<PAGE>
As filed with the Securities and Exchange Commission on December 18, 1998
Registration No. 333-__________
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
PFSB BANCORP, INC.
(name of small business issuer in its certificate of incorporation)
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<S> <C> <C>
MISSOURI 6035 BEING APPLIED FOR
(State or Other (Primary Standard (IRS Employer
Jurisdiction of Industrial Classification Identification No.)
Incorporation or Code Number)
Organization)
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123 W. LAFAYETTE STREET 123 W. LAFAYETTE STREET
PALMYRA, MISSOURI 63461 PALMYRA, MISSOURI 63461
(573) 769-2134 (573) 769-2134
(Address and Telephone Number of (Address of Principal Place of
Principal Executive Offices) Business or Intended Principal
Place of Business)
</TABLE>
ELDON R. METTE
EXECUTIVE VICE PRESIDENT AND DIRECTOR
PALMYRA SAVING AND BUILDING ASSOCIATION, F.A.
123 W. LAFAYETTE STREET
PALMYRA, MISSOURI 63461
(573) 769-2134
(Name, Address and Telephone Number of Agent for Service)
Copies to:
PAUL M. AGUGGIA, ESQUIRE
VICTOR L. CANGELOSI, ESQUIRE
MULDOON, MURPHY & FAUCETTE
5101 WISCONSIN AVENUE, N.W.
WASHINGTON, D.C. 20016
(202) 362-0840
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: As soon as practicable after
this Registration Statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act Registration Statement number of the earlier
effective Registration Statement for the same offering. /______/
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
Registration Statement number of the earlier effective Registration Statement
for the same offering. /___/
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
Registration 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. /___/
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CALCULATION OF REGISTRATION FEE
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Title of each Class of Amount to Proposed Proposed Maximum Amount of
Securities to be Registered be Registered Maximum Aggregate Offering Registration Fee
Offering Price Price (1)
Per Unit
- --------------------------------------------------------------------------------------------------------
Common Stock
$.01 par Value 991,875 Shares $10.00 $9,918,750 $2,758
========================================================================================================
</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 SYNDICATED COMMUNITY OFFERING ONLY]
PROSPECTUS SUPPLEMENT FOR SYNDICATED COMMUNITY OFFERING
[LOGO] PFSB BANCORP, INC.
(Proposed Holding Company for Palmyra
Saving and Building Association, F.A.)
123 WEST LAFAYETTE STREET
PALMYRA, MISSOURI 63461
(573) 769-2134
================================================================================
PFSB Bancorp is offering for sale shares of common stock in connection with
the conversion of Palmyra Saving and Building Association, F.A. from the mutual
to stock form of organization. The Association will become a wholly owned
subsidiary of PFSB Bancorp. PFSB Bancorp has already received subscriptions for
the remaining _________ shares of the aggregate of up to ________ shares to be
sold. No common stock will be sold unless additional subscriptions are received
for at least the minimum number of shares in the offering. All funds submitted
to the Association to purchase shares of stock will be placed in a deposit
account at the Association until the shares are issued or the funds are
returned.
There is currently no public market for the common stock. The common stock
is expected to be listed over-the-counter through the OTC Bulletin Board or the
National Daily Quotation System "Pink Sheets" published by the National
Quotation Bureau, Inc. Trident Securities intends to make a market in the
common stock.
==============================================================================
TERMS OF THE OFFERING
THIS OFFERING WILL EXPIRE NO LATER THAN 12:00 NOON, EASTERN TIME, ON
____________, 1999, UNLESS EXTENDED.
. Price Per Share $10.00
. Number of Shares
Minimum/Maximum
. Underwriting Commissions and Other Expenses
Minimum/Maximum
. Net Proceeds to PFSB Bancorp
in the Offering
Minimum/Maximum
. Net Proceeds per Share to PFSB Bancorp
Offering
Minimum/Maximum
PLEASE REFER TO "RISK FACTORS" BEGINNING ON PAGE __ OF THE ACCOMPANYING
DOCUMENT.
These securities are not deposits or accounts and are not insured or guaranteed
by the Federal Deposit Insurance Corporation or any other government agency.
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, nor any other state securities regulator has approved or
disapproved these securities or determined if this prospectus is accurate or
complete. Any representations to the contrary is a criminal offense.
TRIDENT SECURITIES, INC.
THE DATE OF THIS PROSPECTUS SUPPLEMENT IS _______________, 1999
<PAGE>
THE SYNDICATED COMMUNITY OFFERING
PFSB Bancorp, Inc. is offering for sale in a Syndicated Community Offering
a minimum of ___________ shares and up to __________ shares of common stock, at
a per share price of $10.00. These shares are to be sold upon the conversion of
Palmyra Saving and Building Association, F.A, Palmyra, Missouri from a mutual
savings association to a stock savings bank to be known as Palmyra Savings and
the issuance of the Association's outstanding capital stock to the Company. The
remaining __________ shares of common stock to be sold in connection with such
conversion have been subscribed for in Subscription and Community Offerings by
holders of deposit accounts with the Association with a balance of $50 or more
as of June 30, 1997, by the Palmyra Savings Employee Stock Ownership Plan, a
tax-qualified employee benefit plan, and related trust, by holders of deposit
accounts with the Association with a balance of $50 or more as of December 31,
1998, by certain other account holders and borrowers of the Association and, by
members of the general public. Following this Prospectus Supplement 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.
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. THIS SYNDICATED COMMUNITY OFFERING
WILL EXPIRE NO LATER THAN _______________, 1999, UNLESS EXTENDED BY THE
ASSOCIATION AND THE COMPANY WITH THE APPROVAL OF THE OFFICE OF THRIFT
SUPERVISION. Such extensions may not go beyond _______________, 2001. If the
Syndicated Community Offering is extended, 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 number of shares which may
be purchased is 25 shares. Except for the ESOP, which intends to purchase up to
8% 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 in the Community Offering or Syndicated Community Offering
more than $40,000 of common stock (4,000 shares) at the Purchase Price; provided
however, 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
and be subject to an overall maximum purchase limitation of 1.0% of the shares
offered. 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 Trident Securities, Inc. as
financial advisors to assist them in the sale of the common stock in the
Syndicated Community Offering. It is anticipated that Trident Securities will
use the services of other registered broker-dealers and that fees to Trident
Securities and such selected dealers will not exceed __% of the aggregate
purchase price of the shares sold in the Syndicated Community Offering. Neither
Trident Securities nor any selected dealer shall have any obligation to take or
purchase any shares of common stock in the Syndicated Community Offering.
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.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY EACH
PARTICIPANT, SEE "RISK FACTORS" ON PAGES __ TO __ OF THE PROSPECTUS.
2
<PAGE>
PROSPECTUS [LOGO]
PFSB BANCORP, INC.
(HOLDING COMPANY FOR PALMYRA SAVING AND BUILDING ASSOCIATION, F.A.,
TO BE KNOWN AS PALMYRA SAVINGS)
BETWEEN 637,500 AND 862,500 SHARES OF COMMON STOCK
Palmyra Saving and Building Association, F.A. is converting from the mutual form
to the stock form of organization. As part of the conversion, Palmyra Saving
will become a wholly-owned subsidiary of PFSB Bancorp, Inc., which was formed in
November 1998, and will change its name to "Palmyra Savings." The common stock
of PFSB Bancorp is being offered to the public under the terms of a Plan of
Conversion which must be approved by a majority of the votes eligible to be cast
by the members of Palmyra Saving. The conversion will not go forward if Palmyra
Saving does not receive this approval or if PFSB Bancorp does not sell at least
the minimum number of shares.
- --------------------------------------------------------------------------------
OFFERING SUMMARY
Price Per Share: $10.00
Expected Trading Market: OTC Bulletin Board
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Maximum,
Minimum Midpoint Maximum as adjusted
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Number of shares: 637,500 750,000 862,500 991,875
Gross offering proceeds: $6,375,000 $7,500,000 $8,625,000 $9,918,750
Estimated underwriting commissions
and other offering expenses: $ 535,000 $ 535,000 $ 535,000 $ 535,000
Estimated net proceeds: $5,840,000 $6,965,000 $8,090,000 $9,383,750
Estimated net proceeds per share: $ 9.16 $ 9.29 $ 9.38 $ 9.46
</TABLE>
Trident Securities, Inc. will use its best efforts to assist PFSB Bancorp in
selling at least the minimum number of shares but does not guarantee that this
number will be sold. Trident Securities is not obligated to purchase any shares
of common stock in the offering. Trident Securities intends to make a market in
the common stock.
All funds received from subscribers will be held in insured interest-bearing
savings accounts at Palmyra Saving until the completion or termination of the
conversion. Funds will be returned promptly if the conversion is terminated.
The subscription offering will terminate at 12:00 Noon, Central Time, on
______________, 1999, unless extended for up to ___ days. If the conversion is
not completed by _________, 1999, and the Office of Thrift Supervision consents
to an extension of time to complete the conversion, subscribers will be given
the right to increase, decrease or rescind their orders. No single extension
may exceed 90 days and all extensions may not go beyond __________, 2001.
- --------------------------------------------------------------------------------
THESE SECURITIES ARE NOT DEPOSITS OR ACCOUNTS AND ARE NOT INSURED OR GUARANTEED
BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
FOR A DISCUSSION OF CERTAIN RISKS THAT YOU SHOULD CONSIDER, SEE "RISK FACTORS"
BEGINNING ON PAGE __.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT
SUPERVISION, NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED
THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
For additional information about the conversion and the stock offering, please
refer to the more detailed information in this prospectus. For assistance,
please contact the stock information center at (573)___________.
TRIDENT SECURITIES, INC.
The date of this prospectus is ___________, 1999
<PAGE>
TABLE OF CONTENTS
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Page Page
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Summary.................................... Business of the Association................
Risk Factors............................... Management of the Holding Company..........
Selected Consolidated Management of the Association..............
Financial Information.................... Regulation.................................
Use of Proceeds............................ Taxation...................................
Dividend Policy............................ The Conversion.............................
Market for Common Stock.................... Restrictions on Acquisition
Capitalization............................. of the Holding Company...................
Historical and Pro Forma Description of Capital Stock
Regulatory Capital of the Holding Company...................
Compliance............................... Registration Requirements..................
Pro Forma Data............................. Legal and Tax Opinions.....................
Shares to be Purchased by Experts....................................
Management Pursuant to Change in Accountants......................
Subscription Rights...................... Additional Information.....................
Palmyra Saving and Building Index to Consolidated
Association, F.A. Consolidated Financial Statements.....................
Statements of Income.....................
Management's Discussion and
Analysis of Financial Condition
and Results of Operations................
Business of the Holding Company............
</TABLE>
[Map of Missouri showing county borders, with enlargement of Marion, Clark and
Lewis Counties showing the ocation of the towns of Palmyra, Kahoka and Canton
appears here]
<PAGE>
SUMMARY
The following summary explains the significant aspects of the conversion.
Because this is a summary, it does not contain all the information that may be
important to you. You should read the entire prospectus carefully before you
decide to invest. For assistance, please contact the stock information center
at (573) ____________. Throughout this prospectus, Palmyra Saving and Building
Association, F.A. in its current and converted form is referred to as the
"Association" and PFSB Bancorp, Inc. is referred to as the "Holding Company."
THE COMPANIES
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PFSB BANCORP, INC. The Association formed the Holding Company for the purpose
123 West Lafayette Street of becoming the holding company for the Association. To
Palmyra, Missouri 63461 date, the Holding Company has only conducted organizational
(573) 769-2134 activities. After the conversion, the Holding Company will
own all of the Association's capital stock and will direct, plan
and coordinate the Association's business activities. In the
future, the Holding Company might become an operating
company or acquire or organize other operating subsidiaries,
including other financial institutions, although it currently has
no specific plans or agreements to do so.
PALMYRA SAVING AND BUILDING The Association's business strategy is to operate as a
ASSOCIATION, F.A. traditional, community-oriented savings association dedicated
123 West Lafayette Street to financing home ownership and providing quality customer
Palmyra, Missouri 63461 service. The Association operates out of three offices in
(573) 769-2134 northeast Missouri located in the towns of Palmyra (Marion
County), Canton (Lewis County) and Kahoka (Clark County).
The Association considers Marion, Lewis and Clark Counties
(and the bordering areas of contiguous counties in Missouri)
as its primary market area for originating loans and attracting
deposits. The Association's principal business is attracting
deposits from the general public and using those funds to
originate and purchase residential mortgage loans. To
supplement local loan demand, the Association occasionally
purchases participation interests in one- to- four family
mortgage loans (primarily secured by non-owner-occupied
duplex properties), multi-family loans and commercial real
estate loans generally secured by properties located in
Missouri. At September 30, 1998, the Association had total
assets of $59.5 million, deposits of $52.7 million and total
equity of $6.0 million. For a discussion of the Association's
business strategy and recent results of operations, see
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS." For a discussion of the Association's
business activities, see "BUSINESS OF THE Association."
</TABLE>
1
<PAGE>
THE CONVERSION
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WHAT IS THE CONVERSION (PAGE ___) The conversion is a change in the Association's legal form of organization.
The Association currently operates as a federally chartered mutual savings
Association with no stockholders. The Association's depositor and borrower
members have voting rights in the Association and are entitled to elect
directors of the Association and to vote on other important matters. Through
the conversion, the Association will become a federally chartered stock savings
Association and will issue shares of its common stock to the Holding Company.
After the conversion, voting rights in the Association will belong to the
Holding Company as the Association's sole stockholder. Voting rights in
the Holding Company will belong to its stockholders. The Association is
undertaking the conversion pursuant to its Plan of Conversion. The OTS has
approved the conversion, subject to approval of the Plan of Conversion by
the Association's members at a special meeting to be held on _________, 1999.
REASONS FOR THE CONVERSION (PAGE ___) By converting to the stock form of organization, the Association will
be structured in the form used by commercial Associations, most business
entities and a large number of savings institutions. The conversion
will be important to the Association's future growth and performance by
(1) providing a larger capital base from which it can operate, (2) enhancing
its ability to attract and retain qualified management through stock-based
compensation plans, (3) enhancing its ability to diversify into other financial
services related activities and (4) expanding its ability to provide services
to the public. At this time, the Association does not have any specific plans
or arrangements for diversification or expansion.
BENEFITS OF THE CONVERSION TO In connection with the conversion, the Holding Company and the
MANAGEMENT (PAGE __) Association intend to adopt the following benefit plans and
employment agreements:
. EMPLOYEE STOCK OWNERSHIP PLAN. This plan intends to purchase
8% of the shares issued in the conversion. The shares will be
allocated to employees over a period of years in proportion to
their compensation.
. STOCK OPTION PLAN. Under this plan, the Holding Company may
award stock options to key employees and directors. The number
of options available under this plan will be equal to 10% of the
number shares sold in the conversion. This plan will require
shareholder approval.
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2
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. MANAGEMENT RECOGNITION AND DEVELOPMENT PLAN. Under this plan,
the Holding Company may award shares of restricted stock to key
employees and directors at no cost to the recipient. The number
of shares available under this plan will equal 4% of the number
of shares sold in the conversion. This plan will require
shareholder approval.
. EMPLOYMENT AGREEMENTS with the Association's Executive Vice
President, and Vice President and Treasurer. These agreements will
provide for severance benefits in the event the executive is
terminated following a change in control of the Holding Company or
the Association.
. EMPLOYEE SEVERANCE COMPENSATION PLAN. This plan will provide
severance benefits to eligible employees in the event of a change
in control of the Holding Company or the Association.
For a discussion of certain risks associated with these plans and
agreements, see "RISK FACTORS -- New Expenses Associated with ESOP and
MRP" and "-- Possible Anti-Takeover Effect of Employment Agreements and
Severance Plan."
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THE OFFERING
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SUBSCRIPTION OFFERING (PAGE ___) Under its Plan of Conversion and following applicable regulatory requirements,
the Association has granted subscription rights in the following order of
priority to:
1. Persons with $50 or more on deposit at the Association as of
June 30, 1997.
2. The Palmyra Saving Employee Stock Ownership Plan.
3. Persons with $50 or more on deposit at the Association as of
December 31, 1998.
4. The Association's depositors as of __________, 1999 and borrowers
of the Association as of June 1, 1995 whose loans continue to be
outstanding as of __________, 1999.
To ensure that the Association properly identifies your subscription rights,
you must list all qualifying savings accounts and loans, as of the respective
qualifying dates, on
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3
<PAGE>
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<CAPTION>
<S> <C>
the stock order form. If you do not list all qualifying savings accounts
and loans your subscription may be reduced or rejected in the event of
an oversubscription.
Subscription rights are not transferable, and persons with subscription
rights may not subscribe for shares for the benefit of any other person.
If you violate this prohibition you may lose your right to purchase shares
in the conversion and may be subject to criminal prosecution and/or other
sanctions.
The subscription offering will expire at 12:00 Noon, Central time, on
________, 1999. If there is an oversubscription, shares will be allocated
in order of the priorities described above and pursuant to a formula set
forth in the Plan of Conversion.
COMMUNITY OFFERING (PAGE __) The Holding Company may offer shares not sold pursuant to subscription rights
to the general public. Natural persons and trusts of natural persons who
are residents of Marion, Lewis and Clark Counties, Missiouri will have first
preference to purchase these shares. If shares are available, the Holding
Company expects to offer shares to the general public immediately after the
conclusion of the subscription offering, but may begin a community offering
at any time during the subscription offering.
The Holding Company and the Association may reject orders received from the
general public either in whole or in part. If your order is rejected in part,
you will not have the right to cancel the remainder of the order.
PURCHASE PRICE The purchase price is $10.00 per share. The purchase price was determined by
the Boards of Directors of the Holding Company and the Association in consultation
with Trident Securities. You will not pay a commission to buy any shares in the
conversion.
NUMBER OF SHARES TO BE The Holding Company will sell between 637,500 and 862,500 shares of its common
ISSUED (PAGE ___) stock in this offering. With regulatory approval, the Holding Company may increase
the number of shares to 991,875.
The amount of common stock being offered in the conversion is based on an
independent appraisal of the estimated pro forma market value of the Holding
Company and the Association. RP Financial, LC., the independent appraiser, has
estimated that, in its opinion, as of December 11, 1998, the aggregate pro forma
market value of the Holding Company and the Association ranged between $6,375,000 and
$8,625,000 (with a midpoint of $7,500,000). The appraisal was based in part on the
Association's financial condition and operations and the effect of the additional
capital raised by the
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4
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sale of common stock in this offering. The independent appraisal will be updated
prior to the completion of the conversion.
PURCHASE LIMITATIONS (PAGE __) The minimum purchase is 25 shares.
The maximum purchase for any person or group of persons through a single deposit
account is $40,000 of common stock (or 4,000 shares).
The maximum purchase for any person in the community offering is $40,000 of common
stock (or 4,000 shares).
The maximum purchase in the conversion by any person, related persons or persons
acting together is 1% ($86,250, or 8,625 shares at the maximum of the offering
range) of the total number of shares of common stock issued in the conversion.
HOW TO PURCHASE COMMON If you want to subscribe for shares of common stock, complete an original,
STOCK (PAGE ___) properly completed and signed stock order form and send it together with full
payment to the Association in the postage-paid envelope provided. You must sign the
certification that is part of the stock order form. The Association must receive
your stock order form before the end of the Subscription Offering.
You may pay for shares in any of the following ways:
. IN CASH (if delivered in person).
. BY CHECK OR MONEY ORDER made payable to PFSB Bancorp, Inc.
. BY WITHDRAWAL from an account at the Association. To use
funds in an IRA at the Association you must transfer your
account to an unaffiliated institution or broker. Please
contact the Association's stock information center at least
one week before the expiration of the Subscription Offering
for assistance.
The Association will pay interest on subscription funds at the rate it
pays on passbook accounts from the date it receives your funds until
completion or termination of the conversion. All funds authorized for
withdrawal from deposit accounts with the Association will earn interest at
the applicable account rate until completion of the conversion. There
will be no early withdrawal penalty for subscriptions paid for by withdrawal
from certificates of deposit.
After the Association receives your order, you cannot withdraw or change
your order without the consent of the
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5
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<TABLE>
<CAPTION>
<S> <C>
Association. If the Holding Company intends to sell fewer than 637,500 shares
or more than 991,875 shares, all subscribers will be notified and provided with
the opportunity to modify or cancel their orders .
USE OF PROCEEDS (PAGE ___) The Holding Company will use 50% of the net proceeds of the offering to buy all
of the common stock of the Association. The Association will use these funds to
originate and purchase loans and purchase investments similar to the kinds it
currently holds. The Holding Company will loan an amount equal to 8% of the gross
proceeds of the offering to the Association's employee stock ownership plan to fund
its purchase of common stock and will keep the remainder of the net proceeds for
general corporate purposes. These purposes may include, for example, paying cash
dividends (regular or special) and/or buying back shares of common stock. The Holding
Company and the Association may also use the proceeds of the offering for expansion
and diversification of its business, although they have no specific plans for such
activity at this time.
PURCHASES BY OFFICERS AND The Association's directors and executive officers (together with their associates)
DIRECTORS (PAGE ___) intend to subscribe for 40,325 shares, which equals 4.2% of the shares issued at the
maximum of the offering range. Directors and executive officers will pay the same
$10.00 per share price as all other persons who purchase shares in the conversion.
MARKET FOR COMMON STOCK The Holding Company intends to list the common stock over-the-counter through the
(PAGE ___) OTS Bulletin Board or the National Daily Quotation System "Pink Sheets" published by
the National Quotation Bureau, Inc. Trident Securities intends to be a market maker
in the common stock. After shares of the common stock commence trading, you may contact
a stock broker to buy or sell shares. The Holding Company cannot assure you that
there will be an active trading market for the common stock. See "RISK FACTORS --
Absence of Prior Market for the Common Stock."
DIVIDEND POLICY (PAGE ___) The Holding Company intends to adopt a policy of paying regular cash dividends, but has
not yet made a decision as to their amount or frequency.
</TABLE>
6
<PAGE>
RISK FACTORS
Before investing in the common stock please carefully consider the matters
discussed below. The common stock is not a savings account or deposit and is not
insured by the FDIC or any other government agency.
HIGH DEPENDENCE ON, AND LIMITED GROWTH PROSPECTS OF, LOCAL ECONOMY
The Association focuses on serving customers in rural northeastern Missouri
counties of Marion, Lewis and Clark, which currently have an aggregate
population of approximately 45,000 distributed among approximately 18,000
households. The average unemployment rate for these three counties was
approximately 5.1% in July 1998, which exceeded both the Missouri rate (4.4%)
and the U.S. rate (4.7%). The average median household income for the counties
(approximately $31,000) is less than the Missouri average (approximately
$36,100) and the U.S. average (approximately $38,100). Furthermore, the average
per capital income for these three counties (approximately $14,000) is also less
than the Missouri average (approximately $17,300) and the U.S. average
($18,400). A substantial portion of the Association's loan portfolio consists of
loans made to borrowers and collateralized by properties located in these
counties and substantially all of the Association's depositors reside in these
counties. As a result of this concentration, a downturn in the economy of
Association's primary market area or the surrounding area could increase the
risk of loss associated with the Association's loan portfolio. In addition,
because the Association operates in a rural market area with a small population
and limited growth prospects, the Association's ability to achieve loan and
deposit growth is limited. See "BUSINESS OF THE ASSOCIATION -- Market Area."
INCREASED RISK ASSOCIATED WITH PURCHASED LOANS
To supplement loan originations in its primary market area, the Association
purchases participation interests in one- to- four-family mortgage loans
(primarily secured by non-owner-occupied duplex properties), multi-family loans
and commercial real estate loans. The properties securing the purchased loans
are generally located in other areas of Missouri, principally the City of
Columbia because of the housing demand generated by the state university located
there. At September 30, 1998, purchased loans amounted to $8.6 million, or 21.2%
of net loans, of which $6.9 million were one- to- four family mortgage loans,
$806,000 were participation interests in multi-family loans and $863,000 were
participation interests in commercial real estate loans. Purchased loans are
more difficult to underwrite and monitor than loans originated by the
Association because of the higher probability of lack of personal contact with
the borrower and the distant location of the collateral, among other reasons. In
addition, loans secured by non-owner occupied properties pose additional risk,
such the borrowers' ability to receive sufficient rental income from the
occupant of the property to service the underlying mortgage debt. See "BUSINESS
OF THE ASSOCIATION -- Lending Activities."
HIGH DEPENDENCE ON KEY PERSONNEL AND ABSENCE OF MANAGEMENT SUCCESSION PLAN
Eldon R. Mette, the Association's Executive Vice President, and Ronald L.
Nelson, the Association's Vice President and Treasurer, have been instrumental
in managing the business affairs of the Association for over 25 years. The loss
of either individual could have a material adverse impact on the operations of
the Association. The Association does not have an established management
succession plan. Accordingly, should the Association lose the services of Mr.
Mette and Mr. Nelson, the Board of Directors would have to search outside of the
Association for qualified, permanent replacements. This search may be prolonged
and no assurance can be given that the Association will be able to locate and
hire a qualified replacement. Neither the Association nor the Holding Company
has obtained, or expects to obtain, a "key man" life insurance policy for either
individual.
LOW YIELDS AND RISKS ASSOCIATED WITH RESIDENTIAL MORTGAGE LENDING
Historically, the Association's principal lending activity has been the
origination of one- to four-family mortgage loans for long-term investment
purposes. At September 30, 1998, approximately 61.8% of the Association's
assets consisted of residential mortgage loans, which represented 88.9% of the
total loan portfolio at that date. While generally considered to involve less
risk than other types of lending, such as commercial mortgage loans, commercial
business
7
<PAGE>
loans and consumer loans, residential mortgage loans provide relatively lower
yields. The Association expects that one- to four-family residential mortgage
loans will continue to be its primary lending activity for the foreseeable
future.
The Association's loan portfolio consists primarily of 3- or 5-year balloon
mortgage loans which function like adjustable rate mortgage ("ARM") loans.
Substantially all of the mortgage loans that the Association originates are
written as 3- or 5-year balloon loans whose interest rate adjusts at the end of
the balloon period. In addition, substantially all of the loan participation
interests that the Association purchases are also ARM loans, but traditional ARM
loans rather than balloon loans. ARM loans generally pose the risk that as
interest rates rise, the underlying payments of the borrower also rises, thereby
increasing the potential for loan delinquencies and loan losses. The
marketability of the underlying properties may also be adversely affected by
higher interest rates. The Association's ARM loans also contain lifetime
interest rate adjustment limit of 6%, which may prevent the loans from repricing
to market interest rates in a rising rate environment. Moreover, the ability to
originate ARM loans is often affected by changes in the level of market interest
rates and by market acceptance of the terms of ARM loans. In a relatively low
interest rate environment, as currently exists, borrowers tends to favor fixed-
rate loans over ARM loans. After the conversion, the Association intends to
explore offering fixed-rate residential mortgage loans. For a discussion of the
Association's loan portfolio, see "BUSINESS OF THE ASSOCIATION -- Lending
Activities."
RISK OF YEAR 2000 DATA PROCESSING PROBLEMS
Computer programs that use only two digits to identify a year could fail or
create erroneous results by or at the year 2000. All of the material data
processing of the Bank is performed by a third party service bureau. If the
service bureau is unable to complete its Year 2000 adjustments in a timely
fashion, or if it does not successfully make all the necessary Year 2000
adjustments, then resulting computer malfunctions could interrupt the operations
of the Association and have a significant adverse impact on the Association's
financial condition and results of operations. The Association has developed a
Year 2000 Action Plan to analyze how the Year 2000 will impact its operations
and to monitor the status of its vendors and commercial borrowers. This plan is
administered by senior management who report monthly to the Association's Board
of Directors. Currently, the total pre-tax costs associated with required
modifications and conversions of the Association's hardware and software in
order to achieve year 2000 compliance is not expected to exceed $75,000. Such
estimate is based on assumptions regarding the continued availability of various
resources, third-party modification plans and other factors. Accordingly, actual
expenses may be different from estimates. To date, the Association has expended
approximately $59,000 toward Year 2000 compliance issues. See "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS - Year
2000 Issues."
INTEREST RATE RISK
Changes in interest rates can have significant effects on the Association's
profitability. The Association's ability to make a profit, like that of most
financial institutions, depends largely on its net interest income, which is the
difference between the interest income received from its interest-earning assets
(such as loans and investment securities) and the interest expense incurred in
connection with its interest-bearing liabilities (such as deposits and
borrowings). The Association's net interest income and the market value of its
assets and liabilities could be significantly affected by changes in interest
rates. In a rising interest rate environment, the Association anticipates that
its net interest income could be adversely affected as liabilities could reprice
to higher market rates more quickly than assets. In addition, rising interest
rates may adversely affect the Association's earnings because they may cause a
decrease in customer demand for loans. See "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Asset and Liability
Management."
Changes in interest rates also can affect the average life of loans and
mortgage-backed securities. During periods of declining interest rates, loans
and mortgage-backed securities prepay faster as loans are prepaid and refinanced
at lower interest rates. During such periods, the Association generally will not
be able to reinvest the proceeds of any such prepayments at comparable yields.
Conversely, during periods of rising interest rates, the rate of prepayments
generally slows. Moreover, volatility in interest rates also can result in
disintermediation, or the flow of funds away from savings
8
<PAGE>
institutions into direct investments, such as U.S. Government and corporate
securities and other investment vehicles which, because of the absence of
federal insurance premiums and reserve requirements, generally pay higher rates
of return than savings institutions.
BELOW AVERAGE RETURN ON EQUITY AFTER CONVERSION
Return on equity (net income divided by average equity) is a ratio used by
many investors to compare the performance of a particular company with other
companies. The Holding Company's post-conversion return on equity will be below
the average return on equity for many publicly held savings associations and
banks. In addition, the expenses associated with the ESOP and MRP, along with
other post-conversion expenses, are expected to contribute to reduced earnings
levels. Over time, the Holding Company intends to deploy the net proceeds from
the conversion to increase earnings per share and book value per share, without
assuming undue risk, with the goal of achieving a return on equity competitive
with other publicly traded savings associations. This goal could take a number
of years to achieve, and the Holding Company cannot assure you that this goal
can be attained. Consequently, you should not expect a competitive return on
equity in the near future. See "SELECTED FINANCIAL INFORMATION,"
"CAPITALIZATION" AND "PRO FORMA DATA."
NEW EXPENSES ASSOCIATED WITH ESOP AND MRP
If the ESOP and MRP are implemented, the Association will recognize
additional material employee compensation and benefit expenses that stem from
the shares purchased or granted to employees and executives under those plans.
The Association cannot predict the actual amount of these new expenses because
applicable accounting practices require that they be based on the fair market
value of the shares of common stock when the expenses are recognized. Expenses
for the ESOP would be recognized when shares are committed to be released to
participants' accounts, and expenses for the MRP would be recognized over the
vesting period of awards made to recipients. These expenses have been reflected
in the pro forma financial information under "PRO FORMA DATA" assuming the
$10.00 per share purchase price as fair market value. Actual expenses, however,
will be based on the fair market value of the common stock at the time of
recognition, which may be higher or lower than $10.00. For further discussion
of these plans, see "MANAGEMENT OF THE ASSOCIATION -- Benefits -- Employee Stock
Ownership Plan" and "-- Benefits -- Management Recognition Plan."
POSSIBLE DILUTIVE EFFECT OF BENEFIT PROGRAMS
If the conversion is completed and stockholders approve the MRP and Stock
Option Plan, the Holding Company intends to issue shares to its officers and
directors through these plans. If the shares for the MRP are issued from
authorized but unissued stock, your ownership interest could be diluted by up to
approximately 3.85%. If the shares for the Stock Option Plan are issued from
authorized but unissued stock, your ownership interest could be diluted by up to
approximately 9.1%. In either case, the issuance of additional shares would
decrease net income per share and stockholders' equity per share. If the ESOP
is not able to purchase 8% of the shares of common stock issued in the
conversion, the ESOP may purchase newly issued shares from the Holding Company.
If this occurs, your ownership interest would be diluted and net income per
share and stockholders' equity per share may be decreased. See "PRO FORMA
DATA."
POSSIBLE VOTING CONTROL BY MANAGEMENT AND EMPLOYEES
The 40,325 shares of common stock expected to be purchased by the
Association's directors and executive officers and their associates in the
conversion, combined with the shares expected to be awarded or sold to plan
participants under the ESOP, the MRP and the Stock Option Plan, could ultimately
result in management and employees and their associates controlling up to
approximately 24.3% of the outstanding shares of the common stock (assuming the
sale of 862,500 shares in the conversion at the maximum of the Estimated
Valuation Range and that the shares issued under the MRP and the Stock Option
Plan are repurchased treasury shares) and could permit management to benefit
from certain statutory and regulatory provisions, as well as certain provisions
in the Holding Company's Articles of Incorporation and Bylaws, that may tend to
promote the continuity of existing management. If these individuals were
9
<PAGE>
to act as a group or in concert with each other, they could have significant
influence over the outcome of any stockholder vote requiring a majority vote and
in the election of directors and could effectively exercise veto power in
matters requiring the approval of stockholders, such as certain business
combinations. Therefore, management might have the power to authorize actions
that may be viewed as contrary to the best interests of non-affiliated holders
of the common stock and might have veto power over actions that such holders may
deem to be in their best interests. See "SHARES TO BE PURCHASED BY MANAGEMENT
PURSUANT TO SUBSCRIPTION RIGHTS," "MANAGEMENT OF THE ASSOCIATION --Executive
Compensation" and "RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY."
ANTI-TAKEOVER PROVISIONS AND STATUTORY PROVISIONS THAT COULD DISCOURAGE HOSTILE
ACQUISITIONS OF CONTROL
Provisions in the Holding Company's Articles of Incorporation and Bylaws,
the corporation law of the state of Missouri, and certain federal regulations
may make it difficult and expensive to pursue a tender offer, change in control
or takeover attempt that management opposes. As a result, stockholders who
might desire to participate in such a transaction may not have an opportunity to
do so. Such provisions will also make the removal of the current board of
directors or management of the Holding Company, or the appointment of new
directors, more difficult. These provisions include: limitations on voting
rights of beneficial owners of more than 10% of the Holding Company's common
stock; supermajority voting requirements for certain business combinations; the
election of directors to staggered terms of three years; the elimination of
cumulative voting for directors; and the removal of directors without cause only
upon the vote of holders of 80% of the outstanding voting shares. The Articles
of Incorporation of the Holding Company also contain provisions regarding the
timing and content of stockholder proposals and nominations and limiting the
calling of special meetings. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING
COMPANY."
POTENTIAL ANTI-TAKEOVER EFFECT OF EMPLOYMENT AGREEMENTS AND SEVERANCE PLAN
The employment agreements of senior officers of the Holding Company and the
Association provide for cash severance payments and/or the continuation of
health, life and disability benefits in the event of their termination of
employment following a change in control of the Holding Company or the
Association. If a change in control had occurred at September 30, 1998, the
aggregate value of the severance benefits available to these executive officers
under the agreements would have been approximately $356,000. In addition, if a
change in control had occurred at September 30, 1998 and all eligible employees
had been terminated, the aggregate payment due under the Severance Plan would
have been approximately $_______. These arrangements may have the effect of
increasing the costs of acquiring the Holding Company, thereby discouraging
future attempts to take over the Holding Company or the Association. For
information about the proposed employment and severance agreements and Severance
Plan, see "MANAGEMENT OF THE ASSOCIATION -- Executive Compensation."
POTENTIAL ADVERSE EFFECT OF COMPETITION ON ASSOCIATION'S PROFITABILITY
The Association faces intense competition both in making loans and
attracting deposits. Competition for loans principally comes from commercial
banks, savings associations, credit unions, mortgage banking companies.
Historically, commercial banks, savings associations and credit unions have been
the Association's most direct competition for deposits. The Association also
competes with short-term money market funds and with other financial
institutions, such as brokerage firms and insurance companies, for deposits. In
competing for loans, the Association may be forced to offer lower loan interest
rates periodically. Conversely, in competing for deposits, the Association may
be forced to offer higher deposit interest rates periodically. Either case or
both cases could adversely affect net interest income. See "BUSINESS OF THE
ASSOCIATION -- Competition."
ABSENCE OF PRIOR MARKET FOR THE COMMON STOCK
Because the Holding Company has never issued capital stock, there is no
existing market for the common stock. It is highly unlikely that an active and
liquid market for the common stock will develop because of the small size of the
offering. Prospective investors should consider the potentially illiquid and
long-term nature of an investment in the
10
<PAGE>
common stock. Furthermore, the Holding Company cannot guarantee anyone who
purchases shares in the conversion that they will be able to sell their shares
at or above the $10.00 purchase price. See "MARKET FOR COMMON STOCK."
RISK OF DELAY IN COMPLETING THE CONVERSION
The Holding Company and the Association expect to complete the conversion
within the time periods indicated in this prospectus. Nevertheless, it is
possible that there could be a significant delay in the completion of the
conversion as a result of delays in receiving required regulatory approvals,
volatile stock market conditions or otherwise. If the conversion is not
completed by __________, 1999 (45 days after the last day of the fully extended
Subscription Offering) and the OTS consents to an extension of time to complete
the conversion, subscribers will be given the right to modify or rescind their
subscriptions. In such event, unless an affirmative indication is received from
subscribers that they wish to continue to subscribe for shares, their funds will
be returned promptly, together with interest at the Association's passbook rate,
or their withdrawal authorizations will be terminated. See "THE CONVERSION."
POSSIBLE ADVERSE INCOME TAX CONSEQUENCES OF THE DISTRIBUTION OF SUBSCRIPTION
RIGHTS
If the Internal Revenue Service were to determine that the subscription
rights granted pursuant to the Plan of Conversion have an ascertainable value,
receipt of such rights may be a taxable event (either as capital gain or
ordinary income), to those persons who receive and/or exercise the subscription
rights in an amount equal to such value. Additionally, the IRS could require the
Association to recognize a gain for tax purposes on the distribution of
subscription rights. Whether subscription rights are considered to have
ascertainable value is an inherently factual determination. RP Financial has
advised the Association in writing that such rights have no value, but RP
Financial's conclusion is not binding on the IRS. See "THE CONVERSION --
Effects of Conversion to Stock Form on Depositors and Borrowers of the
Association -- Tax Effects."
LEGISLATIVE AND REGULATORY UNCERTAINTY AFFECTING THE THRIFT INDUSTRY
The Association is subject to extensive regulation, supervision and
examination by the OTS and the FDIC. During the 105th Congress, which completed
its term in October 1998, Congress considered, but did not pass, legislation
intended to modernize the financial services industry. Pursuant to this proposed
legislation, newly formed unitary savings and loan holding companies would not
be permitted to exercise the expanded powers otherwise available to unitary
savings and loan holding companies. Previous proposals would have eliminated the
federal savings association charter by requiring that all federal savings
associations convert to national banks or other banking charters, but a similar
provision was not included in the legislation that was passed only by the U.S.
House of Representatives. The Association is a federal savings association and
the Holding Company, upon completion of the conversion, will be a unitary
savings and loan holding company. No assurance can be given whether federal
legislation will be enacted that affects the federal savings association charter
or unitary savings and loan holding companies, or if such legislation is
enacted, what form this legislation might take. Accordingly, management of the
Association and the Holding Company cannot predict what effect, if any, such
legislation would have on the activities and operations of the Association and
the Holding Company.
11
<PAGE>
SELECTED FINANCIAL INFORMATION
The following tables set forth certain information concerning the financial
position and results of operations of the Association at the dates and for the
periods indicated. This information should be read in conjunction with the
Financial Statements and Notes thereto presented elsewhere in this prospectus.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-------------------------
1998 1997 1996
------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Total assets............................... $59,476 $58,433 $57,223
Cash and cash equivalents.................. 2,268 2,146 1,732
Investment securities available for sale... 7,087 8,509 6,245
Investment securities held to maturity..... 5,589 5,093 7,198
Mortgage-backed securities held to
maturity................................. 2,584 2,828 3,280
Loans receivable, net...................... 40,513 38,394 37,259
Deposits................................... 52,724 51,412 51,391
FHLB advances.............................. 500 1,000 200
Total equity, substantially restricted..... 6,048 5,715 5,302
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
SEPTEMBER 30,
------------------------
1998 1997 1996
-------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
SELECTED OPERATING DATA:
Interest income............................ $4,164 $4,133 $3,982
Interest expense........................... 2,685 2,626 2,598
------ ------ ------
Net interest income........................ 1,479 1,507 1,384
Provision (benefit) for loan losses........ 25 21 87
------ ------ ------
Net interest income after provision
for loan losses......................... 1,454 1,486 1,297
Noninterest income......................... 75 63 85
Noninterest expense (1).................... 1,104 1,035 1,368
------ ------ ------
Income before income taxes................. 425 514 14
Income tax expense (benefit)............... 149 182 (8)
------ ------ ------
Net income................................. $ 276 $ 332 $ 22
====== ====== ======
</TABLE>
_____________________________
(1) Includes a one-time SAIF assessment of $305,000 in 1996.
12
<PAGE>
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
---------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
SELECTED OTHER DATA:
Number of:
Mortgage loans outstanding.................... 1,221 1,244 1,295
Deposit accounts.............................. 7,761 7,678 7,716
Full-service offices.......................... 3 3 3
</TABLE>
<TABLE>
<CAPTION>
AT OR FOR THE
YEAR ENDED SEPTEMBER 30,
---------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
SELECTED FINANCIAL RATIOS:
Performance Ratios:
Return on average assets(1).................... 0.47% 0.57% 0.04%
Return on average equity(2).................... 4.64 6.49 0.41
Interest rate spread(3)........................ 2.24 2.34 2.18
Net interest margin(4)......................... 2.62 2.70 2.54
Noninterest expense as a
percent of average total assets............... 1.88 1.79 2.43
Average interest-earning assets to
average interest-bearing liabilities.......... 107.87 107.66 107.62
Capital Ratios:
Tangible....................................... 10.13 9.82 9.43
Core........................................... 10.13 9.82 9.43
Risk-based..................................... 22.30 22.25 21.46
Average equity as a percent of average assets.. 10.20 9.66 9.75
Asset Quality Ratios:
Nonperforming loans as a percent
of loans receivable, net(5)................... 0.54 0.47 2.39
Nonperforming assets as a
percent of total assets(6).................... 0.37 0.31 1.56
Allowance for loan losses as a percent
of gross loans receivable..................... 0.68 0.54 0.62
Allowance for loan losses as a
percent of nonperforming loans................ 127.85 140.88 26.32
Net charge-offs as a percent of
average outstanding loans..................... -- -- --
- ---------------------------
</TABLE>
(1) Net income divided by average total assets.
(2) Net income divided by average total equity.
(3) Difference between weighted average yield on interest-earning assets
and weighted average cost of interest-bearing liabilities.
(4) Net interest income as a percentage of average interest-earning assets.
(5) Nonperforming loans consist of loans accounted for on a nonaccrual basis.
(6) Nonperforming assets consist of nonaccrual loans. See "BUSINESS OF
THE ASSOCIATION -- Lending Activities --Nonperforming Assets and
Delinquencies."
13
<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the common stock offered hereby are
estimated to range from $5.8 million to $8.1 million, or up to $9.4 million if
the Estimated Valuation Range is increased by 15%. See "PRO FORMA DATA" for the
assumptions used to arrive at such amounts. The Holding Company has received
conditional OTS approval to purchase all of the capital stock of the Association
to be issued in the conversion in exchange for 50% of the net proceeds of the
conversion.
The following table presents the estimated net proceeds of the offering
based on the number of shares set forth below together with the amount to be
retained by the Holding Company and the amount to be contributed to the
Association.
<TABLE>
<CAPTION>
637,500 750,000 862,500 991,875
SHARES AT SHARES AT SHARES AT SHARES AT
$10.00 $10.00 $10.00 $10.00
PER SHARE PER SHARE PER SHARE PER SHARE
---------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Gross proceeds................ $ 6,375 $ 7,500 $ 8,625 $ 9,919
Less: estimated expenses..... (535) (535) (535) (535)
-------- -------- -------- --------
Net proceeds.................. $ 5,840 $ 6,965 $ 8,090 $ 9,384
======== ======== ======== ========
Amount to be retained by
the Holding Company........ $ 2,920 $ 3,482 $ 4,045 $ 4,692
Amount to be contributed to
the Association............ $ 2,920 $ 3,483 $ 4,045 $ 4,692
</TABLE>
Receipt of 50% of the net proceeds of the sale of the common stock will
increase the Association's capital and will support the expansion of the
Association's existing business activities. The Association will use the funds
contributed to it for general corporate purposes, including, initially, lending
and investment in short-term U.S. Government and agency obligations. Depending
on local loan demand, the Association may consider using a portion of the
conversion proceeds to purchase loan participation interests of the type it has
purchased in the past and/or for investment in mortgage-backed securities.
In connection with the conversion and the establishment of the ESOP, the
Holding Company intends to loan the ESOP the amount necessary to purchase 8% of
the shares of common stock sold in the conversion. The Holding Company's loan
to fund the ESOP may range from $510,000 to $690,000 based on the sale of 51,000
shares to the ESOP (at the minimum of the Estimated Valuation Range) and 69,000
shares to the ESOP (at the maximum of the Estimated Valuation Range),
respectively, at $10.00 per share. If 15% above the maximum of the Estimated
Valuation Range, or 991,875 shares, are sold in the conversion, the Holding
Company's loan to the ESOP would be approximately $793,500 (based on the sale of
79,350 shares to the ESOP). It is anticipated that the ESOP loan will have a
15-year term with interest payable at the prime rate as published in The Wall
Street Journal on the closing date of the conversion. The loan will be repaid
principally from the Association's contributions to the ESOP and from any
dividends paid on shares of common stock held by the ESOP.
The remaining net proceeds retained by the Holding Company initially will
be invested primarily in short-term U.S. Government and agency obligations.
Such proceeds will be available for additional contributions to the Association
in the form of debt or equity, to support future diversification or acquisition
activities, as a source of dividends to the stockholders of the Holding Company
and for future repurchases of common stock to the extent
14
<PAGE>
permitted under Missouri law and federal regulations. The Holding Company will
consider exploring opportunities to use such funds to expand operations through
acquiring or establishing additional branch offices or acquiring other financial
institutions. Currently, there are no specific plans, arrangements, agreements
or understandings, written or oral, regarding any expansion activities.
Following consummation of the conversion, the Board of Directors will have
the authority to adopt plans for repurchases of common stock, subject to
statutory and regulatory requirements. Since the Holding Company has not yet
issued stock, there currently is insufficient information upon which an
intention to repurchase stock could be based. The facts and circumstances upon
which the Board of Directors may determine to repurchase stock in the future
would include but are not limited to: (i) market and economic factors such as
the price at which the stock is trading in the market, the volume of trading,
the attractiveness of other investment alternatives in terms of the rate of
return and risk involved in the investment, the ability to increase the book
value and/or earnings per share of the remaining outstanding shares, and the
ability to improve the Holding Company's return on equity; (ii) the avoidance of
dilution to stockholders by not having to issue additional shares to cover the
exercise of stock options or to fund employee stock benefit plans; and (iii) any
other circumstances in which repurchases would be in the best interests of the
Holding Company and its stockholders. Any stock repurchases will be subject to
a determination by the Board of Directors that both the Holding Company and the
Association will be capitalized in excess of all applicable regulatory
requirements after any such repurchases and that capital will be adequate,
taking into account, among other things, the Association's level of
nonperforming and classified assets, the Holding Company's and the Association's
current and projected results of operations and asset/liability structure, the
economic environment and tax and other regulatory considerations. For a
discussion of the regulatory limitations applicable to stock repurchases, see
"THE CONVERSION -- Restrictions on Repurchase of Stock."
DIVIDEND POLICY
GENERAL
The Holding Company's Board of Directors intends to adopt a policy of
paying regular cash dividends after the consummation of the conversion, but has
not decided the amount that may be paid or when the payments may begin. In
addition, the Board of Directors may determine to pay periodic special cash
dividends in addition to, or in lieu of, regular cash dividends. Declarations
or payments of any dividends (regular and special) will be subject to
determination by the Holding Company's Board of Directors, which will take into
account the amount of the net proceeds retained by the Holding Company, the
Holding Company's financial condition, results of operations, tax
considerations, capital requirements, industry standards, economic conditions
and other factors, including the regulatory restrictions that affect the payment
of dividends by the Association to the Holding Company discussed below. Under
Missouri law, the Holding Company is prohibited from paying a cash dividend when
its net assets are less than its stated capital or when the payment of the
dividend would reduce its net assets below its stated capital. In order to pay
such cash dividends, however, the Holding Company must have available cash
either from the net proceeds raised in the conversion and retained by the
Holding Company, borrowings by the Holding Company, dividends received from the
Association or earnings on Holding Company assets. No assurances can be given
that any dividends, either regular or special, will be declared or, if declared,
what the amount of dividends will be or whether such dividends, if commenced,
will continue.
CURRENT RESTRICTIONS
Dividends from the Holding Company may depend, in part, upon receipt of
dividends from the Association because the Holding Company initially will have
no source of income other than dividends from the Association and earnings from
the investment of the net proceeds from the offering retained by the Holding
Company. OTS regulations require the Association to give the OTS 30 days'
advance notice of any proposed declaration of dividends to the Holding Company,
and the OTS has the authority under its supervisory powers to prohibit the
payment of dividends to the Holding Company. The OTS imposes certain
limitations on the payment of dividends from the Association to the Holding
Company which utilize a three-tiered approach that permits various levels of
distributions based primarily upon
15
<PAGE>
a savings association's capital level. The Association currently meets the
criteria to be designated a Tier 1 association, as hereinafter defined, and
consequently could at its option (after prior notice to and no objection made by
the OTS) distribute up to 100% of its net income during the calendar year plus
50% of its surplus capital ratio at the beginning of the calendar year less any
distributions previously paid during the year. In addition, the Association may
not declare or pay a cash dividend on its capital stock if the effect thereof
would be to reduce the regulatory capital of the Association below the amount
required for the liquidation account to be established pursuant to the
Association's Plan of Conversion. See "REGULATION -- Federal Regulation of
Savings Associations -- Limitations on Capital Distributions," "THE
CONVERSION-- Effects of Conversion to Stock Form on Depositors and Borrowers of
the Association -- Liquidation Account" and Note N of the Notes to Consolidated
Financial Statements included elsewhere herein.
Additionally, in connection with the conversion, the Holding Company and
the Association have committed to the OTS that during the one-year period
following consummation of the conversion, the Holding Company will not take any
action to declare an extraordinary dividend to stockholders that would be
treated by recipients as a tax-free return of capital for federal income tax
purposes.
TAX CONSIDERATIONS
In addition to the foregoing, retained earnings of the Association
appropriated to bad debt reserves and deducted for federal income tax purposes
cannot be used by the Association to pay cash dividends to the Holding Company
without the payment of federal income taxes by the Association at the then
current income tax rate on the amount deemed distributed, which would include
the amounts of any federal income taxes attributable to the distribution. See
"TAXATION -- Federal Taxation" and Note I of the Notes to Consolidated Financial
Statements included elsewhere herein. The Holding Company does not contemplate
any distribution by the Association that would result in a recapture of the
Association's bad debt reserve or create the above-mentioned federal tax
liabilities.
MARKET FOR COMMON STOCK
Because the Holding Company has never issued capital stock, there is no
existing market for the common stock. The Holding Company intends to list the
common stock over-the-counter through either the National Daily Quotation System
"Pink Sheets" published by the National Quotation Bureau, Inc. or the OTC
Bulletin Board and to request Trident Securities to undertake to match buy and
sell orders for the shares. Trident Securities has agreed to make a market in
the common stock following the consummation of the conversion, although it has
no obligation to do so. However, there can be no assurance that timely and
accurate quotations will be regularly available. The development of a liquid
public market depends on the existence of willing buyers and sellers and their
existence is not within the control of the Holding Company, the Association or
any market maker. Because of the small size of the offering, it is highly
unlikely that an active and liquid market for the common stock will develop and
the number of active buyers and sellers at any particular time is expected to be
limited. Under such circumstances, investors in the common stock could have
difficulty disposing of their shares on short notice and should not view the
common stock as a short-term investment. Furthermore, there can be no assurance
that purchasers will be able to sell their shares at or above the $10.00 per
share purchase price or that published quotations will be regularly available.
16
<PAGE>
CAPITALIZATION
The following table presents the historical capitalization of the
Association at September 30, 1998, and the pro forma consolidated capitalization
of the Holding Company after giving effect to the assumptions set forth under
"PRO FORMA DATA," based on the sale of the number of shares of common stock at
the minimum, midpoint, maximum and maximum, as adjusted, of the Estimated
Valuation Range. The shares that would be issued at the maximum, as adjusted,
of the Estimated Valuation Range would be subject to receipt of OTS approval of
an updated appraisal confirming such valuation. A CHANGE IN THE NUMBER OF
SHARES TO BE ISSUED IN THE CONVERSION MAY MATERIALLY AFFECT PRO FORMA
CONSOLIDATED CAPITALIZATION.
<TABLE>
<CAPTION>
HOLDING COMPANY
PRO FORMA CONSOLIDATED CAPITALIZATION
BASED UPON THE SALE OF
---------------------------------------------------
637,500 750,000 862,500 991,875
CAPITALIZATION SHARES AT SHARES AT SHARES AT SHARES AT
AS OF $10.00 $10.00 $10.00 $10.00
SEPTEMBER 30, 1998 PER SHARE(1) PER SHARE(1) PER SHARE(1) PER SHARE(1)
------------------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Deposits(3)............................. 52,724 $ 52,724 $ 52,724 $ 52,724 $ 52,724
FHLB-Des Moines advances................ 500 500 500 500 500
------- -------- -------- -------- --------
Total deposits and borrowings........... $53,224 $ 53,224 $ 53,224 $ 53,224 $ 53,224
======= ======== ======== ======== ========
PREFERRED STOCK:
1,000,000 shares, $.01 par value
per share, authorized; none issued
or outstanding.................... $ -- $ -- $ -- $ -- $ --
COMMON STOCK:
5,000,000 shares, $.01 par value
per share, authorized; specified
number of shares assumed to be
issued and outstanding(4)......... -- 6 8 9 10
Additional paid-in capital.............. -- 5,834 6,958 8,081 9,374
Total equity(5)......................... 6,048 6,048 6,048 6,048 6,048
Less:
Common stock to be acquired
by ESOP(6)........................ -- (510) (600) (690) (794)
Common stock to be acquired
by MRP(7)......................... -- (255) (300) (345) (397)
------- -------- -------- -------- --------
Total stockholders' equity.............. $ 6,048 $ 11,123 $ 12,113 $ 13,103 $ 14,242
======= ======== ======== ======== ========
</TABLE>
(footnotes on following page)
17
<PAGE>
- ------------------------
(1) Does not reflect the possible increase in the Estimated Valuation Range to
reflect material changes in the financial condition or results of operations
of the Association or changes in market conditions or general financial,
economic and regulatory conditions, or the issuance of additional shares
under the Stock Option Plan.
