTABLE TOTAL
----------- ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Real estate loans:
Single-family............................................ $35,630 $5,985 $41,615
Multi-family and commercial real estate.................. 734 256 990
Construction............................................. 1,336 271 1,607
------- ------ -------
Total real estate loans............................... 37,700 6,512 44,212
Consumer loans.............................................. 14,399 - 14,399
Commercial loans............................................ 82 166 248
------- ------ -------
Total loans........................................... $52,181 $6,678 $58,859
======= ====== =======
</TABLE>
Origination of Loans. The Association's mortgage lending activities are
conducted through its home office and five branch offices. Although the
Association may originate both adjustable-rate and fixed-rate mortgage loans, a
substantial majority of the Association's loan originations have been fixed-rate
mortgage loans. The Association's ability to originate loans is dependent upon
the relative customer demand for fixed-rate or adjustable-rate mortgage loans,
which is affected by the current and expected future level of interest rates.
The Association has not emphasized the origination of adjustable-rate mortgage
loans due to the relatively low demand for such loans in the Association's
primary market area. The Association sells a portion of the mortgage loans that
it originates, primarily to Freddie Mac and retains only loans that bear an
interest rate above levels established from time to time by the Association's
board of directors based on current market rates. At June 30, 1998, there were
9 loans categorized as held for sale. In addition, the Association also
emphasizes the origination of home equity loans and construction loans secured
primarily by owner-occupied properties.
46
<PAGE>
The following table sets forth the Association's loan originations, purchases,
sales and principal repayments for the periods indicated:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS FOR THE YEAR
ENDED JUNE 30, ENDED DECEMBER 31,
---------------------------- ---------------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ----------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Loans at beginning of period...................... $57,886 $49,517 $ 49,517 $ 48,233 $ 48,748
-------- ------- -------- -------- --------
Originations:
Real estate:
Single-family............................ 10,177 5,238 11,932 11,495 6,513
Multi-family and commercial.............. 32 -- -- 353 --
Construction............................. 1,095 272 1,042 376 198
Consumer................................. 5,533 5,073 10,139 5,469 5,652
Commercial............................... 177 234 341 283 73
-------- ------- -------- -------- --------
Total loans originated................ 17,014 10,817 23,454 17,976 12,436
-------- ------- -------- -------- --------
Principal loan repayments and prepayments...... (9,560) (6,548) (14,161) (16,076) (12,331)
Loan sales.................................. (4,624) (115) (877) (629) (547)
Transfers to REO............................ (4) (39) (39) -- (32)
Change in unearned origination fees......... (6) (8) (6) (7) (3)
Change in allowance for loan losses......... (144) (2) (2) 20 (38)
-------- ------- -------- -------- --------
Net loan activity................................. 2,676 4,105 8,369 1,284 (515)
-------- ------- -------- -------- --------
Loans at end of period (1).................. $60,562 $53,622 $ 57,886 $ 49,517 $ 48,233
======== ======= ======== ======== ========
</TABLE>
_____________________
(1) Loans at end of period include loans in process of $1,058 and $491 for the
six months ended June 30, 1998 and 1997, and $574, $550 and $199 for fiscal
years 1997, 1996 and 1995, respectively.
Single-Family Mortgage Lending. The primary lending activity of the
Association has been and continues to be the origination of permanent
conventional mortgage loans secured by single-family residences located in the
Association's primary market area. The Association sells a portion of the
fixed-rate loans that it originates. The Association retains the servicing
rights on the loans it sells. The Association retains fixed-rate loans with a
rate of interest higher than the level established by the Association's board of
directors as high in relation to the current market based on Freddie Mac's
levels. At June 30, 1998, the Association retained 30-year loans with a rate of
interest of 7.5% or higher and 15-year loans with a rate of interest of 7.0% or
higher. The Association generally retains for its portfolio any ARM loans that
it originates. Most single-family mortgage loans are underwritten according to
Freddie Mac guidelines. Loan originations are obtained from the Association's
loan officers and their contacts with the local real estate industry, existing
or past customers, and members of the local communities. The Association
primarily originates fixed-rate loans in the current low interest rate
environment, but also offers adjustable-rate mortgage ("ARM") loans. At June
30, 1998, single-family mortgage loans totalled $42.7 million, or 69.91% of
total loans at such date. At that date, of the Association's mortgage loans
secured by single-family residences, $35.7 million, or 83.7%, were fixed-rate
loans.
The Association's policy is to originate single-family residential mortgage
loans in amounts up to 80% of the appraised value of the property securing the
loan and up to 95% of the appraised value if private mortgage insurance is
obtained. 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.
47
<PAGE>
Due-on-sale clauses are an important means of adjusting the rates on the
Association's fixed-rate mortgage loan portfolio and the Association exercises
its rights under these clauses. The residential mortgage loans originated by the
Association are generally for terms to maturity of up to 30 years.
The Association offers several adjustable rate loan programs with terms of up
to 25 years and interest rates that adjust either annually or every three years.
Of the Association's mortgage loans secured by single-family residences, $7.0
million, or 16.3%, had adjustable rates. Certain of the Association's one-year
ARM loans have a maximum adjustment limitation of 2% per year and a 6% lifetime
cap on adjustments. The Association has additional one-year ARM loans that have
no caps. The Association's three-year ARM loan has a maximum adjustment
limitation of 1.5% per change and a 6% lifetime cap. The interest rate
adjustments on ARM loans currently offered are indexed to the monthly average
rate on a variety of established indices.
The volume and types of ARM loans originated by the Association have been
affected by such market factors as the level of interest rates, consumer
preferences, competition and the availability of funds. In recent years, demand
for ARM loans in the Association's primary market area has been weak due to the
low interest rate environment and consumer preference for fixed-rate loans.
Consequently, in recent years the Association has not originated a significant
amount of ARM loans as compared to its originations of fixed-rate loans. The
ARM loans offered by the Association do not provide for initial deep discount
interest rates or for negative amortization. Although the Association will
continue to offer ARM loans, there can be no assurance that in the future the
Association will be able to originate a sufficient volume of ARM loans to
constitute a significant portion of the Association's loan portfolio.
Multi-Family and Commercial Real Estate Lending. On a limited basis, the
Association occasionally originates multi-family mortgage loans generally
secured by properties located in the Association's primary market area. In
reaching its decision on whether to make a multi-family loan, the Association
considers a number of factors including: the net operating income of the
mortgaged premises before debt service and depreciation; the debt service ratio
(the ratio of net operating income to debt service); and the ratio of loan
amount to appraised value. Pursuant to the Association's current underwriting
policies, a multi-family mortgage loan may be made in an amount up to 80% of the
appraised value of the underlying property. In addition, the Association
generally requires a debt service ratio of 120%. Properties securing a multi-
family loan are appraised by an independent appraiser.
When evaluating a multi-family loan, the Association also considers the
financial resources and income level of the borrower, the borrower's experience
in owning or managing similar property, and the Association's lending experience
with the borrower. The Association's underwriting policies require that the
borrower be able to demonstrate strong management skills and the ability to
maintain the property from current rental income. The borrower is required to
present evidence of the ability to repay the mortgage and a satisfactory credit
history. In making its assessment of the creditworthiness of the borrower, the
Association generally reviews the financial statements, employment and credit
history of the borrower, as well as other related documentation.
On a limited basis, the Association originates commercial real estate loans
that are generally secured by properties used for business or religious purposes
such as farms, churches, small office buildings or retail facilities located in
its primary market area. The Association's underwriting procedures provide that
commercial real estate loans may be made in amounts up to 70% of the appraised
value of the property. The Association's underwriting standards and procedures
are similar to those applicable to its multi-family loans, whereby the
Association considers the net operating income of the property, the debt service
ratio and the
48
<PAGE>
borrower's expertise, credit history and profitability. The largest commercial
real estate loan in the Association's portfolio at June 30, 1998 was $120,000.
The loan was current and performing in accordance with its contractual terms at
June 30, 1998.
Multi-family and commercial real estate loans are generally considered to
involve a greater degree of risk than single-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 a greater extent to
adverse conditions in the real estate market or the economy. The Association
seeks to minimize these risks through its underwriting policies, which require
such loans to be qualified at origination on the basis of the property's income
and debt coverage ratio.
The Association's multi-family and commercial real estate loan portfolio at
June 30, 1998 totalled $1.0 million or 1.62% of gross loans receivable. The
Association's largest multi-family loan at June 30, 1998, had a principal
balance outstanding of less than $200,000.
Commercial Lending. On a very limited basis, the Association makes commercial
business loans generally secured by business equipment, inventory, accounts
receivable and other business assets. At June 30, 1998, the Association's
commercial loan portfolio was $394,000 or 0.64% of gross loans receivable, of
which amount $50,000 was in non-accrual status. The Association does not
currently anticipate that commercial lending activities will significantly
increase in the immediate future.
Construction and Land Lending. The Association generally originates
construction and land development loans to contractors and individuals in its
primary market area. The Association's construction loans primarily are made to
finance the construction of owner-occupied single-family residential properties
and, to a significantly lesser extent, individual properties built by developers
for future sale. The Association's construction loans to individuals are
primarily fixed-rate loans which, after a four-month construction period,
convert to permanent loans with maturities of up to 30 years. The Association's
policies provide that construction loans may be made in amounts up to 80% of the
appraised value of the property for construction of single-family residences.
The Association requires an independent appraisal of the property. Loan
proceeds are disbursed in increments as construction progresses and as
inspections warrant. The Association requires regular inspections to monitor
the progress of construction. Land loans are determined on an individual basis,
but generally they do not exceed 75% of the actual cost or current appraised
value of the property, whichever is less. The largest construction and land
loan in the Association's portfolio at June 30, 1998 had a balance of $168,000
and is secured by a single family residence. This loan is currently performing
in accordance with its terms. At June 30, 1998, the Association had $1.6
million of construction and land loans totalling 2.63% of the Association's
gross loans receivable.
Construction and land financing is 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.
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.
Consumer and Other Lending. The Association's originated consumer loans
generally consist of automobile loans, second mortgage loans, home equity loans
and loans secured by deposits. The Association originates a relatively small
number of home equity lines of credit, which are generally ARM loans with the
49
<PAGE>
rate adjusting monthly at 2% above the prime rate of interest as disclosed in
The Wall Street Journal. At June 30, 1998, the Association's consumer loan
portfolio was $15.4 million, or 25.2% of gross loans receivable.
Loans secured by rapidly depreciable assets such as automobiles entail greater
risks than single-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, consumer loan
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. A significant portion of the Association's automobile loans are
originated on the Association's behalf by automobile dealers at the time of
sale. This lending requires the maintenance of relationships with such dealers.
Such loans do not have the benefit of direct interaction between the borrowers
and the Association's lending officers during the underwriting process.
Loan Approval Procedures and Authority. The Board of Directors establishes
the lending policies of the Association. Consumer loans in amounts up to
$25,000 may be approved by the Association's loan officers. Loans in excess of
$25,000 and up to $50,000 must be approved by the President or Vice President.
Consumer loans in excess of $50,000 must be approved by the Board of Directors.
All mortgage loans are approved by the Executive Committee. Pursuant to OTS
regulations, loans to one borrower cannot exceed 15% of the Association's
unimpaired capital and surplus. The Association will not make loans to one
borrower that are in excess of regulatory limits.
Delinquencies and Classified Assets. The Board of Directors performs a
monthly review of all delinquent loans thirty days or more past due. The
procedures taken by the Association with respect to delinquencies vary depending
on the nature of the loan and period of delinquency. 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 sends the borrower a written notice of non-payment after the
loan is first past due. In the event payment is not then received, additional
letters are sent and phone calls are made. If management believes that the loan
is well-secured, the Association generally will try to work with the borrower to
have the loan brought current. If the loan is still not brought current and it
becomes necessary for the Association to take legal action, the Association will
commence foreclosure proceedings against any real property that secures 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 real
property securing the loan is foreclosed upon and sold at a sheriff's sale.
Federal regulations and the Association's Classification of Assets Policy
require that the Association utilize an internal asset classification system as
a means of reporting problem and potential problem assets. The Association has
incorporated the OTS internal asset classifications as a part of its credit
monitoring system. 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 insured institution 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
50
<PAGE>
that their continuance as assets without the establishment of a specific loss
allowance is not warranted. Assets which do not currently expose the insured
institution to sufficient risk to warrant classification in one of the
aforementioned categories but possess weaknesses are required to be designated
"Special Mention."
When an insured institution classifies one or more assets, or portions
thereof, as Substandard or Doubtful, under current OTS policy the Association is
required to consider establishing a general valuation allowance in an amount
deemed prudent by management. The general valuation allowance, which is a
regulatory term, represents a loss allowance which has been established to
recognize the inherent credit risk associated with lending and investing
activities, but which, unlike specific allowances, has not been allocated to
particular problem assets. When an insured institution 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 asset so
classified or to charge off such amount.
A savings institution'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, has 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 allowances. 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
estimated loan losses, there can be no assurance that regulators, in reviewing
the Association's loan portfolio, will not request the Association to materially
increase its allowance for loan losses, thereby negatively affecting the
Association's financial condition and earnings. Although management believes
that an adequate allowance for loan losses has been established, actual losses
are dependent upon future events and, as such, further additions to the level of
allowances for estimated loan losses may become necessary.
The Association's Classification of Assets Committee reviews and classifies
the Association's assets on a quarterly basis and the Board of Directors reviews
the results of the reports on a quarterly basis. The Association classifies
assets in accordance with the management guidelines described above. At June
30, 1998, the Association had $19,000 of assets designated as Special Mention
which consisted of two loans, $151,000 of assets classified as Substandard
consisting of ten loans and no assets classified as doubtful and loss. At June
30, 1998 the largest loan designated as Special Mention was a $12,000 loan and
was secured by real estate. At June 30, 1998, the largest adversely (other than
Special Mention) classified loan was $50,000 and was secured by lumber yard
equipment and inventory.
51
<PAGE>
The following table sets forth the delinquencies in the Association's loan
portfolio as of the dates indicated.1
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
---------------------------------------------- -----------------------------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
--------------------- ---------------------- --------------------- ----------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL
OF BALANCE OF OF BALANCE OF OF BALANCE OF OF BALANCE OF
LOANS LOANS LOANS LOANS LOANS LOANS LOANS LOANS
-------- ------------ -------- ------------ --------- ------------ -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
Single-family................ 2 $ 21 8 $ 88 8 $ 114 6 $ 128
Multi-family and
commercial................. -- -- -- -- -- -- -- --
Consumer Loans:
Home equity loans and
lines of credit............ -- -- -- -- 3 26 -- --
Automobile................... -- -- -- -- -- -- -- --
Unsecured lines of credit.... -- -- -- -- -- -- -- --
Other........................ 2 8 2 5 2 5 3 7
Commercial Loans................ -- -- 1 50 -- -- 1 50
---- ------ ---- ------ ---- ------ ---- ------
Total..................... 4 $ 29 11 $ 143 13 $ 145 10 $ 185
==== ====== ==== ====== ==== ====== ==== ======
Delinquent loans to
total loans.................. 0.05% 0.23% 0.25% 0.32%
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1998 DECEMBER 31, 1997
---------------------------------------------- -----------------------------------------------
60-89 DAYS 90 DAYS OR MORE 60-89 DAYS 90 DAYS OR MORE
--------------------- ---------------------- --------------------- ----------------------
NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL NUMBER PRINCIPAL
OF BALANCE OF OF BALANCE OF OF BALANCE OF OF BALANCE OF
LOANS LOANS LOANS LOANS LOANS LOANS LOANS LOANS
-------- ------------ -------- ------------ --------- ------------ -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Real Estate Loans:
Single-family................ 6 $ 215 2 $ 41 2 $ 18 1 $ 7
Multi-family and
commercial................. -- -- -- -- -- -- -- --
Consumer Loans:
Home equity loans and
lines of credit............ -- -- -- -- -- -- 1 2
Automobile................... -- -- -- -- -- -- 1 2
Unsecured lines of credit.... 1 1 -- -- -- -- -- --
Other........................ 3 10 1 4 1 3 3 11
Commercial Loans................ -- -- -- -- -- -- -- --
---- ------ ---- ------ ---- ------ ---- ------
Total..................... 10 $ 226 3 $ 45 3 $ 21 6 $ 22
==== ====== ==== ====== ==== ====== ==== ======
Delinquent loans to
total loans.................. 0.45% 0.09% 0.04% 0.05%
</TABLE>
_________________________
(1) The table does not include delinquent loans less than 60 days past due. At
June 30, 1998 and December 31, 1997, 1996 and 1995, total loans past due 30
to 59 days amounted to $356,000, $356,000, $471,000 and $190,000,
respectively.
52
<PAGE>
Non-Performing Assets and Impaired Loans. The following table sets forth
information regarding non-accrual loans and REO. At June 30, 1998, non-accrual
loans totalled $138,000, consisting of 9 loans and no REO. It is the policy of
the Association to cease accruing interest on loans 90 days or more past due
(unless the loan principal and interest are determined by management to be fully
secured and in the process of collection) and to charge off all accrued
interest. At June 30, 1998, 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 $10,000. At June 30, 1998, the
Association had a $5,000 recorded investment in impaired loans which had
specific allowances of $0. At December 31, 1997, there were $5,000 of impaired
loans with specific loan loss allowances of $0. At December 31, 1996, there
were no impaired loans.
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
--------------------------- -------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------------ ----------- ----------- ------------ ------------ ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Non-accruing loans:
Single-family real estate............ $ 88 $ 106 $ 128 $ 41 $ 8 $ 120 $ 161
Consumer............................. -- 11 21 4 16 6 4
Commercial........................... 50 -- 50 -- -- -- --
----- ----- ----- ----- ----- ----- -----
Total(1).......................... 138 117 199 45 24 126 165
Real estate owned (REO)................. -- -- -- -- -- -- --
Other repossessed assets................ -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- -----
Total nonperforming assets(2)..... $ 138 $ 117 $ 199 $ 45 $ 24 $ 126 $ 165
Troubled debt restructurings............ -- -- -- -- -- -- --
----- ----- ----- ----- ----- ----- -----
Troubled debt restructurings and
total nonperforming assets............ $ 138 $ 117 $ 199 $ 45 $ 24 $ 126 $ 165
===== ===== ===== ===== ===== ===== =====
Total nonperforming loans and
troubled debt restructurings as a
percentage of total loans............. 0.23% 0.22% 0.34% 0.09% 0.05% 0.26% 0.34%
Total nonperforming assets and
troubled debt restructurings as a
percentage of total assets............ 0.11% 0.09% 0.17% 0.04% 0.02% 0.11% 0.14%
</TABLE>
______________
(1) Total non-accruing loans equals total nonperforming loans.
(2) Nonperforming assets consist of nonperforming loans (and impaired loans),
other repossessed assets and REO.
53
<PAGE>
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risks inherent in the Association's loan portfolio and the general economy. The
allowance for loan losses is maintained at an amount management considers
adequate to cover estimated losses in loans receivable which are deemed probable
and estimable. The allowance is based upon a number of factors, including
current economic conditions, actual loss experience and industry trends. In
addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Association's allowance for loan losses. Such
agencies may require the Association to make additional provisions for loan
losses based upon information available at the time of the review. As of June
30, 1998, the Association's allowance for loan losses was 0.61% of gross loans
receivable as compared to 0.40% as of December 31, 1997. The Association had
non-accrual loans of $138,000 and $199,000 at June 30, 1998 and December 31,
1997, respectively. The Association will continue to monitor and modify its
allowances for loan losses as conditions dictate.
The following table sets forth activity in the Association's allowance for
loan losses for the periods indicated.
<TABLE>
<CAPTION>
AT OR FOR THE SIX MONTHS
ENDED
June 30, AT OR FOR THE YEAR ENDED DECEMBER 31,
----------------------------- ---------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------------------------- ---------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Allowance for loan losses, beginning
of year................................. $ 231 $ 229 $ 229 $ 249 $ 211 $ 177 $ 129
Charged-off loans:
Single-family real estate............ 7 -- -- 15 -- -- --
Multi-family and commercial
real estate........................ -- -- -- -- -- -- --
Consumer............................. -- -- 4 5 4 14 --
----- ------- ------- ----- ----- ----- -----
Total charged-off loans......... 7 -- 4 20 4 14 --
Recoveries on loans previously
charged off:
Single-family real estate............ -- -- -- -- -- -- --
Consumer............................. 1 2 6 -- -- -- --
----- ------- ------- ----- ----- ----- -----
Total recoveries................ 1 2 6 -- -- -- --
Net loans charged-off..................... 6 (2) (2) 20 4 14 --
Provision for loan losses................. 150 -- -- -- 42 48 48
----- ------- ------- ----- ----- ----- -----
Allowance for loan losses, end of
period................................. $ 375 $ 231 $ 231 $ 229 $ 249 $ 211 $ 177
===== ======= ======= ===== ===== ===== =====
Allowance for loan losses to total
loans................................. 0.61 0.43% 0.40% 0.46% 0.51% 0.43% 0.37%
Allowance for loan losses to
nonperforming loans and
troubled debt restructuring........... 2.72x 1.97x 1.16x 5.09x 10.38x 1.67x 1.07x
Net loans charged-off (recovered) to
allowance for loan losses............. 1.60% (0.87)% (0.87)% 8.73% 1.61% 6.64% --
</TABLE>
54
<PAGE>
The following table sets forth the Association's allowance for loan losses
in each of the categories listed at the dates indicated and the percentage of
such amounts to the total allowance and to total loans.
<TABLE>
<CAPTION>
AT JUNE 30,
------------------------------------------------
1998
------------------------------------------------
% OF PERCENT
ALLOWANCE OF LOANS
IN EACH IN EACH
CATEGORY CATEGORY
TO TOTAL TO TOTAL
AMOUNT ALLOWANCE LOANS
------------- ------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Real estate........................................................ $ 135 36.00% 74.16%
Consumer........................................................... 103 27.47 25.20
Commercial......................................................... 137 36.53 0.64
Unallocated........................................................ -- -- --
----- ------ ------
Total allowance................................................. $ 375 100.00% 100.00%
for loan losses............................................... ===== ====== ======
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------------------------------------------------------
1997 1996
------------------------------------- -----------------------------------------
% OF PERCENT % OF PERCENT
ALLOWANCE OF LOANS ALLOWANCE OF LOANS
IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS
------------------------------------- ---------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Real estate............... $ 107 46.32% 76.27% $ 107 46.73% 81.27%
Consumer.................. 37 16.02 23.20 35 15.28 18.15
Commercial................ 87 37.66 0.53 87 37.99 0.58
Unallocated............... -- -- -- -- -- --
----- ------ ------ ----- ------ ------
Total allowance
for loan losses...... $ 231 100.00% 100.00% $ 229 100.00% 100.00%
===== ====== ====== ===== ====== ======
<CAPTION>
-----------------------------------------------------------------------------------------------
1995 1994 1993
------------------------------- ------------------------------- -----------------------------
% OF PERCENT % OF PERCENT % OF PERCENT
ALLOWANCE OF LOANS ALLOWANCE OF LOANS ALLOWANCE OF LOANS
IN EACH IN EACH IN EACH IN EACH IN EACH IN EACH
CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY CATEGORY
TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL TO TOTAL
AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS AMOUNT ALLOWANCE LOANS
------------------------------- ------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate............... $ 120 48.19% 80.67% $ 111 52.61% 81.50% $ 87 49.15% 84.37%
Consumer.................. 42 16.87 17.70 30 14.22 16.75 32 18.08 13.80
Commercial................ 87 34.94 1.63 70 33.17 1.75 58 32.77 1.83
Unallocated............... -- -- -- -- -- -- -- -- --
----- ------ ------ ----- ------ ------ ----- ------ ------
Total allowance
for loan losses...... $ 249 100.00% 100.00% $ 211 100.00% 100.00% $ 177 100.00% 100.00%
===== ====== ====== ===== ====== ====== ===== ====== ======
</TABLE>
56
<PAGE>
REAL ESTATE OWNED
At June 30, 1998, the Association had no REO. If the Association acquires
any REO, it is initially recorded at fair value less costs to sell and
thereafter REO is reecorded at the lower of the recorded investment in the loan
or the fair value of the related assets at the date of foreclosure, less costs
to sell. Thereafter, REO is valued at the lower of the recorded investment or
the fair value of the property less costs to sell. If there is a furhter
deterioration in value, the Association provides for a specific valuation
allowance.
INVESTMENT ACTIVITIES
Federally chartered savings institutions have the authority to invest in
various types of liquid assets, including United States Treasury obligations,
securities of various federal agencies, certificates of deposit of insured banks
and savings institutions, bankers' acceptances and federal funds. Subject to
various restrictions, federally chartered savings institutions may also invest
their assets in commercial paper, investment-grade corporate debt securities and
mutual funds whose assets conform to the investments that a federally chartered
savings institution is otherwise authorized to make directly. Additionally, the
Association must maintain minimum levels of investments that qualify as liquid
assets under OTS regulations. See "Regulation - Federal Savings Institution
Regulation - Liquidity." Historically, the Association has maintained liquid
assets above the minimum OTS requirements and at a level considered to be more
than adequate to meet its normal daily activities.
The investment policy of the Association as established by the Board of
Directors attempts to provide and maintain liquidity, generate a favorable
return on investments without incurring undue interest rate and credit risk, and
complement the Association's lending activities. The Association's policies
generally limit investments to government and federal agency securities. The
Association's policies provide the authority to invest in U.S. Treasury and
federal agency securities meeting the Association's guidelines and in mortgage-
backed securities guaranteed by the U.S. government and agencies thereof. The
Association funds such investments not only through payments on deposit accounts
and the proceeds from the repayment of loans and the Association's operations,
but also through FHLB advances. The success of such use of FHLB advances
depends on management's ability to maintain a positive spread between the
interest earned on the investment securities and the interest cost of the FHLB
advances. At June 30, 1998, the Association had investment and mortgage-backed
securities with a carrying value of $51.7 million and a market value of $51.3
million. At June 30, 1998, the Association had $16.2 million in mortgage-backed
and investment securities classified as available for sale and $35.6 million in
investment and mortgage-backed securities classified as held to maturity. Of
the Association's mortgage-backed securities, $5.8 million had adjustable rates
at June 30, 1998.
At June 30, 1998, all of the Association's mortgage-backed securities were
insured or guaranteed by either Freddie Mac, Fannie Mae or Ginnie Mae. In
addition, the Association owned one CMO which had passed stress testing at
June 30, 1998. 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 or
increasing, respectively, the net yield on such securities. There is also the
risk associated with the necessity to reinvest the cash flows from such
securities at market interest rates which may be lower than the interest rates
received on such securities. In addition, the market value of such securities
may be adversely affected by changes in interest rates.
57
<PAGE>
The following table sets forth certain information regarding the amortized
cost and fair value of the Association's securities at the dates indicated.
<TABLE>
<CAPTION>
AT DECEMBER 31,
AT JUNE 30, ------------------------------------
1998 1997 1996
------------------------ ----------------------- -----------
AMORTIZED FAIR AMORTIZED FAIR AMORTIZED
COST VALUE COST VALUE COST
------------------------ ----------------------- -----------
Investment securities: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Debt securities held-to-maturity:
Obligations of U.S. government agencies............... $ 1,497 $ 1,511 $ 2,497 $ 2,515 $ 5,499
Commercial paper................................... -- -- 992 992 --
------- ------- ------- ------- -------
Total........................................ 1,497 1,511 3,489 3,507 5,499
------- ------- ------- ------- -------
Debt securities available-for-sale:
Obligations of U.S. Treasury and U.S. 9,990 9,977 9,989 9,905 10,988
government agencies..............................
Municipal securities............................... 225 231 275 284 328
------- ------- ------- ------- -------
Total........................................ 10,215 10,208 10,264 10,189 11,316
Total debt securities........................ 11,712 11,719 13,753 13,696 16,815
------- ------- ------- ------- -------
Mortgage-related securities:
Mortgage-related securities held-to-
maturity:
Freddie Mac........................................ 19,927 19,555 22,714 22,884 31,991
Fannie Mae......................................... 4,425 4,410 5,273 5,234 5,902
Collateralized Mortgage Obligations................ 9,724 9,623 -- -- --
------- ------- ------- ------- -------
Total mortgage-related securities 34,076 33,588 27,987 28,118 37,893
held-to-maturity ------- ------- ------- ------- -------
Mortgage-related securities available-for-sale:
Freddie Mac........................................ 367 354 391 396 490
Fannie Mae......................................... 2,530 2,568 3,734 3,809 5,452
Ginnie Mae......................................... 2,949 3,025 3,358 3,424 4,014
------- ------- ------- ------- -------
Total mortgage-related securities 5,846 5,947 7,483 7,629 9,956
available-for-sale ------- ------- ------- ------- -------
Total mortgage-related securities 39,922 39,535 35,470 35,747 47,849
------- ------- ------- ------- -------
Net unrealized (losses) gains on 94 -- 71 -- (300)
available-for-sale securities.................. ------- ------- ------- ------- -------
Total securities............................. $51,728 $51,254 $49,294 $49,443 $64,364
======= ======= ======= ======= =======
<CAPTION>
---------------------------------
1995
------- -----------------------
FAIR AMORTIZED FAIR
Value Cost Value
------- -----------------------
<S> <C> <C> <C>
Investment securities:
Debt securities held-to-maturity:
Obligations of U.S. government agencies............... 5,507 $ -- $ --
Commercial paper................................... -- -- --
------ ------- -------
Total........................................ 5,507 -- --
------ ------- -------
Debt securities available-for-sale:
Obligations of U.S. Treasury and U.S.
government agencies.............................. 10,540 2,499 2,500
Municipal securities............................... 339 426 448
------ ------- -------
Total........................................ 10,879 2,925 2,948
Total debt securities........................ 16,386 2,925 2,948
------ ------- -------
Mortgage-related securities:
Mortgage-related securities held-to-
maturity:
Freddie Mac........................................ 30,967 31,908 31,815
Fannie Mae......................................... 6,033 6,577 6,550
Collateralized Mortgage Obligations................ -- -- --
------ ------ ------
Total mortgage-related securities
held-to-maturity............................. 37,000 38,485 38,365
------ ------ ------
Mortgage-related securities available-for-sale:
Freddie Mac........................................ 491 538 533
Fannie Mae......................................... 5,531 6,611 6,660
Ginnie Mae......................................... 4,071 4,633 4,678
------ ------ ------
Total mortgage-related securities
available-for-sale.............................. 10,093 11,782 11,871
------ ------ ------
Total mortgage-related securities............ 47,093 50,267 50,236
------ ------ ------
Net unrealized (losses) gains on
available-for-sale securities.................. -- 112 --
------ ------ ------
Total securities............................. 63,479 $53,304 $53,184
====== ====== ======
</TABLE>
58
<PAGE>
The following table sets forth the Association's securities activities for
the periods indicated.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------------- ------------------------------------
1998 1997 1997 1996 1995
------------ -------------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INVESTMENT SECURITIES:
Investment securities, beginning of period(1)............ $49,294 $64,364 $ 64,364 $53,304 $60,306
Purchases:
Investment securities - held-to-maturity............... 8,243 2,000 3,987 11,499 --
Investment securities - available-for-sale............. 1,929 -- 4,989 11,144 1,000
Sales:
Investment securities - available-for-sale............. (180) -- -- (1,518) --
Calls, maturities and payments:
Investment securities - held-to-maturity............... (4,179) (3,457) (15,964) (6,451) (5,403)
Investment securities - available-for-sale............. (3,460) (740) (8,522) (3,137) (2,916)
Net Increase (decrease) in premium amortization
and discount accretion............................... 58 60 67 (66) (341)
Net Increase (decrease) in unrealized gain (loss)........ 23 69 373 (411) 658
------- ------- -------- ------- -------
Net increase (decrease) in investment
securities........................................ 2,434 (2,068) (15,070) 11,060 (7,002)
------- ------- -------- ------- -------
Investment securities, end of period..................... $51,728 $62,296 $ 49,294 $64,364 $53,304
======= ======= ======== ======= =======
</TABLE>
___________________________
(1) Includes mortgage-related securities.
59
<PAGE>
The table below sets forth certain information regarding the carrying
value, weighted average yields and contractual maturities of the Association's
investment securities and mortgage-related securities as of June 30, 1998.
<TABLE>
<CAPTION>
AT JUNE 30, 1998
--------------------------------------------------------------------------------
MORE THAN ONE YEAR MORE THAN FIVE YEARS
ONE YEAR OR LESS TO FIVE 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>
Held-to-maturity securities:
Investment securities:
Obligations of U.S........................... $ -- --% $1,497 7.05% $ -- --%
government agencies
Mortgage-related securities:
Freddie Mac.................................. -- -- 148 9.50 2,727 6.00
Fannie Mae................................... -- -- -- -- -- --
Collateralized Mortgage Obligations.......... -- -- -- -- -- --
---------- ------ ----------
Total securities at amortized cost......... $ -- --% $1,645 7.27% $2,727 6.00%
========== ====== ==========
Available-for-sale securities:
Investment securities:
Obligations of U.S........................... $ -- --% $ -- --% $ -- --%
government agencies
Municipal securities (1)..................... 102 9.89 129 9.85 -- --
Mortgage-related securities:
Freddie Mac.................................. -- -- -- -- -- --
Fannie Mae................................... -- -- -- -- -- --
Ginnie Mae................................... -- -- -- -- -- --
---------- -------- ------ ---- ---------- --------
Total securities at fair value............. $102 9.89% $ 129 9.85% $ -- --%
========== ======== ====== ==== ========== ========
<CAPTION>
---------------------------------------------------
MORE THAN TEN YEARS TOTAL
--------------------------- ----------------------
WEIGHTED WEIGHTED
CARRYING AVERAGE CARRYING AVERAGE
VALUE YIELD VALUE YIELD
------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
Held-to-maturity securities:
Investment securities:
Obligations of U.S........................... $ -- --% $ 1,497 7.05%
government agencies
Mortgage-related securities:
Freddie Mac.................................. 17,052 6.57% 19,927 6.51
Fannie Mae................................... 4,425 6.44 4,425 6.44
Collateralized Mortgage Obligations.......... 9,724 6.75 9,724 6.75
------- -------
Total securities at amortized cost......... $31,201 6.61% $35,573 6.59%
======= =======
Available-for-sale securities:
Investment securities:
Obligations of U.S........................... $ 9,977 7.00% $ 9,977 7.00%
government agencies
Municipal securities (1)..................... -- -- 231 9.87
Mortgage-related securities:
Freddie Mac.................................. 354 6.95 354 6.95
Fannie Mae................................... 2,568 7.51 2,568 7.51
Ginnie Mae................................... 3,025 6.91 3,025 6.91
------- ---- ------- ----
Total securities at fair value............. $15,924 7.06% $16,155 7.06%
======= ==== ======= ====
</TABLE>
_________________________________
(1) Weighted Average Yield data for municipal securities is presented on a tax
equivalent basis based on an assumed tax rate of 34%.
60
<PAGE>
SOURCES OF FUNDS
General. Deposits, loan repayments and prepayments and cash flows generated
from operations are the primary sources of the Association's funds for use in
lending, investing and for other general purposes. The Association has
historically also used FHLB advances as a source of funds.
Deposits. The Association offers a variety of deposit accounts with a range
of interest rates and terms. The Association's deposits consist of passbook
accounts, savings and club accounts, NOW accounts, money market accounts and
certificates of deposit. For the six months ended June 30, 1998, certificates of
deposit constituted 56.27% of total average deposits. The term of the
certificates of deposit offered by the Association vary from six months to four
years and the offering rates are established by the Association on a weekly
basis. Once a certificate account is established, no additional amounts are
permitted to be deposited in that account, with the exception of Individual
Retirement Account certificates. Specific terms of an individual account vary
according to the type of account, the minimum balance required, the time period
funds must remain on deposit and the interest rate, among other factors. The
flow of deposits is influenced significantly by general economic conditions,
changes in money market rates, prevailing interest rates and competition. At
June 30, 1998, the Association had $25.6 million of certificate accounts
maturing in less than one year. The Association's deposits are obtained
predominantly from the area in which its banking offices are located. The
Association relies primarily on a willingness to pay market-competitive interest
rates to attract and retain these deposits. Accordingly, rates offered by
competing financial institutions significantly affect the Association's ability
to attract and retain deposits.
The following table presents the deposit activity of the Association for the
periods indicated:
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------------ ----------------------------------------------
1998 1997 1997 1996 1995
------------ ------------- ------------- ------------- ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Increase (decrease) before interest
credited................................... $1,626 $(807) $ 510 $3,174 $ (308)
Interest credited............................. 300 327 645 655 1,025
------ ----- ------ ------ ------
Net increase (decrease)....................... $1,926 $(480) $1,155 $3,829 $ 717
====== ===== ====== ====== ======
</TABLE>
At June 30, 1998, the Association had $3.3 million in certificate accounts
in amounts of $100,000 or more maturing as follows:
<TABLE>
<CAPTION>
WEIGHED
AVERAGE
MATURITY PERIOD AMOUNT RATE
------------------------------------------- ------------- ---------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Three months or less..................... $ 210 5.71%
Over 3 through 6 months.................. 531 5.96
Over 6 through 12 months................. 1,391 6.01
Over 12 months........................... 1,212 5.95
------
Total............................... $3,344 5.96%
======
</TABLE>
61
<PAGE>
The following table sets forth the distribution of the Association's
average deposit accounts for the periods indicated and the weighted average
interest rates on each category of deposits presented and such information at
June 30, 1998. Averages for the periods presented utilize month-end balances.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------
AT JUNE 30, 1998 1997
---------------------------------------------- ------------------------------------------
PERCENT OF
PERCENT TOTAL
OF TOTAL AVERAGE AVERAGE AVERAGE
BALANCE DEPOSITS RATE PAID BALANCE DEPOSITS RATE PAID
--------------- ------------- ------------- ------------- -------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
NOW accounts........................ $ 7,953 10.08% 2.50% $ 7,611 10.08% 2.63%
Money market accounts............... 2,585 3.28 3.00 2,741 3.63 3.36
Savings accounts.................... 23,945 30.35 3.10 23,424 31.01 3.09
Certificates of deposit............. 43,449 55.05 5.74 41,001 54.29 5.73
Noninterest-bearing deposits:
Demand deposits.................. 977 1.24 -- 751 0.99 --
------- ------ ------- ------
Total average deposits........ $78,909 100.00% 4.50% $75,528 100.00% 4.46%
======= ====== ======= ======
<CAPTION>
------------------------------------------------------------------------------
1996 1995
-------------------------------------- --------------------------------------
PERCENT OF PERCENT OF
TOTAL TOTAL
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE DEPOSITS RATE PAID BALANCE DEPOSITS RATE PAID
--------- ------------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
NOW accounts......................... $ 7,237 9.90% 2.72% $ 7,446 10.59% 2.93%
Money market accounts................ 2,888 3.95 3.29 3,583 5.10 3.27
Savings accounts..................... 24,536 33.58 3.09 25,282 35.96 3.09
Certificates of deposit.............. 37,740 51.65 5.78 33,383 47.49 5.32
Noninterest-bearing deposits:
Demand deposits................... 666 0.92 -- 605 0.86 --
------- ------ ------- ------
Total average deposits......... $73,067 100.00% 4.42% $70,299 100.00% 4.12%
======= ====== ======= ======
</TABLE>
62
<PAGE>
The following table presents by various rate categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding.
<TABLE>
<CAPTION>
PERIOD TO MATURITY FROM JUNE 30, 1998 AT DECEMBER 31,
---------------------------------------------------------------- ----------------------------
TWO TO OVER
LESS THAN ONE TO THREE THREE
ONE YEAR TWO YEARS YEARS YEARS TOTAL 1997 1996 1995
------------- ------------ ---------- --------- ----------- ------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CERTIFICATE ACCOUNTS:
0 to 3.99%.................... $ -- $ -- $ -- $ -- $ -- $ -- $ -- $ --
4.00 to 4.99%................. 3,650 -- -- -- 3,650 3,976 5,171 5,410
5.00 to 5.99%................. 15,147 11,218 1,065 227 27,657 24,615 24,770 23,140
6.00 to 6.99%................. 6,766 5,265 -- -- 12,031 12,437 8,864 7,142
7.00 to 7.99%................. -- -- -- -- -- 1,098 1,088 --
Over 8.00%.................... 22 -- -- 89 111 121 121 122
-------- ------- -------- ---- ------- ------- ------- -------
Total certificate
accounts.................. $25,585 $16,483 $1,065 $316 $43,449 $42,247 $40,014 $35,814
======== ======= ======== ==== ======= ======= ======= =======
</TABLE>
Borrowings. The Association utilizes FHLB advances as an alternative to
retail deposits to fund its operations as part of its operating strategy. These
FHLB advances are collateralized primarily by certain of the Association's
mortgage loans and mortgage-backed securities and secondarily by the
Association's investment in capital stock of the FHLB. FHLB advances are made
pursuant to several credit programs, each of which has its own interest rate and
range of maturities. The maximum amount that the FHLB will advance to member
institutions, including the Association, fluctuates from time to time in
accordance with the policies of the FHLB. See "Regulation -- Federal Home Loan
Bank System."
The following table sets forth certain information regarding the
Association's borrowed funds at or for the periods ended on the dates indicated:
<TABLE>
<CAPTION>
AT OR FOR THE SIX MONTHS AT OR FOR THE YEAR ENDED
ENDED JUNE 30, DECEMBER 31,
--------------------------------------- -------------------------------------------
1998 1997 1997 1996 1995
----------------- ---------------- ------------- ------------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
FHLB advances and other borrowings:
Average balance outstanding........... $28,009 $34,177 $31,907 $32,953 $30,727
Maximum amount outstanding
at any month-end during the period... 31,951 35,098 35,098 37,588 33,751
Balance outstanding at end of
period............................... 27,680 34,997 26,161 34,277 24,524
Weighted average interest rate
during the period.................... 5.89% 5.91% 5.97% 5.96% 6.11%
Weighted average interest rate
at end of period..................... 5.86% 5.88% 6.51% 6.06% 6.19%
</TABLE>
63
<PAGE>
SUBSIDIARY ACTIVITIES
As of June 30, 1998, the Association did not own any subsidiaries.
PROPERTIES
The Association conducts its business through six banking offices located
in Columbiana, Mahoning and Jefferson Counties, Ohio. The following table sets
forth the Association's offices as of June 30, 1998.
<TABLE>
<CAPTION>
NET BOOK VALUE
ORIGINAL OF PROPERTY OR
YEAR DATE OF LEASEHOLD
LEASED OR LEASED OR LEASE IMPROVEMENTS AT
LOCATION OWNED ACQUIRED EXPIRATION JUNE 30, 1998
- ----------- --------------- ----------- ------------ -----------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ADMINISTRATIVE/HOME OFFICE:
601 Main Street Owned 1998(1) -- $502
Wellsville, Ohio 43968
BRANCH OFFICES:
49028 Foulks Drive Owned 1979 -- $273
East Liverpool, Ohio 43920
100 Main Street Leased 1996 2011 $200
Wintersville, Ohio 43952
7121 Tiffany Boulevard Leased 1997 2012 $243
Boardman, Ohio 44514
3551 Belmont Avenue Leased 1998 2013 $216
Youngstown, Ohio 44505
4755 Mahoning Avenue Leased 1998(2) 2013 -----
Austintown, Ohio 44515
</TABLE>
__________________________
(1) Expansion completed 1998.
(2) Opened September, 1998.
LEGAL PROCEEDINGS
At June 30, 1998, the Association was not involved in any pending legal
proceedings. However, from time to time, the Association is involved in legal
proceedings occurring in the ordinary course of business.
PERSONNEL
As of June 30, 1998, the Association had 48 full-time employees and 19
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 - Benefits" for a
description of certain compensation and benefit programs offered to the
Association's employees.
64
<PAGE>
FEDERAL AND STATE TAXATION
FEDERAL TAXATION
General. The Company and the Association will report their income on a
fiscal year basis using the accrual method of accounting and will be subject to
federal income taxation in the same manner as other corporations with some
exceptions, including particularly the 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 not been
audited by the IRS in the past five 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
may have been 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 allowed 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 was 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 was 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
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
65
<PAGE>
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). In addition, for taxable
years beginning after June 30, 1986 and before January 1, 1996, an environmental
tax of 0.12% of the excess of AMTI (with certain modifications) over $2.0
million is imposed on corporations, including the Association, whether or not an
Alternative Minimum Tax ("AMT") is paid. The Association does not expect to be
subject to the AMT.
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 net worth are apportioned or allocated are determined by
complex formulas. The minimum 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 0.11% of the first $50,000 of computed Ohio taxable income and
0.22% 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 0.014% 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.
66
<PAGE>
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 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 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.
Any change in the regulatory structure or the applicable statutes or
regulations, whether by the OTS, the FDIC or the Congress, could have a material
impact on the Company, the Association, their operations or the Association's
Conversion. Congress has been considering in 1998 the elimination of the
federal thrift charter, abolishment of the OTS and the limitation of unitary
savings and loan holding company powers. The results of such consideration,
including possible enactment of legislation is uncertain. Therefore, the
Association is unable to determine the extent to which the results of
consideration or possible legislation, if enacted, would affect its business.
See "Risk Factors--Financial Institution Regulation and Possible Legislation."
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
67
<PAGE>
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 general limit on
loans-to-one borrower was $2.2 million. At June 30, 1998, the Association's
largest aggregate amount of loans-to-one borrower consisted of a $350,000
residential loan.
QTL Test. The HOLA requires savings institutions to meet a Qualified
Thrift Lender ("QTL") test. Under the QTL test, a savings association is
required to 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 maintained 98.21% of
its portfolio assets in qualified thrift investments and, therefore, 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 and supervisory condition. An
institution, such as the Association, 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.
68
<PAGE>
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 six months ended June 30, 1998 was 5.12%, 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 December 31, 1997 totalled $38,000.
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. The
Association currently operates branch offices in Ohio only. For a discussion of
the impact of proposed legislation, see "Risk Factors--Financial Institution
Regulation and Possible Legislation."
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 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.
The Association's authority to extend credit to executive officers,
directors and 10% shareholders ("insiders"), as well as entities such persons
control, is governed by Section 22(g) and 22(h) of the FRA and Regulation O
thereunder. Among other things, such loans are required to be made on terms
substantially the same as those offered to unaffiliated individuals and to not
involve more than the normal risk of repayment. Recent legislation created an
exception for loans to insiders made pursuant to a benefit or compensation
program that are widely available to all employees of the institution and do not
give preference to insiders over other employees. Regulation O also places
individual and aggregate limits on the amounts of loans the Association may make
to insiders based, in part, on the Association's capital position and requires
that certain board approval procedures be followed.
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
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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 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 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
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from total capital for purposes of calculating their risk-based capital
requirements. A savings association's interest rate risk is measured by the
decline in the net portfolio value of its assets (i.e., the difference between
incoming and outgoing discounted cash flows from assets, liabilities and off-
balance sheet contracts) that would result from a hypothetical 200-basis point
increase or decrease in market interest rates divided by the estimated economic
value of the 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
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. The capital categories are (1) well-
capitalized,
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(2) adequately capitalized, or (3) undercapitalized. An institution is also
placed in 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 that 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 with the most well-capitalized,
healthy institutions receiving the lowest rates.
Deposits of the Association are presently insured by the SAIF. Both the
SAIF and the BIF are statutorily required to achieve and maintain a ratio of
insurance reserves to total insured deposits equal to 1.25%. Until recently,
members of the SAIF and BIF were paying average deposit insurance assessments of
between 25 and 25 basis points. The BIF met the required reserve level in 1995,
whereas the SAIF was not expected to meet or exceed the required level until
2002 at the earliest. This situation was primarily due to the statutory
requirement that SAIF members make payments on bonds issued in the late 1980s by
the Financial Corporation ("FICO") to recapitalize the predecessor to the SAIF.
In view of the BIF's achieving the 1.25% ratio, the FDIC ultimately adopted
a new assessment rate schedule of from 0 to 27 basis points under which 92% of
BIF members paid an annual premium of only $2,000. With respect to SAIF member
institutions, the FDIC adopted a final rule retaining the previously existing
assessment rate schedule applicable to SAIF member institutions of 23 to 31
basis points. As long as the premium differential continued, it may have had
adverse consequences for SAIF members, including reduced earnings and an
impaired ability to raise funds in the capital markets. In addition, SAIF
members, such as the Association, could have been placed at a substantial
competitive disadvantage to BIF members with respect to pricing of loans and
deposits and the ability to achieve lower operating costs.
On September 30, 1996, the President of the United States signed into law
the Funds Act which, among other things, imposed a special one-time assessment
on SAIF member institutions, including the Association, to recapitalize the
SAIF. As required by the Funds Act, the FDIC imposed a special assessment of
65.7 basis points on SAIF assessable deposits held as of March 31, 1995, payable
November 27, 1996 (the "SAIF Special Assessment"). The SAIF Special Assessment
was recognized by the Association as an expense in the quarter ended September
30, 1996 and is generally tax deductible. The SAIF Special Assessment recorded
by the Association amounted to $449,000 on a pre-tax basis and $296,000 on an
after-tax basis.
The Funds Act also spread the obligations for payment of the FICO bonds
across all SAIF and BIF members. Beginning on January 1, 1997, BIF deposits
were assessed for a FICO payment of 1.3 basis points, while SAIF deposits pay
6.48 basis points. Full pro rata sharing of the FICO payments between BIF and
SAIF members will occur on the earlier of January 1, 2000, or the date the BIF
and SAIF are merged.
As a result of the Funds Act, the FDIC voted to effectively lower SAIF
assessments to 0 to 27 basis points as of January 1, 1997, a range comparable to
that of BIF members. SAIF members will also continue to make the FICO payments
described above. The FDIC also lowered the SAIF assessment schedule for the
fourth quarter of 1996 to 18 to 27 basis points. Management cannot predict the
level of FDIC insurance assessments on an ongoing basis, whether the federal
thrift charter will be eliminated or whether the BIF and SAIF will eventually be
merged.
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The Association's assessment rate for fiscal 1997 ranged from .01575 to
.0162 basis points, excluding the SAIF Special Assessment rate of 65.7 basis
points, and the regular premium paid for this period was $39,000.
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.
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.
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 $2.6 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 $27.7 million in FHLB advances.
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 December 31, 1997, 1996 and
1995, dividends from the FHLB to the Association amounted to approximately
$173,000, $157,000 and $143,000, 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
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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. See "Risk Factors--Financial Institution Regulation and Possible
Legislation."
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.
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.
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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.
MANAGEMENT OF THE COMPANY
The Board of Directors of the Company will initially consist of the
Directors of the Association. The Board is divided into three classes, each of
which contains approximately 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 William F. Porter, Joseph M. Wells, Jr. and Gerry W. Grace, has a
term of office expiring at the first annual meeting of stockholders; a second
class, consisting of Jeffrey W. Aldrich and Fred C. Jackson, has a term of
office expiring at the second annual meeting of stockholders; and a third class,
consisting of William R. Williams and Thomas P. Ash, has a term of office
expiring at the third annual meeting of stockholders. Their names and
biographical information are set forth under "Management of the Association -
Directors."
The following individuals are executive officers of the Company and hold
the offices set forth below opposite their names.
<TABLE>
<CAPTION>
NAME POSITION(S) HELD WITH COMPANY
--------------------- --------------------------------------------------
<S> <C>
William R. Williams President, Chief Executive Officer and Director
John A. Rife Executive Vice President and Treasurer
Charles O. Standley Vice President of Commercial and Consumer Lending
Daniel F. Galeoti Vice President of Mortgage Operations
</TABLE>
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 or removal by the Board of Directors. Since the formation of
the Company, none of the executive officers, directors or other personnel has
received
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remuneration from the Company. Information concerning the principal occupations,
employment and compensation of the directors and officers of the Company during
the past five years is set forth under "Management of the Association -
Biographical Information."
MANAGEMENT OF THE ASSOCIATION
DIRECTORS
The following table sets forth certain information regarding the Board of
Directors of the Association.
<TABLE>
<CAPTION>
POSITION(S) HELD WITH THE DIRECTOR TERM
NAME AGE(1) ASSOCIATION SINCE EXPIRES
---- ----- ------------------------- -------- -------
<S> <C> <C> <C> <C>
Gerry W. Grace 59 Chairman of the Board 1986 1998
William R. Williams 54 President, Chief Executive Officer 1979 2000
and Director
Jeffrey W. Aldrich 55 Director 1979 1999
Thomas P. Ash 49 Director 1985 2000
Fred C. Jackson 73 Director 1977 2000
William F. Porter(2) 82 Director 1964 1998
Joseph M. Wells, Jr.(2) 82 Director 1958 1998
</TABLE>
________________________
(1) As of June 30, 1998.
(2) Messrs. Porter and Wells will retire December 31, 1998, and the number of
directors of the Association shall be reduced accordingly.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following table sets forth certain information regarding the executive
officers of the Association who are not also a director.
<TABLE>
<CAPTION>
NAME AGE(1) POSITION(S) HELD WITH THE ASSOCIATION
---- ----- -------------------------------------
<S> <C> <C>
John A. Rife 43 Executive Vice President and Treasurer
Daniel F. Galeoti 43 Vice President of Mortgage Operations
Charles O. Standley 45 Vice President of Commercial and Consumer Lending
</TABLE>
__________________________
(1) As of June 30, 1998.
Each of the executive officers of the Association will retain his office in
the converted Association until the annual meeting of the Board of Directors
of the Association, held immediately after the first annual
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meeting of stockholders subsequent to Conversion, and until their successors are
elected and qualified or until they resign, retire, or are removed or replaced.
Officers are re-elected by the Board of Directors annually.
BIOGRAPHICAL INFORMATION
DIRECTORS
Gerry W. Grace has served as a Director of the Association since 1987. Mr.
Grace is the owner and president of Grace Services, Inc., a weed and pest
control company located in Canfield, Ohio. Mr. Grace is also a member of the
Board of Trustees of Ellsworth Township.
William R. Williams has served as a Director of the Association since 1979.
Mr. Williams was also appointed as President and Chief Executive Officer of the
Association in 1979.
Jeffrey W. Aldrich has served as a Director of the Association since 1979.
Mr. Aldrich is the President and Chief Executive Officer of Sterling China Co.,
a dishware manufacturing company.
Thomas P. Ash has served as a Director of the Association since 1985. Mr.
Ash has served as the Superintendent of the East Liverpool City School District
since 1984.
Fred C. Jackson has served as a Director of the Association since 1977.
Mr. Jackson has been retired since 1987.
William F. Porter has served as a Director of the Association since 1964.
Mr. Porter has been retired since 1980. Before retiring, Mr. Porter was the
President of Globe Refractories, Inc., a brick manufacturing company.
Joseph M. Wells, Jr. has served as a Director of the Association since
1958. Mr. Wells serves currently as the Chairman of the Board of the Homer
Laughlin China Co., located in Newell, West Virginia.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
John A. Rife currently serves as the Executive Vice President and Treasurer
of the Association. Mr. Rife has served as Executive Vice President since 1991.
Daniel F. Galeoti is the Vice President of Mortgage Lending of the
Association, and is responsible for supervising all residential mortgage
lending. Mr. Galeoti has served in this position since January 1989.
Charles O. Standley currently serves as the Vice President of Commercial
and Consumer Lending. Mr. Standley supervises all commercial and consumer
lending operations including direct and indirect auto, home equity and home
improvement loans. Mr. Standley has served in this position since March 1989.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS OF THE ASSOCIATION AND COMPANY
The Association's Board of Directors meets once per month and may have
additional special meetings called in the manner specified in the Bylaws.
During fiscal year 1998, no current Director attended
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less than 75% of the aggregate of the total number of Board meetings and the
total number of committee meetings of the Board of Directors on which he served.
The Board of Directors of the Association has established the following
committees:
The Audit Committee consists of the entire Board of Directors. The purpose
of this committee is to review the audit function and management actions
regarding the implementation of audit findings. The committee meets once a year.
The Executive Committee meets weekly throughout the year. Each member of
the Board serves on this committee for 4 months each year. The Board Chairman
is on this committee 12 months a year and the President is an ex officio member
except when a quorum cannot be reached. The purpose of this committee is to act
in the absence of the Board of Directors between meetings of the Board of
Directors.
Additionally, the Association has a number of other management committees
including the Asset/Liability Committee and the Compliance Committee.
The Board of Directors of the Company has established the following
committees: the Audit Committee, consisting of the entire Board of Directors;
and the Compensation Committee, consisting of the Chairman and two additional
directors.
DIRECTOR COMPENSATION
All directors of the Association receive an annual retainer of $9,000 a
year, and $100 per executive committee meeting attended.
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EXECUTIVE COMPENSATION
Cash Compensation. The following table sets forth the cash compensation
paid by the Association for services rendered in all capacities during the year
ended December 31, 1997, to the chief executive officer and the executive
officers of the Association who received compensation in excess of $100,000.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
---------------------------------------------------------------------------------
OTHER SECURITIES LTIP All Other
ANNUAL RESTRICTED UNDERLYING PAYOUTS COMPENSATION
NAME AND PRINCIPAL COMPENSATION STOCK AWARDS OPTIONS ($)(5) ($)
POSITIONS YEAR SALARY($)(1) BONUS($) ($)(2) ($)(3) (#)(4)
- ---------------------------- ------ ------------ --------- ------------ ------------ ----------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William R. Williams 1997 $132,585 $16,000 $ -- $ -- -- $ -- $ --
President and Chief Executive Officer
</TABLE>
________________________
(1) Under Annual Compensation, the column titled "Salary" includes base salary
and director's fees for the President and Chief Executive Officer.
(2) For 1997, 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.
(3) Does not include awards pursuant to the Stock Programs, which may be granted
in conjunction with a meeting of stockholders of the Company, as such awards
were not earned, vested or granted in fiscal 1997. For a discussion of the
terms of the Stock-Based Incentive Plan, see "- Benefits - Stock-Based
Incentive Plan." For 1997, the Association had no restricted stock plans in
existence.
(4) Does not include options, which may be granted in conjunction with a meeting
of stockholders of the Company, as such options were not earned or granted
in 1997. For a discussion of the terms of the grants and vesting of
options, see "- Benefits - Stock-Based Incentive Plan."
(5) For 1997, there were no long-term incentive plans in existence.
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EMPLOYMENT AGREEMENTS
Upon consummation of the Conversion, the Association and the Company intend to
enter into employment agreements (collectively, the "Employment Agreements")
with William R. Williams, John A. Rife, Charles O. Standley and Daniel F.
Galeoti (individually, the "Executive"). 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 upon the merits of
such arrangements. The Association and Company intend the Employment Agreements
to ensure that the Association and the Company will 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 Messrs. Williams, Rife, Standley and Galeoti.
The Employment Agreements provide for a three-year term for each Executive and
shall become effective upon consummation of the Conversion. The Association
Employment Agreements provide that, commencing on the first anniversary date of
the agreement and continuing each anniversary date thereafter, the Board of
Directors of the Association may extend each of the agreements 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 Agreements
shall be extended on a daily basis, unless written notice of non-renewal is
given by the Board of Directors of the Company. The Association and Company
Employment Agreements provide that the Executive's base salary will be reviewed
annually. The base salary, which will be effective for the Employment Agreement
for Mr. Williams, will be $135,638. In addition to the base salary, the
Employment Agreements provide for, among other things, participation in various
employee benefit plans and stock-based compensation programs, as well as
furnishing certain fringe benefits available to similarly situated executive
personnel. The Employment Agreements provide for termination by the Association
or the Company for cause (as described in the 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 or the Company upon: (i) failure to re-elect
the Executive to his/her 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)
liquidation or dissolution of the Association or the Company; or (v) a breach of
the Employment Agreements by the Association or the Company; the Executive or,
in the event of the Executive's death, the Executive's beneficiary would be
entitled to receive an amount generally equal to the remaining base salary and
bonus payments that would have been paid to the Executive during the remaining
term of the Employment Agreements. In addition, the Executive would receive a
payment attributable to the contributions that would have been made on the
Executive's behalf to any employee benefit plans of the Association or the
Company during the remaining term of the Employment Agreements, together with
the value of certain stock-based incentives previously awarded to the Executive.
The Association and the Company would also continue and pay for the Executive's
life and disability coverage for the remaining term of the Employment Agreement,
as well as provide medical and hospitalization coverage until the Executive at
least attains eligible Medicare age. Upon any termination of the Executive, the
Executive is subject to a covenant not to compete with the Company or the
Association for one year. The Association and the Company would also continue or
pay for the Executive's life, health and disability coverage for the remaining
term of the Employment Agreement.
Under the agreements, if voluntary or involuntary termination follows a change
in control of the Association or the Company, the Executive or, in the event of
the Executive's death, the Executive's
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beneficiary would be entitled to a severance payment generally equal to the
greater of: (i) the payments due for the remaining terms of the agreement,
including the value of certain stock-based incentives previously awarded to the
Executive; 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 disability coverage for thirty-six months (except
medical and hospitalization would be provided at least until the Executive
attains eligible Medicare age). Notwithstanding that both 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. 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 salaries to be paid to Messrs. Williams, Rife, Standley and Galeoti
effective upon the consummation of the Conversion, and excluding any benefits
under any employee benefit plan which may be payable, would equal approximately
$1.19 million.
Payments to the Executive under the Association Employment Agreement will be
guaranteed by the Company in the event that payments or benefits are not paid by
the Association. Payments under the Company Employment Agreements 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, Ohio and Delaware law, respectively.
EMPLOYEE SEVERANCE COMPENSATION PLAN
Upon consummation of the Conversion, the Association intends to establish the
Central Federal Savings and Loan Association of Wellsville Employee Severance
Compensation Plan (the ''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. Management personnel with employment 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. 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 employment within one year after the change in
control (for reasons specified under the Severance Plan), will be entitled to
receive a severance payment. A participant, whose employment has terminated,
will be entitled to a cash severance payment equal to one-twelfth of his or her
current annual compensation for each year of service up to a maximum of 199% of
current annual compensation. In the event the provisions of the Severance Plan
were triggered, the total amount of payments that would be due thereunder, based
solely upon current salary levels, would equal approximately $1.59 million.
INSURANCE PLANS
All full-time employees of the Association are covered as a group for life,
comprehensive hospitalization, including major medical, and long-term disability
insurance.
BENEFITS
Pension Plan. The Association participates in a multiple-employer defined
benefit pension plan known as the Financial Institutions Retirement Fund (the
"Pension Plan"). Generally, employees of the Association become members of the
Pension Plan upon the completion of one year of service with the
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Association (as described in the plan document adopted by the Association) and
the attainment of age twenty-one. The Association makes annual contributions to
the Financial Institutions Retirement Fund sufficient to fund retirement
benefits for its employees, as determined in accordance with a formula set forth
in the plan document. Participants generally become vested in their accrued
benefits under the Pension Plan after completing five years of vesting service
(as described in the plan document). In general, accrued benefits under the
Pension Plan, including reduced benefits payable upon early retirement or in the
event of a disability, are based on an individual's years of benefit service (as
described in the plan document) and the average of the individual's highest five
years' salary (as described in the plan document).
The table below reflects the annual pension benefit payable to a member of the
Pension Plan upon retirement at age 65, based on various levels of the highest
five-year average salary and years of benefit service:
<TABLE>
<CAPTION>
YEARS OF BENEFIT SERVICE
---------------------------------------------------------------------
HIGHEST FIVE-YEAR
Average Salary
- -------------------------------
15 20 25 30 35 40
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$ 25,000 $7,500 $10,000 $12,500 $15,000 $17,500 $20,000
$ 50,000 15000 20000 25000 30000 35000 40000
$ 75,000 22500 30000 37500 45000 52500 60000
$100,000 30000 40000 50000 60000 70000 80000
$125,000 37500 50000 62500 75000 87500 100000
$150,000 45000 60000 75000 90000 105000 120000
</TABLE>
As of January 1, 1998, Mr. Williams had 25 years of benefit service credited
to him for purposes of determining benefits under the Pension Plan.
Employee Stock Ownership Plan and Trust. The Association intends to establish
a tax-qualified employee stock ownership plan (the "ESOP") in connection with
the Conversion. Generally, eligible employees will become participants in the
ESOP upon the completion of one year of service with the Association (with
credit given for service with the Association prior to adoption of the plan) and
attainment of age 21. With the consent of the Association, an affiliate of the
Association may also adopt the ESOP for the benefit of its employees.
The Association expects a committee of the Board of Directors to serve as the
administrative committee of the ESOP (the ''ESOP Committee''). The ESOP
Committee will appoint an unrelated corporate trustee for the ESOP prior to the
Conversion. Among other matters, the ESOP Committee may generally instruct the
trustee regarding the investment of funds contributed to the ESOP, subject to
the terms of the plan document and the related trust agreement. The Association
expects the ESOP to purchase 8% of the Common Stock issued in the Conversion. As
part of the Conversion, and in order to fund the ESOP's purchase of the Common
Stock issued in the Conversion, the ESOP will borrow 100% of the aggregate
purchase price of the Common Stock from either the Company or a third-party
lender.
The trustee of the ESOP will repay the loan principally from the Association's
annual contributions to the ESOP over an expected period of 12 years. Subject
to receipt of any necessary regulatory approvals or opinions, the Association
may make contributions to the ESOP for repayment of the loan since some
participants in the ESOP will be employees of the Association or, alternatively,
the Association may reimburse the Company for contributions made by the Company
with respect to employees of the
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Association. The Association expects the initial interest rate (which may be
fixed or variable) for the loan to be at or near the prime rate on or about the
date of Conversion.
The trustee of the ESOP will pledge the shares of Common Stock purchased by
the ESOP in connection with the Conversion as collateral for the loan and will
hold the shares in a suspense account under the plan. As the trustee repays the
loan, the trustee will release a portion of the shares from the suspense account
and allocate them to the accounts of active participants in the ESOP based on
each participant's compensation (as determined under the terms of the plan)
relative to all participants' compensation for the plan year. In the event of a
change in control of the Association or the Company prior to complete repayment
of the loan, the ESOP trustee, in accordance with the terms of the plan
document, will sell enough shares of Common Stock held in the suspense account
to repay the loan in full. Upon repayment of the loan, the ESOP trustee will
then allocate all remaining shares of Common Stock held in the suspense account
to the accounts of active participants based on each participant's account
balance as of a specific date or based on some other method set forth in the
plan document.
Participants will become vested in contributions made to the ESOP by the
Association at the rate of twenty percent per year of vesting service (with
credit given for service with the Association prior to its adoption of the
ESOP). Accordingly, participants will become fully vested in their accounts
under the ESOP after completing five years of vesting service. The Association
expects that participants will also become fully vested in their accounts under
the ESOP upon the attainment of their early or normal retirement age while an
employee of the Association, upon their death or incurring disability, upon a
change in control of the Association or the Company, or upon termination of the
plan. Benefits generally become distributable under the ESOP and potentially
become subject to income tax upon death, retirement, disability or other
separation from service.
The ESOP trustee will vote all allocated shares held in the ESOP in accordance
with the instructions of the plan participants. The ESOP trustee, subject to its
fiduciary duties under ERISA, will vote the unallocated shares (i.e., those held
in the suspense account) and allocated shares for which it receives no proper
voting instructions in a manner calculated to most accurately reflect the
instructions it receives from participants regarding the allocated stock. In
the event no shares have been allocated under the ESOP at the time such shares
are to be voted, each participant shall be deemed to have one share allocated to
his or her account for voting purposes.
Supplemental Executive Retirement Plan. The Code limits the amount of
compensation the Association may consider in providing benefits under its tax-
qualified retirement plans, such as the Pension Plan and the ESOP. The Code
further limits the amount of contributions and benefit accruals under such plans
on behalf of any employee. To provide benefits to make up for the reduction in
benefits flowing from these limits in connection with the Pension Plan and ESOP,
the Association intends to implement a non-qualified deferred compensation
arrangement known as a "Supplemental Executive Retirement Plan" ("SERP"). The
SERP will generally provide benefits to eligible individuals (designated by the
Board of Directors of the Association or its affiliates) that cannot be provided
under the Pension Plan and/or ESOP as a result of the limitations imposed by the
Code, but that would have been provided under the Pension Plan and/or ESOP but
for such limitations. In addition to providing for benefits lost under tax-
qualified plans as a result of limitations imposed by the Code, the SERP will
also make up lost ESOP benefits to designated individuals who retire, who
terminate employment in connection with a change in control, or whose
participation in the ESOP ends due to termination of the ESOP in connection with
a change in control (regardless of whether the individual terminates employment)
prior to the complete scheduled repayment of the ESOP loan. Generally, upon the
retirement of an eligible individual or upon a change in control of
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<PAGE>
the Association or the Company prior to complete repayment of the ESOP Loan, the
SERP will provide the individual with a benefit equal to what the individual
would have received under the ESOP had he remained employed throughout the term
of the ESOP or had the ESOP not been terminated prior to the scheduled repayment
of the ESOP loan. An individual's benefits under the SERP become payable upon
the participant's retirement (in accordance with the standard retirement
policies of the Association), upon the change in control of the Association or
the Company or as determined under the ESOP and Pension Plan.
The Association may establish a grantor trust in connection with the SERP to
satisfy the obligations of the Association with respect to the SERP. The assets
of the grantor trust would remain subject to the claims of the Association's
general creditors in the event of the Association's insolvency until paid to the
individual pursuant to the terms of the SERP.
Stock-Based Incentive Plan. Following the Conversion, the Board of Directors
of the Company intends to adopt the Stock-Based Incentive Plan which will
provide for the granting of options to purchase Common Stock ("Stock Options"),
and Common Stock ("Stock Awards") to eligible officers, employees, and directors
of the Company and Association. The plan may also provide for certain rights
related to the grant of stock options and the award of Common Stock. The
Company may provide such stock-based benefits under the Stock-Based Incentive
Plan or may establish one or more separate plans to provide for the benefits
described in the following paragraphs.
In the event the Stock-Based Incentive Plan (or any separate plan(s)) is
adopted within one year after the Conversion, OTS regulations require such plan
to be approved by a majority of the Company's stockholders at a meeting of
stockholders to be held no earlier than six months after the completion of the
Conversion. Under the Stock-Based Incentive Plan, the Company intends to grant
Stock Options in an amount up to 10% of the shares of Common Stock issued in the
Conversion (230,000 shares based upon the maximum of the Estimated Price Range),
and intends to grant Stock Awards in an amount up to 4% of the shares of Common
Stock issued in the Conversion (92,000 shares based upon the maximum of the
Estimated Price Range). Any Common Stock awarded under the Stock-Based Incentive
Plan (Stock Awards) will be awarded at no cost to the recipients. The Company
may fund the plan through the purchase of Common Stock by a trust established in
connection with the Stock-Based Incentive Plan (or any separate plan(s)) or from
authorized but unissued shares. The Board of Directors of the Company intends to
appoint an independent fiduciary to serve as trustee of any trust established in
connection with the Stock-Based Incentive Plan. In the event that additional
authorized but unissued shares are acquired by the Stock-Based Incentive Plan or
its participants after the Conversion, the interests of existing shareholders
would be diluted. See "Pro Forma Data."
The grants of Stock Options and Stock Awards will be designed to attract and
retain qualified personnel in key positions, provide officers and key employees
with a propriety interest in the Company as an incentive to contribute to the
success of the Company, and reward key employees for outstanding performance.
All employees of the Company and its subsidiaries, including the Association,
will be eligible to participate in the Stock-Based Incentive Plan. It is
expected that the committee administering the plan will determine the terms of
awards granted to officers and employees. The committee will also determine
whether Stock Options will be Incentive or Non-Statutory Stock Options, as
defined below, the number of shares subject to each Stock Option and Stock
Award, the exercise price of each Stock Option, the method of exercising Stock
Options, and when Stock Options become exercisable or Stock Awards vest. Only
employees may receive grants of Incentive Stock Options. Therefore, under the
Stock-Based Incentive Plan, outside directors may receive only grants of Non-
Statutory Stock Options. If such plan is adopted within one year after
Conversion, OTS regulations provide that no individual officer or employee of
the Association
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may receive more than 25% of the Stock Options available under the Stock-Based
Incentive 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 Stock-Based Incentive Plan
(or any separate plan for directors). OTS regulations also provide that no
individual officer or employee of the Association may receive more than 25% of
the restricted stock awards available under the Stock-Based Incentive 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 restricted
stock awards available under the Stock-Based Incentive Plan (or any separate
plan for outside directors).
The Stock-Based Incentive Plan will provide for the grant of: (i) Stock
Options intended to qualify as Incentive Stock Options under Section 422 of the
Code ("Incentive Stock Options") and (ii) Stock Options that do not so qualify
("Non-Statutory Stock Options"). The plan may also provide for certain limited
rights that become exercisable only upon a change in control of the Association
or the Company. Unless sooner terminated, the Stock-Based Incentive Plan will
remain in effect for a period of ten years from the earlier of adoption by the
Board of Directors of the Company or approval by the Company's stockholders.
Subject to stockholder approval, the Company anticipates granting Stock Options
under the plan at an exercise price equal to at least the fair market value of
the underlying Common Stock on the date of grant.
An individual will not be deemed to have recognized taxable income upon the
grant or exercise of any Incentive Stock Option, provided that such shares
received through the exercise of such options are not disposed of by the
employee for at least one year after the date the stock is received in
connection with the stock option exercise and two years after the date of grant
of the stock option (a "disqualifying disposition"). No compensation deduction
will generally be available to the Company as a result of the exercise of
Incentive Stock Options unless there has been 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 individual will realize ordinary
income upon exercise of the stock option (or upon the disqualifying disposition)
in an amount equal to the amount by which the exercise price exceeds the fair
market value of the Common Stock purchased by exercising the stock option on the
date of exercise. The amount of any ordinary income recognized by an optionee
upon the exercise of a Non-Statutory Stock Option or due to a disqualifying
disposition of an Incentive Stock Option will be a deductible expense to the
Company for tax purposes.
The Stock-Based Incentive Plan will provide for the granting of Stock Awards.
Grants of Stock Awards to officers and employees may be made in the form of base
grants and/or performance grants (the vesting of which would be contingent upon
performance goals established by the committee administering the plan). In
establishing any performance goals, the committee may utilize the annual
financial results of the Association, actual performance of the Association as
compared to targeted goals such as the ratio of the Association's net worth to
total assets, the Association's return on average assets, or such other
performance standards as determined by the committee with the approval of the
Board of Directors.
When a participant becomes vested with respect to Stock Award, the participant
will realize ordinary income equal to the fair market value of the Common Stock
at the time of vesting (unless the participant made an election pursuant to
Section 83(b) of the Code). The amount of income recognized by the participants
will be a deductible expense for tax purposes for the Association. When
restricted Stock Awards become vested and shares of Common Stock are actually
distributed to participants, the participants would receive amounts equal to any
accrued dividends with respect thereto. Prior to vesting, recipients of Stock
Awards 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 in proportion to the
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directions provided with respect to shares subject to grants. Vested shares will
be distributed to recipients as soon as practicable following the day on which
they vest.
The vesting periods for awards under the Stock-Based Incentive Plan will be
determined by the committee administering the Plan. If the Stock-Based Incentive
Plan (or any separate plans for employees and directors) is adopted within one
year after conversion, awards would become vested and exercisable subject to
applicable OTS regulations, which regulations require that any awards begin
vesting no 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 the case of death or disability. Stock Options could be
exercisable for a period of time (likely three months) following the date on
which the employee or director ceases to perform services for the Association or
the Company, except that in the event of death or disability, options accelerate
and become fully vested and could be exercisable for up to one year thereafter
or such other period of time as determined by the Company. In the case of death
or disability, Stock Options may be exercised for a period of 12 months or such
other period of time as determined by the committee. However, any Incentive
Stock Options exercised more than three months following the date the employee
ceases to perform services as an employee would be treated essentially as a Non-
Statutory Stock Option. In the event of retirement, if the optionee continues to
perform services as a director or consultant on behalf of the Association, the
Company or an affiliate, unvested options and awards would continue to vest in
accordance with their original vesting schedule until the optionee ceases to
serve as a consultant or director. In the event of death, disability or normal
retirement, the Company, if requested by the optionee, or the optionee's
beneficiary, could elect, in exchange for vested options, to pay the optionee,
or the optionee's 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.
Subject to any applicable regulatory requirements, the Stock-Based Incentive
Plan (or any separate plans for employees and outside directors) may be amended
subsequent to the expiration of the one-year period to provide for accelerated
vesting of previously granted Stock Options or Stock Awards in the event of a
change in control of the Company or the Association. A change in control would
generally be considered to 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 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.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
The Financial Institutions Reform, Recovery and Enforcement Act ("FIRREA")
requires 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.
Prior to FIRREA, the Bank made loans to its executive officers and
Directors which were secured by their primary residences. The rates of interest
charged by the Bank on such loans were the Bank's cost of funds. Pursuant to
FIRREA, in 1989, the Bank discontinued its practice of making such preferential
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loans to its officers and Directors. However, all such pre-FIRREA preferential
loans were "grandfathered" under FIRREA. Since the enactment of FIRREA, the Bank
has not made any loans to its executive officers or Directors. The Bank intends
to implement a policy whereby it will begin to again offer loans to executive
officers and Directors. Such loans, as well as loans made to Bank employees,
will be made on the same terms and conditions offered to the general public. If
the Bank implements a policy of extending credit to executive officers and
Directors, such policy will provide that all such loans will be 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 may not involve more than the normal risk of collectibility or
present other unfavorable features. As of June 30, 1998, the Bank had $756,445
of loans to executive officers or Directors all of which had balances of less
than $60,000 as of June 30, 1998 or were made by the Bank in the ordinary course
of business with no favorable terms and do not involve more than the normal risk
of collectibility or present unfavorable features.
The Company intends that all transactions in the future 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 arm's-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 BY EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the number of shares of Common Stock the
Association's executive officers and directors propose to purchase, assuming
shares of Common Stock are issued at the minimum and maximum of the Estimated
Price Range 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
OF THE ESTIMATED PRICE AT THE MAXIMUM
RANGE(1) OF THE ESTIMATED PRICE RANGE(1)
---------------------------------- -------------------------------
AS A PERCENT AS A PERCENT
NUMBER OF SHARES NUMBER OF SHARES
NAME AMOUNT OF SHARES OFFERED OF SHARES OFFERED
- ------------------------------- --------------- --------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Gerry W. Grace $ 200,000 20,000 1.18% 20,000 0.87%
William R. Williams 200,000 20,000 1.18 20,000 0.87
Jeffrey W. Aldrich 200,000 20,000 1.18 20,000 0.87
Thomas P. Ash 200,000 20,000 1.18 20,000 0.87
Fred C. Jackson 200,000 20,000 1.18 20,000 0.87
William F. Porter 200,000 20,000 1.18 20,000 0.87
Joseph M. Wells, Jr. 200,000 20,000 1.18 20,000 0.87
John A. Rife 200,000 20,000 1.18 20,000 0.87
Daniel F. Galeoti 200,000 20,000 1.18 20,000 0.87
Charles O. Standley 200,000 20,000 1.18 20,000 0.87
---------- ------- ---- ------- ----
All Directors and Executive
Officers as a group
(10 persons) $2,000,000 200,000 11.8% 200,000 8.7%
========== ======= ==== ======= ====
</TABLE>
________________________
(1) Includes proposed subscriptions, if any, by associates. Does not include
subscription orders by the ESOP. Intended purchases by the ESOP are
expected to be 8.0% of the shares issued in the Conversion.
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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.
GENERAL
On June 11, 1998, the Association's Board of Directors unanimously adopted,
subject to approval by the OTS, the Plan pursuant to which the Association will
be converted from a federally chartered mutual savings and loan association to a
federally chartered capital stock savings and loan 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 filed an application with 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 use 50% of the net proceeds from
the sale of the Common Stock to purchase all of the then to be issued and
outstanding capital stock of the Association. The Conversion will be effected
only upon completion of the sale of all of the shares of Common Stock 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
Company'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 and loan association to a capital stock savings and loan
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
Employee
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Plans, Supplemental Eligible Account Holders and Other Members. Concurrently,
shares will be offered in a Community Offering to certain members of the general
public, 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 in
the 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 issued in the
Conversion, currently estimated to be between $17.0 million and $23.0 million,
will be determined based upon an independent appraisal of the estimated pro
forma market value of the Common Stock. 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 pertinent 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 the Association's main office
and at the Central Region and Washington, D.C. offices of the OTS. The Plan is
also filed as an Exhibit to the Registration Statement of which this Prospectus
is a part, copies of which may be obtained from the SEC. See "Additional
Information."
PURPOSES OF 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 expand its current operations, acquire other financial
institutions or branch offices, provide affordable home financing opportunities
to the communities it serves, increase its equity capital base and access
capital markets, 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. In determining whether to convert to a commercial bank charter, the
Association may consider, among other things, the differences in the regulatory
and supervisory structure applicable to the Association as a commercial lending
institution as opposed to a thrift lending institution. In particular, a
conversion to a commercial bank charter would provide the Association with added
lending flexibility in that the Association would not be restricted in the types
or amounts of commercial loans in which it may not currently be able to invest
due to regulations applicable to federal savings institutions. However, the
Association does not expect to convert to a commercial bank charter at this
time.
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
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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. Due to the Association's capital position, it has sought to limit
its asset growth to a level sustainable by its capital position. 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 $14.3
million, or 11.8% of total 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, the
Association's GAAP capital will increase to $22.7 million or a ratio of GAAP
capital to adjusted assets, on a pro forma basis, of 17.5% after the 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 authorized but unissued common and
preferred stock authorized by the Company's Certificate of Incorporation will
permit the Company, subject to market conditions and regulatory approval of an
offering, to raise additional equity capital through further sales of
securities, and to issue securities in connection with possible acquisitions.
At the present time, the Company has no plans with respect to additional
offerings of securities, other than the 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
under the Stock-Based Incentive Plan. Following the Conversion, the Company
will also be able to use stock-related incentive programs to attract and retain
executive and other personnel for itself and its subsidiaries. See "Management
of the Association--Benefits."
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 account, which interest may only
be realized in the event of a liquidation of the institution. 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. 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 non-
withdrawable 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 OR GUARANTEED BY THE FDIC OR ANY OTHER
GOVERNMENTAL AGENCY. Certificates are issued to evidence ownership of the
capital stock. The stock
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certificates are transferable and, therefore, the stock may be sold or traded if
a purchaser is available with no effect on any deposit 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 as
Directors of the Association after the Conversion. The Directors of the Company
will consist 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 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 continue
to 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 to the extent that they
become stockholders of the Company through the purchase of Common Stock.
Tax Effects. The Association has received an opinion of counsel with regard
to federal income taxation and an opinion from Crowe, Chizek and Company LLP
("Crowe Chizek") with regard to Ohio taxation which indicate that the adoption
and implementation of the Plan of Conversion set forth herein will not be
taxable for federal or Ohio tax purposes 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
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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 purchase price of the Common Stock
must be based on the pro forma market value of the Common Stock giving effect to
the Conversion, 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 $21,000 plus
out-of-pocket expenses not to exceed $500. The Association and the Company have
agreed to indemnify Keller and its employees and affiliates against certain
losses arising out of its services as appraiser, except where Keller liability
results from its negligence or bad faith.
An appraisal has been made by Keller in reliance upon the information
contained in this Prospectus, including the 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 institutions; 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 Setember 18, 1998, the estimated pro
forma market value of the Common Stock ranged from a minimum of $17.0 million to
a maximum of $23.0 million with a midpoint of $20.0 million. Based upon the
Valuation Range, the Board of Directors has established the Estimated Price
Range of $17.0 million to $23.0 million, with a midpoint of $20.0 million, and
the Company expects to issue between 1,700,000 and 2,300,000 shares of Common
Stock at the Purchase Price of $10.00 per share. 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.
SUCH VALUATION, 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 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 SUCH SHARES AT PRICES AT OR ABOVE THE PURCHASE PRICE. SEE "RISK
FACTORS -- ABSENCE OF MARKET FOR COMMON STOCK"
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Following commencement of the Subscription and Community Offerings, the
maximum of the Estimated Price Range may be increased up to 15% and the number
of shares of Common Stock to be issued in the Conversion may be increased to
2,645,000 shares due to regulatory considerations, changes in market conditions
or 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 and Community Offerings.
No sale of shares of Common Stock may be consummated unless, prior to such
consummation, Keller confirms to the Association and the OTS that, to the best
of its knowledge, nothing of a material nature has occurred which, taking into
account all relevant factors including those which would be involved in a change
in the maximum subscription price, 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 at the conclusion
of the Subscription and Community Offerings.
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 cash, check,
bank draft or money order, cancel withdrawal authorizations, extend or hold a
new Subscription and 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 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.
If all shares of Common Stock are not sold through the Subscription and
Community Offerings, 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 and Community Offerings but
may commence during the Subscription and Community Offerings 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 and
Community Offerings. 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, including those which would be
involved in a cancellation of the Syndicated Community Offering, 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 at the time of the Syndicated Community Offering.
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 new Subscription and Community Offerings or a
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
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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 and Community Offerings would not
exceed 45 days, or if following the Syndicated Community Offering, 90 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.
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 and Community Offerings, 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 Purchase Price is not below the minimum 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
ranging from a minimum of $17.0 million to a maximum, as increased by 15%, of
$26.5 million, the number of shares of Common Stock expected to be sold in the
Conversion is between a minimum of 1,700,000 shares and a maximum, as adjusted
by 15%, of 2,645,000 shares. The actual number of shares sold between this
range will depend on a number of factors and shall be obtained by the
Association and the 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 such 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."
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 pro forma net earnings and stockholders'
equity on a per share basis while increasing the Company's 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 pro forma net earnings and stockholders'
equity on a per share basis while decreasing the Company's pro forma net
earnings and
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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 with a balance of $50 or more as of December 31, 1996
("Eligible Account Holders"); (2) the Employee Plans consisting of the ESOP; (3)
holders of deposit accounts with a balance of $50 or more as of September 30,
1998 ("Supplemental Eligible Account Holders"); and (4) members of the
Association, consisting of depositors of the Association as of November _, 1998,
the Voting Record Date, and borrowers with loans outstanding as of January 18,
1995 which continue to be outstanding as of the Voting Record Date other than
those members which qualify as 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 accounts," as defined by the Plan consistent with OTS
regulations. Pursuant to the Plan and applicable regulations, certain deposit
accounts do not qualify as "savings accounts" including, but not limited to,
noninterest-bearing demand accounts (primarily noninterest-bearing checking
accounts), or mortgage escrow accounts maintained at the Association.
Priority 1: Eligible Account Holders. Each Eligible Account Holder will
receive, without payment therefor, first priority, non-transferable subscription
rights to subscribe in the Subscription Offering for up to the greater of the
amount permitted to be purchased in the Community Offering, currently $200,000
of the Common Stock offered, 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 Eligible Account Holder's qualifying deposit 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 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 Common Stock in excess of the total number of such shares
eligible for subscription, the shares of Common 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 Common 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 exclusive of any increase in the shares issued
pursuant to an increase in the Estimated Price Range of up to 15%. If the
amount so allocated exceeds the amount subscribed for by any one or more
remaining Eligible Account Holders, the excess shall be reallocated (one or more
times as necessary) among
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those remaining 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 fewer 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
year preceding December 31, 1996.
Priority 2: Employee Plans. To the extent that there are sufficient shares
remaining after satisfaction of the subscriptions by Eligible Account Holders,
the Employee Plans, consisting of the ESOP, will receive, without payment
therefor, second priority, non-transferable subscription rights to purchase, in
the aggregate, up to 10% of Common Stock issued in the Conversion, including 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 and provided further that any such increase in the
number of shares to be issued in the Conversion will first be allocated to
satisfy the ESOP's subscription. See "- Limitations on Common Stock Purchases."
The ESOP intends to purchase 8.0% of the shares to be issued in the Conversion,
or 136,000 shares and 184,000 shares, based on the issuance of 1,700,000 shares
and 2,300,000 shares, 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 and
Community Offerings, including subscriptions of any of the Association's
directors, officers, employees or associates thereof. See "Management of the
Association - Benefits - Employee Stock Ownership Plan and Trust."
Priority 3: Supplemental Eligible Account Holders. Each Supplemental
Eligible Account Holder will receive, without payment therefor, third priority,
non-transferable 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 $200,000 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 maximum 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 Common Stock in excess of the total number of
such shares eligible for subscription, the shares of Common 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 Common 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 exclusive of any increase in the
shares issued pursuant to an increase in the Estimated Price
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Range of up to 15%. 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
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 fewer 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 non-transferable 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 $200,000 of Common Stock, or one-tenth of one percent (.10%) of the
total offering of shares of Common Stock, subject to the overall maximum
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 exercise subscription rights for a number of
shares of Common Stock which, when added to the shares of Common Stock
subscribed for by the Eligible Account Holders, the ESOP and the Supplemental
Eligible Account Holders is in excess of the total number of such shares 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 Common 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 _________________, 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 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 cancelled.
If an extension beyond the 45-day period following the Expiration Date is
granted, the Association will resolicit subscribers by notifying subscribers of
the extension of time and of any rights of subscribers to modify or rescind
their subscriptions and, unless an affirmative response is
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received, have their funds returned promptly with interest. Such extensions may
not go beyond _______________, 2000.