(2) This column represents the pro forma capitalization of the Holding Company
in the event the aggregate number of shares of common stock issued in the
conversion is 15% above the maximum of the Estimated Valuation Range. See
"PRO FORMA DATA" and Footnote 1 thereto.
(3) Withdrawals from deposit accounts for the purchase of common stock are not
reflected. Such withdrawals will reduce pro forma deposits by the amounts
thereof.
(4) The Association's authorized capital will consist solely of 1,000 shares of
common stock, par value $1.00 per share, 1,000 shares of which will be
issued to the Holding Company, and 9,000 shares of preferred stock, no par
value per share, none of which will be issued in connection with the
conversion.
(5) Total equity is substantially restricted by applicable regulatory capital
requirements. Additionally, the Association will be prohibited from paying
any dividend that would reduce its regulatory capital below the amount in
the liquidation account, which will be established for the benefit of the
Association's Eligible Account Holders and Supplemental Eligible Account
Holders at the time of the conversion and adjusted downward thereafter as
such account holders reduce their balances or cease to be depositors. See
"THE CONVERSION -- Effects of Conversion to Stock Form on Depositors and
Borrowers of the Association -- Liquidation Account."
(6) Assumes that 8% of the common stock sold in the conversion will be acquired
by the ESOP in the conversion with funds borrowed from the Holding Company.
Under GAAP, the amount of common stock to be purchased by the ESOP
represents unearned compensation and is, accordingly, reflected as a
reduction of capital. As shares are released to ESOP participants'
accounts, a corresponding reduction in the charge against capital will
occur. Since the funds are borrowed from the Holding Company, the borrowing
will be eliminated in consolidation and no liability or interest expense
will be reflected in the consolidated financial statements of the Holding
Company. See "MANAGEMENT OF THE ASSOCIATION -- Benefits -- Employee Stock
Ownership Plan."
(7) Assumes the purchase in the open market at $10.00 per share, pursuant to the
proposed MRP, of a number of shares equal to 4% of the shares of common
stock issued in the conversion at the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Valuation Range. The issuance of an
additional 4% of the shares of common stock for the MRP from authorized but
unissued shares would dilute the ownership interest of stockholders by
3.85%. The shares are reflected as a reduction of stockholders' equity.
See "RISK FACTORS -- Possible Dilutive Effect of Benefit Programs," "PRO
FORMA DATA" and "MANAGEMENT OF THE ASSOCIATION -- Benefits -- Management
Recognition Plan." The MRP is subject to stockholder approval, which is
expected to be sought at a meeting to be held no earlier than six months
following consummation of the conversion.
18
<PAGE>
HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE
The following table presents the Association's historical and pro forma
capital position relative to its capital requirements at September 30, 1998.
The amount of capital infused into the Association for purposes of the following
table is 50% of the net proceeds of the offering. For purpose of the table
below, the amount expected to be borrowed by the ESOP and the cost of the shares
expected to be acquired by the MRP is deducted from pro forma regulatory
capital. For a discussion of the assumptions underlying the pro forma capital
calculations presented below, see "USE OF PROCEEDS," "CAPITALIZATION" and "PRO
FORMA DATA." The definitions of the terms used in the table are those provided
in the capital regulations issued by the OTS. For a discussion of the capital
standards applicable to the Association, see "REGULATION -- Federal Regulation
of Savings Associations -- Capital Requirements."
<TABLE>
<CAPTION>
PRO FORMA AT SEPTEMBER 30, 1998
---------------------------------------------------------------------------------
15% above
Minimum of Midpoint of Maximum of Maximum of
Estimated Estimated Estimated Estimated
Valuation Range Valuation Range Valuation Range Valuation Range
-------------------- ------------------- ------------------- -------------------
637,500 Shares 750,000 Shares 862,500 Shares 991,875 Shares
September 30, 1998 at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share at $10.00 Per Share
------------------- -------------------- ------------------- ------------------- -------------------
Percent of Percent of Percent of Percent of Percent of
Adjusted Adjusted Adjusted Adjusted Adjusted
Total Total Total Total Total
Amount Assets (1) Amount Assets (1) Amount Assets (1) Amount Assets (1) Amount Assets (1)
------ ----------- ------ ----------- ------ ---------- ------ ----------- ------ -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP capital........... $6,048 10.17% $8,203 13.20% $8,631 13.77% $9,058 14.34% $9,550 14.97%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Tangible capital....... $6,017 10.13% $8,172 13.16% $8,600 13.74% $9,027 14.30% $9,519 14.94%
Tangible capital
requirement........... 891 1.50 931 1.50 939 1.50 947 1.50 956 1.50
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Excess................. $5,126 8.63% $7,241 11.66% $7,661 12.24% $8,080 12.80% $8,563 13.44%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Core capital........... $6,017 10.13% $8,172 13.16% $8,608 13.74% $9,027 14.30% $9,519 14.94%
Core capital
requirement(2)........ 1,783 3.00 1,863 3.00 1,878 3.00 1,894 3.00 2,549 4.00
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Excess................. $4,234 7.13% $6,309 10.16% $6,722 10.74% $7,133 11.30% $6,970 10.94%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Total capital(3)....... $6.297 22.30% $8,452 29.38% $8,880 30.75% $9,307 32.12% $9,799 33.68%
Risk-based
capital requirement... 2,259 8.00 2,302 8.00 2,310 8.00 2,318 8.00 2,328 8.00
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Excess................. $4,038 14.30% $6,150 21.38% $6,570 22.75% $6,989 24.12% $7,471 25.68%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
- -------------------------
(1) Based upon total adjusted assets of $59.4 million at September 30, 1998 and
$62.1 million, $62.7 million, $63.2 million and $63.8 million at the
minimum, midpoint, maximum and maximum, adjusted, of the Estimated Valuation
Range, respectively, for purposes of the tangible and core capital
requirements, and upon risk-weighted assets of $28.2 million at September
30, 1998 and $28.8 million, $28.9 million, $29.0 million and $29.1 million
at the minimum, midpoint, maximum, and maximum, as adjusted, of the
Estimated Valuation Range, respectively, for purposes of the risk-based
capital requirement.
(2) The current OTS core capital requirement for savings associations is 3% of
total adjusted assets. The OTS has proposed core capital requirements which
would require a core capital ratio of 3% of total adjusted assets for
thrifts that receive the highest supervisory rating for safety and soundness
and a core capital ratio of 4% to 5% for all other thrifts.
(3) Percentage represents total core and supplementary capital divided by total
risk-weighted assets. Assumes net proceeds are invested in assets that carry
a 20% risk-weighting.
19
<PAGE>
PRO FORMA DATA
Under the Plan of Conversion, the common stock must be sold at a price
equal to the estimated pro forma market value of the Holding Company and the
Association as converted, based upon an independent valuation. The Estimated
Valuation Range as of December 11, 1998 is from a minimum of $6,375,000 to a
maximum of $8,625,000 with a midpoint of $7,500,000. At a price per share of
$10.00, this results in a minimum number of shares of 637,500, a maximum number
of shares of 862,500 and a midpoint number of shares of 750,000. The actual net
proceeds from the sale of the common stock cannot be determined until the
conversion is completed. However, net proceeds set forth on the following table
are based upon the following assumptions: (i) Trident Securities will receive a
fixed management fee of $135,000 (see "THE CONVERSION -- Plan of Distribution
for the Subscription, Direct Community and Syndicated Community Offerings);
(ii) all of the common stock will be sold in the Subscription and Direct
Community Offerings; and (iii) conversion expenses, excluding the fixed
management fee paid to Trident Securities, will total approximately $400,000 at
each of the minimum, midpoint, maximum and 15% above the Estimated Valuation
Range. Actual expenses may vary from this estimate, and the fees paid will
depend upon the percentages and total number of shares sold in the Subscription
Offering, Direct Community Offering and Syndicated Community Offering and other
factors.
The following table summarizes the historical net income and retained
income of the Association and the pro forma consolidated net income and
stockholders' equity of the Holding Company at and for the year ended September
30, 1998, based on the minimum, midpoint and maximum of the Estimated Valuation
Range and based on a 15% increase in the maximum of the Estimated Valuation
Range. The pro forma consolidated net income of the Association for the year
ended September 30, 1998 has been calculated as if the conversion had been
consummated at the beginning of the period and the estimated net proceeds
received by the Holding Company and the Association had been invested at 4.39%
at the beginning of the period, which represents the one-year U.S. Treasury Bill
yield as of September 30, 1998. While OTS regulations provide for the use of a
yield representing the arithmetic average of the weighted average yield earned
by the Association on its interest-earning assets and the rates paid on its
deposits, the Holding Company believes that the U.S. Treasury Bill yield
represents a more realistic yield on the investment of the conversion proceeds.
As discussed under "USE OF PROCEEDS," the Holding Company expects to retain 50%
of the net proceeds of the offering from which it will fund the ESOP loan. A
pro forma after-tax return of 2.77% is used for both the Holding Company and the
Association for the period, after giving effect to an incremental combined
federal and state income tax rate of 37.0%. Historical and pro forma per share
amounts have been calculated by dividing historical and pro forma amounts by the
number of shares of common stock indicated in the footnotes to the table. Per
share amounts have been computed as if the common stock had been outstanding at
the beginning of the period or at September 30, 1998, but without any adjustment
of per share historical or pro forma stockholders' equity to reflect the
earnings on the estimated net proceeds.
No effect has been given to: (i) the shares to be reserved for issuance
under the Holding Company's Stock Option Plan, which is expected to be voted
upon by stockholders at a meeting to be held no earlier than six months
following consummation of the conversion; (ii) withdrawals from deposit accounts
for the purpose of purchasing common stock in the conversion; (iii) the issuance
of shares from authorized but unissued shares to the MRP, which is expected to
be voted upon by stockholders at a meeting to be held no earlier than six months
following consummation of the conversion; or (iv) the establishment of a
liquidation account for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders. See "MANAGEMENT OF THE ASSOCIATION -- Benefits --
Stock Option Plan" and "THE CONVERSION -- Stock Pricing and Number of Shares to
be Issued."
THE FOLLOWING PRO FORMA INFORMATION MAY NOT BE REPRESENTATIVE OF THE
FINANCIAL EFFECTS OF THE CONVERSION AT THE DATE ON WHICH THE CONVERSION ACTUALLY
OCCURS AND SHOULD NOT BE TAKEN AS INDICATIVE OF FUTURE RESULTS OF OPERATIONS.
STOCKHOLDERS' EQUITY REPRESENTS THE DIFFERENCE BETWEEN THE STATED AMOUNTS OF
CONSOLIDATED ASSETS AND LIABILITIES OF THE HOLDING COMPANY COMPUTED IN
ACCORDANCE WITH GAAP. STOCKHOLDERS' EQUITY HAS NOT BEEN INCREASED OR DECREASED
TO REFLECT THE DIFFERENCE BETWEEN THE CARRYING VALUE OF LOANS AND OTHER ASSETS
AND MARKET VALUE. STOCKHOLDERS' EQUITY IS NOT INTENDED TO REPRESENT FAIR MARKET
VALUE NOR DOES IT REPRESENT AMOUNTS THAT WOULD BE AVAILABLE FOR DISTRIBUTION TO
STOCKHOLDERS IN THE EVENT OF LIQUIDATION.
20
<PAGE>
<TABLE>
<CAPTION>
AT OR FOR THE YEAR ENDED SEPTEMBER 30, 1998
---------------------------------------------------------------------
991,875
637,500 750,000 862,500 SHARES SOLD AT
SHARES SHARES SOLD AT SHARES SOLD AT $10.00
SOLD AT $10.00 $10.00 $10.00 PER SHARE (15%
PER SHARE PER SHARE PER SHARE ABOVE
(MINIMUM (MIDPOINT (MAXIMUM MAXIMUM
OF ESTIMATED OF ESTIMATED OF ESTIMATED OF ESTIMATED
PRICE RANGE) PRICE RANGE) PRICE RANGE) PRICE RANGE) (1)
-------------- -------------- -------------- ----------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Gross Proceeds......................................... $ 6,375 $ 7,500 $ 8,625 $ 9,919
Less: estimated expenses.............................. (535) (535) (535) (535)
-------- -------- -------- --------
Estimated net proceeds................................. 5,840 6,965 8,090 9,384
Less: Common Stock acquired by ESOP................... (510) (600) (690) (794)
Common Stock to be acquired by MRP................. (255) (300) (345) (397)
-------- -------- -------- --------
Net investable proceeds............................... $ 5,075 $ 6,065 $ 7,055 $ 8,194
======== ======== ======== ========
Consolidated net income:
Historical............................................ $ 276 $ 276 $ 276 $ 276
Pro forma income on net proceeds(2)................... 140 168 195 227
Pro forma ESOP adjustments(3)......................... (32) (38) (43) (50)
Pro forma MRP adjustments(4).......................... (32) (38) (43) (50)
-------- -------- -------- --------
Pro forma net income................................ $ 352 $ 368 $ 385 $ 403
======== ======== ======== ========
Consolidated net income per share(5)(6):
Historical............................................ $ 0.47 $ 0.40 $ 0.35 $ 0.30
Pro forma income on net proceeds...................... 0.24 0.24 0.24 0.25
Pro forma ESOP adjustments(3)......................... (0.05) (0.05) (0.05) (0.05)
Pro forma MRP adjustments(4).......................... (0.05) (0.05) (0.05) (0.05)
-------- -------- -------- --------
Pro forma net income per share...................... $ 0.61 $ 0.54 $ 0.49 $ 0.45
======== ======== ======== ========
Consolidated stockholders' equity (book value):
Historical............................................ $ 6,048 $ 6,048 $ 6,048 $ 6,048
Estimated net proceeds................................ 5,840 6,965 8,090 9,384
Less: Common stock acquired by ESOP.................. (510) (600) (690) (794)
Less: Common stock to be acquired by MRP(4).......... (255) (300) (345) (397)
-------- -------- -------- --------
Pro forma stockholders' equity(7).................. $ 11,123 $ 12,113 $ 13,103 $ 14,242
======== ======== ======== ========
Consolidated stockholders' equity per share(6)(8):
Historical(6)......................................... $ 9.49 $ 8.06 $ 7.01 $ 6.10
Estimated net proceeds................................ 9.16 9.29 9.38 9.46
Less: Common stock acquired by ESOP.................. (0.80) (0.80) (0.80) (0.80)
Less: Common stock to be acquired by MRP(4).......... (0.40) (0.40) (0.40) (0.40)
-------- -------- -------- --------
Pro forma stockholders' equity per share(9)......... $ 17.45 $ 16.15 $ 15.19 $ 14.36
======== ======== ======== ========
Purchase price as a percentage of pro forma............ 57.31% 61.92% 65.83% 69.64%
stockholders' equity per share....................... ======== ======== ======== ========
Purchase price as a multiple of pro forma.............. 16.39x 18.52x 20.41x 22.22x
net income per share................................ ======== ======== ======== ========
</TABLE>
(footnotes on following page)
21
<PAGE>
- ---------------------------------
(1) Gives effect to the sale of an additional 129,375 shares in the conversion,
which may be issued to cover an increase in the pro forma market value of
the Holding Company and the Association as converted, without the
resolicitation of subscribers or any right of cancellation. The issuance of
such additional shares will be conditioned on a determination by RP
Financial that such issuance is compatible with its determination of the
estimated pro forma market value of the Holding Company and the Association
as converted. See "THE CONVERSION -- Stock Pricing and Number of Shares to
be Issued."
(2) No effect has been given to withdrawals from savings accounts for the
purpose of purchasing common stock in the conversion. Since funds on deposit
at the Association may be withdrawn to purchase shares of common stock
(which will reduce deposits by the amount of such purchases), the net amount
of funds available to the Association for investment following receipt of
the net proceeds of the conversion will be reduced by the amount of such
withdrawals.
(3) It is assumed that 8% of the shares of common stock offered in the
conversion will be purchased by the ESOP. The funds used to acquire such
shares will be borrowed by the ESOP (at an interest rate equal to the prime
rate as published in The Wall Street Journal on the closing date of the
conversion, which rate is currently 8.00%) from the net proceeds from the
conversion retained by the Holding Company. The amount of this borrowing
has been reflected as a reduction from gross proceeds to determine estimated
net investable proceeds. The Association intends to make contributions to
the ESOP in amounts at least equal to the principal and interest requirement
of the debt. As the debt is paid down, stockholders' equity will be
increased. The Association's payment of the ESOP debt is based upon equal
installments of principal over a 10-year period, assuming a combined federal
and state income tax rate of 37.0%. Interest income earned by the Holding
Company on the ESOP debt offsets the interest paid by the Association on the
ESOP loan. No reinvestment is assumed on proceeds contributed to fund the
ESOP. Applicable accounting practices require that compensation expense for
the ESOP be based upon shares committed to be released and that unallocated
shares be excluded from earnings per share computations. The valuation of
shares committed to be released would be based upon the average market value
of the shares during the year, which, for purposes of this calculation, was
assumed to be equal to the $10.00 per share purchase price. See "MANAGEMENT
OF THE ASSOCIATION -- Benefits --Employee Stock Ownership Plan."
(4) In calculating the pro forma effect of the MRP, it is assumed that the
required stockholder approval has been received, that the shares were
acquired by the MRP at the beginning of the period presented in open market
purchases at the $10.00 per share purchase price, that 20% of the amount
contributed was an amortized expense during such period, and that the
combined federal and state income tax rate is 37.0%. The issuance of
authorized but unissued shares of the common stock instead of open market
purchases would dilute the voting interests of existing stockholders by
approximately 3.85% and pro forma net income per share would be $0.58,
$0.52, $0.48 and $0.43 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range for the year ended September 30,
1998, respectively, and pro forma stockholders' equity per share would be
$17.16, $15.91, $14.99 and $14.19 at the minimum, midpoint, maximum and 15%
above the maximum of the Estimated Valuation Range at September 30, 1998,
respectively. Shares issued under the MRP vest 20% per year and for
purposes of this table compensation expense is recognized on a straight-line
basis over each vesting period. In the event the fair market value per
share is greater than $10.00 per share on the date shares are awarded under
the MRP, total MRP expense would increase. The total estimated MRP expense
was multiplied by 20% (the total percent of shares for which expense is
recognized in the first year) resulting in pre-tax MRP expense of $51,000,
$60,000, $69,000 and $79,350 at the minimum, midpoint, maximum and 15% above
the maximum of the Estimated Valuation Range for the year ended September
30, 1998, respectively. No effect has been given to the shares reserved for
issuance under the proposed Stock Option Plan.
(5) Per share amounts are based upon shares outstanding of 589,050, 693,000,
796,950 and 916,493 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range for the year ended September 30,
1998, respectively, which includes the shares of common stock sold in the
conversion less the number of shares assumed to be held by the ESOP not
committed to be released within the first year following the conversion.
(6) Historical per share amounts have been computed as if the shares of common
stock expected to be issued in the conversion had been outstanding at the
beginning of the period or on the date shown, but without any adjustment of
historical net income or historical retained earnings to reflect the
investment of the estimated net proceeds of the sale of shares in the
conversion, the additional ESOP expense or the proposed MRP expense, as
described above.
(7) "Book value" represents the difference between the stated amounts of the
Association's assets and liabilities. The amounts shown do not reflect the
liquidation account which will be established for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders in the conversion,
or the federal income tax consequences of the restoration to income of the
Association's special bad debt reserves for income tax purposes which would
be required in the unlikely event of liquidation. See "THE CONVERSION --
Effects of Conversion to Stock Form on Depositors and Borrowers of the
Association" and "TAXATION." The amounts shown for book value do not
represent fair market values or amounts distributable to stockholders in the
unlikely event of liquidation.
(8) Per share amounts are based upon shares outstanding of 637,500, 750,000,
862,500 and 991,875 at the minimum, midpoint, maximum and 15% above the
maximum of the Estimated Valuation Range, respectively.
(9) Does not represent possible future price appreciation or depreciation of the
common stock.
22
<PAGE>
SHARES TO BE PURCHASED BY MANAGEMENT PURSUANT TO SUBSCRIPTION RIGHTS
The following table sets forth certain information as to the approximate
purchases of common stock by each director and executive officer of the
Association, including their associates, as defined by applicable regulations.
No individual has entered into a binding agreement with respect to such intended
purchases, and, therefore, actual purchases could be more or less than indicated
below. Directors and officers of the Association and their associates may not
purchase in excess of 35% of the shares sold in the conversion. For purposes of
the following table, it has been assumed that sufficient shares will be
available to satisfy subscriptions in all categories. Directors, officers,
their associates and employees will pay the same price as all other subscribers
for the shares for which they subscribe.
<TABLE>
<CAPTION>
Percent of Percent of
Shares at Shares at
Minimum of Maximum of
Name and Anticipated Number of Anticipated Dollar Estimated Estimated
Position Shares to be Purchased (1) Amount to be Purchased Valuation Range Valuation Range
-------- -------------------------- ---------------------- ---------------- ----------------
<S> <C> <C> <C> <C>
L. Edward Schaeffer 5,000 $ 50,000 0.8% 0.5%
Chairman of the Board
and President
Eldon R. Mette 4,000 40,000 0.6 0.4
Executive Vice President,
Secretary and Director
Glenn J. Maddox 5,000 50,000 0.8 0.5
Vice President of the Board
and Director
Ronald L. Nelson 3,000 30,000 0.5 0.3
Vice President and Treasurer
Albert E. Davis 8,625 100,000 1.4 1.0
Director
Robert M. Dearing 2,700 27,000 0.4 0.3
Director
James D. Lovegreen 4,000 40,000 0.6 0.4
Director
Donald L. Slavin 8,000 80,000 1.2 0.8
Director ------ -------- --- ---
Total 40,325 $403,250 6.3% 4.2%
====== ======== === ===
</TABLE>
- ----------------------------
(1) Does not include any shares to be awarded pursuant to the ESOP and MRP or
options to acquire shares pursuant to the Stock Option Plan.
23
<PAGE>
PALMYRA SAVING AND BUILDING ASSOCIATION, F.A.
CONSOLIDATED STATEMENTS OF INCOME
The following Consolidated Statements of Income of Palmyra Saving and
Building Association, F.A. for the fiscal years ended September 30, 1998 and
1997 have been audited by Moore, Horton & Carlson, P.C., independent auditors,
whose report thereon appears elsewhere in this prospectus. These statements
should be read in conjunction with the Consolidated Financial Statements and
related Notes included elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------
1998 1997
----------- -----------
<S> <C> <C>
INTEREST INCOME:
Mortgage loans........................................ $3,048,539 $2,927,976
Consumer and other loans.............................. 34,982 36,057
Investment securities................................. 809,753 877,944
Mortgage-backed securities............................ 193,808 219,819
Interest-bearing deposits............................. 76,791 70,977
---------- ----------
Total Interest Income............................. 4,163,873 4,132,773
INTEREST EXPENSE:
Deposits -- Note G.................................... 2,669,858 2,619,925
Advances from FHLB.................................... 15,337 5,853
---------- ----------
Total interest expense............................. 2,685,195 2,625,778
---------- ----------
Net interest income................................ 1,478,678 1,506,995
Provision for Loan Losses -- Note D....................... 25,000 20,813
---------- ----------
Net interest income after provision for loan losses... 1,453,678 1,486,182
NONINTEREST INCOME (LOSS):
Service charges and other fees........................ 65,149 60,106
Loss on sale of investments........................... (2,056) (14,015)
Gain (loss) on disposal of premises and equipment..... 1,205 (731)
Other................................................. 10,534 17,419
---------- ----------
Total Noninterest Income.......................... 74,832 62,779
NONINTEREST EXPENSE:
Employee salaries and benefits........................ 560,020 524,262
Occupancy costs....................................... 134,977 125,670
Advertising........................................... 36,611 29,737
Data processing....................................... 107,463 78,715
Federal insurance premiums............................ 32,249 47,956
Other................................................. 232,636 228,727
---------- ----------
Total Noninterest Expense......................... 1,103,956 1,035,067
---------- ----------
INCOME BEFORE INCOME TAXES................................ 424,556 513,894
Income taxes -- Note I.................................... 149,000 182,000
---------- ----------
NET INCOME................................................ $ 275,554 $ 331,894
========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Management's discussion and analysis of financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Association. The information contained in this
section should be read in conjunction with the Consolidated Financial Statements
and accompanying Notes thereto and the other sections contained in this
prospectus.
OPERATING STRATEGY
The Association's business consists principally of attracting retail
deposits from the general public and using these funds to originate and purchase
mortgage loans secured by one- to four-family residences generally located in
Missouri. To a lesser extent, the Association also originates and purchases
multi-family and originates commercial real estate loans, land loans,
residential construction loans and loans secured by savings accounts. The
Association funds its assets primarily with retail deposits, although it
occasionally uses advances from the FHLB-Des Moines as a supplemental source of
funds.
The Association's business strategy is to operate as a traditional,
community-oriented savings association dedicated to financing home ownership and
providing quality customer service. Historically, the Association has
emphasized the origination and purchase of loans secured by real estate and has
retained for its portfolio all of the loans that it originates. To supplement
loan demand in its primary market area, the Association purchases participation
interests in one- to- four family mortgage loans (primarily non-owner-occupied
duplex properties, multi-family loans and commercial real estate loans generally
secured by properties located in Missouri. Historically, virtually all of the
mortgage loans originated by the Association have been three- and five-year
balloon loans based on an interest rate established by the Association and that
is fixed during the balloon term. The Association funds its loan originations
primarily with deposits, although advances form the FHLB-Des Moines are used as
a supplemental source of funds. The Association does not intend to change its
business materially after the conversion. However, in order to offer more
product variety to its customers, the Association intends to explore offering
traditional ARM loans with an interest rate tied to a nationally recognized
index such as the U.S. Treasury Bill rate, fixed-rate residential mortgage
loans, and, to a limited extent, direct mobile home loans without the security
of the underlying property. Implementation of these planned new loan programs
will be gradual so that personnel can be trained adequately and the necessary
delivery systems can be implemented.
The conversion will increase the consolidated capital of the Holding
Company by the amount of the net proceeds. Funds withdrawn from deposit
accounts will decrease interest-bearing liabilities, and new funds used to
purchase shares will increase interest-earning assets. While the Holding
Company expects these changes to increase its net interest income, the Holding
Company also expects that the adoption of the MRP and the additional costs of
operating as a public company will increase its non-interest expenses. For
additional information regarding the effects of this offering, see "RISK FACTORS
- -- Expenses Associated with ESOP and MRP" and "PRO FORMA DATA."
25
<PAGE>
COMPARISON OF FINANCIAL CONDITION AT SEPTEMBER 30, 1998 AND 1997
At September 30, 1998, total assets were $59.5 million compared to $58.4
million at September 30, 1997. This increase is primarily the result of a $2.1
million increase in loans, which was offset by declines in investment securities
and mortgage-backed securities. The increase in loans primarily reflected
residential mortgage loan refinancing in the current low interest rate
environment, rather than new loan originations. The current low interest rate
environment also contributed to the decline in investment securities and
mortgage-backed securities as a result of prepayments.
Premises and equipment increased from $491,000 at September 30, 1997 to
$562,000 at September 30, 1998 as a result of a decrease in building and
improvements from $581,000 to $569,000, offset by an increase in furniture and
equipment from $354,000 to $380,000. Building and improvements decreased from
$581,000 to $569,000 due to the write-off of a remodeling study of the Kahoka
branch office calling for the Association to occupy the entire building. Rather
than occupying the entire building, the Association plans to sell and leaseback
its office until a new branch building is constructed. See "BUSINESS OF THE
ASSOCIATION -- Properties" for further information. Furniture and equipment
increased due to the purchase of new computer systems for each office.
At September 30, 1998, deposits were $52.7 million compared to $51.4
million at September 30, 1997. Management attributes the increase, which
occurred primarily in certificates of deposit, to normal growth.
Total equity increased from $5.7 million at September 30, 1997 to
$6.0 million at September 30, 1998 as a result of retained earnings and a prior
period adjustment of $87,000 for deferred income taxes relating to the allowance
for loan losses. See Note O to the Notes to Consolidated Financial Statements
for further discussion of this prior period adjustment.
COMPARISON OF OPERATING RESULTS FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
NET INCOME. Net income was $276,000 in 1998 compared to $332,000 in 1997.
Lower net interest income after provision for loan losses and higher noninterest
expense in 1998 compared to 1997 were the primary reasons for the decline in net
income.
NET INTEREST INCOME. Net interest income was unchanged at $1.5 million for
both years. Total interest income increased from $4.1 million in 1997 to $4.2
million in 1998 primarily as a result of a higher average balance of loans,
which offset lower average balances of investments and mortgage-backed
securities caused by repayments and maturities. Total interest expense
increased from $2.6 million in 1997 to $2.7 million in 1998 primarily as a
result of higher average deposit balances. Interest expense on FHLB-Des Moines
advances was $15,000 in 1998 compared to $6,000 in 1997 primarily as a result of
higher average rates paid on advances.
PROVISION FOR LOAN LOSSES. Provisions for loan losses are charged to
operations to bring the total allowance for loan losses to a level considered by
management to be adequate to provide for estimated losses 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,
specified impaired loans, and economic conditions. The provision for loan
losses was $25,000 in 1998 compared to $21,000 in 1997. The allowance for loan
losses was $280,000 at September 30, 1998 and $255,000 at September 30, 1997.
Management deemed such allowance as adequate at both dates. Although management
uses the best information available, future adjustments to the allowance may be
necessary due to changes in economic, operating, regulatory and other conditions
that may be beyond the Association's control. While the Association maintains
its allowance for loan losses at a level which it considers to be adequate to
provide for estimated losses, there can be no assurance that further additions
will not be made to the allowance for loan losses and that actual losses will
not exceed the estimated amounts. See "BUSINESS OF THE ASSOCIATION -- Lending
Activities -- Allowance for Loan Losses" for further information.
26
<PAGE>
NONINTEREST INCOME. Noninterest income increased from $63,000 in 1997 to
$75,000 in 1998. Service charges and other fees increased primarily as a result
of higher numbers of loans outstanding and deposit accounts. Other noninterest
income consists primarily of miscellaneous operating income and commissions on
credit life insurance policies that the Association's service corporation sells
to the Association's borrowers. Other noninterest income decreased primarily as
a result of the absence of dividend income in 1998. The Association's data
processing provider, a business cooperaive of which the Association was a
member, was sold to another company in 1997.
NONINTEREST EXPENSE. Noninterest expense increased from $1.0 million in
1997 to $1.1 million in 1998. Employee salaries and benefits increased as a
result of a part-time employee converting to full-time status and the hiring of
an additional employee at the Palmyra main office. Occupancy costs increased
primarily as a result of higher depreciation expense associated with new
computer equipment. Advertising expense increased due to increased advertising
to promote savings growth. Data processing expenses increased as a result of
the purchase of teller station software that is charged based on the number of
teller stations rather than as a flat fee. Federal deposit insurance premiums
decreased due to the lower premium rates implemented after the SAIF
recapitalization in 1996. Other noninterest expenses consists primarily of fees
paid to directors, OTS assessment fees, professional fees, telephone and postage
and other miscellaneous items. The increase in other noninterest expenses
between 1998 and 1997 is primarily the result of normal inflationary increases.
INCOME TAXES. Income taxes decreased between 1997 and 1998 as a result of
lower income before income taxes in 1998.
27
<PAGE>
AVERAGE BALANCES, INTEREST AND AVERAGE YIELDS/COST
The following table sets forth certain information for the periods
indicated regarding average balances of assets and liabilities as well as the
total dollar amounts of interest income from average interest-earning assets and
interest expense on average interest-bearing liabilities and average yields and
costs. Such yields and costs for the periods indicated are derived by dividing
income or expense by the average balances of assets or liabilities,
respectively, for the periods presented. Average balances were derived from
month-end balances. Management does not believe that the use of month-end
balances instead of daily balances causes any material differences in the
information presented.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------------------------------
1998 1997
--------------------------- ----------------------------
INTEREST INTEREST
AVERAGE AND YIELD/ AVERAGE AND YIELD/
BALANCE DIVIDENDS COST BALANCE DIVIDENDS COST
-------- --------- ------- -------- --------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Loans receivable, net(1).................... $39,233 $3,084 7.86% $37,525 $2,964 7.90%
Investment securities....................... 12,544 780 6.22 13,277 844 6.36
Mortgage-backed securities.................. 2,804 194 6.91 3,053 220 7.20
FHLB stock.................................. 431 29 6.82 480 34 7.00
Interest-bearing deposits................... 1,495 77 5.14 1,461 71 4.86
------- ------ ------- ------
Total interest-earning assets......... 56,507 4,164 7.37 55,796 4,133 7.41
Noninterest earning assets.................. 2,185 1,973
------- -------
Total average assets.................. $58,692 $57,769
======= =======
INTEREST-BEARING LIABILITIES:
Savings accounts(3)......................... $11,271 329 2.92 $11,694 342 2.93
Certificates of deposit..................... 40,844 2,341 5.73 40,007 2,278 5.69
------- ------ ------- ------
Total average deposits.................... 52,115 2,670 5.12 51,701 2,620 5.07
FHLB advances............................... 269 15 5.70 123 6 4.76
------- ------ ------- ------
Total interest-bearing liabilities........ 52,384 2,685 5.13 51,824 2,626 5.07
------ ------
Noninterest-bearing liabilities.............. 366 366
------- -------
Total average liabilities................. 52,750 52,190
Average total equity......................... 5,942 5,579
------- -------
Total liabilities and retained earnings..... $58,692 $57,769
======= =======
Net interest income.......................... $1,479 $1,507
====== ======
Interest rate spread......................... 2.24% 2.34%
===== =====
Net interest margin.......................... 2.62% 2.70%
===== =====
Ratio of average interest earning assets
to average interest-bearing liabilities.. 107.87% 107.66%
======= =======
</TABLE>
- ------------------------------------
(1) Average loans receivable includes nonperforming loans. Interest income does
not include interest on loans 90 days or more past due.
28
<PAGE>
YIELDS EARNED AND RATES PAID
The following table sets forth at the date and for the periods indicated
the weighted average yields earned on the Association's assets and the weighted
average interest rates paid on the Association's liabilities, together with the
Association's interest rate spread and net interest margin.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, AT SEPTEMBER 30,
--------------------------- -----------------
1998 1997 1998
-------------- ----------- -----------------
<S> <C> <C> <C>
Weighted average yield earned on:
Loans receivable, net.......................... 7.86% 7.90% 7.85%
Investment securities.......................... 6.22 6.36 6.18
Mortgage-backed securities..................... 6.91 7.20 6.98
FHLB stock..................................... 6.82 7.00 6.81
Interest-earning deposits...................... 5.14 4.86 5.18
Total interest-earning assets................ 7.37 7.41 7.39
Weighted average rate paid on:
Savings accounts............................... 2.92 2.93 3.05
Certificates of deposit........................ 5.73 5.69 5.56
Total average deposits....................... 5.12 5.07 5.02
FHLB advances.................................. 5.70 4.76 5.74
Total interest-bearing liabilities........... 5.13 5.07 5.02
Interest rate spread (spread between
weighted average rate on all interest-
earning assets and all interest-
bearing liabilities)......................... 2.24 2.34 2.37
Net interest margin (net interest income
(expense) as a percentage of average
interest-earning assets)..................... 2.62 2.70 N/A
</TABLE>
29
<PAGE>
RATE/VOLUME ANALYSIS
The following table sets forth the effects of changing rates and volumes on
the interest income and interest expense of the Association. Information is
provided with respect to: (i) effects attributable to changes in volume (changes
in volume multiplied by prior rate); (ii) effects attributable to changes in
rate (changes in rate multiplied by prior volume; and (iii) effects attributable
to changes in rate and volume (changes in rate multiplied by changes in volume).
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1998
COMPARED TO
YEAR ENDED SEPTEMBER 30, 1997
INCREASE (DECREASE)
DUE TO
-----------------------------------
RATE/
RATE VOLUME VOLUME TOTAL
------- -------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable, net............... $(14) $135 $(1) $120
Investment securities............... (18) (47) 1 (64)
Mortgage-backed securities.......... (9) (18) 1 (26)
FHLB stock.......................... (2) (3) -- (5)
Interest-earning deposits........... 4 2 -- 6
---- ---- --- ----
Total net change in income
On interest-earning assets...... (39) 69 1 31
Interest-bearing liabilities:
Savings accounts.................... (1) (12) -- (13)
Certificates of deposits............ 15 48 -- 63
---- ---- --- ----
Total average deposits............. 14 36 -- 50
FHLB advances....................... 1 7 1 9
---- ---- --- ----
Total net change in expense
on interest-bearing liabilities... 15 43 1 59
---- ---- --- ----
Net change in net interest income.... $(54) $ 26 $ -- $(28)
==== ==== ====== ====
</TABLE>
MARKET RISK ANALYSIS
GENERAL. The Association's profitability depends primarily on its net
interest income, which is the difference between the income it receives on its
loan and investment portfolio and its cost of funds, which consists of interest
paid on deposits and borrowings. Net interest income is also affected by the
relative amounts of interest-earning assets and interest-bearing liabilities.
When interest-earning assets equal or exceed interest-bearing liabilities, any
positive interest rate spread will generate net interest income. The
Association's profitability is also affected by the level of income and
expenses. Non-interest income includes service charges and fees and gain on
sale of investments. Non-interest expenses primarily include compensation and
benefits, occupancy and equipment expenses, deposit insurance premiums and data
processing expenses. The Association's results of operations are also
significantly affected by general economic and competitive conditions,
particularly changes in market interest rates, government legislation and
regulation and monetary and fiscal policies.
30
<PAGE>
QUANTITATIVE ASPECTS OF MARKET RISK. The Association does not maintain a
trading account for any class of financial instrument nor does it engage in
hedging activities or purchase high-risk derivative instruments. Furthermore,
the Association is not subject to foreign currency exchange rate risk or
commodity price risk. For information regarding the sensitivity to interest
rate risk of the Association's interest-earning assets and interest-bearing
liabilities, see the tables under "BUSINESS OF THE ASSOCIATION-- Lending
Activities -- Maturity of Loan Portfolio," "-- Investment Activities" and "--
Deposit Activities and Other Sources of Funds -- Deposit Accounts -- Time
Deposits by Maturities."
QUALITATIVE ASPECTS OF MARKET RISK. The Association has sought to reduce
the exposure of its earnings to changes in market interest rates by attempting
to manage the mismatch between asset and liability maturities and interest
rates. The principal element in achieving this objective is to increase the
interest-rate sensitivity of the Association's interest-earning assets by
originating for its portfolio loans with interest rates subject to periodic
adjustment to market conditions. The Association relies on retail deposits as
its primary source of funds. Management believes retail deposits, compared to
brokered deposits, reduce the effects of interest rate fluctuations because they
generally represent a more stable source of funds.
In order to encourage institutions to reduce their interest rate risk, the
OTS adopted a rule incorporating an interest rate risk component into the risk-
based capital rules. Using data compiled by the OTS, the Association receives a
report which measures interest rate risk by modeling the change in NPV (net
portfolio value) over a variety of interest rate scenarios. This procedure for
measuring interest rate risk was developed by the OTS to replace the "gap"
analysis (the difference between interest-earning assets and interest-bearing
liabilities that mature or reprice within a specific time period). NPV is the
present value of expected cash flows from assets, liabilities and off-balance
sheet contracts. The calculation is intended to illustrate the change in NPV
that will occur in the event of an immediate change in interest rates of at
least 200 basis points with no effect given to any steps that management might
take to counter the effect of that interest rate movement. Under OTS
regulations, an institution with a greater than "normal" level of interest rate
risk is subject to a deduction from total capital for purposes of calculating
its risk-based capital. The OTS, however, has delayed the implementation of
this regulation. An institution with a "normal" level of interest rate risk is
defined as one whose "measured interest rate risk" is less than 2.0%.
Institutions with assets of less than $300 million and a risk-based capital
ratio of more than 12.0% are exempt. The Association is exempt because of its
asset size. Based on the Association's regulatory capital levels at September
30, 1998, the Association believes that, if the proposed regulation was
implemented at that date, the Association's level of interest rate risk would
have caused it to be treated as an institution with greater than "normal"
interest rate risk.
The following table is provided by the OTS and sets forth the change in the
Association's NPV at September 30, 1998, based on OTS assumptions, that would
occur in the event of an immediate change in interest rates, with no effect
given to any steps that management might take to counteract that change.
<TABLE>
<CAPTION>
NET PORTFOLIO AS % OF
NET PORTFOLIO VALUE PORTFOLIO VALUE OF ASSETS
---------------------------------- ------------------------------
BASIS POINT ("BP")
CHANGE IN RATES $ AMOUNT $ CHANGE (1) % CHANGE NPV RATIO (2) CHANGE (BP) (3)
- ------------------ ---------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C>
400 $6,958 $559 9% 11.57% 112
300 6,856 457 7 11.34 90
200 6,719 320 5 11.07 62
100 6,527 128 2 10.71 26
0 6,399 -- -- 10.45 --
(100) 6,412 13 -- 10.39 (5)
(200) 6,475 76 1 10.41 (4)
(300) 6,536 137 2 10.42 (2)
(400) 6,559 160 3 10.38 (7)
</TABLE>
- -------------------------
(1) Represents the increase of the estimated NPV at the indicated change in
interest rates compared to the NPV assuming no change in interest rates.
(2) Calculated as the estimated NPV divided by the portfolio value of total
assets ("PV").
(3) Calculated as the increase (decrease) of the NPV ratio assuming the
indicated change in interest rates over the estimated NPV ratio, assuming no
change in interest rates.
31
<PAGE>
The following table is provided by the OTS and is based on the calculations
in the above table. It sets forth the IRR capital component that will be
deducted from risk-based capital in determining the level of risk-based capital.
At September 30, 1998, the change in NPV as a percentage of portfolio value of
total assets is positive 1.0%, which is less than 2.0%, indicating that the
Association has a "normal" level of interest rate risk.
<TABLE>
<CAPTION>
AT AT AT
SEPTEMBER 30, JUNE 30, SEPTEMBER 30,
1998 1998 1997
------------- -------- -------------
<S> <C> <C> <C>
RISK MEASURES: 200 BP RATE SHOCK:
Pre-Shock NPV Ratio: NPV as % of PV of Assets...... 10.45% 11.62% 12.40%
Exposure Measure: Post-Shock NPV Ratio............. 10.41 11.49 11.79
Sensitivity Measure: Change in NPV Ratio........... 4bp 13bp 61bp
</TABLE>
Certain assumptions utilized by the OTS in assessing the interest rate risk
of savings associations were utilized in preparing the preceding table. These
assumptions relate to interest rates, loan prepayment rates, deposit decay
rates, and the market values of certain assets under differing interest rate
scenarios, among others.
As with any method of measuring interest rate risk, certain shortcomings
are inherent in the method of analysis presented in the foregoing table. For
example, although certain assets and liabilities may have similar maturities or
periods to repricing, they may react in different degrees to changes in market
interest rates. Also, the interest rates on certain types of assets and
liabilities may fluctuate in advance of changes in market interest rates, while
interest rates on other types may lag behind changes in market rates.
Additionally, certain assets, such as ARM loans, have features which restrict
changes in interest rates on a short-term basis and over the life of the asset.
Further, in the event of a change in interest rates, expected rates of
prepayments on loans and early withdrawals from certificates could deviate
significantly from those assumed in calculating the table.
LIQUIDITY AND CAPITAL RESOURCES
The Association's primary sources of funds are maturities and prepayments
of investment securities, customer deposits, proceeds from principal and
interest payments on loans and FHLB-Des Moines advances. While investment
securities maturities and scheduled amortization of loans are a predictable
source of funds, deposit flows, investment securities prepayments and mortgage
prepayments are greatly influenced by general interest rates, economic
conditions and competition.
The Association must maintain an adequate level of liquidity to ensure the
availability of sufficient funds to fund loan originations and deposit
withdrawals, to satisfy other financial commitments and to take advantage of
investment opportunities. The Association generally maintains sufficient cash
and short-term investments to meet short-term liquidity needs. At September 30,
1998, cash and interest-bearing deposits totaled $2.3 million, or 4.0% of total
assets, and investment securities classified as available-for-sale totaled $7.1
million. At September 30, 1998, the Association had outstanding advances of
$500,000 under an available credit line of $16.7 million with the FHLB-Des
Moines.
OTS regulations require savings institutions to maintain an average daily
balance of liquid assets (cash and eligible investments) equal to at least 4.0%
of the average daily balance of its net withdrawals deposits and short-term
borrowings. The Association's actual liquidity ratio at September 30, 1998 was
13.4%. See "-- Comparison of Financial Condition at September 30, 1998 and
1997" and "BUSINESS OF THE ASSOCIATION -- Investment Activities."
The Association's primary investing activity is the origination and
purchase of one- to- four family mortgage loans. During the years ended
September 30, 1998 and 1997, the Association originated $8.7 million and
$9.4 million of such loans, respectively, and purchased $2.7 million and
$1.0 million, respectively. At September 30, 1998, the
32
<PAGE>
Association had loan commitments (including undisbursed portions of mortgage
loans) totaling $1.3 million. The Association anticipates that it will have
sufficient funds available to meet current loan commitments. Certificates of
deposit that are scheduled to mature in less than one year from September 30,
1998 totaled $22.3 million. Historically, the Association has been able to
retain a significant amount of its deposits as they mature. In addition,
management of the Association believes that it can adjust the offering rates of
certificates of deposit to retain deposits in changing interest rate
environments. In the event that a significant portion of these deposits are not
retained by the Association, the Association would be able to utilize FHLB-
Des Moines advances to fund deposit withdrawals, which would result in an
increase in interest expense to the extent that the average rate paid on such
advances exceeds the average rate paid on deposits of similar duration.
OTS regulations require the Association to maintain specific amounts of
regulatory capital. As of September 30, 1998, the Association complied with all
regulatory capital requirements as of that date with tangible, core and risk-
based capital ratios of 10.1%, 10.1% and 22.3%, respectively. For a detailed
discussion of regulatory capital requirements, see "REGULATION -- Federal
Regulation of Savings Associations -- Capital Requirements." See also
"HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE."
YEAR 2000 ISSUES
The Association is a user of computers, computer software and equipment
utilizing embedded microprocessors that will be effected by the year 2000 issue.
The year 2000 issue exists because many computer systems and applications use
two-digit date fields to designate a year. As the century date change occurs,
date-sensitive systems may recognize the year 2000 as 1900, or not at all. This
inability to recognize or properly treat the year 2000 may cause erroneous
results, ranging from system malfunctions to incorrect or incomplete processing.
The Association's year 2000 committee consists of the entire Board of
Directors and Ronald L. Nelson, the Association's Vice President and Treasurer,
who is chairman of the committee. Mr. Nelson makes a monthly progress report to
the Board of Directors. The committee has developed and is implementing a
comprehensive plan to make all information and non-information technology assets
year 2000 compliant. The plan is comprised of the following phases:
1. Awareness - Educational initiatives on year 2000 issues and concerns.
This phase is ongoing, especially as it relates to informing customers
of the Association's year 2000 preparedness.
2. Assessment - Inventory of all technology assets and identification of
third-party vendors and service providers. This phase was completed as
of December 31, 1998.
3. Renovation - Review of vendor and service providers responses to the
Association's year 2000 inquiries and development of a follow-up plan
and timeline. This phase was completed as of December 31, 1998.
4. Validation - Testing all systems and third-party vendors for year 2000
compliance. The Association is currently in this phase of its plan. The
Association has replaced all in-house equipment (teller station
equipment, etc.) with year 2000 compliant equipment. A third-party
service bureau processes all customer transactions and has completed
upgrades to its systems to be year 2000 compliant. The Association is
relying on the results of proxy testing by its third-party service
bureau. The proxy testing, which involved five financial institutions
(not including the Association), tested the results of transactions at
various different test dates before and after the year 2000 date change
and cover all of the applications used by the Association. This proxy
testing was completed in November 1998. With the completion of the proxy
testing, the Association will conduct connectivity testing during
February 1999. Connectivity testing, which is scheduled to last
approximately two to three days, involves the Association and its third-
party service bureau each rolling forward their computer systems to the
year 2000 so that the Association may process its own data files under
simulated year 2000 conditions using all applications. In the event that
connectivity testing reveals that the third-party systems are not year
2000 compliant, the Association's service bureau intends to either
transfer the Association to other systems that are year 2000 compliant
or provide additional remedial
33
<PAGE>
resources. Other parties whose year 2000 compliance may effect the
Association include the FHLB-Des Moines, brokerage firms, the operator
of the Association's ATM network and the Association's pension plan
administrator. These third parties have indicated their compliance or
intended compliance. Where it is possible to do so, the Association has
scheduled testing with these third parties. Where testing is not
possible, the Association will rely on certifications from vendors and
service providers.
5. Implementation - Replacement or repair of non-compliant technology. As
the Association progresses through the validation phase, the Association
expects to determine necessary remedial actions and provide for their
implementation. The Association has already implemented a new year 2000
compliant computerized teller system and has verified the year 2000
compliance of its computer hardware and other equipment containing
embedded microprocessors. The Association's plan provides for year 2000
readiness to be completed by June 30, 1999.
The Association estimates its total cost to replace computer equipment,
software programs or other equipment containing embedded microprocessors that
were not year 2000 compliant to be $75,000, of which $59,000 has been incurred
as of September 30, 1998. System maintenance or modification costs are charged
to expense as incurred, while the cost of new hardware, software or other
equipment is capitalized and amortized over their estimated useful lives. The
Association does not separately track the internal costs and time that its own
employees spend on year 2000 issues, which are principally payroll costs.
Because the Association depends substantially on its computer systems and
those of third parties, the failure of these systems to be year 2000 compliant
could cause substantial disruption of the Association's business and could have
a material adverse financial impact on the Association. Failure to resolve year
2000 issues presents the following risks to the Association: (1) the Association
could lose customers to other financial institutions, resulting in a loss of
revenue, if the Association's third party service bureau is unable to properly
process customer transactions; (2) governmental agencies, such as the FHLB-Des
Moines, and correspondent institutions could fail to provide funds to the
Association, which could materially impair the Association's liquidity and
affect the Association's ability to fund loans and deposit withdrawals;
(3) concern on the part of depositors that year 2000 issues could impair access
to their deposit account balances could result in the Association experiencing
deposit outflows prior to December 31, 1999; and (4) the Association could incur
increased personnel costs if additional staff is required to perform functions
that inoperative systems would have otherwise performed. Management believes
that it is not possible to estimate the potential lost revenue due to the year
2000 issue, as the extent and longevity of any potential problem cannot be
predicted. Because substantially all of the Association's loan portfolio
consists of loans to individuals rather than commercial enterprises, management
believes that year 2000 issues will not impair the ability of the Association's
borrowers to repay their debt.
There can be no assurances that the Association's year 2000 plan will
effectively address the year 2000 issue, that the Association's estimates of the
timing and costs of completing the plan will ultimately be accurate or that the
impact of any failure of the Association or its third-party vendors and service
providers to be year 2000 compliant will not have a material adverse effect on
the Association's business, financial condition or results of operations.
IMPACT OF ACCOUNTING PRONOUNCEMENTS AND REGULATORY POLICIES
ACCOUNTING FOR STOCK-BASED COMPENSATION. Statement of Financial Accounting
Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation,"
establishes financial accounting and reporting standards for stock-based
employee compensation plans. This statement encourages all entities to adopt a
new method of accounting to measure compensation cost of all employee stock
compensation plans based on the estimated fair value of the award at the date it
is granted. Companies are, however, allowed to continue to measure compensation
cost for those plans using the intrinsic value based method of accounting, which
generally does not result in compensation expense recognition for most plans.
Companies that elect to remain with the existing accounting method are required
to disclose in a footnote to the financial statements pro forma net income and,
if presented, earnings per share, as if this statement had been adopted. The
accounting requirements of this statement are effective for transactions entered
into in fiscal years that begin after December 15, 1995; however, companies are
required to disclose information for awards granted
34
<PAGE>
in their first fiscal year beginning after December 15, 1994. Management expects
to use the financial statement footnote disclosure option upon consummation of
the conversion and the adoption of stock based benefit plans.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND
EXTINGUISHMENT OF LIABILITIES. SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishment of Liabilities," is effective
for transfers and servicing of financial assets and extinguishment of
liabilities occurring after December 31, 1996, and is to be applied
prospectively. Earlier or retroactive application is not permitted.
SFAS No. 125 provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishment of liabilities. The standards
are based on consistent application of a financial-components approach that
focuses on a control period. Under the approach, after a transfer of financial
assets, an entity recognizes the financial and servicing assets it controls and
the liabilities it has incurred, derecognizes financial assets when control has
been surrendered, and derecognizes liabilities when extinguished. SFAS No. 125
provides consistent standards distinguishing transfers of financial assets that
are sales from transfers that are secured borrowings. Adoption of this
statement on January 1, 1997 did not have a material impact on the Association's
financial position or results of operations.
EARNINGS PER SHARE. SFAS No. 128, "Earnings Per Share," issued in February
1997, establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with publicly-held common stock or potential
common stock. It replaces the presentation of primary EPS with a presentation
of basic EPS and requires the dual presentation of basic and diluted EPS on the
face of the income statement. This statement is effective for financial
statements issued for periods after December 15, 1997 including interim periods;
earlier applications are not permitted. This statement requires restatement of
all prior period EPS data presented.
DISCLOSURE OF INFORMATION ABOUT CAPITAL STRUCTURE. SFAS No. 129,
"Disclosure of Information About Capital Structure," establishes standards for
disclosing information about an entity's capital structure and applies to all
entities. SFAS No. 129 continues the previous requirements to disclose certain
information about an entity's capital structure found in Accounting Principles
Board ("APB") Opinions No. 10, "Omnibus Opinion - 1966," and No. 15, "Earnings
Per Share," and SFAS No. 47, "Disclosure of Long-Term Obligations," for entities
that were subject to those standards. SFAS No. 129 is effective for financial
statements for periods ending after December 15, 1997. SFAS No. 129 contains no
change in disclosure requirements for entities that were previously subject to
the requirements of APB Opinion Nos. 10 and 15 and SFAS No. 47.
COMPREHENSIVE INCOME. SFAS No. 130, "Reporting Comprehensive Income,"
issued in July 1997, establishes standards for reporting and presenting of
comprehensive income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. It requires that all
items that are required to be recognized under accounting standards as
components of comprehensive income be reported in a financial statement that is
presented with the same prominence as other financial statements. SFAS No. 130
requires that companies (i) classify items of other comprehensive income by
their nature in a financial statement and (ii) display the accumulated balance
of other comprehensive income separately from retained earnings and additional
paid-in capital in the equity section of the statement of financial condition.
SFAS No. 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comprehensive purposes is required.
DISCLOSURE ABOUT SEGMENTS. SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information," issued in June 1997, establishes standards
for disclosure about operating segments in annual financial statements and
selected information in interim financial reports. It also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. SFAS No. 131 supersedes SFAS No. 14, "Financial Reporting
for Segments of a Business Enterprise." SFAS No. 131 becomes effective for the
Association's fiscal year ending September 30, 1999, and requires that
comparative information from earlier years be restated to conform to its
requirements.
EMPLOYERS' DISCLOSURES ABOUT PENSIONS AND OTHER POSTRETIREMENT BENEFITS.
SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement
Benefits," issued in February 1998, standardizes disclosure requirements for
pensions and other postretirement benefits and requires additional disclosure on
changes in benefit obligations and fair values of plan assets in order to
facilitate financial analysis. SFAS No. 132 is effective for fiscal
35
<PAGE>
years beginning after December 15, 1997, with earlier application encouraged.
The adoption of SFAS No. 132 will have no impact on the Association's results of
operations and financial condition as this statement relates to disclosure
requirements. The Association adopted SFAS No. 132 on October 1, 1998, and its
adoption did not significantly affect the Association's financial reporting.
ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES. SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities," issued in
June 1998, standardizes the accounting for derivative instruments, including
certain derivative instruments embedded in other contracts. Under SFAS No. 133,
entities are required to carry all derivative instruments in the statement of
financial position at fair value. The accounting for changes in the fair value
(i.e., gains and losses) of a derivative instrument depends on whether it has
been designated and qualifies as part of a hedging relationship and, if so, on
the reasons for holding it. If certain conditions are met, entities may elect
to designate a derivative instrument as a hedge of exposures to changes in fair
value, cash flows or foreign currencies. See Note A of the Notes to Consolidated
Financial Statements for further information. SFAS No. 133 is effective for
financial statements issued for periods beginning after June 15, 1999.
Currently, the Association is evaluating the effects of SFAS No. 133.
ACCOUNTING FOR MORTGAGE-BACKED SECURITIES RETAINED AFTER THE SECURITIZATION
OF MORTGAGE LOANS HELD FOR SALE BY A MORTGAGE BANKING ENTERPRISE. SFAS No. 134,
"Accounting for Mortgage-Backed Securities Retained After the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise," issued in
October 1998, amends SFAS No. 65, "Accounting for Certain Mortgage Banking
Activities," and SFAS No. 115, "Accounting for Certain Investments in Debt and
Equity Securities," for years beginning after December 15, 1998. Currently,
neither the Holding Company nor the Association conduct any mortgage banking
activities.
EFFECT OF INFLATION AND CHANGING PRICES
The financial statements and related financial data presented herein have
been prepared in accordance with GAAP, which require the measurement of
financial position and operating results in terms of historical dollars without
considering the change in the relative purchasing power of money over time due
to inflation. The primary impact of inflation is reflected in the increased
cost of the Association's operations. Unlike most industrial companies,
virtually all the assets and liabilities of a financial institution are monetary
in nature. As a result, interest rates generally have a more significant impact
on a financial institution's performance than do general levels of inflation.
Interest rates do not necessarily move in the same direction or to the same
extent as the prices of goods and services.
BUSINESS OF THE HOLDING COMPANY
GENERAL
The Holding Company was organized as a Missouri business corporation at the
direction of the Association in November 1998 for the purpose of becoming the
holding company for the Association upon completion of the conversion. As a
result of the conversion, the Association will be a wholly-owned subsidiary of
the Holding Company and all of the issued and outstanding capital stock of the
Association will be owned by the Holding Company.
BUSINESS
Before the completion of the conversion, the Holding Company will not
engage in any significant activities other than of an organizational nature.
Upon completion of the conversion, the Holding Company's sole business activity
will be the ownership of the outstanding capital stock of the Association. In
the future, the Holding Company may acquire or organize other operating
subsidiaries, although there are no current plans, arrangements, agreements or
understandings, written or oral, to do so.
Initially, the Holding Company will neither own nor lease any property but
will instead use the premises, equipment and furniture of the Association with
the payment of appropriate rental fees, as required by applicable law and
regulations.
36
<PAGE>
Since the Holding Company will only hold the outstanding capital stock of
the Association upon consummation of the conversion, the competitive conditions
applicable to the Holding Company will be the same as those confronting the
Association. See "BUSINESS OF THE ASSOCIATION -- Competition."
BUSINESS OF THE ASSOCIATION
GENERAL
The Association was founded in 1887 as a state-chartered mutual savings
association and converted to a federal mutual savings association charter
effective June 1, 1995. The Association is regulated by the OTS and the
Federal Deposit Insurance Corporation ("FDIC"). The Association's deposits have
been federally-insured since 1938 and are currently insured by the FDIC under
the Savings Association Insurance Fund ("SAIF"). The Association has been a
member of the Federal Home Loan Bank-System since 1937.
The Association operates as a traditional savings association, specializing
in single-family residential mortgage lending and savings deposits. The
Association's business consists primarily of attracting retail deposits from the
general public and using those funds to originate and purchase real estate
loans. The Association holds its loans for long-term investment purposes. See
"-- Lending Activities."
MARKET AREA
The Association conducts business from its main office in Palmyra (Marion
County) and two branch offices located in Canton (Lewis County) and Kahoka
(Clark County). Substantially all of the Association's depositors live in
Lewis, Clark and Marion Counties and most of the Association's loans are secured
by properties located in these counties. Lewis, Clark and Marion Counties are
rural counties that historically have had higher unemployment and lower income
than the rest of Missouri and the U.S. Service industries represent the largest
group of employers in Lewis and Marion Counties, while farm-related businesses
were the largest employers in Clark County. Manufacturing employment is most
significant in Marion County. Industries located in the region include
chemicals, automobile parts, electric utilities, and state and local government.
The Association faces intense competition for deposits and loan
originations from the other financial institutions conducting business within
its market area. See "-- Competition" and "RISK FACTORS -- Competition."
LENDING ACTIVITIES
GENERAL. At September 30, 1998, the Association's net loans receivable
totaled $40.5 million, or 68.1% of total assets. The Association has
concentrated its lending activities on one- to four-family mortgage loans, with
such loans amounting to 88.9% of loans at September 30, 1998. The Association
also originates multi-family, commercial real estate, land and residential
construction loans, as well as loans secured by savings accounts. In addition,
the Association purchases participation interests in residential mortgage loans
(primarily non-owner secured by non-owner-occupied duplex properties), multi-
family and commercial real estate loans. Such purchased loan interests amounted
to $8.6 million, or 21.2% of net loans, at September 30, 1998. A substantial
portion of the Association's mortgage loan portfolio is secured by real estate
located in Missouri.
37
<PAGE>
LOAN PORTFOLIO ANALYSIS. The following table sets forth the composition of
the Association's loan portfolio at the dates indicated. The Association had no
concentration of loans exceeding 10% of total loans receivable other than as
disclosed below.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
-------------------------------------
1998 1997
------------------ ------------------
AMOUNT PERCENT AMOUNT PERCENT
-------- --------- -------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Mortgage loans:
One- to four-family....... $36,801 88.91% $34,580 87.42%
Multi-family.............. 806 1.95 958 2.42
Commercial................ 2,073 5.01 1,834 4.64
Construction.............. 876 2.12 1,452 3.67
Land...................... 420 1.01 290 0.74
------- ------ ------- ------
Total mortgage loans.... 40,976 99.00 39,114 98.89
Consumer loans:
Education loans........... 98 0.24 124 0.31
Savings account loans..... 305 0.74 304 0.77
Other..................... 10 0.02 13 0.03
------- ------ ------- ------
Total consumer loans.... 413 1.00 441 1.11
------- ------ ------- ------
Total loans, gross...... 41,389 100.00% 39,555 100.00%
====== ======
Less:
Undisbursed loan funds.... 592 899
Allowance for loan losses. 280 255
Deferred loan fees........ 4 7
------- -------
Loan receivable, net.... $40,513 $38,394
======= =======
</TABLE>
ONE- TO FOUR-FAMILY REAL ESTATE LOANS. The Association's primary lending
activity is the origination of loans secured by one- to four-family residences
located in its market area. The Association also purchases participation
interests in one- to four-family mortgage loans (primarily secured by non-owner-
occupied duplex properties) secured primarily by properties located in other
areas of Missouri. At September 30, 1998, $36.8 million, or 88.9%, of the
Association's total loans consisted of one- to four-family loans, of which
$6.9 million were purchased loans. All one-to four-family mortgage loans are
held in the Association's portfolio for long-term investment.
The Association's residential mortgage loans are structured as either
three- or five-year balloon loans with terms up to 30 years (20 years for non-
owner occupied properties). The interest rate, fixed for the balloon term, is
established by the Association after an assessment of rates offered by
competitors. The borrower is notified in writing 30 days before the end of the
balloon term of the new interest rate that will be effective at the maturity of
the balloon term. If the borrower accepts the new rate, a modification
agreement is executed for another balloon term with an amortization schedule
equal to the original amortization term less the prior balloon term(s). The
Association's residential mortgage loans do not have any annual interest rate
adjustment limits, but are subject to a lifetime interest rate adjustment limit
of 6%. The Association charges a prepayment penalty of 2% of the outstanding
principal balance if a loan that has been outstanding five years or less is paid
off before maturity. Missouri law prohibits the Association from charging a
prepayment penalty on a loan that has been outstanding for more the five years.
The Association's residential mortgage loans are generally underwritten, but not
documented, according to secondary market guidelines.
To a limited extent, the Association originates mortgage loans secured by
owner occupied residential properties. These loans are generally secured by
second residences located on or near a recreational lake located in
38
<PAGE>
southern Clark County, Missouri, which is located approximately 12 miles
northwest of Canton. Such loans are made on the same general terms as loans
secured by owner occupied properties, except that loan-to-value ratios are
limited to up to 65% and the terms are limited to up to 20 years.
The retention of balloon loans in the Association's loan portfolio, which
through the use of modification agreements function like ARM loans, helps reduce
the Association's exposure to changes in interest rates. There are, however,
unquantifiable credit risks resulting from the potential of increased costs due
to changed rates to be paid by the borrower. It is possible that during periods
of rising interest rates the risk of default on ARM loans may increase as a
result of repricing and the increased payments required by the borrower. In
addition, although ARM loans allow the Association to increase the sensitivity
of its asset base to changes in interest rates, the extent of this interest
sensitivity is limited by the annual and lifetime interest rate adjustment
limits. Because of these considerations the Association has no assurance that
yields on ARM loans will be sufficient to offset increases in the Association's
cost of funds. The Association believes these risks, which have not had a
material adverse effect on the Association to date, generally are less than the
risks associated with holding fixed-rate loans in portfolio during a rising
interest rate environment.
The Association generally requires an acceptable attorney's opinion on the
status of its lien on all loans where real estate is the primary source of
security. The Association also requires that fire and casualty insurance (and,
if appropriate, flood insurance) be maintained in an amount at least equal to
the outstanding loan balance.
The Association's one- to four-family residential mortgage loans typically
do not exceed 80% of the appraised value of the security property. Pursuant to
underwriting guidelines adopted by the Association's Board of Directors, the
Association can lend up to 95% of the appraised value of the property securing a
one- to- four family residential loan. Generally, the Association self insures
the portion of the principal amount between 80% and 90% of the appraised value
of the security property and requires private mortgage insurance on the portion
of the principal amount that exceeds 90% of the appraised value of the security
property. An independent certified appraiser appraises all non-owner occupied
properties and properties located outside of the Association's primary market
area. Otherwise appraisals are performed by either Eldon R. Mette, the
Association's Executive Vice President, or L. Edward Schaeffer, the
Association's Chairman of the Board and President. Only Mr. Schaeffer is a
certified appraiser. If Mr. Mette or Mr. Schaeffer performs the property
appraisal, he will abstain from voting on the loan application.
Currently, the Association does not offer fixed-rate residential mortgage
loans. The Association originates only ARM loans and most of the residential
mortgage loans that it purchases are also ARM loans. After the conversion, the
Association plans to implement a program for offering longer term fixed-rate
mortgage loans as well as traditional ARM loans with interest rates tied to a
nationally recognized index such as the U.S. Treasury Bill rate. The
Association intends to hold fixed-rate mortgage loans for long-term investment.
MULTI-FAMILY AND COMMERCIAL REAL ESTATE LOANS. The Association
occasionally originates and purchases mortgage loans for the acquisition and
refinancing of multi-family and commercial real estate properties. At September
30, 1998, $806,000, or 2.0%, of the Association's total loans consisted of loans
secured by multi-family residential property (all of which are purchased
participation interests secured by properties located in Missouri), and
$2.1 million, or 5.0%, of the Association's total loans consisted of loans
secured by commercial real estate ($863,000 of which are purchased participation
interests). All purchased participation interests are underwritten according to
the same standards that the Association would use if it were originating the
underlying loans. The Association has no written or oral commitments with any
institution to purchase a predetermined number or type of participation
interests.
At September 30, 1998, the Association's commercial real estate loans are
secured by churches, storefrontsand a restaurant, all located in Missouri, and a
strip shopping center located in Florida. At September 30, 1998, the
Association's largest multi-family or commercial real estate loan that the
Association originated was $119,000 and is secured by a restaurant. The largest
purchased multi-family or commercial real estate participation interest had an
outstanding balance of $414,000 at September 30, 1998 and is secured by a strip
shopping center located in Port Richey, Florida. At September 30, 1998, this
loan was designated "special mention." See "-- Asset Classification" for
further information.
39
<PAGE>
All multi-family loans and commercial real estate loans originated by the
Association are three- or five-year adjustable rate balloon loans with terms of
up to 20 years. Multi-family loans and commercial real estate loans purchased
by the Association are also adjustable rate loan generally indexed to the prime
rate and with terms of up to 25 years. The Association requires appraisals of
all properties securing multi-family loans and commercial real estate loans. If
the property is located outside of the Association's primary market area,
appraisals are performed by an independent appraiser designated by the
Association, all of which are reviewed by management. Otherwise, appraisals are
prepared by either Mr. Mette or Mr. Schaeffer as described above.
Multi-family and commercial real estate lending affords the Association an
opportunity to receive interest at rates higher than those generally available
from one- to four-family residential lending. However, loans secured by such
properties usually are greater in amount and are more difficult to evaluate and
monitor and, therefore, involve a greater degree of risk than one- to four-
family residential mortgage loans. Because payments on loans secured by income
producing properties are often dependent on the successful operation and
management of the properties, repayment of such loans may be affected by adverse
conditions in the real estate market or the economy. The Association seeks to
minimize these risks by limiting the maximum loan-to-value ratio to up to 80%
for multi-family loans (75% for commercial real estate loans) and strictly
scrutinizing the financial condition of the borrower, the cash flow of the
project, the quality of the collateral and the management of the property
securing the loan. The Association also obtains loan guarantees from
financially capable parties based on a review of personal financial statements.
RESIDENTIAL CONSTRUCTION LOANS. The Association originates residential
construction loans to local home builders and to individuals for the
construction and acquisition of their personal residence. At September 30,
1998, residential construction loans amounted to $876,000, or 2.1% of the
Association's total loans.
The Association's construction loans to builders generally have fixed
interest rates and are for a term of six months. Such loans to builders are
typically made with a maximum loan to value ratio of 80%. These loans are
usually made on a speculative (unsold) basis. The Association lends to
approximately eight builders with whom it has long standing relationships and
limits each builder to no more than three homes under construction at a time.
At September 30, 1998, the largest amount of construction loans outstanding to
one builder was $102,000, all of which was for speculative construction.
Construction loans to individuals are made on the same terms as the
Association's one- to four-family mortgage loans, but provide for the payment of
interest only during the construction phase, which is usually six months. At
the end of the construction phase, the loan converts to a permanent mortgage
loan.
Prior to making a commitment to fund a construction loan, the Association
requires an appraisal of the property by a staff appraiser. The Association
also reviews and inspects each project prior to disbursement of funds during the
term of the construction loan. Loan proceeds are disbursed after inspection of
the project based on percentage of completion.
Construction lending affords the Association the opportunity to earn higher
interest rates with shorter terms to maturity relative to single-family
permanent mortgage lending. Construction lending, however, is generally
considered to involve a higher degree of risk than single-family permanent
mortgage lending because of the inherent difficulty in estimating both a
property's value at completion of the project and the estimated cost of the
project. The nature of these loans is such that they are generally more
difficult to evaluate and monitor. If the estimate of construction cost proves
to be inaccurate, the Association may be required to advance funds beyond the
amount originally committed to permit completion of the project. If the
estimate of value upon completion proves to be inaccurate, the Association may
be confronted with a project whose value is insufficient to assure full
repayment. Projects may also be jeopardized by disagreements between borrowers
and builders and by the failure of builders to pay subcontractors. Loans to
builders to construct homes for which no purchaser has been identified carry
more risk because the payoff for the loan is dependent on the builder's ability
to sell the property prior to the time that the construction loan is due.
The Association has attempted to minimize the foregoing risks by, among
other things, limiting its construction lending to residential properties. It
is also the Association's general policy to obtain regular financial statements
from builders so that it can monitor their financial strength.
40
<PAGE>
LAND LOANS. The Association occasionally originates loans secured by
unimproved land, including small residential subdivisions in the Association's
primary market area. These loans have terms of three to 20 years and generally
have adjustable interest rates. At September 30, 1998, land loans totaled
$420,000, or 1.0% of total loans. The largest land loan at that date was
$101,000.
CONSUMER LOANS. Historically, the Association's consumer lending
activities have been limited to guaranteed education loans and savings account
loans. At September 30, 1998, consumer loans amounted to $413,000, or 1.0% of
total loans. The Association does not expect to become an active consumer
lender, but intends to begin engaging, to a limited extent, in direct mobile
home lending without the security of the underlying real estate. Currently, the
Association engages in a limited amount of direct mobile home lending but only
with the security of the underlying real estate.
The Association originates insured education loans to out-of-state
residents attending school in Missouri or to Missouri residents attending school
outside of Missouri under federally sponsored programs. The Association
receives quarterly interest payments from the U.S. government on the outstanding
loan while the borrower is attending school. When the borrower is required to
repay the loan after graduation, the Association sells the loan at par to the
Missouri Higher Education Loan Authority.
The Association also offers loans secured by savings deposits at the
Association. Generally, these loans are made at an interest rate that is 3%
above the account rate for up to 90% of the account balance and for a term of up
to five years. If the loan is secured by a certificate of deposit, the loan
term is generally matched with remaining term on the certificate.
Consumer loans entail greater risk than do residential mortgage loans,
particularly in the case of loans that are unsecured or secured by rapidly
depreciating assets such as automobiles. In such cases, any repossessed
collateral for a defaulted consumer loan may not provide an adequate source of
repayment of the outstanding loan balance as a result of the greater likelihood
of damage, loss or depreciation. The remaining deficiency often does not
warrant further substantial collection efforts against the borrower beyond
obtaining a deficiency judgment. In addition, consumer loan collections are
dependent on the borrower's continuing financial stability, and thus are more
likely to be adversely affected by job loss, divorce, illness or personal
bankruptcy.
LOANS TO ONE BORROWER. The maximum amount that the Association may lend to
one borrower is limited by federal regulations. At September 30, 1998, the
Association's regulatory limit on loans to one borrower was $944,000. At such
date, the Association's largest amount of loans to one borrower (including the
borrower's related interests) was $582,000 and consisted of residential mortgage
loans.
MATURITY OF LOAN PORTFOLIO. The following table sets forth certain
information at September 30, 1998, regarding the dollar amount of loans maturing
in the Association's portfolio based on their contractual terms to maturity, but
does not include potential prepayments. Demand loans, loans having no stated
schedule of repayments and no stated maturity, and overdrafts are reported as
becoming due within one year. Loan balances do not include undisbursed loan
proceeds, unearned discounts, unearned income and allowance for loans losses.
For purposes of the table, the contractual maturities of the Association's
three- and five-year balloon mortgage loans are reported over their respective
amortization periods(up to 30 years) rather than as maturing at the end of the
3-year or 5-year balloon term. Given the Association's experience with its
borrowers, the Association believes this presentation is appropriate.
41
<PAGE>
<TABLE>
<CAPTION>
AFTER AFTER AFTER
ONE YEAR 3 YEARS 5 YEARS
WITHIN THROUGH THROUGH THROUGH BEYOND
ONE YEAR 3 YEARS 5 YEARS 10 YEARS 10 YEARS TOTAL
-------- ----------- ------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Mortgage loans:
One- to four-family.... $1,768 $3,189 $3,195 $8,095 $20,554 $36,801
Multi-family........... 25 58 68 225 430 806
Commercial............. 237 460 208 492 676 2,073
Construction........... 876 -- -- -- -- 876
Land................... 256 22 20 115 77 420
Consumer loans:
Education.............. 65 33 -- -- -- 98
Savings account loans.. 144 49 38 31 43 305
Other.................. 3 6 1 -- -- 10
------ ------ ------ ------ ------- -------
Total................. $3,374 $3,817 $3,530 $8,888 $21,780 $41,389
====== ====== ====== ====== ======= =======
</TABLE>
The following table sets forth the dollar amount of all loans due after
September 30, 1999, which have fixed interest rates and have floating or
adjustable interest rates.
<TABLE>
<CAPTION>
FLOATING- OR
FIXED- ADJUSTABLE-
RATE RATES
------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Mortgage loans:
One- to four-family................ $382 $34,651
Multi-family....................... -- 780
Commercial......................... 274 1,563
Land............................... 2 162
Consumer loans:
Education.......................... 33 --
Savings account loans.............. 161 --
Other.............................. 7 --
---- -------
Total............................. $859 $37,156
==== =======
</TABLE>
Scheduled contractual principal repayments of loans do not reflect the
actual life of such assets. The average life of a loan is substantially less
than its contractual term because of prepayments. In addition, due-on-sale
clauses on loans generally give the Association the right to declare loans
immediately due and payable in the event, among other things, that the borrower
sells the real property subject to the mortgage and the loan is not repaid. The
average life of a mortgage loan tends to increase, however, when current
mortgage loan market rates are substantially higher than rates on existing
mortgage loans and, conversely, tends to decrease when rates on existing
mortgage loans are substantially higher than current mortgage loan market rates.
LOAN SOLICITATION AND PROCESSING. The Association's lending activities are
subject to the written, non-discriminatory, underwriting standards and loan
origination procedures established by the Association's Board of Directors and
management. Loan originations come from a number of sources. The customary
sources of loan originations are realtors, referrals and existing customers.
The Association does not utilize mortgage brokers or other third-party
originators. All loans are approved by the Association's Board of Directors
except for savings account loans which may be approved by a branch manager.
42
<PAGE>
LOAN ORIGINATIONS, PURCHASES AND SALES. The Association primarily
originates three- and five-year balloon mortgage loans with amortization terms
of up to 30 years. Occasionally, the Association originates fully amortizing
fixed rate loans with terms of less than five years.
The Association generally retains for its portfolio all of the loans that
it originates and purchases. Occasionally, the Association purchases
participation interests in one- to- four family mortgage loans (primarily
secured by non-owner-occupied duplex properties), multi-family loans and
commercial real estate loans. Generally, the Association limits its
participation interest in a loan to up to 80%. In the case of participations in
one- to- four family mortgage loans, the Association participates 80% and the
lead lender retains the servicing rights. The Association pays no fee on the
loans it purchases.
The Association holds all loans for long-term investment purposes, except
for government guaranteed student loans which are sold to the Missouri Higher
Education Loan Authority at par when the borrower is required to begin repaying
the loan.
The following table sets forth total loans originated, purchased, sold and
repaid during the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Total loans receivable, net, at beginning of period...... $ 38,394 $ 37,259
Loans originated:
Mortgage loans:
One- to four family..................................... $ 8,742 $ 9,367
Commercial.............................................. 408 206
Construction............................................ 1,010 1,778
Land.................................................... 192 48
-------- --------
Total mortgage loans................................... 10,352 11,399
Consumer loans:
Education............................................... 89 73
Savings account loans................................... 181 171
Other................................................... 13 20
-------- --------
Total consumer loans................................... 283 264
-------- --------
Total loans originated................................ 10,635 11,663
Loans purchased:
One- to four-family..................................... 2,654 925
Multi-family............................................ 83 --
Construction............................................ 51 179
-------- --------
Total loans purchased.................................. 2,788 1,104
Loans sold:
Education loans...................................... (114) (124)
Principal repayments..................................... (11,475) (11,001)
Increase (decrease) in other items, net.................. 285 (507)
-------- --------
Net increase (decrease) in loans receivable, net......... 2,199 1,135
-------- --------
Total loans receivable, net, at end of period............ $ 40,513 $ 38,394
======== ========
</TABLE>
43
<PAGE>
LOAN COMMITMENTS. The Association issues commitments for mortgage loans
conditioned upon the occurrence of certain events. Such commitments are made in
writing on specified terms and conditions and are honored for up to 30 days from
approval. At September 30, 1998, the Association had loan commitments totaling
$630,000 (not including undisbursed portions of mortgage loans and consumer
loans of $620,000). See Note L of the Notes to Consolidated Financial
Statements.
LOAN FEES. In addition to interest earned on loans, the Association
receives income from fees in connection with loan originations, loan
modifications, late payments and for miscellaneous services related to its
loans. Income from these activities varies from period to period depending upon
the volume and type of loans made and competitive conditions.
The Association charges loan origination fees for fixed-rate loans which
are calculated as a percentage of the amount borrowed. In accordance with
applicable accounting procedures, loan origination fees and discount points in
excess of loan origination costs are deferred and recognized over the
contractual remaining lives of the related loans on a level yield basis.
Discounts and premiums on loans purchased are accreted and amortized in the same
manner. At September 30, 1998, the Association had $4,000 of deferred loan fees.
The Association recognized $3,000 and $3,600 of deferred loan fees during the
years ended September 30, 1998 and 1997, respectively, in connection with loan
refinancings, payoffs, sales and ongoing amortization of outstanding loans.
NONPERFORMING ASSETS AND DELINQUENCIES. All loan payments are due on the
first day of each month. When a borrowers fails to make a required loan
payment, the Association attempts to cure the deficiency by contacting the
borrower and seeking the payment. A late notice is mailed on the fifth day of
the month and a second late notice is mailed on the 15/th/ day of the month. In
most cases, deficiencies are cured promptly. If a delinquency continues beyond
the 25/th/ day of the month, additional contact is made either through
additional notices or other means and the Association will attempt to work out a
payment schedule. While the Association generally prefers to work with
borrowers to resolve such problems, the Association will institute foreclosure
or other proceedings, as necessary, to minimize any potential loss.
The Association's Board of Directors is informed monthly of the amounts of
loans delinquent more than 60 days, all loans in foreclosure and all foreclosed
and repossessed property owned by the Association.
The Association ceases accruing interest on mortgage loans when, in the
judgment of management, the probability of collection of interest is deemed to
be insufficient to warrant further accrual. The Association does not accrue
interest on mortgage loans past due 90 days or more when the estimated value of
collateral and collection efforts are deemed insufficient to ensure full
recovery. In the case of consumer loans, the Association continues to accrue
interest even if the loan is past due 90 days or more as the risk of loss to the
Association is minimal because the Association's consumer loan portfolio
consists primarily of government guaranteed education loans and savings account
loans.
44
<PAGE>
The following table sets forth information with respect to the
Association's nonperforming assets at the dates indicated. The Association had
no restructured loans within the meaning of SFAS No. 15 at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
---------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Loans accounted for on a nonaccrual basis:
Mortgage loans:
One- to four-family................................... $ 196 $ 181
Commercial............................................ 23 --
Total mortgage loans................................. 219 181
Consumer loans......................................... -- --
----- -----
Total................................................. 219 181
Accruing loans contractually past due 90 days or more.. -- --
----- -----
Total of nonaccrual and 90 days past due loans......... 219 181
Real estate owned...................................... -- --
----- -----
Total nonperforming assets.......................... $ 219 $ 181
===== =====
Nonaccrual and 90 days or more past due loans.......... 0.54% 0.47%
as a percentage of loans receivable, net
Nonaccrual and 90 days or more past due loans.......... 0.37% 0.31%
as a percentage of total assets
Nonperforming assets as a percentage of total assets... 0.37% 0.31%
</TABLE>
Interest income that would have been recorded for 1998 had nonaccruing
loans been current in accordance with their original terms amounted to $22,000.
The amount of interest included in interest income in 1998 on such loans
amounted to $7,000.
REAL ESTATE OWNED. Real estate acquired by the Association as a result of
foreclosure or by deed-in-lieu of foreclosure is classified as real estate owned
until sold. When property is acquired it is recorded at fair market value at
the date of foreclosure. Subsequent to foreclosure, real estate owned is
carried at the lower of the foreclosed amount or fair value, less estimated
selling costs. At September 30, 1998, the Association had no real estate owned.
ASSET CLASSIFICATION. The OTS has adopted various regulations regarding
problem assets of savings institutions. The regulations require that each
insured institution review and classify its assets on a regular basis. In
addition, in connection with examinations of insured institutions, OTS examiners
have authority to identify problem assets and, if appropriate, require them to
be classified. There are three classifications for problem assets:
substandard, doubtful and loss. Substandard assets have one or more defined
weaknesses and are characterized by the distinct possibility that the insured
institution will sustain some loss if the deficiencies are not corrected.
Doubtful assets have the weaknesses of substandard assets with the additional
characteristic that the weaknesses make collection or liquidation in full on the
basis of currently existing facts, conditions and values questionable, and there
is a high possibility of loss. An asset classified as loss is considered
uncollectible and of such little value that continuance as an asset of the
institution is not warranted. If an asset or portion thereof is classified as
loss, the insured institution establishes specific allowances for loan losses
for the full amount of the portion of the asset classified as loss. All or a
portion of general loan loss allowances established to cover possible losses
related to assets classified substandard or doubtful can be included in
determining an institution's regulatory capital, while specific valuation
allowances for loan losses generally do not qualify as regulatory capital.
Assets that do not currently expose the insured institution to sufficient risk
to warrant classification in one of the aforementioned categories but possess
weaknesses are designated "special mention" and are monitored by the
Association.
45
<PAGE>
The aggregate amounts of the Association's classified and special mention
assets at the dates indicated were as follows:
<TABLE>
<CAPTION>
At September 30,
-----------------
1998 1997
------ ------
(In thousands)
<S> <C> <C>
Classified assets:
Loss....................... $ -- $ --
Doubtful................... -- --
Substandard................ 219 181
Special mention............ 432 459
----- -----
$ 651 $ 640
===== =====
</TABLE>
At September 30, 1998, assets designated substandard consisted of eight
one- to- four family mortgage loans ($196,000) and one commercial real estate
loan ($23,000) and assets designated as special mention consisted of a one-to-
four family mortgage loan ($17,000) and a purchased commercial real estate loan
participation interest ($415,000).
ALLOWANCE FOR LOAN LOSSES. In originating loans, the Association
recognizes that losses will be experienced and that the risk of loss will vary
with, among other things, the type of loan being made, the creditworthiness of
the borrower over the term of the loan, general economic conditions and, in the
case of a secured loan, the quality of the security for the loan. The allowance
method is used in providing for loan losses. Accordingly, all loan losses are
charged to the allowance and all recoveries are credited to it. The allowance
for loan losses is established through a provision for loan losses charged to
operations. The provision for loan losses is based on management's evaluation
of of the collectibility of the loan portfolio, including the nature of the
portfolio, credit concentrations, trends in historical loss experience,
specified impaired loans, and economic conditions.
At September 30, 1998, the Association had an allowance for loan losses of
$280,000. Although management believes that it uses the best information
available to establish the allowance for loan losses, future adjustments to the
allowance for loan losses may be necessary and results of operations could be
significantly and adversely affected if circumstances differ substantially from
the assumptions used in making the determinations. Furthermore, while the
Association believes it has established its existing allowance for loan losses
in accordance with GAAP, there can be no assurance that regulators, in reviewing
the Association's loan portfolio, will not request the Association to increase
significantly its allowance for loan losses. In addition, because future events
affecting borrowers and collateral cannot be predicted with certainty, there can
be no assurance that the existing allowance for loan losses is adequate or that
substantial increases will not be necessary should the quality of any loans
deteriorate as a result of the factors discussed above. Any material increase
in the allowance for loan losses may adversely affect the Association's
financial condition and results of operations.
46
<PAGE>
The following table sets forth an analysis of the Association's allowance
for loan losses.
<TABLE>
<CAPTION>
Years Ended September 30,
---------------------------
1998 1997
------------- ------------
(Dollars in thousands)
<S> <C> <C>
Allowance at beginning of period............... $ 255 $ 234
Provision for loan losses...................... 25 21
Recoveries..................................... -- --
Charge-offs.................................... -- --
------- -------
Allowance at end of period.................. $ 280 $ 255
======= =======
Allowance for loan losses as a percentage
of total loans outstanding at the end of the
period........................................ 0.68% 0.64%
Net charge-offs (recoveries) as a percentage
of average loans outstanding during the
period........................................ -- --
Allowance for loan losses as a percentage
of nonperforming loans at end of period....... 127.85% 140.88%
</TABLE>
For additional discussion regarding the provisions for loan losses in
recent periods, see "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Comparison of Operating Results for the Years Ended
September 30, 1998 and 1997 -- Provision for Loan Losses."
The following table sets forth the breakdown of the allowance for loan losses
by loan category at the dates indicated. Management believes that the allowance
can be allocated by category only on an approximate basis. The allocation of
the allowance to each category is not necessarily indicative of future losses
and does not restrict the use of the allowance to absorb losses in any other
category.
<TABLE>
<CAPTION>
At September 30,
------------------------------------------
1998 1997
-------------------- --------------------
Percent Percent
of Loans of Loans
in Category in Category
to Total to Total
Amount Loans Amount Loans
------ ------------ ------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans:
One- to four-family.................. $ 145 88.91% $ 134 87.42%
Multi-family......................... 8 1.95 10 2.42
Commercial........................... 38 5.01 35 4.64
Construction......................... 2 2.12 3 3.67
Land................................. 2 1.01 2 0.74
Consumer................................ -- 1.00 -- 1.11
Unallocated............................. 85 -- 71 --
----- ------ ----- ------
Total allowance for loan losses.. $ 280 100.00% $ 255 100.00%
===== ====== ===== ======
</TABLE>
47
<PAGE>
INVESTMENT ACTIVITIES
The Association is permitted under federal law to invest in various types
of liquid assets, including U.S. Government obligations, securities of various
federal agencies and of state and municipal governments, deposits at the FHLB-
Des Moines, certificates of deposit of federally insured institutions, certain
bankers' acceptances and federal funds. Subject to various restrictions, the
Association may also invest a portion of its assets in commercial paper and
corporate debt securities. Savings institutions like the Association are also
required to maintain an investment in FHLB stock. The Association is required
under federal regulations to maintain a minimum amount of liquid assets. See
"REGULATION" and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS -- Liquidity and Capital Resources."
SFAS No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," requires that investments be categorized as "held to maturity,"
"trading securities" or "available for sale," based on management's intent as to
the ultimate disposition of each security. SFAS No. 115 allows debt securities
to be classified as "held to maturity" and reported in financial statements at
amortized cost only if the reporting entity has the positive intent and ability
to hold those securities to maturity. Securities that might be sold in response
to changes in market interest rates, changes in the security's prepayment risk,
increases in loan demand, or other similar factors cannot be classified as "held
to maturity." Debt and equity securities held for current resale are classified
as "trading securities." Such securities are reported at fair value, and
unrealized gains and losses on such securities would be included in earnings.
The Association does not currently use or maintain a trading account. Debt and
equity securities not classified as either "held to maturity" or "trading
securities" are classified as "available for sale." Such securities are
reported at fair value, and unrealized gains and losses on such securities are
excluded from earnings and reported (net of deferred taxes) as a separate
component of equity.
All of the Association's investment securities are subject to market risk
insofar as increases in market rates of interest may cause a decrease in their
market value. They are also subject to prepayment risk insofar as they may be
called prior to maturity in times of low market interest rates, so that the
Association may have to invest the funds at a lower interest rate. The
Association's investment policy does not permit engaging directly in hedging
activities or purchasing high risk mortgage derivative products. Investments
are made based on certain considerations, which include the interest rate,
yield, settlement date and maturity of the investment, the Association's
liquidity position, and anticipated cash needs and sources (which in turn
include outstanding commitments, upcoming maturities, estimated deposits and
anticipated loan amortization and repayments). The effect that the proposed
investment would have on the Association's credit and interest rate risk and
risk-based capital is also considered. The Association purchases investment
securities to provide necessary liquidity for day-to-day operations. The
Association also purchases investment securities when investable funds exceed
loan demand.
48
<PAGE>
The following table sets forth the amortized cost and fair value of the
Association's securities, by accounting classification and by type of security,
at the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------------------
1998 1997
----------------- -----------------
CARRYING FAIR CARRYING FAIR
VALUE VALUE VALUE VALUE
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
AVAILABLE FOR SALE:
U.S. Government agency securities....... $ 7,087 $ 7,087 $ 8,509 $ 8,509
------- ------- ------- -------
Total available for sale.............. 7,087 7,087 8,509 8,509
------- ------- ------- -------
HELD TO MATURITY:
U.S. Government agency securities....... 4,959 4,995 4,403 4,405
Municipal............................... 630 645 690 702
Mortgage-backed securities.............. 2,584 2,624 2,828 2,871
------- ------- ------- -------
Total held to maturity................ 8,173 8,264 7,921 7,978
------- ------- ------- -------
Total................................. $15,260 $15,351 $16,430 $16,487
======= ======= ======= =======
</TABLE>
The Association purchases mortgage-backed securities when investable funds
exceed loan demand. All of the Association's mortgage-backed securities are
issued or guaranteed by agencies of the U.S. Government. Accordingly, they
carry lower credit risk than mortgage-backed securities of a private issuer.
However, mortgage-backed securities are subject to market risk (the risk that
increases in market interest rates may cause a decrease in market value) and
prepayment risk (the risk that the securities will be repaid prior to maturity
and that the Association will have to reinvest the funds at a lower interest
rate).
Occasionally, the Association invests in municipal obligations of local
entities, such as the water authority, school districts, firehouses and jail.
Generally, these obligations are not rated by a nationally recognized credit
rating service.
At September 30, 1998, the Association did not own any securities (other
than U.S. Government and agency securities) which had an aggregate book value in
excess of 10% of the Association's retained earnings at that date.
49
<PAGE>
The following table sets forth certain information regarding the carrying
value, weighted average yields and maturities or periods to repricing of the
Association's debt securities at September 30, 1998, all of which are available
for sale. Certain U.S. Government agency obligations and municipal obligations
are exempt from state taxation, but their yields have not been computed on a tax
equivalent basis for purposes of the table.
<TABLE>
<CAPTION>
Less Than One to After Five After
One Year Five Years to Ten Years Ten Years Totals
------------------- ------------------- ------------------ ------------------- -------------------
Weighted Weighted Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average
Value Yield Value Yield Value Yield Value Yield Value Yield
-------- --------- -------- --------- -------- -------- -------- --------- -------- ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government agency
securities............. $635 5.60% $4,317 6.01% $7,094 6.42% $ -- --% $12,046 6.23%
Municipal................ 60 4.60 365 5.06 205 5.55 -- -- 630 5.18
Mortgage-backed
securities.............. -- -- 337 6.65 23 8.90 2,224 7.02 2,584 6.98
---- ------ ------ -------- -------
Total............. $695 5.52% $5,019 5.98% $7,322 6.41% $2,224 7.02% $15,260 6.31%
==== ====== ====== ======== =======
</TABLE>
50
<PAGE>
DEPOSIT ACTIVITIES AND OTHER SOURCES OF FUNDS
GENERAL. Deposits are the major external source of funds for the
Association's lending and other investment activities. In addition, the
Association also generates funds internally from loan principal repayments and
prepayments and maturing investment securities. Scheduled loan repayments are a
relatively stable source of funds, while deposit inflows and outflows and loan
prepayments are influenced significantly by general interest rates and money
market conditions. The Association may use borrowings from the FHLB-Des Moines
to compensate for reductions in the availability of funds from other sources.
Presently, the Association has no other borrowing arrangements.
DEPOSIT ACCOUNTS. Nearly all of the Association's depositors reside in
Missouri. The Association's deposit products include money market accounts,
passbook accounts, and term certificate accounts. Deposit account terms vary
with the principal difference being the minimum balance deposit, early
withdrawal penalties and the interest rate. The Association reviews its deposit
mix and pricing weekly. The Association does not utilize brokered deposits, nor
has it aggressively sought jumbo certificates of deposit.
The Association believes it is competitive in the interest rates it offers
on its deposit products. The Association determines the rates paid based on a
number of factors, including rates paid by competitors, the Association's need
for funds and cost of funds, borrowing costs and movements of market interest
rates.
In the unlikely event the Association is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to the Holding Company as the sole stockholder of the
Association.
The following table sets forth information concerning the Association's
time deposits and other interest-bearing deposits at September 30, 1998.
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE PERCENTAGE
INTEREST MINIMUM OF TOTAL
RATE TERM CATEGORY AMOUNT BALANCE DEPOSITS
- ---------- --------- ----------------------------- ------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
3.03% None Passbook accounts $ 10 $ 8,422 15.97%
2.53 None NOW accounts 300 1,792 3.40
3.91 None Money market deposit accounts 1,000 1,275 2.42
Certificates of Deposit
-----------------------------
4.48 90 days Fixed-term, fixed-rate 500 551 1.04
4.96 182 days Fixed-term, fixed-rate 1,000 5,040 9.56
5.30 365 days Fixed-term, fixed-rate 1,000 113 0.21
5.35 12 months Fixed-term, fixed-rate 1,000 12,834 24.34
5.25 18 months Fixed-term, fixed-rate 1,000 3 0.01
5.56 30 months Fixed-term, fixed-rate 1,000 7,053 13.38
6.15 60 months Fixed-term, fixed-rate 1,000 15,641 29.67
------- ------
$52,724 100.00%
======= ======
</TABLE>
51
<PAGE>
The following table indicates the amount of the Association's jumbo
certificate accounts by time remaining until maturity as of September 30, 1998.
Jumbo certificate accounts have principal balances of $100,000 or more.
<TABLE>
<CAPTION>
CERTIFICATES
MATURITY PERIOD OF DEPOSITS
- --------------- -------------
(IN THOUSANDS)
<S> <C>
Three months or less....................... $ 442
Over three through six months.............. 213
Over six through twelve months............. 113
Over twelve months......................... 1,398
------
Total................................... $2,166
======
</TABLE>
DEPOSIT FLOW. The following table sets forth the balances (inclusive of
interest credited) and changes in dollar amounts of deposits in the various
types of accounts offered by the Association between the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
------------------------------------------------
1998 1997
----------------------------- -----------------
PERCENT PERCENT
OF INCREASE OF
AMOUNT TOTAL (DECREASE) AMOUNT TOTAL
------- -------- ---------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Passbook accounts...................... $ 8,422 15.97% $ 220 $ 8,202 15.95%
NOW accounts........................... 1,792 3.40 (90) 1,882 3.66
Money market deposits.................. 1,275 2.42 246 1,029 2.00
Fixed-rate certificates maturing:
Within 1 year....................... 22,269 42.24 (1,917) 24,186 47.05
After 1 year, but within 2 years.... 5,930 11.25 2,157 3,773 7.34
After 2 years, but within 5 years... 13,036 24.72 696 12,340 24.00
------- ------ ------- ------- ------
Total........................... $52,724 100.00% $ 1,312 $51,412 100.00%
======= ====== ======= ======= ======
</TABLE>
TIME DEPOSITS BY MATURITIES. The following table sets forth the amount of
time deposits in the Association categorized by maturities at September 30,
1998.
<TABLE>
<CAPTION>
AMOUNT DUE
------------------------------------------------------
LESS THAN 1 - 2 2 - 3 3 - 4 AFTER
ONE YEAR YEARS YEARS YEARS 4 YEARS TOTAL
--------- ------ ------ ------ ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
CERTIFICATE ACCOUNTS:
4.00 - 4.99%....... $ 3,148 $ -- $ -- $ -- $ -- $ 3,148
5.00 - 5.99%....... 19,109 3,685 5,725 1,039 1,251 30,809
6.00 - 6.99%....... 12 2,245 2,028 1,364 1,629 7,278
------- ------ ------ ------ ------ -------
Total.......... $22,269 $5,930 $7,753 $2,403 $2,880 $41,235
======= ====== ====== ====== ====== =======
</TABLE>
52
<PAGE>
TIME DEPOSITS BY RATES
The following table sets forth the time deposits in the Association
classified by rates as of the dates indicated.
<TABLE>
<CAPTION>
AT SEPTEMBER 30,
--------------------
1998 1997
-------- --------
<S> <C> <C>
(IN THOUSANDS)
4.00 - 4.99%............. $ 3,148 $ 444
5.00 - 5.99%............. 30,809 24,478
6.00 - 6.99%............. 7,278 15,377
------- -------
Total................. $41,235 $40,299
======= =======
</TABLE>
DEPOSIT ACTIVITY. The following table sets forth the deposit activity of
the Association for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-------------------------
1998 1997
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Beginning balance............ $51,412 $51,391
Net withdrawals
before interest credited... (613) (1,974)
Interest credited............ 1,925 1,995
------- -------
Net increase in deposits..... 1,312 21
------- -------
Ending balance............... $52,724 $51,412
======= =======
</TABLE>
BORROWINGS. The Association has the ability to use advances from the FHLB-
Des Moines to supplement its supply of lendable funds and to meet deposit
withdrawal requirements. The FHLB-Des Moines functions as a central reserve
bank providing credit for savings associations and certain other member
financial institutions. As a member of the FHLB-Des Moines, the Association is
required to own capital stock in the FHLB-Des Moines and is authorized to apply
for advances on the security of such stock and certain of its mortgage loans and
other assets (principally securities that are obligations of, or guaranteed by,
the U.S. Government or agencies thereof) provided certain creditworthiness
standards have been met. Advances are made pursuant to several different credit
programs. Each credit program has its own interest rate and range of
maturities. Depending on the program, limitations on the amount of advances are
based on the financial condition of the member institution and the adequacy of
collateral pledged to secure the credit. At September 30, 1998, the Association
had an available credit line of $16.7 million from the FHLB-Des Moines under
which the Association had outstanding advances of $500,000.
53
<PAGE>
The following tables sets forth certain information regarding the
Association's use of FHLB advances during the periods and at the dates
indicated.
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------
1998 1997
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Maximum amount of borrowings
outstanding at any month end:
FHLB advances................................. $1,000 $1,000
Approximate average short-term
borrowings outstanding with respect to:
FHLB advances................................. 269 123
Approximate weighted average rate
paid on:
FHLB advances................................. 6.08% 3.93%
AT SEPTEMBER 30,
-----------------------
1998 1997
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Balance outstanding at end of period:
FHLB advances................................. $ 500 $1,000
Weighted average rate paid on:
FHLB advances................................. 5.74% 6.10%
</TABLE>
COMPETITION
The Association faces intense competition in its primary market area for
the attraction of deposits (its primary source of lendable funds) and in the
origination of loans. Its most direct competition for deposits has historically
come from the several commercial banks operating in the Association's primary
market area and, to a lesser extent, from other financial institutions, such as
brokerage firms and insurance companies. Particularly in times of high interest
rates, the Association has faced additional significant competition for
investors' funds from short-term money market securities and other corporate and
government securities. The Association's competition for loans comes primarily
from the commercial banks operating in its primary market area. Such
competition for deposits and the origination of loans may limit the
Association's growth in the future. See "RISK FACTORS -- Competition."
SUBSIDIARY ACTIVITIES
Under OTS regulations, the Association generally may invest up to 3% of its
assets in service corporations, provided that at least one-half of investment in
excess of 1% is used primarily for community, inner-city and community
development projects. In 1981 the Association formed PSA Service Corporation as
a wholly-owned subsidiary to sell mortgage life insurance to the Association's
borrowers. The corporation also offers safe deposit box services in the
Association's Canton branch office.
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PROPERTIES
The following table sets forth information relating to the Association's
offices as of September 30, 1998.
<TABLE>
<CAPTION>
NET BOOK OWNED/ APPROXIMATE
LOCATION YEAR OPENED VALUE(1) LEASED SQUARE FOOTAGE
- -------- ----------- -------- ------ --------------
<S> <C> <C> <C> <C>
Main Office 1975 $208,500 Owned 2,816
- -------------------------
123 W. Lafayette Street
Palmyra, Missouri
Branch Offices 1992 243,700 Owned 2,904
- -------------------------
600 Washington Street(2)
Canton, Missouri
103 E. Commercial Street 1976 108,500 Owned(3) 4,096(3)
Kahoka, Missouri
</TABLE>
_______________________________
(1) Represents the net book value of land, buildings, furniture, fixtures and
equipment owned by the Bank.
(2) Location of an automated teller machine.
(3) The Kahoka branch office occupies approximately 1,696 square feet of the
building located at 103 E. Commercial Street. The remaining space is
vacant. The Association has contracted to sell the building and leaseback
the branch for three years at $500 per month. The lease provides for one-
year renewal options. The lease term is expected to begin on January 1,
1999. The Association plans to lease the existing facility until a new
branch office is constructed on real estate that the Association owns
located at the corner of Johnson and Exchange Streets in Kahoka. Currently,
the Association does not have any definitive plans or timetable for
beginning construction.
PERSONNEL
As of September 30, 1998, the Association had 18 full-time employees and
four part-time employees, none of whom is represented by a collective bargaining
unit. The Association believes its relationship with its employees is good.
LEGAL PROCEEDINGS
Periodically, there have been various claims and lawsuits involving the
Association, such as claims to enforce liens, condemnation proceedings on
properties in which the Association holds security interests, claims involving
the making and servicing of real property loans and other issues incident to the
Association's business. The Association is not a party to any pending legal
proceedings that it believes would have a material adverse effect on the
financial condition or operations of the Association.
MANAGEMENT OF THE HOLDING COMPANY
Directors shall be elected by the stockholders of the Holding Company for
staggered three-year terms, or until their successors are elected and qualified.
The Holding Company's Board of Directors consists of seven persons divided into
three classes, each of which containing approximately one third of the Board.
One class, consisting of James D. Lovegreen, Eldon R. Mette and Donald L.
Slavin, has a term of office expiring at the first annual meeting of
stockholders after their initial election by stockholders; a second class,
consisting of L. Edward Schaeffer and Robert M. Dearing, has a term of office
expiring at the second annual meeting of stockholders after their initial
election by stockholders; and a third class, consisting of Glenn J. Maddox and
Albert E. Davis, has a term of office expiring at the
55
<PAGE>
third annual meeting of stockholders after their initial election by
stockholders. The Holding Company anticipates that its first annual meeting of
stockholders will be held in January 2000.
The executive officers of the Holding Company are elected annually and
serve at the Board's discretion. The executive officers of the Holding Company
are:
<TABLE>
<CAPTION>
NAME POSITION
---- -----------------------------
<S> <C>
L. Edward Schaeffer....... Chairman of the Board
Eldon R. Mette............ President
Ronald L. Nelson.......... Vice President, Treasurer and
Secretary
</TABLE>
MANAGEMENT OF THE ASSOCIATION
DIRECTORS AND EXECUTIVE OFFICERS
The Board of Directors of the Association is presently composed of seven
members who are elected for terms of three years, approximately one third of
whom are elected annually in accordance with the Bylaws of the Association. The
executive officers of the Association are elected annually by the Board of
Directors and serve at the Board's discretion. The following table sets forth
information with respect to the directors and executive officers of the
Association.
<TABLE>
<CAPTION>
DIRECTORS
DIRECTOR TERM
NAME AGE(1) POSITION HELD WITH THE ASSOCIATION SINCE EXPIRES
- ------ ------ ------------------------------------------------ -------- -------
<S> <C> <C> <C> <C>
L. Edward Schaeffer........ 68 Chairman of the Board and President 1964 2001
Eldon R. Mette............. 62 Executive Vice President, Secretary and Director 1988 2000
Glenn J. Maddox............ 72 Vice President of the Board 1978 1999
Albert E. Davis............ 62 Director 1990 1999
Robert M. Dearing.......... 49 Director 1977 2001
James D. Lovegreen......... 65 Director 1971 2000
Donald L. Slavin........... 72 Director 1962 2000
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
NAME AGE(1) POSITION HELD WITH THE ASSOCIATION
- ------ ------ ------------------------------------------------
<S> <C> <C>
Ronald L. Nelson........... 45 Vice President and Treasurer
</TABLE>
- --------------------------------
(1) As of September 30, 1998.
BIOGRAPHICAL INFORMATION
Set forth below is certain information regarding the Directors and
executive officers of the Association. Unless otherwise stated, each director
and executive officer has held his current occupation for the last five years.
There are no family relationships among or between the directors or executive
officers.
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<PAGE>
L. Edward Schaeffer is a blacksmith.
Eldon R. Mette has been employed with the Association since 1969. He
became Executive Vice President in September 1969.