COMMUNITY OFFERING
Concurrent with the Subscription 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. A preference will be given to natural
persons (such persons referred to as "Preferred Subscribers") residing in
Columbiana, Mahoning and Jefferson 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 $200,000 of the Common Stock offered, 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 $200,000 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
ITS 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 Preferred Subscribers after completion of the Subscription
and Community Offerings, such stock will be allocated first to each Preferred
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
Preferred Subscriber, if possible. Thereafter, unallocated shares will be
allocated among the Preferred Subscribers whose orders remain unsatisfied on a
100 shares per order basis until all such orders have been filled or the
remaining shares have been allocated. If there are any shares remaining, shares
will be allocated to other persons of the general public who purchase in the
Community Offering applying the same allocation described above for Preferred
Subscribers.
PERSONS IN NON-QUALIFIED 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 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 (i) a small number of persons otherwise eligible to
subscribe for shares of Common Stock reside, or (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, UNDERWRITING AND RECORDS MANAGEMENT SERVICES ARRANGEMENTS
The Association and the Company have engaged Webb as a financial and marketing
advisor to advise the Company and the Association with respect to the
Subscription and Community Offerings. Webb is a registered broker-dealer and is
a member of the National Association of Securities Dealers, Inc. ("NASD"). Webb
will assist the Company and the Association in the Conversion by, among other
things: (i) developing marketing materials; (ii) targeting potential investors
in the Subscription Offering and other investors eligible to participate in the
Community Offering; (iii) soliciting potential investors by phone or in person;
(iv) training management and staff to perform tasks in connection with the
Conversion; (v) managing and setting up the Conversion Center; (vi) managing the
subscription campaign; and (vii) the solicitation of proxies.
The Association will pay Webb a management advisory and proxy solicitation fee
equal to 1.3% of the dollar value of all stock sold in the Subscription and
Community Offerings. Such amount is exclusive of any shares sold to the ESOP,
directors, officers and employees and members of their immediate families. Such
fees will be paid upon completion of the Conversion. Webb shall not be
reimbursed for its expenses, including its legal fees. Webb has not prepared
any report or opinion constituting a recommendation or advice to the Company or
the Association or to persons who subscribe in the Offerings, nor has it
prepared an opinion as to the fairness to the Company or the Association of the
Purchase Price or the terms of the Offerings. Webb expresses no opinion as to
the prices at which Common Stock to be issued in the Offerings may trade. The
Association has agreed to indemnify Webb against certain liabilities including
certain liabilities under the Securities Act and certain misrepresentations or
breaches by the Company or the Association relating to the agreement with Webb.
In the event any shares of Common Stock are unsold after completion of the
Subscription and Community Offerings, at the request of the Company and 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 which best
meets the distribution objectives of the Association and the Plan of Conversion.
Webb will be paid a fee not to exceed 5.5% of the aggregate Purchase Price of
the shares of Common Stock sold 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 selected
broker/dealer other than Webb shall be transmitted by Webb to such
broker/dealer. Total marketing fees to Webb are expected to be $177,320 and
$290,342 at the minimum and maximum of the Estimated Price Range, respectively.
See "Pro Forma Data" for the assumptions used to arrive at these estimates.
Crowe Chizek has performed conversion and records management services for the
Association in the Conversion and will receive a fee for this service of $60,000
plus reimbursement of reasonable out-of-pocket expenses not to exceed $5,000.
Directors and executive officers of the Company and Association may
participate in the solicitation of offers to purchase Common Stock. Other
employees of the Association may participate in the Offering in ministerial
capacities or providing clerical work in effecting a sales transaction. Other
questions of prospective purchasers will be directed to executive officers or
registered representatives. 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
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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 IN SUBSCRIPTION AND COMMUNITY OFFERINGS
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 acknowledgment form will confirm receipt or delivery in
accordance with Rule 15c2-8. Stock order forms and acknowledgment forms will
only be distributed with a Prospectus.
To purchase shares in the Subscription and Community Offerings, an executed
stock order form and acknowledgment form with the required payment for each
share subscribed for or appropriate authorization for withdrawal from a deposit
account maintained at the Association (which may be given by completing the
appropriate blanks in the stock order form), must be received by the Association
at its office by 5:00 p.m., 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 facsimilied stock order
forms and will not accept stock order forms unaccompanied by an executed
acknowledgment 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
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 and Community Offerings, unless such period has been extended.
In order to ensure that Eligible Account Holders, Supplemental Eligible
Account Holders and Other Members are properly identified as to their stock
purchase priorities, depositors as of the Eligibility Record Date (December 31,
1996) and/or the Supplemental Eligibility Record Date (September 30, 1998)
and/or the Voting Record Date (November __, 1998) must list all accounts on the
stock order form giving all names in each account, the account number and the
approximate deposit balance as of the record date.
To ensure that your subscription rights are properly identified, you must list
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.
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. Orders for Common Stock submitted by subscribers in the
Subscription Offering which aggregate to $50,000 or more must be paid by
official bank or certified check, a check issued by a broker-dealer registered
with the NASD, or by withdrawal authorization from a deposit account of 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. If payment is made by authorization of
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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. Such funds will be otherwise
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 cancelled 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 and
Community Offering, if all shares are sold, or upon consummation of the
Syndicated Community Offering if shares remain to be sold in such offering;
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 and Community Offerings, provided that such
IRAs and Qualified Plans 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 and Community Offerings. In
addition, the provisions of ERISA and IRS regulations require that officers,
directors and ten percent shareholders who use self-directed IRA and Qualified
Plan funds to purchase shares of Common Stock in the Subscription and Community
Offerings 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.
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.
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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.
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 $200,000 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 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.
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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.
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 the amount permitted to be
purchased in the Community Offering, currently $200,000 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 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 described 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 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;
(4) Each Supplemental Eligible Account Holder may subscribe for and
purchase in the Subscription Offering up to the greater of the amount
permitted to be purchased in the Community Offering, currently
$200,000 of Common Stock offered, 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 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 each case on the
Supplemental Eligibility Record Date, subject to the overall maximum
purchase limitation described 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 the amount permitted to be purchased in
the Community Offering, currently $200,000 of Common Stock offered, or
one-tenth of one percent (.10%) of the total offering of shares of
Common Stock subject to the overall maximum purchase limitation
described
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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%;
(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
$200,000 of Common Stock offered in the Conversion, subject to the
overall maximum purchase limitation described 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
$200,000 of Common Stock offered in the Conversion 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 and persons acting in concert
with such persons, will be aggregated with purchases in the Syndicated
Community Offering in applying the $200,000 purchase limitation;
(8) Eligible Account Holders, Supplemental Eligible Account Holders and
Other Members may purchase stock in the Community Offering and
Syndicated Community Offering subject to the purchase limitations
described in (6) and (7) above, provided that, except for the ESOP,
the maximum number of shares of Common Stock subscribed for or
purchased in all categories by any person, together with associates of
and groups of persons acting in concert with such persons, shall not
exceed the overall maximum purchase limitation of 1.0% (23,000 shares
based on the issuance of 2,300,000 shares) of the shares of Common
Stock offered in the Conversion, 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 overall maximum purchase limitation referred
to above up to 9.99%, provided that orders for shares exceeding 5% of the shares
being offered 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.
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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 $200,000, 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 limitation 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, subject to
availability of shares and the maximum overall purchase limitation 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 of priority in accordance with the Plan: (i) to fill the ESOP's
subscription of 8% of 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 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 and with preference to Preferred Subscribers.
The term "associate" of a person is defined to mean: (i) any corporation
(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
"-Certain Restrictions on Purchase or Transfer of Shares After Conversion," "The
Board of Directors and Management of the Association - Subscriptions by
Executive Officers and Directors," 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
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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 December 31, 1996 and
September 30, 1998, respectively ("Qualifying Deposit"). Each Eligible Account
Holder and Supplemental Eligible Account Holder will have a pro rata interest in
the total liquidation account for each of his deposit accounts based on the
proportion that the balance of each such deposit account on the Eligibility
Record Date or Supplemental Eligibility Record Date, respectively, bore to the
total amount of all deposit accounts 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 record date.
If, however, on any annual closing date of the Association, subsequent to
December 31, 1996, or September 30, 1998, the amount in any deposit account of
an Eligible Account Holder or Supplemental Eligible Account Holder is less than
the amount in such deposit account on December 31, 1996 or September 30, 1998,
respectively, or the previous annual closing date, then the interest in the
liquidation account relating to such deposit account would be reduced from time
to time by the proportion of any such reduction, and such interest will cease to
exist if such deposit account is closed. In addition, no interest in the
liquidation account would ever be increased despite any subsequent increase in
the related deposit account. Any assets remaining after the above liquidation
rights of Eligible Account Holders and Supplemental Eligible Account Holders are
satisfied would be distributed to the Company as the sole stockholder of the
Association.
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 of
counsel with respect to federal income taxation, and an opinion of an
independent accountant with respect to Ohio income and franchise taxation, to
the effect that the Conversion will not be a taxable transaction to the Company,
the Association, Eligible Account Holders, Supplemental Eligible Account Holders
or Other Members 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, Muldoon, Murphy & Faucette, 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 and their interests in the
liquidation account in exchange for their deposit accounts in the Association;
(iv) the tax basis of the depositors' deposit 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 non-transferable subscription rights to purchase shares
of the Common Stock, provided that the
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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 therefore 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
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 and/or franchise tax purposes. Certain portions of both
the federal and the state and local tax opinions are based upon the assumption
that the subscription rights issued in connection with the Conversion will have
no value. The Company and the Association have received an opinion issued by
Keller stating that pursuant to Keller's valuation, Keller is of the opinion
that 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 or the Ohio Department of
Taxation ("ODOT") and the IRS or ODOT could disagree with conclusions reached
therein. Keller has stated in its opinion 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 non-transferable 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 unsubscribed
shares of Common Stock. Such valuation is not binding on the IRS or ODOT. 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
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. Any and all interpretations, applications and determinations
will be 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 by a two-thirds
vote of the Association's Board of Directors prior to solicitation of proxies
from members to vote on the Plan. After submission of the proxy materials to
the members, the Plan may be amended by a two-thirds vote of the 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.
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 executive 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 executive
officer. Each certificate for restricted shares will bear a legend giving
notice of this restriction on transfer, and
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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 executive 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, executive officers (or any person who was an executive 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
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 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 Association 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. 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.
RESTRICTIONS ON ACQUISITION OF THE COMPANY
AND THE ASSOCIATION
GENERAL
The 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 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.
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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 provisions
of the Company's Certificate of Incorporation and Bylaws 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 held 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 also contains provisions authorizing the Board of Directors to
construe and apply the Limit and to demand that any person reasonably believed
to beneficially own Common Stock in excess of the Limit (or hold of record
Common Stock beneficially owned in excess of the Limit) to provide the Company
with certain information. No assurance can be given that a court applying
Delaware law would enforce such provisions of the Certificate of Incorporation.
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. 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, may 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.
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In the absence of these provisions, the vote of the holders of a majority
of the shares could remove the entire 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 6,000,000 shares of Common Stock and 1,000,000 shares of Preferred
Stock. The shares of Common Stock and Preferred Stock were authorized in an
amount greater than that to be issued in the Conversion to provide the 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-Based Incentive Plan and upon exercise of stock options to be
issued pursuant to the terms of the Stock-Based Incentive 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 Principal
Stockholders. The Certificate of Incorporation requires the approval of the
holders of 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, 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 subsidiary) which owns beneficially
or controls, directly or indirectly, 10% or more 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, 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
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Stockholder or its Affiliate by the Company (or any subsidiary) of any
securities of the Company in exchange for any assets, cash or securities the
value of which equals or exceeds 25% of the fair market value of the Common
Stock of the Company; (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 8.7%
of the shares of the Common Stock at the maximum of the Estimated Price Range.
In addition, the ESOP intends to purchase 8% of the Common Stock sold in the
Conversion. Additionally, if at a meeting of stockholders following the
Conversion stockholder approval of the proposed Stock-Based Incentive Plan is
received, the Company expects to acquire 4% of the Common Stock issued in the
Conversion on behalf of the Stock Awards and expects to issue an amount equal to
10% of the Common Stock issued in the Conversion under the Stock-Based Incentive
Plan to directors and executive officers. As a result, assuming the Stock-Based
Incentive Plan is approved by Stockholders, directors, executive officers and
employees have the potential to control the voting of approximately 30.6% of the
Company's Common Stock, 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 association under applicable statutes and regulations. No
assurance can be given that a court applying Delaware law would enforce the
foregoing provision of the Certificate of Incorporation. 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.
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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, the Severance Plan, or
the Stock-Based Incentive 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" and "- Benefits - Stock-Based Incentive Plan."
The Company's Board of Directors believes that the provisions of the
Certificate of Incorporation, Bylaws 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
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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 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 for the issuance or use of the shares of undesignated preferred
stock (the "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
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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 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
115
<PAGE>
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 6,000,000 shares of Common Stock having
a par value of $.01 per share and 1,000,000 shares of preferred stock having a
par value of $.01 per share (the "Preferred Stock"). The Company currently
expects to issue 2,300,000 shares of Common Stock (or 2,645,000 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 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 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 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.
116
<PAGE>
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 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 6,000,000
shares of common stock, par value $1.00 per share, and 1,000,000 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.
117
<PAGE>
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."
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 additional 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 Registrar and
Transfer Company.
EXPERTS
The financial statements of the Association and its subsidiaries as of
December 31, 1997 and 1996 and for each of the years in the three-year period
ended December 31, 1997, have been included herein in reliance upon the report
of Robb, Dixon, Francis, Davis, Oneson & Company, independent certified public
accountants, appearing elsewhere herein, and upon the authority of said firm as
experts in accounting and auditing.
Keller & 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 valuation 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 the Company by
Muldoon, Murphy & Faucette, Washington, D.C., special counsel to the Association
and the Company. Muldoon, Murphy & Faucette will rely as to certain matters of
Delaware law on the opinion of Morris, Nichols, Arsht & Tunnell. The State of
Ohio tax consequences of the Conversion will be passed upon for the Association
and the Company by Crowe, Chizek and Company LLP. Certain legal matters will be
passed upon for Webb by Breyer & Aguggia LLP, Washington, D.C.
118
<PAGE>
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 and all
exhibits 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. 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 with
respect to the Conversion. Pursuant to the rules and regulations of the OTS,
this Prospectus omits certain information contained in that application. The
application may be examined at the principal office of the OTS, 1700 G Street,
N.W., Washington, D.C. 20552 and at the Office of the Regional Director of the
OTS located at 200 West Madison Street, Suite 1300, Chicago, Illinois 60606.
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 OTS 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 Certificate of Incorporation and the Bylaws of the Company
and the Federal Stock Charter and Bylaws of the Association are available
without charge from the Association.
119
<PAGE>
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Central Federal Savings & Loan Association
Wellsville, Ohio
We have audited the accompanying balance sheets of Central Federal Savings &
Loan Association as of December 31, 1997 and 1996 and the related statements of
income, changes in equity and cash flows for each of the three years in the
period ended December 31, 1997. These financial statements are the
responsibility of the 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 Central Federal Savings & Loan
Association as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for the three years in the period ended December 31, 1997, in
conformity with generally accepted accounting principles.
ROBB, DIXON
FRANCIS, DAVIS, ONESON
& COMPANY
Granville, Ohio
March 18, 1998
F-1
<PAGE>
CENTRAL FEDERAL SAVINGS & LOAN ASSOCIATION
WELLSVILLE, OHIO
BALANCE SHEETS
JUNE 30, 1998 (UNAUDITED) AND DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30, December 31,
1998 1997 1996
-------- -------- --------
(Unaudited)
<S> <C> <C> <C>
ASSETS
Cash and cash equivalents
Cash and amounts due from depository institutions $ 2,216 $ 990 $ 960
Interest-bearing deposits in other banks 1,217 4,856 4,278
-------- -------- --------
Total cash and cash equivalents 3,433 5,846 5,238
Securities
Securities held-to-maturity (estimated fair value
of $35,099 in 1998; $31,625 in 1997 and $42,507
in 1996) 35,573 31,476 43,392
Securities available-for-sale 16,155 17,818 20,972
-------- -------- --------
Total securities 51,728 49,294 64,364
Loans held for sale 689 1,605 2,448
Loans, net 59,873 56,281 47,069
Accrued interest receivable 868 877 973
Premises and equipment, net 1,953 1,611 1,440
Stock in Federal Home Loan Bank, at cost 2,605 2,514 2,341
Other assets 492 237 313
-------- -------- --------
TOTAL ASSETS $121,641 $118,265 $124,186
======== ======== ========
LIABILITIES
Deposits
Noninterest bearing $ 977 $ 1,091 $ 390
Interest bearing 77,932 75,892 75,438
-------- -------- --------
Total deposits 78,909 76,983 75,828
Advances from Federal Home Loan Bank 27,680 26,161 34,277
Accrued interest payable 150 154 186
Advance payments by borrowers for taxes and insurance 463 665 575
Other liabilities 108 137 77
-------- -------- --------
TOTAL LIABILITIES 107,310 104,100 110,943
EQUITY
Retained earnings, substantially restricted 14,270 14,119 13,438
Accumulated other comprehensive income 61 46 (195)
-------- -------- --------
TOTAL EQUITY 14,331 14,165 13,243
-------- -------- --------
TOTAL LIABILITIES AND EQUITY $121,641 $118,265 $124,186
======== ======== ========
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes. F-2
<PAGE>
CENTRAL FEDERAL SAVINGS & LOAN ASSOCIATION
WELLSVILLE, OHIO
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in thousands)
Six months
ended June 30, Years ended December 31,
------------------ -------------------------
1998 1997 1997 1996 1995
---------- ------ ------- -------- ------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $2,434 $2,091 $4,405 $4,068 $4,002
Interest on investment securities:
Taxable 1,905 2,290 4,280 4,381 3,931
Non-taxable 9 9 18 26 33
Interest on interest-bearing deposits
in banks 64 43 100 138 151
------ ------ ------ ------ ------
TOTAL INTEREST INCOME 4,412 4,433 8,803 8,613 8,117
------ ------ ------ ------ ------
INTEREST EXPENSE
Interest on deposits 1,718 1,655 3,367 3,232 2,893
Interest on advances from Federal Home
Loan Bank 818 1,001 1,906 1,965 1,878
------ ------ ------ ------ ------
TOTAL INTEREST EXPENSE 2,536 2,656 5,273 5,197 4,771
------ ------ ------ ------ ------
NET INTEREST INCOME 1,876 1,777 3,530 3,416 3,346
Provision for loan losses 150 0 0 0 42
------ ------ ------ ------ ------
NET INTEREST INCOME
AFTER PROVISION FOR
LOAN LOSSES 1,726 1,777 3,530 3,416 3,304
OTHER INCOME
Service charges 85 83 171 130 96
Gain on sale of loans 33 0 5 4 2
Gain (loss) on sale of securities 4 0 0 (9) 0
Other income 40 32 65 44 59
------ ------ ------ ------ ------
TOTAL OTHER INCOME 162 115 241 169 157
OTHER EXPENSES
Salaries and employee benefits 839 686 1,553 1,441 1,257
Net occupancy expense 227 188 353 297 205
Data processing expense 69 63 128 125 118
FDIC assessments 24 15 39 614 160
Franchise taxes 111 103 201 201 177
Other operating expenses 422 304 609 574 568
------ ------ ------ ------ ------
TOTAL OTHER EXPENSES 1,692 1,359 2,883 3,252 2,485
------ ------ ------ ------ ------
INCOME BEFORE FEDERAL
INCOME TAX EXPENSE 196 533 888 333 976
Federal income tax expense 45 156 207 46 307
------ ------ ------ ------ ------
NET INCOME $ 151 $ 377 $ 681 $ 287 $ 669
====== ====== ====== ====== ======
Other comprehensive income net of tax:
Change in unrealized gain (loss)
on securities available-for-sale 15 43 241 (268) 492
------ ------ ------ ------ ------
COMPREHENSIVE INCOME $ 166 $ 420 $ 922 $ 19 $1,161
====== ====== ====== ====== ======
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes. F-3
<PAGE>
CENTRAL FEDERAL SAVINGS & LOAN ASSOCIATION
WELLSVILLE, OHIO
STATEMENTS OF CHANGES IN EQUITY
SIX MONTHS ENDED JUNE 30, 1998 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in thousands)
Unrealized gain
(Loss)
on securities
available-for-sale
net of applicable
Retained deferred Total
earnings income Taxes equity
-------- ------------ ------
<S> <C> <C> <C>
Balances at December 31, 1994 $12,482 $ (419) $12,063
Net income 669 669
Change in unrealized
gain (loss) on securities
available-for-sale 492 492
------- ------- -------
Balances at December 31, 1995 13,151 73 13,224
Net income 287 287
Change in unrealized
gain (loss) on securities
available-for-sale (268) (268)
------- ------- -------
Balances at December 31, 1996 13,438 (195) 13,243
Net income 681 681
Change in unrealized
gain (loss) on securities
available-for-sale 241 241
------- ------- -------
Balance at December 31, 1997 14,119 46 14,165
Net income (unaudited) 151 151
Change in unrealized
gain (loss) on securities
available-for-sale (unaudited) 15 15
------- ------- -------
Balances at June 30, 1998 (unaudited) $14,270 $ 61 $14,331
======= ======= =======
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes. F-4
<PAGE>
CENTRAL FEDERAL SAVINGS & LOAN ASSOCIATION
STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, 1998 AND 1997 (UNAUDITED) AND
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(Dollars in thousands)
Six months ended June 30, Years ended December 31,
---------------------- ----------------------------------
1998 1997 1997 1996 1995
----------- ----------- --------- -------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 151 $ 377 $ 681 $ 287 $ 669
Adjustments to reconcile net income to net cash
provided by operating activities:
Premium amortization net of discount accretion (58) (60) (67) 66 341
(Gain) loss on sale of securities (4) 9
Provision for loan losses 150 42
(Gain) loss on sale of fixed assets, net (5) 4
Gain on sales of loans held for sale, net (33) (4) (20) (2)
Depreciation 116 96 156 161 115
Deferred income taxes (77) (89) (55) 12 (9)
Originations of loans held-for-sale (3,675) (54) (54)
Proceeds from sale of loans held-for-sale 4,624 99 877 629 549
Changes in operating assets and liabilities:
(Increase) decrease in accrued interest
receivable (9) (41) 96 (354)
(Increase) decrease in other assets (164) 74 (1) (4) (8)
Increase (decrease) in accrued interest
payable (4) (2) (32) (17) (27)
Increase (decrease) in other liabilities (29) 158 60 33 (8)
------- ------- ------- ------- -------
NET CASH PROVIDED BY OPERATING ACTIVITIES 988 558 1,652 806 1,662
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of held-to-maturity securities (8,243) (2,000) (3,987) (11,499) 100
Proceeds from maturities and payments on held-to-maturity
securities 4,179 3,457 15,964 6,451 5,403
Purchases of available-for-sale securities (1,929) (4,989) (11,144) (1,000)
Proceeds from sale of available-for-sale securities 184 1,509
Proceeds from maturities and payments on available-for-
sale securities 3,460 740 8,522 3,137 2,916
Net increase in loans (3,746) (4,237) (9,187) (1,808) (70)
Purchases of premises and equipment (458) (51) (329) (367) (210)
Proceeds from sales of premise and equipment 7
Purchase of FHLB stock (91) (83) (173) (157) (142)
------- ------- ------- -------- -------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES (6,644) (2,174) 5,828 (13,878) 6,997
------- ------- ------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in deposits 1,926 (480) 1,155 3,829 717
Net increase (decrease) in short-term FHLB advances (5,500) 2,200 (4,750) 10,938 (8,193)
Proceeds from long-term FHLB advances 8,500
Repayment of long-term FHLB advances (1,481) (1,480) (3,367) (1,185)
Net increase in escrow accounts (202) (181) 90 87 47
------- ------- ------- -------- -------
NET CASH PROVIDED BY (USED IN) FINANCING
ACTIVITIES 3,243 59 (6,872) 13,669 (7,429)
------- ------- ------- -------- -------
NET INCREASE IN CASH AND CASH
EQUIVALENTS (2,413) (1,557) 608 597 1,230
CASH AND CASH EQUIVALENTS AT
BEGINNING OF YEAR 5,846 5,238 5,238 4,641 3,410
------- ------- ------- -------- -------
CASH AND CASH EQUIVALENTS AT
END OF YEAR $ 3,433 $ 3,681 $ 5,846 $ 5,238 $ 4,640
======= ======= ======= ======== =======
SUPPLEMENTAL DISCLOSURES
Cash paid during the year for interest $ 2,540 $ 2,658 $ 5,305 $ 5,214 $ 4,798
Cash paid during the year for income taxes 160 - 276 68 344
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes. F-5
<PAGE>
CENTRAL FEDERAL SAVINGS & LOAN ASSOCIATION
NOTES TO FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Central Federal Savings & Loan Association is a federally-chartered mutual
thrift association headquartered in Wellsville, Ohio. The Association provides
a variety of financial services to individuals and corporate customers, through
its four offices in Wellsville, Ohio and surrounding areas, which are primarily
light industrial areas. The Association's primary source of revenue is single-
family residential loans to middle income individuals.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for losses on loans and the
valuation of real estate. In connection with the determination of the estimated
losses on loans and foreclosed real estate, management obtains independent
appraisals for significant properties.
A majority of the Association's loan portfolio consists of single family
residential loans in the Columbiana County area. The regional economy depends
heavily on light industry. Accordingly, the ultimate collectibility of a
substantial portion of the Association's loan portfolio and the recovery of a
substantial portion of the carrying amount of foreclosed real estate are
susceptible to changes in local market conditions.
While management uses available information to recognize losses on loans and
foreclosed real estate, future reductions in the carrying amounts of loans and
foreclosed assets may be necessary based on changes in local economic
conditions. In addition, regulatory agencies, as an integral part of their
examination process, periodically review the estimated losses on loans and
foreclosed real estate. Such agencies may require the Association to recognize
additional losses based on their judgments about information available to them
at the time of their examination. Because of these factors, it is reasonably
possible that the allowances for losses on loans and foreclosed real estate may
change materially in the near term. However, the amount of the change that is
reasonably possible cannot be estimated.
SECURITIES
Securities Held-to-Maturity: Debt securities that management has the positive
intent and ability to hold to maturity are reported at cost, adjusted for
amortization of premiums and accretion of discounts that are recognized in
interest income using methods approximating the interest method over the period
of maturity. Mortgage-backed securities represent participating interest in
pools of long-term mortgage loans originated and serviced by issuers of the
securities. Mortgage-backed securities are carried at unpaid principal
balances, adjusted for unamortized premiums and unearned discounts. Premiums
and discounts are amortized using methods approximating the interest method over
the remaining period to contractual maturity, adjusted for anticipated
prepayments.
F-6
<PAGE>
Notes to financial statements (Cont.)
- --------------------------------------------------------------------------------
Securities Available-for-Sale: Available-for-sale securities consist of
investment securities not classified as held-to-maturity securities. Unrealized
holding gains and losses, net of tax, on available-for-sale securities are
reported as a net amount in a separate component of retained earnings until
realized. Gains and losses on the sale of available-for-sale securities are
determined using the specific-identification method. The amortization of
premiums and the accretion of discounts are recognized in interest income using
methods approximating the interest method over the period of maturity.
Declines in the fair value of individual held-to-maturity and available-for-sale
securities below their cost that are other than temporary result in write-downs
of the individual securities to their fair value. The related write-downs are
included in earnings as realized losses.
LOANS HELD FOR SALE
Mortgage loans originated and held for sale in the secondary market are carried
at the lower of cost or market valued determined on an aggregate basis. Net
unrealized losses are recognized through a valuation allowance by charges to
income. Gains and losses on the sale of loans held for sale are determined
using the specific identification method.
LOANS
Loans are stated at unpaid principal balances, less the allowance for loan
losses and net deferred loan fees.
Loan origination as well as certain direct origination costs, are deferred and
amortized as a yield adjustment over the lives of the related loans using the
interest method. Amortization of deferred loans fees is discontinued when a
loan is placed on nonaccrual status.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest payments received on such
loans are applied as a reduction of the loan principal balance. Interest income
on other nonaccrual loans is recognized only to the extent of interest payments
received.
The allowance for loan losses is maintained at a level which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
The amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions and other risks inherent in the portfolio. The
allowance is increased by a provision for loan losses, which is charged to
expense, and reduced by charge-offs, net of recoveries. Allocations of the
allowance may be made for specific loans, but the entire allowance is available
for any loan that, in management's judgment, should be charged-off.
Loan impairment is reported when full payment under the loan terms is not
expected. Impairment is evaluated in total for smaller-balance loans of similar
nature such as residential mortgage and consumer loans. If a loan is impaired,
a portion of the allowance is allocated so that the loan is reported, net, at
the present value of estimated future cash flows using the loan's existing rate
or at the fair value of collateral if repayment is expected solely from the
collateral. Loans are evaluated for impairment when payments are delayed,
typically 90 days or more, or when it is probable that all principal and
interest amounts will not be collected according to the original terms of the
loan.
F-7
<PAGE>
Notes to financial statements (Cont.)
- --------------------------------------------------------------------------------
PREMISES AND EQUIPMENT
Land is carried at cost. Other premises and equipment are recorded at cost and
are depreciated on the straight-line method. Depreciation and amortization are
provided over the estimated useful lives of the respective assets.
FORECLOSED REAL ESTATE
Foreclosed real estate is recorded at the lower of cost or fair value, less
estimated costs to sell. Any reduction in fair value is reflected in a
valuation allowance account established by a charge to income. Cost incurred to
carry the foreclosed real estate are charged to expense.
MORTGAGE SERVICING RIGHTS
Effective January 1, 1995, the Association adopted Statement of Financial
Accounting Standards (SFAS) No. 122, "Accounting for Mortgage Servicing Rights."
This statement requires lenders who sell or securitize originated loans and
retain servicing rights to recognize as separate assets the rights to service
mortgage loans for others. Effective January 1, 1997, SFAS No. 125 "Accounting
for Transfers and Servicing of Financial Assets and Extinguishment of
Liabilities" superseded SFAS No. 122 and was adopted by the Association. SFAS
No. 125 provided new guidance on the determination of the value of mortgage
servicing rights and when to recognize the sale of loans without changing the
concept of assigning value to mortgage servicing rights when a loan is sold or
securitized and the servicing is retained. Both statements were adopted
prospectively.
The Association recognizes as separate assets the rights to service mortgage
loans for others, whether the servicing rights are acquired through purchases or
loan originations. The fair value of capitalized mortgage servicing rights is
based upon the present value of estimated future cash flows. Based upon current
fair values and considering outstanding positions of derivative financial
instruments utilized as hedges, capitalized mortgage servicing rights are
periodically assessed for impairment, which is recognized in the statement of
income during the period in which impairment occurs as an adjustment to the
corresponding valuation allowance. For purposes of performing its impairment
evaluation, the Association stratifies its portfolio on the basis of certain
risk characteristics including loan type and note rate. Capitalized mortgage
servicing rights are amortized over the period of estimated net servicing income
and take into account appropriate prepayment assumptions.
INCOME TAXES
Income taxes are provided for the tax effects of the transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes
related primarily to differences between the basis of available-for-sale
securities, allowance for loan losses, accumulated depreciation, and deferred
loan fees for financial and income tax reporting. The deferred tax assets and
liabilities represent the future tax return consequences of those differences,
which will either be taxable or deductible when the assets and liabilities are
recovered or settled. Deferred tax assets and liabilities are reflected at
income tax rates applicable to the period in which the deferred tax assets and
liabilities are expected to be realized or settled. As changes in tax laws or
rates are enacted, deferred tax assets and liabilities are adjusted through the
provision for income taxes.
PENSION PLAN
The Association has a pension plan covering substantially all employees. It is
the policy of the Association to fund the maximum amount that can be deducted
for federal income tax purposes but in amounts not less than the minimum amounts
required by law.
STATEMENTS OF CASH FLOWS
The Association considers all cash, demand amounts due from depository
institutions, and interest-bearing deposits in other banks to be cash
equivalents for purposes of the statements of cash flows.
F-8
<PAGE>
Notes to financial statements (Cont.)
- --------------------------------------------------------------------------------
FAIR VALUES OF FINANCIAL INSTRUMENTS
Fair values of financial instruments are estimated using relevant market
information and other assumptions, as more fully disclosed separately. Fair
value estimates involve uncertainties and matters of significant judgment
regarding interest rates, credit risk, prepayments, and other factors,
especially in the absence of broad markets for particular items. Changes in
assumptions or in market conditions could significantly affect the estimates.
The fair value estimates of existing on-and off-balance sheet financial
instruments does not include the value of anticipated future business or the
values of assets and liabilities not considered financial instruments.
INTERIM FINANCIAL INFORMATION
The unaudited balance sheet as of June 30, 1997 and related statements of income
and comprehensive income, changes in equity and cash flows for the six months
ended June 30, 1998 and 1997 have been prepared in a manner consistent with the
audited financial information presented. Management believes that all
adjustments, which were all of a normal and recurring nature, have been recorded
to the best of its knowledge and that the unaudited financial information fairly
presents the financial position and results of operations and cash flows of the
Association in accordance with generally accepted accounting principles.
RECLASSIFICATIONS
Certain amounts in prior financial statements have been reclassified to conform
with the current presentation.
F-9
<PAGE>
Notes to financial statements (Cont.)
- --------------------------------------------------------------------------------
NOTE B -- SECURITIES
Securities have been classified according to management's intent. The amortized
cost of securities and their approximate fair values are as follows:
<TABLE>
<CAPTION>
Securities held-to-maturity
- ---------------------------
(Dollars in thousands)
June 30, 1998 (Unaudited) December 31, 1997
------------------------------------------- -------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
--------- ---------- ----------- ------- --------- ---------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government and federal
agencies $ 1,497 $ 14 $ $ 1,511 $ 2,497 $ 18 $ $ 2,515
Corporate notes 992 992
Mortgage-backed securities 34,076 135 (623) 33,588 27,987 416 (285) 28,118
--------- ---------- ----------- ------- --------- ---------- ----------- -------
Total $35,573 $149 $(623) $35,099 $31,476 $434 $(285) $31,625
========= ========== ========== ======= ========= ========== ========== =======
</TABLE>
Securities available-for-sale
- -----------------------------
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30, 1998 (Unaudited) December 31, 1997
------------------------------------------- -------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
--------- ---------- ---------- ------- --------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government and federal
agencies $ 9,990 $ $ (13) $ 9,977 $ 9,989 $ $ (84) $ 9,905
Municipal Securities 225 6 231 275 9 284
Mortgage-backed securities 5,846 144 (43) 5,947 7,483 146 7,629
--------- ---------- ----------- ------- --------- ---------- ----------- -------
Total $16,061 $150 $ (56) $16,155 $17,747 $155 $ (84) $17,818
========= ========== ========== ======= ========= ========== ========== =======
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
-------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ----------- -------
<S> <C> <C> <C> <C>
U.S. government and federal
agencies $ 5,499 $ 14 $ (6) $ 5,507
Corporate notes
Mortgage-backed securities 37,893 181 (1,074) 37,000
--------- ---------- ----------- -------
Total $43,392 $195 $(1,080) $42,507
========= ========== ========== =======
</TABLE>
Securities available-for-sale
- -----------------------------
<TABLE>
<CAPTION>
(Dollars in thousands)
December 31, 1996
-------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
<S> <C> <C> <C> <C>
U.S. government and federal
agencies $10,988 $ $ (448) $10,540
Municipal Securities 328 12 (1) 339
Mortgage-backed securities 9,956 140 (3) 10,093
--------- ---------- ---------- -------
Total $21,272 $152 $ (452) $20,972
========= ========== ========== =======
</TABLE>
F-10
<PAGE>
Notes to financial statements (Cont.)
- --------------------------------------------------------------------------------
The following is a summary of maturities of securities held-to-maturity and
available-for-sale:
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30, 1998 December 31, 1997
-------------------------------------- --------------------------------------
Available-for-Sale Held-to-Maturity Available-for-Sale Held-to-maturity
------------------ ------------------ ------------------ ------------------
(Unaudited)
Amortized Fair Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value Cost Value
--------- ------- --------- ------- --------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
One year or less $ 100 $ 102 $ $ $ 100 $ 102 $ 992 $ 992
After one year through
five years 125 129 1,497 1,511 175 182 2,497 2,515
After ten years 9,990 9,977 9,989 9,905
Mortgage-backed
securities 5,846 5,947 34,076 33,588 7,483 7,629 27,987 28,118
------- ------- ------- ------- ------- ------- ------- -------
$16,061 $16,155 $35,573 $35,099 $17,747 $17,818 $31,476 $31,625
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
The amortized cost and fair value of mortgage-backed securities are presented in
the held-to-maturity and available-for-sale category by contractual maturity in
the preceding table. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
without call or prepayment penalties.
During the six months ended June 30, 1998 and the year ended December 31, 1996,
the Association sold securities available-for-sale for total proceeds of
approximately $184,000 and $1,509,000 resulting in gross realized gains of
approximately $4,000 and gross realized losses of approximately $9,000. During
the six months ended June 30, 1997 and years ended December 31, 1997 and 1995
the Association did not sell any securities available-for-sale.
There were no securities transferred between classifications during 1998 and
1997. Securities with a carrying amount of approximately $19,233,000,
$20,510,000 and $22,554,000 were pledged to secure deposits as required or
permitted by law at June 30, 1998, December 31, 1997 and 1996, respectively.
NOTE C -- LOANS
Loans are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30, December 31,
1998 1997 1996
------- ------------ -------
<S> <C> <C> <C>
Loans secured by real estate: (Unaudited)
Construction loans on one-to-four family residences $ 1,607 $ 1,017 $ 612
Secured by 1-4 family residential properties 41,897 40,659 35,891
Secured by multifamily residential properties 16 17 99
Secured by nonresidential properties 942 989 1,349
Commercial loans 394 308 290
Consumer loans 15,392 13,522 9,057
------- ------------ -------
60,248 56,512 47,298
Allowance for loan losses (375) (231) (229)
------- ------------ -------
Total $59,873 $56,281 $47,069
======= ============ =======
</TABLE>
F-11
<PAGE>
Notes to financial statements (Cont.)
- --------------------------------------------------------------------------------
An analysis of the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
Six months
ended June 30, Years ended December 31,
------------- ------------------------------
1998 1997 1997 1996 1995
----- ----- ----- ----- -----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Balance, beginning of period $ 231 $ 229 $ 229 $ 249 $ 211
Loans charged off (7) (4) (20) (4)
Recoveries 1 2 6
Provision for losses 150 42
----- ----- ----- ----- -----
Balance, end of period $ 375 $ 231 $ 231 $ 229 $ 249
===== ===== ===== ===== =====
</TABLE>
At June 30, 1998 and December 31, 1997 and 1996, the total recorded investment
in impaired loans, all of which had allowances determined in accordance with
SFAS No. 114 and No. 118, amounted to approximately $55,000, $5,000 and $0,
respectively. The average recorded investment in impaired loans amounted to
approximately $55,000, $2,000 and $0 for the six months ended June 30, 1998 and
for the years ended December 31, 1997 and 1996, respectively. No interest
income on impaired loans was recognized for cash payments received for the six
months ended June 30, 1998, 1997 and years ended December 31, 1997, 1996 and
1995.
The Association has no commitments to loan additional funds to borrowers whose
loans have been modified.
In the ordinary course of business, the Association has and expects to continue
to have transactions, including borrowings, with its officers, directors, and
their affiliates. In the opinion of management, such transactions were on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time of comparable transactions with other persons and did not
involve more than a normal risk of collectibility or present any other
unfavorable features to the Association. Loans to such borrowers are summarized
as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
Six Months
Ended Year Ended
June 30, December 31,
1998 1997
----- -----
(Unaudited)
<S> <C> <C>
Balance, beginning of period $ 280 $ 240
New loans 170 164
Payments (176) (124)
----- -----
Balance, end of period $ 274 $ 280
===== =====
</TABLE>
F-12
<PAGE>
Notes to financial statements (Cont.)
- --------------------------------------------------------------------------------
NOTE D -- MORTGAGE BANKING ACTIVITIES
The components of mortgage banking non-interest income is presented below:
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30, December 31,
------------- -----------------------
1998 1997 1997 1996 1995
----- ----- ----- ----- -----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Loan servicing fees $ 7 $ 4 $ 9 $ 8 $ 8
Net gain on sales of mortgage 33 5 4 2
----- ----- ----- ----- -----
Totals $ 40 $ 4 $ 14 $ 12 $ 10
===== ===== ===== ===== =====
</TABLE>
Mortgage loans serviced for others are not included in the accompanying balance
sheets. The outstanding balances of serviced loans were $7,511,000, $3,453,000
and $3,264,000 at June 30, 1998, December 31, 1997 and 1996, respectively.
Changes in capitalized mortgage loan servicing rights included in other assets
were:
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30, December 31,
------------------- ---------------------------
1998 1997 1997 1996 1995
----------- ------ ------ ------------ -----
(Unaudited)
<S> <C> <C> <C> <C> <C>
Balance at beginning of year $ 11 $ 4 $ 4 $ 0 $ 0
Originations 18 2 10 4 0
Amortization (4) (1) (3) 0 0
----- ----- ----- ----- -----
Totals $ 25 $ 5 $ 11 $ 4 $ 0
===== ===== ===== ===== =====
</TABLE>
NOTE E -- ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following:
<TABLE>
<CAPTION>
(Dollars in Thousands)
June 30, December 31,
1998 1997 1996
----------- -------- --------
<S> <C> <C> <C>
Loans $ 291 $ 286 $ 238
Mortgage-backed securities 258 235 318
Investments and other 319 356 417
------- ------- -------
Totals $ 868 $ 877 $ 973
======= ======= =======
</TABLE>
F-13
<PAGE>
Notes to financial statements (Cont.)
- --------------------------------------------------------------------------------
NOTE F -- PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
A summary of premises and equipment follows:
(Dollars in thousands)
June 30, December 31,
1998 1997 1996
------- ------- -------
(Unaudited)
<S> <C> <C> <C>
Land $ 63 $ 63 $ 63
Buildings and improvements 1,449 1,449 1,449
Furniture, fixtures and equipment 1,095 926 880
Leasehold improvements 727 334 223
Construction in process 150
------- ------- -------
3,334 2,922 2,615
Accumulated depreciation and amortization (1,381) (1,311) (1,175)
------- ------- -------
Total $ 1,953 $ 1,611 $ 1,440
======= ======= =======
</TABLE>
Certain Association facilities and equipment are leased under various operating
leases. Rental expense was $37,000 and $20,000 for six months ended June 30,
1998 and 1997 and $42,000, $23,000 and $0 for years ended December 31, 1997,
1996 and 1995. Future minimum rental commitments under noncancelable leases
are:
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30, 1998 December 31, 1997
- ----------------------------- -----------------------------
(Unaudited)
<S> <C> <C> <C>
1999 $ 123 1998 $ 80
2000 128 1999 73
2001 129 2000 68
2002 133 2001 73
After 2003 1,600 After 2003 811
------- -------
Total $ 2,113 Total $ 1,105
======= =======
</TABLE>
F-14
<PAGE>
Notes to financial statements (Cont.)
- --------------------------------------------------------------------------------
NOTE G -- DEPOSITS
Deposit account balances are summarized as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30, December 31,
--------------- ---------------------------------
1998 1997 1996
--------------- --------------- ---------------
Amount % Amount % Amount %
------- ------ ------- ------ ------- ------
(Unaudited)
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing
accounts $ 977 1.2% $ 1,091 1.4% $ 390 .5%
Interest-bearing checking
account 10,538 13.3 10,379 13.5 11,452 15.1
Savings accounts 23,945 30.4 23,266 30.2 23,972 31.6
Certificates of deposit 43,449 55.1 42,247 54.9 40,014 52.8
------- ----- ------- ----- ------- -----
$78,909 100.0% $76,983 100.0% $75,828 100.0%
======= ===== ======= ===== ======= =====
</TABLE>
The aggregate amount of short-term jumbo certificates of deposit with a minimum
denomination of $100,000 was approximately $3,344,000, $2,427,000 and $1,363,000
at June 30, 1998, December 31, 1998 and 1997.
The scheduled maturities of certificates of deposit are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30, 1998 December 31, 1997
------------------------------- ---------------------------
<S> <C> <C> <C>
(Unaudited)
1999 $ 25,585 1998 $ 25,851
2000 16,483 1999 15,293
2001 1,065 2000 720
2002 227 2001 284
After 2003 89 After 2003 99
-------- --------
Total $ 43,449 Total $ 42,247
======== ========
</TABLE>
The Association held deposits of approximately $1,229,000 for related parties at
June 30, 1998.
F-15
<PAGE>
Notes to financial statements (Cont.)