Glenn J. Maddox is a retired supermarket proprietor.
Albert E. Davis is a retired manufacturing firm executive.
Robert M. Dearing is a farmer and stockman.
James D. Lovegreen owns an automobile dealership.
Donald L. Slavin is a retired Chief Engineer of an electric utility.
Ronald L. Nelson has been employed with the Association since 1973. He has
served as Vice President and Treasurer since 1978.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The business of the Association is conducted through meetings and
activities of the Board of Directors and its committees. During the fiscal year
ended September 30, 1998, the Board of Directors held 24 regular meetings and
one special meeting. No director attended fewer than 75% of the total meetings
of the Board of Directors and of committees on which such director served.
The full Board of Directors acts as an Audit Committee to receive and
review all reports prepared by the Association's external auditor. The Board of
Directors met once in its capacity as Audit Committee during 1998.
The full Board of Directors acts as a Budget Review Committee to review
the Association's annual operating budget. The Board of Directors met once in
its capacity as Budget Review Committee in 1998.
The full Board of Directors acts as a Nominating Committee for the annual
selection of management's nominees for election as directors. The Board of
Directors met once in its capacity as Nominating Committee during 1998.
DIRECTORS' COMPENSATION
Each director of the Association, other than the Chairman of the Board of
the Association, receives a monthly fee of $250 plus $195 per meeting attended.
The President receives a monthly fee of $250 and $200 per meeting attended.
Following consummation of the conversion, directors' fees will continue to be
paid by the Association and, initially, no separate fees are expected to be paid
for service on the Holding Company's Board of Directors.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following information is furnished for Mr.
Mette for the year ended September 30, 1998. No executive officer of the
Association received salary and bonus of $100,000 or more during the year ended
September 30, 1998.
57
<PAGE>
<TABLE>
<CAPTION>
Annual Compensation(1)
-------------------------------------------
Name and Other Annual All Other
Position Year Salary Bonus Compensation Compensation
- ---------------- -------- --------- ------ -------------- --------------
<S> <C> <C> <C> <C> <C>
Eldon R. Mette 1998 $78,022 $3,572 $13,129(2) $6,087(3)
Executive Vice
President
</TABLE>
- ---------------------------------
(1) Compensation information for the years ended September 30, 1997 and 1996
has been omitted as the Association was not a public company nor a
subsidiary thereof at such time.
(2) Consists of directors' fees of $7,785 and appraisal fees of $5,344. Does
not include the aggregate amount of perquisites and other personal
benefits, which was less than 10% of the total annual salary and bonus
reported.
(3) Consists of employer 401(k) contribution of $1,489, employer paid medical
insurance premiums of $4,064, employer paid disability insurance premiums
of $519 and employer paid term life insurance premiums of $15.
EMPLOYMENT AGREEMENTS. In connection with the conversion, the Holding
Company and the Association (collectively, the "Employers") plan to enter into
three-year employment agreements ("Employment Agreements") with Eldon R. Mette
and Ronald L. Nelson. Under the Employment Agreements, the initial salary
levels for Messrs. Mette and Nelson will be $77,250 and $51,500, respectively,
which amounts will be paid by the Association and may be increased at the
discretion of the Board of Directors or an authorized committee of the Board.
On each anniversary of the commencement date of the Employment Agreements, the
term of the agreements may be extended for an additional year at the discretion
of the Board. The agreements are terminable by the Employers at any time, by
the executive if he is assigned duties inconsistent with his initial position,
duties, responsibilities and status, or upon the occurrence of certain events
specified by federal regulations. In the event that the executive's employment
is terminated without cause or upon the executive's voluntary termination
following the occurrence of an event described in the preceding sentence, the
Association would be required to honor the terms of the agreement through the
expiration of the current term, including payment of current cash compensation
and continuation of employee benefits.
The Employment Agreements also provide for a severance payment and other
benefits in the event of involuntary termination of employment in connection
with any change in control of the Employers. A severance payment also will be
provided on a similar basis in connection with a voluntary termination of
employment where, subsequent to a change in control, the executive is assigned
duties inconsistent with his position, duties, responsibilities and status
immediately prior to such change in control. The term "change in control" is
defined in the agreement as having occurred when, among other things, (a) a
person other than the Holding Company purchases shares of the Holding Company's
common stock pursuant to a tender or exchange offer for such shares, (b) any
person (as such term is used in Sections 13(d) and 14(d)(2) of the Securities
Exchange Act of 1934) is or becomes the beneficial owner, directly or
indirectly, of securities of the Holding Company representing 25% or more of the
combined voting power of the Holding Company's then outstanding securities, (c)
the membership of the Board of Directors changes as the result of a contested
election, or (d) shareholders of the Holding Company approve a merger,
consolidation, sale or disposition of all or substantially all of the Holding
Company's assets, or a plan of partial or complete liquidation.
The maximum value of the severance benefits under the Employment Agreement
is 2.99 times the executive's average annual compensation during the five-year
period preceding the effective date of the change in control (the "base
amount"). The Employment Agreements provide that the value of the maximum
benefit may be distributed, at the executive's election, (i) in the form of a
lump sum cash payment equal to 2.99 times the executive's base amount or (ii) a
combination of a cash payment and continued coverage under the Employers'
health, life and disability programs for a 36-month period following the change
in control, the total value of which does not exceed 2.99 times the executive's
base amount. Assuming that a change in control had occurred at September 30,
1998 and that Messrs. Mette and Nelson each elected to receive a lump sum cash
payment, Mr. Mette would have been entitled to payments of approximately
$214,000 and Mr. Nelson would have been entitled to approximately $142,000.
Section 280G of the Internal Revenue Code provides that severance payments that
equal or exceed three times the individual's base amount are deemed to be
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<PAGE>
"excess parachute payments" if they are contingent upon a change in control.
Individuals receiving excess parachute payments are subject to a 20% excise tax
on the amount of such excess payments, and the Employers would not be entitled
to deduct the amount of such excess payments.
The Employment Agreements restrict the executive's right to compete against
the Employers for a period of one year from the date of termination of the
agreement if he voluntarily terminates employment, except in the event of a
change in control.
EMPLOYEE SEVERANCE COMPENSATION PLAN. In connection with the conversion,
the Association's Board of Directors intends to adopt the Palmyra Savings
Employee Severance Compensation Plan to provide benefits to eligible employees
in the event of a change in control of the Holding Company or the Association.
Eligible employees are those with a minimum of ____ years of service with the
Association. Generally, all such eligible employees (other than officers who
will enter into separate employment agreements with the Holding Company and the
Association) will be eligible to participate in the severance plan. Under the
severance plan, in the event of a change in control of the Holding Company or
the Association, eligible employees who are terminated or who terminate
employment (but only upon the occurrence of events specified in the severance
plan) within 12 months of the effective date of a change in control will be
entitled to a payment based on years of service with the Association with a
maximum payment equal to ____ weeks of compensation, which would be earned after
___ years of service. In addition, officers of the Association (____ persons)
and branch managers (_____ persons) would be eligible to receive a minimum
severance payment equal to 12 and six months, respectively, of their current
compensation. Assuming that a change in control had occurred at September 30,
1998, and the termination of all eligible employees, the maximum aggregate
payment due under the severance plan would be approximately $________.
BENEFITS
GENERAL. The Association currently pays 75% of the premiums for medical,
dental, life and disability insurance benefits for full-time employees, subject
to certain deductibles.
401(k) PLAN. The Association maintains the 401(k) Salary Reduction Plan
and Trust ("401(k) Plan") for the benefit of eligible employees of the
Association. The 401(k) Plan is intended to be a tax-qualified plan under
Sections 401(a) and 401(k) of the Internal Revenue Code. Employees of the
Association who have completed one year of service and who have attained age 21
are eligible to participate in the 401(k) Plan on the January 1 next following
the date such requirements are satisfied. Participants may contribute up to the
applicable Internal Revenue Service limits ($10,000 in 1999) to the 401(k) Plan
through a salary reduction election. The Association matches participant
contributions at the rate of 50% of the first 4% of the participant's annual
contributions.
In addition to employer matching contributions, the Association may
contribute a discretionary amount to the 401(k) Plan in any plan year which is
allocated to individual participants in the proportion that their annual
compensation bears to the total compensation of all participants during the plan
year. Participants are at all times 100% vested in all salary reduction
contributions. Employer matching and profit-sharing contributions vest at the
rate of 100% per year beginning with the completion of three years of service.
For the year ended September 30, 1998, the Association incurred total
contribution-related expenses of $9,000 in connection with the 401(k) Plan.
Generally, the investment of 401(k) Plan assets is directed by plan
participants. In connection with the conversion, the investment options
available to participants will be expanded to include the opportunity to direct
the investment of up to 100% of their 401(k) Plan account balance to purchase
shares of the Holding Company's common stock. A participant in the 401(k) Plan
who elects to purchase common stock in the conversion through the 401(k) Plan
will receive the same subscription priority and be subject to the same
individual purchase limitations as if the participant had elected to make such
purchase using other funds. See "THE CONVERSION -- Limitations on Purchases of
Shares."
59
<PAGE>
EMPLOYEE STOCK OWNERSHIP PLAN. The Association's Board of Directors has
authorized the adoption of an ESOP for employees of the Association to become
effective upon the completion of the conversion. The ESOP is intended to
satisfy the requirements for an employee stock ownership plan under the Internal
Revenue Code and the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Full-time employees of the Holding Company and the Association who
have been credited with at least 1,000 hours of service during a 12-month period
and who have attained age 21 will be eligible to participate in the ESOP.
In order to fund the purchase of up to 8% of the common stock to be sold in
the conversion, it is anticipated that the ESOP will borrow funds from the
Holding Company. Such loan will equal 100% of the aggregate purchase price of
the common stock. The loan to the ESOP will be repaid principally from the
Association's contributions to the ESOP and dividends payable on common stock
held by the ESOP over the anticipated 10-year term of the loan. The interest
rate for the ESOP loan is expected to be the prime rate as published in The Wall
Street Journal on the closing date of the conversion. See "PRO FORMA DATA." To
the extent that the ESOP is unable to acquire 8% of the common stock sold in the
offering, it is anticipated that such additional shares may be acquired
following the conversion through open market purchases.
In any plan year, the Association may make additional discretionary
contributions to the ESOP for the benefit of plan participants in either cash or
shares of common stock, which may be acquired through the purchase of
outstanding shares in the market or from individual stockholders or which
constitute authorized but unissued shares or shares held in treasury by the
Holding Company. The timing, amount, and manner of such discretionary
contributions will be affected by several factors, including applicable
regulatory policies, the requirements of applicable laws and regulations, and
market conditions.
Shares purchased by the ESOP with the proceeds of the loan will be held in
a suspense account and released on a pro rata basis as the loan is repaid.
Discretionary contributions to the ESOP and shares released from the suspense
account will be allocated among participants on the basis of each participant's
proportional share of total compensation. Forfeitures will be reallocated among
the remaining plan participants.
Participants will vest in their accrued benefits under the ESOP at the rate
of 20% per year, beginning upon the completion of two years of service. A
participant is fully vested at retirement, in the event of disability or upon
termination of the ESOP. Benefits are distributable upon a participant's
retirement, early retirement, death, disability, or termination of employment.
The Association's contributions to the ESOP are not fixed, so benefits payable
under the ESOP cannot be estimated.
It is anticipated that members of the Association's Board of Directors will
serve as trustees of the ESOP. Under the ESOP, the trustees must vote all
allocated shares held in the ESOP in accordance with the instructions of plan
participants and unallocated shares and allocated shares for which no
instructions are received must be voted in the same ratio on any matter as those
shares for which instructions are given.
Pursuant to applicable accounting requirements, compensation expense for a
leveraged ESOP is recorded at the fair market value of the ESOP shares when
committed to be released to participants' accounts. See "PRO FORMA DATA."
The ESOP will be subject to the requirements of ERISA and the regulations
of the IRS and the Department of Labor issued thereunder. The Association
intends to request a determination letter from the IRS regarding the tax-
qualified status of the ESOP. Although no assurance can be given that a
favorable determination letter will be issued, the Association expects that a
favorable determination letter will be received by the ESOP.
STOCK OPTION PLAN. The Board of Directors of the Holding Company intends
to adopt the Stock Option Plan and to submit the Stock Option Plan to the
stockholders for approval at a meeting held no earlier than six months following
consummation of the conversion. Under current OTS regulations, the approval of
a majority vote of the
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<PAGE>
Holding Company's outstanding shares is required for implementation of the Stock
Option Plan within one year of the consummation of the conversion. The Stock
Option Plan will comply with all applicable regulatory requirements. However,
the Stock Option Plan will not be approved or endorsed by the OTS.
The Stock Option Plan will be designed to attract and retain qualified
management personnel and nonemployee directors, to provide such officers, key
employees and nonemployee directors with a proprietary interest in the Holding
Company as an incentive to contribute to the success of the Holding Company and
the Association, and to reward officers and key employees for outstanding
performance. The Stock Option Plan will provide for the grant of incentive
stock options ("ISOs") intended to comply with the requirements of Section 422
of the Code and for nonqualified stock options ("NQOs"). Upon receipt of
stockholder approval of the Stock Option Plan, stock options may be granted to
key employees of the Holding Company and its subsidiaries, including the
Association. Unless sooner terminated, the Stock Option Plan will continue in
effect for a period of ten years from the date the Stock Option Plan is approved
by stockholders.
A number of authorized shares of common stock equal to 10% of the number of
shares of common stock issued in connection with the conversion will be reserved
for future issuance under the Stock Option Plan (86,250 shares based on the
issuance of 862,500 shares at the maximum of the Estimated Valuation Range).
Shares acquired upon exercise of options will be authorized but unissued shares
or treasury shares. In the event of a stock split, reverse stock split, stock
dividend, or similar event, the number of shares of common stock under the Stock
Option Plan, the number of shares to which any award relates and the exercise
price per share under any option may be adjusted by the Committee (as defined
below) to reflect the increase or decrease in the total number of shares of
common stock outstanding.
The Stock Option Plan will be administered and interpreted by a committee
of the Board of Directors ("Committee"). Subject to applicable OTS regulations,
the Committee will determine which nonemployee directors, officers and key
employees will be granted options, whether, in the case of officers and
employees, such options will be ISOs or NQOs, the number of shares subject to
each option, and the exercisability of such options. All options granted to
nonemployee directors will be NQOs. The per share exercise price of all options
will equal at least 100% of the fair market value of a share of common stock on
the date the option is granted.
Under current OTS regulations, if the Stock Option Plan is implemented
within one year of the consummation of the conversion, (i) no officer or
employees could receive an award of options covering in excess of 25%, (ii) no
nonemployee director could receive in excess of 5% and (iii) nonemployee
directors, as a group, could not receive in excess of 30% of the number of
shares reserved for issuance under the Stock Option Plan.
It is anticipated that all options granted under the Stock Option Plan will
be granted subject to a vesting schedule whereby the options become exercisable
over a specified period following the date of grant. Under OTS regulations, if
the Stock Option Plan is implemented within the first year following
consummation of the conversion the minimum vesting period will be five years.
All unvested options will be immediately exercisable in the event of the
recipient's death or disability. Unvested options also will be exercisable
following a change in control (as defined in the Stock Option Plan) of the
Holding Company or the Association to the extent authorized or not prohibited by
applicable law or regulations. OTS regulations currently provide that if the
Stock Option Plan is implemented prior to the first anniversary of the
conversion, vesting may not be accelerated upon a change in control of the
Holding Company or the Association.
Each stock option that is awarded to an officer or key employee will remain
exercisable at any time on or after the date it vests through the earlier to
occur of the tenth anniversary of the date of grant or three months after the
date on which the optionee terminates employment (one year in the event of the
optionee's termination by reason of death or disability), unless such period is
extended by the Committee. Each stock option that is awarded to a nonemployee
director will remain exercisable through the earlier to occur of the tenth
anniversary of the date of grant or one year (two years in the event of a
nonemployee director's death or disability) following the termination of a
nonemployee director's service on the Board. All stock options are
nontransferable except by will or the laws of descent or distribution.
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<PAGE>
Under current provisions of the Code, the federal tax treatment of ISOs and
NQOs is different. With respect to ISOs, an optionee who satisfies certain
holding period requirements will not recognize income at the time the option is
granted or at the time the option is exercised. If the holding period
requirements are satisfied, the optionee will generally recognize capital gain
or loss upon a subsequent disposition of the shares of common stock received
upon the exercise of a stock option. If the holding period requirements are not
satisfied, the difference between the fair market value of the common stock on
the date of grant and the option exercise price, if any, will be taxable to the
optionee at ordinary income tax rates. A federal income tax deduction generally
will not be available to the Holding Company as a result of the grant or
exercise of an ISO, unless the optionee fails to satisfy the holding period
requirements. With respect to NQOs, the grant of an NQO generally is not a
taxable event for the optionee and no tax deduction will be available to the
Holding Company. However, upon the exercise of an NQO, the difference between
the fair market value of the common stock on the date of exercise and the option
exercise price generally will be treated as compensation to the optionee upon
exercise, and the Holding Company will be entitled to a compensation expense
deduction in the amount of income realized by the optionee.
Although no specific award determinations have been made at this time, the
Holding Company and the Association anticipate that if stockholder approval is
obtained it would provide awards to its directors, officers and employees to the
extent and under terms and conditions permitted by applicable regulations. The
size of individual awards will be determined prior to submitting the Stock
Option Plan for stockholder approval, and disclosure of anticipated awards will
be included in the proxy materials for such meeting.
MANAGEMENT RECOGNITION PLAN. Following the conversion, the Board of
Directors of the Holding Company intends to adopt an MRP for officers,
employees, and nonemployee directors of the Holding Company and the Association,
and to submit the MRP to the stockholders for approval at a meeting held no
earlier than six months following consummation of the conversion. The MRP will
enable the Holding Company and the Association to provide participants with a
proprietary interest in the Holding Company as an incentive to contribute to the
success of the Holding Company and the Association. The MRP will comply with
all applicable regulatory requirements. However, the MRP will not be approved
or endorsed by the OTS. Under current OTS regulations, the approval of a
majority vote of the Holding Company's outstanding shares is required for
implementation of the MRP within one year of the consummation of the conversion.
The MRP expects to acquire a number of shares of the Holding Company's
common stock equal to 4% of the common stock issued in connection with the
conversion (34,500 shares based on the issuance of 862,500 shares in the
conversion at the maximum of the Estimated Valuation Range). Such shares will
be acquired on the open market, if available, with funds contributed by the
Holding Company or the Association to a trust which the Holding Company may
establish in conjunction with the MRP ("MRP Trust") or from authorized but
unissued shares or treasury shares of the Holding Company.
A committee of the Board of Directors of the Holding Company will
administer the MRP, the members of which will also serve as trustees of the MRP
Trust, if formed. The trustees will be responsible for the investment of all
funds contributed by the Holding Company or the Association to the MRP Trust.
The Board of Directors of the Holding Company may terminate the MRP at any time
and, upon termination, all unallocated shares of common stock will revert to the
Holding Company.
Shares of common stock granted pursuant to the MRP will be in the form of
restricted stock payable ratably over a specified vesting period following the
date of grant. During the period of restriction, all shares will be held in
escrow by the Holding Company or by the MRP Trust. Under OTS regulations, if
the MRP is implemented within the first year following consummation of the
conversion, the minimum vesting period will be five years. All unvested MRP
awards will vest in the event of the recipient's death or disability. Unvested
MRP awards will also vest following a change in control (as defined in the MRDP)
of the Holding Company or the Association to the extent authorized or not
prohibited by applicable law or regulations. OTS regulations currently provide
that, if the MRP is implemented prior
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<PAGE>
to the first anniversary of the conversion, vesting may not be accelerated upon
a change in control of the Holding Company or the Association.
A recipient of an MRP award in the form of restricted stock generally will
not recognize income upon an award of shares of common stock, and the Holding
Company will not be entitled to a federal income tax deduction, until the
termination of the restrictions. Upon such termination, the recipient will
recognize ordinary income in an amount equal to the fair market value of the
common stock at the time and the Holding Company will be entitled to a deduction
in the same amount after satisfying federal income tax withholding requirements.
However, the recipient may elect to recognize ordinary income in the year the
restricted stock is granted in an amount equal to the fair market value of the
shares at that time, determined without regard to the restrictions. In that
event, the Holding Company will be entitled to a deduction in such year and in
the same amount. Any gain or loss recognized by the recipient upon subsequent
disposition of the stock will be either a capital gain or capital loss.
Although no specific award determinations have been made at this time, the
Holding Company and the Association anticipate that if stockholder approval is
obtained it would provide awards to its directors, officers and employees to the
extent and under terms and conditions permitted by applicable regulations.
Under current OTS regulations, if the MRP is implemented within one year of the
consummation of the conversion, (i) no officer or employees could receive an
award covering in excess of 25%, (ii) no nonemployee director could receive in
excess of 5% and (iii) nonemployee directors, as a group, could not receive in
excess of 30% of the number of shares reserved for issuance under the MRP. The
size of individual awards will be determined prior to submitting the MRP for
stockholder approval, and disclosure of anticipated awards will be included in
the proxy materials for such meeting.
TRANSACTIONS WITH THE ASSOCIATION
Federal regulations require that all loans or extensions of credit to
executive officers and directors must generally be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with other persons (unless the loan or
extension of credit is made under a benefit program generally available to all
other employees and does not give preference to any insider over any other
employee) and must not involve more than the normal risk of repayment or present
other unfavorable features. The Association's policy is not to make any new
loans or extensions of credit to the Association's executive officers and
directors at different rates or terms than those offered to the general public.
In addition, loans made to a director or executive officer in an amount that,
when aggregated with the amount of all other loans to such person and his
related interests, are 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.
See "REGULATION -- Federal Regulation of Savings Associations -- Transactions
with Affiliates." The aggregate amount of loans by the Association to its
executive officers and directors was $59,000 at September 30, 1998, or
approximately 0.5% of pro forma stockholders' equity (based on the issuance of
shares at the maximum of the Estimated Valuation Range).
REGULATION
GENERAL
The Association is subject to extensive regulation, examination and
supervision by the OTS as its chartering agency, and the FDIC, as the insurer of
its deposits. The activities of federal savings institutions are governed by
the Home Owners' Loan Act, as amended ("HOLA") and, in certain respects, the
Federal Deposit Insurance Act ("FDIA") and the regulations issued by the OTS and
the FDIC to implement these statutes. These laws and regulations delineate the
nature and extent of the activities in which federal savings associations may
engage. Lending activities and other investments must comply with various
statutory and regulatory capital requirements. In addition, the Association's
relationship with its depositors and borrowers is also regulated to a great
extent, especially in such matters as the ownership of deposit accounts and the
form and content of the Association's mortgage documents. The Association
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must file reports with the OTS and the FDIC concerning its activities and
financial condition in addition to obtaining regulatory approvals prior to
entering into certain transactions such as mergers with, or acquisitions of,
other financial institutions. There are periodic examinations by the OTS and the
FDIC to review the Association's compliance with various regulatory
requirements. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement
activities and examination policies, including policies with respect to the
classification of assets and the establishment of adequate loan loss reserves
for regulatory purposes. Any change in such policies, whether by the OTS, the
FDIC or Congress, could have a material adverse impact on the Association and
its operations.
FEDERAL REGULATION OF SAVINGS ASSOCIATIONS
OFFICE OF THRIFT SUPERVISION. The OTS is an office in the Department of
the Treasury subject to the general oversight of the Secretary of the Treasury.
The OTS generally possesses the supervisory and regulatory duties and
responsibilities formerly vested in the Federal Home Loan Bank Board. Among
other functions, the OTS issues and enforces regulations affecting federally
insured savings associations and regularly examines these institutions.
FEDERAL HOME LOAN BANK SYSTEM. The FHLB System, consisting of 12 FHLBs, is
under the jurisdiction of the Federal Housing Finance Board ("FHFB"). The
designated duties of the FHFB are to supervise the FHLBs, to ensure that the
FHLBs carry out their housing finance mission, to ensure that the FHLBs remain
adequately capitalized and able to raise funds in the capital markets, and to
ensure that the FHLBs operate in a safe and sound manner. The Association, as a
member of the FHLB-Des Moines, is required to acquire and hold shares of capital
stock in the FHLB-Des Moines in an amount equal to the greater of (i) 1.0% of
the aggregate outstanding principal amount of residential mortgage loans, home
purchase contracts and similar obligations at the beginning of each year, or
(ii) 1/20 of its advances (i.e., borrowings) from the FHLB-Des Moines. The
Association is in compliance with this requirement with an investment in FHLB-
Des Moines stock of $373,500 at September 30, 1998. Among other benefits, the
FHLB-Des Moines provides a central credit facility primarily for member
institutions. It is funded primarily from proceeds derived from the sale of
consolidated obligations of the FHLB System. It makes advances to members in
accordance with policies and procedures established by the FHFB and the Board of
Directors of the FHLB-Des Moines.
FEDERAL DEPOSIT INSURANCE CORPORATION. The FDIC is an independent federal
agency that insures the deposits, up to prescribed statutory limits, of
depository institutions. The FDIC currently maintains two separate insurance
funds: the Bank Insurance Fund ("BIF") and the SAIF. As insurer of the
Association's deposits, the FDIC has examination, supervisory and enforcement
authority over the Association.
The Association's accounts are insured by the SAIF to the maximum extent
permitted by law. The Association pays deposit insurance premiums based on a
risk-based assessment system established by the FDIC. Under applicable
regulations, institutions are assigned to one of three capital groups that are
based solely on the level of an institution's capital -- "well capitalized,"
"adequately capitalized," and "undercapitalized" -- which are defined in the
same manner as the regulations establishing the prompt corrective action system,
as discussed below. These three groups are then divided into three subgroups
which reflect varying levels of supervisory concern, from those which are
considered to be healthy to those which are considered to be of substantial
supervisory concern. The matrix so created results in nine assessment risk
classifications, with rates that until September 30, 1996 ranged from 0.23% for
well capitalized, financially sound institutions with only a few minor
weaknesses to 0.31% for undercapitalized institutions that pose a substantial
risk of loss to the SAIF unless effective corrective action is taken.
Pursuant to the Deposit Insurance Funds Act ("DIF Act"), which was enacted
on September 30, 1996, the FDIC imposed a special assessment on each depository
institution with SAIF-assessable deposits which resulted in the SAIF achieving
its designated reserve ratio. In connection therewith, the FDIC reduced the
assessment schedule for SAIF members, effective January 1, 1997, to a range of
0% to 0.27%, with most institutions, including the Association, paying 0%. This
assessment schedule is the same as that for the BIF, which reached its
designated reserve ratio in 1995. In addition, since January 1, 1997, SAIF
members are charged an assessment of .065% of SAIF-assessable deposits for
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the purpose of paying interest on the obligations issued by the Financing
Corporation ("FICO") in the 1980s to help fund the thrift industry cleanup.
BIF-assessable deposits will be charged an assessment to help pay interest on
the FICO bonds at a rate of approximately .013% until the earlier of December
31, 1999 or the date upon which the last savings association ceases to exist,
after which time the assessment will be the same for all insured deposits.
The DIF Act provides for the merger of the BIF and the SAIF into the
Deposit Insurance Fund on January 1, 1999, but only if no insured depository
institution is a savings association on that date. The DIF Act contemplates the
development of a common charter for all federally chartered depository
institutions and the abolition of separate charters for national banks and
federal savings associations. It is not known what form the common charter may
take and what effect, if any, the adoption of a new charter would have on the
operation of the Association.
The FDIC may terminate the deposit insurance of any insured depository
institution if it determines after a hearing that the institution has engaged or
is engaging in unsafe or unsound practices, is in an unsafe or unsound condition
to continue operations, or has violated any applicable law, regulation, order or
any condition imposed by an agreement with the FDIC. It also may suspend
deposit insurance temporarily during the hearing process for the permanent
termination of insurance, if the institution has no tangible capital. If
insurance of accounts is terminated, the accounts at the institution at the time
of termination, less subsequent withdrawals, shall continue to be insured for a
period of six months to two years, as determined by the FDIC. Management is
aware of no existing circumstances that could result in termination of the
deposit insurance of the Association.
LIQUIDITY REQUIREMENTS. Under OTS regulations, each savings institution is
required to maintain an average daily balance of liquid assets (cash, certain
time deposits and savings accounts, bankers' acceptances, and specified U.S.
Government, state or federal agency obligations and certain other investments)
equal to a monthly average of not less than a specified percentage (currently
4.0%) of its net withdrawable accounts plus short-term borrowings. Monetary
penalties may be imposed for failure to meet liquidity requirements. See
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS -- Liquidity and Capital Resources."
PROMPT CORRECTIVE ACTION. Under the FDIA, each federal banking agency is
required to implement a system of prompt corrective action for institutions that
it regulates. The federal banking agencies have promulgated substantially
similar regulations to implement this system of prompt corrective action. Under
the regulations, an institution shall be deemed to be (i) "well capitalized" if
it has a total risk-based capital ratio of 10.0% or more, has a Tier I risk-
based capital ratio of 6.0% or more, has a leverage ratio of 5.0% or more and is
not subject to specified requirements to meet and maintain a specific capital
level for any capital measure; (ii) "adequately capitalized" if it has a total
risk-based capital ratio of 8.0% or more, has a Tier I risk-based capital ratio
of 4.0% or more, has a leverage ratio of 4.0% or more (3.0% under certain
circumstances) and does not meet the definition of "well capitalized;" (iii)
"undercapitalized" if it has a total risk-based capital ratio that is less than
8.0%, has a Tier I risk-based capital ratio that is less than 4.0% or has a
leverage ratio that is less than 4.0% (3.0% under certain circumstances); (iv)
"significantly undercapitalized" if it has a total risk-based capital ratio that
is less than 6.0%, has a Tier I risk-based capital ratio that is less than 3.0%
or has a leverage ratio that is less than 3.0%; and (v) "critically
undercapitalized" if it has a ratio of tangible equity to total assets that is
equal to or less than 2.0%.
A federal banking agency may, after notice and an opportunity for a
hearing, reclassify a well capitalized institution as adequately capitalized and
may require an adequately capitalized institution or an undercapitalized
institution to comply with supervisory actions as if it were in the next lower
category if the institution is in an unsafe or unsound condition or has received
in its most recent examination, and has not corrected, a less than satisfactory
rating for asset quality, management, earnings or liquidity. (The OTS may not,
however, reclassify a significantly undercapitalized institution as critically
undercapitalized.)
An institution generally must file a written capital restoration plan that
meets specified requirements, as well as a performance guaranty by each company
that controls the institution, with the appropriate federal banking agency
within 45 days of the date that the institution receives notice or is deemed to
have notice that it is undercapitalized,
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significantly undercapitalized or critically undercapitalized. Immediately upon
becoming undercapitalized, an institution shall become subject to various
mandatory and discretionary restrictions on its operations.
At September 30, 1998, the Association was categorized as "well
capitalized" under the prompt corrective action regulations of the OTS.
STANDARDS FOR SAFETY AND SOUNDNESS. The federal banking regulatory
agencies have prescribed, by regulation, standards for all insured depository
institutions relating to: (i) internal controls, information systems and
internal audit systems; (ii) loan documentation; (iii) credit underwriting; (iv)
interest rate risk exposure; (v) asset growth; (vi) asset quality; (vii)
earnings; and (viii) compensation, fees and benefits ("Guidelines"). The
Guidelines set forth the safety and soundness standards that the federal banking
agencies use to identify and address problems at insured depository institutions
before capital becomes impaired. If the OTS determines that the Association
fails to meet any standard prescribed by the Guidelines, the agency may require
the Association to submit to the agency an acceptable plan to achieve compliance
with the standard. OTS regulations establish deadlines for the submission and
review of such safety and soundness compliance plans.
QUALIFIED THRIFT LENDER TEST. All savings associations are required to
meet a qualified thrift lender ("QTL") test to avoid certain restrictions on
their operations. A savings institution that fails to become or remain a QTL
shall either convert to a national bank charter or be subject to the following
restrictions on its operations: (i) the association may not make any new
investment or engage in activities that would not be permissible for national
banks; (ii) the association may not establish any new branch office where a
national bank located in the savings institution's home state would not be able
to establish a branch office; (iii) the association shall be ineligible to
obtain new advances from any FHLB; and (iv) the payment of dividends by the
association shall be subject to the rules regarding the statutory and regulatory
dividend restrictions applicable to national banks. Also, beginning three years
after the date on which the savings institution ceases to be a QTL, the savings
institution would be prohibited from retaining any investment or engaging in any
activity not permissible for a national bank and would be required to repay any
outstanding advances to any FHLB. In addition, within one year of the date on
which a savings association controlled by a company ceases to be a QTL, the
company must register as a bank holding company and become subject to the rules
applicable to such companies. A savings institution may requalify as a QTL if
it thereafter complies with the QTL test.
Currently, the QTL test requires that either an institution qualify as a
domestic building and loan association under the Internal Revenue Code or that
65% of an institution's "portfolio assets" (as defined) consist of certain
housing and consumer-related assets on a monthly average basis in nine out of
every 12 months. Assets that qualify without limit for inclusion as part of the
65% requirement are loans made to purchase, refinance, construct, improve or
repair domestic residential housing and manufactured housing; home equity loans;
mortgage-backed securities (where the mortgages are secured by domestic
residential housing or manufactured housing); FHLB stock; direct or indirect
obligations of the FDIC; and loans for educational purposes, loans to small
businesses and loans made through credit cards. In addition, the following
assets, among others, may be included in meeting the test subject to an overall
limit of 20% of the savings institution's portfolio assets: 50% of residential
mortgage loans originated and sold within 90 days of origination; 100% of
consumer loans; and stock issued by Freddie Mac or Fannie Mae. Portfolio assets
consist of total assets minus the sum of (i) goodwill and other intangible
assets, (ii) property used by the savings institution to conduct its business,
and (iii) liquid assets up to 20% of the institution's total assets. At
September 30, 1998, the Association was in compliance with the QTL test.
CAPITAL REQUIREMENTS. Under OTS regulations a savings association must
satisfy three minimum capital requirements: core capital, tangible capital and
risk-based capital. Savings associations must meet all of the standards in
order to comply with the capital requirements.
OTS capital regulations establish a 3% core capital or leverage ratio
(defined as the ratio of core capital to adjusted total assets). Core capital
is defined to include common stockholders' equity, noncumulative perpetual
preferred stock and any related surplus, and minority interests in equity
accounts of consolidated subsidiaries, less
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(i) any intangible assets, except for certain qualifying intangible assets;
(ii) certain mortgage servicing rights; and (iii) equity and debt investments
in subsidiaries that are not "includable subsidiaries," which is defined as
subsidiaries engaged solely in activities not impermissible for a national bank,
engaged in activities impermissible for a national bank but only as an agent for
its customers, or engaged solely in mortgage-banking activities. In calculating
adjusted total assets, adjustments are made to total assets to give effect to
the exclusion of certain assets from capital and to account appropriately for
the investments in and assets of both includable and non-includable
subsidiaries. Institutions that fail to meet the core capital requirement would
be required to file with the OTS a capital plan that details the steps they will
take to reach compliance. In addition, the OTS's prompt corrective action
regulation provides that a savings institution that has a leverage ratio of less
than 4% (3% for institutions receiving the highest CAMEL examination rating)
will be deemed to be "undercapitalized" and may be subject to certain
restrictions. See "-- Federal Regulation of Savings Associations -- Prompt
Corrective Action."
Savings associations also must maintain "tangible capital" not less than
1.5% of the Association's adjusted total assets. "Tangible capital" is defined,
generally, as core capital minus any "intangible assets" other than purchased
mortgage servicing rights.
Each savings institution must maintain total risk-based capital equal to at
least 8% of risk-weighted assets. Total risk-based capital consists of the sum
of core and supplementary capital, provided that supplementary capital cannot
exceed core capital, as previously defined. Supplementary capital includes (i)
permanent capital instruments such as cumulative perpetual preferred stock,
perpetual subordinated debt and mandatory convertible subordinated debt, (ii)
maturing capital instruments such as subordinated debt, intermediate-term
preferred stock and mandatory convertible subordinated debt, subject to an
amortization schedule, and (iii) general valuation loan and lease loss
allowances up to 1.25% of risk-weighted assets.
The risk-based capital regulation assigns each balance sheet asset held by
a savings institution to one of four risk categories based on the amount of
credit risk associated with that particular class of assets. Assets not
included for purposes of calculating capital are not included in calculating
risk-weighted assets. The categories range from 0% for cash and securities that
are backed by the full faith and credit of the U.S. Government to 100% for
repossessed assets or assets more than 90 days past due. Qualifying residential
mortgage loans (including multi-family mortgage loans) are assigned a 50% risk
weight. Consumer, commercial, home equity and residential construction loans
are assigned a 100% risk weight, as are nonqualifying residential mortgage loans
and that portion of land loans and nonresidential construction loans that do not
exceed an 80% loan-to-value ratio. The book value of assets in each category is
multiplied by the weighing factor (from 0% to 100%) assigned to that category.
These products are then totaled to arrive at total risk-weighted assets. Off-
balance sheet items are included in risk-weighted assets by converting them to
an approximate balance sheet "credit equivalent amount" based on a conversion
schedule. These credit equivalent amounts are then assigned to risk categories
in the same manner as balance sheet assets and included risk-weighted assets.
The OTS has incorporated an interest rate risk component into its
regulatory capital rule. Under the rule, savings associations with "above
normal" interest rate risk exposure would be subject to a deduction from total
capital for purposes of calculating their risk-based capital requirements. A
savings association's interest rate risk is measured by the decline in the net
portfolio value of its assets (i.e., the difference between incoming and
----
outgoing discounted cash flows from assets, liabilities and off-balance sheet
contracts) that would result from a hypothetical 200 basis point increase or
decrease in market interest rates divided by the estimated economic value of the
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 risk component in calculating its total
capital under the risk-based capital rule. The interest rate risk component is
an amount equal to one-half of the difference between the institution's measured
interest rate risk and 2%, multiplied by the estimated economic value of the
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
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otherwise. The rule also provides that the Director of the OTS may waive or
defer an association's interest rate risk component on a case-by-case basis.
Under certain circumstances, a savings association may request an adjustment to
its interest rate risk component if it believes that the OTS-calculated interest
rate risk component overstates its interest rate risk exposure. In addition,
certain "well-capitalized" institutions may obtain authorization to use their
own interest rate risk model to calculate their interest rate risk component in
lieu of the OTS-calculated amount. The OTS has postponed the date that the
component will first be deducted from an institution's total capital.
See "HISTORICAL AND PRO FORMA REGULATORY CAPITAL COMPLIANCE" for a table
that sets forth in terms of dollars and percentages the OTS tangible, core and
risk-based capital requirements, the Association's historical amounts and
percentages at September 30, 1998 and pro forma amounts and percentages based
upon the assumptions stated therein.
LIMITATIONS ON CAPITAL DISTRIBUTIONS. OTS regulations impose uniform
limitations on the ability of all savings associations to engage in various
distributions of capital such as dividends, stock repurchases and cash-out
mergers. In addition, OTS regulations require the Association to give the OTS
30 days' advance notice of any proposed declaration of dividends, and the OTS
has the authority under its supervisory powers to prohibit the payment of
dividends. The regulation utilizes a three-tiered approach which permits
various levels of distributions based primarily upon a savings association's
capital level.
A Tier 1 savings association has capital in excess of its fully phased-in
capital requirement (both before and after the proposed capital distribution).
A Tier 1 savings association may make (without application but upon prior notice
to, and no objection made by, the OTS) capital distributions during a calendar
year up to 100% of its net income to date during the calendar year plus one-half
its surplus capital ratio (i.e., the amount of capital in excess of its fully
----
phased-in requirement) at the beginning of the calendar year or the amount
authorized for a Tier 2 association. Capital distributions in excess of such
amount require advance notice to the OTS. A Tier 2 savings association has
capital equal to or in excess of its minimum capital requirement but below its
fully phased-in capital requirement (both before and after the proposed capital
distribution). Such an association may make (without application) capital
distributions up to an amount equal to 75% of its net income during the previous
four quarters depending on how close the association is to meeting its fully
phased-in capital requirement. Capital distributions exceeding this amount
require prior OTS approval. Tier 3 associations are savings associations with
capital below the minimum capital requirement (either before or after the
proposed capital distribution). Tier 3 associations may not make any capital
distributions without prior approval from the OTS.
The Association currently meets the criteria to be designated a Tier 1
association and, consequently, could at its option (after prior notice to, and
no objection made by, the OTS) distribute up to 100% of its net income during
the calendar year plus 50% of its surplus capital ratio at the beginning of the
calendar year less any distributions previously paid during the year.
LOANS TO ONE BORROWER. Under the HOLA, savings institutions are generally
subject to the national bank limit on loans to one borrower. Generally, this
limit is 15% of the 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. The OTS by regulation has amended the loans to one
borrower rule to permit savings associations meeting certain requirements,
including capital requirements, to extend loans to one borrower in additional
amounts under circumstances limited essentially to loans to develop or complete
residential housing units. See "BUSINESS OF THE ASSOCIATION -- Lending
Activities -- Loans to One Borrower" for further information.
ACTIVITIES OF ASSOCIATIONS AND THEIR SUBSIDIARIES. A savings association
may establish operating subsidiaries to engage in any activity that the savings
association may conduct directly and may establish service corporation
subsidiaries to engage in certain preapproved activities or, with approval of
the OTS, other activities reasonably related to the activities of financial
institutions. When a savings association establishes or acquires a subsidiary
or elects to
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conduct any new activity through a subsidiary that the association controls, the
savings association must notify the FDIC and the OTS 30 days in advance and
provide the information each agency may, by regulation, require. Savings
associations also must conduct the activities of subsidiaries in accordance with
existing regulations and orders.
The OTS may determine that the continuation by a savings association of its
ownership control of, or its relationship to, the subsidiary constitutes a
serious risk to the safety, soundness or stability of the association or is
inconsistent with sound banking practices or with the purposes of the FDIA.
Based upon that determination, the FDIC or the OTS has the authority to order
the savings association to divest itself of control of the subsidiary. The FDIC
also may determine by regulation or order that any specific activity poses a
serious threat to the SAIF. If so, it may require that no SAIF member engage in
that activity directly.
TRANSACTIONS WITH AFFILIATES. Savings associations must comply with
Sections 23A and 23B of the Federal Reserve Act relative to transactions with
affiliates in the same manner and to the same extent as if the savings
association were a Federal Reserve member bank. A savings and loan holding
company, its subsidiaries and any other company under common control are
considered affiliates of the subsidiary savings association under the HOLA.
Generally, Sections 23A and 23B: (i) limit the extent to which the insured
association or its subsidiaries may engage in certain covered transactions with
an affiliate to an amount equal to 10% of such institution's capital and surplus
and place an aggregate limit on all such transactions with affiliates to an
amount equal to 20% of such capital and surplus, and (ii) require that all such
transactions be on terms substantially the same, or at least as favorable to the
institution or subsidiary, as those provided to a non-affiliate. The term
"covered transaction" includes the making of loans, the purchase of assets, the
issuance of a guarantee and similar types of transactions. Any loan or
extension of credit by the Association to an affiliate must be secured by
collateral in accordance with Section 23A.
Three additional rules apply to savings associations: (i) a savings
association may not make any loan or other extension of credit to an affiliate
unless that affiliate is engaged only in activities permissible for bank holding
companies; (ii) a savings association may not purchase or invest in securities
issued by an affiliate (other than securities of a subsidiary); and (iii) the
OTS may, for reasons of safety and soundness, impose more stringent restrictions
on savings associations but may not exempt transactions from or otherwise
abridge Section 23A or 23B. Exemptions from Section 23A or 23B may be granted
only by the Federal Reserve, as is currently the case with respect to all FDIC-
insured banks.
The Association's authority to extend credit to executive officers,
directors and 10% shareholders, as well as entities controlled by such persons,
is currently governed by Sections 22(g) and 22(h) of the Federal Reserve Act,
and Regulation O thereunder. Among other things, these regulations require that
such loans be made on terms and conditions substantially the same as those
offered to unaffiliated individuals and not involve more than the normal risk of
repayment. Regulation O also places individual and aggregate limits on the
amount of loans the Association may make to such persons based, in part, on the
Association's capital position, and requires certain board approval procedures
to be followed. The OTS regulations, with certain minor variances, apply
Regulation O to savings institutions.
COMMUNITY REINVESTMENT ACT. Savings associations are also subject to the
provisions of the Community Reinvestment Act of 1977, which requires the
appropriate federal bank regulatory agency, in connection with its regular
examination of a savings association, to assess the savings association's record
in meeting the credit needs of the community serviced by the savings
associations, including low and moderate income neighborhoods. The regulatory
agency's assessment of the savings association's record is made available to the
public. Further, such assessment is required of any savings associations which
has applied, among other things, to establish a new branch office that will
accept deposits, relocate an existing office or merge or consolidate with, or
acquire the assets or assume the liabilities of, a federally regulated financial
institution. The Association received a "satisfactory" rating as a result of
its most recent OTS examination.
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SAVINGS AND LOAN HOLDING COMPANY REGULATIONS
HOLDING COMPANY ACQUISITIONS. The HOLA and OTS regulations issued
thereunder generally prohibit a savings and loan holding company, without prior
OTS approval, from acquiring more than 5% of the voting stock of any other
savings association or savings and loan holding company or controlling the
assets thereof. They also prohibit, among other things, any director or officer
of a savings and loan holding company, or any individual who owns or controls
more than 25% of the voting shares of such holding company, from acquiring
control of any savings association not a subsidiary of such savings and loan
holding company, unless the acquisition is approved by the OTS.
HOLDING COMPANY ACTIVITIES. As a unitary savings and loan holding company,
the Holding Company generally is not subject to activity restrictions under the
HOLA. If the Holding Company acquires control of another savings association as
a separate subsidiary other than in a supervisory acquisition, it would become a
multiple savings and loan holding company. There generally are more
restrictions on the activities of a multiple savings and loan holding company
than on those of a unitary savings and loan holding company. The HOLA provides
that, among other things, no multiple savings and loan holding company or
subsidiary thereof which is not an insured association shall commence or
continue for more than two years after becoming a multiple savings and loan
association holding company or subsidiary thereof, any business activity other
than: (i) furnishing or performing management services for a subsidiary insured
institution, (ii) conducting an insurance agency or escrow business, (iii)
holding, managing, or liquidating assets owned by or acquired from a subsidiary
insured institution, (iv) holding or managing properties used or occupied by a
subsidiary insured institution, (v) acting as trustee under deeds of trust, (vi)
those activities previously directly authorized by regulation as of March 5,
1987 to be engaged in by multiple holding companies or (vii) those activities
authorized by the Federal Reserve Board as permissible for bank holding
companies, unless the OTS by regulation, prohibits or limits such activities for
savings and loan holding companies. Those activities described in (vii) above
also must be approved by the OTS prior to being engaged in by a multiple savings
and loan holding company.
QUALIFIED THRIFT LENDER TEST. The HOLA provides that any savings and loan
holding company that controls a savings association that fails the QTL test, as
explained under "-- Federal Regulation of Savings Associations --Qualified
Thrift Lender Test," must, within one year after the date on which the
association ceases to be a QTL, register as and be deemed a bank holding company
subject to all applicable laws and regulations.
TAXATION
FEDERAL TAXATION
GENERAL. The Holding Company and the Association will report their income
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 Holding Company's and the Association's tax year will end on September 30 of
each year. 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 Holding Company.
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 thrift") were permitted to
establish a reserve for bad debts and to make annual additions thereto, which
may have been deducted in arriving at their taxable income. The 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 additions 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.
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The thrift bad debt rules were revised by Congress in 1996. The new rules
eliminated 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 required that all institutions recapture all or a
portion of their bad debt reserves added since the base year (last taxable year
beginning before January 1, 1988). The Association has no post-1987 reserves
subject to recapture. For taxable years beginning after December 31, 1995, the
Association's bad debt deduction will be determined under the experience method
using a formula based on actual bad debt experience over a period of years. 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 provisions
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 "nondividend
distributions" to the Holding Company, such distributions will be considered to
result in distributions from the balance of its bad debt reserve as of December
31, 1987 (or a lesser amount if the Association's loan portfolio decreased since
December 31, 1987) and then from the supplemental reserve for losses on loans
("Excess Distributions"), and an amount based on the Excess Distributions will
be included in the Association's taxable income. Nondividend 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. 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 "nondividend
distribution," then approximately one and one-half times the Excess Distribution
would be includable in gross income for federal income tax purposes, assuming a
34% corporate income tax rate (exclusive of state and local taxes). See
"REGULATION" and "DIVIDEND POLICY" for limits on the payment of dividends by the
Association. The Association does not intend to pay dividends that would result
in a recapture of any portion of its tax bad debt reserve.
CORPORATE ALTERNATIVE MINIMUM TAX. The Internal Revenue Code imposes a tax
on alternative minimum taxable income ("AMTI") at a rate of 20%. The excess of
the tax bad debt reserve deduction using the percentage of taxable income method
over the deduction that would have been allowable under the experience method is
treated as a preference item for purposes of computing the AMTI. In addition,
only 90% of AMTI can be offset by net operating loss carry-overs. 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). For taxable years
beginning after December 31, 1986, and before January 1, 1996, an environmental
tax of 0.12% of the excess of AMTI (with certain modification) over $2.0 million
is imposed on corporations, including the Association, whether or not an
Alternative Minimum Tax is paid.
DIVIDENDS-RECEIVED DEDUCTION. The Holding Company may exclude from its
income 100% of dividends received from the 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 Holding Company and the Association will not file a consolidated
tax return, except that if the Holding Company or the Association owns more than
20% of the stock of a corporation distributing a dividend, then 80% of any
dividends received may be deducted.
AUDITS. The IRS has not audited the Association's federal income tax
returns for the past five years.
MISSOURI TAXATION
Missouri-based thrift institutions, like the Association, are subject to a
special financial institutions tax at the rate of 7% of net income, without
regard to net operating loss carryforwards. This tax is in lieu of certain
other state taxes on thrift institutions, on their property, capital or income,
except taxes on tangible personal property owned by the Association and held for
lease or rental to others and on real estate, contributions paid to the
Unemployment
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Compensation Law of Missouri, social security taxes, sales taxes and use taxes.
In addition, the Association is entitled to a credit against this tax for all
taxes paid to the State of Missouri or any political subdivision, except taxes
on tangible personal property owned by the Association and held for lease or
rental to others and on real estate, contributions paid pursuant to the
Unemployment Compensation Law of Missouri, social security taxes, sales and use
taxes, and taxes imposed by the Missouri Financial Institutions Tax Law.
Missouri thrift institutions are not subject to the regular corporate income
tax. The Association's state income tax returns have not been audited for the
past five years.
THE CONVERSION
THE OTS HAS APPROVED THE PLAN OF CONVERSION SUBJECT TO ITS APPROVAL BY THE
MEMBERS OF THE ASSOCIATION ENTITLED TO VOTE THEREON AND TO THE SATISFACTION OF
CERTAIN OTHER CONDITIONS IMPOSED BY THE OTS IN ITS APPROVAL. OTS APPROVAL DOES
NOT CONSTITUTE A RECOMMENDATION OR ENDORSEMENT OF THE PLAN OF CONVERSION.
GENERAL
On September 24, 1998, the Board of Directors of the Association
unanimously adopted the Plan of Conversion, pursuant to which the Association
will be converted from a federally chartered mutual savings and loan association
to a federally chartered stock savings bank to be held as a wholly-owned
subsidiary of the Holding Company, a newly formed Missouri corporation. THE
FOLLOWING DISCUSSION OF THE PLAN OF CONVERSION IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE PLAN OF CONVERSION, WHICH IS ATTACHED AS EXHIBIT A TO THE
ASSOCIATION'S PROXY STATEMENT AND IS AVAILABLE TO MEMBERS OF THE ASSOCIATION
UPON REQUEST. The Plan of Conversion is also filed as an exhibit to the
Registration Statement. See "ADDITIONAL INFORMATION." The OTS has approved the
Plan of Conversion subject to its approval by the members of the Association
entitled to vote on the matter at a Special Meeting called for that purpose to
be held on ________, 1999 and subject to the satisfaction of certain other
conditions imposed by the OTS in its approval.
The conversion will be accomplished through adoption of a Federal Stock
Charter and Bylaws to authorize the issuance of capital stock by the
Association. As part of the conversion, the Association will issue all of its
newly issued capital stock (1,000 shares of common stock) to the Holding Company
in exchange for 50% of the net proceeds from the sale of common stock by the
Holding Company.
The Plan of Conversion provides generally that: (i) the Association will
convert from a federally chartered mutual savings and loan association to a
federally chartered stock savings bank; (ii) the common stock will be offered by
the Holding Company in the Subscription Offering to persons having subscription
rights; (iii) if necessary, shares of common stock not subscribed for in the
Subscription Offering will be offered in a Direct Community Offering to certain
members of the general public, with preference given to natural persons and
trusts of natural persons residing in the Local Community, and then to certain
members of the general public in a Syndicated Community Offering through a
syndicate of registered broker-dealers pursuant to selected dealers agreements;
and (iv) the Holding Company will purchase all of the capital stock of the
Association to be issued in connection with the conversion. The conversion will
be effected only upon completion of the sale of at least $6,375,000 of common
stock to be issued pursuant to the Plan of Conversion.
As part of the conversion, the Holding Company is making a Subscription
Offering of its common stock to holders of subscription rights in the following
order of priority: (i) Eligible Account Holders (depositors with $50.00 or more
on deposit as of June 30, 1997); (ii) the Association's ESOP; (iii) Supplemental
Eligible Account Holders (depositors with $50.00 or more on deposit as of
December 31, 1998); and (iv) Other Members (depositors of the Association as of
__________, 1999 and borrowers of the Association with loans outstanding as of
June 1, 1995 which continue to be outstanding as of __________, 1999).
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Shares of common stock not subscribed for in the Subscription Offering may
be offered for sale in the Direct Community Offering. The Direct Community
Offering, if one is held, is expected to begin immediately after the expiration
of the Subscription Offering, but may begin at any time during the Subscription
Offering. Shares of common stock not sold in the Subscription and Direct
Community Offerings may be offered in the Syndicated Community Offering.
Regulations require that the Direct Community and Syndicated Community Offerings
be completed within 45 days after completion of the fully extended Subscription
Offering unless extended by the Association or the Holding Company with the
approval of the regulatory authorities. If the Syndicated Community Offering is
determined not to be feasible, the Board of Directors of the Association will
consult with the regulatory authorities to determine an appropriate alternative
method for selling the unsubscribed shares of common stock. The Plan of
Conversion provides that the conversion must be completed within 24 months after
the date of the approval of the Plan of Conversion by the members of the
Association.
No sales of common stock may be completed, either in the Subscription
Offering, Direct Community Offering or Syndicated Community Offering unless the
Plan of Conversion is approved by the members of the Association.
The completion of the offering, however, is subject to market conditions
and other factors beyond the Association's control. No assurance can be given
as to the length of time after approval of the Plan of Conversion at the Special
Meeting that will be required to complete the Direct Community or Syndicated
Community Offerings or other sale of the common stock. If delays are
experienced, significant changes may occur in the estimated pro forma market
value of the Holding Company and the Association as converted, together with
corresponding changes in the net proceeds realized by the Holding Company from
the sale of the common stock. In the event the conversion is terminated, the
Association would be required to charge all conversion expenses against current
income.
Orders for shares of common stock will not be filled until at least 637,500
shares of common stock have been subscribed for or sold and the OTS approves the
final valuation and the conversion closes. If the conversion is not completed
within 45 days after the last day of the fully extended Subscription Offering
and the OTS consents to an extension of time to complete the conversion,
subscribers will be given the right to increase, decrease or rescind their
subscriptions. Unless an affirmative indication is received from subscribers
that they wish to continue to subscribe for shares, the funds will be returned
promptly, together with accrued interest at the Association's passbook rate from
the date payment is received until the funds are returned to the subscriber. If
such period is not extended, or, in any event, if the conversion is not
completed, all withdrawal authorizations will be terminated and all funds held
will be promptly returned together with accrued interest at the Association's
passbook rate from the date payment is received until the conversion is
terminated.
REASONS FOR THE CONVERSION
The Board of Directors and management believe that the conversion is in the
best interests of the Association, its members and the communities it serves.
The Association's Board of Directors has formed the Holding Company to serve as
a holding company, with the Association as its subsidiary, upon the consummation
of the conversion. By converting to the stock form of organization, the Holding
Company and the Association will be structured in the form used by holding
companies of commercial banks, most business entities and by a growing number of
savings institutions. Management of the Association believes that the
conversion offers a number of advantages which will be important to the future
growth and performance of the Association. The capital raised in the conversion
is intended to support the Association's current lending and investment
activities and may also support possible future expansion and diversification of
operations, although there are no current specific plans, arrangements or
understandings, written or oral, regarding any such expansion or
diversification. The conversion is also expected to afford the Association's
management, members and others the opportunity to become stockholders of the
Holding Company and participate more directly in, and contribute to, any future
growth of the Holding Company and the Association. The conversion will also
enable the Holding Company and the Association to raise additional capital in
the public equity or debt markets should the need arise, although there are no
current specific plans, arrangements or understandings, written or oral,
regarding
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any such financing activities. The Association, as a mutual savings and loan
association, does not have the authority to issue capital stock or debt
instruments, other than by accepting deposits.
EFFECTS OF CONVERSION TO STOCK FORM ON DEPOSITORS AND BORROWERS OF THE
ASSOCIATION
VOTING RIGHTS. Savings members and borrowers will have no voting rights in
the converted Association or the Holding Company and therefore will not be able
to elect directors of the Association or the Holding Company or to control their
affairs. Currently, these rights are accorded to savings members of the
Association. Subsequent to the conversion, voting rights will be vested
exclusively in the Holding Company with respect to the Association and the
holders of the common stock as to matters pertaining to the Holding Company.
Each holder of common stock shall be entitled to vote on any matter to be
considered by the stockholders of the Holding Company. A stockholder will be
entitled to one vote for each share of common stock owned.
SAVINGS ACCOUNTS AND LOANS. The Association's savings accounts, account
balances and existing FDIC insurance coverage of savings accounts will not be
affected by the conversion. Furthermore, the conversion will not affect the
loan accounts, loan balances or obligations of borrowers under their individual
contractual arrangements with the Association.
TAX EFFECTS. The Association has received an opinion from Muldoon, Murphy
& Faucette, Washington, D.C., that the conversion will constitute a nontaxable
reorganization under Section 368(a)(1)(F) of the Code. Among other things, the
opinion states that:
(i) no gain or loss will be recognized to the Association in its mutual
or stock form by reason of the conversion;
(ii) no gain or loss will be recognized to its account holders upon the
issuance to them of accounts in the Association immediately after the
conversion, in the same dollar amounts and on the same terms and conditions
as their accounts at the Association in its mutual form plus interest in
the liquidation account;
(iii) the tax basis of account holders' accounts in the Association
immediately after the conversion will be the same as the tax basis of their
accounts immediately prior to conversion;
(iv) the tax basis of each account holder's interest in the liquidation
account will be equal to the value, if any, of that interest;
(v) the tax basis of the common stock purchased in the conversion will be
the amount paid and the holding period for such stock will commence at the
date of purchase; and
(vi) no gain or loss will be recognized to account holders upon the
receipt or exercise of subscription rights in the conversion, except to the
extent subscription rights are deemed to have value as discussed below.
Unlike a private letter ruling issued by the IRS, an opinion of counsel is
not binding on the IRS and the IRS could disagree with the conclusions reached
therein. In the event of such disagreement, no assurance can be given that the
conclusions reached in an opinion of counsel would be sustained by a court if
contested by the IRS.
Based upon past rulings issued by the IRS, the opinion provides that the
receipt of subscription rights by Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members under the Plan of Conversion will be
taxable to the extent, if any, that the subscription rights are deemed to have a
fair market value. RP Financial, a financial consulting firm retained by the
Association, whose findings are not binding on the IRS, has issued a letter
indicating that the subscription rights do not have any value, based on the fact
that such rights are acquired by the recipients without cost, are
nontransferable and of short duration and afford the recipients the right only
to purchase shares of the common stock at a price equal to its estimated fair
market value, which will be the same price paid by
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purchasers in the Direct Community Offering for unsubscribed shares of common
stock. If the subscription rights are deemed to have a fair market value, the
receipt of such rights may only be taxable to those Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members who exercise their
subscription rights. The Association could also recognize a gain on the
distribution of such subscription rights. Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members are encouraged to consult with their
own tax advisors as to the tax consequences in the event the subscription rights
are deemed to have a fair market value.
The Association has also received an opinion from Moore, Horton & Carlson,
P.C., Mexico, Missouri, that, assuming the conversion does not result in any
federal income tax liability to the Association, its account holders, or the
Holding Company, implementation of the Plan of Conversion will not result in any
Missouri income tax liability to such entities or persons.
The opinions of Muldoon, Murphy & Faucette and Moore, Horton & Carlson,
P.C. and the letter from RP Financial are filed as exhibits to the Registration
Statement. See "ADDITIONAL INFORMATION."
PROSPECTIVE INVESTORS ARE URGED TO CONSULT WITH THEIR OWN TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE CONVERSION PARTICULAR TO THEM.
LIQUIDATION ACCOUNT. In the unlikely event of a complete liquidation of
the Association in its present mutual form, each depositor in the Association
would receive a pro rata share of any assets of the Association remaining after
payment of claims of all creditors (including the claims of all depositors up 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 or her
deposit account to the total value of all deposit accounts in the Association at
the time of liquidation.
After the conversion, holders of withdrawals deposit(s) in the Association,
including certificates of deposit ("Savings Account(s)"), shall not be entitled
to share in any residual assets in the event of liquidation of the Association.
However, pursuant to OTS regulations, the Association shall, at the time of the
conversion, establish a liquidation account in an amount equal to its total
equity as of the date of the latest statement of financial condition contained
herein.
The liquidation account shall be maintained by the Association subsequent
to the conversion for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders who retain their Savings Accounts in the Association.
Each Eligible Account Holder and Supplemental Eligible Account Holder shall,
with respect to each Savings Account held, have a related inchoate interest in a
portion of the liquidation account balance ("subaccount").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder or a Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of such holder's "qualifying deposit" in the
Savings Account and the denominator is the total amount of the "qualifying
deposits" of all such holders. Such initial subaccount balance shall not be
increased, and it shall be subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing day of the Association subsequent to June 30, 1997, or December 31, 1998
is less than the lesser of (i) the deposit balance in such Savings Account at
the close of business on any other annual closing date subsequent to June 30,
1997 or December 31, 1998 or (ii) the amount of the "qualifying deposit" in such
Savings Account on June 30, 1997 or December 31, 1998, then the subaccount
balance for such Savings Account shall be adjusted by reducing such subaccount
balance in an amount proportionate to the reduction in such deposit balance. In
the event of a downward adjustment, such subaccount balance shall not be
subsequently increased, notwithstanding any increase in the deposit balance of
the related Savings Account. If any such Savings Account is closed, the related
subaccount balance shall be reduced to zero.
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In the event of a complete liquidation of the Association (and only in such
event) each Eligible Account Holder and Supplemental Eligible Account Holder
shall be entitled to receive a liquidation distribution from the liquidation
account in the amount of the then current adjusted subaccount balance(s) for
Savings Account(s) then held by such holder before any liquidation distribution
may be made to stockholders. No merger, consolidation, bulk purchase of assets
with assumptions of Savings Accounts and other liabilities or similar
transactions with another federally insured institution in which the Association
is not the surviving institution shall be considered to be a complete
liquidation. In any such transaction the liquidation account shall be assumed
by the surviving institution.
In the unlikely event the Association is liquidated after the conversion,
depositors will be entitled to full payment of their deposit accounts before any
payment is made to the Holding Company as the sole stockholder of the
Association.
THE SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED COMMUNITY OFFERINGS
SUBSCRIPTION OFFERING. In accordance with the Plan of Conversion,
nontransferable subscription rights to purchase the common stock have been
issued to persons and entities entitled to purchase the common stock in the
Subscription Offering. The amount of the common stock which these parties may
purchase will be subject to the availability of the common stock for purchase
under the categories set forth in the Plan of Conversion. Subscription
priorities have been established for the allocation of stock to the extent that
the common stock is available. These priorities are as follows:
Category 1: Eligible Account Holders. Each depositor with $50.00 or more
on deposit at the Association as of June 30, 1997 will receive nontransferable
subscription rights to subscribe for up to the greater of $40,000 of common
stock (4,000 shares), one-tenth of one percent of the total offering of common
stock or 15 times the product (rounded down to the next whole number) obtained
by multiplying the total number of shares of common stock to be issued by a
fraction of which the numerator is the amount of qualifying deposit of the
Eligible Account Holder and the denominator is the total amount of qualifying
deposits of all Eligible Account Holders. If the exercise of subscription
rights in this category results in an oversubscription, shares of common stock
will be allocated among subscribing Eligible Account Holders so as to permit
each Eligible Account Holder, to the extent possible, to purchase a number of
shares sufficient to make such person's total allocation equal 100 shares or the
number of shares actually subscribed for, whichever is less. Thereafter,
unallocated shares will be allocated among subscribing Eligible Account Holders
proportionately, based on the amount of their respective qualifying deposits as
compared to total qualifying deposits of all Eligible Account Holders.
Subscription rights received by officers and directors in this category based on
their increased deposits in the Association in the one year period preceding
June 30, 1997 are subordinated to the subscription rights of other Eligible
Account Holders.
Category 2: ESOP. The Plan of Conversion provides that the ESOP shall
receive nontransferable subscription rights to purchase up to 8% of the shares
of common stock issued in the conversion. The ESOP intends to purchase 8% of
the shares of common stock issued in the conversion. In the event the number of
shares offered in the conversion is increased above the maximum of the Estimated
Valuation Range, the ESOP shall have a priority right to purchase any such
shares exceeding the maximum of the Estimated Valuation Range up to an aggregate
of 8% of the common stock. If the ESOP's subscription is not filled in its
entirety, the ESOP may purchase shares in the open market or may purchase shares
directly from the Holding Company.
Category 3: Supplemental Eligible Account Holders. Each depositor with
$50.00 or more on deposit as of December 31, 1998 will receive nontransferable
subscription rights to subscribe for up to the greater of $40,000 of common
stock (4,000 shares), one-tenth of one percent of the total offering of common
stock or 15 times the product (rounded down to the next whole number) obtained
by multiplying the total number of shares of common stock to be issued by a
fraction of which the numerator is the amount of qualifying deposits of the
Supplemental Eligible Account Holder and the denominator is the total amount of
qualifying deposits of all Supplemental Eligible Account Holders. If the
exercise of subscription rights in this category results in an oversubscription,
shares of common stock will be
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allocated among subscribing Supplemental Eligible Account Holders so as to
permit each Supplemental Eligible Account Holder, to the extent possible, to
purchase a number of shares sufficient to make his or her total allocation equal
100 shares or the number of shares actually subscribed for, whichever is less.
Thereafter, unallocated shares will be allocated among subscribing Supplemental
Eligible Account Holders proportionately, based on the amount of their
respective qualifying deposits as compared to total qualifying deposits of all
Supplemental Eligible Account Holders.
Category 4: Other Members. Each depositor of the Association as of the
Voting Record Date (__________, 1999) and each borrower with a loan outstanding
on June 1, 1995 which continues to be outstanding as of the Voting Record Date
will receive nontransferable subscription rights to purchase up to $40,000 of
common stock (4,000 shares) in the conversion to the extent shares are available
following subscriptions by Eligible Account Holders, the Association's ESOP and
Supplemental Eligible Account Holders. In the event of an oversubscription in
this category, the available shares will be allocated proportionately based on
the amount of the respective subscriptions.
SUBSCRIPTION RIGHTS ARE NONTRANSFERABLE. PERSONS SELLING OR OTHERWISE
TRANSFERRING THEIR RIGHTS TO SUBSCRIBE FOR COMMON STOCK IN THE SUBSCRIPTION
OFFERING OR SUBSCRIBING FOR COMMON STOCK ON BEHALF OF ANOTHER PERSON WILL BE
SUBJECT TO FORFEITURE OF SUCH RIGHTS AND POSSIBLE FURTHER SANCTIONS AND
PENALTIES IMPOSED BY THE OTS OR ANOTHER AGENCY OF THE U.S. GOVERNMENT. EACH
PERSON EXERCISING SUBSCRIPTION RIGHTS WILL BE REQUIRED TO CERTIFY THAT HE OR SHE
IS PURCHASING SUCH SHARES SOLELY FOR HIS OR HER OWN ACCOUNT AND THAT HE OR SHE
HAS NO AGREEMENT OR UNDERSTANDING WITH ANY OTHER PERSON FOR THE SALE OR TRANSFER
OF SUCH SHARES. ONCE TENDERED, SUBSCRIPTION ORDERS CANNOT BE REVOKED WITHOUT
THE CONSENT OF THE ASSOCIATION AND THE HOLDING COMPANY.
The Holding Company and the Association will make reasonable attempts to
provide a prospectus and related offering materials to holders of subscription
rights. However, the Subscription Offering and all subscription rights under
the Plan of Conversion will expire at 12:00 Noon, Central Time, on the
__________, 1999, whether or not the Association has been able to locate each
person entitled to such subscription rights. ORDERS FOR COMMON STOCK IN THE
SUBSCRIPTION OFFERING RECEIVED IN HAND BY THE ASSOCIATION AFTER THAT TIME WILL
NOT BE ACCEPTED. The Subscription Offering may be extended by the Holding
Company and the Association up to ________, 1999 without the OTS's approval.
OTS regulations require that the Holding Company complete the sale of common
stock within 45 days after the close of the Subscription Offering. If the
Direct Community Offering and the Syndicated Community Offerings are not
completed within such period all funds received will be promptly returned with
interest at the Association's passbook rate and all withdrawal authorizations
will be canceled. If regulatory approval of an extension of the time period has
been granted, all subscribers will be notified of such extension and of the
duration of any extension that has been granted, and will be given the right to
increase, decrease or rescind their orders. If an affirmative response to any
resolicitation is not received by the Holding Company from a subscriber, the
subscriber's order will be rescinded and all funds received will be promptly
returned with interest (or withdrawal authorizations will be canceled). No
single extension can exceed 90 days.
DIRECT COMMUNITY OFFERING. Any shares of common stock which remain
unsubscribed for in the Subscription Offering will be offered by the Holding
Company to certain members of the general public in a Direct Community Offering,
with preference given to natural persons and trusts of natural persons residing
in Marion, Lewis and Clark Counties, Missouri. Purchasers in the Direct
Community Offering are eligible to purchase up to $40,000 of common stock (4,000
shares). In the event an insufficient number of shares are available to fill
orders in the Direct Community Offering, the available shares will be allocated
on a pro rata basis determined by the amount of the respective orders. The
Direct Community Offering, if held, may be concurrent with, during or promptly
after the Subscription Offering. The Direct Community Offering may terminate on
or at any time subsequent to the Expiration Date, but no later than 45 days
after the close of the Subscription Offering, unless extended by the Holding
Company and the Association, with approval of the OTS. If regulatory approval
of an extension of the time period has been granted, all subscribers will be
notified of such extension and of the duration of any extension that has been
granted, and will be given the right to increase, decrease or rescind their
orders. If an affirmative response to any resolicitation is not received by the
Holding Company from a subscriber, the subscriber's order will be rescinded and
all funds received will be promptly returned
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with interest. THE RIGHT OF ANY PERSON TO PURCHASE SHARES IN THE DIRECT
COMMUNITY OFFERING IS SUBJECT TO THE ABSOLUTE RIGHT OF THE HOLDING COMPANY AND
THE ASSOCIATION TO ACCEPT OR REJECT SUCH PURCHASES IN WHOLE OR IN PART. IF AN
ORDER IS REJECTED IN PART, THE PURCHASER DOES NOT HAVE THE RIGHT TO CANCEL THE
REMAINDER OF THE ORDER. THE HOLDING COMPANY PRESENTLY INTENDS TO TERMINATE THE
DIRECT COMMUNITY OFFERING AS SOON AS IT HAS RECEIVED ORDERS FOR ALL SHARES
AVAILABLE FOR PURCHASE IN THE CONVERSION.
If all of the common stock offered in the Subscription Offering is
subscribed for, no common stock will be available for purchase in the Direct
Community Offering.
SYNDICATED COMMUNITY OFFERING. The Plan of Conversion provides that, if
necessary, all shares of common stock not purchased in the Subscription Offering
and Direct Community Offering, if any, may be offered for sale to certain
members of the general public in a Syndicated Community Offering through a
syndicate of registered broker-dealers to be formed and managed by Trident
Securities acting as agent of the Holding Company. THE HOLDING COMPANY AND THE
ASSOCIATION HAVE THE RIGHT TO REJECT ORDERS, IN WHOLE OR PART, IN THEIR SOLE
DISCRETION IN THE SYNDICATED COMMUNITY OFFERING. Neither Trident Securities 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,
Trident Securities has agreed to use its best efforts in the sale of shares in
the Syndicated Community Offering.
Stock sold in the Syndicated Community Offering also will be sold at the
$10.00 purchase price. See "-- Stock Pricing and Number of Shares to be
Issued." No person will be permitted to subscribe in the Syndicated Community
Offering for shares of common stock with an aggregate purchase price of more
than $40,000 (4,000 shares) of common stock. See "-- Plan of Distribution for
the Subscription, Direct Community and Syndicated Community Offerings" for a
description of the commission to be paid to the selected dealers and to Trident
Securities.
Trident Securities may enter into agreements with selected dealers to
assist in the sale of shares in the Syndicated Community Offering. During the
Syndicated Community Offering, selected dealers may only solicit indications of
interest from their customers to place orders with the Holding Company as of a
certain date ("Order Date") for the purchase of shares of Conversion Stock.
When and if Trident Securities and the Holding Company believe that enough
indications of interest and orders have been received in the Subscription
Offering, the Direct Community Offering and the Syndicated Community Offering to
consummate the conversion, Trident Securities will request, as of the Order
Date, selected dealers to submit orders to purchase shares for which they have
received indications of interest from their customers. Selected dealers will
send confirmations to such customers on the next business day after the Order
Date. Selected dealers may debit the accounts of their customers on a date
which will be three business days from the Order Date ("Settlement Date").
Customers who authorize selected dealers to debit their brokerage accounts are
required to have the funds for payment in their account on but not before the
Settlement Date. On the Settlement Date, selected dealers will remit funds to
the account that the Holding Company established for each selected dealer. Each
customer's funds so forwarded to the Holding Company, along with all other
accounts held in the same title, will be insured by the FDIC up to the
applicable $100,000 legal limit. After payment has been received by the Holding
Company from selected dealers, funds will earn interest at the Association's
passbook rate until the completion of the offering. At the completion of the
conversion, the funds received will be used to purchase the shares of common
stock ordered. The shares issued in the conversion cannot and will not be
insured by the FDIC or any other government agency. In the event the conversion
is not consummated as described above, funds with interest will be returned
promptly to the selected dealers, who, in turn, will promptly credit their
customers' brokerage accounts.
The Syndicated Community Offering may terminate no more than 45 days after
the expiration of the Subscription Offering, unless extended by the Holding
Company and the Association, with approval of the OTS.
In the event the Association is unable to find purchasers from the general
public for all unsubscribed shares, other purchase arrangements will be made by
the Board of Directors of the Association, if feasible. Such other arrangements
will be subject to the approval of the OTS. The OTS may grant one or more
extensions of the offering period, provided that (i) no single extension exceeds
90 days, (ii) subscribers are given the right to increase, decrease
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or rescind their subscriptions during the extension period, and (iii) the
extensions do not go more than two years beyond the date on which the members
approved the Plan of Conversion. If the conversion is not completed within 45
days after the close of the Subscription Offering, either all funds received
will be returned with interest (and withdrawal authorizations canceled) or, if
the OTS has granted an extension of time, all subscribers will be given the
right to increase, decrease or rescind their subscriptions at any time prior to
20 days before the end of the extension period. If an extension of time is
obtained, all subscribers will be notified of such extension and of their rights
to modify their orders. If an affirmative response to any resolicitation is not
received by the Holding Company from a subscriber, the subscriber's order will
be rescinded and all funds received will be promptly returned with interest (or
withdrawal authorizations will be canceled).
PERSONS IN NON-QUALIFIED STATES. The Holding 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 of Conversion reside. However, the Holding Company and the Association
are not required to offer stock in the Subscription Offering to any person who
resides in a foreign country or resides in a state of the United States with
respect to which (i) a small number of persons otherwise eligible to subscribe
for shares of common stock reside in such state or (ii) the Holding Company or
the 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 or requirement that the Holding 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 or
requirement to register or otherwise qualify the subscription rights or common
stock for sale or submit any filing with respect thereto in such state. Where
the number of persons eligible to subscribe for shares in one state is small,
the Holding Company and the Association will base their decision as to whether
or not to offer the common stock in such state on a number of factors, including
the size of accounts held by account holders in the state, the cost of reviewing
the registration and qualification requirements of the state (and of actually
registering or qualifying the shares) or the need to register the Holding
Company, its officers, directors or employees as brokers, dealers or salesmen.
PLAN OF DISTRIBUTION FOR THE SUBSCRIPTION, DIRECT COMMUNITY AND SYNDICATED
COMMUNITY OFFERINGS
The Association and the Holding Company have retained Trident Securities to
consult with and advise the Association and to assist the Association and the
Holding Company, on a best efforts basis, in the distribution of shares in the
offering. Trident Securities is a broker-dealer registered with the Securities
and Exchange Commission ("SEC") and a member of the NASD. Trident Securities
will assist the Association in the conversion as follows: (i) it will act as
marketing advisor with respect to the Subscription Offering and will represent
the Association as placement agent on a best efforts basis in the sale of the
common stock in the Direct Community Offering if one is held; (ii) it will
conduct training sessions with directors, officers and employees of the
Association regarding the conversion process; and (iii) it will assist in the
establishment and supervision of the Association's stock information center and,
with management's input, will train the Association's staff to record properly
and tabulate orders for the purchase of common stock and to respond
appropriately to customer inquiries.
Based upon negotiations between Trident Securities on the one hand and the
Holding Company and the Association on the other hand concerning fee structure,
Trident Securities will receive a fixed management fee of $135,000. Trident
Securities and selected dealers participating in the Syndicated Community
Offering may receive a commission in the Syndicated Community Offering in a
maximum amount to be agreed upon by the Holding Company and the Association to
reflect market requirements at the time of the allocation of shares in the
Syndicated Community Offering. Fees and commissions paid to Trident Securities
and to any selected dealers may be deemed to be underwriting fees, and Trident
Securities and such selected dealers may be deemed to be underwriters. Trident
Securities will also be reimbursed for its reasonable out-of-pocket expenses not
to exceed $12,500 and its legal fees not to exceed $30,000. Trident Securities
has received an advance of $10,000 towards its reimbursable expenses. For
additional information, see "-- Stock Pricing and Number of Shares to be Issued"
and "USE OF PROCEEDS."
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Subject to certain limitations, the Holding Company and the Association
have also agreed to indemnify Trident Securities against liabilities and
expenses (including legal fees) incurred in connection with certain claims or
litigation arising out of or based upon untrue statements or omissions contained
in the offering material for the common stock or with regard to allocations of
shares (in the event of oversubscription) or determinations of eligibility to
purchase shares.
DESCRIPTION OF SALES ACTIVITIES
The common stock will be offered in the Subscription Offering and Direct
Community Offering principally by the distribution of this prospectus and
through activities conducted at the Association's stock information center at
its main office facility. The stock information center is expected to operate
during normal business hours throughout the Subscription Offering and Direct
Community Offering. It is expected that at any particular time one or more
Trident Securities employees will be working at the stock information center.
Such employees of Trident Securities will be responsible for mailing materials
relating to the offering, responding to questions regarding the conversion and
the offering and processing stock orders.
Sales of common stock will be made by registered representatives affiliated
with Trident Securities or by the selected dealers managed by Trident
Securities. The management and employees of the Association may participate in
the offering in clerical capacities, providing administrative support in
effecting sales transactions or, when permitted by state securities laws,
answering questions of a mechanical nature relating to the proper execution of
the order form. Management of the Association may answer questions regarding the
business of the Association when permitted by state securities laws. Other
questions of prospective purchasers, including questions as to the advisability
or nature of the investment, will be directed to registered representatives.
The management and employees of the Holding Company and the Association have
been instructed not to solicit offers to purchase common stock or provide advice
regarding the purchase of common stock.
No officer, director or employee of the Association or the Holding Company
will be compensated, directly or indirectly, for any activities in connection
with the offer or sale of securities issued in the conversion.
None of the Association's personnel participating in the offering is
registered or licensed as a broker or dealer or an agent of a broker or dealer.
The Association's personnel will assist in the above-described sales activities
pursuant to an exemption from registration as a broker or dealer provided by
Rule 3a4-1 promulgated under the Exchange Act. Rule 3a4-1 generally provides
that an "associated person of an issuer" of securities shall not be deemed a
broker solely by reason of participation in the sale of securities of such
issuer if the associated person meets certain conditions. Such conditions
include, but are not limited to, that the associated person participating in the
sale of an issuer's securities not be compensated in connection therewith at the
time of participation, that such person not be associated with a broker or
dealer and that such person observe certain limitations on his or her
participation in the sale of securities. For purposes of this exemption,
"associated person of an issuer" is defined to include any person who is a
director, officer or employee of the issuer or a company that controls, is
controlled by or is under common control with the issuer.
PROCEDURE FOR PURCHASING SHARES IN THE SUBSCRIPTION AND DIRECT COMMUNITY
OFFERINGS
To purchase shares in the Subscription Offering, an executed order form
with the required full payment for each share subscribed for, or with
appropriate authorization for withdrawal of full payment from the subscriber's
deposit account with the Association (which may be given by completing the
appropriate blanks in the order form), must be received by the Association by
12:00 Noon, Central Time, on the Expiration Date. Order forms that are not
received by such time or are executed defectively or are received without full
payment (or without appropriate withdrawal instructions) are not required to be
accepted. The Holding Company and the Association have the right to waive or
permit the correction of incomplete or improperly executed order forms, but do
not represent that they will do so. Pursuant to the Plan of Conversion, the
interpretation by the Holding Company and the Association of the terms and
conditions of the Plan of Conversion and of the order form will be final. In
order to purchase shares in the Direct
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Community Offering, the order form, accompanied by the required payment for each
share subscribed for, must be received by the Association prior to the time the
Direct Community Offering terminates, which may be on or at any time subsequent
to the Expiration Date. Once received, an executed order form may not be
modified, amended or rescinded without the consent of the Association unless the
conversion has not been completed within 45 days after the end of the
Subscription Offering, unless such period has been extended.
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 (June 30,
1997) and/or the Supplemental Eligibility Record Date (December 31, 1998) and/or
the Voting Record Date (__________, 1999) must list all accounts on the order
form giving all names in each account, the account number and the approximate
account balance as of such date. Failure to list an account could result in
fewer shares allocated in the event of an oversubscription than if all accounts
had been disclosed.
Full payment for subscriptions may be made (i) in cash if delivered in
person at the Association's stock information center, (ii) by check, bank draft,
or money order, or (iii) by authorization of withdrawal from deposit accounts
maintained with the Association. Appropriate means by which such withdrawals
may be authorized are provided on the order form. No wire transfers will be
accepted. Interest will be paid on payments made by cash, check, bank draft or
money order at the Association's passbook rate from the date payment is received
at the stock information center until the completion or termination of the
conversion. If payment is made by authorization of withdrawal from deposit
accounts, the funds authorized to be withdrawn from a deposit account will
continue to accrue interest at the contractual rates until completion or
termination of the conversion (unless the certificate matures after the date of
receipt of the order form but prior to closing, in which case funds will earn
interest at the passbook rate from the date of maturity until consummation of
the conversion), but a hold will be placed on such funds, thereby making them
unavailable to the depositor until completion or termination of the conversion.
At the completion of the conversion, the funds received in the offering will be
used to purchase the shares of common stock ordered. THE SHARES OF COMMON STOCK
ISSUED IN THE CONVERSION CANNOT AND WILL NOT BE INSURED BY THE FDIC OR ANY OTHER
GOVERNMENT AGENCY. In the event that the conversion is not consummated for any
reason, all funds submitted will be promptly refunded with interest as described
above.
If a subscriber authorizes the Association to withdraw the amount of the
aggregate purchase price from his or her deposit account, the Association will
do so as of the effective date of conversion, though the account must contain
the full amount necessary for payment at the time the subscription order is
received. The Association will waive any applicable penalties for early
withdrawal from certificate accounts. If the remaining balance in a certificate
account is reduced below the applicable minimum balance requirement at the time
that the funds actually are transferred under the authorization the certificate
will be canceled at the time of the withdrawal, without penalty, and the
remaining balance will earn interest at the Association's passbook rate.
The ESOP will not be required to pay for the shares subscribed for at the
time it subscribes, but rather may pay for such shares of common stock
subscribed for at the $10.00 purchase price upon consummation of the conversion,
provided that there is in force from the time of its subscription until such
time, a loan commitment from an unrelated financial institution or the Holding
Company to lend to the ESOP, at such time, the aggregate purchase price of the
shares for which it subscribed.
IRAs maintained in the Association do not permit investment in the common
stock. A depositor interested in using his or her IRA funds to purchase common
stock must do so through a self-directed IRA. Since the Association does not
offer such accounts, it will allow such a depositor to make a trustee-to-trustee
transfer of the IRA funds to a trustee offering a self-directed IRA program with
the agreement that such funds will be used to purchase the Holding Company's
common stock in the offering. There will be no early withdrawal or IRS interest
penalties for such transfers. The new trustee would hold the common stock in a
self-directed account in the same manner as the Association now holds the
depositor's IRA funds. An annual administrative fee may be payable to the new
trustee. Depositors interested in using funds in an Association IRA to purchase
common stock should contact the stock information center as soon
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as possible so that the necessary forms may be forwarded for execution and
returned prior to the Expiration Date. In addition, the provisions of ERISA and
IRS regulations require that officers, directors and 10% shareholders who use
self-directed IRA funds to purchase shares of common stock in the Subscription
Offering, make such purchases for the exclusive benefit of IRAs.
Certificates representing shares of common stock purchased, and any refund
due, will be mailed to purchasers at such address as may be specified in
properly completed order forms or to the last address of such persons appearing
on the records of the Association 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. PURCHASERS
MAY NOT BE ABLE TO SELL THE SHARES OF COMMON STOCK WHICH THEY PURCHASED UNTIL
CERTIFICATES FOR THE COMMON STOCK ARE AVAILABLE AND DELIVERED TO THEM, EVEN
THOUGH TRADING OF THE COMMON STOCK MAY HAVE COMMENCED.
To ensure that each purchaser receives a prospectus at least 48 hours prior
to the Expiration Date in accordance with Rule 15c2-8 under the Exchange Act, no
prospectus will be mailed any later than five days prior to such date or hand
delivered any later than two days prior to such date. Execution of the order
form will confirm receipt or delivery in accordance with Rule 15c2-8. Order
forms will only be distributed with a prospectus. The Association will accept
for processing only orders submitted on original order forms. The Association
is not obligated to accept orders submitted on photocopied or telecopied order
forms. ORDERS CANNOT AND WILL NOT BE ACCEPTED WITHOUT THE EXECUTION OF THE
CERTIFICATION APPEARING ON THE REVERSE SIDE OF THE ORDER FORM.
STOCK PRICING AND NUMBER OF SHARES TO BE ISSUED
Federal regulations require that the aggregate purchase price of the
securities sold in connection with the conversion be based upon an estimated pro
forma value of the Holding Company and the Association as converted (i.e.,
----
taking into account the expected receipt of proceeds from the sale of securities
in the conversion), as determined by an independent appraisal. The Association
and the Holding Company have retained RP Financial to prepare an appraisal of
the pro forma market value of the Holding Company and the Association as
converted, as well as a business plan. RP Financial will receive a fee expected
to total approximately $25,000 for its appraisal services and assistance in the
preparation of a business plan, plus reasonable out-of-pocket expenses incurred
in connection with the appraisal. The Association has agreed to indemnify RP
Financial under certain circumstances against liabilities and expenses
(including legal fees) arising out of, related to, or based upon the conversion.
RP Financial has prepared an appraisal of the estimated pro forma market
value of the Holding Company and the Association as converted taking into
account the formation of the Holding Company as the holding company for the
Association. For its analysis, RP Financial undertook substantial
investigations to learn about the Association's business and operations.
Management supplied financial information, including annual financial
statements, information on the composition of assets and liabilities, and other
financial schedules. In addition to this information, RP Financial reviewed the
Association's Form AC Application for Approval of Conversion and the Holding
Company's Form SB-2 Registration Statement. Furthermore, RP Financial visited
the Association's facilities and had discussions with the Association's
management and its special conversion legal counsel, Muldoon, Murphy & Faucette.
No detailed individual analysis of the separate components of the Holding
Company's or the Association's assets and liabilities was performed in
connection with the evaluation.
In estimating the pro forma market value of the Holding Company and the
Association as converted, as required by applicable regulatory guidelines, RP
Financial's analysis utilized three selected valuation procedures, the
Price/Book ("P/B") method, the Price/Earnings ("P/E") method, and Price/Assets
("P/A") method, all of which are described in its report. RP Financial placed
the greatest emphasis on the P/E and P/B methods in estimating pro forma market
value. In applying these procedures, RP Financial reviewed, among other
factors, the economic make-up of the Association's primary market area, the
Association's financial performance and condition in relation to publicly-traded
institutions that RP Financial deemed comparable to the Association, the
specific terms of the offering of the Holding Company's common stock, the pro
forma impact of the additional capital raised in the conversion, conditions of
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securities markets in general, and the market for thrift institution common
stock in particular. RP Financial's analysis provides an approximation of the
pro forma market value of the Holding Company and the Association as converted
based on the valuation methods applied and the assumptions outlined in its
report. Included in its report were certain assumptions as to the pro forma
earnings of the Holding Company after the conversion that were utilized in
determining the appraised value. These assumptions included estimated expenses
and an assumed after-tax rate of return on the net conversion proceeds as
described under "PRO FORMA DATA," purchases by the ESOP of 8% of the common
stock sold in the conversion and purchases in the open market by the MRP of a
number of shares equal to 4% of the common stock sold in the conversion at the
$10.00 purchase price. See "PRO FORMA DATA" for additional information
concerning these assumptions. The use of different assumptions may yield
different results.
On the basis of the foregoing, RP Financial has advised the Holding Company
and the Association that, in its opinion, as of December 11, 1998, the aggregate
estimated pro forma market value of the Holding Company and the Association as
converted and, therefore, the common stock was within the valuation range of
$6,375,000 to $8,625,000 with a midpoint of $7,500,000. After reviewing the
methodology and the assumptions used by RP Financial in the preparation of the
appraisal, the Board of Directors established the Estimated Valuation Range
which is equal to the valuation range of $6,375,000 to $8,625,000 with a
midpoint of $7,500,000. Assuming that the shares are sold at $10.00 per share
in the conversion, the estimated number of shares would be between 637,500 and
862,500 with a midpoint of 750,000. The purchase price of $10.00 was determined
by discussion among the Boards of Directors of the Association and the Holding
Company and Trident Securities, taking into account, among other factors (i) the
requirement under OTS regulations that the common stock be offered in a manner
that will achieve the widest distribution of the stock, and (ii) desired
liquidity in the common stock subsequent to the conversion. Since the outcome
of the offering relates in large measure to market conditions at the time of
sale, it is not possible to determine the exact number of shares that will be
issued by the Holding Company at this time. The Estimated Valuation Range may
be amended, with the approval of the OTS, if necessitated by developments
following the date of such appraisal in, among other things, market conditions,
the financial condition or operating results of the Association, regulatory
guidelines or national or local economic conditions.
RP Financial's appraisal report is filed as an exhibit to the Registration
Statement. See "ADDITIONAL INFORMATION."
If, upon completion of the Subscription Offering, at least the minimum
number of shares are subscribed for, RP Financial, after taking into account
factors similar to those involved in its prior appraisal, will determine its
estimate of the pro forma market value of the Holding Company and the
Association as converted, as of the close of the Subscription Offering.
No sale of the shares will take place unless prior thereto RP Financial
confirms to the OTS that, to the best of RP Financial's knowledge and judgment,
nothing of a material nature has occurred that would cause it to conclude that
the actual total purchase price on an aggregate basis was incompatible with its
estimate of the total pro forma market value of the Holding Company and the
Association as converted at the time of the sale. If, however, the facts do not
justify such a statement, the offering or other sale may be canceled, a new
Estimated Valuation Range and price per share set and new Subscription, Direct
Community and Syndicated Community Offerings held. Under such circumstances,
subscribers would have the right to modify or rescind their subscriptions and to
have their subscription funds returned promptly with interest and holds on funds
authorized for withdrawal from deposit accounts would be released or reduced.
Depending upon market and financial conditions, the number of shares issued
may be more or less than the range in number of shares discussed herein. In the
event the total amount of shares issued is less than 637,500 or more than
991,875 (15% above the maximum of the Estimated Valuation Range), for aggregate
gross proceeds of less than $6,375,000 or more than $9,918,750, subscription
funds will be returned promptly with interest to each subscriber unless he
indicates otherwise. If RP Financial establishes a new valuation range, it will
be subject to approval by the OTS.
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If purchasers cannot be found for an insignificant residue of unsubscribed
shares from the general public, other purchase arrangements will be made by the
Boards of Directors of the Association and the Holding Company, if possible.
Such other purchase arrangements will be subject to the approval of the OTS and
may provide for purchases for investment purposes by directors, officers, their
associates and other persons in excess of the limitations provided in the Plan
of Conversion and in excess of the proposed director purchases set forth herein,
although no such purchases are currently intended. If such other purchase
arrangements cannot be made, the Plan of Conversion will terminate.
In formulating its appraisal, RP Financial relied upon the truthfulness,
accuracy and completeness of all documents the Association furnished to it. RP
Financial also considered financial and other information from regulatory
agencies, other financial institutions, and other public sources, as
appropriate. While RP Financial believes this information to be reliable, RP
Financial does not guarantee the accuracy or completeness of such information
and did not independently verify the financial statements and other data
provided by the Association and the Holding Company or independently value the
assets or liabilities of the Holding Company and the Association. THE APPRAISAL
BY RP FINANCIAL IS NOT INTENDED TO BE, AND MUST NOT BE INTERPRETED AS, A
RECOMMENDATION OF ANY KIND AS TO THE ADVISABILITY OF VOTING TO APPROVE THE PLAN
OF CONVERSION OR OF PURCHASING SHARES OF COMMON STOCK. MOREOVER, BECAUSE THE
APPRAISAL IS NECESSARILY BASED ON MANY FACTORS WHICH CHANGE FROM TIME TO TIME,
THERE IS NO ASSURANCE THAT PERSONS WHO PURCHASE SUCH SHARES IN THE CONVERSION
WILL LATER BE ABLE TO SELL SHARES THEREAFTER AT PRICES AT OR ABOVE THE PURCHASE
PRICE.
LIMITATIONS ON PURCHASES OF SHARES
The Plan of Conversion provides for certain limitations to be placed upon
the purchase of common stock by eligible subscribers and others in the
conversion. Each subscriber must subscribe for a minimum of 25 shares. With
the exception of the ESOP, which is expected to subscribe for 8% of the shares
of common stock issued in the conversion, the Plan of Conversion provides for
the following purchase limitations: (i) No Eligible Account Holder, Supplemental
Eligible Account Holder or Other Member, including, in each case, all persons on
a joint account, may purchase shares of common stock with an aggregate purchase
price of more than $40,000 (4,000 shares), (ii) no person may purchase in the
Direct Community Offering, if any, or in the Syndicated Community Offering, if
any, shares of common stock with an aggregate purchase price of more than
$40,000 (4,000 shares), and (iii) no person, either alone or together with
associates of or persons acting in concert with such person, may purchase in the
aggregate more than the overall maximum purchase limitation of 1% ($86,250, or
8,625 shares, based on the maximum of the Estimated Valuation Range) of the
total number of shares of common stock issued in the conversion (exclusive of
any shares issued pursuant to an increase in the Estimated Valuation Range of up
to 15%). For purposes of the Plan of Conversion, the directors are not deemed
to be acting in concert solely by reason of their Board membership. Pro rata
reductions within each subscription rights category will be made in allocating
shares to the extent that the maximum purchase limitations are exceeded.
The Association's and the Holding Company's Boards of Directors may, in
their sole discretion, increase the maximum purchase limitation set forth above
up to 9.99% of the shares of common stock sold in the conversion, provided that
orders for shares which exceed 5% of the shares of common stock sold in the
conversion may not exceed, in the aggregate, 10% of the shares sold in the
conversion. The Association and the Holding Company do not intend to increase
the maximum purchase limitation unless market conditions are such that an
increase in the maximum purchase limitation is necessary to sell a number of
shares in excess of the minimum of the Estimated Valuation Range. If the Boards
of Directors decide to increase the purchase limitation above, persons who
subscribed for the maximum number of shares of common stock will be, and other
large subscribers in the discretion of the Holding Company and the Association
may be, given the opportunity to increase their subscriptions accordingly,
subject to the rights and preferences of any person who has priority
subscription rights.
The term "acting in concert" is defined in the Plan of Conversion to mean
(i) knowing participation in a joint activity or interdependent conscious
parallel action towards a common goal whether or not pursuant to an express
agreement; or (ii) a combination or pooling of voting or other interests in the
securities of an issuer for a common
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purpose pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise. In general, a person who acts
in concert with another party shall also be deemed to be acting in concert with
any person who is also acting in concert with that other party. THE HOLDING
COMPANY AND THE ASSOCIATION MAY PRESUME THAT CERTAIN PERSONS ARE ACTING IN
CONCERT BASED UPON, AMONG OTHER THINGS, JOINT ACCOUNT RELATIONSHIPS AND THE FACT
THAT SUCH PERSONS MAY HAVE FILED JOINT SCHEDULES 13D WITH THE SEC WITH RESPECT
TO OTHER COMPANIES.
The term "associate" of a person is defined in the Plan of Conversion to
mean (i) any corporation or organization (other than the Association or a
majority-owned subsidiary of the Association) of which such person is an officer
or partner or is, directly or indirectly, the beneficial owner of 10% or more of
any class of equity securities; (ii) any trust or other estate in which such
person has a substantial beneficial interest or as to which such person serves
as trustee or in a similar fiduciary capacity (excluding tax-qualified employee
plans); and (iii) any relative or spouse of such person, or any relative of such
spouse, who either has the same home as such person or who is a director or
officer of the Association or any of its parents or subsidiaries. For example,
a corporation of which a person serves as an officer would be an associate of
such person and, therefore, all shares purchased by such corporation would be
included with the number of shares which such person could purchase individually
under the above limitations.
The term "officer" is defined in the Plan of Conversion to mean an
executive officer of the Association, including its Chairman of the Board,
President, Executive Vice Presidents, Senior Vice Presidents, Vice Presidents in
charge of principal business functions, Secretary and Treasurer.
Common stock purchased pursuant to the conversion will be freely
transferable, except for shares purchased by directors and officers of the
Association and the Holding Company and by NASD members. See "-- Restrictions
on Transferability by Directors and Officers and NASD Members."
RESTRICTIONS ON REPURCHASE OF STOCK
Pursuant to OTS regulations, OTS-regulated savings associations (and their
holding companies) may not for a period of three years from the date of an
institution's mutual-to-stock conversion repurchase any of its common stock from
any person, except in the event of (i) an offer made to all of its stockholders
to repurchase the common stock on a pro rata basis, approved by the OTS; or (ii)
the repurchase of qualifying shares of a director. Furthermore, repurchases of
any common stock are prohibited if the effect thereof would cause the
association's regulatory capital to be reduced below (a) the amount required for
the liquidation account or (b) the regulatory capital requirements imposed by
the OTS. Repurchases are generally prohibited during the first year following
conversion. Upon ten days' written notice to the OTS, and if the OTS does not
object, an institution may make open market repurchases of its outstanding
common stock during years two and three following the conversion, provided that
certain regulatory conditions are met and that the repurchase would not
adversely affect the financial condition of the institution. Any repurchases of
common stock by the Holding Company would be subject to these regulatory
restrictions unless the OTS would provide otherwise.
RESTRICTIONS ON TRANSFERABILITY BY DIRECTORS AND OFFICERS AND NASD MEMBERS
Shares of common stock purchased in the offering by directors and officers
of the Holding Company may not be sold for a period of one year following
consummation of the conversion, except in the event of the death of the
stockholder or in any exchange of the common stock in connection with a merger
or acquisition of the Holding Company. Shares of common stock received by
directors or officers through the ESOP or the MRP or upon exercise of options
issued pursuant to the Stock Option Plan or purchased subsequent to the
conversion are not subject to this restriction. Accordingly, shares of common
stock issued by the Holding Company to directors and officers shall bear a
legend giving appropriate notice of the restriction and, in addition, the
Holding Company will give appropriate instructions to the transfer agent for the
Holding Company's common stock with respect to the restriction on transfers. Any
shares issued to directors and officers as a stock dividend, stock split or
otherwise with respect to restricted common stock shall be subject to the same
restrictions.
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Purchases of outstanding shares of common stock of the Holding Company by
directors, executive officers (or any person who was an executive officer or
director of the Association after adoption of the Plan of Conversion) and their
associates during the three-year period following the conversion may be made
only through a broker or dealer registered with the SEC, except with the prior
written approval of the OTS. This restriction does not apply, however, to
negotiated transactions involving more than 1% of the Holding Company's
outstanding common stock or to the purchase of stock pursuant to the Stock
Option Plan.
The Holding Company has filed with the SEC a registration statement under
the SECURITIES ACT for the registration of the common stock to be issued
pursuant to the conversion. 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 common stock purchased by persons who are not affiliates
of the Holding Company may be resold without registration. Shares purchased by
an affiliate of the Holding Company will be subject to the resale restrictions
of Rule 144 under the Securities Act. If the Holding Company meets the current
public information requirements of Rule 144 under the Securities Act, each
affiliate of the Holding Company who complies with the other conditions of Rule
144 (including those that require the affiliate's sale to be aggregated with
those of certain other persons) would be able to sell in the public market,
without registration, a number of shares not to exceed, in any three-month
period, the greater of (i) 1% of the outstanding shares of the Holding Company
or (ii) the average weekly volume of trading in such shares during the preceding
four calendar weeks. Provision may be made in the future by the Holding Company
to permit affiliates to have their shares registered for sale under the
Securities Act under certain circumstances.
Under guidelines of the NASD, members of the NASD and their associates are
subject to certain restrictions on the transfer of securities purchased in
accordance with subscription rights and to certain reporting requirements upon
purchase of such securities.
RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
The following discussion is a summary of certain provisions of federal law
and regulations and Missouri corporate law, as well as the Articles of
Incorporation and Bylaws of the Holding Company, relating to stock ownership and
transfers, the Board of Directors and business combinations, all of which may be
deemed to have "anti-takeover" effects. The description of these provisions is
necessarily general and reference should be made to the actual law and
regulations and to the Articles of Incorporation and Bylaws of the Holding
Company contained in the Registration Statement filed with the SEC. See
"ADDITIONAL INFORMATION" as to how to obtain a copy of these documents.
CONVERSION REGULATIONS
OTS regulations prohibit any person from making an offer, announcing an
intent to make an offer or participating in any other arrangement to purchase
stock or acquiring stock or subscription rights in a converting institution (or
its holding company) from another person prior to completion of its conversion.
Further, without the prior written approval of the OTS, no person may make such
an offer or announcement of an offer to purchase shares or actually acquire
shares in the converting institution (or its holding company) for a period of
three years from the date of the completion of the conversion if, upon the
completion of such offer, announcement or acquisition, that person would become
the beneficial owner of more than 10% of the outstanding stock of the
institution (or its holding company). The OTS has defined "person" to include
any individual, group acting in concert, corporation, partnership, association,
joint stock company, trust, unincorporated organization or similar company, a
syndicate or any other group formed for the purpose of acquiring, holding or
disposing of securities of an insured institution. However, offers made
exclusively to an association (or its holding company) or an underwriter or
member of a selling group acting on the converting institution's (or its holding
company's) behalf for resale to the general public are excepted. The regulation
also provides civil penalties for willful violation or assistance in any such
violation of the regulation by any person connected with the management of the
converting institution (or its holding company) or who controls more than 10% of
the outstanding shares or voting rights of a converting or converted institution
(or its holding company).
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CHANGE OF CONTROL REGULATIONS
Under the Change in Bank Control Act, no person may acquire control of an
insured federal savings and loan association or its parent holding company
unless the OTS has been given 60 days' prior written notice and has not issued a
notice disapproving the proposed acquisition. In addition, OTS regulations
provide that no company may acquire control of a savings association without the
prior approval of the OTS. Any company that acquires such control becomes a
"savings and loan holding company" subject to registration, examination and
regulation by the OTS.
Control, as defined under federal law, means ownership, control of or
holding irrevocable proxies representing more than 25% of any class of voting
stock, control in any manner of the election of a majority of the savings
association's directors, or a determination by the OTS that the acquirer has the
power to direct, or directly or indirectly to exercise a controlling influence
over, the management or policies of the institution. Acquisition of more than
10% of any class of a savings association's voting stock, if the acquirer also
is subject to any one of eight "control factors," constitutes a rebuttable
determination of control under the regulations. Such control factors include
the acquirer being one of the two largest stockholders. The determination of
control may be rebutted by submission to the OTS, prior to the acquisition of
stock or the occurrence of any other circumstances giving rise to such
determination, of a statement setting forth facts and circumstances which would
support a finding that no control relationship will exist and containing certain
undertakings. The regulations provide that persons or companies which acquire
beneficial ownership exceeding 10% or more of any class of a savings
association's stock must file with the OTS a certification form that the holder
is not in control of such institution, is not subject to a rebuttable
determination of control and will take no action which would result in a
determination or rebuttable determination of control without prior notice to or
approval of the OTS, as applicable. There are also rebuttable presumptions in
the regulations concerning whether a group "acting in concert" exists, including
presumed action in concert among members of an "immediate family."
The OTS may prohibit an acquisition of control if it finds, among other
things, that (i) the acquisition would result in a monopoly or substantially
lessen competition, (ii) the financial condition of the acquiring person might
jeopardize the financial stability of the institution, or (iii) the competence,
experience or integrity of the acquiring person indicates that it would not be
in the interest of the depositors or the public to permit the acquisition of
control by such person.
ANTI-TAKEOVER PROVISIONS IN THE HOLDING COMPANY'S ARTICLES OF INCORPORATION AND
BYLAWS AND IN MISSOURI LAW
A number of provisions of the Holding Company's Articles of Incorporation
and Bylaws deal with matters of corporate governance and certain rights of
stockholders. The following discussion is a general summary of certain
provisions of the Holding Company's Articles of Incorporation and Bylaws and
regulatory provisions relating to stock ownership and transfers, the Board of
Directors and business combinations, which might be deemed to have a potential
"anti-takeover" effect. These provisions may have the effect of discouraging a
future takeover attempt which is not approved by the Board of Directors but
which individual Holding Company stockholders may deem to be in their best
interests or in which stockholders may receive a substantial premium for their
shares over then current market prices. As a result, stockholders who might
desire to participate in such a transaction may not have an opportunity to do
so. Such provisions will also render the removal of the incumbent Board of
Directors or management of the Holding Company more difficult. The following
description of certain of the provisions of the Articles of Incorporation and
Bylaws of the Holding Company is necessarily general and reference should be
made in each case to such Articles of Incorporation and Bylaws, which are
incorporated herein by reference. See "ADDITIONAL INFORMATION" as to where to
obtain a copy of these documents.