- --------------------------------------------------------------------------------
NOTE H -- FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank (FHLB) advances are comprised of the following:
<TABLE>
<CAPTION>
Current
Interest June 30, December 31,
Rate 1998 1997 1996
--------- ----------- ------- -------
(Unaudited)
(Dollars in thousands)
<S> <C> <C> <C> <C>
Federal Home Loan Bank advances
Variable rate advances:
Due in ninety (90) days 6.02% $10,988 $14,988 $ 3,000
Due in one (1) year 14,988
Fixed rate advances, with monthly interest
payments:
Advance due in 1997 4,750
Advance due in 1998 3,000 2,000
Advances due in 1999 5.07 1,500
Advances due in 2000 5.21 2,500
Advances due in2003 5.59 6,000
Fixed rate advances, with monthly principal
and interest payments:
Advance due 2002 6.04 1,980 2,513 3,020
Advance due 2003 5.76 3,738 4,486 5,181
Advance due 2005 6.93 153 153 173
Advance due 2006 6.31 53 60 67
Advance due 2007 6.52 768 961 1,098
------- ------- ------- -------
Total Federal Home Loan Bank
Advances 5.86% $27,680 $26,161 $34,277
======= ======= ======= =======
</TABLE>
Federal Home Loan Bank (FHLB) advances are collateralized by all shares of FHLB
stock (totaling $2,605,000 at June 30, 1998 and $2,514,000 at December 31,
1997), securities owned by the Association (totaling $18,712,000 at June 30,
1998 and $17,879,000 at December 31, 1997) and by 100% of the Association's
qualified mortgage loan portfolio (totaling approximately $41,018,000 at June
30, 1998 and $40,659,000 at December 31, 1997). Based on the carrying amount of
FHLB stock owned by the Association, total FHLB advances are limited to
approximately $52,100,000 at June 30, 1998 and $50,276,000 at December 31, 1997.
The aggregate minimum future annual principal payments on FHLB advances at June
30, 1998 are $12,487,000 in 1999, $2,500,000 in 2000, $0 in 2001, $0 in 2002 and
$12,693,000 after 2002. The aggregate minimum future annual principal payments
on FHLB advances at December 31, 1997 are $19,317,000 in 1998, $1,409,000 in
1999, $1,493,000 in 2000, $1,574,000 in 2001 and $2,368,000 after 2001.
F-16
<PAGE>
Notes to financial statements (Cont.)
- --------------------------------------------------------------------------------
NOTE I -- FEDERAL INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
(Dollars in thousands)
Six months
ended June 30, Years ending December 31,
----------------------- ----------------------------------
1998 1997 1997 1996 1995
--------- ---------- --------- ---------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Current federal tax $ 124 $ 172 $ 262 $ 34 $ 316
Deferred federal tax expense (79) (16) (55) 12 (9)
--------- ---------- --------- ---------- ---------
$ 45 $ 156 $ 207 $ 46 $ 307
========= ========== ========= ========== =========
</TABLE>
The provision for federal income taxes differs from that computed by applying
federal statutory rates to income before federal income tax expense, as
indicated in the following analysis:
<TABLE>
<CAPTION>
(Dollars in thousands)
Six months
ended June 30, Years ending December 31,
----------------------- ----------------------------------
1998 1997 1997 1996 1995
--------- ---------- --------- ---------- ---------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Expected tax provision at a
34% rate $ 67 $ 181 $ 302 $ 113 $ 332
Effect of tax-exempt income (9) (9) (67) (62) (54)
Other (13) (16) (28) (5) 29
--------- ---------- --------- ---------- ---------
$ 45 $ 156 $ 207 $ 46 $ 307
========= ========== ========= ========== =========
</TABLE>
Deferred tax liabilities have been provided for taxable temporary differences
related to unrealized gains on available-for-sale securities, deferred loan
costs, and the allowance for loan loss. Deferred tax assets have been provided
for deductible temporary differences related to the accumulated depreciation and
deferred loan fees.
F-17
<PAGE>
Notes to financial statements (Cont.)
- --------------------------------------------------------------------------------
The net deferred tax assets in the balance sheets include the following
components:
<TABLE>
<CAPTION>
(Dollars in thousands)
Six months
ended June 30, Years ending December 31,
1998 1997 1996
--------------- ------------ -----------
(Unaudited)
<S> <C> <C> <C>
Deferred tax assets
Bad debt $ 86 $ 30 $ 19
Deferred loan fees and costs 206 188 151
Unrealized loss on securities
available for sale 100
Other 6 8 1
----- ----- -----
Total deferred tax assets $ 298 $ 226 $ 271
Deferred tax liabilities
Fixed assets $ (86) $ 98 $ 96
Unrealized gain on securities
available for sale (31) 24
Other (10) 5 1
----- ----- -----
Total deferred tax liabilities $(127) $ 127 $ 97
----- ----- -----
Net deferred tax assets (liabilities) $ 171 $ 99 $ 174
===== ===== =====
</TABLE>
NOTE J -- PENSION PLAN
The Association maintains a contributory trusted pension plan for all eligible
employees. The benefits contemplated by the plan are funded as accrued through
the purchase of individual life insurance policies. The cost of funding is
charged directly to operations. No funded liability exist for past service
costs. The Association's contributions to the plan charged to earnings for six
months ended June 30, 1998 and 1997 and for the years ended December 31, 1997,
1996 and 1995 amounted to $0, $9,000, $9,000, $36,000 and $44,000.
NOTE K -- REGULATORY MATTERS
The Association is subject to various regulatory capital requirements
administered by its primary federal regulator, the Office of Thrift Supervision
(OTS). Failure to meet minimum capital requirements can initiate certain
mandatory, and possible additional discretionary actions by regulators that, if
undertaken, could have a direct affect on the Association and the financial
statements. Under the regulatory capital adequacy guidelines and the regulatory
framework for prompt corrective action, the Association must meet specific
capital guidelines that involve quantitative measures of the Association's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Association's capital amounts and
classification under the prompt corrective action guidelines are also subject to
qualitative judgements by the regulators about components, risk weightings, and
other factors.
F-18
<PAGE>
Notes to financial statements (Cont.)
- --------------------------------------------------------------------------------
Qualitative measures established by regulation to ensure capital adequacy
require the Association to maintain minimum amounts and ratios of : total risk-
based capital and Tier I capital to risk-weighted assets (as defined in the
regulations), Tier I capital to adjusted total assets (as defined), and tangible
capital to total assets (as defined). As discussed in greater detail below, as
of June 30, 1998, the Association meets all of the capital adequacy requirements
to which it is subject.
As of June 30, 1998, the most recent notifications from the OTS, the Association
was categorized as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as adequately capitalized, the Association
would have to maintain minimum total risk-based, Tier I risk-based, Teri I
leverage ratios as set forth in the table below. There are no conditions or
events since the most recent notification that management believes have changed
the Association's prompt corrective action category.
<TABLE>
<CAPTION>
(Dollars in thousands)
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------- ------------------ ------------------
Amount Ratio Amount Ratio Amount Ratio
------- ------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
As of June 30, 1998 (Unaudited)
Total Risk-Based
Capital (to Risk
Weighted Assets) $14,620 23.2% $5,037 8.0% $6,296 10.0%
Tier I Capital
(to Risk Weighted
Assets) 14,245 22.6 2,519 4.0 3,778 6.0
Tier I Capital
(to Adjusted Assets) 14,245 11.7 4,863 4.0 6,079 5.0
As of December 31, 1997:
Total Risk-Based $14,388 27.5% $4,193 8.0% $5,242 10.0%
Capital
(to Risk Weighted Assets)
Tier I Capital 14,158 27.0 2,097 4.0 3,145 6.0
(to Risk Weighted
Assets)
Tier I Capital 14,158 12.0 4,729 4.0 5,911 5.0
(to Adjusted Assets)
As of December 31, 1996:
Total Risk-Based $13,667 28.4% $3,853 8.0% $4,816 10.0%
Capital
(to Risk Weighted Assets)
Tier I Capital 13,438 27.9 1,927 4.0 2,889 6.0
(to Risk Weighted
Assets)
Tier I Capital 13,438 10.8 4,968 4.0 6,211 5.0
(to Adjusted Assets)
</TABLE>
F-19
<PAGE>
Notes to financial statements (Cont.)
- --------------------------------------------------------------------------------
NOTE L -- COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Association has various outstanding
commitments and contingent liabilities that are not reflected in the
accompanying financial statements. The principal commitments of the Association
are as follows:
The Association had outstanding commitments to originate loans as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
June 30, December 31,
1998 1997
----------- ------------
(Unaudited)
<S> <C> <C>
First mortgages $2,087 $ 574
Consumer lines 1,236 1,332
Commercial lines 1,410 1,481
------ ------
$4,733 $3,387
====== ======
</TABLE>
In addition, the Association periodically is a defendant in various legal
proceedings arising in connection with its business. It is the best judgment of
management that neither the financial position nor results of operations of the
Association will be materially affected by the final outcome of these legal
proceedings.
NOTE M -- 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 extend credit. These
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amounts recognized in the balance sheets.
The Association's exposure to credit loss in the event of nonperformance by the
other party to the financial instruments for commitments to extend credit is
represented by the contractual notional amount of those instruments. The
Association uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Association evaluates each customer's
creditworthiness on a case-by-case basis. The amount and type of collateral
obtained, if deemed necessary by the Association upon extension of credit,
varies and is based on management's credit evaluation of the counterparty.
F-20
<PAGE>
Notes to financial statements (Cont.)
- --------------------------------------------------------------------------------
NOTE L -- FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, Disclosures about Fair
----------------------
Value of Financial Instruments, requires disclosure of fair value information
- ------------------------------
about financial instruments, whether or not recognized in the statement of
financial condition. In cases where quoted market prices are not available,
fair values are based on estimates using present value or other valuation
techniques. Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash flows. In that
regard, the derived fair value estimates cannot be substantiated by comparison
to independent markets and, in many cases, could not be realized in immediate
settlement of the instruments. Statement No. 107 excluded certain financial
instruments and all nonfinancial instruments from its disclosure requirements.
Accordingly, the aggregate fair value amounts presented do not represent the
underlying value of the Association.
The following methods and assumptions were used by the Association in estimating
its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and cash equivalents approximate those assets' fair values.
Investment securities: Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Loans: For variable-rate loans that reprice frequently and with no
significant change in credit risk, fair values are based on carrying amounts.
The fair values for other loans (for example, fixed rate commercial real
estate and rental property mortgage loans and commercial and industrial loans)
are estimated using discounted cash flow analysis, based on interest rates
currently being offered for loans with similar terms to borrowers of similar
credit quality. Loan fair value estimates include judgments regarding future
expected loss experience and risk characteristics. Fair values for impaired
loans are estimated using discounted cash flow analysis or underlying
collateral values, where applicable. The carrying amount of accrued interest
receivable approximates its fair value.
Deposits: The fair values disclosed for demand deposits are, by definition,
equal to the amount payable on demand at the reporting date (that is, their
carrying amounts). The carrying amounts of variable-rate, fixed-term money-
market accounts and certificates of deposit approximate their fair values.
Fair values for fixed rate certificates of deposit are using a estimated
discounted cash flow calculation that applies interest rates currently offered
on certificates to a schedule of aggregated contractual expected monthly
maturities on time deposits. The carrying amount of accrued interest payable
approximates fair value.
Federal Home Loan Bank (FHLB) advances: Fair value for FHLB advances are
estimated using a discounted cash flow analysis that applies interest rates
currently being offered on FHLB advances to a schedule of aggregated
contractual maturities on such borrowings.
F-21
<PAGE>
Notes to financial statements (Cont.)
- --------------------------------------------------------------------------------
The estimated fair values of the Association's financial instruments are as
follows:
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997 1996
----------- -------- --------
(Unaudited)
Carrying Fair Carrying Fair Carrying Fair
Amount Value Amount Value Amount Amount
----------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 3,433 $ 3,433 $ 5,846 $ 5,846 $ 5,238 $ 5,238
Investment securities 51,728 51,254 49,294 49,443 64,364 63,482
Loans, net of allowance 59,873 59,873 56,281 57,651 47,069 47,830
Loans held for sale 689 689 1,605 1,611 2,448 2,451
Accrued interest receivable 868 868 877 877 973 973
Financial liabilities:
Deposits 78,909 78,970 76,983 76,995 75,828 76,523
Federal Home Loan Bank
advances 27,680 27,598 26,161 26,043 34,277 34,020
Accrued interest payable 150 150 154 154 186 186
Advance payments by
borrowers for taxes
and insurance 463 463 665 665 575 575
</TABLE>
The carrying amounts in the preceding table are included in the balance sheets
under the applicable captions. The contract or notional amounts of the
Association's financial instruments with off-balance-sheet risk are disclosed in
NOTE L. No derivatives were held by the Association for trading purposes. It
is not practicable to estimate the fair value of Federal Home Loan Bank (FHLB)
stock because it is not marketable. The carrying amount of these investment is
reported in the balance sheets.
F-22
<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 INFORMATION OR REPRESENTATION SHALL NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE ASSOCIATION 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 THE COMPANY OR THE ASSOCIATION SINCE ANY OF THE DATES AS OF WHICH
INFORMATION IS FURNISHED HEREIN OR SINCE THE DATE HEREOF.
______________________________
UNTIL _________________ OR 25 DAYS AFTER COMMENCEMENT OF THE SYNDICATED
COMMUNITY OFFERING, IF ANY, WHICHEVER IS LATER, ALL DEALERS EFFECTING
TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
_________ Shares
[GRAND CENTRAL FINANCIAL CORP.]
(Proposed Holding Company for
Central Federal Savings and Loan Association of Wellsville)
COMMON STOCK
__________
PROSPECTUS
__________
CHARLES WEBB & COMPANY
A Division of Keefe, Bruyette & Woods, Inc.
_________________, 1998
================================================================================
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. 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: Indemnification.
-----
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 (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
<PAGE>
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 receive 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 pursuant to the terms of an undertaking the
Corporation shall be entitled to recover such expenses upon a final
adjudication that, the indemnitee has not met any applicable standard for
indemnification set forth in the Delaware General Corporation Law. Neither the
failure of the Corporation (including its Board of Directors, independent
legal counsel, or its stockholders) to have made a determination prior to the
commencement of such suit that indemnification of the indemnitee is proper in
the circumstances because the indemnitee has met the applicable standard of
conduct set forth in the Delaware General Corporation Law, nor an actual
determination by the Corporation (including its Board of Directors,
independent legal counsel, or its stockholders) that the indemnitee has not
met such applicable standard of conduct, shall create a presumption that the
indemnitee has not met the applicable standard of conduct or, in the case of
such a suit brought by the indemnitee, be a defense to such suit. In any suit
brought by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden of
proving that the indemnitee is not entitled to be indemnified, or to such
advancement of expenses, under this Article 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.
ELEVENTH: Limitations of Director's Liability. 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
<PAGE>
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.
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses of the conversion are as follows:
<TABLE>
<CAPTION>
<S> <C>
SEC filing fee(1)................................. $ 7,803
OTS filing fee.................................... 8,400
NASD filing fee(1)................................ 3,195
Stock Market listing fee(1)....................... 48,750
Printing, postage and mailing..................... 150,000
Legal fees and expenses (including underwriter's
counsel)...................................... 200,000
Accounting fees and expenses...................... 70,500
Appraisers' fees and expenses (including
business plan)................................ 28,500
Marketing fees and selling commissions............ 326,000
Underwriter's expenses............................ 0
Conversion agent fees and expenses................ 14,000
Transfer agent fees and expenses.................. 10,000
Certificate printing.............................. 5,000
Telephone, temporary help and other equipment..... 10,000
Blue Sky fees and expenses........................ 10,000
Miscellaneous..................................... 27,852
TOTAL............................................. $920,000
========
</TABLE>
- -------------------
(1) Unless otherwise noted, based upon the registration and issuance of
2,645,000 shares at $10.00 per share.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
None.
<PAGE>
ITEM 27. EXHIBITS.
The exhibits 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 Central Federal Savings and Loan Association
of Wellsville and Charles Webb & Company, a Division of Keefe, Bruyette
and Woods, Inc.
1.2 Draft Form of Agency Agreement*
2.1 Plan of Conversion (including the Stock Charter and Bylaws of Central
Federal Savings and Loan Association of Wellsville)
3.1 Certificate of Incorporation of Grand Central Financial Corp.
3.2 Bylaws of Grand Central Financial Corp.
3.3 Stock Charter and Bylaws of Central Federal Savings and Loan Association
of Wellsville (See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of Grand Central Financial Corp.
5.0 Draft Opinion of Muldoon, Murphy & Faucette re: legality
5.1 Draft Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Draft Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.1 Draft Opinion of Crowe Chizek and Company LLP re: State Tax Matters
10.1 Form of Central Federal Savings and Loan Association of Wellsville
Employee Stock Ownership Plan
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.3 Form of Central Federal Savings and Loan Association of Wellsville
Employment Agreement
10.4 Form of Grand Central Financial Corp. Employment Agreement
10.5 Form of Central Federal Savings and Loan Association of Wellsville
Supplemental Executive Retirement Plan
10.6 Form of Central Federal Savings and Loan Association of Wellsville
Employee Severance Compensation Plan
23.1 Consent of Robb, Dixon, Francis, Oneson & Company
23.2 Consent of Muldoon, Murphy & Faucette
23.3 Consent of Morris, Nichols, Arsht & Tunnell
23.4 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)
- ----------------
*To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
ITEM 28. UNDERTAKINGS.
The small business issuer will:
(1) File, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by section 10(a)(3) of the
Securities Act;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental change in
the information in the registration statement; and
(iii) Include any additional or changed material information on the
plan of distribution.
(2) For determining liability under the Securities Act, treat each post-
effective amendment as a new registration statement of the
securities offered, and the offering of the securities at that time
to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of
the securities that remain unsold at the end of the offering.
The small business issuer will provide to the underwriter at the closing
specified in the underwriting agreement certificates in such denominations and
registered in such names as required by the underwriter to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the small business issuer pursuant to the foregoing provisions, or
otherwise, the small business issuer has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
<PAGE>
CONFORMED
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements of filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, in the Village of
Wellsville, State of Ohio, on September 23, 1998.
Grand Central Financial Corp.
By: /s/ William R. Williams
--------------------------------------
William R. Williams
President, Chief Executive Officer and Director
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated.
<TABLE>
<CAPTION>
Name Title Date
---- ----- ----
<S> <C> <C>
/s/ William R. Williams President, Chief Executive September 23, 1998
- ------------------------- Officer and Director
William R. Williams (principal executive
officer)
/s/ John A. Rife Executive Vice President September 23, 1998
- ------------------------- and Treasurer
John A. Rife (principal accounting and
financial officer)
/s/ Gerry W. Grace Director September 23, 1998
- -------------------------
Gerry W. Grace
/s/ Jeffrey W. Aldrich Director September 23, 1998
- -------------------------
Jeffrey W. Aldrich
/s/ Thomas P. Ash Director September 23, 1998
- -------------------------
Thomas P. Ash
/s/ Fred C. Jackson Director September 23, 1998
- -------------------------
Fred C. Jackson
/s/ William R. Porter Director September 23, 1998
- -------------------------
William R. Porter
/s/ Joseph M. Wells, Jr. Director September 23, 1998
- -------------------------
Joseph M. Wells, Jr.
</TABLE>
<PAGE>
As filed with the Securities and Exchange Commission on September 23, 1998
Registration No. 333-_______________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------
EXHIBITS
TO THE
FORM SB-2
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
--------------------
GRAND CENTRAL 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)
The exhibits filed as a part of this Registration Statement are as follows:
1.1 Engagement Letter between Central Federal Savings and Loan Association
of Wellsville and Charles Webb & Company, a Division of Keefe, Bruyette
and Woods, Inc.
1.2 Draft Form of Agency Agreement*
2.1 Plan of Conversion (including the Stock Charter and Bylaws of Central
Federal Savings and Loan Association of Wellsville)
3.1 Certificate of Incorporation of Grand Central Financial Corp.
3.2 Bylaws of Grand Central Financial Corp.
3.3 Stock Charter and Bylaws of Central Federal Savings and Loan Association
of Wellsville (See Exhibit 2.1 hereto)
4.0 Draft Stock Certificate of Grand Central Financial Corp.
5.0 Draft Opinion of Muldoon, Murphy & Faucette re: legality
5.1 Draft Opinion of Morris, Nichols, Arsht & Tunnell re: legality
8.0 Draft Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.1 Draft Opinion of Crowe Chizek and Company LLP re: State Tax Matters
10.1 Form of Central Federal Savings and Loan Association of Wellsville
Employee Stock Ownership Plan
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.3 Form of Central Federal Savings and Loan Association of Wellsville
Employment Agreement
10.4 Form of Grand Central Financial Corp. Employment Agreement
10.5 Form of Central Federal Savings and Loan Association of Wellsville
Supplemental Executive Retirement Plan
10.6 Form of Central Federal Savings and Loan Association of Wellsville
Employee Severance Compensation Plan
23.1 Consent of Robb, Dixon, Francis, Oneson & Company
23.2 Consent of Muldoon, Murphy & Faucette
23.3 Consent of Morris, Nichols, Arsht & Tunnell
23.4 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)
- ------------
*To be filed by amendment
(P) Filed pursuant to Rule 202 of Regulation S-T.
<PAGE>
EXHIBIT 1.1 ENGAGEMENT LETTER BETWEEN CENTRAL FEDERAL SAVINGS AND LOAN
ASSOCIATION OF WELLSVILLE AND CHARLES WEBB & COMPANY, A DIVISION
OF KEEFE, BRUYETTE AND WOODS, INC.
<PAGE>
Exhibit 1.1
[LOGO] [LETTERHEAD OF CHARLES WEBB & COMPANY APPEARS HERE]
June 11, 1998
Mr. William R.Williams
President and Chief Executive Officer
Central Federal Savings and Loan Association of Wellsville
601 Main Street
Wellsville, Ohio 43968
Dear Mr. Williams:
This proposal is in connection with Central Federal Savings and Loan
Association's (the "Association") intention to 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.
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 Conversion. This letter sets
forth selected terms and conditions of our engagement.
1. Advisory/Conversion 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 in providing
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 client with a focus on identifying factors
which impact the valuation of the common stock and provide the appropriate
recommendations for the betterment of the equity valuation.
<PAGE>
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.)
2. Preparation of Offering Documents. The Association, the Company and their
---------------------------------
counsel will draft the Registration Statement, Application for Conversion,
Prospectus and other documents to be used in connection with the Conversion.
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.
3. Due Diligence Review. Prior to filing the Registration Statement,
--------------------
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 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"), 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 and such state securities commissioners and other
regulatory agencies as required by applicable law.
2
<PAGE>
6. Representations, Warranties and Covenants. The Agency Agreement will
-----------------------------------------
provide for customary representations, warranties and covenants by the
Association and Webb, and for the Company to indemnify Webb and their
controlling persons (and, if applicable, the members of the selling group and
their controlling persons), 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) A Management Fee of $25,000 payable in four consecutive monthly
installments of $6,250 commencing with the signing of this letter.
Such fees shall be deemed to have been earned when due. Should the
Conversion be terminated for any reason not attributable to the action
or inaction of Webb, Webb shall have earned and be entitled to be paid
fees accruing through the stage at which point the termination
occurred.
(b) A Success Fee of 1.30% shall be charged based on the aggregate
Purchase Price of Common Stock sold in the Subscription Offering and
Community Offering 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 Management Fee
described in 7(a) will be applied against the Success Fee.
(c) 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 which best meets the distribution objectives of the
Association and the Plan of Conversion. Webb will be paid a fee not
to exceed 5.5% of the aggregate Purchase Price of the shares of common
stock sold by them. Webb will pass onto selected broker-dealers, who
assist in the syndicated community, an amount competitive with gross
underwriting discounts charged at such time for comparable amounts of
stock sold at a comparable price per share in a similar market
environment. Fees with respect to purchases affected with the
assistance of a broker/dealer 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(c), such fees shall be in lieu of, and
not in addition to, payment pursuant to subparagraph 7(a) and 7(b).
3
<PAGE>
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 and syndicate expenses associated with the
Conversion; the fees set forth in Section 7; and fees for "Blue Sky" legal work.
If Webb incurs expenses on behalf of Client, Client will reimburse Webb for such
expenses.
The Association will reimburse Webb for any out-of-pocket expenses related to
travel, meals lodging, photocopying, etc. up to $10,000. Additionally, the
Association will reimburse Webb for the reasonable fees and expenses of Webb's
counsel up to $30,000.
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) full and
satisfactory disclosure of all relevant material, financial and other
information in the disclosure documents and a determination by Webb, in its sole
discretion, that the sale of stock on the terms proposed is reasonable given
such disclosures; (b) no material adverse change in the condition or operations
of the 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.
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 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 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 as set
4
<PAGE>
forth in Section 7(a) and 7(b) and the assumption of expenses as set forth in
Section 9, all of which shall constitute the binding obligations of the
parties hereto and which shall survive the termination of this Agreement or
the completion of the services furnished hereunder and shall remain operative
and in full force and effect. The Association further acknowledges 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 Conversion. Accordingly, the Association agrees that it
will not provide any such information to any other person without Webb's prior
written consent.
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
Senior Vice President
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF WELLSVILLE
By: /s/ William R. Williams Date: June 16 1998
-------------------------------
William R. Williams
President and Chief Executive Officer
5
<PAGE>
EXHIBIT A
---------
CONVERSION SERVICES PROPOSAL
TO CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF WELLSVILLE
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,
meet with prospective shareholders at individual and community information
meetings, solicit local investor interest through a tele-marketing campaign,
answer inquiries, and otherwise assist in the sale of stock in the Subscription
and Community Offerings. This effort will be lead by a Principal of Webb/KBW.
Create target investor list based upon review of the Association's depositor
base.
Provide intensive financial and marketing input for drafting of the prospectus.
6
<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 will use their best efforts to secure market making and on-going research
commitment from at least two NASD firms, one of which will be Keefe, Bruyette &
Woods, Inc.
7
<PAGE>
EXHIBIT 2.1 PLAN OF CONVERSION (INCLUDING THE STOCK CHARTER AND BYLAWS OF
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF WELLSVILLE)
<PAGE>
EXHIBIT 2.1
PLAN OF CONVERSION
FOR
CENTRAL FEDERAL SAVINGS AND LOAN
OF WELLSVILLE
AS ADOPTED ON:
JUNE 11, 1998
<PAGE>
PLAN OF CONVERSION
FOR
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION
1. INTRODUCTION
This Plan of Conversion ("Plan") provides for the conversion of Central
Federal Savings and Loan Association ("BANK") from a federally-chartered mutual
savings and loan association to a federally-chartered capital stock savings
association to be named Central Federal Savings and Loan Association. The Board
of Directors of the BANK currently contemplates that all of the stock of the
BANK shall be held by a corporation (the "Holding Company"). The Board of
Directors has carefully considered the alternatives available to the BANK 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 BANK, its
depositors and the community served by the BANK. The Board of Directors believes
that the decline in mutuality is placing mutual savings associations, such as
the BANK, at a disadvantage to the increasing base of stock thrift and
commercial bank institutions. The restructuring of the BANK into the capital
stock form of organization will enable the BANK 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 BANK'S ability to
expand its franchise and the products it offers. The use of the Holding Company,
if so utilized, would also provide greater organizational and operating
flexibility. Shares of capital stock of the BANK will be sold to the Holding
Company and the Holding Company will offer the Conversion Stock upon the terms
and
<PAGE>
conditions set forth herein to the Eligible Account Holders, the Employee Plans
established by the BANK 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 BANK and the Holding Company through a Community Offering or a
Syndicated Community Offering or through an underwritten firm commitment public
offering or through a combination thereof. In the event that the BANK decides
not to utilize the Holding Company in the conversion, Conversion Stock of the
BANK, in lieu of the Holding Company, will be sold as set forth above and in the
respective priorities set forth in this Plan. In addition to the foregoing, the
BANK 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 BANK as described
in the prospectus for the Conversion Stock.
This Plan, which has been unanimously approved by the Board of Directors of
the BANK, 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
BANK 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 (the "OTS").
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 BANK.
2
<PAGE>
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
("other party") 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.
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 BANK or a
majority-owned subsidiary of the BANK) of which such person is an officer or
partner or is, directly or indirectly, the beneficial owner of 10 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 for the
purposes of Sections 9 and 14 hereof, 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
3
<PAGE>
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 BANK or the Holding Company,
if utilized, or any of its parents or subsidiaries.
Bank - The term BANK means Central Federal Savings and Loan Association,
----
Wellsville, Ohio, and after its conversion to stock form, Central Federal
Savings and Loan Association.
Community Offering - The term Community Offering means the offering for
------------------
sale to certain members of the general public directly by the BANK or the
Holding Company, if utilized, of any shares of Conversion Stock not subscribed
for in the Subscription Offering.
Conversion Stock - The term Conversion Stock means the common stock offered
----------------
and issued by the Holding Company or the $1.00 par value Common Stock offered
and issued by the BANK, if the Holding Company form of organization is not
utilized, upon conversion.
Director - The term Director means a member of the Board of Directors of
--------
the BANK 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 BANK and is December 31, 1996.
Employees - The term Employees means all Persons who are employed by the
---------
BANK but does not include an Officer or Director.
Employee Plans - The term Employee Plans means the Tax Qualified Employee
--------------
Stock Benefit Plans approved by the Board of Directors of the BANK.
4
<PAGE>
Estimated Price Range - The term Estimated Price Range means the range of
---------------------
minimum and maximum aggregate values determined by the Board of Directors of the
BANK within which the aggregate amount of Common Stock sold in the Conversion
will fall. The Estimated Price Range will be within 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 corporation formed for
---------------
the purpose of acquiring all of the shares of capital stock of the BANK to be
issued upon its conversion to stock form unless the Holding Company form of
organization is not utilized. Shares of common stock of the Holding Company
will be issued in the conversion to Participants and others in a Subscription,
Community, Syndicated Community, or underwritten firm commitment public
offering, or through a combination thereof.
Independent Appraiser - The term Independent Appraiser means an appraiser
---------------------
retained by the BANK to prepare an appraisal of the pro forma market value of
the Conversion Stock.
Local Community - The term Local Community means all counties in which the
---------------
Bank has its home office or a branch office.
Member - The term Member means any Person or entity who qualifies as a
------
member of the BANK pursuant to its charter and bylaws.
OTS - The term OTS means Office of Thrift Supervision of the Department of
---
the Treasury and its successors.
5
<PAGE>
Officer - The term Officer means an executive officer of the BANK 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 any form together with attached
----------
cover letter, sent by the BANK to any Participant or Person containing among
other things 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.
Other Member - The term Other Member means any person who is a Member of
------------
the BANK (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 BANK 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 which are natural persons residing in the Bank's Local
Community.
6
<PAGE>
Qualifying Deposit - The term Qualifying Deposit means the balance of each
------------------
Savings Account of $50 or more in the BANK 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 has the same meaning as in
---------------
Section 561.42 of the Rules and Regulations of the OTS and includes certificates
of deposit.
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 purchase 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 term Supplemental Eligibility
------------------------------------
Record Date means the supplemental record date for determining Supplemental
Eligible Account Holders of the BANK. 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.
7
<PAGE>
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 bonus plan, profit-sharing plan
or other plan, which, with its related trust, meets the requirements to be
"qualified" under Section 401 of the Internal Revenue Code. A "Non-Tax-
Qualified Employee Stock Benefit Plan" is any defined benefit plan or defined
contribution plan which is not so qualified.
Voting Members - The term Voting Members means those persons qualifying as
--------------
voting members of the BANK 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 a vote of not less than two-thirds (2/3) of
the Board of Directors of the BANK, the Plan shall be submitted together with
all other requisite material to the OTS for approval. Notice of the adoption of
the Plan by the Board of Directors of the BANK and the submission of the Plan to
the OTS for approval will be published in a newspaper having general
circulation in each community in which an office of the BANK is located and
copies of the Plan will be made available at each office of the BANK for
inspection by the Members. Upon receipt of notice from the OTS to do so, the
BANK also will cause to be published a notice of the
8
<PAGE>
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 BANK will take all other necessary
steps pursuant to applicable laws and regulations to convert the BANK 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.
The Board of Directors of the BANK intends to take all necessary steps to
form the Holding Company, including the filing of an Application on Form H-(e)1
or H-(e)1-S, if available to the Holding Company, with the OTS. In the event
that the Holding Company is utilized, upon conversion the BANK will issue
capital stock to the Holding Company and the Holding Company will issue and sell
the Conversion Stock in accordance with this Plan.
The Board of Directors of the BANK may determine for any reason at any time
prior to the issuance of the Conversion Stock not to utilize a holding company
form of organization in the Conversion, in which case, the Holding Company's
registration statement on Form S-1 will be withdrawn from the SEC, the BANK will
take all steps necessary to complete the conversion from the mutual to the stock
form of organization, including filing any necessary documents with the OTS, and
will issue and sell the Conversion Stock in accordance with this Plan. In such
event, any subscriptions or orders received for Conversion Stock of the Holding
Company shall be deemed to be subscriptions or orders for Conversion Stock of
the BANK without any further action by the BANK or the subscribers for the
Conversion Stock, unless any such further action is required by the SEC and the
OTS, in which case the BANK shall take such necessary action to
9
<PAGE>
complete the Conversion. Any references to the Holding Company in this Plan
shall mean the BANK in the event the Holding Company is eliminated in the
Conversion.
The Conversion Stock will not be insured by the FDIC. The BANK 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 BANK shall be a wholly-
owned subsidiary of the Holding Company unless the Holding Company is eliminated
in the Conversion.
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.
10
<PAGE>
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.
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 BANK. 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.
The BANK may elect to offer to pay fees on a per share basis to brokers who
assist Persons in determining to purchase shares in the Subscription and
Community Offerings.
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 BANK and the Board of Directors of the Holding Company, if the holding
company form of organization is utilized, 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 to reflect changes in market and financial
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 BANK or the Holding
Company, if utilized. The estimated consolidated pro forma market value of the
BANK or the Holding Company, if utilized, 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 BANK. 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 BANK or the Holding Company, if utilized, 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 BANK shall establish, with
the approval of the OTS, if required.
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, (if a
12
<PAGE>
holding company form of organization is utilized) and the Board of Directors of
the BANK 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 BANK and Holding Company (if a holding company
form of organization is utilized) as follows: (a) the estimated aggregate pro
forma market value of the BANK or the Holding Company, as the case may be,
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 BANK and Holding Company, if utilized, 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 or the BANK
if no Holding Company is utilized. If such confirmation is not received, the
BANK may cancel the Subscription and Community Offerings
13
<PAGE>
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.
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 BANK
Upon the consummation of the sale of all of the Conversion Stock, and in
the event that a holding company form of organization is utilized, the Holding
Company will purchase from the BANK all of the capital stock of the BANK to be
issued by the BANK in the Conversion in exchange for the Conversion proceeds
that are not permitted to be retained by the Holding Company.
The Holding Company will apply to the OTS to retain up to 50% of the
proceeds of the Conversion. Assuming the Holding Company is not eliminated, a
lesser percentage may be acceptable. The BANK believes that the Conversion
proceeds will provide economic strength to the Holding Company and the BANK 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.
If during the Conversion process the Board of Directors of the BANK determines
not to complete the Conversion utilizing a holding company form of organization,
capital stock of the BANK will be issued and sold in accordance with the Plan.
The above activities may also be engaged in by the BANK if the Holding Company
is eliminated.
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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 $200,000 of the Conversion Stock offered, but which may be
increased to 5% or decreased to less than $200,000 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
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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.
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.
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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 BANK.
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 $200,000 of the Conversion Stock offered,
but which may be increased to 5% or decreased to less than $200,000 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 BANK 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
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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.
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 $200,000
of the Conversion Stock offered, but which may be increased to 5% or decreased
to less than
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$200,000 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.
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
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general public, which may subscribe together with any Associate or group of
persons Acting in Concert for up to $200,000 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; or decreased to less than $200,000 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. Any excess of shares will be
available for purchase by the general public with preference given to Preferred
Subscribers. The BANK 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 BANK reserves the right to reject any or all orders, in
whole or in part, which are received in the Community Offering.
If the 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 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 persons.
Thereafter, unallocated shares will be allocated among the subscribers whose
subscriptions remain
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unsatisfied on a 100 shares per order basis until all such orders have been
filled or the remaining shares have been allocated. The BANK 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 BANK, in a manner that will achieve the widest distribution of the
Conversion Stock subject to the right of the BANK 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 $200,000 of the total number of
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% or decreased to less than $200,000
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 BANK may commence the
Syndicated Community Offering at any time after the mailing to the Members of
the Proxy
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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 BANK
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
BANK, which will in no event exceed an amount deemed to be acceptable by the
OTS.
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 can not 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 BANK, if possible. Such
other purchase arrangements will be subject to the approval of the OTS.
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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 Plans which may subscribe for up
to 10% 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 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 BANK, first be filled to a maximum of 2.0% of
the total number of 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
BANK and their Associates in the aggregate shall not exceed 25% of the total
number of shares of Conversion Stock issued.
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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
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 by each (after first applying the maximums applicable to each Person,
separately).
Depending upon market or financial conditions, the Board of Directors of
the BANK 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%. 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
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<PAGE>
offering. If the BANK or the Holding Company, as the case may be, increases the
maximum purchase limitations, the BANK or the Holding Company, as the case may
be, is only required to resolicit Persons who subscribed for the maximum
purchase amount and may, in the sole discretion of the BANK or the Holding
Company, as the case may be, 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 over
subscription at the Eligible Account Holder level, to fill unfulfilled
subscriptions of Eligible Account Holders exclusive of the Adjusted Maximum in
accordance with Section 8; (iii) in the event there is an over subscription 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 over
subscription 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 BANK 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 BANK or the Holding Company.
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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 BANK or the Holding Company,
as the case may be, 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 BANK or the Holding
Company, as the case may be, the exercise of any options pursuant to a stock
option plan or purchases of common stock of the BANK or the Holding Company, as
the case may be, made by or held by any Tax-Qualified Employee Stock Benefit
Plan or Non-Tax-Qualified Employee Stock Benefit Plan of the BANK 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
transaction in which the securities are offered and the terms and arrangements
relating to any sale are arrived at through direct communications between the
seller or any person acting on its behalf and the purchaser or his investment
representative. The term "investment representative" shall mean a professional
investment advisor acting as agent for the purchaser and independent of the
seller and not acting on behalf of the seller in connection with the
transaction.
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
BANK, 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
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case may be, unless such date is extended by the BANK; provided, however, that
if the Employee Plans subscribe for shares during the Subscription Offering,
such plans will not be required to pay for the shares at the time they subscribe
but rather may pay for such shares of Conversion Stock subscribed for by such
plans at the Actual Purchase Price upon consummation of the Conversion, provided
that, in the case of the employee stock ownership plan ("ESOP") 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 ESOP, at such time, the aggregate Subscription Price
of the shares for which it subscribed. The BANK may make scheduled discretionary
contributions to an Employee Plan provided such contributions do not cause the
BANK to fail to meet its regulatory capital requirement.
Notwithstanding the foregoing, the BANK and the Holding Company, if
utilized, 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 BANK and the Holding Company, in their sole discretion.
Payment for Conversion Stock subscribed for shall be made either in cash
(if delivered in person), check or money order. Alternatively, subscribers in
the Subscription and Community Offerings may pay for the shares subscribed for
by authorizing the BANK on the Order Form to make a withdrawal from the
subscriber's Savings Account at the BANK 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
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withdrawal is from a certificate account, and the remaining balance does not
meet the applicable minimum balance requirement, the certificate shall be
cancelled 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.
Interest will continue to be earned on any amounts authorized for withdrawal
until such withdrawal is given effect. Interest will be paid by the BANK at not
less than the passbook annual rate on payments for Conversion Stock received in
cash or by check or money order. Such interest will be paid from the date
payment is received by the BANK 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 cancelling the
authorization for withdrawal. The BANK 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 BANK has been declared effective by the OTS and the SEC, if the holding
company form of organization
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is utilized, 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 BANK 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 BANK 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 pendency of the Subscription Offering has been given. Such notice
may be included with the proxy statement 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 (if a
holding company form of organization is utilized) or the Offering Circular (if
the holding company form of organization is not utilized) describing the Holding
Company, if utilized, the BANK, 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
BANK, 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 BANK,
and which date will constitute the termination of the Subscription Offering;
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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;
E. An acknowledgment that the recipient of the Order Form has received a
final copy of the Prospectus or Offering Circular, as the case may be, 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 cash (if delivered in person),
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 BANK withdraw said amount from the subscriber's Savings Account at the
BANK) to the BANK; and
G. A statement to the effect that the executed Order Form, once received
by the BANK, may not be modified or amended by the subscriber without the
consent of the BANK.
Notwithstanding the above, the BANK and the Holding Company will not accept
orders received on photocopied or facsimilied order forms.
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17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORMS: INSUFFICIENT PAYMENT
In the event Order Forms (a) are not delivered and are returned to the BANK
by the United States Postal Service or the BANK is unable to locate the
addressee, (b) are not received back by the BANK or are received by the BANK
after the expiration date specified thereon, (c) are defectively filled out or
executed, (d) are not accompanied by the full required 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 BANK 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 BANK may specify. The interpretation of the BANK 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 BANK or the Holding Company in the Conversion shall be subject to the
restriction that, except as
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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:
(i) Any exchange of such shares in connection with a merger or
acquisition involving the BANK or the Holding Company, as the case may be, 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 BANK or the Holding Company, as the case may be, 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 BANK or the Holding Company,
as the case may be, 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.
32
<PAGE>
19. VOTING RIGHTS OF STOCKHOLDERS
Upon conversion, the holders of the capital stock of the BANK shall have
the exclusive voting rights with respect to the BANK as specified in its
charter. The holders of the common stock of the Holding Company (if a holding
company form of organization is utilized) shall have the exclusive voting rights
with respect to the Holding Company.
20. ESTABLISHMENT OF LIQUIDATION ACCOUNT
The BANK 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 BANK for the benefit of the Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain their Savings Accounts at the
BANK. 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 BANK (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 BANK's capital stock.
No merger, consolidation, bulk purchase of assets with assumption of Savings
Accounts and other liabilities,
33
<PAGE>
or similar transactions with an FDIC-insured institution, in which the BANK 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.
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 BANK. 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 Account 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
34
<PAGE>
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.
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 BANK.
21. TRANSFER OF SAVINGS ACCOUNTS AND CONTINUITY OF THE BANK
Upon Conversion, each Savings Account Holder having a Savings Account at
the BANK 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 BANK will succeed to all the rights, interests,
duties and obligations of the BANK before the Conversion, including but not
limited to all rights and interests of the BANK in and to its assets and
properties, whether real, personal or mixed. The BANK will continue to be a
member of the Federal Home Loan Bank System and all its insured savings deposits
will continue to be insured by the FDIC to the extent provided by applicable
law.
22. RESTRICTIONS ON ACQUISITION OF THE BANK 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 (if a holding company form of organization is utilized), shall directly
or indirectly offer to acquire or acquire the beneficial ownership of more than
10% of any class of an equity security of the BANK without the prior written
consent of the OTS.
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<PAGE>
B. 1. The charter of the BANK contains a provision stipulating that no
person, except the Holding Company (if a holding company form of organization is
utilized), for a period of five years following the date of the Conversion shall
directly or indirectly offer to acquire or acquire the beneficial ownership of
more than 10% of any class of an equity security of the BANK, 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, if a
holding company form of organization is utilized, 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, limitations on the calling of special
meetings, a fair price provision for certain business combinations and certain
notice requirements.
36
<PAGE>
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. (S)78c(a)(10).
23. PAYMENT OF DIVIDENDS AND REPURCHASE OF STOCK
The BANK shall not declare or pay a cash dividend on, or repurchase any of,
its capital stock if the effect thereof would cause its 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 BANK may declare dividends, make capital
distributions or repurchase its capital stock in accordance with applicable law
and regulations.
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 BANK's
37
<PAGE>
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 BANK'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 BANK 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 BANK will be voting to adopt a
Federal Stock Savings Bank Charter and Bylaws for a Federal Stock Savings
Association attached as Exhibits I and II to this Plan. The effective date of
the BANK'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 BANK 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 BANK and sale of all
Conversion Stock.
27. REGISTRATION AND MARKETING
Within the time period required by applicable laws and regulations, the
BANK or the Holding Company, as the case may be, 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
38
<PAGE>
years requirement may be fulfilled by any successor to the BANK or any holding
company of the BANK. In addition, the BANK or Holding Company, as the case may
be, 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 system.
28. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
The BANK will make reasonable efforts to comply with the securities laws of
all States in the United States in which Persons entitled to subscribe for
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 BANK or the Holding Company, as the case may be, 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.
29. EXPENSES OF CONVERSION
The BANK shall use its best efforts to assure that expenses incurred by it
in connection with the Conversion shall be reasonable.