LIMITATION ON VOTING RIGHTS. The Articles of Incorporation of the Holding
Company provides that in no event shall any record owner of any outstanding
common stock which is beneficially owned, directly or indirectly, by a person
who beneficially owns in excess of 10% of the then outstanding shares of common
stock ("Limit") be entitled or permitted to any vote in respect of the shares
held in excess of the Limit, unless permitted by a resolution adopted by a
majority of the board of directors. Beneficial ownership is determined pursuant
to Rule 13d-3 of the General Rules
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and Regulations of the Exchange Act and includes shares beneficially owned by
such person or any of his or her affiliates (as defined in the Articles of
Incorporation), shares which such person or his or her affiliates have the right
to acquire upon the exercise of conversion rights or options and shares as to
which such person and his or her affiliates have or share investment or voting
power, but shall not include shares beneficially owned by the ESOP or directors,
officers and employees of the Association or Holding Company or shares that are
subject to a revocable proxy and that are not otherwise beneficially, or deemed
by the Holding Company to be beneficially, owned by such person and his or her
affiliates.
BOARD OF DIRECTORS. The Board of Directors of the Holding Company is
divided into three classes, each of which shall contain approximately one-third
of the whole number of the members of the Board. The members of each class
shall be elected for a term of three years, with the terms of office of all
members of one class expiring each year so that approximately one-third of the
total number of directors are elected each year. The Holding Company's Articles
of Incorporation provides that the size of the Board shall be as set forth in
the Bylaws. The Bylaws currently set the number of directors at seven. The
Articles of Incorporation provides that any vacancy occurring in the Board,
including a vacancy created by an increase in the number of directors, shall be
filled by a vote of a majority of the directors then in office and any director
so chosen shall hold office for a term expiring at the next annual meeting of
stockholders. The classified Board is intended to provide for continuity of the
Board of Directors and to make it more difficult and time consuming for a
stockholder group to fully use its voting power to gain control of the Board of
Directors without the consent of the incumbent Board of Directors of the Holding
Company. The Articles of Incorporation of the Holding Company provides that a
director may be removed from the Board of Directors prior to the expiration of
his or her term only for cause and only upon the vote of 80% of the outstanding
shares of voting stock. In the absence of this provision, the vote of the
holders of a majority of the shares could remove the entire Board, but only with
cause, and replace it with persons of such holders' choice.
CUMULATIVE VOTING; SPECIAL MEETINGS. The Bylaws do not provide for
cumulative voting for any purpose. The Bylaws also provide that special meetings
of stockholders of the Holding Company may be called only by the President or by
the Board of Directors of the Holding Company.
AUTHORIZED SHARES. The Articles of Incorporation authorizes the issuance
of 5,000,000 shares of common stock and 1,000,000 shares of preferred stock.
The shares of common stock and preferred stock were authorized in an amount
greater than that to be issued in the conversion to provide the Holding
Company's Board of Directors with as much flexibility as possible to effect,
among other transactions, financings, acquisitions, stock dividends, stock
splits, restricted stock grants and the exercise of stock options. However,
these additional authorized shares may also be used by the Board of Directors,
consistent with fiduciary duties, to deter future attempts to gain control of
the Holding Company. The Board of Directors also has sole authority to
determine the terms of any one or more series of preferred stock, including
voting rights, conversion rates, and liquidation preferences. As a result of
the ability to fix voting rights for a series of preferred stock, the Board has
the power, to the extent consistent with its fiduciary duty, to issue a series
of preferred stock to persons friendly to management in order to attempt to
block a tender offer, merger or other transaction by which a third party seeks
control of the Holding Company, and thereby assist members of management to
retain their positions. The Holding Company's Board currently has no plans for
the issuance of additional shares, other than the issuance of shares of common
stock upon exercise of stock options and in connection with the MRP.
STOCKHOLDER VOTE REQUIRED TO APPROVE BUSINESS COMBINATIONS WITH PRINCIPAL
STOCKHOLDERS. The Articles of Incorporation requires the approval of the
holders of at least 80% of the Holding Company's outstanding shares of voting
stock to approve certain "Business Combinations" (as defined therein) involving
a "Related Person" (as defined therein) except in cases where the proposed
transaction has been approved in advance by a majority of those members of the
Holding Company's Board of Directors who are unaffiliated with the Related
Person and were directors prior to the time when the Related Person became a
Related Person. The term "Related Person" is defined to include any individual,
corporation, partnership or other entity (other than the Holding Company or its
subsidiary) which owns beneficially or controls, directly or indirectly, 10% or
more of the outstanding shares of voting stock of the Holding Company or an
affiliate of such person or entity. This provision of the Articles of
Incorporation applies to any
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"Business Combination," which is defined to include: (i) any merger or
consolidation of the Holding Company with or into any Related Person; (ii) any
sale, lease, exchange, mortgage, transfer, or other disposition of 25% or more
of the assets of the Holding Company or combined assets of the Holding Company
and its subsidiaries to a Related Person; (iii) any merger or consolidation of a
Related Person with or into the Holding Company or a subsidiary of the Holding
Company; (iv) any sale, lease, exchange, transfer, or other disposition of 25%
or more of the assets of a Related Person to the Holding Company or a subsidiary
of the Holding Company; (v) the issuance of any securities of the Holding
Company or a subsidiary of the Holding Company to a Related Person; (vi) the
acquisition by the Holding Company or a subsidiary of the Holding Company of any
securities of a Related Person; (vii) any reclassification of common stock of
the Holding Company or any recapitalization involving the common stock of the
Holding Company; or (viii) any agreement or other arrangement providing for any
of the foregoing.
Under Missouri law, absent this provision, business combinations, including
mergers, consolidations and sales of substantially all of the assets of a
corporation must, subject to certain exceptions, be approved by the vote of the
holders of two-thirds of the outstanding shares of common stock of the Holding
Company and any other affected class of stock. One exception under Missouri law
to the majority approval requirement applies to stockholders owning 20% or more
of the common stock of a corporation for a period of less than five years. Such
20% stockholder, in order to obtain approval of a business combination, must
obtain the approval of a majority of the outstanding stock, excluding the stock
owned by such 20% stockholder, or satisfy other requirements under Missouri law
relating to board of director approval of his or her acquisition of the shares
of the Holding Company. The increased stockholder vote required to approve a
business combination may have the effect of foreclosing mergers and other
business combinations which a majority of stockholders deem desirable and
placing the power to prevent such a merger or combination in the hands of a
minority of stockholders.
AMENDMENT OF ARTICLES OF INCORPORATION AND BYLAWS. Amendments to the
Holding Company's Articles 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 Articles of Incorporation, including the provision limiting
voting rights, the provisions relating to approval of certain business
combinations, calling special meetings, the number and classification of
directors, director and officer indemnification by the Holding Company and
amendment of the Holding Company's Bylaws and Articles of Incorporation. The
Holding Company's Bylaws may be amended by its Board of Directors, or by a vote
of 66% of the total votes eligible to be voted at a duly constituted meeting of
stockholders.
STOCKHOLDER NOMINATIONS AND PROPOSALS. The Bylaws of the Holding Company
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
not less than 60 nor more than 90 days' advance notice to the Secretary of the
Holding Company; provided, however, that if less than 71 days' notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice, to be timely, must be received no later than the close of business on
the 10/th/ day following the date on which notice was mailed to shareholders or
other public disclosure was made. The notice provision requires a stockholder
who desires to raise new business to provide certain information to the Holding
Company concerning the nature of the new business, the stockholder and the
stockholder's interest in the business matter. Similarly, a stockholder wishing
to nominate any person for election as a director must provide the Holding
Company with certain information concerning the nominee and the proposing
stockholder.
PURPOSE AND TAKEOVER DEFENSIVE EFFECTS OF THE HOLDING COMPANY'S ARTICLES OF
INCORPORATION AND BYLAWS. The Board of Directors of the Association believes
that the provisions described above are prudent and will reduce the Holding
Company's vulnerability to takeover attempts and certain other transactions that
have not been negotiated with and approved by its Board of Directors. These
provisions will also assist the Holding Company and the Association in the
orderly deployment of the conversion proceeds into productive assets during the
initial period after the conversion. The Board of Directors believes these
provisions are in the best interest of the Association and the Holding Company
and its stockholders. In the judgment of the Board of Directors, the Holding
Company's Board will be in the best
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position to determine the true value of the Holding Company and to negotiate
more effectively for what may be in the best interests of its stockholders.
Accordingly, the Board of Directors believes that it is in the best interest of
the Holding Company and its stockholders to encourage potential acquirors to
negotiate directly with the Board of Directors of the Holding Company and that
these provisions will encourage such negotiations and discourage hostile
takeover attempts. It is also the view of the Board of Directors that these
provisions should not discourage persons from proposing a merger or other
transaction at a price reflective of the true value of the Holding Company and
that is in the best interest of all stockholders.
Attempts to acquire control of financial institutions and their holding
companies have recently become increasingly common. Takeover attempts that have
not been negotiated with and approved by the Board of Directors present to
stockholders the risk of a takeover on terms that may be less favorable than
might otherwise be available. A transaction that is negotiated and approved by
the Board of Directors, on the other hand, can be carefully planned and
undertaken at an opportune time in order to obtain maximum value of the Holding
Company for its stockholders, with due consideration given to matters such as
the management and business of the acquiring corporation and maximum strategic
development of the Holding Company's assets.
An unsolicited takeover proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Although a tender offer
or other takeover attempt may be made at a price substantially above the current
market prices, such offers are sometimes made for less than all of the
outstanding shares of a target company. As a result, stockholders may be
presented with the alternative of partially liquidating their investment at a
time that may be disadvantageous, or retaining their investment in an enterprise
that is under different management and whose objectives may not be similar to
those of the remaining stockholders. The concentration of control, which could
result from a tender offer or other takeover attempt, could also deprive the
Holding Company's remaining stockholders of benefits of certain protective
provisions of the Exchange Act, if the number of beneficial owners became less
than 300, thereby allowing for deregistration under the Exchange Act.
Despite the belief of the Association and the Holding Company as to the
benefits to stockholders of these provisions of the Holding Company's Articles
of Incorporation and Bylaws, these provisions may also have the effect of
discouraging a future takeover attempt that would not be approved by the Holding
Company's Board, but pursuant to which stockholders may receive a substantial
premium for their shares over then current market prices. As a result,
stockholders who might desire to participate in such a transaction may not have
any opportunity to do so. Such provisions will also render the removal of the
Holding Company's Board of Directors and of management more difficult. The Board
of Directors of the Association and the Holding Company, however, have concluded
that the potential benefits outweigh the possible disadvantages.
Following the conversion, pursuant to applicable law and, if required,
following the approval by stockholders, the Holding Company may adopt additional
anti-takeover charter provisions or other devices regarding the acquisition of
its equity securities that would be permitted for a Missouri business
corporation.
The cumulative effect of the restriction on acquisition of the Holding
Company contained in the Articles of Incorporation and Bylaws of the Holding
Company and in Federal and Missouri law may be to discourage potential takeover
attempts and perpetuate incumbent management, even though certain stockholders
of the Holding Company may deem a potential acquisition to be in their best
interests, or deem existing management not to be acting in their best interests.
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DESCRIPTION OF CAPITAL STOCK OF THE HOLDING COMPANY
GENERAL
The Holding Company is authorized to issue 5,000,000 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 Holding Company currently expects to
issue up to 865,000 shares of common stock (unless increased to 991,875 shares
of common stock sold) and no shares of preferred stock in the conversion. Each
share of the Holding Company's common stock will have the same relative rights
as, and will be identical in all respects with, each other share of common
stock. Upon payment of the purchase price for the common stock, in accordance
with the Plan of Conversion, all such stock will be duly authorized, fully paid
and nonassessable.
THE COMMON STOCK OF THE HOLDING COMPANY WILL REPRESENT NONWITHDRAWABLE
CAPITAL, WILL NOT BE AN ACCOUNT OF ANY TYPE, AND WILL NOT BE INSURED BY THE FDIC
OR ANY OTHER GOVERNMENT AGENCY.
COMMON STOCK
DIVIDENDS. The Holding Company can pay dividends out of statutory surplus
or from certain net profits if, as and when declared by its Board of Directors.
The payment of dividends by the Holding Company is subject to limitations which
are imposed by law and applicable regulation. See "DIVIDEND POLICY" and
"REGULATION." The holders of common stock of the Holding Company will be
entitled to receive and share equally in such dividends as may be declared by
the Board of Directors of the Holding Company out of funds legally available
therefor. If the Holding Company issues preferred stock, the holders thereof
may have a priority over the holders of the common stock with respect to
dividends.
VOTING RIGHTS. Upon conversion, the holders of common stock of the Holding
Company will possess exclusive voting rights in the Holding Company. They will
elect the Holding Company's Board of Directors and act on such other matters as
are required to be presented to them under Missouri law or as are otherwise
presented to them by the Board of Directors. Except as discussed in
"RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY," each holder of common
stock will be entitled to one vote per share and will not have any right to
cumulate votes in the election of directors. If the Holding Company issues
preferred stock, holders of the Holding Company preferred stock may also possess
voting rights. Certain matters require a vote of 80% of the outstanding shares
entitled to vote thereon. See "RESTRICTIONS ON ACQUISITION OF THE HOLDING
COMPANY."
As a federal 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, all of which will be owned by the Holding Company, and voted at the
direction of the Holding Company's Board of Directors. Consequently, the
holders of the common stock will not have direct control of the Association.
LIQUIDATION. In the event of any liquidation, dissolution or winding up of
the Association, the Holding 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"), all assets of the Association available
for distribution. In the event of liquidation, dissolution or winding up of the
Holding Company, the holders of its common stock would be entitled to receive,
after payment or provision for payment of all its debts and liabilities, all of
the assets of the Holding Company available for distribution. If Holding
Company 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.
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PREEMPTIVE RIGHTS. Holders of the common stock of the Holding Company will
not be entitled to preemptive rights with respect to any shares that may be
issued. The common stock is not subject to redemption.
PREFERRED STOCK
None of the shares of the authorized Holding Company preferred stock will
be issued in the conversion and there are no plans to issue the preferred stock.
Such stock may be issued with such designations, powers, preferences and rights
as the Board of Directors may from time to time determine. The Board of
Directors can, without stockholder approval, issue preferred stock with voting,
dividend, liquidation and conversion rights that could dilute the voting
strength of the holders of the common stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
RESTRICTIONS ON ACQUISITION
Acquisitions of the Holding Company are restricted by provisions in its
Articles of Incorporation and Bylaws and by the rules and regulations of various
regulatory agencies. See "REGULATION" and "RESTRICTIONS ON ACQUISITION OF THE
HOLDING COMPANY."
REGISTRATION REQUIREMENTS
The Holding Company has registered the common stock with the SEC pursuant
to Section 12(g) of the Exchange Act and will not deregister its common stock
for a period of at least three years following the completion of the conversion.
As a result of such registration, the proxy and tender offer rules, insider
trading reporting and restrictions, annual and periodic reporting and other
requirements of the Exchange Act will be applicable.
LEGAL AND TAX OPINIONS
The legality of the common stock has been passed upon for the Holding
Company by Muldoon, Murphy & Faucette, Washington, D.C. The federal tax
consequences of the offering have been opined upon by Muldoon, Murphy & Faucette
and the Missouri tax consequences of the offering have been opined upon by
Moore, Horton & Carlson, P.C. Muldoon, Murphy & Faucette and Moore, Horton &
Carlson, P.C. have consented to the references herein to their opinions.
Certain legal matters will be passed upon for Trident Securities by Housley
Kantarian & Bronstein, P.C., Washington, D.C.
EXPERTS
The consolidated financial statements of the Association at September 30,
1998 and 1997 and for each of the years ended September 30, 1998 and 1997
included in this prospectus have been audited by Moore, Horton & Carlson, P.C.,
independent auditors, as stated in their report appearing herein, and have been
so included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
RP Financial has consented to the publication herein of the summary of its
report to the Association setting forth its opinion as to the estimated pro
forma market value of the Holding Company and the Association as converted and
its letter with respect to subscription rights and to the use of its name and
statements with respect to it appearing herein.
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CHANGE IN ACCOUNTANTS
Prior to the fiscal year ended September 30, 1998, the Association's
consolidated financial statements were audited by Wade, Stables, Schanbacher &
Walker, P.C. The former accountant was replaced by Moore, Horton & Carlson,
P.C., which was engaged on August 20, 1998 and continues as the independent
auditors of the Association. The decision to change auditors was approved by the
Board of Directors on August 20, 1998. The Association's consolidated financial
statements included in this Prospectus were audited by Moore, Horton & Carlson,
P.C.
For the fiscal years ended September 30, 1997 and 1996 and up to the date
of the replacement of the Association's former accountant, there were no
disagreements with the former accountant on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure
which, if not resolved to the satisfaction of the former accountant, would have
caused it to make a reference to the subject matter of the disagreement in
connection with its reports. The independent auditors' report on the
consolidated financial statements for the fiscal years ended September 30, 1997
and 1996 did not contain an adverse opinion or a disclaimer of opinion, and was
not qualified or modified as to uncertainty, audit scope, or accounting
principles.
ADDITIONAL INFORMATION
The Holding Company has filed with the SEC a Registration Statement on Form
SB-2 (File No. 333-_____) under the Securities Act with respect to the common
stock offered in the conversion. This prospectus does not contain all the
information set forth in the Registration Statement, certain parts of which are
omitted in accordance with the rules and regulations of the SEC. Such
information may be inspected at the public reference facilities maintained by
the SEC at 450 Fifth Street, NW, Room 1024, Washington, D.C. 20549 and at its
regional offices at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661; and 7 World Trade Center, Suite 1300, New York, New York 10048. Copies
may be obtained at prescribed rates from the Public Reference Room of the SEC at
450 Fifth Street, NW, Washington, D.C. 20549. The public may obtain information
on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-
0330. The Registration Statement also is available through the SEC's World Wide
Web site on the Internet (http://www.sec.gov).
The Association has filed with the OTS an Application for Approval of
Conversion, which includes proxy materials for the Association's Special Meeting
and certain other information. This prospectus omits certain information
contained in such Application. The Application, including the proxy materials,
exhibits and certain other information included in the Application, may be
inspected, without charge, at the offices of the OTS, 1700 G Street, NW,
Washington, D.C. 20552 and at the office of the Regional Director of the OTS at
the Midwest Regional Office of the OTS, 122 W. John Carpenter Freeway, Suite
600, Irving, Texas 75039.
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PALMYRA SAVING & BUILDING ASSOCIATION, F.A.
<TABLE>
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<S> <C>
Independent Auditors' Report F-1
Consolidated Balance Sheets as of September 30, 1998 and 1997............. F-2
Consolidated Statements of Income for the Years Ended September 30,
1998 and 1997........................................................... 24
Consolidated Statements of Equity for the Years Ended September 30,
1998 and 1997........................................................... F-3
Consolidated Statements of Cash Flows for the Years Ended September 30,
1998 and 1997........................................................... F-4
Notes to Consolidated Financial Statements................................ F-6
</TABLE>
* * *
All schedules are omitted as the required information either is not
applicable or is included in the Financial Statements or related Notes.
Separate financial statements for the Holding Company have not been
included herein because the Holding Company, which has engaged in only
organizational activities to date, has no significant assets, liabilities
(contingent or otherwise), revenues or expenses.
94
<PAGE>
[LETTERHEAD OF MOORE, HORTON & CARLSON, P.C.]
INDEPENDENT AUDITORS' REPORT
Board of Directors
Palmyra Saving and Building Association, F.A.
Palmyra, Missouri
We have audited the accompanying consolidated statements of financial condition
of Palmyra Saving and Building Association, F.A. ("Association") as of September
30, 1998 and 1997, and the related consolidated statements of income, changes in
equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Association's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Association as
of September 30, 1998 and 1997, and the results of its operations and its cash
flows for the years then ended, in conformity with generally accepted accounting
principles.
/s/ Moore, Horton & Carlson, P.C.
Mexico, Missouri
November 18, 1998
F-1
<PAGE>
PALMYRA SAVING AND BUILDING ASSOCIATION, F.A.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
SEPTEMBER 30
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Cash (includes interest-bearing deposits of $1,003,689 and
$878,254, respectively) $ 2,268,166 $ 2,145,689
Investment securities--Note B
Available-for-sale, at fair value 7,086,677 8,508,981
Held-to-maturity (fair value of $5,639,849 and $5,106,899, respectively) 5,589,029 5,093,378
Mortgage-backed securities held-to-maturity (fair value of $2,623,999
and $2,870,571, respectively)--Note C 2,584,376 2,827,532
Stock in Federal Home Loan Bank of Des Moines ("FHLB") 373,500 480,400
Loans receivable--Note D 40,512,748 38,394,460
Accrued interest receivable--Note E 443,909 446,955
Premises and equipment--Note F 562,365 491,251
Other assets 55,532 44,555
----------- -----------
TOTAL ASSETS $59,476,302 $58,433,201
=========== ===========
LIABILITIES AND EQUITY
Liabilities
Deposits--Note G $52,723,768 $51,411,814
Advances from FHLB--Note H 500,000 1,000,000
Advances from borrowers for property taxes and insurance 50,219 53,688
Other liabilities 154,338 252,208
----------- -----------
TOTAL LIABILITIES $53,428,325 $52,717,710
Commitments and contingencies--Note L and M
Equity--Notes I and J
Retained earnings - substantially restricted 6,017,345 5,741,791
Unrealized gain (loss) on securities 30,632 (26,300)
----------- -----------
TOTAL EQUITY $ 6,047,977 $ 5,715,491
----------- -----------
TOTAL LIABILITIES AND EQUITY $59,476,302 $58,433,201
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
PALMYRA SAVING AND BUILDING ASSOCIATION, F.A.
CONSOLIDATED STATEMENTS OF EQUITY
YEARS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
RETAINED ON TOTAL
EARNINGS SECURITIES EQUITY
---------- ----------- ----------
<S> <C> <C> <C>
Balance at September 30, 1996, as originally reported $5,322,897 $(108,198) $5,214,699
Prior-period adjustment--Note O 87,000 --- 87,000
---------- --------- ----------
Balance as restated 5,409,897 (108,198) 5,301,699
Net income 331,894 --- 331,894
Change in unrealized gain (loss) on securities --- 81,898 81,898
---------- --------- ----------
BALANCE AT SEPTEMBER 30, 1997 5,741,791 (26,300) 5,715,491
Net income 275,554 --- 275,554
Change in unrealized gain (loss) on securities --- 56,932 56,932
---------- --------- ----------
BALANCE AT SEPTEMBER 30, 1998 $6,017,345 $ 30,632 $6,047,977
========== ========= ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PALMYRA SAVING AND BUILDING ASSOCIATION, F.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 276,027 $ 331,894
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation and amortization 56,275 41,133
Amortization of premiums and discounts (7,294) (12,908)
Loan fee amortization and payoffs (2,988) (3,590)
Provisions for loan losses 25,000 20,813
Deferred income taxes (10,000) (11,500)
Loss on sale of investments 2,056 14,015
Change to assets and liabilities
increasing (decreasing) cash flows
Accrued interest receivable 3,046 24,111
Other assets (10,977) 10,097
Other liabilities (121,465) (55,672)
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 209,680 358,393
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of investment securities,
held-to-maturity (2,994,688) (1,845,000)
Proceeds from maturities and calls of investment
securities, held-to-maturity 2,510,000 3,950,000
Purchase of investment securities,
available-for-sale (3,993,213) (3,094,813)
Proceeds from maturities and calls of investment
securities, available-for-sale 5,500,000 950,000
Purchase of mortgage-backed securities (374,863) ---
Principal collected on mortgage-backed securities 618,338 453,989
Proceeds from redemption of FHLB stock 106,900 ---
Loans originated, net of repayments 532,316 (172,945)
Purchase of mortgage loans (2,787,237) (1,103,683)
Proceeds from sale of education loans 114,148 124,247
Purchase of premises and equipment (127,389) (53,465)
Net book value of premises and
equipment disposals --- 24,274
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (895,688) (767,396)
</TABLE>
F-4
<PAGE>
PALMYRA SAVING AND BUILDING ASSOCIATION, F.A.
CONSOLIDATED STATEMENTS OF CASH FLOWS - CONT'D
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits $ 1,311,954 $ 20,838
Advances from FHLB
Borrowings 500,000 1,000,000
Repayments (1,000,000) (200,000)
Net increase (decrease) in advances for
taxes and insurance (3,469) 2,115
----------- ----------
NET CASH PROVIDED BY
FINANCING ACTIVITIES 808,485 822,953
----------- ----------
NET INCREASE IN CASH 122,477 413,950
CASH, BEGINNING OF PERIOD 2,145,689 1,731,739
----------- ----------
CASH, END OF PERIOD $ 2,268,166 $2,145,689
=========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION
Cash paid for
Interest on deposits $ 2,672,539 $2,620,334
=========== ==========
Interest on FHLB advances $ 9,422 $ 4,833
=========== ==========
Income tax (refund) $ 284,174 $ (48,355)
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PALMYRA SAVING AND BUILDING ASSOCIATION, F.A.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying reporting policies and practices of Palmyra Saving and Building
Association, F.A. conform to generally accepted accounting principles ("GAAP")
and to prevailing practices within the thrift industry. A summary of the more
significant accounting policies follows:
NATURE OF OPERATIONS: The Association provides a variety of financial services
- --------------------
to individual and corporate customers through its headquarters located in
Palmyra, Missouri and its branch locations in Canton and Kahoka, Missouri. The
Association's primary deposit products are interest-bearing checking and savings
accounts and certificates of deposit. Its primary lending products are one- to
four-family residential loans.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
- ---------------------------
accounts of the Association and its wholly-owned subsidiary, PSA Service
Corporation, whose activities consist principally of selling mortgage redemption
insurance and safe deposit box rental to the Association's customers.
Significant intercompany balances and transactions have been eliminated in
consolidation.
INVESTMENT SECURITIES: Investment securities are classified as held-to-
- ---------------------
maturity, which are recorded at amortized cost, or available-for-sale.
Securities designated as available-for-sale, provide the investor with certain
flexibility in managing its investment portfolio. Such securities are reported
at fair value; net unrealized gains and losses are excluded from income and
reported net of applicable income taxes as a separate component of equity.
Gains or losses on sales of securities are recognized in operations at the time
of sale and are determined by the difference between the net sales proceeds and
the cost of the securities using the specific identification method, adjusted
for any unamortized premiums or discounts. Premiums or discounts are amortized
or accreted to income using the interest method over the period to maturity.
STOCK IN FEDERAL HOME LOAN BANK OF DES MOINES: Stock in the FHLB is stated at
- ---------------------------------------------
cost and the amount of stock held is determined by regulation. No ready market
exists for such stock and it has no quoted market value.
LOANS RECEIVABLE: Loans receivable are carried at unpaid principal balances,
- ----------------
less the allowance for loan losses. Loan origination and commitment fees and
certain direct loan origination costs are deferred and amortized to interest
income over the contractual life of the loan using the interest method.
The Association's real estate loan portfolio consists primarily of long-term
loans secured by first trust deeds on single-family residences, other
residential property, commercial property and land. The adjustable-rate
mortgage is the Association's primary loan investment. Consumer loans consist
principally of loans secured by savings deposits and insured education loans.
Mortgage loans are placed on nonaccrual status when principal or interest is
delinquent for 90 days or more. Uncollectible interest on loans is charged off
or an allowance established by a charge to income equal to all interest
previously accrued. Interest is subsequently recognized only to the extent cash
payments are received until delinquent interest is paid in full and in
management's judgment, the borrower's ability to make periodic interest and
principal payments is back to normal in which case the loan is returned to
accrual basis. Interest on consumer loans continues to accrue even if the loan
is 90 days or more past due and is reversed when management determines the
interest to be uncollectible.
F-6
<PAGE>
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONT'D
ALLOWANCE FOR LOAN LOSSES: 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. Allowances for
impaired loans are generally determined based on collateral values or the
present value of estimated cash flows. The allowance is increased by a
provision for loan losses, which is charged to expense, and reduced by charge-
offs, net of recoveries.
IMPAIRED LOANS: The Association accounts for impaired loans in accordance with
- --------------
Statement of Financial Accounting Standard ("SFAS") No. 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118, "Accounting by Creditors
for Impairment of a Loan - Income Recognition and Disclosures, an amendment of
SFAS No. 114". These statements address the accounting by creditors for
impairment of certain loans. They apply to all creditors and to all loans,
uncollateralized as well as collateralized, except for large groups of small-
balance homogeneous loans that are collectively evaluated for impairment, loans
measured at fair value or at lower of cost or fair value, leases, and debt
securities. The Association considers all one- to four-family residential
mortgage loans, construction loans, and all consumer and other loans to be
smaller homogeneous loans.
Management applies its normal loan review procedures in determining when a loan
is impaired. All nonaccrual loans are considered impaired. Impaired loans are
assessed individually and impairment identified when the accrual of interest has
been discontinued, loans have been restructured or management has serious doubts
about the future collectibility of principal and interest, even though the loans
are currently performing. Factors considered in determining impairment include,
but are not limited to, expected future cash flow, the financial condition of
the borrower and current economic conditions. The Association measures each
impaired loan based on the fair value of its collateral and charges off those
loans or portions of loans deemed uncollectible. Management has elected to
continue to use its existing nonaccrual methods for recognizing interest income
on impaired loans.
PREMISES AND EQUIPMENT: Premises and equipment have been stated at cost less
- ----------------------
accumulated depreciation and amortization. Depreciation and amortization are
computed on a straight-line basis over the estimated useful lives of the
respective assets, which range from five to fifty years.
FORECLOSED REAL ESTATE: Real estate acquired in settlement of loans is carried
- ----------------------
at the lower of the balance of the related loan at the time of foreclosure or
fair value less the estimated costs to sell the asset. Costs of holding
foreclosed property are charged to expense in the current period, except for
significant property improvements which are capitalized to the extent that
carrying value does not exceed estimated fair market value.
INCOME TAXES: Deferred tax assets and liabilities are recognized for the future
- ------------
tax consequences, attributable to differences between the financial statement
carrying amounts of existing assets and labilities and their respective income
tax bases. As changes in tax law or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
STATEMENTS OF CASH FLOWS: For purposes of the cash flows, cash and amounts due
- ------------------------
from depository institutions and interest-bearing deposits in other banks with a
maturity of three months or less at date of purchase are considered cash
equivalents.
F-7
<PAGE>
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONT'D
RISK AND UNCERTAINTIES: The Association is a community-oriented financial
- ----------------------
institution which provides traditional financial services within the areas it
serves. The Association is engaged primarily in the business of attracting
deposits from the general public using these funds to originate one- to four-
family residential mortgage loans located primarily in Northeastern Missouri.
The Association's principal market area consists of rural communities and
substantially all of the Association's loans are to residents of or secured by
properties located in its principal lending area. Accordingly, the ultimate
collectibility of the Association's loan portfolio is dependent upon market
conditions in that area. This geographic concentration is considered in
management's establishment of the allowance for loan losses.
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles. In preparing the consolidated
statements, management is required to make estimates and assumptions which
affect the reported amounts of assets and liabilities as of the balance sheet
dates and income and expenses for the periods covered. Actual results could
differ significantly from these estimates and assumptions.
In the normal course of its business, the Association encounters two significant
types of risk, economic and regulatory. There are three main components of
economic risk: interest rate risk, credit risk and market risk. The
Association is subject to interest rate risk to the degree that its interest-
bearing liabilities mature or reprice more or less rapidly, or on a different
basis, than its interest-earning assets. Credit risk is the risk of default on
the Association's loan portfolio that results from the borrower's inability or
unwillingness to make contractually required payments. Market risk results from
changes in the value of assets and liabilities which may impact, favorably or
unfavorably, the realizability of those assets and liabilities held by the
Association.
The Association is subject to the regulations of various government agencies.
These regulations can and do change significantly from period to period. The
Association also undergoes periodic examinations by the regulatory agencies,
which may subject it to further changes with respect to asset valuations,
amounts of required loss allowances and operating restrictions resulting from
the regulators' judgements based on information available to them at the time of
their examination.
NEW ACCOUNTING STANDARDS: In June 1997, the Financial Accounting Standards
- ------------------------
Board ("FASB") issued SFAS No. 130, Reporting of Comprehensive Income and SFAS
No. 131, Disclosures about Segments of an Enterprise and Related Information.
SFAS No. 130 establishes standards for reporting and display of comprehensive
income in a full set of general purpose financial statements. An enterprise
shall continue to display an amount for net income but will also be required to
display other comprehensive income, which includes other changes in equity.
SFAS No. 131 establishes standards for the way that public business enterprises
report information about operating segments in annual financial statements. It
also establishes standards for related disclosures about products and services,
geographic areas and major customers.
In February 1998, the FASB issued SFAS No. 132, Employers' Disclosures about
Pensions and Other Postretirement Benefits, to revise present disclosure
requirements applicable to those benefits. Although the standard does not
change the measurement or recognition requirements for postretirement benefit
plans, it standardizes the disclosure requirements; requires additional
information on changes in benefit obligations and fair values of plan assets;
and eliminates certain present disclosure requirements.
SFAS Nos. 130, 131 and 132 are effective for fiscal years beginning after
December 15, 1997 and, accordingly, will be adopted by the Association in the
year ending September 30, 1999. Management does not expect that these standards
will significantly affect the Association's financial reporting.
F-8
<PAGE>
NOTE A--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONT'D
In June 1998, the FASB issued SFAS No. 133 Accounting for Derivative Instruments
and Hedging Activities. SFAS No. 133 standardizes the accounting for Derivative
instruments, including certain derivative instruments embedded in other
contracts, Under SFAS No. 133, entities are required to carry all derivative
instruments in the statement of financial position at fair value. The
accounting for changes in the fair value (i.e. gains or losses) of a derivative
instrument depends on whether it has been designated and qualifies as part of a
hedging relationship and, if so, on the reason for holding it. If certain
conditions are met, entities may elect to designate a derivative instrument as a
hedge of exposures to changes in fair values, cash flows or foreign currencies.
If the hedged exposure is a fair value exposure, the gain or loss on the
derivative instrument is recognized in earnings in the period of change together
with the offsetting loss or gain on the hedged item attributable to the risk
being hedged. If the hedged exposure is a cash flow exposure, the effective
portion of the gain or loss on the derivative instrument is reported initially
as a component of the other comprehensive income (outside earnings) and
subsequently reclassified into earnings when the forecasted transaction affects
earnings. Any amounts excluded from the assessment of hedge effectiveness as
well as the ineffective portion of the gain or loss is reported in earnings
immediately. Accounting for foreign currency hedges is similar to the
accounting for fair value and cash flow hedges. If the derivative instrument is
not designated as a hedge, the gain or loss is recognized in earnings in the
period of change.
SFAS No. 133 is effective for the financial statements issued for periods
beginning after June 15, 1999. The Association is currently evaluating the
effects of SFAS No. 133.
In October 1998, the FASB issued SFAS No. 134, Accounting for Mortgage-Backed
Securities Retained after the Securitization of Mortgage Loans Held for Sale by
a Mortgage-Banking Enterprise. SFAS 134 amended SFAS No. 65, Accounting for
Certain Mortgage Banking Activities and No. 115, Accounting for Certain
Investments in Debt and Equity Securities for years beginning after December 15,
1998. The Association currently conducts no mortgage-banking activities.
NOTE B--INVESTMENT SECURITIES
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED -------------------- FAIR
COST GAINS LOSSES VALUE
---------- ----------- ------- ----------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Government agency obligations
September 30, 1998 $7,037,978 $48,699 $ --- $7,086,677
========== ======= ======= ==========
September 30, 1997 $8,550,809 $19,936 $61,764 $8,508,981
========== ======= ======= ==========
Held-to-Maturity:
September 30, 1998
U.S. Government agency obligations $4,959,029 $35,900 $ --- $4,994,929
State and local obligations 630,000 14,920 --- 644,920
---------- ------- ------- ----------
$5,589,029 $50,820 $ --- $5,639,849
========== ======= ======= ==========
September 30, 1997
U.S. Government agency obligations $4,403,378 $20,080 $18,435 $4,405,023
State and local obligations 690,000 11,876 --- 701,876
---------- ------- ------- ----------
$5,093,378 $31,956 $18,435 $5,106,899
========== ======= ======= ==========
</TABLE>
F-9
<PAGE>
NOTE B--INVESTMENT SECURITIES - CONT'D
The scheduled contractual maturities of debt securities at September 30, 1998,
are shown below. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations without call
or prepayment penalties.
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
---------------------- ----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Amounts maturing:
One year or less $ --- $ --- $ 695,114 $ 697,036
After one year through five years 3,296,925 3,318,965 1,362,780 1,383,784
After five years through ten years 3,741,053 3,767,712 3,531,135 3,559.029
---------- ---------- ---------- ----------
$7,037,978 $7,086,677 $5,589,029 $5,639,849
========== ========== ========== ==========
</TABLE>
During 1998 and 1997, securities available-for-sale were called for redemption
with proceeds of $2,300,000 and $200,000, respectively, resulting in gross
realized losses of $3,670 and $1,180 in 1998 and 1997, respectively.
During 1998 and 1997, securities held-to-maturity were called for redemption
with proceeds of $950,000 and $500,000, respectively, resulting in a gross
realized gain of $1,614 in 1998 and a gross realized loss of $12,835 in 1997.
Investment securities were pledged to secure deposits as required or permitted
by law, with an amortized cost of $1,399,344 and fair value of $1,407,749 at
September 30, 1998.
NOTE C--MORTGAGE-BACKED SECURITIES
Mortgage-backed securities held-to-maturity consist of the following:
<TABLE>
<CAPTION>
GROSS UNREALIZED
AMORTIZED ------------------ FAIR
COST GAINS LOSSES VALUE
---------- --------- ------- ----------
<S> <C> <C> <C> <C>
September 30, 1998
GNMA $ 460,807 $16,747 $ --- $ 477,554
FNMA 1,522,667 14,856 11,135 1,526,388
FHLMC 572,339 21,264 --- 593,603
SBA 28,563 --- 2,109 26,454
---------- ------- ------- ----------
$2,584,376 $52,867 $13,244 $2,623,999
========== ======= ======= ==========
September 30, 1997
GNMA $ 583,162 $27,118 $ --- $ 610,280
FNMA 1,380,429 12,646 21,317 1,371,758
FHLMC 803,687 25,534 --- 829,221
SBA 60,254 --- 942 59,312
---------- ------- ------- ----------
$2,827,532 $65,298 $22,259 $2,870,571
========== ======= ======= ==========
</TABLE>
F-10
<PAGE>
NOTE C--MORTGAGE-BACKED SECURITIES - CONT'D
The amortized cost and fair value of mortgage-backed securities at September 30,
1998, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations without call or prepayment penalties.
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ----------
<S> <C> <C>
Amounts maturing:
After one year through five years $ 337,380 $ 342,174
After five through ten years 22,863 24,015
After ten years 2,224,133 2,257,810
---------- ----------
$2,584,376 $2,623,999
========== ==========
</TABLE>
Mortgage-backed securities were pledged to secure deposits as required or
permitted by law, with an amortized cost of $854,291 and fair value of $871,958
at September 30, 1998.
NOTE D--LOANS RECEIVABLE
Loans receivable consist of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Mortgage loans:
One- to four-family residences $36,801,348 $34,580,609
Multi-family 806,042 958,167
Commercial 2,072,984 1,833,741
Construction 875,915 1,452,446
Land 419,577 289,684
----------- -----------
40,975,866 39,114,647
Less undisbursed portion of mortgage loans 592,430 898,685
----------- -----------
40,383,436 38,215,962
Consumer and other loans:
Savings 305,287 303,853
Education 97,975 123,720
Other 10,237 13,100
----------- -----------
413,499 440,673
----------- -----------
40,796,935 38,656,635
Less:
Net deferred loan-origination fees 4,187 7,175
Allowance for loan losses 280,000 255,000
----------- -----------
284,187 262,175
----------- -----------
Loans receivable $40,512,748 $38,394,460
=========== ===========
</TABLE>
F-11
<PAGE>
NOTE D--LOANS RECEIVABLE - CONT'D
In the normal course of business, the Association has made loans to its
directors and officers. In the opinion of management, related party loans are
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with unrelated
persons and do not involve more than the normal risk of collectibility. The
aggregate dollar amount of loans outstanding to directors, officers and
employees total approximately $756,000 and $572,000 at September 30, 1998 and
1997, respectively.
The Association had loans serviced by others amounting to $8,568,593 and
$8,410,910 at September 30, 1998 and 1997, respectively.
Allowance for loan losses are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
-----------------------
1998 1997
----------- ----------
<S> <C> <C>
Balance, beginning of period $255,000 $234,187
Provision for loan losses 25,000 20,813
-------- --------
BALANCE, END OF PERIOD $280,000 $255,000
======== ========
</TABLE>
The recorded investment in impaired loans, for which there is no need for a
valuation allowance based upon the measure of the loan's fair value of the
underlying collateral at September 30, 1998 and 1997, was $-0- and $12,165,
respectively. The average recorded investment in impaired loans during the year
ended September 30, 1998 and 1997 was $12,165 and $130,772, respectively. The
related interest income that would have been recorded had the loans been current
in accordance with their original terms amounted to approximately $2,000 and
$34,000 at September 30, 1998 and 1997, respectively. The amount of interest
included in interest income on such loans for the year ended September 30, 1998
and 1997, amounted to approximately $-0- and $34,000, respectively.
NOTE E--ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consist of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Loans $243,378 $234,682
Investments securities 181,689 191,005
Mortgage-backed securities 18,842 21,268
-------- --------
$443,909 $446,955
======== ========
</TABLE>
F-12
<PAGE>
NOTE F--PREMISES AND EQUIPMENT
Premises and equipment consist of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Land $ 82,132 $ 82,132
Building and improvements 569,052 580,651
Furniture and equipment 380,078 353,579
---------- ----------
1,031,262 1,016,362
Less accumulated depreciation and amortization 468,897 525,111
---------- ----------
$ 562,365 $ 491,251
========== ==========
</TABLE>
NOTE G--DEPOSITS
Deposit account balances are summarized as follows at September 30:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE RATE 1998 1997
AT SEPTEMBER 30, -------------------- ----------------------
1998 AMOUNT % AMOUNT %
---------------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
NOW 2.53% 1,791,576 3.4 1,882,369 3.7
Money Market 3.91 1,275,154 2.4 1,028,585 2.0
Passbook savings 3.03 8,421,794 16.0 8,201,646 15.9
----------- ----- ----------- -----
3.05 11,488,524 21.8 11,112,600 21.6
Certificates of deposit:
4.00 to 4.99% 4.74 3,148,195 6.0 444,405 .9
5.00 to 5.99% 5.46 30,808,573 58.4 24,478,037 47.6
6.00 to 6.99% 6.36 7,278,476 13.8 15,376,772 29.9
----------- ----- ----------- -----
5.56 41,235,244 78.2 40,299,214 78.4
----------- ----- ----------- -----
5.02% $52,723,768 100.0% $51,411,814 100.0%
==== =========== ===== =========== =====
</TABLE>
The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was approximately $2,166,000 and $1,653,000 at September 30, 1998 and
1997, respectively. Deposits over $100,000 are not federally insured.
The Association held deposits of approximately $1,649,000 and $1,556,000 for its
directors, officers and employees at September, 1998 and 1997, respectively.
F-13
<PAGE>
NOTE G--DEPOSITS - CONT'D
At September 30, 1998, contractual maturities of certificates of deposit are as
follows:
<TABLE>
<CAPTION>
STATED YEAR ENDED SEPTEMBER 30
INTEREST RATE 1999 2000 2001 2002 2003
- --------------- ----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
4.00 to 4.99% $ 3,148,195 $ --- $ --- $ --- $ ---
5.00 to 5.99% 19,108,800 3,685,099 5,724,534 1,039,357 1,250,783
6.00 to 6.99% 11,992 2,245,170 2,028,311 1,364,091 1,628,912
----------- ---------- ---------- ---------- ----------
$22,268,987 $5,930,269 $7,752,845 $2,403,448 $2,879,695
=========== ========== ========== ========== ==========
</TABLE>
Interest expense on deposits are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1998 1997
---------- ----------
<S> <C> <C>
NOW, Money Market and
Passbook savings accounts $ 328,833 $ 342,098
Certificate accounts 2,341,025 2,277,827
---------- ----------
$2,669,858 $2,619,925
========== ==========
</TABLE>
NOTE H--ADVANCES FROM FEDERAL HOME LOAN BANK OF DES MOINES
Advances from FHLB, with weighted average interest rates and scheduled
maturities, consist of the following at September 30:
<TABLE>
<CAPTION>
1998 1997
-------- ----------
<S> <C> <C>
6.10% due on or before September 24, 1998 $ --- $1,000,000
5.74% due on or before January 6, 1999 500,000 ---
-------- ----------
$500,000 $1,000,000
======== ==========
</TABLE>
Maturities of FHLB advances are all due within one year.
The Association has signed a blanket pledge agreement with the FHLB under which
it can draw advances of unspecified amounts. The Association must hold an
unencumbered portfolio of eligible one- to four-family residential mortgages
with a book value of not less than 150% of the indebtedness.
F-14
<PAGE>
NOTE I--INCOME TAXES
Components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1998 1997
--------- ---------
<S> <C> <C>
Current $159,000 $193,500
Deferred benefit (10,000) (11,500)
-------- --------
$149,000 $182,000
======== ========
</TABLE>
In addition, the Association recorded deferred income tax to equity relating to
unrealized gains and losses on investment securities available-for-sale of
$33,595 and $40,167 for the years ended September 30, 1998 and 1997,
respectively.
The provision for income taxes as shown on the consolidated statements of income
differs from amounts computed by applying the statutory federal income tax rate
of 34% to income before taxes as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30
1998 1997
-----------------------------------
<S> <C> <C> <C> <C>
Income tax expense at statutory rates $144,348 34.0% $174,724 34.0%
Increase (decrease) resulting from:
State income taxes, net of federal benefit 14,414 3.4 17,190 3.3
Tax exempt income, net of related expenses (9,549) (2.2) (9,221) (1.8)
Other, net (213) (.1) (693) (.1)
-------- ---- -------- ----
$149,000 35.1% $182,000 35.4%
======== ==== ======== ====
</TABLE>
Deferred income taxes reflect the impact of "temporary differences" between
amounts of assets and liabilities for financial reporting purposes and such
amounts as measured by tax laws. Temporary differences which give rise to a
significant portion of deferred tax assets and liabilities included in other
liabilities at September 30 are as follows:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Deferred tax assets
Allowance for loan losses $ 37,100 $ 15,000
Deferred loan fees 1,600 2,600
Unrealized loss on available-for-sale securities --- 15,528
Deferred tax liabilities
Depreciation (35,030) (23,965)
FHLB stock dividend (45,200) (45,200)
Unrealized gain on available-for-sale securities (18,067) ---
-------- --------
NET DEFERRED TAX LIABILITY $(59,597) $(36,037)
======== ========
</TABLE>
F-15
<PAGE>
NOTE I--INCOME TAXES - CONT'D
During 1996, the Small Business Job Protection Act (the "Act") was signed into
law. The Act eliminated the percentage of taxable income bad debt deductions
for thrift institutions for tax years beginning after December 31, 1995. The
Act provides that bad debt reserves accumulated prior to 1988 be exempt from
recapture. Bad debt reserves accumulated after 1987 are subject to recapture
over a six year period. The Association has provided for deferred income taxes
for the reserve recapture after 1987; therefore the impact of this legislation
will not have a material effect on the Association's financial statements.
Prior to the enactment of the Act, the Association at September 30, 1998,
accumulated approximately $1,053,000 for which no deferred income tax liability
has been recognized. This amount represents an allocation of income to bad debt
deductions for income tax purposes only. If any of this amount is used other
than to absorb loan losses (which is not anticipated), the amount will be
subject to income tax at the current corporate rates.
NOTE J--REGULATORY CAPITAL REQUIREMENTS
The Association is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary, actions by regulators that, if undertaken, could have a direct
material effect on the Association's financial statements. Under 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
capital amounts and classification are also subject to qualitative judgement by
the regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to insure capital adequacy
require the Association to maintain minimum amounts and ratios (set forth below)
of total and Tier I capital to risk-weighted assets, and Tier I capital to
average assets (all as defined in the regulations). Management believes, as of
September 30, 1998, that the Association meets all capital adequacy requirements
to which it is subject.
Based on its regulatory capital ratios at September 30, 1998, the Association is
categorized as "well capitalized" under the regulatory framework for prompt
corrective action. To be categorized as "well capitalized" the Association must
maintain minimum total risk-based, Tier I risk-based, and Tier I leverage ratios
as set forth in the table. The Association's actual capital amounts and ratios
also presented in the table.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
----------------- ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1998
Total Risk-Based Capital (greater than (greater than
(to Risk Weighted Assets) $6,297 22.30% or equal to) 2,259 8.0% or equal to) 2,824 10.0%
Tier 1 Capital (greater than (greater than
(to Risk Weighted Assets 6,017 21.31 or equal to) 1,130 4.0 or equal to) 3,566 6.0
Tier 1 Capital (greater than (greater than
(to Adjusted Assets) 6,017 10.13 or equal to) 1,783 3.0 or equal to) 2,971 5.0
Tangible Capital (greater than (greater than
(to Adjusted Assets) 6,017 10.13 or equal to) 891 1.5 or equal to) N/A N/A
</TABLE>
F-16
<PAGE>
NOTE J--REGULATORY CAPITAL REQUIREMENTS - CONT'D
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
----------------- ------------------ ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
As of September 30, 1997
Total Risk-Based Capital (greater than (greater than
(to Risk Weighted Assets) $5,997 22.25% or equal to) 2,156 8.0% or equal to) 2,695 10.0%
Tier 1 Capital (greater than (greater than
(to Risk Weighted Assets 5,742 21.30 or equal to) 1,078 4.0 or equal to) 3,509 6.0
Tier 1 Capital (greater than (greater than
(to Adjusted Assets) 5,742 9.82 or equal to) 1,754 3.0 or equal to) 2,924 5.0
Tangible Capital (greater than (greater than
(to Adjusted Assets) 5,742 9.82 or equal to) 877 1.5 or equal to) N/A N/A
</TABLE>
NOTE K--EMPLOYEE BENEFITS
The Association has a 401(k) salary reduction plan that covers all employees
meeting specific age and length of service requirements. Under the plan, the
Association matches participant contributions at the rate of 50% up to 4% of the
participants' annual compensation. Pension costs recognized under the plan
totalled $8,903, and $8,660 for the years ended September 30, 1998 and 1997,
respectively.
NOTE L--FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK
The Association is a party to financial instruments with off-balance sheet risk
in the normal course of business to meet customer financing needs. These
financial instruments consist principally of commitments to extend credit. The
Association uses the same credit policies in making commitments and conditional
obligations as it does for on-balance sheet instruments. The Association's
exposure to credit loss in the event of nonperformance by the other party is
represented by the contractual amount of those instruments. The Association
does not generally require collateral or other security on unfunded loan
commitments until such time that loans are funded.
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. The
Association evaluates each customer's credit worthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the Association upon
extension of credit, is based on management's credit evaluation of the
counterparty. Such collateral consists primarily of residential properties.
The Association had the following outstanding commitments at September 30, 1998:
<TABLE>
<S> <C>
Undisbursed portion of mortgage loans $ 592,430
Commitments to originate mortgage loans with variable or pending interest rates 502,700
Commitments to originate mortgage loans with fixed interest rates ranging
from 7.00% to 7.50% 126,750
Undisbursed portion of nonmortgage loans 27,847
----------
TOTAL $1,249,727
==========
</TABLE>
F-17
<PAGE>
NOTE L--FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK AND CONCENTRATIONS OF
CREDIT RISK - CONT'D
At September 30, 1998, the Association had amounts on deposit at banks and
federal agencies in excess of federally insured limits of approximately
$2,245,000.
NOTE M--PLAN OF CONVERSION
On September 24, 1998, the Association's Board of Directors adopted a plan of
conversion ("Plan") to convert from a federally chartered mutual savings bank to
a federally chartered stock savings bank, subject to approval by the
Associations' members. The Plan, which includes the formation of a Holding
Bank, is subject to approval by the OTS and includes the filing of a
registration statement with the Securities and Exchange Commission.
The Plan is expected to be accomplished by the sale of common stock of the
Holding Bank and the acquisition of all of the capital stock of the Association
by the Holding Bank in exchange for a portion of the net proceeds of the
conversion. The Holding Bank's common stock will be offered to various eligible
account holders, to the Association's Employee Stock Ownership Plan, to other
supplemental eligible depositors and to other members of the Association in a
subscription offering. Shares of the Holding Bank's common stock not subscribed
for in the subscription offering, if any, may be offered for sale in a community
offering, as determined by the Board of Directors of the Association.
At the time of conversion, the Association will establish a liquidation account
in an amount equal to its retained earnings as reflected in the latest statement
of financial condition used in the final conversion prospectus. The liquidation
account will be maintained for the benefit of eligible account holders and
supplemental eligible account holders (collectively,"eligible depositors") who
continue to maintain their deposit accounts in the Association after conversion.
In the event of a complete liquidation of the Association (and only in such
event), eligible depositors who continue to maintain accounts shall be entitled
to receive distribution from the liquidation account before any liquidation may
be made with respect to common stock.
The Association may not declare or pay a cash dividend if the effect thereof
would cause its equity to be reduced below either the amount required for the
liquidation account or the regulatory capital requirements imposed by the OTS.
Conversion costs will be deducted from the proceeds of sale of common stock and
recorded as a reduction to equity. If the conversion is not completed, all costs
will be charged to expense. As of September 30, 1998, the Association has
incurred costs related to the conversion of $18,655.
NOTE N--FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No, 107, Disclosures About Fair Value of Financial Instruments, requires
disclosure of estimated fair value for financial instruments held by the
Association. Fair value estimates of the Association's financial instruments as
of September 30, 1998 and 1997, including methods and assumptions utilized, are
set forth below.
The following methods and assumptions were used by the Association in estimating
fair values of financial instruments as disclosed herein.
Cash and due from depository institutions: The carrying amounts approximate
fair value.
F-18
<PAGE>
NOTE N--FAIR VALUE OF FINANCIAL INSTRUMENTS - CONT'D
Investment and mortgage-backed securities: Fair value is determined by
reference to quoted market prices.
Stock in FHLB: This stock is a restricted asset and its carrying value is a
reasonable estimate of fair value.