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<PAGE>
30. CONDITIONS TO CONVERSION
The Conversion of the BANK pursuant to this Plan is expressly conditioned
upon the following:
(a) Prior receipt by the BANK 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
BANK 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 BANK
shall be final, subject to the authority of the OTS.
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<PAGE>
EXHIBIT I
FEDERAL STOCK CHARTER
FOR
CENTRAL FEDERAL SAVINGS AND
LOAN ASSOCIATION OF WELLSVILLE
Section 1. Corporate Title.
The full corporate title of the institution is Central Federal Savings and
Loan Association of Wellsville (the "ASSOCIATION").
Section 2. Office.
The home office shall be located in the Village of Wellsville, in the
County of Columbiana, 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 seven million (7,000,000), of which six
million (6,000,000) shall be common stock, par value $1.00 per share and of
which one million (1,000,000) 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),
<PAGE>
labor or services actually 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 they 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, however,
-------- -------
that this restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of the Board of
Directors, less than a majority thereof, in the event of default in the
payment of dividends on any class or series of preferred stock;
(ii) To any provision which would require the holders of preferred stock,
voting as a class or series, to approve the merger or consolidation of the
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,
--------
however, 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; or
(iii) To any amendment which would adversely change the specific terms of
any class or series of capital stock as set forth in this Section 5 (or in
any supplementary sections hereto), including any amendment which would
create or enlarge any class or series ranking prior thereto in rights and
preferences. An amendment which increases the number of authorized shares
of any class or series of capital stock, or substitutes the surviving
ASSOCIATION in a merger or consolidation for the ASSOCIATION, shall not be
considered to be such an adverse change.
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<PAGE>
A description of the different 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
------------
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:
(i) The distinctive serial designation and the number of shares
constituting such series;
(ii) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if so,
from which date(s), the payment date(s) for dividends, and the
participating or other special rights, if any, with respect to dividends;
I-3
<PAGE>
(iii) The voting powers, full or limited, if any, of the shares
of such series;
(iv) 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;
(v) 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;
(vi) 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;
(vii) 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;
(viii) The price or other consideration for which the shares of
such series shall be issued; and
(ix) 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 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.
I-4
<PAGE>
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 December 31, 1996 and
_____________ ("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, however, 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 is 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:
(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
I-5
<PAGE>
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 of directors, as stated in the ASSOCIATION's bylaws, shall be
not be less than five nor more than fifteen except when a greater or lesser
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 preliminarily approved by the
Office, which preliminary approval may be granted by the Office pursuant to
regulations specifying preapproved charter amendments, and thereafter approved
by the 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.
I-6
<PAGE>
As adopted by the ASSOCIATION's members on ________________, to be
effective on the date the ASSOCIATION converts from mutual to stock form of
organization.
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION
OF WELLSVILLE
Attest:____________________ By:__________________________
Allan Dingey William R. Williams
Secretary President and Chief Executive Officer
OFFICE OF THRIFT SUPERVISION
Attest:____________ By:________________
Secretary to the Office
Declared effective on
the _______ day of ___________, 1998
I-7
<PAGE>
EXHIBIT II
BYLAWS
OF
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF WELLSVILLE
ARTICLE I. HOME OFFICE
The home office of Central Federal Savings and Loan Association of
Wellsville ("ASSOCIATION") is 601 Main Street, Wellsville, Ohio 43968.
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 150 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 20 nor more than
<PAGE>
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 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 hours, for a period of 20 days prior to such meeting. Such list shall
also be produced and kept open at the time and place of the meeting and shall be
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.
II-2
<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 elected multiplied by the number of shares shall equal or by
distributing such votes on the same principle among any number of candidates.
II-3
<PAGE>
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 appointment at the meeting. If appointed at the meeting, the majority of
the votes present shall determine whether one or three inspectors are to be
appointed. In case any person appointed as inspector fails to appear or fails or
refuses to act, the vacancy may be filled by appointment by the board of
directors in advance of the meeting, or at the meeting by the chairman of the
board or the president.
Unless otherwise prescribed by regulations of the 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 in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the 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 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.
II-4
<PAGE>
Section 16. Informal Action by Shareholders. Any action required to be
--------------------------------------------
taken at a meeting of shareholders, or any other action which may be taken at a
meeting of 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 l. 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 seven
---------------------------
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 request of the chairman of the board, the president
or one-third of the directors. The persons authorized to call special meetings
of the board of directors may fix any place, within the 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.
Section 6. Notice. Written notice of any special meeting shall be given
------------------
to each director at least 24 hours 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
II-5
<PAGE>
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 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
II-6
<PAGE>
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 apply, in respect to the removal
of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class and not to the vote of the outstanding shares
as a whole.
ARTICLE IV. EXECUTIVE AND OTHER COMMITTEES
Section l. 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.
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 meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
II-7
<PAGE>
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, 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.
ARTICLE V. OFFICERS
Section l. Positions. The officers of the ASSOCIATION shall be a
----------------------
president, one or more vice presidents, a secretary and a treasurer, each of
whom shall be elected by the board of directors. The board of directors may also
designate the chairman of the board as an officer. The president may also be
designated by the board of directors as the 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.
II-8
<PAGE>
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.
ARTICLE VI. CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section l. 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.
II-9
<PAGE>
ARTICLE VII. CERTIFICATES FOR SHARES
AND THEIR TRANSFER
Section l. 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
authorized by the board of directors, attested by the secretary or an assistant
secretary, and sealed with the corporate seal or a facsimile thereof. The
signatures of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar,
other than the 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 cancelled and no new certificate shall be issued until the former
certificate for a like number of shares has been surrendered and cancelled,
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 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 December 31 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.
II-10
<PAGE>
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.
II-11
<PAGE>
EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF GRAND CENTRAL FINANCIAL CORP.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
GRAND CENTRAL FINANCIAL CORP.
FIRST: The name of the Corporation is Grand Central 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 seven million (7,000,000)
consisting of:
1. One million (1,000,000) shares of Preferred Stock, par value
one cent ($.01) per share (the "Preferred Stock"); and
2. Six million (6,000,000) 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 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 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
<PAGE>
"Limit"), be entitled, or permitted to any vote in respect of the
shares held in excess of the Limit. The number of votes which may
be cast by any record owner by virtue of the provisions hereof in
respect of Common Stock beneficially owned by such person
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 this Corporation to
effect any transaction which is
2
<PAGE>
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
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Corporation pursuant to any agreement, or upon
exercise of conversion rights, warrants or
options, or otherwise. For all other purposes, the
outstanding Common Stock shall include only Common
Stock then outstanding and shall not include any
Common Stock which may be issuable by this
Corporation pursuant to any agreement, or upon the
exercise of conversion rights, warrants or
options, or otherwise.
c. 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 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
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record of shares of capital stock of the Corporation
entitling the holders thereof to cast a majority of the
votes (after giving effect, if required, to the provisions
of this Section C) entitled to be cast by the holders of
shares of capital stock of the Corporation entitled to vote
shall constitute a quorum at all meetings of the
stockholders, and every reference in this Certificate of
Incorporation to a majority or other proportion of capital
stock (or the holders thereof) for purposes of determining
any quorum requirement or any requirement for stockholder
consent or approval shall be deemed to refer to such
majority or other proportion of the votes (or the holders
thereof) then entitled to be cast in respect of such capital
stock.
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.
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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).
SIXTH:
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A. The number of Directors shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the Whole Board. The Directors 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
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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 Article FOURTH of
this Certificate of Incorporation ("Article FOURTH")), voting together as a
single class.
SEVENTH: The Board of Directors is expressly empowered to adopt, amend or
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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:
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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 to
any Interested Stockholder or any Affiliate of any
Interested Stockholder in exchange for cash, securities or
other property (or a combination thereof) having an
aggregate Fair Market Value (as hereinafter defined)
equaling or exceeding 25% of the combined Fair Market Value
of the outstanding
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common stock of the Corporation and its Subsidiaries, 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
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 in the election of Directors (the "Voting Stock") (after
giving effect to the provisions of Article FOURTH), 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 the affirmative vote of the majority of the
outstanding shares of capital stock entitled to vote after giving effect to
the provisions of Article FOURTH, or such vote (if any), as is required by
law or by this Certificate of Incorporation, if, in the case of any
Business Combination that does not involve any cash or other consideration
being received by the stockholders of the Corporation solely in their
capacity as stockholders of the Corporation, the condition specified in the
following paragraph 1 is met or, in the case of any other Business
Combination, 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).
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<PAGE>
2. All of the following conditions shall have been met:
a. The aggregate amount of the cash and the Fair Market
Value as of the date of the consummation of the
Business Combination of consideration other than cash
to be received per share by the holders of Common Stock
in such Business Combination shall at least be equal to
the higher of the following:
(1) (if applicable) the Highest Per Share Price (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
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<PAGE>
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 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
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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
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 formed for the purpose of
acquiring, holding or disposing of securities or any other
entity.
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<PAGE>
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.
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
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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 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.
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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
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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 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 and loan association to fulfill the
objectives of a stock form savings and loan association under applicable
statutes and regulations.
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TENTH:
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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 (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
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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 pursuant to the
terms of an undertaking the Corporation shall be entitled to recover such
expenses upon a final adjudication that, the indemnitee has not met any
applicable standard for indemnification set forth in the Delaware General
Corporation Law. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such suit that
indemnification of the indemnitee is proper in the circumstances because
the indemnitee has met the applicable standard of conduct set forth in the
Delaware General Corporation Law, nor an actual determination by the
Corporation (including its Board of Directors, independent legal counsel,
or its stockholders) that the indemnitee has not met such applicable
standard of conduct, shall create a presumption that the indemnitee has not
met the applicable standard of conduct or, in the case of such a suit
brought by the indemnitee, be a defense to such suit. In any suit brought
by the indemnitee to enforce a right to indemnification or to an
advancement of expenses hereunder, or by the Corporation to recover an
advancement of expenses pursuant to the terms of an undertaking, the burden
of proving that the indemnitee is not entitled to be indemnified, or to
such advancement of expenses, under this Article 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.
16
<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.
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:
Name Mailing Address
---- -------------------------
Mia Sunmee Kim Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, D.C. 20016
17
<PAGE>
I, THE UNDERSIGNED, being the incorporator, for the purpose of forming a
corporation under the laws of the State of Delaware, does 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 10th day of September,
1998.
/s/ Mia Sunmee Kim
-------------------
Mia Sunmee Kim
Incorporator
18
<PAGE>
EXHIBIT 3.2 BYLAWS OF GRAND CENTRAL FINANCIAL CORP.
<PAGE>
EXHIBIT 3.2
GRAND CENTRAL 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.
--------- ------
At any meeting of the stockholders, the holders of a majority of all of the
shares of the stock entitled to vote at the meeting, present in person or by
proxy (after giving effect to the provisions of Article FOURTH of the
Corporation's Certificate of Incorporation), shall constitute a quorum for
<PAGE>
all purposes, unless or except to the extent that the presence of a larger
number may be required by law. Where a separate vote by a class or classes is
required, a majority of the shares of such class or classes present in person or
represented by proxy (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 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 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
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
2
<PAGE>
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 request
of the Board of Directors, any person nominated by the Board of Directors for
election as a Director shall furnish to the Secretary of the Corporation that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible
3
<PAGE>
for election as a Director of the Corporation unless nominated in accordance
with the provisions of this Section 6(c). The Officer of the Corporation or
other person presiding at the meeting shall, if the facts so warrant, determine
that a nomination was not made in accordance with such provisions and, if he or
she 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 seven.
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 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 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, including, without limiting the generality of the foregoing,
the unqualified power:
(1) To declare dividends from time to time in accordance with law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such form as
it may determine, of written obligations of every kind, negotiable or non-
negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any Officer of the Corporation with or without cause,
and from time to time to devolve the powers and duties of any Officer upon
any other person for the time being;
(5) To confer upon any Officer of the Corporation the power to
appoint, remove and suspend subordinate Officers, employees and agents;
(6) To adopt from time to time such stock, option, stock purchase,
bonus or other compensation plans for Directors, Officers, employees and
agents of the Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement, and other
benefit plans for Directors, Officers, employees and agents of the
Corporation and its subsidiaries as it may determine;
(8) To adopt from time to time regulations, not inconsistent with
these Bylaws, for the management of the Corporation's business and affairs;
and
(9) To fix the Compensation of officers and employees of the
Corporation and its subsidiaries as it may determine.
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.
7
<PAGE>
ARTICLE III - COMMITTEES
Section 1. Committees of the Board of Directors.
--------- ------------------------------------
The Board of Directors, by a vote of a majority of the Board of Directors,
may from time to time designate committees of the Board, with such lawfully
delegable powers and duties as it thereby confers, to serve at the pleasure of
the Board and shall, for 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. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt a certificate
of ownership and merger pursuant to Section 253 of the Delaware General
Corporation Law if the resolution which designates the committee or a
supplemental resolution of the Board of Directors shall so provide. In the
absence or disqualification of any member of any committee and any alternate
member in his 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. 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.
8
<PAGE>
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.
Section 2. Chairman of the Board of Directors.
--------- ----------------------------------
The Chairman of the Board, subject to the provisions of these Bylaws and to
the direction of the Board of Directors, when present shall preside at all
meetings of the stockholders of the Corporation. The Chairman of the Board
shall perform such duties designated to him by the Board of Directors and which
are delegated to him by the Board of Directors by resolution of the Board of
Directors.
Section 3. President and Chief Executive Officer.
--------- -------------------------------------
The President and Chief Executive Officer 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 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
9
<PAGE>
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 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.
10
<PAGE>
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 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.
11
<PAGE>
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.
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.
12
<PAGE>
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
duties, be fully protected in relying in good faith upon the books of account or
other records of the Corporation and upon such information, opinions, reports or
statements presented to the Corporation by any of its Officers or employees, or
committees of the Board of Directors so designated, or by any other person as to
matters which such Director or committee member reasonably believes are within
such other person's professional or expert competence and who has been selected
with reasonable care by or on behalf of the Corporation.
Section 4. Fiscal Year.
--------- -----------
The fiscal year of the Corporation shall be as fixed by the Board of
Directors.
Section 5. Time Periods.
--------- ------------
In applying any provision of these 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.
13
<PAGE>
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 September 10, 1998, the date of
incorporation of Grand Central Financial Corp.
14
<PAGE>
EXHIBIT 4.0 DRAFT STOCK CERTIFICATE OF GRAND CENTRAL FINANCIAL CORP.
<PAGE>
EXHIBIT 4.0
COMMON STOCK COMMON STOCK
PAR VALUE $.01 SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP __________
GRAND CENTRAL 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
GRAND CENTRAL FINANCIAL CORP.
The shares represented by this certificate are transferable only on the stock
transfer books of the Corporation by the holder of record hereof, or by his duly
authorized attorney or legal representative, upon the surrender of this
certificate properly endorsed. This certificate and the shares represented
hereby are issued and shall be held subject to all the provisions of the
Articles 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. The shares represented by this Certificate are
not insured by the Federal Deposit Insurance Corporation or any other government
agency.
IN WITNESS THEREOF, Grand Central 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 and Secretary
Chief Executive Officer
<PAGE>
GRAND CENTRAL 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.
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
Articles of Incorporation or to amend certain provisions of the Articles of
Incorporation.
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants UNIF GIFTS MIN ACT - ________ custodian________
in common (Cust) (Minor)
TEN ENT - as tenants under Uniform Gifts to Minors Act
by the entireties ____________________
(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 ASSIGNEE
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
_______________________________________________ shares of the common stock
represented by the within Certificate, and do hereby irrevocably constitute and
appoint
___________________________________________________________________________,
Attorney, to transfer the said 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
<PAGE>
EXHIBIT 5.0 DRAFT OPINION OF MULDOON, MURPHY & FAUCETTE RE: LEGALITY
<PAGE>
Exhibit 5.0
DRAFT
September __, 1998
Board of Directors
Grand Central Financial Corp.
601 Main Street
Wellsville, Ohio 43968
Re: The offering of up to 2,645,000 shares of
Grand Central Financial Corp. Common Stock
------------------------------------------
Ladies and Gentlemen:
You have requested our opinion concerning certain matters of Delaware law
in connection with the conversion of Central Federal Savings and Loan
Association of Wellsville (the "Association"), a federally-chartered savings and
loan association, from the mutual form of ownership to a federally-chartered
capital stock savings association (the "Conversion"), and the related
subscription offering, community offering and syndicated community offering (the
"Offerings") by Grand Central Financial Corp., a Delaware corporation (the
"Company"), of up to 2,300,000 shares of its common stock, par value $.01 per
share ("Common Stock") (2,645,000 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
Secretary of State of Delaware on September 10, 1998 (the "Certificate of
Incorporation"); the Company's Bylaws; the Company's Registration Statement on
Form SB-2, as filed with the Securities and Exchange Commission initially on
September __, 1998 (the "Registration Statement"); a consent of the sole
incorporator of the Company; the ESOP trust agreement and the ESOP loan
agreement; 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
Grand Central Financial Corp.
September __, 1998
Page 2
In rendering this opinion, we have relied upon the opinion of Morris,
Nichols, Arsht & Tunnell as to matters of Delaware law, upon which opinion we
believe you are justified in relying. We have examined the opinion of Morris,
Nichols, Arsht & Tunnell, which opinion is in form satisfactory to us.
We understand that the Company will loan to the trust for the Bank'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) will be duly authorized and, when such shares are sold and paid for
or granted in accordance with the terms set forth in the Prospectus and such
resolution of the Pricing Committee, 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 extent that subsection obligates any
person to provide to the Board the information such subsection
authorizes the Board to demand, and the
<PAGE>
Board of Directors
Grand Central Financial Corp.
September __, 1998
Page 3
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 SB-2 and the Form AC and to the use of the name of our firm
where it appears in the Registration Statement, Form AC and Prospectus.
Very truly yours,
MULDOON, MURPHY & FAUCETTE
<PAGE>
EXHIBIT 5.1 DRAFT OPINION OF MORRIS, NICHOLS, ARSHT & TUNNELL RE: LEGALITY
<PAGE>
EXHIBIT 5.1
SEPTEMBER 22, 1998 DRAFT
[Morris, Nichols, Arsht & Tunnell Letterhead]
[Date]
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, DC 20016
Ladies and Gentlemen:
You have requested our opinion concerning certain matters of Delaware
law in connection with the conversion of Central Federal Savings and Loan
Association of Wellsville, a federally chartered savings and loan association
(the "Association"), from the mutual form of ownership to stock form of
ownership (the "Conversion"), and the subscription and community offering (the
"Offering"), in connection with the Conversion, by Grand Central Financial
Corp., a Delaware corporation (the "Company"), of up to ________ shares of its
common stock, par value $.01 per share (the "Common Stock").
In connection with your request for our opinion, you have provided to
us, and we have reviewed, the Company's certificate of incorporation (the
"Certificate of Incorporation"), its bylaws, 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"), a consent of the sole incorporator of the Company,
resolutions of the Board of Directors of the Company (the "Board") concerning,
inter alia, the organization of the Company, the Offering and the designation of
- ----- ----
a Pricing Committee of the Board (the "Pricing Committee"), and the form of
stock certificate approved by the Board to represent shares of Common Stock. We
have also obtained a certificate of the Delaware Secretary of State as to the
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 2
Company's good standing as a Delaware corporation. Capitalized terms used but
not defined herein shall have the meanings given them in the Certificate of
Incorporation.
We understand that the Company will loan to the Association'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 below, that: (a) the Board has duly authorized
the loan to the ESOP (the "Loan"); (b) the Loan serves a valid corporate
purpose; (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 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 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.
We call your attention to the fact that the opinions expressed herein
are limited in all respects to matters of Delaware corporate law. We express no
opinion concerning the requirements of any other law, rule or regulation, state
or federal, applicable to the Association, the Company, the Offering, or the
Conversion, including, without limitation, those applicable to federally
chartered savings and loan associations or their holding companies.
Based upon and subject to the foregoing, 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, with the
corporate power and authority to own its property and conduct its business as
now conducted as described in the Prospectus.
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 3
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 Offering, 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 non-assessable, with no personal liability for the payment of the Company's
debts arising solely by virtue of the ownership thereof; such issuance and sale
will not be in violation of or subject to any preemptive rights provided for by
Delaware law or by the Certificate of Incorporation.
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 non-assessable status of the Common Stock:
(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 extent that
provision obligates any person to provide to the Board the information such
subsection authorizes the Board to demand, and the provision of Section 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,
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.
<PAGE>
Muldoon, Murphy & Faucette
[Date]
Page 4
(b) Article NINTH of the Certificate of Incorporation, 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.
Very truly yours,
<PAGE>
EXHIBIT 8.0 DRAFT OPINION OF MULDOON, MURPHY & FAUCETTE RE: FEDERAL TAX
MATTERS
<PAGE>
EXHIBIT 8.0
DRAFT
_____________, 1998
Board of Directors
Central Federal Savings & Loan Association of Wellsville
601 Main Street
Wellsville, Ohio 43968-1662
Board of Directors
Grand Central Financial Corp.
601 Main Street
Wellsville, Ohio 43968-1662
Re: Certain Federal Tax Consequences of the Conversion of Central Federal
Savings & Loan Association of Wellsville from a Federally-chartered
Mutual Savings and Loan Association to a Federally-chartered Capital
Stock Savings Association and the Offer and Sale of Common Stock of
Grand Central Financial Corp. (the "Conversion")
Ladies and Gentlemen:
You have requested an opinion on certain federal income tax consequences of
the proposed conversion of Central Federal Savings & Loan Association of
Wellsville (the "Association") from a federally-chartered mutual savings and
loan association to a federally-chartered capital stock savings association and
the acquisition of the Association's capital stock by Grand Central Financial
Corp., a Delaware corporation (the "Holding Company"), pursuant to the plan of
conversion adopted by the Board of Directors on June 11, 1998 (the "Plan of
Conversion").
The proposed transaction is described in the Prospectus and the Plan of
Conversion, and the tax consequences of the proposed transaction will be as set
forth in the section of this letter entitled "FEDERAL TAX OPINION."
<PAGE>
Board of Directors
, 1998 Draft
- --------------
Page 2
We have made such inquiries and have examined such documents and records as
we have deemed appropriate for the purpose of this opinion. In rendering this
opinion, we have received certain standard representations of the Holding
Company and the Association concerning the Holding Company and the Association
as well as the transaction ("Representations"). These Representations are
required to be furnished prior to the execution of this letter and again prior
to the closing of the Conversion. We will rely upon the accuracy of the
Representations of the Holding Company and the Association and the statements of
facts contained in the examined documents, particularly the Plan of Conversion.
We have also assumed the authenticity of all signatures, the legal capacity of
all natural persons and the conformity to the originals of all documents
submitted to us as copies. Each capitalized term used herein, unless otherwise
defined, has the meaning set forth in the Plan of Conversion. We have assumed
that the Conversion will be consummated strictly in accordance with the terms of
the Plan of Conversion.
The Plan of Conversion and the Prospectus contain a detailed description of
the Conversion. These documents as well as the Representations to be provided
by the Holding Company and the Association are incorporated in this letter as
part of the statement of the facts.
Central Federal Savings & Loan Association of Wellsville, with its
headquarters office in Wellsville, Ohio, is a federally-chartered mutual savings
and loan 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 itself into a federally-chartered capital stock
savings Association (the "Converted Association"), the stock of which will be
held entirely by the Holding Company. Assuming that the Holding Company form of
organization is utilized, the Holding Company will acquire the stock of the
Association by purchase, in exchange for the Conversion proceeds that are not
permitted to be retained by the Holding Company. The Holding Company will apply
to the Office of Thrift Supervision ("OTS") to retain up to 50% of the proceeds
received from the Conversion. The aggregate sales price of the Common Stock
issued in the Conversion will be based on an independent appraiser's valuation
of the estimated pro forma market value of the Common Stock of the Converted
Association. The Conversion and sale of the Common Stock will be subject to
approval by the OTS and the approval of the Voting Members.
<PAGE>
Board of Directors
, 1998 Draft
- --------------
Page 3
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. 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 on the Eligibility Record
Date and/or Supplemental Eligibility Record Date or to such balance as it may be
subsequently reduced, as provided in the Plan of Conversion.
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, 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.
* * *
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 constructively received under the Plan of Conversion will, in each
instance, 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 the 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 $50 on the Eligibility Record Date or the
Supplemental Eligibility Record Date will be less than 1% of the total
fair market value of all deposit accounts of the Association.
<PAGE>
Board of Directors
, 1998 Draft
- --------------
Page 4
(c) Immediately following the Conversion, the Eligible Account Holders and
the 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 other than
in the ordinary course of business.
(f) The Holding Company and the Converted Association have no current plan
or intention to redeem or otherwise acquire any of the Common Stock
issued in the Conversion transaction.
(g) Immediately after the Conversion, the assets and liabilities of the
Converted Association will be identical to the assets and liabilities
of the Association immediately prior to the Conversion, 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 Internal
Revenue Code of 1986, as amended.
(i) None of the shares of the Common 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 compensation by means of 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.
<PAGE>
Board of Directors
, 1998 Draft
- --------------
Page 5
(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.
(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
section 368(a)(3)(A) of the Code.
(l) Upon the completion of the Conversion, the Holding Company will own
and hold 100% of the issued and outstanding capital stock of the
Converted Association and no other shares of capital stock of the
Converted Association will be issued and/or outstanding. At the time
of the Conversion, the Converted Association does not have any plan or
intention to issue additional shares of its stock following the
transaction. Further, no shares of preferred stock of the Converted
Association will be issued and/or outstanding.
(m) Upon the completion of the Conversion, there will be no rights,
warrants, contracts, agreements, commitments or understandings with
respect to the capital stock of the Converted Association, nor will
there be any securities outstanding which are convertible into the
capital stock of the Converted Association.
(n) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders, or others in lieu of (a)
nontransferable subscription rights, or (b) an interest in the
liquidation account of the Converted Association.
(o) The Association has utilized a reserve for bad debts in accordance
with section 593 and, following the Conversion, to the extent allowed
under the Code, the Converted Association shall maintain a reserve for
bad debts in accordance with the applicable provisions of the Code.
(p) The Association currently satisfies the 60% "qualified assets" test of
section 7701(a)(19) of the Code. Management expects the Converted
Association to be able to continue to satisfy the test in the future.
The Converted Association will also satisfy the "qualified thrift
lender" tests set out in sections 301 and 303 of the Financial
Institutions Reform, Recovery and Enforcement Act of 1989.
(q) Depositors will pay the expenses of the Conversion solely applicable
to them, if any. The Holding Company and the Association will each
pay expenses of the transaction attributable to them and will not pay
any expenses solely attributable to the depositors or to the Holding
Company shareholders.
<PAGE>
Board of Directors
, 1998 Draft
- --------------
Page 6
(r) 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.
(s) The liquidation account will be maintained by the Association for the
benefit of the Eligible Account Holders and the Supplemental Eligible
Account Holders who continue to maintain their Savings Accounts at the
Association.
(t) There is no plan or intention for the Converted Association to be
liquidated or merged with another corporation following this proposed
transaction.
(u) The liabilities of the Association assumed by the Converted
Association plus the liabilities, if any, to which the transferred
assets are subject were incurred by the Association in the ordinary
course of its business and are associated with the assets transferred.
(v) The Association currently has no net operating losses for federal tax
purposes, and has no such losses available for carryover to future tax
years. The Association has neither generated nor carried forward a
net operating loss for federal tax purposes in the past ten tax years.
(w) The proprietary interests of the Eligible Account Holders and the
Supplemental Eligible Account Holders in the Association arise solely
by virtue of the fact that they are account holders in the
Association.
LIMITATIONS ON OPINION
----------------------
Our opinions expressed herein are based solely upon current provisions of
the Internal Revenue Code of 1986, as amended, including applicable regulations
thereunder and current judicial and administrative authority. Any future
amendments to the Code or applicable regulations, or new judicial decisions or
administrative interpretations, any of which could be retroactive in effect,
could cause us to modify our opinion. No opinion is expressed herein with
regard to the federal, state, or city tax consequences of the Conversion under
any section of the Code except if and to the extent specifically addressed.
<PAGE>
Board of Directors
, 1998 Draft
- --------------
Page 7
FEDERAL TAX OPINION
-------------------
Based solely upon the foregoing Representations and information and
assuming the transaction occurs in accordance with the Plan of Conversion, and
taking into consideration the limitations noted throughout this opinion, it is
our opinion that under current federal income tax law:
(1) Pursuant to the Conversion, the changes at the corporate level other
than changes in the form of organization will be insubstantial. Based
upon that fact and the fact that the equity interest of a depositor in
a mutual savings and loan association is more nominal than real,
unlike that of a shareholder of a corporation, the Conversion of the
Association from a mutual savings and loan association to a stock
savings Association is a tax-free reorganization since it is a mere
change in identity, form or place of organization within the meaning
of section 368(a)(1)(F) of the Code (see Rev. Rul. 80-105, 1980-1 C.B.
78). Neither the Association nor the Converted Association shall
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 shall 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) of the
Code).
(3) The basis of the assets of the Association in the hands of the
Converted Association shall be the same as the basis of such assets in
the hands of the Association immediately prior to the Conversion
(Section 362(b) of the Code).
(4) The holding period of the assets of the Association in the hands of
the Converted Association shall include the period during which the
Association held the assets (Section 1223(2) of the Code).
(5) No gain or loss shall be recognized by the Eligible Account Holders
and the Supplemental Eligible Account Holders of the Association on
the issuance to
<PAGE>
Board of Directors
, 1998 Draft
- --------------
Page 8
them of withdrawable deposit accounts in the Converted Association
plus interests in the liquidation account of the Converted Association
in exchange for their deposit accounts in the Association or to the
other depositors on the issuance to them of withdrawable deposit
accounts (Section 354(a) of the Code).
(6) Provided that the amount to be paid for such stock pursuant to the
subscription rights is equal to the fair market value of the stock, no
gain or loss will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders upon the distribution to them of
the nontransferable subscription rights to purchase shares of stock in
the Holding Company (Section 356(a)). Gain realized, if any, by the
Eligible Account Holders and Supplemental Eligible Account Holders on
the distribution to them of nontransferable subscription rights to
purchase shares of Common Stock will be recognized but only in an
amount not in excess of the fair market value of such subscription
rights (Section 356(a)). 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 of the deposit accounts in the Converted Association to be
received by the Eligible Account Holders, Supplemental Eligible
Account Holders and other depositors of the Association will be the
same as the basis of their deposit accounts in the Association
surrendered in exchange therefor (Section 358(a)(1) of the Code). The
basis of the interests in the liquidation account of the Converted
Association to be received by the Eligible Account Holders of the
Association shall be zero (Rev. Rul. 71-233, 1971-1 C.B. 113). The
basis of the Holding Company Common Stock to its stockholders will be
the purchase price thereof plus the basis, if any, of nontransferable
subscription rights (Section 1012 of the Code). Accordingly, assuming
the nontransferable subscription rights have no value, the basis of
the Common Stock to the Eligible Account Holders and Supplemental
Eligible Account Holders will be the amount paid therefor. The holding
period of the Common Stock purchased pursuant to the exercise of
subscription rights shall commence on the date on which the right to
acquire such stock was exercised (Section 1223(6) of the Code).
Our opinion under paragraph (6) above is predicated on the Representation
that no person shall receive any payment, whether in money or property, in lieu
of the issuance of subscription rights. Our opinion under paragraphs (6) and
(7) above assumes that the subscription rights to purchase shares of Common
Stock received by Eligible Account Holders, Supplemental Eligible Account
Holders and Other Members have a fair market value of zero. We understand that
you
<PAGE>
Board of Directors
, 1998 Draft
- --------------
Page 9
have received a letter from Keller & Company, Inc. that the subscription
rights do not have any value. We express no view regarding the valuation of the
subscription rights.
If the subscription rights are subsequently found to have a fair market
value, income may be recognized by various recipients of the subscription rights
(in certain cases, whether or not the rights are exercised) and Holding Company
and/or the Converted Association may be taxable on the distribution of the
subscription rights.
* * *
Since this letter is rendered in advance of the closing of this
transaction, we have assumed that the transaction will be consummated in
accordance with the Plan of Conversion as well as all the information and
Representations referred to herein. Any change in the transaction could cause
us to modify our opinion.
We consent to the inclusion of this opinion as an exhibit to the Form AC
and Form SB-2 Registration Statement of Grand Central Financial Corp. and the
references to and summary of this opinion in such Form AC and Form SB-2
Registration Statement.
Sincerely,
MULDOON, MURPHY & FAUCETTE
<PAGE>
EXHIBIT 8.1 DRAFT OPINION OF CROWE CHIZEK AND COMPANY LLP
RE: STATE TAX MATTERS
<PAGE>
DRAFT
EXHIBIT 8.1
September 16, 1998
Board of Directors
Central Federal Savings & Loan Association of Wellsville
601 Main Street
Wellsville, Ohio 43968-1662
Board of Directors
Grand Central Financial Corp.
601 Main Street
Wellsville, Ohio 43968-1662
RE: Ohio business franchise tax and Ohio personal income tax opinion relating to
the proposed Conversion of Central Federal Savings & Loan Association of
Wellsville, a federally-chartered mutual savings and loan association, to a
federally-chartered capital stock savings association and the concurrent
acquisition of 100% of the newly-issued stock of such corporation by Grand
Central 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
Central Federal Savings & Loan Association of Wellsville, a federally-chartered
mutual savings and loan association ("Association") to a federally-chartered
capital stock savings association ("Converted Association") and the concurrent
acquisition of 100% of the newly-issued stock of such corporation by Grand
Central 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 11,
1998. A summary of the proposed Conversion and the related assumptions regarding
such Conversion are documented in the federal tax opinion letter dated XXXXXXX,
1998, as provided by Muldoon, Murphy & Faucette.
Our opinion is based solely upon our understanding that, pursuant to the Plan of
Conversion, Association will, through a series of transactions, convert from a
<PAGE>
Board of Directors
September 16, 1998
DRAFT
Page 2
federally-chartered mutual savings and loan association to a federally-chartered
capital stock savings association and issue 100% of its newly-issued stock to
Holding Company.
In addition, we have assumed, based solely on the opinion of Muldoon, Murphy &
Faucette, as presented in their letter dated XXXXXXX, 1998, for purposes of this
opinion, that the following federal tax consequences will result:
-------
1) The Conversion of Association to Converted Association 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
Association, Converted Association or Holding Company as a result of the
Conversion.
3) Taxable income will be recognized for federal income tax purposes by the
Eligible Account Holders and Supplemental Eligible Account Holders of
Association only to the extent of the taxable value, if any, of the stock
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 5733.056(B), 5733.05(C) and 5733.031(A) 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 XXXXXXX, 1998, as provided by Muldoon, Murphy & Faucette, 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 Association upon its Conversion from a
federally-chartered mutual savings and loan association to a federally-
chartered capital stock
<PAGE>
Board of Directors
September 16, 1998
DRAFT
Page 3
savings association because such conversion will have no effect on the
federal taxable income of Association and because Association is exempt from
the Ohio income tax.
2) No gain or loss will be recognized by Holding Company or Converted
Association upon the acquisition of the stock of Converted Association by
Holding Company because such 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) Ohio taxable income will be recognized by Eligible Account Holders and
Supplemental Eligible Account Holders of Association only to the extent that
taxable income is recognized with respect to the stock subscription rights
received in the Eligible Account Holders' and Supplemental Eligible Account
Holders' 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,
Crowe, Chizek and Company LLP
<PAGE>
EXHIBIT 10.1 FORM OF CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF
WELLSVILLE EMPLOYEE STOCK OWNERSHIP PLAN
<PAGE>
EXHIBIT 10.1
FORM OF
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF WELLSVILLE
EMPLOYEE STOCK OWNERSHIP PLAN
EFFECTIVE [____________, 199_]
<PAGE>
FORM OF
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF WELLSVILLE
EMPLOYEE STOCK OWNERSHIP PLAN
CERTIFICATION
I, William R. Williams, President and Chief Executive Officer of Central
Federal Savings and Loan Association of Wellsville, a federally-chartered
savings and loan association, hereby certify that the attached Central Federal
Savings and Loan Association of Wellsville Employee Stock Ownership Plan,
effective [_________________, 199_], was adopted at a duly held meeting of the
Board of Directors of the Association.
ATTEST: Central Federal Savings and Loan
Association of Wellsville
________________________ By: -------------------------------
William R. Williams
Corporate Secretary President and Chief Executive Officer
- ------------------------
Date
<PAGE>
FORM OF
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF WELLSVILLE
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C>
Section 1 - Introduction.....................................................
Section 2 - Definitions......................................................
Section 3 - Eligibility and Participation....................................
Section 4 - Contributions....................................................
Section 5 - Allocation and Valuation.........................................
Section 6 - Vesting and Forfeitures..........................................
Section 7 - Distributions....................................................
Section 8 - Voting of Company Stock and Tender Offers........................
Section 9 - The Committee and Plan Administration............................
Section 10 - Rules Governing Benefit Claims..................................
Section 11 - The Trust.......................................................
Section 12 - Adoption, Amendment and Termination.............................
Section 13 - General Provisions..............................................
Section 14 - Top-Heavy Provisions............................................
</TABLE>
<PAGE>
FORM OF
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF WELLSVILLE
EMPLOYEE STOCK OWNERSHIP PLAN
SECTION 1
INTRODUCTION
SECTION 1.01 NATURE OF THE PLAN.
------------------
Effective as of [____________, 199_], (the "Effective Date"), Central Federal
Savings and Loan Association of Wellsville, a federally-chartered savings and
loan association (the "Association"), hereby establishes the Central Federal
Savings and Loan Association of Wellsville Employee Stock Ownership Plan (the
"Plan") to enable Eligible Employees (as defined in Section 2.01(q) of the Plan)
to acquire stock ownership interests in Grand Central Financial Corp., the
holding company of the Association (the "Company"). The Association intends this
Plan to be a tax-qualified stock bonus plan under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code") and an employee stock ownership
plan within the meaning of Section 407(d)(6) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") and Sections 409 and 4975(e)(7) of
the Code. The Plan is designed to invest primarily in the common stock of the
Company, which stock constitutes "qualifying employer securities" within the
meaning of Section 407(d)(5) of ERISA and Sections 409(l) and 4975(e)(8) of the
Code. Accordingly, the Plan and Trust Agreement (as defined in Section 2.01(oo)
of the Plan) shall be interpreted and applied in a manner consistent with the
Association's intent for it to be a tax-qualified plan designed to invest
primarily in qualifying employer securities.
SECTION 1.02 EMPLOYERS AND AFFILIATES.
------------------------
The Association and each of its Affiliates (as defined in Section 2.01(c) of the
Plan) which, with the consent of the Association, adopt the Plan pursuant to the
provisions of Section 12.01 of the Plan are collectively referred to as the
"Employers" and individually as an "Employer." The Plan shall be treated as a
single plan with respect to all participating Employers.
<PAGE>
SECTION 2
DEFINITIONS
SECTION 2.01 DEFINITIONS.
-----------
In this Plan, whenever the context so indicates, the singular or the plural
number and the masculine or feminine gender shall be deemed to include the
other, the terms "he," "his," and "him," shall refer to a Participant or
Beneficiary, as the case may be, and, except as otherwise provided, or unless
the context otherwise requires, the capitalized terms shall have the following
meanings:
(a) "ACCOUNT" or "ACCOUNTS" mean a Participant's or Beneficiary's Company Stock
Account and/or his Other Investments Account, as the context so requires.
(b) "ACQUISITION LOAN" means a loan (or other extension of credit, including an
installment obligation to a "party in interest" (as defined in Section 3(14) of
ERISA)) incurred by the Trustee in connection with the purchase of Company
Stock.
(c) "AFFILIATE" means any corporation, trade or business, which, at the time of
reference, is together with the Association, a member of a controlled group of
corporations, a group of trades or businesses (whether or not incorporated)
under common control, or an affiliated service group, as described in Sections
414(b), 414(c), and 414(m) of the Code, respectively, or any other organization
treated as a single employer with the Association under Section 414(o) of the
Code; provided, however, that, where the context so requires, the term
"Affiliate" shall be construed to give full effect to the provisions of Sections
409(l)(4) and 415(h) of the Code.
(d) "ASSOCIATION" means Central Federal Savings and Loan Association of
Wellsville and any entity which succeeds to the business of Central Federal
Savings and Loan Association of Wellsville and which adopts this Plan in
accordance with the provisions of Section 12.02 of the Plan or by written
agreement assuming the obligations under the Plan.
(e) "BENEFICIARY" means the person(s) entitled to receive benefits under the
Plan following a Participant's death, pursuant to Section 7.03 of the Plan.
(f) "CHANGE IN CONTROL" means, with respect to the Association or the Company,
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, or 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
2
<PAGE>
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 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.
(g) "CODE" means the Internal Revenue Code of 1986, as amended.
(h) "COMMITTEE" means the individual(s) responsible for the administration of
the Plan in accordance with Section 9 of the Plan.
(i) "COMPANY" means Grand Central Financial Corp. and any entity which succeeds
to the business of Grand Central Financial Corp.
(j) "COMPANY STOCK" means shares of the voting common stock or preferred stock,
meeting the requirements of Section 409 of the Code and Section 407(d)(5) of
ERISA, issued by the Association or its Affiliates.
(k) "COMPANY STOCK ACCOUNT" means the account established and maintained in the
name of each Participant or Beneficiary to reflect his share of the Trust Fund
invested in Company Stock.
(l) "COMPENSATION" means
3
<PAGE>
(i) an Employee's wages as defined in Section 3401(a) of the Code
(exclusive of any compensation deferred from a prior year) together with
all other compensatory payments to an Employee by the Employer with respect
to which the Employer must furnish to the Employee a written statement
pursuant to Sections 6041(d) and 6051(a) of the Code, but determined
without regard to any rules which limit the remuneration included in wages
based on the nature or location of the employment or services performed,
excluding bonuses, overtime, and commissions.
(ii) Notwithstanding the above, Compensation shall include any amount which
is contributed by the Employer pursuant to a salary reduction agreement and
which is not includible in the gross income of the employee under Sections
125 and 402(e)(3). Further, to the extent compensation, as defined in
clause (i) above fails to satisfy Section 414(s) of the Code in connection
with the Plan satisfying any other applicable provisions of the Code, then
bonuses, overtime, and commissions shall not be excluded for purposes of
clause (i).
A Participant's Compensation shall not exceed $150,000 (as periodically adjusted
pursuant to Section 401(a)(17) of the Code (the "Compensation Limit")). If a
Participant's Compensation is determined on a basis of a period of less than
twelve (12) calendar months, then the Compensation Limit for such Participant
shall be the Compensation Limit in effect for the Plan Year in which the period
begins multiplied by a ratio obtained by dividing the number of full months in
the period by twelve (12).
(m) "CONVERSION DATE" means the date the Company first issues common stock
pursuant to its initial public offering.
(n) "DISABILITY" means a physical or mental impairment, certified by one or more
physician(s) designated by the Committee, which prevents him from doing any
substantial gainful activity for which he is fitted by education, training or
experience, and which is expected to last at least 12 months or to result in
death.
(o) "EFFECTIVE DATE" means [___________, 199_].
(p) "ELIGIBILITY COMPUTATION PERIOD" means a twelve (12) consecutive month
period. An Employee's first Eligibility Computation Period shall begin on date
he first performs an Hour of Service for the Employer ("employment commencement
date"). Subsequent Eligibility Computation Periods shall be the Plan Year,
commencing with the first Plan Year that includes the first anniversary date of
the Employee's employment commencement date. To determine an Eligibility
Computation Period after a One Year Break in Service, the Plan shall use the
twelve (12) consecutive month period beginning on the date the Employee again
performs an Hour of Service for the Employer.
(q) "ELIGIBLE EMPLOYEE" means any Employee who is not precluded from
participating in the Plan by reason of the provisions of Section 3.02 of the
Plan.
4
<PAGE>
(r) "EMPLOYEE" means any person who is employed by the Association or an
Affiliate in any capacity, any portion of whose income is subject to withholding
of income tax and/or for whom Social Security contributions are made by the
Association or an Affiliate, as well as any other person qualifying as a common-
law employee of the Association or an Affiliate, except that such term shall not
include:
(i) Any individual who performs services for the Association or an
Affiliate and who is classified and paid as an independent contractor
(regardless of his classification for federal tax or other legal purpose)
by the Association or Affiliate and
(ii) Any individual, whether a "leased employee" (within the meaning of
Section 414(n) of the Code) or otherwise, who performs services for the
Association or an Affiliate pursuant to an agreement between the
Association or Affiliate and any other person, including a leasing
organization.
(s) "EMPLOYER" or "EMPLOYERS" means the Association and its Affiliates, which
adopt the Plan in accordance with the provisions of Section 12.01 of the Plan,
and any entity which succeeds to the business of the Association or its
Affiliates and which adopts the Plan in accordance with the provisions of
Section 12.02 of the Plan or by written agreement assumes the obligations under
the Plan.