Loans receivable: The fair value of fixed rate first mortgage loans is
estimated by using discounted cash flow analyses, using interest rates currently
offered by the Association for loans with similar terms to borrowers of similar
credit quality. The carrying value of variable rate first mortgage loans
approximate fair value. The fair value of consumer loans is calculated by using
the discounted cash flow based upon the current market for like instruments.
Fair values for impaired loans are estimated using discounted cash flow
analyses.
Accrued interest receivable: The carrying value approximates fair value.
Transaction deposits: Transaction deposits, payable on demand or with
maturities of 90 days or less, have a fair value equal to book value.
Certificates of deposit: The fair value of fixed maturity certificates of
deposit is estimated by discounting the future cash flows using the rates
currently offered for deposits of similar maturities.
Advances from borrowers for taxes and insurance: The carrying value
approximates fair value.
All other liabilities: The carrying value approximates fair value.
Off-balance sheet instruments: The fair value of a loan commitment and a letter
of credit is determined based on the fees currently charged to enter into
similar agreements, taking into account the remaining terms of the agreement and
the present credit worthiness of the counterparties. Neither the fees earned
during the year on these instruments nor their value at year-end are significant
to the Association's consolidated financial position.
Limitations: Fair value estimates are made at a specific point in time, based
on relevant market information and information about the financial instrument.
The valuation techniques employed above involve uncertainties and are affected
by assumptions used and judgements regarding prepayments, credit risk, discount
rates, cash flows and other factors. Changes in assumptions could significantly
affect the reported fair value.
In addition, the fair value estimates are based on existing on- and off-balance
sheet financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities that are not
considered financial instruments. Also, the fair value estimates do not include
the benefit that results from the low-cost funding provided by the deposit
liabilities compared to the cost of borrowing funds in the market. The amounts
at September 30, 1998 and 1997, are as follows:
F-19
<PAGE>
NOTE N--FAIR VALUE OF FINANCIAL INSTRUMENTS - CONT'D
<TABLE>
<CAPTION>
1998 1997
------------------ -----------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from depository institutions $ 2,268 $ 2,268 $ 2,146 $ 2,146
Investment securities - Available for sale 7,087 7,087 8,509 8,509
Investment securities - Held-to-maturity 5,589 5,640 5,093 5,107
Mortgage-backed securities - Held-to-maturity 2,584 2,624 2,828 2,871
Stock in FHLB 374 374 480 480
Loans receivable, net 40,513 40,522 38,394 38,398
Accrued interest receivable 444 444 447 447
LIABILITIES
Transaction accounts 11,489 11,489 11,113 11,113
Certificates of deposit 41,235 41,365 40,299 40,403
Advances from Federal Home Loan Bank 500 500 1,000 1,000
Advances from borrowers for property taxes
and insurance 50 50 54 54
</TABLE>
NOTE O--PRIOR-PERIOD ADJUSTMENT
The Association retroactively changed its method of computing deferred income
taxes to include the allowances for loan losses as a component of deferred
income taxes. The effect of this adjustment was to record a deferred income tax
asset and an increase in equity of $87,000.
F-20
<PAGE>
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by PFSB Bancorp, Inc. or Palmyra Saving and Building Association,
F.A. This prospectus does not constitute an offer to sell or a solicitation of
an offer to buy any of the securities offered hereby to any person or in any
jurisdiction in which such offer or solicitation is not authorized or in which
the person making such offer or solicitation is not qualified to do so, or to
any person to whom it is unlawful to make such offer or solicitation in such
jurisdiction. Neither the delivery of this prospectus nor any sale hereunder
shall under any circumstances create any implication that there has been no
change in the affairs of PFSB Bancorp, Inc. or Palmyra Saving and Building
Association, F.A. since any of the dates as of which information is furnished
herein or since the date hereof.
[Logo for PFSB Bancorp, Inc.]
(Proposed Holding Company for
Palmyra Saving and Building Association, F.A.,
to be known as Palmyra Savings)
637,500 to 862,500 Shares of
Common Stock
---------------
PROSPECTUS
---------------
TRIDENT SECURITIES, INC.
______ __, 1999
UNTIL THE LATER OF _______, 1999, OR 90 DAYS AFTER COMMENCEMENT OF THE
SYNDICATED COMMUNITY OFFERING OF COMMON STOCK, IF ANY, ALL DEALERS THAT BUY,
SELL OR TRADE THESE SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING,
MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS'
OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT
TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
In accordance with the General and Business Corporations Law of the State of
Missouri (being Chapter 351 of the Missouri Statutes), Article IX of the
Registrant's Articles of Incorporation provide as follows:
ARTICLE IX - INDEMNIFICATION
9.1 The Corporation shall and does hereby indemnify any person who is or
was a Director or executive officer of the Corporation or any subsidiary against
any and all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement and reasonably incurred by such person in connection with any
threatened, pending or completed civil, criminal, administrative or
investigative action, suit, proceeding or claim (including any action by or in
the right of the Corporation or a subsidiary) by reason of the fact that such
person is or was serving in such capacity; provided, however, that no such
-------- --------
person shall be entitled to any indemnification pursuant to this Article IX on
account of (i) conduct which is finally adjudged to have been knowingly
fraudulent or deliberately dishonest or to have constituted willful misconduct,
or (ii) an accounting for profits pursuant to Section 16(b) of the Securities
Exchange Act of 1934, as amended from time to time, or pursuant to a successor
statute or regulation.
9.2 The Corporation may, to the extent that the Board of Directors deems
appropriate and as set forth in a Bylaw or authorizing resolution, indemnify any
person who is or was a non-executive officer, or employee or agent of the
Corporation or any subsidiary or who is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise (including an employee
benefit plan) against any and all expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement and reasonably incurred by such
person in connection with any threatened, pending or completed civil, criminal,
administrative or investigative action, suit, proceeding or claim (including an
action by or in the right of the Corporation or a subsidiary) by reason of the
fact that such person is or was serving in such capacity; provided, however,
-------- -------
that no such person shall be entitled to any indemnification pursuant to this
Section 9.2 on account of (i) conduct which is finally adjudged to have been
knowingly fraudulent or deliberately dishonest or to have constituted willful
misconduct, or (ii) an accounting for profits pursuant to Section 16(b) of the
Securities Exchange Act of 1934, as amended from time to time, or pursuant to a
successor statute or regulation.
9.3 The Corporation may, to the extent that the Board of Directors deems
appropriate, make advances of expenses, including attorneys' fees, incurred
prior to the final disposition of a civil, criminal, administrative or
investigative action, suit, proceeding or claim (including an action by or in
the right of the Corporation or a subsidiary) to any person to whom
indemnification is or may be available under this Article IX; provided, however,
-------- -------
that prior to making any advances, the Corporation shall receive a written
undertaking by or on behalf of such person to repay such amounts advanced in the
event that it shall be ultimately determined that such person is not entitled to
such indemnification.
9.4 The indemnification and other rights provided by this Article IX shall
not be deemed exclusive of any other rights to which a person to whom
indemnification is or otherwise may be available (under these Articles of
Incorporation or the Bylaws or any agreement or vote of shareholders or
disinterested Directors or otherwise), may be entitled. The Corporation is
authorized to purchase and maintain insurance on behalf of the Corporation or
any person to whom indemnification is or may be available against any liability
asserted against such person in, or arising out of, such person's status as
Director, officer, employee or agent of the Corporation, any of its subsidiaries
or another corporation, partnership, joint venture, trust or other enterprise
(including an employee benefit plan) which such person is serving at the request
of the Corporation.
9.5 Each person to whom indemnification is granted under this Article IX
is entitled to rely upon the indemnification and other rights granted hereby as
a contract with the Corporation and such person and such person's heirs,
executors, administrators and estate shall be entitled to enforce against the
Corporation all indemnification and other rights granted to such person by
Sections 9.1 and 9.3 and this Article IX. The indemnification and other rights
granted by Sections 9.1 and 9.3 and this Section 9.5 shall survive amendment,
modification or repeal of this Article IX, and no such amendment, modification
or repeal shall act to reduce, terminate
<PAGE>
or otherwise adversely affect the rights to indemnification granted hereby, with
respect to any expenses, judgments, fines and amounts paid in settlement
incurred by a person to whom indemnification is granted under this Article IX
with respect to an action, suit, proceeding or claim that arises out of acts or
omissions of such person that occurred prior to the effective date of such
amendment, modification or repeal.
Any indemnification granted by the Board of Directors pursuant this Article
IX shall inure to the person to whom the indemnification is granted and such
person's heirs, executors, administrators and estate; provided however, that
-------- -------
such indemnification may be changed, modified or repealed, at any time or from
time to time, at the discretion of the Board of Directors, and the survival of
such indemnification shall be in accordance with terms determined by the Board
of Directors.
9.6 For the purposes of this Article IX, "subsidiary" shall mean any
corporation, partnership, joint venture, trust or other enterprise of which a
majority of the voting power, equity or ownership interest is directly or
indirectly owned by the Corporation.
<PAGE>
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
<S> <C>
SEC filing(1)..................................... $ 2,758
OTS filing fee.................................... 8,400
NASD filing fee(1)................................ 1,490
Printing, postage and mailing..................... 75,000
Legal fees and expenses (including underwriter's
counsel)...................................... 160,000
Accounting fees and expenses...................... 70,000
Appraisers' fees and expenses (including
business plan)................................ 30,000
Marketing fees and selling commissions............ 135,000
Underwriter's expenses............................ 12,500
Conversion agent fees and expenses................ 5,000
Certificate printing.............................. 1,500
Miscellaneous..................................... 28,352
--------
TOTAL............................................. $530,000
========
</TABLE>
- ----------------------
(1) Unless otherwise noted, based upon the registration and issuance of 991,875
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 Palmyra Saving and Building Association, F.A.
and Trident Securities, Inc.
1.2 Draft Form of Agency Agreement*
2.0 Plan of Conversion (including the Stock Charter and Bylaws of Palmyra
Savings)
3.1 Articles of Incorporation of PFSB Bancorp, Inc.
3.2 Bylaws of PFSB Bancorp, Inc.
3.3 Stock Charter and Bylaws of Palmyra Savings (See Exhibit 2.0 hereto)
4.0 Draft Stock Certificate of PFSB Bancorp, Inc.
5.0 Draft Opinion of Muldoon, Murphy & Faucette re: legality
8.1 Draft Opinion of Muldoon, Murphy & Faucette re: Federal Tax Matters
8.2 Draft Opinion of Moore, Horton & Carlson, P.C. re: State Tax Matters
10.1 Form of Palmyra Savings Employee Stock Ownership Plan and Trust Agreement
10.2 Draft ESOP Loan Commitment Letter and ESOP Loan Documents
10.3 Form of Palmyra Savings and PFSB Bancorp, Inc. Employment Agreement
10.4 Form of Palmyra Savings Employee Severance Compensation Plan
16.0 Letter on change in certifying accountant
23.1 Consent of Muldoon, Murphy & Faucette
23.2 Consent of Moore, Horton & Carlson, P.C.
23.4 Consent and Subscription Rights Opinion of R.P. Financial, LC.
24.1 Powers of Attorney
27.0 Financial Data Schedule
99.1 Appraisal Report of R.P. Financial, LC. (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 City of Palmyra,
State of Missouri, on December 18, 1998.
PFSB Bancorp, Inc.
By: /s/ Eldon R. Mette
----------------------
Eldon R. Mette
President 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.
Name Title Date
---- ----- ----
/s/ Eldon R. Mette
- ----------------------- President and Director December 18, 1998
Eldon R. Mette (principal executive
officer)
/s/ Ronald L. Nelson
- ----------------------- Vice President, Secretary December 18, 1998
Ronald L. Nelson and Treasurer
(principal accounting and
financial officer)
/s/ L. Edward Schaeffer
- ----------------------- Chairman of the Board December 18, 1998
L. Edward Schaeffer
/s/ Glenn J. Maddox
- ----------------------- Director December 18, 1998
Glenn J. Maddox
/s/ Albert E. Davis
- ----------------------- Director December 18, 1998
Albert E. Davis
/s/ Robert M. Dearing
- ----------------------- Director December 18, 1998
Robert M. Dearing
/s/ James D. Lovegreen
- ----------------------- Director December 18, 1998
James D. Lovegreen
/s/ Donald L. Slavin
- ----------------------- Director December 18, 1998
Donald L. Slavin
<PAGE>
Exhibit 1.1
[LETTERHEAD OF TRIDENT SECURITIES, INC.]
JULY 29, 1998
Board of Directors
Palmyra Savings and Building Association
123 West LaFayette
Palmyra, Missouri 63461
RE: Conversion Stock Marketing Services
Gentlemen:
This letter sets forth the terms of the proposed engagement between Trident
Securities, Inc. ("Trident") and Palmyra Savings and Building
Association/Palmyra, Missouri (the "Association") concerning our investment
banking services in connection with the conversion of the Association from a
mutual to a capital stock form of organization.
Trident is prepared to assist the Association in connection with the offering of
its shares of common stock during the subscription offering and community
offering as such terms are defined in the Association's Plan of Conversion. The
specific terms of the services contemplated hereunder shall be set forth in a
definitive sales agency agreement (the "Agreement") between Trident and the
Association to be executed on the date the offering circular/prospectus is
declared effective by the appropriate regulatory authorities. The price of the
shares during the subscription offering and community offering will be the price
established by the Association's Board of Directors, based upon an independent
appraisal as approved by the appropriate regulatory authorities, provided such
price is mutually acceptable to Trident and the Association.
In connection with the subscription offering and community offering, Trident
will act as financial advisor and exercise its best efforts to assist the
Association in the sale of its common stock during the subscription offering and
community offering. Additionally, Trident may enter into agreements with other
National Association of Securities Dealers, Inc., ("NASD") member firms to act
as selected dealers, assisting in the sale of the common stock. Trident and the
Association will determine the selected dealers to assist the Association during
the community offering. At the appropriate time, Trident in conjunction with its
counsel, will conduct an examination of the relevant documents and records of
the Association as Trident deems necessary and appropriate. The Association will
make all documents, records and other information deemed necessary by Trident or
its counsel available to them upon request.
For its services hereunder, Trident will receive the following compensation and
reimbursement from the Association:
<PAGE>
TRIDENT SECURITIES, INC.
Board of Directors
July 29, 1998
Page 2
1. A management fee in the amount of $135,000.
2. For stock sold by other NASD member firms under selected dealer's
agreements, the commission shall not exceed a fee to be agreed upon
jointly by Trident and the Association to reflect market requirements
at the time of the stock allocation in a Syndicated Community Offering.
3. The foregoing fees and commissions are to be payable to Trident at
closing as defined in the Agreement to be entered into between the
Association and Trident.
4. Trident shall be reimbursed for allocable expenses incurred by them,
including legal fees, whether or not the Agreement is consummated.
Trident's out-of-pocket expenses will not exceed $12,500 and its legal
fees will not exceed $30,000. The Association will forward to Trident a
check in the amount of $10,000 as an advance payment to defray the
allocable expenses of Trident.
It further is understood that the Association will pay all other expenses of the
conversion including but not limited to its attorney's fees, NASD filing fees,
and filing and registration fees and fees of either Trident's attorneys or the
attorneys relating to any required state securities law filings, telephone
charges, air freight, rental equipment, supplies, transfer agent charges, fees
relating to auditing and accounting and costs of printing all documents
necessary in connection with the foregoing.
For purposes of Trident's obligation to file certain documents and to make
certain representations to the NASD in connection with the conversion, the
Association warrants that: (a) the Association has not privately placed any
securities within the last 18 months; (b) there have been no material dealings
within the last 12 months between the Association and any NASD member or any
person related to or associated with any such member; (c) none of the officers
or directors of the Association has any affiliation with the NASD; (d) except as
contemplated by this engagement letter with Trident, the Association has no
financial or management consulting contracts outstanding with any other person;
(e) the Association has not granted Trident a right of first refusal with
respect to the underwriting of any future offering of the Association stock; and
(f) there has been no intermediary between Trident and the Association in
connection with the public offering of the Association's shares, and no person
is being compensated in any manner for providing such service.
The Association agrees to indemnify and hold harmless Trident and each person,
if any, who controls the firm against all losses, claims, damages or
liabilities, joint or several and all legal or other expenses reasonably
incurred by them in connection with the investigation or defense thereof
(collectively, "Losses"), to which they may become subject under securities laws
or under the common law, that arise out of or are based upon the reorganization
or the engagement hereunder of Trident except to the extent such losses are the
result of the gross negligence or willful misconduct of Trident. If the
foregoing indemnification is unavailable for any reason, the Association agrees
to contribute to such Losses in the proportion that its financial interest in
the reorganization bears to that of the indemnified parties. If the agreement is
entered into with respect the common stock to be issued in the reorganization,
the Agreement will provide for indemnification, which will be in
<PAGE>
TRIDENT SECURITIES, INC.
Board of Directors
July 29, 1998
Page 3
addition to any rights that Trident or any other indemnified party may have at
common law or otherwise. The indemnification provision of this paragraph will be
superseded by the indemnification provisions of the Agreement entered into by
the Association and Trident.
This letter is merely a statement of intent and is not a binding legal agreement
except as to paragraph (4) above with regard to the obligation to reimburse
Trident for allocable expenses to be incurred prior to the execution of the
Agreement and the indemnity described in the preceding paragraph. While Trident
and the Association agree in principle to the contents hereof and propose to
proceed promptly, and in good faith, to work out the arrangements with respect
to the proposed offering, any legal obligations between Trident and the
Association shall be only as set forth in a duly executed Agreement. Such
Agreement shall be in form and content satisfactory to Trident and the
Association, as well as their counsel, and Trident's obligations thereunder
shall be subject to, among other things, there being in Trident's opinion no
material adverse change in the condition or obligations of the Association or no
market conditions which might render the sale of the shares by the Association
hereby contemplated inadvisable.
Please acknowledge your agreement to the foregoing by signing below and
returning to Trident one copy of this letter along with the advance payment of
$10,000. This proposal is open for your acceptance for a period of thirty (30)
days from the date hereof.
Yours very truly,
TRIDENT SECURITIES, INC.
BY: /S/ R. Lee Burrows, Jr.
----------------------------
R. Lee Burrows, Jr.
Managing Director
Agreed and accepted to this 7th day
of August, 1998
PALMYRA SAVINGS AND BUILDING ASSOCIATION
By: /s/ Eldon R. Mette
-------------------------
Eldon R. Mette
Chief Executive Officer
<PAGE>
EXHIBIT 2.0
PALMYRA SAVING AND BUILDING ASSOCIATION, F.A.
PALMYRA, MISSOURI
PLAN OF CONVERSION
FROM FEDERAL MUTUAL SAVINGS AND LOAN ASSOCIATION
TO FEDERAL STOCK SAVINGS BANK
AND FORMATION OF A HOLDING COMPANY
INTRODUCTION
------------
I. General
-------
The Board of Directors of Palmyra Saving and Building Association, F.A.
("Association") desires to attract new capital to the Association to increase
its net worth, to support future growth, to increase the amount of funds
available for other lending and investment, to provide greater resources for the
expansion of customer services and to facilitate future expansion by the
Association. In addition, the Board of Directors intends to implement stock
option plans and other stock benefit plans as part of the Conversion in order to
attract and retain qualified directors and officers. It is the further desire
of the Board of Directors to reorganize the Association as the wholly owned
subsidiary of a holding company to enhance flexibility of operations,
diversification of business opportunities and financial capability for business
and regulatory purposes and to enable the Association to compete more
effectively with other financial service organizations. Accordingly, on
September 24, 1998, the Board of Directors, after careful study and
consideration, adopted by unanimous vote this Plan of Conversion From Federal
Mutual Savings and Loan Association to Federal Stock Savings Bank and Formation
Of A Holding Company ("Plan"), which provides for the conversion of the
Association from a federally chartered mutual savings and loan association to a
federally chartered stock savings and loan association and the concurrent
formation of a holding company for the Association ("Holding Company").
All capitalized terms contained in the Plan shall have the meanings
ascribed to them in Section II hereof.
Pursuant to this Plan, shares of Conversion Stock will be offered as part
of the Conversion in a Subscription Offering pursuant to nontransferable
Subscription Rights at a predetermined and uniform price first to the
Association's Eligible Account Holders, second to the Tax-Qualified Employee
Stock Benefit Plans, third to the Association's Supplemental Eligible Account
Holders, and fourth to Other Members of the Association. Shares not subscribed
for in the Subscription Offering will be offered as part of the Conversion to
the general public in a Direct Community Offering. Shares still remaining may
then be offered to the general public in a Syndicated Community Offering, an
underwritten public offering, or otherwise. The aggregate Purchase Price of the
Conversion Stock will be based upon an independent appraisal of the Association
and will reflect the estimated pro forma market value of the Association as a
subsidiary of the Holding Company.
The Conversion is subject to the regulations of the Director of the OTS
(Part 563b of the Rules and Regulations Applicable to All Savings Associations)
as promulgated pursuant to Section 5(i) of the Home Owners' Loan Act.
Consummation of the Conversion is subject to the approval of this Plan and
the Conversion by the OTS and by the affirmative vote of Members of the
Association holding not less than a majority of the total votes eligible to be
cast at a special meeting of the Members to be called to consider the
Conversion.
A-1
<PAGE>
No change will be made in the Board of Directors or management of the
Association as a result of the Conversion.
II. Definitions
-----------
As used in this Plan, the terms set forth below have the following
meanings:
A. Acting in Concert: (i) Knowing participation in a joint activity or
-----------------
interdependent conscious parallel action towards a common goal whether or not
pursuant to an express agreement; or (ii) a combination or pooling of voting or
other interests in the securities of an issuer for a common purpose pursuant to
any contract, understanding, relationship, agreement or other arrangement,
whether written or otherwise. A Person (as defined herein) who acts in concert
with another Person ("other party") shall also be deemed to be acting in concert
with any Person who is also acting in concert with that other party, except that
any Tax-Qualified Employee Stock Benefit Plan will not be deemed to be acting in
concert with its trustee or a Person who serves in a similar capacity solely for
the purpose of determining whether stock held by the trustee and stock held by
the Tax-Qualified Employee Benefit Plan will be aggregated.
B. Associate: When used to indicate a relationship with any Person, means
---------
(i) any corporation or organization (other than the Association or a majority-
owned subsidiary of the Association, or the Holding Company) of which such
Person is an officer or partner or is, directly or indirectly, the beneficial
owner of ten percent or more of any class of equity securities, (ii) any trust
or other estate in which such Person has a substantial beneficial interest or as
to which such Person serves as trustee or in a similar fiduciary capacity,
except that it does not include a Tax-Qualified Employee Stock Benefit Plan and
(iii) any relative or spouse of such Person, or any relative of such spouse, who
has the same home as such Person or who is a director or officer of the
Association, any of its subsidiaries, or the Holding Company.
C. Association: Palmyra Saving and Building Association, F.A., in its
-----------
present form as a federally chartered mutual savings and loan association.
D. Capital Stock: Any and all authorized capital stock in the Converted
-------------
Association.
E. Common Stock: Any and all authorized common stock in the Holding
------------
Company subsequent to the Conversion.
F. Conversion: (i) Amendment of the Association's Charter and Bylaws to
----------
authorize issuance of shares of Capital Stock by the Converted Association and
to conform to the requirements of a Federal stock savings bank under the laws of
the United States and rules and regulations of the OTS; (ii) issuance and sale
of Conversion Stock by the Holding Company in the Subscription Offering and
Direct Community Offering; and (iii) purchase by the Holding Company of all of
the issued and outstanding shares of Capital Stock of the Converted Association
to be issued in the Conversion immediately following or concurrently with the
close of the sale of all Conversion Stock.
G. Conversion Stock: Holding Company common stock to be issued and sold
----------------
by the Holding Company pursuant to the Plan.
H. Converted Association: Palmyra Saving and Building Association, F.A.,
---------------------
in its converted form as a federally chartered stock savings and loan
association.
I. Direct Community Offering: The offering for sale of Conversion Stock
-------------------------
to the public.
J. Eligibility Record Date: June 30, 1997.
-----------------------
A-2
<PAGE>
K. Eligible Account Holder: Holder of a Qualifying Deposit in the
-----------------------
Association on the Eligibility Record Date.
L. FDIC: Federal Deposit Insurance Corporation.
----
M. Form AC Application: The application submitted to the OTS on OTS Form
-------------------
AC for approval of the Conversion.
N. H-(e)1 Application: The application submitted to the OTS on OTS Form
------------------
H-(e)1 or, if applicable, Form H-(e)1-S for approval of the Holding Company's
acquisition of all of the Capital Stock of the Converted Association.
O. Holding Company: A corporation to be formed by the Association under
---------------
state law for the purpose of becoming a holding company through the issuance and
sale of its stock under the Plan, and concurrent acquisition of 100% of the
Capital Stock of the Converted Association to be issued pursuant to the Plan.
P. Holding Company Stock: Any and all authorized capital stock of the
---------------------
Holding Company.
Q. Local Community: Clark, Lewis and Marion Counties, Missouri.
---------------
R. Market Maker: A dealer (i.e., any Person who engages directly or
------------
indirectly as agent, broker, or principal in the business of offering, buying,
selling, or otherwise dealing or trading in securities issued by another Person)
who, with respect to a particular security, (i) regularly publishes bona fide,
competitive bid and offer quotations in a recognized inter-dealer quotation
system or furnishes bona fide competitive bid and offer quotations on request
and (ii) is ready, willing and able to effect transactions in reasonable
quantities at his quoted prices with other brokers or dealers.
S. Members: All Persons or entities who qualify as members of the
-------
Association pursuant to its Charter and Bylaws prior to the Conversion.
T. Officer: An executive officer of the Association, which includes the
-------
Chairman of the Board, President, Vice President, Secretary, Treasurer or
Principal Financial Officer, Comptroller or Principal Accounting Officer, and
Senior Vice Presidents, Vice Presidents in charge of principal business
functions, the Secretary and the Treasurer as well as any other person
performing similar functions.
U. Order Forms: Forms to be used for the purchase of Conversion Stock
-----------
sent to Eligible Account Holders and other parties eligible to purchase
Conversion Stock in the Subscription Offering pursuant to the Plan.
V. Other Member: Holder of a Savings Account (other than Eligible Account
------------
Holders and Supplemental Eligible Account Holders) as of the Record Date, and
borrowers from the Association as provided in the Association's Federal Mutual
Charter who continue as borrowers from the Association as of the Record Date.
W. OTS: Office of Thrift Supervision of the United States Department of
---
the Treasury.
X. Person: An individual, corporation, partnership, association, joint
------
stock company, trusts of natural Persons, unincorporated organization or a
government or any political subdivision thereof.
Y. Plan: This Plan of Conversion, which provides for the conversion of
----
the Association from a federally chartered mutual savings and loan association
to a federally chartered capital stock savings and loan association as a wholly
owned subsidiary of the Holding Company, as originally adopted by the Board of
Directors or as amended in accordance with the terms hereof.
A-3
<PAGE>
Z. Qualifying Deposit: The deposit balance in any Savings Account, and
------------------
any certificate of deposit, any demand deposit account and any noninterest-
bearing deposit account, as of the close of business on the Eligibility Record
Date or the Supplemental Eligibility Record Date, as applicable; provided,
however, that no account with a deposit balance of less than $50.00 on such date
shall constitute a Qualifying Deposit.
AA. Record Date: Date which determines which Members are entitled to vote
-----------
at the Special Meeting.
BB. Registration Statement: The registration statement on SEC Form S-1 or
----------------------
SEC Form SB-2 filed by the Holding Company with the SEC for the purpose of
registering the Conversion Stock under the Securities Act of 1933, as amended.
CC. Savings Account(s): Withdrawable deposit(s) in the Association or the
------------------
Converted Association.
DD. SEC: Securities and Exchange Commission.
---
EE. Special Meeting: The special meeting of Members called for the
---------------
purpose of considering the Plan for approval.
FF. Subscription Offering: The offering of Conversion Stock to Eligible
---------------------
Account Holders, Tax-Qualified Employee Stock Benefit Plans, Supplemental
Eligible Account Holders and Other Members under the Plan.
GG. Subscription Rights: Nontransferable, non-negotiable, personal rights
-------------------
of Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans,
Supplemental Eligible Account Holders and Other Members to purchase Conversion
Stock.
HH. Supplemental Eligibility Record Date: The last day of the calendar
------------------------------------
quarter preceding the approval of the Plan by the OTS.
II. Supplemental Eligible Account Holder: Holder of a Qualifying Deposit
------------------------------------
in the Association (other than an Officer or director of the Association or
their Associates) on the Supplemental Eligibility Record Date.
JJ. Syndicated Community Offering: The offering for sale by a syndicate
-----------------------------
of broker-dealers to the general public of shares of Conversion Stock not
purchased in the Subscription Offering and the Direct Community Offering.
KK. Tax-Qualified Employee Stock Benefit Plan: Any defined benefit plan or
-----------------------------------------
defined contribution plan of the Association or Holding Company, such as an
employee stock ownership plan, bonus plan, profit-sharing plan or other plan,
which, with its related trust, meets the requirements to be "qualified" under
section 401 of the Internal Revenue Code. A "non-tax-qualified employee stock
benefit plan" is any defined benefit plan or defined contribution plan that is
not so qualified.
III. Steps Prior to Submission of the Plan to the Members for Approval
-----------------------------------------------------------------
Prior to submission of the Plan to the Members for approval, the
Association must receive approval from the OTS of the Form AC Application.
Prior to such regulatory approval:
A. The Board of Directors shall adopt the Plan by a vote of not less than
two-thirds of its entire membership.
B. The Association shall notify the Members of the adoption of the Plan by
publishing legal notice in a newspaper having a general circulation in each
community in which the Association maintains an office.
A-4
<PAGE>
C. A press release relating to the proposed Conversion may be submitted to
the local media.
D. Copies of the Plan as adopted by the Board of Directors shall be made
available for inspection at each office of the Association.
E. The Association shall cause the Holding Company to be incorporated
under state law and the Board of Directors of the Holding Company shall concur
in the Plan by at least a two-thirds vote.
F. As soon as practicable following the adoption of this Plan, the
Association shall file the Form AC Application, and the Holding Company shall
file the Registration Statement and the H-(e)1 Application. Upon filing the
Form AC Application, the Association shall publish legal notice of the filing of
the Form AC Application in a newspaper having a general circulation in each
community in which the Association maintains an office and/or by mailing a
letter to each of its Members, and shall publish such other notices of the
Conversion as may be required in connection with the H-(e)1 Application and by
the regulations and policies of the OTS.
G. The Association shall obtain an opinion of its tax advisors or a
favorable ruling from the United States Internal Revenue Service which shall
state that the Conversion will not result in any gain or loss for Federal income
tax purposes to the Association or its Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members. Receipt of a favorable opinion or
ruling is a condition precedent to completion of the Conversion.
IV. Meeting of Members
------------------
Subsequent to the approval of the Plan by the OTS, the Special Meeting
shall be scheduled in accordance with the Association's Bylaws. Promptly after
receipt of approval and at least 20 days but not more than 45 days prior to the
Special Meeting, the Association shall distribute proxy solicitation materials
to all Members and beneficial owners of accounts held in fiduciary capacities
where the beneficial owners possess voting rights, as of the Record Date. The
proxy solicitation materials shall include a copy of the proxy statement to be
used in connection with such solicitation ("Proxy Statement") and other
documents authorized for use by the regulatory authorities and may also include
a copy of the Plan and/or a prospectus ("Prospectus") as provided in Paragraph V
below. The Association shall also advise each Eligible Account Holder and
Supplemental Eligible Account Holder not entitled to vote at the Special Meeting
of the proposed Conversion and the scheduled Special Meeting, and provide a
postage prepaid card on which to indicate whether he wishes to receive the
Prospectus, if the Subscription Offering is not held concurrently with the proxy
solicitation.
Pursuant to OTS regulations, an affirmative vote of not less than a
majority of the total outstanding votes of the Members is required for approval
of the Plan. Voting may be in person or by proxy. The OTS shall be notified
promptly of the actions of the Members.
V. Summary Proxy Statement
-----------------------
The Proxy Statement furnished to Members may be in summary form, provided
that a statement is made in bold-face type that a more detailed description of
the proposed transaction may be obtained by returning an enclosed postage
prepaid card or other written communication requesting supplemental information.
Without prior approval of the OTS, the Special Meeting shall not be held less
than 20 days after the last day on which the supplemental information statement
is mailed to requesting Members. The supplemental information statement may be
combined with the Prospectus if the Subscription Offering is commenced
concurrently with or during the proxy solicitation of Members for the Special
Meeting.
A-5
<PAGE>
VI. Offering Documents
------------------
The Holding Company may commence the Subscription Offering and, provided
that the Subscription Offering has commenced, may commence the Direct Community
Offering concurrently with or during the proxy solicitation of Members. The
Holding Company may close the Subscription Offering before the Special Meeting,
provided that the offer and sale of the Conversion Stock shall be conditioned
upon approval of the Plan by the Members at the Special Meeting. The
Association's proxy solicitation materials may require Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members to return to the
Association by a reasonable certain date a postage prepaid card or other written
communication requesting receipt of a Prospectus with respect to the
Subscription Offering, provided that if the Prospectus is not mailed
concurrently with the proxy solicitation materials, the Subscription Offering
shall not be closed until the expiration of 30 days after the mailing of the
proxy solicitation materials. If the Subscription Offering is not commenced
within 45 days after the Special Meeting, the Association may transmit, not more
than 30 days prior to the commencement of the Subscription Offering, to each
Eligible Account Holder, Supplemental Eligible Account Holder and other eligible
subscribers who had been furnished with proxy solicitation materials a notice
which shall state that the Association is not required to furnish a Prospectus
to them unless they return by a reasonable date certain a postage prepaid card
or other written communication requesting the receipt of the Prospectus.
Prior to commencement of the Subscription Offering, the Direct Community
Offering and the Syndicated Community Offering, the Holding Company shall file
the Registration Statement. The Holding Company shall not distribute the final
Prospectus until the Registration Statement containing same has been declared
effective by the SEC and the Prospectus has been declared effective by the OTS.
VII. Combined Subscription and Direct Community Offering
---------------------------------------------------
Instead of a separate Subscription Offering, all Subscription Rights may
be exercised by delivery of properly completed and executed Order Forms to the
Association or selling group utilized in connection with the Direct Community
Offering and the Syndicated Community Offering. If a separate Subscription
Offering is not held, orders for Conversion Stock in the Direct Community
Offering shall first be filled pursuant to the priorities and limitations stated
in Paragraph IX.C., below.
VIII. Consummation of the Conversion
------------------------------
After receipt of all orders for Conversion Stock, the amendment of the
Association's Federal Mutual Charter and Bylaws to authorize the issuance of
shares of Capital Stock and to conform to the requirements of a federal stock
savings bank, as approved by the Members at the Special Meeting will be declared
effective by the OTS. At such time, the Conversion Stock will be issued and
sold by the Holding Company, the Capital Stock to be issued in the Conversion
will be issued and sold to the Holding Company, and the Converted Association
will become a wholly owned subsidiary of the Holding Company. The Converted
Association will issue to the Holding Company 1,000 shares of its common stock,
representing all of the shares of Capital Stock to be issued by the Converted
Association, and the Holding Company will make payment to the Converted
Association of that portion of the aggregate net proceeds realized by the
Holding Company from the sale of the Conversion Stock under the Plan as may be
authorized or required by the OTS.
IX. Stock Offering
--------------
A. Number of Shares
----------------
The number of shares of Conversion Stock to be offered pursuant to the
Plan shall be determined initially by the Board of Directors of the Association
and the Board of Directors of the Holding Company in conjunction with the
determination of the Purchase Price (as that term is defined in Paragraph IX.B.
below). The number of shares to be offered may be subsequently adjusted by the
Board of Directors prior to completion of the offering.
A-6
<PAGE>
B. Independent Evaluation and Purchase Price of Shares
---------------------------------------------------
All shares of Conversion Stock sold in the Conversion, including shares
sold in any Direct Community Offering, shall be sold at a uniform price per
share, referred to herein as the "Purchase Price." The Purchase Price shall be
determined by the Board of Directors of the Association and the Board of
Directors of the Holding Company immediately prior to the simultaneous
completion of all such sales contemplated by this Plan on the basis of the
estimated pro forma market value of the Converted Association and the Holding
Company at such time. The estimated pro forma market value of the Converted
Association and the Holding Company shall be determined for such purpose by an
independent appraiser on the basis of such appropriate factors not inconsistent
with the regulations of the OTS. Immediately prior to the Subscription
Offering, a subscription price range shall be established which shall vary from
15% above to 15% below the average of the minimum and maximum of the estimated
price range. The maximum subscription price (i.e., the per share amount to be
remitted when subscribing for shares of Conversion Stock) shall then be
determined within the subscription price range by the Board of Directors of the
Association. The subscription price range and the number of shares to be
offered may be revised after the completion of the Subscription Offering with
OTS approval without a resolicitation of proxies or Order Forms or both.
C. Method of Offering Shares
-------------------------
Subscription Rights shall be issued at no cost to Eligible Account Holders,
Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible Account
Holders and Other Members pursuant to priorities established by this Plan and
the regulations of the OTS. In order to effect the Conversion, all shares of
Conversion Stock proposed to be issued in connection with the Conversion must be
sold and, to the extent that shares are available, no subscriber shall be
allowed to purchase less than 25 shares; provided, however, that if the purchase
price is greater than $20.00 per share, the minimum number of shares which must
be subscribed for shall be adjusted so that the aggregate actual purchase price
required to be paid for such minimum number of shares does not exceed $500.00.
The priorities established for the purchase of shares are as follows:
1. Category 1: Eligible Account Holders
-------------------------------------
a. Each Eligible Account Holder shall receive, without payment,
Subscription Rights entitling such Eligible Account Holder to purchase
that number of shares of Conversion Stock which is equal to the greater
of the maximum purchase limitation established for the Direct Community
Offering, one-tenth of one percent of the total offering or 15 times
the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion Stock to be issued
by a fraction of which the numerator is the amount of the Qualifying
Deposit of the Eligible Account Holder and the denominator is the total
amount of Qualifying Deposits of all Eligible Account Holders. If the
allocation made in this paragraph results in an oversubscription,
shares of Conversion Stock shall be allocated among subscribing
Eligible Account Holders so as to permit each such account holder, to
the extent possible, to purchase a number of shares of Conversion Stock
sufficient to make his total allocation equal to 100 shares of
Conversion Stock or the total amount of his subscription, whichever is
less. Any shares of Conversion Stock not so allocated shall be
allocated among the subscribing Eligible Account Holders on an
equitable basis, related to the amounts of their respective Qualifying
Deposits as compared to the total Qualifying Deposits of all
subscribing Eligible Account Holders.
b. Subscription Rights received by Officers and directors of the
Association and their Associates, as Eligible Account Holders, based on
their increased deposits in the Association in the one-year period
preceding the Eligibility Record Date shall be subordinated to all
other subscriptions involving the exercise of Subscription Rights
pursuant to this Category.
A-7
<PAGE>
2. Category 2: Tax-Qualified Employee Stock Benefit Plans
------------------------------------------------------
a. Tax-Qualified Employee Stock Benefit Plans shall receive,
without payment, nontransferable Subscription Rights to purchase in the
aggregate up to 8% of the Conversion Stock, including shares of
Conversion Stock to be issued in the Conversion as result of an
increase in the estimated price range after commencement of the
Subscription Offering and prior to the completion of the Conversion.
The Subscription Rights granted to Tax-Qualified Stock Benefit Plans
shall be subject to the availability of shares of Conversion Stock
after taking into account the shares of Conversion Stock purchased by
Eligible Account Holders; provided, however, that in the event the
number of shares offered in the Conversion is increased to an amount
greater than the maximum of the estimated price range as set forth in
the Prospectus ("Maximum Shares"), the Tax-Qualified Employee Stock
Benefit Plans shall have a priority right to purchase any such shares
exceeding the Maximum Shares up to an aggregate of 8% of the Conversion
Stock. Tax-Qualified Employee Stock Benefit Plans may use funds
contributed or borrowed by the Holding Company or the Association
and/or borrowed from an independent financial institution to exercise
such Subscription Rights, and the Holding Company and the Association
may make scheduled discretionary contributions thereto, provided that
such contributions do not cause the Holding Company or the Association
to fail to meet any applicable capital requirements.
3. Category 3: Supplemental Eligible Account Holders
--------------------------------------------------
a. In the event that the Eligibility Record Date is more than 15
months prior to the date of the latest amendment to the Form AC
Application filed prior to OTS approval, then, and only in that event,
each Supplemental Eligible Account Holder shall receive, without
payment, Subscription Rights entitling such Supplemental Eligible
Account Holder to purchase that number of shares of Conversion Stock
which is equal to the greater of the maximum purchase limitation
established for the Direct Community Offering, one-tenth of one percent
of the total offering or 15 times the product (rounded down to the next
whole number) obtained by multiplying the total number of shares of
Conversion Stock to be issued by a fraction of which the numerator is
the amount of the Qualifying Deposit of the Supplemental Eligible
Account Holder and the denominator is the total amount of the
Qualifying Deposits of all subscribing Supplemental Eligible Account
Holders.
b. Subscription Rights received pursuant to this category shall be
subordinated to Subscription Rights granted to Eligible Account Holders
and Tax-Qualified Employee Stock Benefit Plans.
c. Any Subscription Rights to purchase shares of Conversion Stock
received by an Eligible Account Holder in accordance with Category
Number 1 shall reduce to the extent thereof the Subscription Rights to
be distributed pursuant to this Category.
d. In the event of an oversubscription for shares of Conversion
Stock pursuant to this Category, shares of Conversion Stock shall be
allocated among the subscribing Supplemental Eligible Account Holders
as follows:
(1) Shares of Conversion Stock shall be allocated so as to
permit each such Supplemental Eligible Account Holder, to the
extent possible, to purchase a number of shares of Conversion Stock
sufficient to make his total allocation (including the number of
shares of Conversion Stock, if any, allocated in accordance with
Category Number 1) equal to 100 shares of Conversion Stock or the
total amount of his subscription, whichever is less.
A-8
<PAGE>
(2) Any shares of Conversion Stock not allocated in accordance
with subparagraph (1) above shall be allocated among the
subscribing Supplemental Eligible Account Holders on an equitable
basis, related to the amounts of their respective Qualifying
Deposits as compared to the total Qualifying Deposits of all
subscribing Supplemental Eligible Account Holders.
4. Category 4: Other Members
--------------------------
a. Other Members shall receive, without payment, Subscription
Rights to purchase shares of Conversion Stock, after satisfying the
subscriptions of Eligible Account Holders, Tax-Qualified Employee Stock
Benefit Plans and Supplemental Eligible Account Holders pursuant to
Category Nos. l, 2 and 3 above, subject to the following conditions:
(1) Each such Other Member shall be entitled to subscribe for
the greater of the maximum purchase limitation established for the
Direct Community Offering or one-tenth of one percent of the total
offering.
(2) In the event of an oversubscription for shares of
Conversion Stock pursuant to Category No. 4, the shares of
Conversion Stock available shall be allocated among the subscribing
Other Members pro rata on the basis of the amounts of their
respective subscriptions.
D. Direct Community Offering and Syndicated Community Offering
-----------------------------------------------------------
1. Any shares of Conversion Stock not purchased through the exercise
of Subscription Rights set forth in Category Nos. 1 through 4 above may be
sold by the Holding Company to Persons under such terms and conditions as
may be established by the Association's Board of Directors with the
concurrence of the OTS. The Direct Community Offering may commence
concurrently with or as soon as possible after the completion of the
Subscription Offering and must be completed within 45 days after completion
of the Subscription Offering, unless extended with the approval of the OTS.
No Person may purchase shares of Conversion Stock in the Direct Community
Offering having an aggregate purchase price of more than $40,000. The right
to purchase shares of Conversion Stock under this Category is subject to
the right of the Association or the Holding Company to accept or reject
such subscriptions in whole or in part. In the event of an oversubscription
for shares in this Category, the shares available shall be allocated among
prospective purchasers pro rata on the basis of the amounts of their
respective orders. The offering price for which such shares are sold to the
general public in the Direct Community Offering shall be the Purchase
Price.
2. Orders received in the Direct Community Offering first shall be
filled up to a maximum of 2% of the Conversion Stock and thereafter
remaining shares shall be allocated on an equal number of shares basis per
order until all orders have been filled.
3. The Conversion Stock offered in the Direct Community Offering shall
be offered and sold in a manner that will achieve the widest distribution
thereof. Preference shall be given in the Direct Community Offering to
natural Persons and trusts of natural Persons residing in the Local
Community.
4. Subject to such terms, conditions and procedures as may be
determined by the Association and the Holding Company, all shares of
Conversion Stock not subscribed for in the Subscription Offering or ordered
in the Direct Community Offering may be sold by a syndicate of broker-
dealers to the general public in a Syndicated Community Offering. No Person
may purchase shares of Conversion Stock in the Syndicated Community
Offering having an aggregate purchase price of more than $40,000. Each
order for Conversion Stock in the Syndicated Community Offering shall be
subject to the absolute right of the Association and the
A-9
<PAGE>
Holding Company to accept or reject any such order in whole or in part
either at the time of receipt of an order or as soon as practicable after
completion of the Syndicated Community Offering. The Association and the
Holding Company may commence the Syndicated Community Offering concurrently
with, at any time during, or as soon as practicable after the end of the
Subscription Offering and/or Direct Community Offering, provided that the
Syndicated Community Offering must be completed within 45 days after the
completion of the Subscription Offering, unless extended by the Association
and the Holding Company with the approval of the OTS.
5. If for any reason a Syndicated Community Offering of shares of
Conversion Stock not sold in the Subscription Offering and the Direct
Community Offering cannot be effected, or in the event that any
insignificant residue of shares of Conversion Stock is not sold in the
Subscription Offering, Direct Community Offering or Syndicated Community
Offering, the Association and the Holding Company shall use their best
efforts to obtain other purchasers for such shares in such manner and upon
such conditions as may be satisfactory to the OTS.
6. In the event a Direct Community Offering or Syndicated Community
Offering do not appear feasible, the Association will immediately consult
with the OTS to determine the most viable alternative available to effect
the completion of the Conversion. Should no viable alternative exist, the
Association may terminate the Conversion with the concurrence of the OTS.
E. Limitations Upon Purchases
--------------------------
The following additional limitations and exceptions shall be imposed upon
purchases of shares of Conversion Stock:
1. No Person, together with Associates of or Persons Acting in Concert
with such Person, may purchase in the aggregate more than the overall
maximum purchase limitation of 1% of the shares of Conversion Stock issued
in the Conversion (exclusive of any shares issued pursuant to an increase
in the range of minimum and maximum aggregate values within which the
aggregate amount of Conversion Stock issued in the Conversion will fall),
except that Tax-Qualified Employee Stock Benefit Plans may purchase up to
8% of the total Conversion Stock issued and shares held or to be held by
the Tax-Qualified Employee Stock Benefit Plans and attributable to a Person
shall not be aggregated with other shares purchased directly by or
otherwise attributable to such Person.
2. Officers and directors of the Association and Associates thereof
may not purchase in the aggregate more than 35% of the shares issued in the
Conversion.
3. The Association's and Holding Company's Boards of Directors will
not be deemed to be Associates or a group of Persons Acting in Concert with
other directors or trustees solely as a result of membership on the Board
of Directors.
4. The Association's Board of Directors, with the approval of the OTS
and without further approval of Members, may, as a result of market
conditions and other factors, increase or decrease the purchase limitation
in paragraphs 1 and 4 above or the number of shares of Conversion Stock to
be sold in the Conversion. If the Association or the Holding Company, as
the case may be, increases the maximum purchase limitations or the number
of shares of Conversion Stock to be sold in the Conversion, the Association
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 Association or the Holding Company, as the case may be,
resolicit certain other large subscribers. If the Association or the
Holding Company, as the case may be, decreases the maximum purchase
limitations or the number of shares of Conversion Stock to be sold in the
Conversion, the orders of any Person who subscribed for the maximum
purchase amount shall be decreased
A-10
<PAGE>
by the minimum amount necessary so that such Person shall be in compliance
with the then maximum number of shares permitted to be subscribed for by
such Person.
Each Person purchasing Conversion Stock in the Conversion shall be deemed
to confirm that such purchase does not conflict with the purchase limitations
under the Plan or otherwise imposed by law, rule or regulation. In the event
that such purchase limitations are violated by any Person (including any
Associate or group of Persons affiliated or otherwise Acting in Concert with
such Person), the Holding Company shall have the right to purchase from such
Person at the actual Purchase Price per share all shares acquired by such Person
in excess of such purchase limitations or, if such excess shares have been sold
by such Person, to receive from such Person the difference between the actual
Purchase Price per share paid for such excess shares and the price at which such
excess shares were sold by such Person. This right of the Holding Company to
purchase such excess shares shall be assignable by the Holding Company.
F. Restrictions On and Other Characteristics of the Conversion Stock
-----------------------------------------------------------------
1. Transferability. Conversion Stock purchased by Officers and
---------------
directors of the Association and officers and directors of the Holding
Company shall not be sold or otherwise disposed of for value for a period
of one year from the date of Conversion, except for any disposition (i)
following the death of the original purchaser or (ii) resulting from an
exchange of securities in a merger or acquisition approved by the
regulatory authorities having jurisdiction.
The Conversion Stock issued by the Holding Company to such Officers
and directors shall bear a legend giving appropriate notice of the one-year
holding period restriction. Said legend shall state as follows:
"The shares evidenced by this certificate are restricted as to transfer
for a period of one year from the date of this certificate pursuant to
Part 563b of the Rules and Regulations of the Office of Thrift
Supervision. These shares may not be transferred prior thereto without
a legal opinion of counsel that said transfer is permissible under the
provisions of applicable laws and regulations."
In addition, the Holding Company shall give appropriate instructions
to the transfer agent of the Holding Company Stock with respect to the
foregoing restrictions. Any shares of Holding Company Stock subsequently
issued as a stock dividend, stock split or otherwise, with respect to any
such restricted stock, shall be subject to the same holding period
restrictions for such Persons as may be then applicable to such restricted
stock.
2. Subsequent Purchases by Officers and Directors. Without prior
----------------------------------------------
approval of the OTS, if applicable, Officers and directors of the
Association and officers and directors of the Holding Company, and their
Associates, shall be prohibited for a period of three years following
completion of the Conversion from purchasing outstanding shares of Holding
Company Stock, except from a broker or dealer registered with the SEC.
Notwithstanding this restriction, purchases involving more than 1% of the
total outstanding shares of Holding Company Stock and purchases made and
shares held by a Tax-Qualified or non-Tax-Qualified Employee Stock Benefit
Plan which may be attributable to such directors and Officers may be made
in negotiated transactions without OTS permission or the use of a broker or
dealer.
3. Repurchase and Dividend Rights. For a period of three years
------------------------------
following the consummation of the Conversion, any repurchases of Holding
Company Stock by the Holding Company from any Person shall be subject to
the then applicable rules and regulations and policies of the OTS. The
Converted Association may not declare or pay a cash dividend on or
repurchase any of its Capital Stock if the result thereof would be to
reduce the regulatory capital of the Converted Association below the amount
required for the liquidation account described in Paragraph XIII. Further,
any dividend declared or paid on the Capital Stock shall comply with the
then applicable rules and regulations of the OTS.
A-11
<PAGE>
4. Voting Rights. After the Conversion, holders of Savings Accounts
-------------
in and obligors on loans of the Converted Association will not have voting
rights in the Converted Association. Exclusive voting rights with respect
to the Holding Company shall be vested in the holders of Holding Company
Stock; holders of Savings Accounts in and obligors on loans of the
Converted Association will not have any voting rights in the Holding
Company except and to the extent that such Persons become stockholders of
the Holding Company, and the Holding Company will have exclusive voting
rights with respect to the Converted Association's Capital Stock.
G. Mailing of Offering Materials and Collation of Subscriptions
------------------------------------------------------------
The sale of all shares of Conversion Stock offered pursuant to the Plan
must be completed within 24 months after approval of the Plan at the Special
Meeting. After approval of the Plan by the OTS and the declaration of the
effectiveness of the Prospectus, the Holding Company shall distribute
Prospectuses and Order Forms for the purchase of shares of Conversion Stock in
accordance with the terms of the Plan.
The recipient of an Order Form shall be provided not less than 20 days nor
more than 45 days from the date of mailing, unless extended, properly to
complete, execute and return the Order Form to the Holding Company or the
Association. Self-addressed, postage prepaid, return envelopes shall accompany
all Order Forms when they are mailed. Failure of any eligible subscriber to
return a properly completed and executed Order Form within the prescribed time
limits shall be deemed a waiver and a release by such eligible subscriber of any
rights to purchase shares of Conversion Stock under the Plan.
The sale of all shares of Conversion Stock proposed to be issued in
connection with the Conversion must be completed within 45 days after the last
day of the Subscription Offering, unless extended by the Holding Company with
the approval of the OTS.
H. Method of Payment
-----------------
Payment for all shares of Conversion Stock may be made in cash, by check or
by money order, or if a subscriber has a Savings Account(s) in the Association,
such subscriber may authorize the Association to charge the subscriber's Savings
Account(s). The Association shall pay interest at not less than the passbook
rate on all amounts paid in cash or by check or money order to purchase shares
of Conversion Stock in the Subscription Offering from the date payment is
received until the Conversion is completed or terminated. The Association is not
permitted knowingly to loan funds or otherwise extend any credit to any Person
for the purpose of purchasing Conversion Stock.
If a subscriber authorizes the Association to charge the subscriber's
Savings Account(s), the funds shall remain in the subscriber's Savings
Account(s) and shall continue to earn interest, but may not be used by such
subscriber until the Conversion is completed or terminated, whichever is
earlier. The withdrawal shall be given effect only concurrently with the sale of
all shares of Conversion Stock proposed to be sold in the Conversion and only to
the extent necessary to satisfy the subscription at a price equal to the
aggregate Purchase Price. The Association shall allow subscribers to purchase
shares of Conversion Stock by withdrawing funds from certificate accounts held
with the Association without the assessment of early withdrawal penalties,
subject to the approval, if necessary, of the applicable regulatory authorities.