(t) "ENTRY DATE" means the first day of each January and July coinciding with or
next following the date the Employee satisfies the eligibility requirements
under Section 3.01 of the Plan.
(u) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
(v) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(w) "FINANCED SHARES" means shares of Company Stock acquired by the Trustee with
the proceeds of an Acquisition Loan, which shall constitute "qualifying employer
securities" under Section 409(l) of the Code and any shares of Company Stock
received upon conversion or exchange of such shares.
(x) "HIGHLY COMPENSATED EMPLOYEE" means an Employee who, for a particular Plan
Year, satisfies one of the following conditions:
(i) was a "5-percent owner" (as defined in Section 414(q)(2) of the Code)
during the year or the preceding year, or
(ii) for the preceding year,
(A) had "compensation" (as defined in Section 414(q)(4) of the Code)
from the Association and its Affiliates exceeding $80,000 (as
periodically adjusted pursuant to Section 414(q)(1) of the Code), and
5
<PAGE>
(B) if the Employer elects, was in the "top-paid group" (as defined in
Section 414(q)(3) of the Code) of Employees for such preceding year.
(y) "HOURS OF SERVICE" means:
(i) Each hour for which an Employee is paid, or entitled to payment, for
performing duties for the Employer during the applicable computation
period.
(ii) Each hour for which an Employee is paid, or entitled to payment, for a
period during which no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation, holiday, illness,
incapacity (including disability), layoff, jury duty, military duty or
leave of absence. Notwithstanding the preceding sentence, no credit shall
be given to the Employee for:
(A) more than 501 hours under this clause (ii) because of any single
continuous period in which the Employee performs no duties (whether or
not such period occurs in a single computation period);
(B) an hour for which the Employee is directly or indirectly paid, or
entitled to payment, because of a period in which no duties are
performed if such payment is made or due under a plan maintained
solely for the purpose of complying with applicable worker's or
workmen's compensation, or unemployment, or disability insurance laws;
or
(C) an hour or a payment which solely reimburses the Employee for
medical or medically-related expenses incurred by the Employee.
(iii) Each hour for which back pay, irrespective of mitigation of damages,
is either awarded or agreed to by the Employer; provided, however, that
hours credited under either clause (i) or (ii) above shall not also be
credited under this clause (iii). Crediting of hours for back pay awarded
or agreed to with respect to periods described in clause (ii) above will be
subject to the limitations set forth in that clause.
The crediting of Hours of Service shall be determined by the Committee in
accordance with the rules set forth in Section 2530.200b-3 of the regulations
prescribed by the Department of Labor, which rules shall be consistently applied
with respect to all Employees within the same job classification. Hours of
Service will be credited for employment with an Affiliate.
For purposes of determining whether an Employee has incurred a One Year Break in
Service and for vesting and participation purposes, if an Employee begins a
maternity/paternity leave of absence described in Section 411(a)(6)(E)(i) of the
Code, his Hours of Service shall include the Hours of
6
<PAGE>
Service that would have been credited to him if he had not been so absent (or
eight (8) Hours of Service for each day of such absence if the actual Hours of
Service cannot be determined). An Employee shall be credited for such Hours of
Service (up to a maximum of 501 Hours of Service) in the Plan Year in which his
absence begins (if such crediting will prevent him from incurring a One Year
Break in Service in such Plan Year) or, in all other cases, in the following
Plan Year. An absence from employment for maternity or paternity reasons means
an absence:
(i) by reason of pregnancy of the Employee,
(ii) by reason of a birth of a child of the Employee,
(iii) by reason of the placement of a child with the Employee in connection
with the adoption of such child by such Employee, or
(iv) for purposes of caring for such child for a period beginning
immediately following such birth or placement.
(z) "LOAN SUSPENSE ACCOUNT" means that portion Trust Fund consisting of Company
Stock acquired with an Acquisition Loan which has not yet been allocated to the
Participants' Accounts.
(aa) "NORMAL RETIREMENT AGE" means the date the Employee attains age sixty-five
(65).
(bb) "NORMAL RETIREMENT DATE" means the first day of the month coincident with
or next following the Participant's attainment of Normal Retirement Age.
(cc) "ONE YEAR BREAK IN SERVICE" means a twelve (12) consecutive month period
during which the Participant does not complete more than 500 Hours of Service.
(dd) "OTHER INVESTMENTS ACCOUNT" means the account established and maintained in
the name of each Participant or Beneficiary to reflect his share of the Trust
Fund, other than Company Stock.
(ee) "PARTICIPANT" means any active Employee who has become a participant in
accordance with Section 3.01 of the Plan or any other person with an Account
balance under the Plan.
(ff) "PLAN" means this Central Federal Savings and Loan Association of
Wellsville Employee Stock Ownership Plan, as amended from time to time.
(gg) "PLAN YEAR" means the calendar year.
(hh) "POSTPONED RETIREMENT DATE" means the first day of the month coincident
with or next following a Participant's date of actual retirement which occurs
after his Normal Retirement Date.
(ii) "RECOGNIZED ABSENCE" means a period for which:
7
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(i) an Employer grants an Employee a leave of absence for a limited
period of time, but only if an Employer grants such leaves of absence on a
nondiscriminatory basis to all Eligible Employees; or
(ii) an Employee is temporarily laid off by an Employer because of a
change in the business conditions of the Employer; or
(iii) 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).
(jj) "RETIREMENT DATE" means a Participant's Normal Retirement Date or Postponed
Retirement Date, whichever is applicable.
(ll) "SERVICE" means employment with the Association or an Affiliate.
(mm) "TREASURY REGULATIONS" means the regulations promulgated by the Department
of Treasury under the Code.
(nn) "TRUST" means the Central Federal Savings and Loan Association of
Wellsville Employee Stock Ownership Plan Trust created in connection with the
establishment of the Plan.
(oo) "TRUST AGREEMENT" means the trust agreement establishing the Trust.
(pp) "TRUST FUND" means the assets held in the Trust for the benefit of
Participants and their Beneficiaries.
(qq) "TRUSTEE" means the trustee or trustees from time to time in office under
the Trust Agreement.
(rr) "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 Trust
Fund and adjust the Participants' Accounts accordingly.
(ss) "VALUATION PERIOD" means the period following a Valuation Date and ending
with the next Valuation Date.
(tt) "YEAR OF SERVICE" means an Eligibility Computation Period (for eligibility
purposes) or any other 12-consecutive month period (for other purposes) in
which an Employee completes at least 1,000 Hours of Service.
8
<PAGE>
SECTION 3
ELIGIBILITY AND PARTICIPATION
SECTION 3.01 INITIAL PARTICIPATION.
---------------------
(a) Employees Employed at the Conversion Date. Any Eligible Employee who is
-----------------------------------------
employed by an Employer at the Conversion Date shall enter the Plan and become a
Participant immediately as of the later of the Effective Date or the date he
first performs an Hour of Service for the Employer.
(b) Employees Employed After the Conversion Date. An Eligible Employee who
--------------------------------------------
becomes employed by an Employer subsequent to the Conversion Date shall become
eligible to enter the Plan upon satisfying the following requirements:
(i) He has completed one (1) Year of Service; and
(ii) He has attained 21 years of age.
(c) An Eligible Employee who has satisfied the eligibility requirements of
paragraph (b) of this Section 3.01 shall enter the Plan and become a Participant
on the Entry Date coincident with or next following the date he satisfies such
requirements.
SECTION 3.02 CERTAIN EMPLOYEES INELIGIBLE.
----------------------------
Except as provided for in Section 3.01(a) of the Plan, the following Employees
are ineligible to participate in the Plan:
(a) Employees covered by a collective bargaining agreement between the 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 expressly provide that
Employees of such unit be covered under the Plan;
(b) Employees who are nonresident aliens and who receive no earned income from
an Employer which constitutes income from sources within the United States; and
(c) Employees of an Affiliate that has not adopted the Plan pursuant to Sections
12.01 or 12.02 of the Plan.
9
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SECTION 3.03 TRANSFER TO AND FROM ELIGIBLE EMPLOYMENT.
----------------------------------------
(a) If an Employee ineligible to participate in the Plan by reason of Section
3.02 of the Plan transfers to employment as an Eligible Employee, he shall enter
the Plan as of the later of:
(i) the first Entry Date after the date of transfer, or
(ii) the first Entry Date on which he could have become a Participant
pursuant to Section 3.01 of the Plan if his prior employment with the
Association or Affiliate had been as an Eligible Employee.
(b) If a Participant transfers to a position of employment that is not eligible
to participate in the Plan by reason of Section 3.02 of the Plan, he shall cease
active participation in the Plan as of the date of such transfer and his
transfer shall be treated for all purposes of the Plan as any other termination
of Service.
SECTION 3.04 PARTICIPATION AFTER REEMPLOYMENT.
--------------------------------
(a) Any Employee re-entering Service with an Employer after a One Year Break in
Service who has never satisfied the eligibility requirements of Section 3.01(b)
of the Plan shall not receive credit for prior Service with an Employer and
shall be required to meet the eligibility requirements of Section 3.01(b) of the
Plan before becoming a Participant.
(b) An Employee who has satisfied the eligibility requirements of Section
3.01(b) of the Plan but who terminates Service prior to entering the Plan and
becoming a Participant in accordance with Section 3.01(c) of the Plan will
become a Participant on the later of:
(i) the first Entry Date on which he would have entered the Plan had he
not terminated Service, or
(ii) the date he re-commences Service.
(c) A Participant whose Service terminates will re-enter the Plan as a
Participant on the date he re-commences Service.
SECTION 3.05 PARTICIPATION NOT GUARANTEE OF EMPLOYMENT.
-----------------------------------------
Participation in the Plan does not constitute a guarantee or contract of
employment and will not give any Employee the right to be retained in the employ
of the Association or any of its Affiliates nor any right or claim to any
benefit under the terms of the Plan unless such right or claim has specifically
accrued under the Plan.
10
<PAGE>
SECTION 4
CONTRIBUTIONS
SECTION 4.01 EMPLOYER CONTRIBUTIONS.
----------------------
(a) DISCRETIONARY CONTRIBUTIONS. Each Plan Year, each Employer, in its
discretion, may make a contribution to the Trust. Each Employer making a
contribution for any Plan Year under this Section 4.01(a) will contribute to the
Trustee cash equal to, or Company Stock or other property having an aggregate
fair market value equal to, such amount as the Board of Directors of the
Employer shall determine by resolution. Notwithstanding the Employer's
discretion with respect to the medium of contribution, an Employer shall not
make a contribution in any medium which would make such contribution a
prohibited transaction (for which no exemption is provided) under Section 406 of
ERISA or Section 4975 of the Code.
(b) EMPLOYER CONTRIBUTIONS FOR ACQUISITION LOANS. Each Plan Year, the
Employers shall, subject to the provisions of the Association's "Plan of
Conversion" (as filed with the appropriate governmental agencies in connection
with the Association's conversion from a mutual to stock form of organization)
and any related regulatory prohibitions, contribute an amount of cash sufficient
to enable to the Trustee to discharge any indebtedness incurred with respect to
an Acquisition Loan pursuant to the terms of the Acquisition Loan. The
Employers' obligation to make contributions under this Section 4.01(b) shall be
reduced to the extent of any investment earnings attributable to such
contributions and any cash dividends paid with respect to Company Stock held by
the Trustee in the Loan Suspense Account. If there is more than one Acquisition
Loan, the Employers shall designate the one to which any contribution pursuant
to this Section 4.01(b) is to be applied.
SECTION 4.02 LIMITATIONS ON CONTRIBUTIONS.
----------------------------
In no event shall an Employer's contribution(s) made under Section 4.01 of the
Plan for any Plan Year exceed the lesser of:
(a) The maximum amount deductible under Section 404 of the Code by that Employer
as an expense for Federal income tax purposes; and
(b) The maximum amount which can be credited for that Plan Year in accordance
with the allocation limitation provisions of Section 5.05 of the Plan.
SECTION 4.03 ACQUISITION LOANS.
-----------------
The Trustee may incur Acquisition Loans from time to time to finance the
acquisition of Company Stock for the Trust or to repay a prior Acquisition Loan.
An Acquisition Loan shall be for a specific term, shall bear a reasonable rate
of interest, and shall not be payable on demand except in the event of default,
and shall be primarily for the benefit of Participants and Beneficiaries of the
Plan. An Acquisition Loan may be secured by a collateral pledge of the Financed
Shares so acquired and any
11
<PAGE>
other Plan assets which are permissible security within the provisions of
Section 54.4975-7(b) of the Treasury Regulations. No other assets of the Plan or
Trust may be pledged as collateral for an Acquisition Loan, and no lender shall
have recourse against any other Trust assets. Any pledge of Financed Shares must
provide for the release of shares so pledged on a basis equal to the principal
and interest (or if the requirements of Section 54.4975-7(b)(8)(ii) of the
Treasury Regulations are met and the Employer so elects, principal payments
only), paid by the Trustee on the Acquisition Loan. The released Financed Shares
shall be allocated by Participants' Accounts in accordance with the provisions
of Sections 5.04 or 5.08 of the Plan, whichever is applicable. Payment of
principal and interest on any Acquisition Loan shall be made by the Trustee only
from the Employer contributions paid in cash to enable the Trustee to repay such
loan in accordance with Section 4.01(b) of the Plan, from earnings attributable
to such contributions, and any cash dividends received by the Trustee on
Financed Shares acquired with the proceeds of the Acquisition Loan (including
contributions, earnings and dividends received during or prior to the year of
repayment less such payments in prior years), whether or not allocated. Financed
Shares shall initially be credited to the Loan Suspense Account and shall be
transferred for allocation to the Company Stock Account of Participants only as
payments of principal and interest (or, if the requirements of Section 54.4975-
7(b)(8)(ii) of the Treasury Regulations are met and the Employer so elects,
principal payments only), on the Acquisition Loan are made by the Trustee. The
number of Financed Shares to be released from the Loan Suspense Account for
allocation to Participants' Company Stock Account for each Plan Year shall be
based on the ratio that the payments of principal and interest (or, if the
requirements of Section 54.4975-7(b)(8)(ii) of the Treasury Regulations are met
and the Employer so elects, principal payments only), on the Acquisition Loan
for that Plan Year bears to the sum of the payments of principal and interest on
the Acquisition Loan for that Plan Year plus the total remaining payment of
principal and interest projected (or, if the requirements of Section 54.4975-
7(b)(8)(ii) of the Treasury Regulations are met and the Employer so elects,
principal payments only), on the Acquisition Loan over the duration of the
Acquisition Loan repayment period, subject to the provisions of Section 5.05 of
the Plan.
SECTION 4.04. CONDITIONS AS TO CONTRIBUTIONS.
------------------------------
In addition to the provisions of Section 12.03 of the Plan 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 Employer originally made
such contribution, or within one year after its nondeductibility has been
finally determined. However, the amount to be returned shall be reduced to take
account for any adverse investment experience within the Trust in order that the
balance credited to each Participant's Accounts is not less that it would have
been if the contribution had never been made by the Employer.
SECTION 4.05 EMPLOYEE CONTRIBUTIONS.
----------------------
Employee contributions are neither required nor permitted under the Plan.
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<PAGE>
SECTION 4.06 ROLLOVER CONTRIBUTIONS.
----------------------
Rollover contributions of assets from other tax-qualified retirement plans are
not permitted under the Plan.
SECTION 4.07 TRUSTEE-TO-TRUSTEE TRANSFERS.
----------------------------
Trustee-to-trustee transfer of assets from other tax-qualified retirement plans
are not permitted under the Plan.
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SECTION 5
PLAN ACCOUNTING
SECTION 5.01 ACCOUNTING FOR ALLOCATIONS.
--------------------------
The Committee shall establish the Accounts (and sub-accounts, if deemed
necessary) for each Participant, and the accounting procedures for the purpose
of making the allocations to the Participants' Accounts provided for in this
Section 5. The Committee shall maintain adequate records of the cost basis of
shares of Company Stock allocated to each Participant's Company Stock Account.
The Committee also shall keep separate records of Financed Shares attributable
to each Acquisition Loan and of contributions made by the Employers (and any
earnings thereon) made for the purpose of enabling the Trustee to repay any
Acquisition Loan. From time to time, the Committee may modify its accounting
procedures for the purpose of achieving equitable and nondiscriminatory
allocations among the Accounts of Participants, in accordance with the
provisions of this Section 5 and the applicable requirements of the Code and
ERISA. In accordance with Section 9 of the Plan, the Committee may delegate the
responsibility for maintaining Accounts and records.
SECTION 5.02 MAINTENANCE OF PARTICIPANTS' COMPANY STOCK ACCOUNTS.
---------------------------------------------------
As of each Valuation Date, the Committee shall adjust the Company Stock Account
of each Participant to reflect activity during the Valuation Period as follows:
(a) First, charge to each Participant's Company Stock Account all distributions
and payments made to him that have not been previously charged;
(b) Next, credit to each Participant's Company Stock Account the shares of
Company Stock, if any, that have been purchased with amounts from his Other
Investments Account, and adjust such Other Investments Account in accordance
with the provisions of Section 5.03 of the Plan; and
(c) Finally, credit to each Participant's Company Stock Account the shares of
Company Stock representing contributions made by the Employers in the form of
Company Stock and the number of Financed Shares released from the Loan Suspense
Account under Section 4.03 of the Plan that are to be allocated and credited as
of that date in accordance with the provisions of Section 5.04 of the Plan.
SECTION 5.03 MAINTENANCE OF PARTICIPANTS' OTHER INVESTMENTS ACCOUNTS.
-------------------------------------------------------
As of each Valuation Date, the Committee shall adjust the Other Investments
Account of each Participant to reflect activity during the Valuation Period as
follows:
(a) First, charge to each Participant's Other Investments Account all
distributions and payments made to him that have not previously been charged;
14
<PAGE>
(b) Next, if Company Stock is purchased with assets from a Participant's Other
Investments Account, the Participant's Other Investments Account shall be
charged accordingly;
(c) Next, subject to the dividend provisions of Section 5.08 of the Plan, credit
to the Other Investments Account of each Participant any cash dividends paid to
the Trustee on shares of Company Stock held in that Participant's Company Stock
Account (as of the record date for such cash dividends) and dividends paid on
shares of Company Stock held in the Loan Suspense Account that have not been
used to repay any Acquisition Loan. Cash dividends that have not been used to
repay an Acquisition Loan and have been credited to a Participant's Other
Investments Account shall be applied by the Trustee to purchase shares of
Company Stock, which shares shall then be credited to the Company Stock Account
of such Participant. The Participant's Other Investments Account shall then be
charged by the amount of cash used to purchase such Company Stock or used to
repay any Acquisition Loan. In addition, any earnings on:
(i) Other Investments Accounts, including cash proceeds from the sale or
disposition o f Company Stock pursuant to Section 5.09 of the Plan, will be
allocated to Participants' Other Investments Account, pro rata, based on
such Other Investment Accounts balances as of the first day of the
Valuation Period, and
(ii) the Loan Suspense Account, other than dividends used to repay the
Acquisition Loan, will be allocated to Participants' Other Investments
Accounts, pro rata, based on their Other Investment Account Balances as of
the first day of the Valuation Period; provided, however, that shares of
Company Stock allocated pursuant to Section 5.09 of the Plan shall be
allocated to the Participants' Company Stock Account in accordance with the
provisions of the Section 5.09 of the Plan.
(d) Next, allocate and credit the Employer contributions made pursuant to
Section 4.01(b) of the Plan for the purpose of repaying any Acquisition Loan in
accordance with Section 5.04 of the Plan. Such amount shall then be used to
repay any Acquisition Loan and such Participant's Other Investments Account
shall be charged accordingly; and
(e) Finally, allocate and credit the Employer contributions (other than amounts
contributed to repay an Acquisition Loan) that are made in cash (or property
other than Company Stock) for the Plan Year to the Other Investments Account of
each Participant in accordance with Section 5.04 of the Plan.
15
<PAGE>
SECTION 5.04 ALLOCATION AND CREDITING OF EMPLOYER CONTRIBUTIONS.
--------------------------------------------------
(a) Except as otherwise provided for in Section 5.08 of the Plan, as of the
Valuation Date for each Plan Year:
(i) Company Stock released from the Loan Suspense Account for that year
and shares of Company Stock contributed directly to the Plan by an Employer
shall be allocated and credited to each Active Participant's (as defined in
paragraph (c) of this Section 5.04) Company Stock Account based on the
ratio that each Active Participant's Compensation bears to the aggregate
Compensation of all Active Participants for the Plan Year, and then
(ii) The cash contributions not used to repay an Acquisition Loan and any
other property (other than shares of Company Stock) contributed for that
year shall be allocated and credited to each Active Participant's Other
Investments Account based on the ratio determined by comparing each Active
Participant's Compensation to the aggregate Compensation of all Active
Participants for the Plan Year.
.
(b) For purposes of this Section 5.04, the term "Active Participant" means those
Employees who:
(i) were employed by that Employer, including Employees on a Recognized
Absence, on the last day of the Plan Year and completed 1,000 Hours of
Service during the Plan Year, or
(ii) who terminated employment during the Plan Year by reason of death,
Disability, or attainment of their Retirement Date.
SECTION 5.05 LIMITATIONS ON ALLOCATIONS.
--------------------------
(a) IN GENERAL. Subject to the provisions of this Section 5.05, Section 415 of
the Code shall be incorporated by reference into the terms of the Plan. No
allocation shall be made under Section 5.04 of the Plan that would result in a
violation of Section 415 of the Code.
(b) CODE SECTION 415 COMPENSATION. For purposes of this Section 5.05,
Compensation shall be adjusted to reflect the general rule of Section 1.415-2(d)
of the Treasury Regulations.
(c) LIMITATION YEAR. The "limitation year" (within the meaning of Section 415
of the Code) shall be the calendar year.
(d) MULTIPLE DEFINED CONTRIBUTION PLANS. In any case where a Participant also
participates in another defined contribution plan of the Association or its
Affiliates, the appropriate committee of such other plan shall first reduce the
after-tax contributions under any such plan, shall then reduce any elective
deferrals under any such plan subject to Section 401(k) of the Code, shall then
reduce all other contributions under any other such plan and, if necessary,
shall then reduce contributions under this Plan, subject to the provisions of
paragraph (f) of this Section 5.05.
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<PAGE>
(e) COMBINED PLAN LIMITATIONS. To the extent necessary to comply with the
requirements of Section 415(e) of the Code, the plan administration or
appropriate committee shall first reduce the annual benefit payable under any
defined benefit plan in which the Participant participates and, if necessary,
the Committee shall thereafter reduce the contributions under the defined
contribution plans in which such Participant participates in accordance with
paragraph (d) of this Section 5.05.
(f) EXCESS ALLOCATIONS. If, after applying the allocation provisions under
Section 5.04 of the Plan, allocations under Section 5.04 of the Plan would
otherwise result in a Participant's account being in violation of Section 415 of
the Code, the Committee shall reduce the Employer contributions for the next
limitation year (and succeeding limitation years, as necessary) for that
Participant if that Participant is covered by the Plan as of the end of the
limitation year. However, if that Participant is not covered by the Plan as of
the end of the limitation year, then the excess amounts shall be held
unallocated in a suspense account for the limitation year and allocated and
reallocated in the next limitation year to all the remaining Participants in the
Plan; furthermore, the excess amounts shall be used to reduce Employer
contributions for the next limitation year (and succeeding limitation years, as
necessary) for all the remaining Participants in the Plan.
(g) ALLOCATIONS PURSUANT TO SECTION 5.09. For purposes of this Section 5.05, no
amount credited to any Participant's Account pursuant to Section 5.09 of the
Plan shall be counted as an "annual addition" for purposes of Section 415 of the
Code. In the event any amount cannot be allocated to Affected Participants (as
defined in Section 5.09 of the Plan) under the Plan pursuant to the Section 5.09
of the Plan in the year of a Change in Control, the amount which may not be so
allocated in the year of the Change in Control shall be treated in accordance
with paragraph (f) of this Section 5.05.
SECTION 5.06 OTHER LIMITATIONS.
-----------------
Aside from the limitations set forth in Sections 5.05 of the Plan, in no event
shall more than one-third of the Employer contributions to the Plan (including
Matching Contributions) be allocated to the Accounts of Highly Compensated
Employees. In order to ensure such allocations are not made, the Committee
shall, beginning with the Participants whose Compensation exceeds the limit
then in effect under Section 401(a)(17) of the Code, reduce the amount of
Compensation of such Highly Compensated Employees on a pro-rata basis per
individual that would otherwise be taken into account for purposes of allocating
benefits under Section 5.04 of the Plan. If, in order to satisfy this Section
5.06, any such Participant's Compensation must be reduced to an amount that is
lower than the Compensation amount of the next highest paid (based on such
Participant's Compensation) Highly Compensated Employee (the "breakpoint
amount"), then, for purposes of allocating benefits under Section 5.04 of the
Plan, the Compensation of all concerned Participants shall be reduced to an
amount not to exceed such breakpoint amount.
SECTION 5.07 LIMITATIONS AS TO CERTAIN SECTION 1042 TRANSACTIONS.
---------------------------------------------------
To the extent that a shareholder of Company Stock sell qualifying Company Stock
to the Plan and elects (with the consent of the Association) nonrecognition of
gain under Section 1042 of the Code,
17
<PAGE>
no portion of the Company Stock purchased in such nonrecognition transaction (or
dividends or other income attributable thereto) may accrue or be allocated
during the nonallocation period (the ten (10) year period beginning on the later
of the date of the sale of the qualified Company Stock or the date of the Plan
allocation attributable to the final payment of an Acquisition Loan incurred in
connection with such sale) for the benefit of:
(a) The selling shareholder;
(b) the spouse, brothers or sisters (whether by the whole or half blood),
ancestors or lineal descendants of the selling shareholder or descendant
referred to in (a) above; or
(c) any other person who owns, after application of Section 318(a) of the Code,
more than twenty-five percent (25%) of:
(i) any class of outstanding stock of the Association or any Affiliate, or
(ii) the total value of any class of outstanding stock of the Association
or any Affiliate.
For purposes of this Section 5.07, Section 318(a) of the Code shall be applied
without regard to the employee trust exception of Section 318(a)(2)(B)(i) of the
Code.
SECTION 5.08 DIVIDENDS.
---------
(a) STOCK DIVIDENDS. Dividends on Company Stock which are received by the
Trustee in the form of additional Company Stock shall be retained in the portion
of the Trust Fund consisting of Company Stock, and shall be allocated among the
Participant's Accounts and the Loan Suspense Account in accordance with their
holdings of the Company Stock on which the dividends have been paid.
(b) CASH DIVIDENDS ON ALLOCATED SHARES. Dividends on Company Stock credited to
Participants' Accounts which are received by the Trustee in the form of cash
shall, at the direction of the Association, either:
(i) be credited to Participants' Accounts in accordance with Section 5.03
of the Plan and invested as part of the Trust Fund;
(ii) be distributed immediately to the Participants;
(iii) be distributed to the Participants within ninety (90) days of the
close of the Plan Year in which paid; or
(iv) be used to repay first principal and then, if available, interest on
the Acquisition Loan used to acquire Company Stock on which the dividends
were paid.
18
<PAGE>
(c) CASH DIVIDENDS ON UNALLOCATED SHARES. Dividends on Company Stock held in
the Loan Suspense Account which are received by the Trustee in the form of cash
shall be applied as soon as practicable to payments of first principal and then,
if available, interest under the Acquisition Loan incurred with the purchase of
the Company Stock.
(d) FINANCED SHARES. Financed Shares released from the Loan Suspense Account
by reason of dividends paid with respect to such Company Stock shall be
allocated under Sections 5.03 and 5.04 of the Plan as follows:
(i) First, Financed Shares with a fair market value at least equal to the
dividends paid with respect the Company Stock allocated to Participants'
Accounts shall be allocated among and credited to the Accounts of such
Participants, pro rata, according to the number of shares of Company Stock
held in such accounts on the date such dividend is declared by the Company;
(ii) Then, any remaining Financed Shares released from the Loan Suspense
Account by reason of dividends paid with respect to Company Stock held in
the Loan Suspense Account shall be allocated among and credited to the
Accounts of all Participants, pro rata, according to each Participant's
Compensation.
SECTION 5.09 CHANGE IN CONTROL PROVISIONS.
----------------------------
(a) Upon a Change in Control, the Committee shall direct the Trustee to sell or
otherwise dispose of a sufficient number of share of Company Stock held in the
Loan Suspense Account, and the proceeds of such sale of disposition shall be
used to repay in full any outstanding Acquisition Loan of the Plan. After
repayment of the Acquisition Loan, all remaining shares of Company Stock held in
the Loan Suspense Account and any cash proceeds from the sale or other
disposition of any shares of Company Stock held in the Loan Suspense shall be
allocated among the Accounts of all Participants who were employed by an
Employer immediately preceding the date on which the Change in Control occurs.
Such allocation of shares or cash proceeds shall be credited as of the date on
which the Change in Control occurs to the Accounts of each Participant who is
either in active Service with an Employer immediately preceding the date on
which the Change in Control occurs or is on a Recognized Absence immediately
preceding the date on which the Change in Control occurs (each an "Affected
Participant"), in proportion to the opening balances in their Company Stock
Accounts as of the first day of the current Valuation Period. If any amount
cannot be allocated to an Affected Participant's Account in the limitation year
during which a Change in Control occurs as a result of the limitations of
Section 415 of the Code, the amounts will be allocated in subsequent years to
those persons who were Affected Participants and who continue to be Participants
in the Plan until such amounts are finally allocated to Affected Participants.
(b) Notwithstanding any other provision of the Plan, this Section 5.09 may not
be amended on or after a Change in Control has occurred, unless required by the
Internal Revenue Service as a condition of the continued treatment of the Plan
as a tax-qualified plan under Section 401(a) of the Code.
19
<PAGE>
(c) This Section 5.09 shall have no force and effect unless the price paid for
the Company Stock in connection with the Change in Control is greater than the
average basis of the unallocated Company Stock held in the Loan Suspense Account
as of the date of the Change in Control.
20
<PAGE>
SECTION 6
VESTING
SECTION 6.01 DEFERRED VESTING IN ACCOUNTS.
----------------------------
(a) A Participant shall become vested in his Accounts in accordance with the
following schedule:
Years of Service Vested Percentage
---------------- -----------------
Less than 1 Year of Service 0%
1 to 2 Years of Service 20%
2 to 3 Years of Service 40%
3 to 4 Years of Service 60%
4 to 5 Years of Service 80%
5 or more Years of Service 100%
(b) For purposes of determining a Participant's Years of Service under this
Section 6.01, employment with the Bank or an Affiliate shall be deemed
employment with the Employer. With respect to Employees who enter the Plan
pursuant to Section 3.01(a) of the Plan, for purposes of determining a
Participant's vested percentage, all Years of Service shall be included. With
respect to Employees who enter the Plan pursuant to Section 3.01(b) of the Plan,
for purposes of determining a Participant's vested percentage, all Years of
Service shall be included, subject to the provisions of Section 6.05 of the
Plan.
SECTION 6.02 IMMEDIATE VESTING IN CERTAIN SITUATIONS.
---------------------------------------
(a) Notwithstanding Section 6.01(a) of the Plan, a Participant shall become
fully vested in his Accounts upon the earlier of:
(i) termination of the Plan or upon the permanent and complete
discontinuance of contributions by his Employer to the Plan; provided,
however, that in the event of a partial termination, the interest of each
Participant shall fully vest only with respect to that part of the Plan
which is terminated;
(ii) The Participant's Normal Retirement Age;
(iii) A "Change in Control" (as defined below); or
(iv) Termination of employment by reason of death or Disability.
21
<PAGE>
SECTION 6.03 TREATMENT OF FORFEITURES.
------------------------
(a) If a Participant who is not fully vested in his Accounts terminates
employment, that portion of his Accounts in which he is not vested shall be
forfeited upon the earlier of:
(i) The date the Participant receives a distribution of his entire vested
benefits under the Plan, or
(ii) The date at which the Participant incurs five (5) consecutive One Year
Breaks in Service.
(b) If a Participant who has terminated employment and has received a
distribution of his entire vested benefits under the Plan is subsequently
reemployed by an Employer prior to incurring five (5) consecutive One Year
Breaks in Service, he shall have the portion of his Accounts which was
previously forfeited restored to his Accounts, provided he repays to the Trustee
within five (5) years of his subsequent employment date an amount equal to the
distribution. The amount restored to the Participant's Account shall be
credited to his Account as of the last day of the Plan Year in which the
Participant repays the distributed amount to the Trustee and the restored amount
shall come from other Employees' forfeitures and, if such forfeitures are
insufficient, from a special contribution by his Employer for that year. If a
Participant's employment 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
employment.
(c) If a Participant who has terminated employment but has not received a
distribution of his entire vested benefits under the Plan is subsequently
reemployed by an Employer subsequent to incurring five (5) consecutive One Year
Breaks in Service, any undistributed balance of his Accounts from his prior
participation which was not forfeited shall be maintained as a fully vested
subaccount with his Account.
(d) If a portion of a Participant's Account is forfeited, assets other than
Company Stock must be forfeited before any Company Stock may be forfeited.
(e) Forfeitures shall be reallocated among the other Participants in the Plan.
SECTION 6.04 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 6.03 of the Plan. Except as otherwise provided in Section 6.03 of the
Plan, 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 as of the last day of the Plan Year in which the forfeiture becomes
certain.
22
<PAGE>
SECTION 6.05 VESTING UPON REEMPLOYMENT.
-------------------------
(a) If an Employee is not vested in his Accounts, incurs a One Year Break in
Service and again performs an Hour of Service, such Employee shall receive
credit for his Years of Service prior to his One Year Break in Service only if
the number of consecutive One Year Breaks in Service is less than the greater
of: (i) five (5) years or (ii) the aggregate number of his Years of Service
credited before his One Year Break in Service.
(b) If a Participant is partially vested in his Accounts, incurs a One Year
Break in Service and again performs an Hour of Service, such Participant shall
receive credit for his Years of Service prior to his One Year Break in Service;
provided, however, that after five (5) consecutive One Year Breaks in Service, a
former Participant's vested interest in his Accounts attributable to Years of
Service prior to his One Year Break in Service shall not be increased as a
result of his Years of Service following his reemployment date.
(c) If a Participant is fully vested in his Accounts, incurs a One Year Break in
Service and again performs an Hour of Service, such Participant shall receive
credit for all his Years of Service prior to his One Year Breaks in Service.
23
<PAGE>
SECTION 7
DISTRIBUTIONS
SECTION 7.01 DISTRIBUTION OF BENEFIT UPON A TERMINATION OF EMPLOYMENT.
--------------------------------------------------------
(a) A Participant whose employment terminates for any reason shall receive the
entire vested portion of his Accounts in a single payment on a date selected by
the Committee; provided, however, that such date shall be on or before the 60th
day after the end of the Plan Year in which the Participant's employment
terminated. The benefits from that portion of the Participant's Other
Investments Account shall be calculated on the basis of the most recent
Valuation Date before the date of payment. Subject to the provisions of Section
7.05 of the Plan, if the Committee so provides, a Participant may elect that his
benefits be distributed to him in the form of either Company Stock, cash, or
some combination thereof.
(b) Notwithstanding paragraph (a) of this Section 7.01, if the balance credited
to a Participant's Accounts exceeds, or has ever exceeded at the time such
benefit was distributable, $5,000, 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. 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 Treasury 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 benefits under the Plan. 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 Treasury Regulations is given, if:
(i) 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
(ii) the Participant, after receiving the notice, affirmatively elects a
distribution.
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.
SECTION 7.02 MINIMUM DISTRIBUTION REQUIREMENTS.
---------------------------------
With respect to all Participants, other than those who are "5% owners" (as
defined in Section 416 of the Code), benefits shall be paid no later than the
April 1st of the later of:
(i) the calendar year following the calendar year in which the Participant
attains age 70-1/2, or
24
<PAGE>
(ii) the calendar year in which the Participant 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 no later than the
April 1st of the calendar year following the calendar year in which the
Participant attains age 70-1/2.
SECTION 7.03 BENEFITS ON A PARTICIPANT'S DEATH.
---------------------------------
(a) If a Participant dies before his benefits are paid pursuant to Section 7.01
of the Plan, the balance credited to his Accounts 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 the Participant died. If the Participant has not named a
Beneficiary or if his named Beneficiary should not survive him, then the balance
in his Account shall be paid to his estate. The benefits from that portion of
the Participant's Other Investments Account shall be calculated on the basis of
the most recent Valuation Date before the date of payment.
(b) 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 Accounts to be paid to his spouse, as Beneficiary. A married
Participant may name an individual other than his spouse as his Beneficiary,
provided that such election is accompanied by the spouse's written consent,
which must:
(i) acknowledge the effect of the election;
(ii) 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.
(c) 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 as to the
Participant's marital status.
25
<PAGE>
SECTION 7.04 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 this
Section 7, 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.
SECTION 7.05 OPTIONS TO RECEIVE AND SELL STOCK.
---------------------------------
(a) Unless ownership of virtually all Company 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 Company
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 Accounts in the form of Company Stock. In that event, the Committee shall
apply the Participant's vested interest in his Other Investments Account to
purchase sufficient Company Stock to make the required distribution.
(b) Any Participant who receives Company Stock pursuant to this Section, and any
person who has received Company 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 distribution
described in Section 402(c) of the Code, shall have the right to require the
Employer which issued the Company Stock to purchase the Company Stock for its
current fair market value (hereinafter referred to as the "put right"). The put
right shall be exercisable by written notice to the Committee during the first
60 days after the Company 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 Company Stock's current fair market value. 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.
However, the put right shall not apply to the extent that the Company 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.
(c) With respect to a put right, the Employer or the Trustee, as the case may
be, may elect to pay for the Company Stock in equal periodic installments, not
less frequently than annually, over a period not longer than five (5) years from
the 30th day after the put right is exercised pursuant to paragraph (b) of this
Section 7.05, 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.
(d) Nothing contained in this Section 7.05 shall be deemed to obligate any
Employer to register any Company Stock under any federal or state securities law
or to create or maintain a public market to facilitate the transfer or
disposition of any Company Stock. The put right described in this Section 7.05
may only be exercised by a person described in the paragraph (b) of this Section
7.05, and may
26
<PAGE>
not be transferred with any Company Stock to any other person. As to all Company
Stock purchased by the Plan in exchange for any Acquisition Loan, the put right
be nonterminable. The put right for Company Stock acquired through a Acquisition
Loan shall continue with respect to such Company Stock after the Acquisition
Loan 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 Company Stock acquired with the proceeds of an
Acquisition Loan 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.
SECTION 7.06 RESTRICTIONS ON DISPOSITION OF STOCK.
------------------------------------
Except in the case of Company Stock which is traded on an established market, a
Participant who receives Company Stock pursuant to this Section 7, and any
person who has received Company 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 distribution
described in Section 402(c) of the Code, shall, prior to any sale or other
transfer of the Company Stock to any other person, first offer the Company 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 Company Stock distributed by the Plan shall bear a conspicuous
legend describing the right of first refusal under this Section 7.06, as
applicable, as well as any other restrictions upon the transfer of the Company
Stock imposed by federal and state securities laws and regulations.
SECTION 7.07 DIRECT TRANSFER OF ELIGIBLE PLAN DISTRIBUTIONS.
----------------------------------------------
(a) A Participant or Beneficiary may direct that an "eligible rollover
distribution" (as defined below) included in a payment made pursuant to this
Section 7 be paid directly to an "eligible retirement plan" (as defined below).
(b) 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.
(c) For purposes of this Section 7.07, an "eligible rollover distribution" shall
have the meaning set forth in Section 402(c)(4) of the Code and any Treasury
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
27
<PAGE>
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.
(d) For purposes of this Section 7.07, an "eligible retirement plan" shall have
the meaning set forth in Section 402(c)(8) of the Code and any Treasury
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.
28
<PAGE>
SECTION 8
VOTING OF COMPANY STOCK AND TENDER OFFERS
SECTION 8.01 VOTING OF COMPANY STOCK.
-----------------------
(a) IN GENERAL. The Trustee shall generally vote all shares of Company Stock
held in the Trust in accordance with the provisions of this Section 8.01.
(b) ALLOCATED SHARES. Shares of Company Stock which have been allocated to
Participants' Accounts shall be voted by the Trustee in accordance with the
Participants' written instructions.
(c) UNINSTRUCTED AND UNALLOCATED SHARES. Shares of Company Stock which have
been allocated to Participants' Accounts but for which no written instructions
have been received by the Trustee regarding voting shall be voted by the Trustee
in a manner calculated to most accurately reflect the instructions the Trustee
has received from Participants regarding voting shares of allocated Company
Stock. Shares of unallocated Company Stock shall also be voted by the Trustee
in a manner calculated to most accurately reflect the instructions the Trustee
has received from Participants regarding voting shares of allocated Company
Stock. Notwithstanding the preceding two sentences, all shares of Company Stock
which have been allocated to Participants' Accounts and for which the Trustee
has not timely received written instructions regarding voting and all
unallocated shares of Company Stock must be voted by the Trustee in a manner
determined by the Trustee to be solely in the best interests of the Participants
and Beneficiaries.
(d) VOTING PRIOR TO ALLOCATION. In the event no shares of Company Stock have
been allocated to Participants' Accounts at the time Company Stock is to be
voted, each Participant shall be deemed to have one share of Company Stock
allocated to his Accounts for the sole purpose of providing the Trustee with
voting instructions.
(e) PROCEDURE AND CONFIDENTIALITY. 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 Company Stock, and are
provided with adequate opportunity to deliver their instructions to the Trustee
regarding the voting of Company Stock allocated to their Accounts or deemed
allocated to their Accounts for purposes of voting. The instructions of the
Participants with respect to the voting of shares of Company Stock shall be
confidential.
SECTION 8.02 TENDER OFFERS.
-------------
In the event of a tender offer, Company Stock shall be tendered by the Trustee
in the same manner set forth in Section 8.01 of the Plan regarding the voting of
Company Stock.
29
<PAGE>
SECTION 9
THE COMMITTEE AND PLAN ADMINISTRATION
SECTION 9.01 IDENTITY OF THE 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 ten (10) days written
notice to such individual and any individual may resign from the Committee at
any time without reason upon ten (10) days written notice to the Association.
The Association shall notify the Trustee of any change in membership of the
Committee.
SECTION 9.02 AUTHORITY OF COMMITTEE.
----------------------
(a) 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.
(b) The Committee shall have exclusive responsibility regarding decisions
concerning the payment of benefits under the Plan.
(c) 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.
(d) 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 such
individuals reasonable compensation and expenses for their services rendered
with respect to the operation or administration of the Plan to the extent such
payments are not otherwise prohibited by law.
30
<PAGE>
SECTION 9.03 DUTIES OF COMMITTEE.
-------------------
(a) The Committee shall keep whatever records may be necessary in connection
with the maintenance of the Plan and shall furnish to the Employers whatever
reports may be required from time to time by the Employers. 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 with respect
to the Plan under ERISA and the Code and other applicable laws.
(b) The Committee shall have exclusive responsibility and authority with respect
to the Plan's holdings of Company Stock and shall direct the Trustee in all
respects regarding the purchase, retention, sale, exchange, and pledge of
Company Stock and the creation and satisfaction of any Acquisition Loan to the
extent such responsibilities are not set forth in the Trust Agreement.
(c) 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 Company Stock. Subject to the direction of the Committee
with respect to any Acquisition Loan pursuant to the provisions of Section 4.03
of the Plan, and subject to the provisions of Sections 7.05 and 11.04 of the
Plan as to Participants' rights under certain circumstances to have their
Accounts invested in Company Stock or in assets other than Company Stock, the
Committee shall determine, in its sole discretion, the extent to which assets of
the Trust shall be used to repay any Acquisition Loan, to purchase Company
Stock, or to invest in other assets selected by the Committee or an investment
manager. No provision of the Plan relating to the allocation or vesting of any
interests in the Company Stock or investments other than Company Stock shall
restrict the Committee from changing any holdings of the Trust Fund, whether the
changes involve an increase or a decrease in the Company Stock or other assets
credited to Participants' Accounts. In determining the proper extent of the
Trust Fund's investment in Company Stock, the Committee shall be authorized to
employ investment counsel, legal counsel, appraisers, and other agents and to
pay their reasonable compensation and expenses to the extent such payments are
not prohibited by law.
(d) If the valuation of any Company Stock is not established by reported
trading on a generally recognized public market, then the Committee shall have
the exclusive authority and responsibility to determine value of the Company
Stock 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 Trustee purchases or
sells Company Stock in a manner consistent with Section 4975 of the Code and the
Treasury Regulations thereunder. 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 Company Stock
as determined by an independent appraiser experienced in preparing valuations of
similar businesses.
31
<PAGE>
SECTION 9.04 COMPLIANCE WITH ERISA AND THE CODE.
----------------------------------
The Committee shall perform all acts necessary to ensure the Plan's compliance
with ERISA and the Code. Each individual member of the Committee shall
discharge his duties in good faith and in accordance with the applicable
requirements of ERISA and the Code.
SECTION 9.05 ACTION BY COMMITTEE.
-------------------
All actions of the Committee shall be governed by the affirmative vote of a
number of the members of the Committee which is a majority of the total number
of the members of the Committee. The members of the Committee may meet
informally and may take any action without meeting as a group.
SECTION 9.06 EXECUTION OF DOCUMENTS.
----------------------
Any instrument executed by the Committee may be signed by any member of the
Committee.
SECTION 9.07 ADOPTION OF RULES.
-----------------
The Committee shall adopt such rules and regulations of uniform applicability as
it deems necessary or appropriate for the proper operation, administration and
interpretation of the Plan.
SECTION 9.08 RESPONSIBILITIES TO PARTICIPANTS.
--------------------------------
The Committee shall determine which Employees qualify to participate in 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 the Code (or is otherwise appropriate) to
enable the Participant or Beneficiary to make whatever elections may be
available pursuant to Section 7, and the Committee shall provide for the payment
of benefits in the proper form and amount from the Trust. The Committee may
decide in its sole discretion to permit modifications of elections and to defer
or accelerate benefits to the extent consistent with the terms of the Plan,
applicable law, and the best interests of the individuals concerned.
SECTION 9.09 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
32
<PAGE>
guardian, or the person having actual custody of him. 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 9.09, 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.
SECTION 9.10 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 the Committee or such individual in connection with any claim made
against the Committee or such individual or in which the Committee or such
individual may be involved by reason of being, or having been, the Committee, or
a member or employee of the Committee, to the extent such amounts are not paid
by insurance.
SECTION 9.11 ABSTENTION 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 under the Plan, unless his abstention would render the Committee
incapable of acting on the matter.
33
<PAGE>
SECTION 10
RULES GOVERNING BENEFIT CLAIMS
SECTION 10.01 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 Section 7 of the Plan.
SECTION 10.02 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:
(a) each specific reason for the denial;
(b) specific references to the pertinent Plan provisions on which the denial is
based;
(c) 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
(d) an explanation of the claims review procedures set forth in Section 10.03 of
the Plan.
SECTION 10.03 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
34
<PAGE>
respect to his claim, including the reasons for such decision and the particular
Plan provisions upon which it is based.
35
<PAGE>
SECTION 11
THE TRUST
SECTION 11.01 CREATION OF TRUST FUND.
----------------------
All amounts received under the Plan from an Employer and investments shall be
held in a Trust Fund pursuant to the terms of this Plan and the Trust Agreement.
The benefits described in this Plan shall be payable only from the assets of the
Trust Fund. Neither the Association, any other Employer, its board of directors
or trustees, its stockholders, its officers, its employees, the Committee, nor
the Trustee shall be liable for payment of any benefit under this Plan except
from the Trust Fund.
SECTION 11.02 COMPANY STOCK AND OTHER INVESTMENTS.
-----------------------------------
Trust Fund held by the Trustee shall be divided into Company Stock and
investments other than Company Stock. The Trustee shall have no investment
responsibility for the portion of the Trust Fund consisting of Company Stock,
but shall accept any Employer contributions made in the form of Company Stock,
and shall acquire, sell, exchange, distribute, and otherwise deal with and
dispose of Company Stock in accordance with the instructions of the Committee.
SECTION 11.03 ACQUISITION OF COMPANY STOCK.
----------------------------
From time to time the Committee may, in its sole discretion, direct the Trustee
to acquire Company 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 Company
Stock no more than its fair market value, which shall be determined conclusively
by the Committee pursuant to Section 9.03(d) of the Plan. The Committee may
direct the Trustee to finance the acquisition of Company Stock through an
Acquisition Loan subject to the provisions of Section 4.03 of the Plan.
SECTION 11.04 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 Accounts committed to alternative investment options
within an "Investment Fund." For the sixth year in this period, the Participant
may elect to have up to 50 percent of the value of his Accounts 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 Accounts 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 Committee may, in its
discretion, permit a transfer of a portion of the Participant's Accounts to the
Savings Plan in order to satisfy this Section 11.04, provided such
36
<PAGE>
investments comply with Section 401(a)(28)(B) and such transfer is not otherwise
prohibited under the Code or ERISA. 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 11.04.
37
<PAGE>
SECTION 12
ADOPTION, AMENDMENT AND TERMINATION
SECTION 12.01 ADOPTION OF PLAN BY OTHER EMPLOYERS.
-----------------------------------
With the consent of the Association, any entity may become a participating
Employer under the Plan by:
(a) taking such action as shall be necessary to adopt the Plan;
(b) becoming a party to the Trust Agreement establishing the Trust Fund; and
(c) 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.
SECTION 12.02 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.
SECTION 12.03 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) of
the Code, the Plan may be amended retroactively to the earliest date permitted
by the Code and the applicable Treasury Regulations in order to secure
qualification under Section 401(a) of the Code. If this Plan is held by the
Internal Revenue Service not to qualify initially under Section 401(a) of the
Code either as originally adopted or as amended, each Employer's contributions
to the Trust under this Plan (including any earnings thereon) shall be
38
<PAGE>
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) of the Code, the
amendment may be modified retroactively to the earliest date permitted by the
Code and the applicable Treasury Regulations in order to secure approval of the
amendment under Section 401(a) of the Code.
SECTION 12.04 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 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, the provisions of Section 4.04
relating to the crediting of contributions, forfeitures and shares of Company
Stock released from the Loan Suspense Account, 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 and the Committee's instructions.
39
<PAGE>
SECTION 13
GENERAL PROVISIONS
SECTION 13.01 NONASSIGNABILITY OF BENEFITS.
----------------------------
The interests of Participants and other persons entitled to benefits under the
Plan shall not be subject to the claims of their creditors and may not be
voluntarily or involuntarily assigned, alienated, pledged, encumbered, sold, or
transferred. The prohibitions set forth in this Section 13.01 shall also apply
any judgement, decree, or order (including approval of a property or 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 domestic relations order, unless such judgement, decree or order
is determined to be a "qualified domestic relations order" as defined in Section
414(p) of the Code.
SECTION 13.02 LIMIT OF EMPLOYER LIABILITY.
---------------------------
The liability of the Employers with respect to Participants and other persons
entitled to benefits under the Plan shall be limited to making contributions to
the Trust from time to time, in accordance with Section 4 of the Plan.
SECTION 13.03 PLAN EXPENSES.
-------------
All expenses incurred by the Committee or the Trustee in connection with
administering the Plan and Trust 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.
SECTION 13.04 NONDIVERSION OF ASSETS.
----------------------
Except as provided in Sections 5.05 and 12.03 of the Plan, 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.
SECTION 13.05 SEPARABILITY OF PROVISIONS.
--------------------------
If any provision of the 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.
SECTION 13.06 SERVICE OF PROCESS.
------------------
The agent for the service of process upon the Plan shall be the president of the
Association and the Trustee, or such other person as may be designated from time
to time by the Association.
40
<PAGE>
SECTION 13.07 GOVERNING LAW.
-------------
The Plan is established under, and its validity, construction and effect shall
be governed by the laws of the State of Ohio to the extent those laws are not
preempted by federal law, including the provisions of ERISA.
SECTION 13.08 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 Company Stock from the Plan must hold such Company Stock for a
period of six months commencing with the date of distribution. However, this
restriction will not apply to Company 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.
41
<PAGE>
SECTION 14
TOP-HEAVY PROVISIONS
SECTION 14.01 TOP-HEAVY PROVISIONS.
--------------------
If, as of the last day of the first Plan Year, or thereafter, if as of the day
next preceding the beginning of any Plan Year (the "Determination Date"), the
Plan is a "top-heavy plan" (determined in accordance with the provisions of
Section 416(g) of the Code); that is, the aggregate present value of the accrued
benefits and account balances of all "Key Employees" (within the meaning of
Section 416(i) of the Code and for this purpose using the definition of
Compensation, as modified under Section 5.5(b) of the Plan) and their
Beneficiaries, the provision specified in this Section 14 will automatically
become effective as of the first day of the Plan Year. For purposes of the
above sentence, the aggregate present value of the accrued benefits and account
balances of a Participant who has not performed any services for the Association
or any of its Affiliates during the five-year period ending on the Determination
Date shall not be taken into account. This calculation shall be made in
accordance with Section 416(g) of the Code, taking into consideration plans
which are considered part of the Aggregation Group. The term "Aggregation
Group" shall include each plan of the Association or any of its Affiliates that
includes a Key Employee and each plan of the Association or any of its
Affiliates that allows the Plan to meet the requirements of Section 401(a)(4) of
the Code or Section 410 of the Code and may include any other plan of the
Association or any of its Affiliates, if the Aggregation Group would continue to
meet the requirements of Sections 401(a)(4) and 410 of the Code.
SECTION 14.02 PLAN MODIFICATIONS UPON BECOMING TOP-HEAVY.
------------------------------------------
(a) MINIMUM ACCRUALS. Section 5.04 of the Plan will be modified to provide that
the aggregate amount of Employer contributions allocated in each Plan Year to
the Accounts of each Participant who is a Non-Key Employee (within the meaning
of Section 416(i)(1) of the Code), and who is employed by an Employer as of the
last day of the Plan Year, may not be less than the lesser of:
(i) three percent of his Compensation for the Plan Year; and
(ii) a percentage of his Compensation equal to the largest percentage
obtained by dividing the sum of the amount credited to the Accounts of any
key Employee by that key Employee's Compensation; and
(b) SECTION 415(E) OF THE CODE. Section 5.05 of the Plan will be modified to
provide that the dollar limitations in the denominators of the "defined benefit
plan fraction" and "defined contribution plan fraction" (as such terms are
defined in Section 415(e) of the Code) will be multiplied by 1.0 instead of
1.25. However, the above sentence shall not apply if "four percent" is
substituted for "three percent" in paragraph (a) of this Section 14.02.
42
<PAGE>
The preceding provisions will remain in effect for the period in which the Plan
is top-heavy. If, for any particular year thereafter, the Plan is no longer
top-heavy, the provisions contained in this Section 14 shall cease to apply,
except that any previously vested portion of any Account balance shall remain
nonforfeitable.
SECTION 14.03 SUPER TOP-HEAVY PROVISIONS.
--------------------------
If, as of a Determination Date, the aggregate present value of the accrued
benefits and Account balances of all "Key Employees" (within the meaning of
Section 416(i) of the Code) and their Beneficiaries exceed 90% of the aggregate
present value of the accrued benefits and Account balances of all Participants
and Beneficiaries, paragraph (a) of Section 14.02 will automatically become
effective as of the first day of such Plan Year, except that Section 14.02(b) of
the Plan will be modified to provide that the dollar limitations in the
denominators of the defined benefit plan fraction and defined contribution plan
fraction in Section 5.05 of the Plan shall be multiplied by 1.0 instead of 1.25,
whether or not the minimum benefit is increased under Section 14.02(a) of the
Plan.
43
<PAGE>
TRUST AGREEMENT
BETWEEN
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF WELLSVILLE
AND
_____________________
FOR THE
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF WELLSVILLE
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
<PAGE>
CONTENTS
Page No.
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 9
Section 6 Change of Trustees 10
Section 7 Miscellaneous 11
<PAGE>
This TRUST AGREEMENT dated March 10, 1998 BETWEEN Central Federal Savings
and Loan Association of Wellsville, a federally-chartered savings and loan
association with its principal office at 601 Main Street, Wellsville, Ohio 43968
(hereinafter called the "Company"), AND _____________________, with offices at
______________________ 10005 (hereinafter called the "Trustee"),
W I T N E S S E T H T H A T:
WHEREAS, effective January 1, 1998, the Company approved and adopted an
employee stock ownership plan for the benefit of its employees, Central Federal
Savings and Loan Association of Wellsville 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 "Central Federal
----------------------
Savings and Loan Association of Wellsville 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 "Central Federal Savings and
-----
Loan Association of Wellsville Employee Stock Ownership Plan 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
1
<PAGE>
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.
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 Acquisition
Loans, 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
Acquisition Loans 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;
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;
3
<PAGE>
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 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;
4
<PAGE>
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 the applicable provisions 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;
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;
5
<PAGE>
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;
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
6
<PAGE>
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 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
7
<PAGE>
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.
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
8
<PAGE>
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 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
9
<PAGE>
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 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.
10
<PAGE>
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.
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.
11
<PAGE>
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.
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 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.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
ATTEST: CENTRAL FEDERAL SAVINGS AND LOAN
ASSOCIATION OF WELLSVILLE
By:
- ----------------------------- -----------------------------
Corporate Secretary William R. Williams
President and Chief Executive Officer
ATTEST:
----------------------------
as TRUSTEE
By:
-------------------------
13
<PAGE>
EXHIBIT 10.2 DRAFT ESOP LOAN COMMITMENT LETTER AND ESOP LOAN DOCUMENTS
<PAGE>
EXHIBIT 10.2
[HOLDING COMPANY LETTERHEAD]
______________, 199__
Central Federal Savings and Loan Association of Wellsville
601 Main Street
Wellsville, Ohio 43968
Dear _____________:
This letter confirms Grand Central Financial Corp.'s commitment to fund a
leveraged ESOP in an amount up to $________. The commitment is subject to the
following terms and conditions:
1. Lender: Grand Central Financial Corp. (the "Company").
------
2. Borrower: Central Federal Savings and Loan Association of Wellsville
--------
Employee Stock Ownership Plan.
3. Trustee: ______________________________.
-------
4. Security: Unallocated shares of stock of the Company held in the
--------
Central Federal Savings and Loan Association of Wellsville Employee
Stock Ownership Plan.
5. Maturity: Up to 12 years from takedown.
--------
6. Amortization: Equal annual principal and interest payments
------------
7. Pricing:
-------
a. [____%] or [the Prime Rate as published in the Wall Street
Journal on the date of the loan transaction].
8. Interest Payments:
-----------------
a. Annual on a 360 day basis.
<PAGE>
9. Funding: In full by _______________, unless such date is waived by the
-------
Company.
10. Prepayment: Voluntary prepayments are permitted at any time.
----------
11. Conditions Precedent to Closing: Receipt by the Company of all
-------------------------------
supporting loan documents in a form and with terms and conditions
satisfactory to the Company and its counsel. Consummation of the
transaction will also be contingent upon no material adverse change
occurring in the condition of Central Federal Savings and Loan
Association of Wellsville or the Company.
12. Closing Date: Not later than _____________, unless such date is waived
------------
by the Company.
If the terms and conditions are agreeable to you, please indicate your
acceptance by signing the enclosed copy and returning it to my attention.
Sincerely,
Lending Officer
Accepted on Behalf of
the Central Federal Savings and Loan Association
of Wellsville Employee Stock Ownership Plan
By: _________________________________ Date: _____________________
President and Chief Executive Officer
<PAGE>
FORM OF
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF WELLSVILLE
EMPLOYEE STOCK OWNERSHIP TRUST
LOAN AND SECURITY AGREEMENT
Central Federal Savings and Loan Association of Wellsville
601 Main Street
Wellsville, Ohio 43968
___________, 199_
Gentlemen:
The undersigned, _____________________ ("Trustee"), not individually but
solely as Trustee under the Central Federal Savings and Loan Association of
Wellsville Employee Stock Ownership Trust (the "Trust") effective ___________,
199_ (the "Borrower"), applies to you, Grand Central Financial Corp.
(hereinafter referred to as the "Lender") for your commitment, subject to all of
the terms and conditions hereof and on the basis of the representations
hereinafter set forth, to make a loan available to the Borrower as hereinafter
set forth. The term "Bank" as used herein refers to the sponsoring employer of
the Central Federal Savings and Loan Association of Wellsville Employee Stock
Ownership Plan (the "ESOP").
SECTION ONE. THE TERM LOAN.
1.1 AMOUNT AND TERMS. Subject to and upon the terms and conditions herein
----------------
set forth, the Lender agrees to lend amounts to the Borrower, (the "Loan") from
time to time during the period of this agreement up to but not including the
maturity date of December 31, 2010, in an aggregate principal amount (the "Loan
Amount") sufficient to permit the Borrower to acquire a number of shares
("Shares") of common stock, par value $0.01 ("Common Stock") of Grand Central
Financial Corp., a Delaware corporation, and the Holding Company of the Bank,
equal to 8% of the Shares issued in connection with the conversion of the Bank
from the mutual to stock form (the "Conversion").
The Loan is intended to be an "exempt loan" as described in Section 4975(d)
of the Internal Revenue Code of 1986, as amended (the "Code"), as defined in
Section 54.4975-7(b) of the Treasury Regulations (the "Regulations"), as
described in Section 408(b)(3) of the Employee Retirement Income Security Act of
1974, as amended ("ERISA") and as described in Department of Labor Regulations
Section 2550.408b-3 (collectively, the "Exempt Loan Rules").
<PAGE>
1.2 THE NOTE. The disbursement of the Loan pursuant to Section 1.1 hereof
--------
shall be made against and evidenced by a promissory note of the Borrower in the
form annexed hereto as Exhibit A (the "Note"), such Note to bear interest as
hereinafter provided, and to mature in twelve (12) equal annual installments
consisting of both principal and interest amortized over a twelve (12) year
period in an amount sufficient to repay all borrowed amounts plus interest,
commencing on December 31, 1998 and on the last day of each and every December
each year thereafter, except that the final installment in the amount of all
principal and interest not sooner paid shall be due on December 31, 2010, the
final maturity thereof.
Without regard to the principal amount of the Note stated on its face, the
actual principal amount at any time outstanding and owed by the Borrower on
account of the Note shall be the amount of the disbursement of the Loan made by
the Lender under Section 1.1 hereof less all payments of principal actually
received by the Lender. The amount of such disbursement made by the Lender and
any repayments of principal thereof shall be recorded by the Lender on its books
or records or, at its option, endorsed on the reverse side of the Note by the
Lender and the unpaid principal balance at any time so recorded or endorsed by
the Lender shall be prima facie evidence in any court or other proceedings
brought to enforce the Note of the principal amount remaining unpaid thereon.
1.3 EXEMPT LOAN RULES. Notwithstanding anything to the contrary contained
-----------------
in this Loan and Security Agreement (the "Agreement") or in the Note, the
Borrower shall be obligated to make repayments of the Loan only to the extent
that such repayments when added to the repayments theretofore made during the
applicable plan year would not exceed an amount which would cause the
limitations of Section 415 of the Code to be exceeded for any ESOP participant.
Except as set forth in the next succeeding sentence and to the extent
permitted by applicable law, including, without limitation, the Exempt Loan
Rules, the principal amount of the Loan and any interest thereon shall be
payable solely from contributions (other than contributions of employer
securities) made to the Trust in accordance with the ESOP, and cash dividends
received on the Shares, to enable the Borrower to pay its obligations under the
Loan and from earnings attributable to the Shares and the investment of such
contributions and dividends.
The Lender acknowledges and agrees that it shall have no other recourse
against the Borrower for repayment of the Loan and that it shall have no
recourse against assets of the ESOP included in the Trust other than pursuant to
Sections 3 and 8 hereof.
SECTION TWO. INTEREST AND FEES.
2.1 INTEREST RATE. The Loan shall bear interest (which the Borrower
-------------
hereby promises to pay) prior to maturity (whether by lapse of time,
acceleration or otherwise) at a rate per annum
2
<PAGE>
equal at all times to the "Interest Rate" defined for purposes of this Agreement
to mean the lowest prime rate reported in the Wall Street Journal on the date of
the Conversion.
2.2 BASIS AND PAYMENT DATES. All interest accruing on the Note prior to
-----------------------
maturity shall be due and payable on an annual basis on the last day of each
year (commencing December 31, 1998) and at maturity (unless prepaid in whole
prior to such date, then on the date of such prepayment in whole) and interest
accruing after maturity shall be due and payable upon demand. All interest on
the Note shall be computed on the basis of a year of 360 days.
SECTION THREE. COLLATERAL.
3.1 GRANT OF SECURITY INTEREST-PLEDGED SHARES. The Borrower hereby
-----------------------------------------
grants, pledges and assigns to the Lender all Shares of the issued and
outstanding common stock, par value $.01 per share all of which were either (i)
purchased by the Borrower from the proceeds of the disbursement of the Loan;
(ii) acquired by the Borrower with the proceeds of a prior exempt loan within
the meaning of Section 54.4975-7(b) of the Regulations, and pledged as
collateral for such prior exempt loan, where the balance of such prior exempt
loan has been repaid with the proceeds of the disbursement of the Loan (the
"Pledged Shares" being hereinafter referred to as the "Collateral"). The Pledged
Shares shall be evidenced by a stock certificate. The assignment and pledge
herein granted and provided for is made and given to secure and shall secure the
prompt payment of principal of and interest on the Note as and when the same
becomes due and payable and the payment, observance and performance of any and
all obligations and liabilities arising under or provided for in this Agreement
or the Note or any of them in each instance as the same may be amended or
modified and whether now existing or hereafter arising.
3.2 FURTHER ASSURANCES. The Borrower covenants and agrees that it will at
------------------
any time and from time to time as requested by the Lender execute and deliver
such further instruments and perform such other acts as the Lender may
reasonably deem necessary or desirable to provide for or perfect the lien of the
Lender in the Collateral hereunder.
3.3 VOTING. Upon the occurrence of a Default as defined in Section 9
------
hereunder, the Lender shall have the right to transfer the Collateral or any
part thereof into its name or into the name of its nominee. The Lender shall
not be entitled to vote the Pledged Shares unless and until an Event of Default
has occurred and so long as the same shall not have been waived by the Lender.
3.4 PARTIAL RELEASES. The Lender agrees, provided always that no Default
----------------
shall have occurred and be continuing, as promptly as is practicable after
December 31 in each year (the period commencing the date hereof and ending
December 31 and each subsequent 12-month period ending on December 31 being
hereinafter referred to as a "Plan Year"), to release that number of Pledged
Shares then being held to secure the Loan which is equal to the number of
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such Pledged Shares held as of the last day of the Plan Year multiplied by a
fraction, the numerator of which is the aggregate amount of all principal and
interest payments made on the Note during the Plan Year and the denominator of
which is the sum of the numerator plus the unpaid principal and interest of the
Note as of the last day of such Plan Year.
SECTION FOUR. PAYMENTS.
4.1 PLACE AND APPLICATION. All payments of principal, interest, fees and
---------------------
all other amounts payable hereunder shall be made to the Lender at 601 Main
Street, Wellsville, Ohio 43968 for the account of the Lender (or at such other
place for the account of the Lender as the Lender may from time to time in
writing specify to the Borrower) in immediately available and freely
transferable funds at the place of payment. All payments shall be paid in full
without setoff or counterclaim and without reduction for and free from any and
all taxes, levies, duties, fees, charges, deductions, withholdings, restrictions
or conditions of any nature imposed by any government or any political
subdivision or taxing authority thereof.
4.2 PREPAYMENTS. The Borrower shall have the privilege of prepaying in
-----------
whole or in part the Note at any time upon giving three (3) Business Days' prior
notice to the Lender, each such prepayment to be made by the payment of the
principal amount to be prepaid and accrued interest thereon to the date fixed
for prepayment. The term "Business Day" shall mean any day on which savings
institutions are generally open for business in Ohio, other than Saturday and
Sunday. All such prepayments shall be made without premium or penalty.
Prepayments shall first be applied to the several installments of the Note in
the inverse order of their respective maturities.
SECTION FIVE. REPRESENTATIONS AND WARRANTIES.
The Borrower, to the best of its knowledge, represents and warrants to the
Lender as follows:
5.1 The Trust is a duly organized, validly existing employee stock
ownership trust.
5.2 The proceeds of the disbursement of the Loan shall be applied in their
entirety to the payment of the purchase price for the Pledged Shares.
5.3 The Borrower has full right, power and authority to enter into this
Agreement, to make the borrowings hereunder provided for, to issue the Note in
evidence thereof and to perform each and all of the matters and things herein
and therein provided for and this Agreement does not, and the Note when issued
will not, nor will the performance or observance by the Borrower of any of the
matters or things herein or therein provided, contravene any provision of law or
the Trust or any other covenant or agreement affecting the Trust or any of its
assets. Once acquired by the Trust, the Pledged Shares will be fully paid and
non-assessable and
4
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will be owned by the Borrower free and clear of all liens, charges and
encumbrances whatsoever, except for any lien of Lender provided for herein.
5.4 Except as disclosed to the Lender in writing, there is no litigation
or governmental proceeding pending, nor to the knowledge of the Borrower
threatened, against the ESOP and Trust.
5.5 The ESOP and Trust have no material liabilities, whether absolute or
contingent, except for those heretofore disclosed to the Lender.
SECTION SIX. REPRESENTATIONS AND WARRANTIES OF THE LENDER.
The Lender represents and warrants that:
6.1 The Lender is a corporation duly organized under the laws of the State
of Delaware, and is validly existing and in good standing under the laws of the
State of Delaware. The Lender has full power and authority and legal right to
make and perform this Agreement.
6.2 The execution, delivery and performance by the Lender of this
Agreement have been duly authorized by all necessary action by the Lender, and
is not in violation of, and will not violate, any provisions of law applicable
to the Lender, any rules, regulations or orders applicable to the Lender or any
judgments or decrees binding upon the Lender. This Agreement is a valid and
legally binding obligation of the Lender enforceable against the Lender in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
credits' rights generally and the general principles of equity (regardless of
whether considered in a proceeding at law or in equity).
6.3 No authorizations, approvals or consents of, and no filings or
registrations with, any governmental regulatory authority or agency are required
for the execution, delivery or performance by the Lender of this Agreement, or
any transaction contemplated hereby, or for the validity or enforceability
against the Lender hereof except as have already been received or accomplished.
6.4 The execution, delivery and performance of the Agreement and the
consummation of the transactions contemplated hereby will not violate, conflict
with or constitute a default under (i) any of the provisions of the Lender's
Certificate of Incorporation or Bylaws, (ii) any provision of any agreement,
instrument, order, arbitration award, judgment or decree to which the Lender is
a party or by which it is or its assets are bound (iii) any statute, rule or
regulation of any federal, state or local government or agency applicable to the
Lender, except in any such case described in (i), (ii), (iii) above, for any
such conflicts, violations, defaults which either individually or in the
aggregate do not have a material adverse effect on the business properties of
the Lender and its subsidiaries, taken as a whole.
5
<PAGE>
6.5 The Bank has taken such actions as are required by applicable law to
be taken by it to establish the ESOP and the Trust.
6.6 There is no action, suit, investigation or proceeding pending, or to
the best knowledge of the Holding Company or the Bank, threatened against or
affecting the ESOP before any court or governmental department, agency or
instrumentality.
6.7 The Loan will be an "exempt loan" as that term is defined under
Section 54.4975-7(b)(1)(iii) of the Regulations, provided the ESOP Committee
determines that the interest rate is not more than reasonable; and the
transactions contemplated by this Agreement which are "prohibited transactions"
within the meaning of Section 4975 of the Code or Section 406(a) of ERISA are
subject to exemption pursuant to Section 4975(d)(3) of the Code and Section 408
of ERISA.
6.8 Except as otherwise provided in this Agreement, the Shares are not
subject to any restriction on transfer under applicable Federal securities law
and may be freely traded over-the-counter.
6.9 DETERMINATION LETTER. The Bank shall apply for a determination letter
from the Internal Revenue Service that the Plan and the Trust, taken together,
qualify as an employee stock ownership plan for purposes of Section 4975(e)(7)
of the Code and the rules and regulations thereunder.
6.10 The Bank or its affiliates shall make contributions to the ESOP
sufficient to enable the Trustee to make payments on the Loan as prescribed by
Section 4.01(b) and related provisions of the ESOP document.
SECTION SEVEN. CONDITIONS PRECEDENT.
The obligation of the Lender to make the Loan shall be subject to
satisfaction of the following conditions precedent:
7.1 The Lender shall have received executed originals of this Agreement
and the Note duly signed and properly completed.
7.2 The Lender shall have received either (i) the certificate evidencing
all the Pledged Shares together with duly executed blank stock power therefore
or (ii) if such Pledged Shares are not yet available, a duly executed agreement
to pledge such stock in the form attached hereto as Exhibit B (in which event
such certificate and stock power will be delivered within 6 days of the date of
the Lender makes the Loan).
6
<PAGE>
7.3 The Lender shall have received copies (executed or certified, as may
be appropriate) of all legal documents or proceedings taken in connection with
the execution and delivery of this Agreement and the Note.
7
<PAGE>
SECTION EIGHT. COVENANTS.
Borrower covenants and agrees that so long as any amount remains unpaid on
the Note or the Commitment is outstanding, except to the extent compliance in
any case or cases is waived in writing by the Lender:
8.1 COMPLIANCE. The Borrower will comply with all requirements of the
----------
Code, ERISA and any other law, rule or regulation applicable to it as such
laws, rules or regulations affect the ESOP or the Trust.
8.2 REPORTS.
-------
(a) The Borrower will maintain a system of accounting for the ESOP and
the Trust in accordance with sound accounting practice and will, from time
to time, furnish to the Lender and its duly authorized representatives,
such information and data with respect to the financial condition of the
ESOP and the Trust as the Lender may reasonably request.
(b) Without any request the Borrower will furnish to the Lender
promptly after knowledge thereof shall have come to the attention of the
Borrower, written notice of the occurrence of any Default or Event of
Default hereunder or of any threatened or pending litigation or
governmental proceeding against the Plan or the Trust.
SECTION NINE. DEFAULT AND REMEDIES.
9.1 DEFAULT. Any one or more of the following shall constitute Default
-------
hereunder:
(a) As of the date when due, the Borrower fails to make payment of
principal and/or interest with respect to the Note or any other amounts
payable under this Agreement within five (5) business days of the date when
due;
(b) As of the date proven false, the Borrower makes any
representation, warranty or statement herein or in connection with the
making of the Loan which proves to be incorrect in any material respect;
(c) As of the date the Borrower fails to perform or observe any term,
covenant or agreement (other than those referred to in subparts (a) and
(b), inclusive, of this Section 9.1) contained in this Agreement and such
failure continues unremedied for a period of 30 days after notice to the
Borrower by the Lender or any other holder of the Note;
8
<PAGE>
(d) As of the date of termination of the ESOP if such termination is
prior to the expiration of the term of this Agreement.
9.2 LIMITATIONS ON USE OF TRUST ASSETS. When any Default described in
----------------------------------
subsections (a) to (c), of Section 9.1 has occurred and is continuing, the
Lender or the holder of the Note shall have no rights to assets of the Trust
other than (i) contributions (other than contributions of employer securities)
that are made by the Lender to enable the Borrower to meet its obligations
pursuant to the Loan, cash dividends received by the Borrower on the Pledged
Shares and earnings attributable to the investment of such contributions and
dividends and (ii) the Pledged Stock; provided further, however, that the value
of Trust assets transferred to the Lender as a result of a Default shall not
exceed the amount of the repayment then in default, and, provided further, that
so long as the Lender is a "party in interest" within the meaning of ERISA
Section 3(14) or a "disqualified person" within the meaning of Section
4975(e)(2) of the Code, a transfer of Trust assets upon default shall be made
only if, and to the extent of, the Borrower's failure to meet the loan's payment
schedule.
9.3 RIGHTS UPON DEFAULT. When Default has occurred and is continuing the
-------------------
Lender may, in addition to such other rights or remedies as it may have, then or
at any time or times thereafter exercise with respect to the Collateral any and
all of the rights, options and remedies of a secured party under the
________________ including without limitation the sale of all or any part of the
Collateral at any brokers' board or any public or private sale, provided,
however that the Lender shall only be able to exercise such rights and remedies
to the extent of all interest and principal payments which are due and payable
as of the date of the Default and provided further that prior to such exercise
the Lender shall release from the Collateral so much thereof as it would have
been required to release under Section 3.4 hereof if the period from the
previous December 31 to the date of such release constituted a Plan Year and no
Default had occurred. The net proceeds of any such sale, after deducting all
costs and expenses incurred in the collection, protection, sale and delivery of
the Collateral (which expenses Borrower promises to pay) shall be applied first
to the payment of any costs and expenses incurred by the Lender in selling or
otherwise disposing of the Collateral, second, to the payment of the principal
of and the interest on the Note, and, third, ratably as among any other items of
the indebtedness hereby secured. Any surplus remaining after the full payment
and satisfaction of the foregoing shall be returned to the Borrower or to
whomsoever a court of competent jurisdiction shall determine to be entitled
thereto. Any requirement of said _______________ as to reasonable notice shall
be met by the Lender personally delivering or mailing notice (by certified mail
- - return receipt requested) to the Borrower at its address as provided in
Section 10.6 hereof at least ten (10) days prior to the event giving rise to the
requirement of such notice. In connection with any offer, solicitation or sale
of the Collateral, the Lender may restrict bidders and otherwise proceed in
whatever manner it reasonably believes appropriate in order to comply or assure
compliance with applicable legal requirements pertaining to the offer and sale
of securities of the same type as the Collateral.
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9.4 ERISA RESTRICTIONS. The number of shares of Pledged Stock as to which
------------------
the Lender may exercise the rights set forth in this Section 9 may not exceed
that number of shares (then remaining subject to pledge hereunder) which is then
equal in current value to the amount in default under the Note. The remedies
set forth in this Section 9 may only be exercised to the extent consistent with
the restrictions on remedies set forth in Section 408(b)(3) of ERISA and the
regulations thereunder and Section 4975(d)(3) of the Code and the regulations
thereunder.
SECTION TEN. MISCELLANEOUS.
10.1 HOLIDAYS. If any principal of the Note shall fall due on Saturday,
--------
Sunday or on another day which is a legal holiday for savings institutions in
the State of Ohio interest at the rate the Note bears for the period prior to
maturity shall continue to accrue on such principal from the stated due date
thereof to and including the next succeeding Business Day on which the same is
payable.
10.2 NO WAIVER, CUMULATIVE REMEDIES. No delay or failure on the part of
------------------------------
the Lender or the part of the holder of the Note in the exercise of any power or
right shall preclude any other or further exercise thereof, or the exercise of
any other power or right, and the rights and remedies hereunder of the Lender
and of any holder of the Note are cumulative to, and not exclusive of, any
rights or remedies which any of them would otherwise have.
10.3 AMENDMENTS, ETC. No amendment, modification, termination or waiver of
----------------
any provision of this Agreement or of the Note nor consent to any departure by
the Borrower therefrom, shall in any event be effective unless the same shall be
in writing and signed by the Lender, and then such consent, modification or
waiver shall be effective only in the specific instance and for the specific
purpose for which given. No notice to or demand on the Borrower in any case
shall entitle the Borrower to any other further notice or demand in similar or
other circumstances.
10.4 SURVIVAL OF REPRESENTATIONS. All representations and warranties
---------------------------
made herein or in certificates given in connection with the Loan shall survive
the execution and delivery of this Agreement and of the Note, and shall continue
in full force and effect with respect to the date as of which they were made as
long as any credit is in use or available hereunder.
10.5 PAYMENTS. So long as the Lender is the holder of the Note, the
--------
Borrower will promptly and punctually pay the principal of and interest on the
Note without presentment of the Note and without any notation of any such
payment being made on the Note.
10.6 ADDRESSES FOR NOTICES. All communications provided for herein shall
---------------------
be in writing and shall be deemed to have been given or made when served
personally or when deposited in the United States mail addressed, if to the
Borrower at _____________________, __________________, Attn.: _______________,
with a copy to __________________,
10
<PAGE>
_________________, Attn: _______________; if to the Lender at 601 Main Street,
Wellsville, Ohio 43968, Attn: William R. Williams, with a copy to Muldoon,
Murphy & Faucette, 5101 Wisconsin Avenue, N.W., Washington, D.C. 20016, Attn:
John R. Hall, Esq. or at such other address as shall be designated by any party
hereto in a written notice to each other party pursuant to this Section 10.6.
10.7 HEADINGS. Article and Section headings used in this Agreement are
--------
for convenience or reference only and are not a part of this Agreement for any
other purpose.
10.8 SEVERABILITY OF PROVISIONS. Any provision of this Agreement which is
--------------------------
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such unenforceability without impairing the enforceability of
the remaining provisions hereof affecting the enforceability of such provision
in any other jurisdiction.
10.9 COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, and by different parties hereto on separate counterparts, and all
such counterparts taken together shall be deemed to constitute one and the same
instrument.
10.10 BINDING NATURE, GOVERNING LAW, ETC. This Agreement shall be binding
----------------------------------
upon the Borrower and its successors and assigns and shall inure to the benefit
of the Lender and the benefit of its successors and assigns, including any
subsequent holder of the Note. To the extent not preempted by Federal law, this
Agreement and the rights and duties of the parties hereto shall be construed and
determined in accordance with the laws of the State of Ohio without regard to
principles of conflicts of laws. This Agreement constitutes the entire
understanding of the parties with respect to the subject matter hereof and any
prior agreements, whether written or oral, with respect thereto are superseded
hereby.
10.11 CONCERNING THE BORROWER. The term "Borrower" as used herein shall
-----------------------
mean and include the undersigned as Trustee of the Trust and its successors in
trust not individually but solely as Trustee under that certain Central Federal
Savings and Loan Association of Wellsville Employee Stock Ownership Trust
effective ___________, 199_, by and between the undersigned and Central Federal
Savings and Loan Association of Wellsville and this Agreement shall be binding
upon the undersigned and its successors and assigns and upon the trust estate.
The undersigned assumes no personal or individual liability or responsibility
for payment of the indebtedness evidenced by the Note or for observance or
performance of the covenants and agreements herein contained or for the
truthfulness of the representations and warranties herein contained, the
undersigned having executed this Agreement and the Note solely in its capacity
as trustee as aforesaid to bind the undersigned, its successors in trust and the
trust estates.
10.12 LIMITED LIABILITY. Anything contained herein or in the Note to
-----------------
contrary notwithstanding, the sole and only recourse of the Lender and any other
holder of the Note for payment of the obligations hereunder and under the Note ,
as against the Borrower for the
11
<PAGE>
payment of the obligations hereunder and under the Note shall be to (i) the
Collateral, (ii) contributions, other than employer securities not constituting
Collateral hereunder, made to the ESOP and the Trust by sponsoring employers to
enable the Borrower to meet its obligations hereunder and under the Note, and
(iii) earnings attributable to the Pledged Shares and to the investment of such
employer contributions, but only to the extent of the failure of the Borrower to
meet the payment schedule of the Loan provided for herein. The Trust assets may
be transferred to Lender upon the occurrence of a Default hereunder only upon
and to the extent of the failure of the Plan to meet the payment schedule of the
Loan. In no event may the value of the Trust assets so transferred exceed the
amount of the Default.
10.13 LENDER'S DUTY OF CARE. It is agreed and understood that the Lender's
---------------------
duty with respect to the Collateral shall be solely to use reasonable care in
the custody and preservation of the Collateral in the Lender's possession, which
shall not include any steps necessary to preserve rights against prior parties.
All provisions in this Agreement shall be construed so as to maintain (i)
the ESOP as a qualified leveraged employee stock ownership plan under Sections
401(a) and 4975(e)(7) of the Code, (ii) the Trust as exempt from taxation under
Section 501(a) of the Code, and (iii) the Loan as an "exempt loan" under the
Exempt Loan Rules.
[Remainder of this page intentionally left blank]
12
<PAGE>
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall constitute a contract between us for the uses and purposes
hereinabove set forth.
Dated as of this ____ day of _________, 199_
_____________________, and its successors in
trust, as Trustee under that certain Central
Federal Savings and Loan Association of
Wellsville Employee Stock Ownership Trust
effective __________, 199_, by and between the
undersigned and Central Federal Savings and
Loan Association of Wellsville
By: ______________________________
Accepted and agreed to at Wellsville, Ohio as of the date last above
written.
Central Federal Savings and Loan Association
of Wellsville
By:_________________________________
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<PAGE>
EXHIBIT A
PROMISSORY NOTE
Amount sufficient to satisfy the Loan Amount __________, 199_
Wellsville, Ohio
For VALUE RECEIVED, the undersigned, _____________________, not
individually but solely as Trustee under that certain Central Federal Savings
and Loan Association of Wellsville Employee Stock Ownership Trust effective
___________, 199_, by and between the undersigned ("Borrower") and Central
Federal Savings and Loan Association of Wellsville promises to pay to the order
of Grand Central Financial Corp. (the "Lender") at its office at 601 Main
Street, Wellsville, Ohio 43968, the aggregate unpaid principal amount of all
loan amounts or advances under the loan made to the Borrower under Section 1.1
of the Loan and Security Agreement hereinafter referred to in twelve (12)
consecutive annual equal installments, consisting of both principal and
interest, amortized over a twelve (12) year period in an amount sufficient to
repay all borrowed amounts plus interest, payable annually on December 31, and
on the last day of each and every December in each year thereafter, except that
the final installment in the amount of all principal and interest not sooner
paid shall be due on December 31, 2010, the final maturity hereof.
The Borrower promises to pay interest (computed on the basis of a year of
360 days) at said office on the balance of principal from time to time remaining
outstanding and unpaid hereon at the rate per annum equal at all times to the
Interest Rate as defined in Section 2.1 of the Loan and Security Agreement (as
defined below) on the last business day of each and every December, commencing
December 31, 199_, and in each year thereafter and on the final maturity date of
this Note. On demand, the Borrower promises to pay interest on any overdue
principal hereof (whether by lapse of time, acceleration, or otherwise) until
paid at the stated rate.
This Note is issued under the terms and provisions of that certain Central
Federal Savings and Loan Association of Wellsville Employee Stock Ownership
Trust Loan and Security Agreement bearing even date herewith by and between the
Borrower and the Lender (the "Loan and Security Agreement") and this Note and
the holder hereof are entitled to all the benefits and security provided for by
or referred to in such Loan and Security Agreement.
This Note may be declared due prior to its express maturity and voluntary
prepayments may be made hereon, all in the events, on the terms and in the
manner as provided in such Loan and Security Agreement.
Recourse for the payment of this Note has been limited by the provisions of
the Loan and Security Agreement and this Note is expressly made subject to such
provisions. This Note shall
<PAGE>
be governed by and construed in accordance with the laws of Ohio without regard
to principles of conflicts of laws. The Borrower hereby waives presentment for
payment and demand.
Upon the occurrence of Default as such term is defined in the Loan and
Security Agreement at the option of the Lender, all amounts payable by the
Borrower to the Lender under the terms of this Note may immediately become due
and payable by the Borrower to the Lender pursuant to the provisions of Section
9.3 of the Loan and Security Agreement, and the Lender shall have all of the
rights, powers, and remedies available under the terms of this Note, any of the
other documents evidencing and securing this Loan and all applicable laws. The
Borrower and all endorsers, guarantors, and other parties who may now or in the
future be primarily or secondarily liable for the payment of the indebtedness
evidenced by this Note hereby severally waive presentment, protest and demand,
notice of protest, notice of demand and of dishonor and non-payment of this Note
and expressly agree that this Note and any payment hereunder may be extended
from time to time without in any way affecting the liability of the Borrower,
guarantors and endorsers.
_____________________ and its successors in
trust, as Trustee under that certain Central
Federal Savings and Loan Association of
Wellsville Employee Stock Ownership Trust
effective ___________, 199_ by and between
the undersigned and Central Federal Savings
and Loan Association of Wellsville
By:________________________________________
<PAGE>
EXHIBIT B
SECURITY AGREEMENT
INSTRUMENTS OR NEGOTIABLE DOCUMENTS TO BE DEPOSITED
For new value contemporaneously given by Grand Central Financial Corp.,
("Lender") to the undersigned ("Borrower"), the receipt whereof is hereby
acknowledged and subject to the terms and provisions of the Loan and Security
Agreement described below, the Borrower does hereby grant a security interest to
said Lender in the instruments or negotiable documents hereafter described
("Collateral"), in all of which Collateral the Borrower warrants that the
Borrower has good, valid and effective rights to the ownership and possession
thereof and to the grant of the security interest hereby made:
All Shares of the common stock, par value $.01 per share, of Grand Central
Financial Corp., a Delaware corporation, acquired with the proceeds of the
Loan Amount.
Borrower agrees to deliver said collateral to said Lender as soon as
practicable after Borrower's receipt of one or more certificates therefor.
Said security interest secures the payment of all indebtedness and
liabilities as undertaken in the Loan and Security Agreement to which this is a
part, now existing or hereafter arising, and the Lender has all the rights with
respect to said Collateral and said security interest as more fully set forth in
the form of secured note or notes executed and delivered by the undersigned to
said Lender prior hereto or contemporaneously herewith.
This agreement, including matters of interpretation and construction, and
the rights of the Lender and the duties and obligations of the debt hereunder
are to be determined in accordance with the laws of the State of Ohio,
particularly the Uniform Commercial Code, except where preempted by federal law.
Dated at Wellsville, Ohio on the _____ day of ______, 199_.
_____________________, and its
successors in trust, as Trustee
under that certain Central Federal
Savings and Loan Association of
Wellsville Employee Stock
Ownership Trust effective
___________, 199_, by and between
the undersigned and Central
Federal Savings and Loan
Association of Wellsville
By:_______________________________
<PAGE>
EXHIBIT 10.3 FORM OF CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF
WELLSVILLE EMPLOYMENT AGREEMENT
<PAGE>
EXHIBIT 10.3
FORM OF
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF WELLSVILLE
EMPLOYMENT AGREEMENT
This AGREEMENT is made effective as of_____________, 199__, by and among
Central Federal Savings and Loan Association of Wellsville (the "Association"),
a federally-chartered financial institution, with its principal administrative
office at 601 Main Street, Wellsville, Ohio, 43968, Grand Central Financial
Corp., a corporation organized under the laws of the State of Delaware, the
holding company for the Association (the "Holding Company"), and_______________
("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 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
_________ and _________________ 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 three (3) years 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.
(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,
<PAGE>
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
$_______ per year ("Base Salary"). Base Salary shall include any amounts of
compensation deferred by Executive under any qualified or non-qualified 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 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 in the
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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 Association 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 __________ and _______________,
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, or (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 written 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 an amount 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
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4(c) below, shall not, in the aggregate, exceed three (3) 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. 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
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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, dental and disability 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 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 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 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
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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 or Termination for Cause (as defined herein).
(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, fringe benefits paid
or to be paid to the Executive in any such year, and payment of expense items
without accountability or business purpose or that do not meet the IRS
requirements for deductibility by the Institution; provided however, that any
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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, dental and disability
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.
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 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 Section 5 shall be determined
by Executive.
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7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of
Executive's personal dishonesty, incompetence, willful misconduct, 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 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's conduct justified a finding of
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 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 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 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.
(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
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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.
(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 office or has filed an application for regulatory approval to establish an
office and any county adjacent to such city, town or county, 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, 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,
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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 ___________, 199___,
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.
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, heirs, and
assigns.
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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 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 her designee), the FDIC or the Resolution Trust Corporation, 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 her designee) at the time the Director (or
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her 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) 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.
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.
Wherever any words are used herein in the masculine, feminine or neutor
gender, they shall be construed as though they were also used in another gender
in all cases where they would so apply.
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.
Notwithstanding any right to enforcement under Section 10(a), 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
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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, other than in the case of a Termination for
Cause.
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) Subject to the provisions of Section 15 hereof, 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 Pennsylvania 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 him 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.
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.
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SIGNATURES
IN WITNESS WHEREOF, Central Federal Savings and Loan Association of
Wellsville and ______________ 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 ________,
199__.
ATTEST: CENTRAL FEDERAL SAVINGS AND LOAN
ASSOCIATION OF WELLSVILLE
__________________________ By: ______________________________________
For the Entire Board of Directors
[SEAL]
ATTEST: GRAND CENTRAL FINANCIAL CORP.
(Guarantor)
__________________________ By: _____________________________________
For the Entire Board of Directors
[SEAL]
WITNESS:
__________________________ ____________________________________
Executive
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EXHIBIT 10.4 FORM OF GRAND CENTRAL FINANCIAL CORP. EMPLOYMENT AGREEMENT
<PAGE>
EXHIBIT 10.4
FORM OF
GRAND CENTRAL FINANCIAL CORP.
EMPLOYMENT AGREEMENT
This AGREEMENT ("Agreement") is made effective as of _______________,
199___, by and between Grand Central Financial Corp. (the "Holding Company"), a
corporation organized under the laws of Delaware, with its principal
administrative office at 601 Main Street, Wellsville, Ohio 43968
and______________ (the "Executive"). Any reference to "Institution" herein shall
mean Central Federal Savings and Loan Association of Wellsville for 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 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 __________ and ________________ 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 and
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
subsidiaries
<PAGE>
("Subsidiaries") 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 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. Moreover, in the event the Executive is terminated or
suspended from his position with the Institution, 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 ___________ and ________________ 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 $________ per year ("Base Salary"). Base Salary shall
include any amounts of compensation deferred by Executive under any qualified or
non-qualified 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 or 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,
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<PAGE>
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 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, including reasonable expenses for spouse's 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, any (A) failure to elect or reelect or to
appoint or reappoint Executive as ___________ and __________, 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 Agreement based on
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<PAGE>
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, dental and disability 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, or 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 the current management
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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.
(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 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 his death or Termination for Cause (as
defined herein).
(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, dental and disability
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
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<PAGE>
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.
7. TERMINATION FOR CAUSE.
The term "Termination for Cause" shall mean termination because of a
material loss to the Holding Company or one of its Subsidiaries caused by the
Executive's intentional failure to perform stated duties, personal dishonesty,
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. For 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 interest of the Holding Company or its Subsidiaries.
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 Holding Company or its Subsidiaries vest. At
the Date of Termination, 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.
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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 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
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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 and any county adjacent to such city, town or county,
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 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).
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(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 ___________, 199__,
between Executive and the Institution, such compensation payments and benefits
paid by the Institution will be subtracted from any 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, heirs 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.
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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.
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.
Wherever any words are used herein in the masculine, feminine or neuter
gender, they shall be construed as though they were also used in another gender
in all cases where they would so apply.
17. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Delaware
without regard to the principles of conflicts of law of this state, unless
otherwise specified herein.
18. ARBITRATION.
Notwithstanding any right to enforcement under Section 10(a), 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 with 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.
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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 him 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.
(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.
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SIGNATURES
IN WITNESS WHEREOF, ___________________ 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
_________, 199__.
ATTEST: GRAND CENTRAL FINANCIAL CORP.
________________________ By: _________________________
[SEAL]
WITNESS:
________________________ By: _________________________
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EXHIBIT 10.5 FORM OF CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF
WELLSVILLE SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
EXHIBIT 10.5
FORM OF
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF WELLSVILLE
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
<PAGE>
FORM OF
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF WELLSVILLE
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C>
Article I - Introduction........................................
Article II - Definitions........................................
Article III - Eligibility and Participation.....................
Article IV - Benefits...........................................
Article V - Accounts............................................
Article VI - Supplemental Benefit Payments......................
Article VII - Claims Procedures.................................
Article VIII - Amendment and Termination........................
Article IX - General Provisions.................................
Article X - Required Regulatory Provisions......................
</TABLE>
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ARTICLE I
INTRODUCTION
SECTION 1.01 PURPOSE, DESIGN AND INTENT.
--------------------------
(a) The purpose of the Central Federal Savings and Loan Association of
Wellsville Supplemental Executive Retirement Plan (the "Plan") is to assist
Central Federal Savings and Loan Association of Wellsville (the
"Association") and its affiliates in retaining the services of key
employees until their retirement, to induce such employees to use their
best efforts to enhance the business of the Association and its affiliates,
and to provide certain supplemental retirement benefits to such employees.
(b) The Plan, in relevant part, is intended to constitute an unfunded "excess
benefit plan" as defined in Section 3(36) of the Employee Retirement Income
Security Act of 1974, as amended. The Plan is specifically designed to
provide certain key employees with retirement benefits that would have been
payable under the various tax-qualified retirement plans sponsored by the
Association but for the limitations placed on the benefits and contribution
under such plans by various provisions of the Internal Revenue Code of
1986, as amended.
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ARTICLE II
DEFINITIONS
SECTION 2.01 DEFINITIONS. In this Plan, whenever the context so indicates,
-----------
the singular or the plural number and the masculine or feminine gender shall be
deemed to include the other, the terms "he," "his," and "him," shall refer to a
Participant or Beneficiary, as the case may be, and, except as otherwise
provided, or unless the context otherwise requires, the capitalized terms shall
have the following meanings:
(a) "AFFILIATE" means any "parent corporation" or any "subsidiary corporation"
of the Association, as such terms are defined in Sections 424(e) and 424(f),
respectively, of the Code.
(b) "APPLICABLE LIMITATIONS" means one of the following:
(i) the maximum limitation on annual benefits payable by a
qualified defined benefit plan under Section 415(b) of the
Code;
(ii) the maximum limitations on annual additions to a qualified
defined contribution plan under Section 415(c) of the Code;
(iii) the maximum limitation on the aggregate projected annual
benefits payable by qualified defined benefit plans and the
annual additions to qualified defined contribution plans under
Section 415(e) of the Code; and
(iv) the maximum limitation on the annual amount of compensation
that may, under Section 401(a)(17) of the Code, be taken into
account in determining contributions to and benefits under
qualified plans.
(c) "ASSOCIATION" means Central Federal Savings and Loan Association of
Wellsville, and its successors.
(d) "BOARD OF DIRECTORS" means the Board of Directors of the Association.
(e) "CHANGE IN CONTROL" means with respect to the Association or the Company,
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 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, 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 Committee 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
ii
<PAGE>
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
Company representing 20% or more of the Association's or the Company's
outstanding voting securities except for any voting securities of the
Association purchased by the 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 Company or its subsidiaries; or (B) individuals who
constitute the Board of Directors of either the Association or the Company on
the date hereof (the "Incumbent Board") cease for any reason to constitute at
least a majority thereof, provided that any person becoming a director
subsequent to the date hereof whose election was approved by a vote of at least
three-quarters of the directors comprising the Incumbent Board, or whose
nomination, in the case of the Company, for election by the 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 Company or similar transaction occurs or is effectuated in
which the Association or 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; or (D) a proxy statement has been
distributed soliciting proxies from stockholders of the Company, by someone
other than the current management of the Company, seeking stockholder approval
of a plan of reorganization, merger or consolidation of the Company or
Association 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 Company shall be distributed; or (E) a tender offer is made
for 20% or more of the voting securities of the Association or the Company then
outstanding.
(f) "CODE" means the Internal Revenue Code of 1986, as amended.
(g) "COMMITTEE" means the person(s) designated by the Board of Directors,
pursuant to Section 9.02 of the Plan, to administer the Plan.
(h) "COMMON STOCK" means the common stock of the Company.
(i) "COMPANY" means Grand Central Financial Corp., and its successors.
(j) "ELIGIBLE INDIVIDUAL" means any Employee of the Association or an Affiliate
who participates in the ESOP or the Pension Plan, as the case may be, and whom
the Board of Directors determines is one of a "select group of management or
highly compensated employees," as such phrase is used for purposes of Sections
101, 201, and 301 of ERISA.
(k) "EMPLOYEE" means any person employed by the Association or an Affiliate.
(l) "EMPLOYER" means the Association or Affiliate that employs the Employee.
(m) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
(n) "ESOP" means the Central Federal Savings and Loan Association of Wellsville
Employee Stock Ownership Plan, as amended from time to time.
(o) "ESOP ACQUISITION LOAN" means a loan or other extension of credit incurred
by the trustee of the ESOP in connection with the purchase of Common Stock on
behalf of the ESOP.
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(p) "ESOP VALUATION DATE" means any day as of which the investment experience
of the trust fund of the ESOP is determined and individuals' accounts under the
ESOP are adjusted accordingly.
(q) "EFFECTIVE DATE" means [________, 199__].
(r) "PARTICIPANT" means an Eligible Employee who is entitled to benefits under
the Plan.
(s) "PENSION PLAN" means the Financial Institutions Retirement Fund, as adopted
by Central Federal Savings and Loan Association of Wellsville, as amended from
time to time.
(t) "PLAN" means this Central Federal Savings and Loan Association of
Wellsville Supplemental Executive Retirement Plan.
(u) "RETIREMENT" means termination of employment at any time following the
satisfaction the requirements for early or normal retirement under either the
ESOP or the Pension Plan, as appropriate.
(v) "SUPPLEMENTAL ESOP ACCOUNT" means an account established by an Employer,
pursuant to Section 5.01 of the Plan, with respect to a Participant's
Supplemental ESOP Benefit.
(w) "SUPPLEMENTAL ESOP BENEFIT" means the benefit credited to a Participant
pursuant to Section 4.01 of the Plan.
(x) "SUPPLEMENTAL PENSION ACCOUNT" means an account established by an Employer,
pursuant to Section 5.03 of the Plan, with respect to a Participant's
Supplemental Pension Benefit.
(y) "SUPPLEMENTAL PENSION BENEFIT" means the benefit earned by a Participant
pursuant to Section 4.03 of the Plan.
(z) "SUPPLEMENTAL STOCK OWNERSHIP ACCOUNT" means an account established by an
Employer, pursuant to Section 5.02 of the Plan, with respect to a Participant's
Supplemental Stock Ownership Benefit.
(aa) "SUPPLEMENTAL STOCK OWNERSHIP BENEFIT" means the benefit credited to a
Participant pursuant to Section 4.02 of the Plan.
iv
<PAGE>
ARTICLE III
ELIGIBILITY AND PARTICIPATION
SECTION 3.01 ELIGIBILITY AND PARTICIPATION.
-----------------------------
(a) Each Eligible Employee may participate in the Plan. An Eligible Employee
shall become a Participant in the Plan upon designation as such by the
Board of Directors. An Eligible Employee whom the Board of Directors
designates as a Participant in the Plan shall commence participation as of
the date established by the Board of Directors. The Board of Directors
shall establish an Eligible Employee's date of participation at the same
time it designates the Eligible Employee as a Participant in the Plan.
(b) The Board of Directors may, at any time, designate an Eligible Employee as
a Participant for any or all supplemental benefits provided for under
Article IV of the Plan.
v
<PAGE>
ARTICLE IV
BENEFITS
SECTION 4.01 SUPPLEMENTAL ESOP BENEFIT.
-------------------------
As of the last day of each plan year of the ESOP, the Employer shall credit the
Participant's Supplemental ESOP Account with a Supplemental ESOP Benefit equal
to the excess of (a) over (b), where:
(a) Equals the annual contributions made by the Employer and/or the number of
shares of Common Stock released for allocation in connection with the
repayment of an ESOP Acquisition Loan that would otherwise be allocated to
the accounts of the Participant under the ESOP for the applicable plan year
if the provisions of the ESOP were administered without regard to and of
the Applicable Limitations; and
(b) Equals the annual contributions made by the Employer and for the number of
shares of common stock released for allocation in connection with the
repayment of an ESOP Acquisition Loan that are actually allocated to the
accounts of the Participant under the provisions of the ESOP for that
particular plan year after giving effect to any reduction of such
allocation required by the limitations imposed by any of the Applicable
Limitations.
SECTION 4.02 SUPPLEMENTAL STOCK OWNERSHIP BENEFIT.
------------------------------------
(a) Upon a Participant's Retirement from the Employer, the Employer shall
credit to the Participant's Supplemental Stock Ownership Account a
Supplemental Stock Ownership Benefit equal to (i) less (ii), the result of
which is multiplied by (iii), where:
(i) Equals the total number of shares of Common Stock acquired with the
proceeds of all ESOP Acquisition Loans (together with any dividends,
cash proceeds, or other medium related to such ESOP Acquisition
Loans) that would have been allocated or credited for the benefit of
the Participant under the ESOP and/or this Plan, as the case may be,
had the Participant continued in the employ of the Employer through
the first ESOP Valuation Date following the last scheduled payment
of principal and interest on all ESOP Acquisition Loans outstanding
at the time of the Participant's Retirement; and
(ii) Equals the total number of shares of Common Stock acquired with the
proceeds of all ESOP Acquisition Loans (together with any dividends,
cash proceeds, or other medium related to such ESOP acquisition
Loans) and allocated for the benefit of the Participant under the
ESOP as of the first ESOP Valuation Date following the Participant's
Retirement; and
(iii) Equals the higher of the closing price of the Common Stock as of:
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<PAGE>
(A) The first ESOP Valuation Date following the Participant's
Retirement, or
(B) The last day of the Participant's employment with the Employer.
(b) For purposes of clause
(i) of subsection (a) of this Section 4.02, the total number of shares
of Common Stock shall be determined by multiplying the sum of (i)
and (ii) by (iii), where: (i) equals the average of the total shares
of Common Stock acquired with the proceeds of an ESOP Acquisition
Loan and allocated for the benefit of the Participant under the ESOP
as of three most recent ESOP Valuation Dates preceding the
Participant's Retirement (or lesser number if the Participant has
not participated in the ESOP for three full years),
(ii) equals the average number of shares of Common Stock credited to the
Participant's Supplemental ESOP Account for the three most recent
plan years of the ESOP (such that the three recent plan years
coincide with the three most recent ESOP Valuation Dates referred to
in (i) above); and
(iii) equals the total number of scheduled annual payments remaining on
the ESOP Acquisition Loans as of the Participant's Retirement.
(c) In the event of a Change in Control:
(i) A Participant's Retirement shall be deemed to have occurred as of
the effective date of the Change in Control, as determined by the
Board of Directors, regardless of whether the Participant continues
in the employ of the Employer following the Change in Control; and
(ii) The determination of fair market value of the Common Stock shall be
made as the effective date of the Change in Control.
SECTION 4.03 SUPPLEMENTAL PENSION BENEFIT.
----------------------------
A Participant or, in the event of his death, his beneficiary, whose retirement
or survivor benefits under the Pension Plan are limited by one or more of the
Applicable Limitations shall be entitled to a supplemental retirement benefit or
survivor benefit (Supplemental Pension Benefit) under this Plan in an amount
equal to the excess of:
(i) the benefit to which he would be entitled under the Pension Plan in
the absence of the Applicable Limitations, computed as of the day
the Participant separates from service with the Employer on the
basis of the benefit form elected under the Pension Plan; over
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<PAGE>
(ii) the actual benefit to which he is entitled under the Pension Plan,
computed as of the day the Participant separates from service with
the Employer on the basis of the benefit form elected under the
Pension Plan;
provided, however, that, if the Plan is terminated with respect to a Participant
prior to his separation from service with the Employer, such Supplemental
Pension Benefit shall not exceed the Supplemental Pension Benefit that would
have been payable under this Section 4.03, on the basis of the benefit form
elected under the Pension Plan, if his separation from service had occurred as
of the date of the termination of the Plan.
viii
<PAGE>
ARTICLE V
ACCOUNTS
SECTION 5.01 SUPPLEMENTAL ESOP BENEFIT ACCOUNT.
---------------------------------
For each Participant who is credited with a benefit pursuant to Section 4.01 of
the Plan, the Employer shall establish, as a memorandum account on its books, a
Supplemental ESOP Account. Each year, the Committee shall credit to the
Participant's Supplemental ESOP Account the amount of benefits determined under
Section 4.01 of the Plan for that year. The Committee shall credit the account
with an amount equal to the appropriate number of shares of Common Stock or
other medium of contribution that would have otherwise been made to the
Participant's accounts under the ESOP but for the limitations imposed by the
Code. Shares of Common Stock shall be valued under this Plan in the same manner
as under the ESOP. Cash contributions credited to a Participant's Supplemental
ESOP Account shall be credited annually with interest at a rate equal to the
combined weighted return provided to the Participant's non-stock accounts under
the ESOP.
SECTION 5.02 SUPPLEMENTAL STOCK OWNERSHIP ACCOUNT.
------------------------------------
The Employer shall establish, as a memorandum account on its books, a
Supplemental Stock Ownership Account. Upon a Participant's Retirement or in the
event of a Change in Control, the Committee shall credit to the Participant's
Supplemental Stock Ownership Account the amount of benefits determined under
Section 4.02 of the Plan. The Committee shall credit the account with an amount
equal to the appropriate number of shares of Common Stock or other medium of
contribution that would have otherwise been made to the Participant's accounts
under the ESOP but for the Participant's Retirement. Shares of Common Stock
shall be valued under this Plan in the same manner as under the ESOP. Cash
contributions credited to a Participant's Supplemental ESOP Account shall be
credited annually with interest at a rate equal to the combined weighted return
provided to the Participant's non-stock accounts under the ESOP.
SECTION 5.03 SUPPLEMENTAL PENSION ACCOUNT.
----------------------------
RESERVED
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<PAGE>
ARTICLE VI
SUPPLEMENTAL BENEFIT PAYMENTS
SECTION 6.01 PAYMENT OF SUPPLEMENTAL ESOP BENEFIT.
------------------------------------
(a) A Participant's Supplemental ESOP Benefit shall be paid to the Participant
or in the event of the Participant's death, to his beneficiary in the same
form, time and medium (i.e., cash and/or shares of Common Stock) as his
benefits are paid under the ESOP.
(b) A Participant shall have a non-forfeitable right to the Supplemental ESOP
Benefit credited to him under this Plan in the same percentage as he has to
benefits allocated to him under the ESOP at the time the benefits become
distributable to him under the ESOP.
SECTION 6.02 PAYMENT OF SUPPLEMENTAL STOCK OWNERSHIP BENEFIT.
-----------------------------------------------
(a) A Participant's Supplemental Stock Ownership Benefit shall be paid to the
Participant or in the event of the Participant's death, to his beneficiary
in the same form, time and medium (i.e., cash and/or shares of Common
Stock) as his benefits are paid under the ESOP.
(b) A Participant shall always have a fully non-forfeitable right to the
Supplemental Stock Ownership Benefit credited to him under this Plan.
SECTION 6.03 PAYMENT OF SUPPLEMENTAL PENSION BENEFIT.
---------------------------------------
(a) A Participant's Supplemental Pension Benefit shall be paid to the
Participant or in the event of the Participant's death, to his beneficiary
in the same form, and at the same time as his benefits are paid under the
Pension Plan.
(b) A Participant shall have a non-forfeitable right to his Supplemental
Pension Benefit under this Plan in the same percentage as he has to his
accrued benefits under the Pension Plan at the time the benefits become
distributable to him under the Pension Plan.
SECTION 6.04 ALTERNATIVE PAYMENT OF BENEFITS
-------------------------------
Notwithstanding the other provisions of this Article VI, a Participant may, with
prior written consent of the Committee and upon such terms and conditions as the
Committee may impose, request that the Supplemental ESOP Benefit and/or the
Supplemental Stock Ownership Benefit and/or the Supplemental Pension Benefit to
which he is entitled, and the survivor benefit to which his beneficiary under
the Pension Plan may be entitled under Section 4.03 be paid commencing at a
different time, over a different period, in a different form, or to different
persons, than the benefit to which he or his beneficiary may be entitled under
the ESOP or the Pension Plan; provided, however, that in the event of any
difference with respect to his Supplemental Pension Benefit, the benefit
actually paid under this Section 6.04 shall be the actuarial equivalent (as
determined based
x
<PAGE>
on applicable tables, factors, and assumption set forth in the Pension Plan) of
the benefit that would be paid in accordance with the provisions of Section 6.03
of the Plan.
xi
<PAGE>
ARTICLE VII
CLAIMS PROCEDURES
SECTION 7.01 CLAIMS REVIEWER.
---------------
For purposes of handling claims with respect to this Plan, the "Claims Reviewer"
shall be the Committee, unless the Committee designates another person or group
of persons as Claims Reviewer.
SECTION 7.02 CLAIMS PROCEDURE.
----------------
(a) An initial claim for benefits under the Plan must be made by the
Participant or his or her beneficiary or beneficiaries in accordance with
the terms of this Section 7.02.
(b) Not later than ninety (90) days after receipt of such a claim, the Claims
Reviewer will render a written decision on the claim to the claimant,
unless special circumstances require the extension of such 90-day period.
If such extension is necessary, the Claims Reviewer shall provide the
Participant or the Participant's beneficiary or beneficiaries with written
notification of such extension before the expiration of the initial 90-day
period. Such notice shall specify the reason or reasons for the extension
and the date by which a final decision can be expected. In no event shall
such extension exceed a period of ninety (90) days from the end of the
initial 90-day period.
(c) In the event the Claims Reviewer denies the claim of a Participant or any
beneficiary in whole or in part, the Claims Reviewer's written notification
shall specify, in a manner calculated to be understood by the claimant, the
reason for the denial; a reference to the Plan or other document or form
that is the basis for the denial; a description of any additional material
or information necessary for the claimant to perfect the claim; an
explanation as to why such information or material is necessary; and an
explanation of the applicable claims procedure.
(d) Should the claim be denied in whole or in part and should the claimant be
dissatisfied with the Claims Reviewer's disposition of the claimant's
claim, the claimant may have a full and fair review of the claim by the
Committee upon written request submitted by the claimant or the claimant's
duly authorized representative and received by the Committee within sixty
(60) days after the claimant receives written notification that the
claimant's claim has been denied. In connection with such review, the
claimant or the claimant's duly authorized representative shall be entitled
to review pertinent documents and submit the claimant's views as to the
issues, in writing. The Committee shall act to deny or accept the claim
within sixty (60) days after receipt of the claimant's written request for
review unless special circumstances require the extension of such 60-day
period. If such extension is necessary, the Committee shall provide the
claimant with written notification of such extension before the expiration
of such initial 60-day period. In all events, the Committee shall act to
deny or accept the claim within 120 days of the receipt of the claimant's
written request for review. The action of the
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<PAGE>
Committee shall be in the form of a written notice to the claimant and its
contents shall include all of the requirements for action on the original
claim.
(e) In no event may a claimant commence legal action for benefits the claimant
believes are due the claimant until the claimant has exhausted all of the
remedies and procedures afforded the claimant by this Article VII.
xiii
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ARTICLE VIII
AMENDMENT AND TERMINATION
SECTION 8.01 AMENDMENT OF THE PLAN.
---------------------
The Association may from time to time and at any time amend the Plan; provided,
however, that such amendment may not adversely affect the rights of any
Participant or beneficiary with respect to any benefit under the Plan to which
the Participant or beneficiary may have previously become entitled prior to the
effective date of such amendment without the consent of the Participant or
beneficiary. The Committee shall be authorized to make minor or administrative
changes to the Plan, as well as amendments required by applicable federal or
state law (or authorized or made desirable by such statutes); provided, however,
that such amendments must subsequently be ratified by the Board of Directors.
SECTION 8.02 TERMINATION OF THE PLAN.
-----------------------
The Association may at any time terminate the Plan; provided, however, that such
termination may not adversely affect the rights of any Participant or
beneficiary with respect to any benefit under the Plan to which the Participant
or beneficiary may have previously become entitled prior to the effective date
of such termination without the consent of the Participant or beneficiary. Any
amounts credited to the supplemental accounts of any Participant shall remain
subject to the provisions of the Plan and no distribution of benefits shall be
accelerated because of termination of the Plan.
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<PAGE>
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01 UNFUNDED, UNSECURED PROMISE TO MAKE PAYMENTS IN THE FUTURE.
----------------------------------------------------------
The right of a Participant or any beneficiary to receive a distribution under
this Plan shall be an unsecured claim against the general assets of the
Association or its Affiliates and neither a Participant nor his designated
beneficiary or beneficiaries shall have any rights in or against any amount
credited to any account under this Plan or any other assets of the Association
or an Affiliate. The Plan at all times shall be considered entirely unfunded
both for tax purposes and for purposes of Title I of ERISA. Any funds invested
hereunder shall continue for all purposes to be part of the general assets of
the Association or an Affiliate and available to its general creditors in the
event of bankruptcy or insolvency. Accounts under this Plan and any benefits
which may be payable pursuant to this Plan are not subject in any manner to
anticipation, sale, alienation, transfer, assignment, pledge, encumbrance,
attachment, or garnishment by creditors of a Participant or a Participant's
beneficiary. The Plan constitute a mere promise by the Association or Affiliate
to make benefit payments in the future. No interest or right to receive a
benefit may be taken, either voluntarily or involuntarily, for the satisfaction
of the debts of, or other obligations or claims against, such Participant or
beneficiary, including claims for alimony, support, separate maintenance and
claims in bankruptcy proceedings.
SECTION 9.02 COMMITTEE AS PLAN ADMINISTRATOR.
-------------------------------
(a) The Plan shall be administered by the Committee designated by the Board of
Directors.
(b) The Committee shall have the authority, duty and power to interpret and
construe the provisions of the Plan as it deems appropriate. The Committee
shall have the duty and responsibility of maintaining records, making the
requisite calculations and disbursing the payments hereunder. In addition,
the Committee shall have the authority and power to delegate any of its
administrative duties to employees of the Association or Affiliate, as they
may deem appropriate. The Committee shall be entitled to rely on all
tables, valuations, certificates, opinions, data and reports furnished by
any actuary, accountant, controller, counsel or other person employed or
retained by the Association with respect to the Plan. The interpretations,
determination, regulations and calculations of the Committee shall be final
and binding on all persons and parties concerned.
SECTION 9.03 EXPENSES.
--------
Expenses of administration of the Plan shall be paid by the Association or an
Affiliate.
SECTION 9.04 STATEMENTS.
----------
The Committee shall furnish individual annual statements of accrued benefits to
each Participant, or current beneficiary, in such form as determined by the
Committee or as required by law.
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<PAGE>
SECTION 9.05 RIGHTS OF PARTICIPANTS AND BENEFICIARIES.
----------------------------------------
(a) The sole rights of a Participant or beneficiary under this Plan shall be to
have this Plan administered according to its provisions, to receive
whatever benefits he or she may be entitled to hereunder.
(b) Nothing in the Plan shall be interpreted as a guaranty that any funds in
any trust which may be established in connection with the Plan or assets of
the Association or an Affiliate will be sufficient to pay any benefit
hereunder.
(c) The adoption and maintenance of this Plan shall not be construed as
creating any contract of employment or service between the Association or
an Affiliate and any Participant or other individual. The Plan shall not
affect the right of the Association or an Affiliate to deal with any
Participants in employment or service respects, including their hiring,
discharge, compensation, and conditions of employment or other service.
SECTION 9.06 INCOMPETENT INDIVIDUALS.
-----------------------
The Committee may from time to time establish rules and procedures which it
determines to be necessary for the proper administration of the Plan and the
benefits payable to a Participant or beneficiary in the event that such
Participant or beneficiary is declared incompetent and a conservator or other
person legally charged with that Participant's or beneficiary's care is
appointed. Except as otherwise provided herein, when the Committee determines
that such Participant or beneficiary is unable to manage his or her financial
affairs, the Committee may pay such Participant's or beneficiary's benefits to
such conservator, person legally charged with such Participant's or
beneficiary's care, or institution then contributing toward or providing for the
care and maintenance of such Participant or beneficiary. Any such payment shall
constitute a complete discharge of any liability of the Association or an
Affiliate and the Plan for such Participant or beneficiary.
SECTION 9.07 SALE, MERGER, OR CONSOLIDATION OF THE ASSOCIATION.
-------------------------------------------------
The Plan may be continued after a sale of assets of the Association, or a merger
or consolidation of the Association into or with another corporation or entity
only if and to the extent that the transferee, purchaser or successor entity
agrees to continue the Plan. Additionally, upon a merger, consolidation or
other change in control any amounts credited to Participant's deferral accounts
shall be placed in a grantor trust to the extent not already in such a trust.
In the event that the Plan is not continued by the transferee, purchaser or
successor entity, then the Plan shall be terminated subject to the provisions of
Section 7.2 of the Plan. Any legal fees incurred by a Participant in
determining benefits to which such Participant is entitled under the Plan
following a sale, merger, or consolidation of the Association or an Affiliate of
which the Participant is an Employee or, if applicable, a member of the Board of
Directors, shall be paid by the resulting or succeeding entity.
xvi
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SECTION 9.08 LOCATION OF PARTICIPANTS.
------------------------
Each Participant shall keep the Association informed of his or her current
address and the current address of his or her designated beneficiary or
beneficiaries. The Association shall not be obligated to search for any person.
If such person is not located within three (3) years after the date on which
payment of the Participant's benefits payable under this Plan may first be made,
payment may be made as though the Participant or his or her beneficiary had died
at the end of such three-year period.
SECTION 9.09 LIABILITY OF THE ASSOCIATION AND ITS AFFILIATES.
-----------------------------------------------
Notwithstanding any provision herein to the contrary, neither the Association
nor any individual acting as an employee or agent of the Association shall be
liable to any Participant, former Participant, beneficiary, or any other person
for any claim, loss, liability or expense incurred in connection with the Plan,
unless attributable to fraud or willful misconduct on the part of the
Association or any such employee or agent of the Association.
SECTION 9.10 GOVERNING LAW.
-------------
All questions pertaining to the construction, validity and effect of the Plan
shall be determined in accordance with the laws of the United States and to the
extent not preempted by such laws, by the laws of Ohio.
xvii
<PAGE>
ARTICLE X
REQUIRED REGULATORY PROVISIONS
SECTION 10.01 REQUIRED REGULATORY PROVISIONS.
------------------------------
(a) The Employer may terminate an Employee's employment at any time, but
any termination by the Employer, other than termination for cause, shall not
prejudice the Employee's right to compensation or other benefits under this
Plan. An Employee shall not have the right to receive compensation or other
benefits for any period after a termination for cause as otherwise provided
hereunder.
(b) 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.
(c) 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 Plan
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 Plan shall terminate as of the date of default, but this
paragraph shall not affect any vested rights of the Participants.
(e) All obligations of the Association under this Plan 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 her designee), the FDIC or the Resolution Trust Corporation, 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 her designee) at the time the Director (or her 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 Participants pursuant to this Plan, or otherwise,
are subject to and conditioned upon compliance with 12 U.S.C. Section 1828(k),
12 C.F.R. Part 359 and 12 C.F.R. Section 545.121 and any rules and regulations
promulgated thereunder.
xviii
<PAGE>
This Plan has been duly adopted this _________ day of _________________ 199____.
xix
<PAGE>
EXHIBIT 10.6 FORM OF CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF
WELLSVILLE EMPLOYEE SEVERANCE COMPENSATION PLAN
<PAGE>
EXHIBIT 10.6
CENTRAL FEDERAL SAVINGS AND LOAN ASSOCIATION OF WELLSVILLE
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of the Central Federal Savings and Loan Association of
Wellsville Employee Severance Compensation Plan is to assure for Central Federal
Savings and Loan Association of Wellsville (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 Grand Central 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 one (1) year 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
"Central Federal Savings and Loan Association of Wellsville Employee Severance
Compensation Plan."
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.
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.
<PAGE>
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 Central Federal Savings and Loan Association of
Wellsville 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, 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 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.
(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.
2
<PAGE>
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 of Directors of
the Association shall designate in its resolution approving the Plan.
(f) "Employee" means any Employee of the Association or any subsidiary of
the Association or any parent of the Association 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) "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.
(h) "ERISA" means Employee Retirement Income Security Act of 1974, as
amended.
(i) "Expiration Date" means the date ten (10) years from the Effective
Date, unless the Plan is earlier terminated pursuant to Section 8.2 of the Plan
or extended pursuant to Section 8.1 of the Plan.
(j) "Termination for Cause" shall include termination because of a
Participant's personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to perform stated
duties, willful violation of any law, rule or regulation (other than traffic
violations or similar offenses) or violation of any final cease-and desist
order, or material breach of any provision of the plan. In determining
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 for
in Article IV hereof.
(m) "Participant" means an Employee who meets the eligibility requirements
of Article III.
3
<PAGE>
(n) "Plan Year" means the period beginning on the Effective Date and
ending on December 31 and the 12 consecutive-month period ending each year
thereafter.
(o) "Plan" means this Central Federal Savings and Loan Association of
Wellsvile Employee Severance Compensation Plan.
(p) "Year of Service" means each consecutive 12 month period, beginning
with an Employee's date of hire 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 purposes 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.
ARTICLE III
ELIGIBILITY
3.1 Participation
-------------
The term Participant shall include all Employees of the Employer who have
completed at least one (1) Year of Service with the Employer at the time of any
termination pursuant to Section 4.2 of this Plan. 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.
4
<PAGE>
ARTICLE IV
PAYMENTS
4.1 Right to Payment
----------------
A Participant shall be entitled to receive from his respective Employer a
Payment in the amount provided in Section 4.3 of the Plan 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 of the Plan, whether the termination of
employment 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 of the
Plan, Disability, or as a result of Termination for 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.
(b) The Employer materially changes the Participant's function, duties
or responsibilities which would cause the 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 twenty-five (25) 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 the 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 Employer 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
Employer'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 Termination for Cause.
5
<PAGE>
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
his Annual Compensation for each year of service up to a maximum of 199% of
Annual Compensation.
(b) Notwithstanding the provisions of paragraph (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 meanings as under Section 280G of the
Internal Revenue Code of 1986, as amended, or any successor provision thereto.
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.
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.
6
<PAGE>
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.
ARTICLE VII
SUCCESSOR TO THE ASSOCIATION
7.1 The Employer 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 Employer, expressly and
unconditionally to assume and agree to perform the Employer's obligations under
this plan, in the same manner and to the same extent that the Employer would be
required to perform if no such succession or assignment had taken place.
7
<PAGE>
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 of the
Plan, 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.
8.4 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.
8
<PAGE>
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 Employer may terminate an Employee's employment at any time, but
any termination by the Employer, other than Termination for Cause, shall not
prejudice the Employee's right to compensation or other benefits under this
Plan. Employee shall not have the right to receive compensation or other
benefits for any period after Termination for Cause as otherwise provided
hereunder.
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.
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.
10.5 All obligations under the Plan shall be terminated, except to the
extent determined that continuation of the Plan is necessary for the continued
operation of the Association:
(a) by the Director or her designee, at the time the Federal Deposit
Insurance Corporation or the Resolution Trust 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
9
<PAGE>
(b) by the Director or her designee, at the time the Director or her
designee approves a supervisory merger to resolve problems related to operation
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.
10.6 Any payments made to a Participant pursuant to this Plan, or
otherwise, are subject to and conditioned upon their compliance with 12 U.S.C.
(S)1828(k) and any regulations promulgated thereunder.
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 of Directors of the Association (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 if the Plan is subject to such requirements. 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 if applicable.
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,
if any, 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,
10
<PAGE>
(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) 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 Benefits solely from general assets. The benefits provided hereunder
------------------------------------
will be paid solely from the general assets of the Employer. Nothing herein
will be construed to require the Employer 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 Employer 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 CENTRAL FEDERAL SAVINGS AND LOAN
ASSOCIATION OF WELLSVILLE
______________________________ By: ___________________________
Secretary
12
<PAGE>
EXHIBIT 23.1 CONSENT OF ROBB, DIXON, FRANCIS, ONESON & COMPANY
<PAGE>
[LETTERHEAD OF ROBB, DIXON, FRANCIS, DAVIS, ONESON & COMPANY APPEARS HERE]
The Board of Directors
Central Federal Savings and Loan Association
Wellsville, Ohio
We consent to the use in the registration statement on Form S-1 of Grand Central
Financial Corp. and the application for conversion on Form AC of Central Federal
Savings and Loan Association, of our report dated March 18, 1998, with respect
to the financial statements of Central Federal Savings and Loan Association as
of December 31, 1997 and 1996 and for each of the years in the three-year period
ended December 31, 1997 included herein, and to the reference to our firm under
the heading "Expert" in the prospectus.
/s/ Robb, Dixon, Francis, Davis, Oneson & Company
-------------------------------------------------
Robb, Dixon, Francis, Davis, Oneson & Company
Granville, Ohio
September 22, 1998
<PAGE>
EXHIBIT 23.2 CONSENT OF MULDOON, MURPHY & FAUCETTE
<PAGE>
EXHIBIT 23.2
CONSENT
We hereby consent to the references to this firm and our opinions in: the
Registration Statement on Form SB-2 filed by Grand Central Financial Corp. (the
"Company"), Wellsville, Ohio, and all amendments thereto; in the Form H-(e)1 for
the Company, and all amendments thereto; and in the Application for Conversion
on Form AC filed by Central Federal Savings and Loan Association of Wellsville
(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 bank, the concurrent issuance of the
Association's outstanding capital stock to the Company, a holding company formed
for such purpose, and the offering of the Company's common stock.
MULDOON, MURPHY & FAUCETTE
/s/ Muldoon, Murphy & Faucette
Dated this 23rd day of
September, 1998
<PAGE>
EXHIBIT 23.3 CONSENT OF MORRIS, NICHOLS, ARSHT & TUNNELL
<PAGE>
[LETTERHEAD OF MORRIS, NICHOLS, ARSHT & TUNNELL]
September 22, 1998
Muldoon, Murphy & Faucette
5101 Wisconsin Avenue, N.W.
Washington, DC 20016
Ladies and 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 Grand Central 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) to 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 Central Federal Savings and Loan Association
of Wellsville, 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/ Morris, Nichols, Arsht & Tunnell
------------------------------------
Morris, Nichols, Arsht & Tunnell
<PAGE>
EXHIBIT 23.4 CONSENT AND SUBSCRIPTION RIGHTS OPINION OF KELLER & COMPANY,
INC.
<PAGE>
Exhibit 23.4
[LETTERHEAD OF KELLER & COMPANY, INC. APPEARS HERE]
September 22, 1998
Re: Valuation Appraisal of Grand Central Financial Corp.
Central Federal Savings and Loan Association of Wellsville
Wellsville, Ohio
We hereby consent to the use of our firm's name, Keller & Company, Inc.
("Keller"), and the reference to our firm as experts in the Application for
Conversion on Form AC to be filed by Central Federal Savings and Loan
Association of Wellsville and any amendments thereto and references to our
opinion regarding subscription rights filed as an exhibit to the applications
referred to hereafter. We also consent to the use of our firm's name in the Form
S-1 to be filed by Grand Central Finanial Corp. with the Securities and Exchange
Commission and any amendments thereto, and to the statements with respect to us
and the references to our Valuation Appraisal Report and in the said Form AC and
any amendments thereto and in the notice and Application for Conversion filed by
Central Federal Savings and Loan Association.
Very truly yours,
KELLER & COMPANY, INC.
by: /s/ Michael R. Keller
--------------------------
Michael R. Keller
President
<PAGE>
[LETTERHEAD OF KELLER & COMPANY, INC. APPEARS HERE]
September 22, 1998
The Board of Directors
Central Federal Savings and Loan Association
601 Main Street
Wellsville, Ohio 43968
Re: Subscription Rights - Conversion of Central Federal Savings and Loan
Association of Wellsville
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 Grand Central
Financial Corp. (the "Corporation"), Wellsville, Ohio, in regard to the
conversion of Central Federal Savings and Loan Association of Wellsville
("Central 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 the
Corporation, which are to be issued to the depositors of Central Federal, 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>
EXHIBIT 24.1
CONFORMED
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints William R. Williams and Jay Rife, and each of
them, as the true and lawful attorneys-in-fact and agents with full power of
substitution and resubstitution, for them and in their 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 Registration Statement on Form SB-2, and to file
the same, with all exhibits thereto, and other documents in connection
therewith, with the Office of Thrift Supervision of the Department of the
Treasury ("OTS") 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 thing requisite and necessary to be done as
fully to all intents and purposes as they might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents ot their
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 Registration Statement on
Form SB-2 have been duly signed by the following persons in the capacities and
on the dates indicated.
NAME DATE
---- ----
/s/ William R. Williams September 23, 1998
- ------------------------------
William R. Williams
President, Chief Executive Officer
and Director
(principal executive officer)
Grand Central Financial Corp.
President, Chief Executive Officer
and Director
(principal executive officer)
Central Federal Savings and Loan Association
of Wellsville
/s/ John A. Rife September 23, 1998
- ------------------------------
John A. Rife
Executive Vice President and Treasurer
(principal financial and accounting officer)
Grand Central Financial Corp.
Executive Vice President and Treasurer
(principal accounting and financial officer)
Central Federal Savings and Loan Association
of Wellsville
<PAGE>
/s/ Gerry W. Grace September 23, 1998
- ------------------------------
Gerry W. Grace
Chairman of the Board
Grand Central Financial Corp.
Chairman of the Board
Central Federal Savings and Loan Association
of Wellsville
/s/ Jeffrey W. Aldrich September 23, 1998
- ------------------------------
Jeffrey W. Aldrich
Director
Grand Central Financial Corp.
Director
Central Federal Savings and Loan Association
of Wellsville
/s/ Thomas P. Ash September 23, 1998
- ------------------------------
Thomas P. Ash
Director
Grand Central Financial Corp.
Director
Central Federal Savings and Loan Association
of Wellsville
/s/ Fred C. Jackson September 23, 1998
- ------------------------------
Fred C. Jackson
Director
Grand Central Financial Corp.
Director
Central Federal Savings and Loan Association
of Wellsville
/s/ William R. Porter September 23, 1998
- ------------------------------
William R. Porter
Director
Grand Central Financial Corp.
Director
Central Federal Savings and Loan Association
of Wellsville
<PAGE>
/s/ Joseph M. Wells, Jr. September 23, 1998
- ------------------------------
Joseph M. Wells, Jr.
Director
Grand Central Financial Corp.
Director
Central Federal Savings and Loan Association
of Wellsville
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<PAGE>
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