In the case of early withdrawal of only a portion of such account, the
certificate evidencing such account shall be canceled if the remaining balance
of the account is less than the applicable minimum balance requirement. In that
event, the remaining balance shall earn interest at the passbook rate. This
waiver of the early withdrawal penalty is applicable only to withdrawals made in
connection with the purchase of Conversion Stock under the Plan.
Tax-Qualified Employee Stock Benefit Plans may subscribe for shares by
submitting an Order Form, along with evidence of a loan commitment from a
financial institution for the purchase of shares, if applicable, during the
Subscription Offering and by making payment for the shares on the date of the
closing of the Conversion.
A-12
<PAGE>
I. Undelivered, Defective or Late Order Forms; Insufficient Payment
----------------------------------------------------------------
If an Order Form (i) is not delivered and is returned to the Holding
Company or the Association by the United States Postal Service (or the Holding
Company or Association is unable to locate the addressee); (ii) is not returned
to the Holding Company or Association, or is returned to the Holding Company or
Association after expiration of the date specified thereon; (iii) is defectively
completed or executed; or (iv) is not accompanied by the total required payment
for the shares of Conversion Stock subscribed for (including cases in which the
subscribers' Savings Accounts are insufficient to cover the authorized
withdrawal for the required payment), the Subscription Rights of the Person to
whom such rights have been granted shall not be honored and shall be treated as
though such Person failed to return the completed Order Form within the time
period specified therein. Alternatively, the Holding Company or Association may,
but shall not be required to, waive any irregularity relating to any Order Form
or require the submission of a corrected Order Form or the remittance of full
payment for the shares of Conversion Stock subscribed for by such date as the
Holding Company or Association may specify. Subscription orders, once tendered,
shall not be revocable. The Holding Company's and Association's interpretation
of the terms and conditions of the Plan and of the Order Forms shall be final.
J. Members in Non-Qualified States or in Foreign Countries
-------------------------------------------------------
The Holding 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 Holding Company and the Association are not required to offer stock in the
Subscription Offering to any person who resides in a foreign country or resides
in a state of the United States with respect to which (i) a small number of
persons otherwise eligible to subscribe for shares of Common Stock reside in
such state; or (ii) the Holding Company or the 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 or
requirement that the Holding 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 or requirement to register
or otherwise qualify the Subscription Rights or Common Stock for sale or submit
any filing with respect thereto in such state. Where the number of persons
eligible to subscribe for shares in one state is small relative to other states,
the Holding Company and the Association will base their decision as to whether
or not to offer the Common Stock in such state on a number of factors, including
the size of accounts held by account holders in the state, the cost of reviewing
the registration and qualification requirements of the state (and of actually
registering or qualifying the shares) or the need to register the Holding
Company, its officers, directors or employees as brokers, dealers or salesmen.
X. Federal Stock Charter and Bylaws
--------------------------------
As part of the Conversion, a Federal Stock Charter and Bylaws will be
adopted to authorize the Converted Association to operate as a federal stock
savings bank. By approving the Plan, the Members of the Association will
thereby approve the Federal Stock Charter and Bylaws. Prior to completion of
the Conversion, the Federal Stock Charter and Bylaws may be amended in
accordance with the provisions and limitations for amending the Plan under
Paragraph XVII. below. The effective date of the adoption of the Federal Stock
Charter and Bylaws shall be the date of the issuance of the Conversion Stock,
which shall be the date of consummation of the Conversion.
XI. Post Conversion Filing and Market Making
----------------------------------------
In connection with the Conversion, the Holding Company shall register the
Conversion Stock with the SEC pursuant to the Securities Exchange Act of 1934,
as amended, and shall undertake not to deregister such Conversion Stock for a
period of three years thereafter.
A-13
<PAGE>
The Holding Company shall use its best efforts to encourage and assist
various Market Makers to establish and maintain a market for the shares of its
stock. The Holding Company shall also use its best efforts to list its stock
through The Nasdaq Stock Market or on a national or regional securities
exchange.
XII. Status of Savings Accounts and Loans Subsequent to Conversion
-------------------------------------------------------------
All Savings Accounts shall retain the same status after Conversion as
these accounts had prior to Conversion. Each Savings Account holder shall
retain, without payment, a withdrawable Savings Account(s) after the Conversion,
equal in amount to the withdrawable value of such holder's Savings Account(s)
prior to Conversion. All Savings Accounts will continue to be insured by the
Savings Association Insurance Fund of the FDIC up to the applicable limits of
insurance coverage. All loans shall retain the same status after the Conversion
as they had prior to the Conversion. See Paragraph IX.F.4. with respect to the
termination of voting rights of Members.
XIII. Liquidation Account
-------------------
After the Conversion, holders of Savings Accounts shall not be entitled to
share in any residual assets in the event of liquidation of the Converted
Association. However, the Association shall, at the time of the Conversion,
establish a liquidation account in an amount equal to its total net worth as of
the date of the latest statement of financial condition contained in the final
Prospectus. The function of the liquidation account shall be to establish a
priority on liquidation and, except as provided in Paragraph IX.F.3 above, the
existence of the liquidation account shall not operate to restrict the use or
application of any of the net worth accounts of the Converted Association.
The liquidation account shall be maintained by the Converted Association
subsequent to the Conversion for the benefit of Eligible Account Holders and
Supplemental Eligible Account Holders who retain their Savings Accounts in the
Converted Association. Each Eligible Account Holder and Supplemental Eligible
Account Holder shall, with respect to each Savings Account held, have a related
inchoate interest in a portion of the liquidation account balance
("subaccount").
The initial subaccount balance for a Savings Account held by an Eligible
Account Holder and/or a Supplemental Eligible Account Holder shall be determined
by multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of such holder's Qualifying Deposit in the
Savings Account and the denominator is the total amount of the Qualifying
Deposits of all Eligible Account Holders and Supplemental Eligible Account
Holders. Such initial subaccount balance shall not be increased, and it shall be
subject to downward adjustment as provided below.
If the deposit balance in any Savings Account of an Eligible Account
Holder or Supplemental Eligible Account Holder at the close of business on any
annual closing date subsequent to the Eligibility Record Date is less than the
lesser of (i) the deposit balance in such Savings Account at the close of
business on any other annual closing date subsequent to the Eligibility Record
Date or the Supplemental Eligibility Record Date or (ii) the amount of the
Qualifying Deposit in such Savings Account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, then the subaccount balance for such
Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of a
downward adjustment, such subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
Savings Account. If any such Savings Account is closed, the related subaccount
balance shall be reduced to zero.
In the event of a complete liquidation of the Converted Association, each
Eligible Account Holder and Supplemental Eligible Account Holder shall be
entitled to receive a liquidation distribution from the liquidation account in
the amount of the then current adjusted subaccount balance(s) for Savings
Account(s) then held by such holder before any liquidation distribution may be
made to stockholders. No merger, consolidation, bulk purchase of assets with
assumptions of Savings Accounts and other liabilities or similar transactions
with another Federally-insured institution
A-14
<PAGE>
in which the Converted Association is not the surviving institution shall be
considered to be a complete liquidation. In any such transaction, the
liquidation account shall be assumed by the surviving institution.
XIV. Regulatory Restrictions on Acquisition of Holding Company
---------------------------------------------------------
A. OTS regulations provide that for a period of three years following
completion of the Conversion, no Person (i.e, individual, a group Acting in
Concert, a corporation, a partnership, an association, a joint stock company, a
trust, or any unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution or its holding company) shall directly, or
indirectly, offer to purchase or actually acquire the beneficial ownership of
more than 10% of any class of equity security of the Holding Company without the
prior approval of the OTS. However, approval is not required for purchases
directly from the Holding Company or the underwriters or selling group acting on
its behalf with a view towards public resale, or for purchases not exceeding 1%
per annum of the shares outstanding. Civil penalties may be imposed by the OTS
for willful violation or assistance of any violation. Where any Person,
directly or indirectly, acquires beneficial ownership of more than 10% of any
class of equity security of the Holding Company within such three-year period,
without the prior approval of the OTS, stock of the Holding Company beneficially
owned by such Person in excess of 10% shall not be counted as shares entitled to
vote and shall not be voted by any Person or counted as voting shares in
connection with any matter submitted to the stockholders for a vote. The
provisions of this regulation shall not apply to the acquisition of securities
by Tax-Qualified Employee Stock Benefit Plans provided that such plans do not
have beneficial ownership of more than 25% of any class of equity security of
the Holding Company.
B. The Holding Company may provide in its articles/certificate of
incorporation, or similar document, a provision that, for a specified period of
up to five years following the date of the completion of the Conversion, no
Person shall directly or indirectly offer to acquire or actually acquire the
beneficial ownership of more than 10% of any class of equity security of the
Holding Company. Such provisions would not apply to acquisition of securities
by Tax-Qualified Employee Stock Benefit Plans provided that such plans do not
have beneficial ownership of more than 25% of any class of equity security of
the Holding Company. The Holding Company may provide in its articles/certificate
of incorporation, or similar document, for such other provisions affecting the
acquisition of its stock as shall be determined by its Board of Directors.
XV. Directors and Officers of the Converted Association
---------------------------------------------------
The Conversion is not intended to result in any change in the directors or
Officers. Each Person serving as a director of the Association at the time of
Conversion shall continue to serve as a member of the Converted Association's
Board of Directors, subject to the Converted Association's Federal Stock Charter
and Bylaws. The Persons serving as Officers immediately prior to the Conversion
will continue to serve at the discretion of the Board of Directors in their
respective capacities as Officers of the Converted Association. In connection
with the Conversion, the Association and the Holding Company may enter into
employment agreements on such terms and with such officers as shall be
determined by the Boards of Directors of the Association and the Holding
Company.
XVI. Executive Compensation
----------------------
The Association and the Holding Company may adopt, subject to any required
approvals, executive compensation or other benefit programs, including but not
limited to compensation plans involving stock options, stock appreciation
rights, restricted stock grants, employee recognition programs and the like.
XVII. Amendment or Termination of Plan
--------------------------------
If necessary or desirable, the Plan may be amended by a two-thirds vote of
the Association's Board of Directors, at any time prior to submission of the
Plan and proxy materials to the Members. At any time after submission of the
Plan and proxy materials to the Members, the Plan may be amended by a two-thirds
vote of the Board of Directors only
A-15
<PAGE>
with the concurrence of the OTS. The Plan may be terminated by a two-thirds vote
of the Board of Directors at any time prior to the Special Meeting, and at any
time following such Special Meeting with the concurrence of the OTS. In its
discretion, the Board of Directors may modify or terminate the Plan upon the
order of the regulatory authorities without a resolicitation of proxies or
another meeting of the Members.
In the event that mandatory new regulations pertaining to conversions are
adopted by the OTS prior to the completion of the Conversion, the Plan shall be
amended to conform to the new mandatory regulations without a resolicitation of
proxies or another meeting of Members. In the event that new conversion
regulations adopted by the OTS prior to completion of the Conversion contain
optional provisions, the Plan may be amended to utilize such optional provisions
at the discretion of the Board of Directors without a resolicitation of proxies
or another meeting of Members.
By adoption of the Plan, the Members authorize the Board of Directors to
amend and/or terminate the Plan under the circumstances set forth above.
XVIII. Expenses of the Conversion
--------------------------
The Holding Company and the Association shall use their best efforts to
assure that expenses incurred in connection with the Conversion shall be
reasonable.
XIX. Contributions to Tax-Qualified Plans
------------------------------------
The Holding Company and/or the Association may make discretionary
contributions to the Tax-Qualified Employee Stock Benefit Plans, provided such
contributions do not cause the Association to fail to meet its regulatory
capital requirements.
* * *
A-16
<PAGE>
FEDERAL STOCK CHARTER
FOR
PALMYRA SAVINGS
Section 1. Corporate Title.
The full corporate title of the bank is Palmyra Savings (the "BANK").
Section 2. Office.
The home office shall be located in the City of Palmyra, in the State of
Missouri.
Section 3. Duration.
The duration of the BANK is perpetual.
Section 4. Purpose and Powers.
The purpose of the BANK is to pursue any or all of the lawful objectives of
a Federal savings bank 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
BANK has the authority to issue is ten thousand (10,000), all of which one
thousand (1,000) shall be common stock, par value $1.00 per share and of which
nine thousand (9,000) 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 BANK. The consideration for the
shares shall be cash, tangible or intangible property (to the extent direct
investment in such property would be permitted), labor or services actually
performed for the BANK, or any combination of the foregoing. In the absence of
actual fraud in the transaction, the value of such property, labor, or
<PAGE>
services, as determined by the Board of Directors of the BANK, shall be
conclusive. In the case of a stock dividend, that part of the retained earnings
of the BANK that is transferred to common stock or paid-in capital accounts upon
the issuance of shares as a stock dividend shall be deemed to be the
consideration for their issuance.
Except for shares issued in the initial organization of the BANK or in
connection with the conversion of the BANK 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 BANK other
than as part of a general public offering or as qualifying shares to a director,
unless their issuance or the plan under which they 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, unless the charter
otherwise provides that there shall be no such cumulative voting: Provided, That
--------
this restriction on voting separately by class or series shall not apply:
(i) To any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of the
Board of Directors, less than a majority thereof, in the event of
default in the payment of dividends on any class or series of
preferred stock;
(ii) To any provision that would require the holders of preferred stock,
voting as a class or series, to approve the merger or consolidation
of the BANK with another corporation or the sale, lease, or
conveyance (other than by mortgage or pledge) of properties or
business in exchange for securities of a corporation other than the
BANK if the preferred stock is exchanged for securities of such
other corporation: Provided, That no provision may require such
approval for transactions undertaken with the assistance or pursuant
to the direction of the Office or the Federal Deposit Insurance
Corporation;
(iii) To any amendment which would adversely change the specific terms of
any class or series of capital stock as set forth in this Section 5
(or in any supplementary sections hereto), including any amendment
which would create or enlarge any class or series ranking prior
thereto in rights and preferences. An amendment which increases the
number of authorized shares of any class or series of capital stock,
or substitutes the surviving BANK in a merger or consolidation for
the BANK, shall not be considered to be such an adverse change.
A description of the different classes and series (if any) of the BANK's
capital stock and a statement of the designations, and the relative rights,
preferences, and limitations of the shares of each class of and series (if any)
of capital stock are as follows:
2
<PAGE>
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 each
holder, except as to the cumulation of votes for the election of
directors, unless the charter otherwise provides that there shall be
no such cumulative voting.
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
BANK, the holders of the common stock (and the holders of any class or
series of stock entitled to participate with the common stock in the
distribution of assets) shall be entitled to receive, in cash or in
kind, the assets of the BANK available for distribution remaining
after: (i) payment or provision for payment of the BANK's debts and
liabilities; (ii) distributions or provision for distributions in
settlement of its liquidation account; and (iii) distributions or
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 BANK. Each share of common stock
shall have the same relative rights as and be identical in all
respects with all the other shares of common stock.
B. Preferred Stock. The BANK may provide in supplementary sections to
---------------
its charter for one or more classes of preferred stock, which shall be
separately identified. The shares of any class may be divided into
and issued in series, with each series separately designated so as to
distinguish the shares thereof from the shares of all other series and
classes. The terms of each series shall be set forth in a
supplementary section to the charter. All shares of the same class
shall be identical except as to the following relative rights and
preferences, as to which there may be variations between different
series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and,
if so, from which date(s), the payment date(s) for dividends, and
the participating or other special rights, if any, with respect
to dividends;
3
<PAGE>
(c) The voting powers, full or limited, if any, of the shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price(s) at which, and the terms and conditions on which,
such shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the event
of voluntary or involuntary liquidation, dissolution, or winding
up of the BANK;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the
purchase or redemption of such shares, and if so entitled, the
amount of such fund and the manner of its application, including
the price(s) at which such shares may be redeemed or purchased
through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock
of the BANK and, if so, the conversion price(s) or the rate(s) of
exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange;
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or converted
shall have the status of authorized but unissued shares of serial
preferred stock and whether such shares may be reissued as shares
of the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the
same relative rights as and be identical in all respects with all the other
shares of the same series.
The Board of Directors shall have authority to divide, by the adoption
of supplementary charter sections, any authorized class of preferred stock into
series, and, within the limitations set forth in this section and the remainder
of this charter, fix and determine the relative rights and preferences of the
shares of any series so established.
Prior to the issuance of any preferred shares of a series established
by a supplementary charter section adopted by the Board of Directors, the BANK
shall file with the Secretary 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.
4
<PAGE>
Section 6. Preemptive Rights.
Holders of the capital stock of the BANK shall not be entitled to
preemptive rights with respect to any shares of the BANK which may be issued.
Section 7. Liquidation Account.
Pursuant to the requirements of the Office's regulations (12 C.F.R.
563b.3), the BANK shall establish and maintain a liquidation account for the
benefit of its savings account holders as of June 30, 1997 and
[_________________] ("eligible savers"). In the event of a complete liquidation
of the BANK, it shall comply with such regulations with respect to the amount
and the priorities on liquidation of each of the BANK's eligible saver's
inchoate interest in the liquidation account, to the extent it is still in
existence: provided, that an eligible saver's inchoate interest in the
liquidation account shall not entitle such eligible saver to any voting rights
at meetings of the BANK's shareholders.
Section 8. Certain Provisions Applicable for Five Years.
Notwithstanding anything contained in the BANK's charter or bylaws to
the contrary, for a period of five years from the date of completion of the
conversion of the BANK from mutual to stock form, the following provisions shall
apply:
A. Beneficial Ownership Limitation. No person shall directly or
-------------------------------
indirectly offer to acquire or acquire the beneficial ownership of
more than 10 percent of any class of any equity security of the BANK.
This limitation shall not apply to a transaction in which the BANK
forms a holding company without change in the respective beneficial
ownership interests of the BANK'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 percent 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,
5
<PAGE>
any unincorporated organization or similar company, a syndicate
or any other group formed for the purpose of acquiring, holding
or disposing of the equity securities of the BANK.
(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 BANK or amendments to its charter shall
be called only at the direction of the Board of Directors.
Section 9. Directors.
The BANK shall be under the direction of a Board of Directors. The
authorized number of directors, as stated in the BANK's bylaws, shall be not be
less than five nor more than 15 except when a greater number or lesser number is
approved by the Office or his or her delegate.
6
<PAGE>
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 proposed by the
Board of Directors of the BANK, approved by the shareholders by a majority of
the votes eligible to be cast at a legal meeting, unless a higher vote is
otherwise required, and approved or preapproved by the Office.
PALMYRA SAVINGS
Attest: ____________________________ By: ____________________________
Eldon R. Mette L. Edward Schaeffer
Secretary President
OFFICE OF THRIFT SUPERVISION
Attest: ____________________________ By: ____________________________
Secretary to the Office Director
Declared effective on
the _____ day of __________, 1999
7
<PAGE>
FEDERAL STOCK BYLAWS
FOR
PALMYRA SAVINGS
ARTICLE I - HOME OFFICE
The home office of Palmyra Savings ("Bank") shall be at 123 West Lafayette
Street, Palmyra, in the State of Missouri.
ARTICLE II - SHAREHOLDERS
Section 1. Place of Meetings. All annual and special meetings of
-----------------------------
shareholders shall be held at the home office of the Bank or at such other
convenient place as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the Bank for
--------------------------
the election of directors and for the transaction of any other business of the
Bank shall be held annually within 150 days after the end of the Bank's fiscal
year on the thirtieth of September if not a legal holiday, and if a legal
holiday, then on the next day following which is not a legal holiday, at or at
such other date and time within such 150-day period as the board of directors
may determine.
Section 3. Special Meetings. Special meetings of the shareholders for any
----------------------------
purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision ("Office"), may be called at any time by the
chairman of the board, the president, or a majority of the board of directors,
and shall be called by the chairman of the board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the Bank entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the Bank addressed to the chairman
of the board, the president, or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be
-------------------------------
conducted in accordance with the most current edition of Robert's Rules of Order
unless otherwise prescribed by regulations of the Office or these bylaws or the
board of directors adopts another written procedure for the conduct of meetings.
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 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, or the secretary, or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder at the
<PAGE>
address as it appears on the stock transfer books or records of the Bank as of
the record date prescribed in section 6 of this article II with postage prepaid.
When any shareholders' meeting, either annual or special, is adjourned for 30
days or more, notice of the adjourned meeting shall be given as in the case of
an original meeting. It shall not be necessary to give any notice of the time
and place of any meeting adjourned for less than 30 days or of the business to
be transacted at the meeting, other than an announcement at the meeting at which
such adjournment is taken.
Section 6. Fixing of Record Date. For the purpose of determining
--------------------------------
shareholders entitled to notice of or to vote at any meeting of shareholders or
any adjournment, or shareholders entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper purpose,
the board of directors shall fix in advance a date as the record date for any
such determination of shareholders. Such date in any case shall be not more
than 60 days and, in case of a meeting of shareholders, not fewer than 10 days
prior to the date on which the particular action, requiring such determination
of shareholders, is to be taken. When a determination of shareholders entitled
to vote at any meeting of shareholders has been made as provided in this
section, such determination shall apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the
-----------------------
shareholders, the officer or agent having charge of the stock transfer books for
shares of the Bank shall make a complete list of the shareholders of record
entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the address and the number of shares held by each. This
list of shareholders shall be kept on file at the home office of the Bank and
shall be subject to inspection by any shareholder of record or the shareholder's
agent 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 inspection by any shareholder of
record or any shareholder's agent 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
Office's regulations as now or hereafter in effect.
Section 8. Quorum. A majority of the outstanding shares of the Bank
-----------------
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum. If a quorum is present, the
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on the subject matter shall be the act of the shareholders,
unless the vote of a greater number of shareholders voting together or voting by
classes is required by law or the charter. Directors, however, are elected by a
plurality of the votes cast at an election of directors.
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 or her duly
authorized attorney in fact. Proxies may be given telephonically or
electronically as long as the holder uses a procedure for verifying the identity
of the shareholder. 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 Bank to the contrary, at any meeting of the shareholders of
the Bank any one or more of such shareholders may cast, in person or by proxy,
all votes to which such ownership is entitled. In the event an attempt is made
to cast conflicting votes, in person or by proxy, by the several persons in
whose names shares of stock stand, the vote or votes to which those persons are
entitled shall be cast as directed by a majority of those holding such and
present in person or by proxy at such meeting, but no votes shall be cast for
such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in the
-----------------------------------------------
name of another corporation may be voted by any officer, agent, or proxy as the
bylaws of such corporation may prescribe, or, in the absence of such provision,
as the board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares outstanding in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares held in trust in an IRA or Keogh Account, however, may by voted by the
Bank if no other instructions are received. Shares outstanding in the name of a
receiver may be voted by such receiver, and shares held by or under control of a
receiver may be voted by such receiver without the transfer into his or her name
if authority to do so is consigned in an appropriate order of the court or other
public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such
shares until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the Bank nor shares held
by another Corporation, if a majority of the shares entitled to vote for the
election of directors of such other corporation are held by the Bank, shall be
voted at any meeting or counted in determining the total number of outstanding
shares at any given time for purposes of any meeting.
Section 12. Inspectors of Election. In advance of any meeting of
----------------------------------
shareholders, the board of directors may appoint any person 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
3
<PAGE>
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 Office, 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
for conduct the election or vote with fairness to all shareholders.
Section 13. Nominating Committee. The board of directors shall act as a
--------------------------------
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Bank. No nominations for directors
except those made by the nominating committee shall be voted upon at the annual
meeting unless other nominations by shareholders are made in writing and
delivered to the secretary of the Bank at least five days prior to the date of
the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the Bank. Ballots bearing the names of all
persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. However, if the nominating committee
shall fail or refuse to act at least 20 days prior to the annual meeting,
nominations for directors may be made at the annual meeting by any shareholder
entitled to vote and shall be voted upon.
Section 14. New Business. Any new business to be taken up at the annual
------------------------
meeting shall be stated in writing and filed with the secretary of the Bank at
least five 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
five 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.
Section 15. Informal Action by Shareholders. Any action required to be
-------------------------------------------
taken at a meeting of the shareholders, or any other action which may be
4
<PAGE>
taken at a meeting of shareholders, may be taken without a meeting if consent in
writing, setting forth the action so taken, shall be given by all of the
shareholders entitled to vote with respect to the subject matter.
ARTICLE III - BOARD OF DIRECTORS
Section 1. General Powers. The business and affairs of the Bank shall be
-------------------------
under the direction of its board of directors. The board of directors shall
annually elect a chairman of the board and a president from among its members
and shall designate, when present, either the chairman of the board or the
president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of seven
--------------------------
(7) 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 following the annual meeting
of shareholders. The board of directors may provide, by resolution, the time
and place, for the holding of additional regular meetings without other notice
than such resolution. Directors may participate in a meeting by means of a
conference telephone or similar communications device through which all persons
participating can hear each other at the same time. Participation by such means
shall constitute presence in person for all purposes.
Section 4. Qualification. Each director shall at all times be the
------------------------
beneficial owner of not less than 100 shares of capital stock of the Bank unless
the Bank is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the board of directors
---------------------------
may be called by or at the request of the chairman of the board, the president,
or one-third of the directors. The persons authorized to call special meetings
of the board of directors may fix any place, within the Bank's normal lending
territory, as the place for holding any special meeting of the board of
directors called by such persons.
Members of the board of directors may participate in special meetings by
making use of conference telephone or similar communications equipment by which
all persons participating in the meeting can hear each other. Such participation
shall constitute presence in person for all purposes.
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, when delivered to the telegraph company if sent by telegram,
or when the Bank receives notice of delivery if electronically transmitted. Any
director may waive notice of any
5
<PAGE>
meeting by a writing filed with the secretary. The attendance of a director at a
meeting shall constitute a waiver of notice of such meeting, except where a
director attends a meeting for the express purpose of objecting to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
meeting of the board of directors need be specified in the notice of 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 5 of this article III.
Section 8. Manner of Acting. The act of the majority of the directors
----------------------------
present at a meeting at which a quorum is present shall be the act of the board
of directors, unless a greater number is prescribed by regulation of the Office
or by these bylaws.
Section 9. Action Without a Meeting. Any action required or permitted to
------------------------------------
be taken by the board of directors at a meeting may be taken without a meeting
if a consent in writing, setting forth the action so taken, shall be signed by
all of the directors.
Section 10. Resignation. Any director may resign at any time by sending a
-----------------------
written notice of such resignation to the home office of the Bank addressed to
the chairman of the board or the president. Unless otherwise specified, such
resignation shall take effect upon receipt by the chairman of the board or the
president. More than three consecutive absences from regular meetings of the
board of directors, unless excused by resolution of the board of directors,
shall automatically constitute a resignation, effective when such resignation is
accepted by the board of directors.
Section 11. Vacancies. Any vacancy occurring on the board of directors may
---------------------
be filled by the affirmative vote of a majority of the remaining directors
although less than a quorum of the board of directors. A director elected to
fill a vacancy shall be elected to serve only 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
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
attendance at committee meetings as the board of directors may determine.
Section 13. Presumption of Assent. A director of the Bank who is present
---------------------------------
at a meeting of the board of directors at which action on any bank matter is
taken shall be presumed to have assented to the action taken unless his or her
dissent or abstention shall be entered in the minutes
6
<PAGE>
of the meeting or unless he or she shall file a written dissent to such action
with the person acting as the secretary of the meeting before the adjournment
thereof or shall forward such dissent by registered mail to the secretary of the
Bank within five days after the date a copy of the minutes of the meeting is
received. Such right to dissent shall not apply to a director who voted in favor
of such action.
Section 14. Removal of Directors. At a meeting of shareholders called
--------------------------------
expressly for that purpose, any director may be removed only 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.
Section 15. Age Limitation. No persons seventy-five years of age shall be
--------------------------
eligible for election, reelection, appointment or reappointment to the Board of
Directors. No director shall serve as such beyond the annual meeting of the
Bank immediately following the director becoming seventy-five years of age,
except that a director serving on the date of adoption of these bylaws may
complete the term as director. This age limitation does not apply to an
advisory director or a director emeritus.
ARTICLE IV - EXECUTIVE AND OTHER COMMITTEES
Section 1. Appointment. The board of directors, by resolution adopted by
-----------------------
a majority of the full board, may designate the chief executive officer and two
or more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of
---------------------
directors is not in session, shall have and may exercise all of the authority of
the board of directors except to the extent, if any, that such authority shall
be limited by the resolution appointing the executive committee; and except also
that the executive committee shall not have the authority of the board of
directors with reference to: the declaration of dividends; the amendment of the
charter or bylaws of the Bank, or recommending to the shareholders a plan of
merger, consolidation, or conversion; the sale, lease, or other disposition of
all or substantially all of the property and assets of the Bank otherwise than
in the usual and regular course of its business; a voluntary dissolution of the
Bank; a revocation of any of the foregoing; or the approval of a transaction in
which any member of the executive committee, directly or indirectly, has any
material beneficial interest.
Section 3. Tenure. Subject to the provisions of section 8 of this article
------------------
IV, each member of the executive committee shall hold office until the next
regular annual meeting of the board of directors following his or her
designation and until a successor is designated as a member of the executive
committee.
7
<PAGE>
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.
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 Bank. Unless otherwise specified,
such resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding
---------------------
officer from its members and may fix its own rules of procedure which shall not
be inconsistent with these bylaws. It shall keep regular minutes of its
proceedings and report the same to the board of directors for its information at
the meeting held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by resolution
----------------------------
establish an audit, loan, or other committee composed of directors as they may
determine to be necessary or appropriate for the conduct of the business of the
Bank and may prescribe the duties, constitution, and procedures thereof.
ARTICLE V - OFFICERS
Section 1. Positions. The officers of the Bank shall be a president, one
--------------------
or more vice presidents, a secretary, and a treasurer or comptroller, 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 offices of the
secretary and treasurer or comptroller may be held by the same person and a
8
<PAGE>
vice president may also be either the secretary or the treasurer or comptroller.
The board of directors may designate one or more vice presidents as executive
vice president or senior vice president. The board of directors may also elect
or authorize the appointment of such other officers as the business of the Bank
may require. The officers shall have such authority and perform such duties as
the board of directors may from time to time authorize or determine. In the
absence of action by the board of directors, the officers shall have such powers
and duties as generally pertain to their respective offices.
Section 2. Election and Term of Office. The officers of the Bank shall be
--------------------------------------
elected annually at the first meeting of the board of directors held after each
annual meeting of the shareholders. If the election of officers is not held at
such meeting, such election shall be held as soon thereafter as possible. Each
officer shall hold office until a successor has been duly elected and qualified
or until the officer's death, resignation or removal in the manner hereinafter
provided. Election or appointment of an officer, employee, or agent shall not of
itself create contractual rights. The board of directors may authorize the Bank
to enter into an employment contract with any officer in accordance with
regulations of the Office; but no such contract shall impair the right of the
board of directors to remove any officer at any time in accordance with section
3 of this Article V.
Section 3. Removal. Any officer may be removed by the board of directors
------------------
whenever in its judgment the best interests of the Bank will be served thereby,
but such removal, other than for cause, shall be without prejudice to the
contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death,
--------------------
resignation, removal, disqualification, or otherwise may be filled by the board
of directors for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be fixed
-----------------------
from time to time by the board of directors.
ARTICLE VI - CONTRACTS, LOANS, CHECKS, AND DEPOSITS
Section 1. Contracts. To the extent permitted by regulations of the
--------------------
Office, and except as otherwise prescribed by these bylaws with respect to
certificates for shares, the board of directors may authorize any officer,
employee, or agent of the Bank to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Bank. Such authority may be
general or confined to specific instances.
Section 2. Loans. No loans shall be contracted on behalf of the Bank and
----------------
no evidence of indebtedness shall be issued in its name unless authorized by the
board of directors. Such authority may be general or confined to specific
instances.
Section 3. Checks; Drafts. etc. All checks, drafts, or other orders for the
------------------------------
payment of money, notes, or other evidences of indebtedness issued in the name
of the Bank shall be signed by one or more officers, employees or agents of the
Bank in such manner as shall from time to
9
<PAGE>
time be determined by the board of directors.
Section 4. Deposits. All funds of the Bank not otherwise employed shall be
-------------------
deposited from time to time to the credit of the Bank in any duly authorized
depositories as the board of directors may select.
ARTICLE VII - CERTIFICATES FOR SHARES AND THEIR TRANSFER
Section 1. Certificates for Shares. Certificates representing shares of
----------------------------------
capital stock of the Bank shall be in such form as shall be determined by the
board of directors and approved by the Office. Such certificates shall be
signed by the chief executive officer or by any other officer of the Bank
authorized by the board of directors, attested by the secretary or an assistant
secretary, and sealed with the corporate seal or a facsimile thereof. The
signatures of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar
other than the Bank itself or one of its employees. Each certificate for
shares of capital stock shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares are issued, with the owner
of shares and date of issue, shall be entered on the stock transfer books of the
Bank. All certificates surrendered to the Bank for transfer shall be 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 the case of
a lost or destroyed certificate, a new certificate may be issued upon such terms
and indemnity to the Bank as the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of the
-----------------------------
Bank shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the Bank. Such transfer shall be made only on surrender for cancellation of the
certificate for such shares. The person in whose name shares of capital stock
stand on the books of the Bank shall be deemed by the Bank to be the owner for
all purposes.
ARTICLE VIII - FISCAL YEAR
The fiscal year of the Bank shall end on the thirtieth day of September of
each year. The appointment of accountants shall be subject to annual
ratification by the shareholders.
ARTICLE IX - DIVIDENDS
Subject to the terms of the Bank's charter and the regulations and orders
of the Office, the board of directors may, from time to time, declare, and the
Bank may pay, dividends on its outstanding shares of capital stock.
10
<PAGE>
ARTICLE X - CORPORATE SEAL
The board of directors shall provide the Bank seal which shall be two
concentric circles between which shall be the name of the Bank. The year of
incorporation or an emblem may appear in the center.
ARTICLE XI - AMENDMENTS
These bylaws may be amended in a manner consistent with regulations of the
Office and shall be effective after: (i) approval of the amendment by a majority
vote of the authorized board of directors, or by a majority vote of the votes
cast by the shareholders of the Bank at any legal meeting, and (ii) receipt of
any applicable regulatory approval. When the Bank fails to meet its quorum
requirements, solely due to vacancies on the board, then the affirmative vote of
a majority of the sitting board will be required to amend the bylaws.
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
PFSB BANCORP, INC.
ARTICLE I - CORPORATE TITLE
1.1 The name of the Corporation is PFSB Bancorp, Inc.
ARTICLE II - OFFICE
2.1 The address, including street and number of the Corporation's initial
registered office in the State of Missouri is 123 West Lafayette Street,
Palmyra, Missouri 63461; and the name of its initial registered agent at such
address is Eldon R. Mette.
ARTICLE III - CAPITAL STOCK
3.1 The Corporation shall have authority to issue the following shares:
(a) Five million (5,000,000) shares shall be voting Common Stock with a
par value of $.01 per share ("Common Stock"); and
(b) One million (1,000,000) shares shall be Preferred Stock with a par
value of $.01 per share ("Preferred Stock").
(i) The Board of Directors, by adoption of an authorizing resolution,
may cause Preferred Stock to be issued from time to time in one or more series.
(ii) The Board of Directors, by adoption of an authorizing resolution,
may with regard to the shares of any series of Preferred Stock:
(A) Fix the distinctive serial designation of the shares;
(B) Fix the dividend rate, if any;
(C) Fix the date from which dividends on shares issued before the
date for payment of the first dividend shall be cumulative, if any;
(D) Fix the redemption price and terms of redemption, if any;
(E) Fix the amounts payable per share in the event of dissolution
or liquidation of the Corporation, if any;
(F) Fix the terms and amounts of any sinking fund to be used for
the purchase or redemption of shares, if any;
(G) Fix the terms and conditions, if any, under which the shares
may be converted into, or exchanged for, shares of any other class or series;
(H) Provide whether such shares shall have voting powers, full or
limited, or no voting powers, and the rights, if any, of such shares to vote as
a class on some or all matters on which such shares may be entitled to vote; and
<PAGE>
(I) Fix such other designations, preferences, and relative,
participating, optional or other special rights, qualifications, limitations or
restrictions not required by law.
3.2 (a) Notwithstanding any other provision of these Articles 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 ("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 owning shares in excess of the Limit shall be
a number equal to the total number of votes which a single record owner of all
Common Stock owned by such person would be entitled to cast, multiplied by a
fraction, the numerator of which is the number of shares of such class or series
which are both beneficially owned by such person and owned of record by such
record owner and the denominator of which is the total number of shares of
Common Stock beneficially owned by such person owning shares in excess of the
Limit.
(b) The following definitions shall apply to this Section 3.2 of this
Article III.
(i) "Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the Securities Exchange Act of
1934, as in effect on the date of filing of these Articles of Incorporation.
(ii) "Beneficial ownership" shall be determined pursuant to Rule
13d-3 of the General Rules and Regulations under the Securities Exchange Act of
1934 (or any successor rule or statutory provision), or, if said Rule 13d-3
shall be rescinded and there shall be no successor rule or provision thereto,
pursuant to said Rule 13d-3 as in effect on the date of filing of these Articles
of Incorporation; provided, however, that a person shall, in any event, also be
deemed the "beneficial owner" of any Common Stock:
(A) which such person or any of its affiliates beneficially
owns, directly or indirectly; or
(B) which such person or any of its affiliates has (i) the
right to acquire (whether such right is exercisable immediately or only after
the passage of time), pursuant to any agreement, arrangement or understanding
(but shall not be deemed to be the beneficial owner of any voting shares solely
by reason of an agreement, contract, or other arrangement with this Corporation
to effect any transaction which is described in any one or more of clauses (i)
through (v) of Section 10.1 of Article X 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
(C) which are beneficially owned, directly or indirectly, by
any other person with which such first mentioned person or any of its affiliates
acts as a partnership, limited partnership, syndicate or other group pursuant to
any agreement, arrangement or understanding for the purpose of acquiring,
holding, voting or disposing of any shares of capital stock of this Corporation;
and provided further, however, that (i) no Director or Officer of this
Corporation (or any affiliate of any such Director or Officer) shall, solely by
reason of any or all of such Directors of Officers acting in their capacities as
such, be deemed, for any purposes hereof, to beneficially own any Common Stock
beneficially owned by any other such Director or Officer (or any affiliate
thereof), and (ii) neither any employee stock ownership or similar plan of this
Corporation or any subsidiary of this Corporation, nor any trustee with respect
thereto or any affiliate of such trustee (solely by reason of such capacity of
such trustee), shall be deemed, for any purposes hereof, to beneficially own any
Common Stock held under any such plan. For purposes of computing the percentage
beneficial ownership of Common Stock of a person, the outstanding Common Stock
shall include shares deemed owned by such person through application of this
subsection but shall not include
-2-
<PAGE>
any other Common Stock which may be issuable by this Corporation pursuant to any
agreement, or upon exercise of conversion rights, warrants or options, or
otherwise. For all other purposes, the outstanding Common Stock shall include
only Common Stock then outstanding and shall not include any Common Stock which
may be issuable by this Corporation pursuant to any agreement, or upon the
exercise of conversion rights, warrants or options, or otherwise.
(iii) A "person" shall mean any individual, firm, corporation, or
other entity.
(c) 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.
(d) The Board of Directors shall have the right to demand that any
person who is reasonably believed to beneficially own Common Stock in excess of
the Limit (or holds of record Common Stock beneficially owned by any person in
excess of the Limit) supply the Corporation with complete information as to (i)
the record owner(s) of all shares beneficially owned by such person who is
reasonably believed to own shares in excess of the Limit, and (ii) any other
factual matter relating to the applicability or effect of this section as may
reasonably be required of such person.
(e) Except as otherwise provided by law or expressly provided in this
Section 3.2, the presence, in person or by proxy, of the holders of record of
shares of capital stock of the Corporation entitling the holders thereof to cast
a majority of the votes (after giving effect, if required, to the provisions of
this Section 3.2) 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 these Articles 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 case
in respect of such capital stock.
(f) 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.
(g) In the event any provision (or portion thereof) of this Section
3.2 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 3.2 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.
3.3 Except as otherwise specifically required by the General and Business
Corporation Law of Missouri, or by these Articles of Incorporation, or by the
Corporation's Bylaws, or by any authorizing resolution of the Board of Directors
providing for the issuance of a class or series of Preferred Stock, whenever the
holders of shares of stock of the Corporation shall be entitled to vote as a
class with respect to any matter, the affirmative vote of a majority of the
outstanding shares of such class shall be required to constitute the act of such
class. There shall be no right to cumulative voting.
-3-
<PAGE>
ARTICLE IV - PREEMPTIVE RIGHTS
4.1 No holder of shares of any class of stock of the Corporation, either
now or hereafter authorized or issued, shall have any preemptive or preferential
right of subscription to any shares of any class of stock of the Corporation,
either now or hereafter authorized, or to any securities convertible into stock
of any class of the Corporation, issued or sold, nor any right of subscription
to any such security, other than such, if any, as the Board of Directors in its
discretion may from time to time determine and at such prices as the Board of
Directors may from time to time fix, pursuant to the authority conferred by
these Articles of Incorporation.
ARTICLE V - INCORPORATOR
5.1 The name and place of residence of the incorporator is Eldon R. Mette,
522 South Breckenridge, Palmyra, Missouri 63461.
ARTICLE VI - DIRECTORS
6.1 The number of directors to constitute the Board of Directors shall be
seven (7); provided, however, that such number may be fixed, from time to time,
at not less than five (5) nor more than fifteen (15), by, or in the manner
provided in, the Bylaws of the Corporation, and any such change shall be
reported to the Secretary of State of the State of Missouri within thirty (30)
calendar days of such change. The directors shall be divided into three
classes: Class I, Class II and Class III. The number of directors in any such
class shall not exceed the number of directors in any other class by more than
one (1). The term of office of the initial Class I Directors shall expire at
the annual meeting of shareholders of the Corporation in 2000; the term of
office of the initial Class II Directors shall expire at the annual meeting of
shareholders of the Corporation in 2001; and the term of office of the initial
Class III Directors shall expire at the annual meeting of shareholders of the
Corporation in 2002; or in each case thereafter until their respective
successors are duly elected and qualified. At each annual election held after
2000, the Directors chosen to succeed those whose terms then expire shall be
identified as being of the same class as the Directors they succeed and shall be
elected for a term of three (3) years expiring at the third succeeding annual
shareholder meeting or thereafter until their respective successors are duly
elected and qualified. If the number of Directors is changed, any increase or
decrease in the number of Directors shall be apportioned among the classes so as
to maintain the number of Directors in each class as nearly equal as possible.
6.2 Any vacancy on the Board (whether such vacancy is caused by death,
resignation, or removal for cause or is the result of an increase in the number
of directors) shall be filled by a majority of the directors then in office.
Any Director elected to fill a vacancy in any class (whether such vacancy is
caused by death, resignation, or removal with cause, or is the result of an
increase in the number of directors in such class) shall hold office for a term
which shall expire at the next election of directors by the shareholders of the
Corporation.
6.3 At a meeting called expressly for that purpose, the entire Board of
Directors, or any individual Director or Directors, may be removed, but only for
cause, and only upon the affirmative vote of the holders of at least eighty
percent (80%) of the total votes to which all of the shares then entitled to
vote at a meeting of shareholders called for an election of Directors are
entitled; provided, however, if less than the entire Board of Directors is to be
removed, no individual Director may be so removed if the votes cast against such
Director's removal would be sufficient to elect such Director if then
cumulatively voted at an election of the class of Directors of which such
Director is a part.
6.4 In addition to any affirmative vote required by law or otherwise, any
amendment, alteration, change or repeal of the provisions of this Article VI
shall require the affirmative vote of the holders of at least eighty percent
(80%) of the total votes to which all of the shares than entitled to vote at a
meeting of shareholders called for an election of Directors are entitled, unless
such amendment, alteration, change or repeal has previously been expressly
approved by the Board of Directors of the Corporation by the affirmative vote or
consent of at least sixty-six and two-thirds percent (66-2/3%) of the number of
Directors then authorized by, or in the manner provided in, the Bylaws, in which
case the shareholder vote required by this Article 6.4 shall not apply.
-4-
<PAGE>
6.5 The persons to constitute the initial Board of Directors of the
Corporation are:
(a) Class I Directors (term scheduled to expire at annual meeting in
2000):
(i) James D. Lovegreen
(ii) Eldon R. Mette
(iii) Donald L. Slavin
(b) Class II Directors (term scheduled to expire at annual meeting in
2001):
(i) L. Edward Schaeffer
(ii) Robert M. Dearing
(c) Class III Directors (term scheduled to expire at annual meeting in
2002):
(i) Glenn J. Maddox
(ii) Albert E. Davis
ARTICLE VII - DURATION
7.1 The duration of the Corporation is perpetual.
ARTICLE VIII - PURPOSE AND POWERS
8.1 The Corporation is formed for the following purposes:
(a) To conduct business as a thrift holding company and to provide
financial services through subsidiary corporations;
(b) To own, hold, rent, lease, operate, manage, hypothecate, sell and
convey such real and personal property as may be useful and desirable in the
operation of the Corporation's business; and
(c) To possess and enjoy all rights, powers and privileges as are
granted to corporations under The General and Business Corporation Law of the
State of Missouri.
ARTICLE IX - INDEMNIFICATION
9.1 The Corporation shall and does hereby indemnify any person who is or
was a Director or executive officer of the Corporation or any subsidiary against
any and all expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement and reasonably incurred by such person in connection with any
threatened, pending or completed civil, criminal, administrative or
investigative action, suit, proceeding or claim (including any action by or in
the right of the Corporation or a subsidiary) by reason of the fact that such
person is or was serving in such capacity; provided, however, that no such
-------- -------
person shall be entitled to any indemnification pursuant to this Article IX on
account of (i) conduct which is finally adjudged to have been knowingly
fraudulent or deliberately dishonest or to have constituted willful misconduct,
or (ii) an accounting for profits pursuant to Section 16(b) of the Securities
Exchange Act of 1934, as amended from time to time, or pursuant to a successor
statute or regulation.
9.2 The Corporation may, to the extent that the Board of Directors deems
appropriate and as set forth in a Bylaw or authorizing resolution, indemnify any
person who is or was a non-executive officer, or employee or agent of the
Corporation or any subsidiary or who is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise (including an employee
benefit plan) against any and all expenses (including attorneys' fees),
judgements, fines and amounts paid in settlement and reasonably incurred by such
person in connection with any threatened, pending or completed civil,
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criminal, administrative or investigative action, suit, proceeding or claim
(including an action by or in the right of the Corporation or a subsidiary) by
reason of the fact that such person is or was serving in such capacity;
provided, however, that no such person shall be entitled to any indemnification
- -------- -------
pursuant to this Section 9.2 on account of (i) conduct which is finally adjudged
to have been knowingly fraudulent or deliberately dishonest or to have
constituted willful misconduct, or (ii) an accounting for profits pursuant to
Section 16(b) of the Securities Exchange Act of 1934, as amended from time to
time, or pursuant to a successor statute or regulation.
9.3 The Corporation may, to the extent that the Board of Directors deems
appropriate, make advances of expenses, including attorneys' fees, incurred
prior to the final disposition of a civil, criminal, administrative or
investigative action, suit, proceeding or claim (including an action by or in
the right of the Corporation or a subsidiary) to any person to whom
indemnification is or may be available under this Article IX; provided, however,
-------- -------
that prior to making any advances, the Corporation shall receive a written
undertaking by or on behalf of such person to repay such amounts advanced in the
event that it shall be ultimately determined that such person is not entitled to
such indemnification.
9.4 The indemnification and other rights provided by this Article IX shall
not be deemed exclusive of any other rights to which a person to whom
indemnification is or otherwise may be available (under these Articles of
Incorporation or the Bylaws or any agreement or vote of shareholders or
disinterested Directors or otherwise), may be entitled. The Corporation is
authorized to purchase and maintain insurance on behalf of the Corporation or
any person to whom indemnification is or may be available against any liability
asserted against such person in, or arising out of, such person's status as
Director, officer, employee or agent of the Corporation, any of its subsidiaries
or another corporation, partnership, joint venture, trust or other enterprise
(including an employee benefit plan) which such person is serving at the request
of the Corporation.
9.5 Each person to whom indemnification is granted under this Article IX
is entitled to rely upon the indemnification and other rights granted hereby as
a contract with the Corporation and such person and such person's heirs,
executors, administrators and estate shall be entitled to enforce against the
Corporation all indemnification and other rights granted to such person by
Sections 9.1 and 9.3 and this Article IX. The indemnification and other rights
granted by Sections 9.1 and 9.3 and this Section 9.5 shall survive amendment,
modification or repeal of this Article IX, and no such amendment, modification
or repeal shall act to reduce, terminate or otherwise adversely affect the
rights to indemnification granted hereby, with respect to any expenses,
judgments, fines and amounts paid in settlement incurred by a person to whom
indemnification is granted under this Article IX with respect to an action,
suit, proceeding or claim that arises out of acts or omissions of such person
that occurred prior to the effective date of such amendment, modification or
repeal.
Any indemnification granted by the Board of Directors pursuant this Article
IX shall inure to the person to whom the indemnification is granted and such
person's heirs, executors, administrators and estate; provided however, that
-------- -------
such indemnification may be changed, modified or repealed, at any time or from
time to time, at the discretion of the Board of Directors, and the survival of
such indemnification shall be in accordance with terms determined by the Board
of Directors.
9.6 For the purposes of this Article IX, "subsidiary" shall mean any
corporation, partnership, joint venture, trust or other enterprise of which a
majority of the voting power, equity or ownership interest is directly or
indirectly owned by the Corporation.
ARTICLE X - CERTAIN BUSINESS COMBINATIONS
10.1 (a) In addition to any affirmative vote required by law, any other
provision of these Articles of Incorporation or by any resolution or resolutions
of the Board of Directors providing for the issue of any class or series of
Preferred Stock (a "Preferred Stock Designation"), and except as otherwise
expressly provided in Section 10.2 of this Article X:
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(i) any merger or consolidation of the Corporation or any
Subsidiary (as hereinafter defined) with (a) any Interested Shareholder (as
hereinafter defined) or (b) any other corporation (whether or not itself an
Interested Shareholder) which is, or after such merger or consolidation would
be, an Affiliate (as hereinafter defined) of an Interested Shareholder; or
(ii) any sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or a series of transactions) to or with
any Interested Shareholder or any Affiliate of any Interested Shareholder of 25%
or more of the assets of the Corporation or any Subsidiary; or
(iii) 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 Shareholder or any Affiliate
of any Interested Shareholder in exchange for any assets, cash, securities or
other property (or a combination thereof) which equals or exceeds 25% of the
Fair Market Value (as hereinafter defined) of the Common Stock of the Holding
Company; or
(iv) the adoption of any plan or proposal for the liquidation or
dissolution of the Corporation proposed by or on behalf of any Interested
Shareholder; or
(v) 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 any Interested
Shareholder), which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of equity securities
of the Corporation of any Subsidiary which is Beneficially Owned (as hereinafter
defined) by any Interested Shareholder or any Affiliate of any Interested
Shareholder;
shall require the affirmative vote of (x) the holders of at least eighty percent
(80%) of the voting power of all of the then outstanding shares of the capital
stock of the Corporation entitled to vote generally in the election of directors
(the "Voting Stock"), voting together as a single class, and (y) the holders of
at least a majority of the voting power of all of the then-outstanding shares of
the Voting Stock not Beneficially Owned by such Interested Shareholder, or any
of its Affiliates or Associates (as hereinafter defined), voting together as a
single class. Such affirmative vote shall be required notwithstanding any
provision of law or of any agreement with any national securities exchange or
otherwise which might otherwise permit a lesser vote or no vote.
(b) The term "Business Combination" as used in this Article X shall
mean any transaction which is referred to in any one or more of subparagraphs
(i) through (v) of paragraph (a) of this Section 10.1.
10.2 The provisions of Section 10.1 of this Article X shall not be
applicable to any particular Business Combination, and such Business Combination
shall require only such affirmative vote as is required by laws, any other
provision of these Articles of Incorporation and any Preferred Stock
Designation, if a majority of the Whole Board (as defined below) shall by
resolution have approved a memorandum of understanding with the Interested
Shareholder with respect to, and on substantially the same terms as, such
Business Combination prior to the first time such Interested Shareholder or any
Affiliate or Associate of such Interested Shareholder became an Interested
Shareholder.
10.3 For the purposes of this Article X:
(a) A "person" means any individual, limited partnership, general
partnership, corporation or other firm or entity.
(b) "Interested Shareholder" means any person (other than the
Corporation or any Subsidiary) who or which:
(i) is the Beneficial Owner, directly or indirectly, of 5% or
more of the voting power (with respect to voting generally in the election of
directors) of the outstanding Voting Stock; or
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(ii) is an Affiliate or an Associate 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 5% or more of the voting
power (with respect to voting generally in the election of directors) of the
then-outstanding Voting Stock; or
(iii) 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 Shareholder,
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.
(c) A person shall be a "Beneficial Owner" of, and shall
"Beneficially Own," any Voting Stock:
(i) which such person or any of its Affiliates or Associates
beneficially owns, directly or indirectly, within the meaning of the Securities
Exchange Act of 1934, as in effect on the date of filing these Articles of
Incorporation; or
(ii) which such person or any of its Affiliates or Associates
has (a) the right to acquire (whether such right is exercisable immediately or
only after the passage of time) pursuant to any agreement, arrangement or
understanding or upon the exercise of conversion rights, exchange rights,
warrants or options, or otherwise, or (b) the right to vote pursuant to any
agreement, arrangement or understanding (but neither such person nor any such
Affiliate or Associate shall be deemed to be the Beneficial Owner of any shares
of Voting Stock solely by reason of a revocable proxy granted for a particular
meeting of shareholders, pursuant to a public solicitation of proxies for such
meeting, if such person, Affiliate or Associate is not otherwise deemed the
Beneficial Owner of such shares); or
(iii) which are beneficially owned, directly or indirectly,
within the meaning of the Securities Exchange Act of 1934, as in effect on the
date of filing these Articles of Incorporation, by any other person with which
such person or any of its Affiliates or Associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting
(other than solely by reason of a revocable proxy as described in subparagraph
(ii) of this paragraph (c)) or disposing of any shares of Voting Stock;
provided, however, that in the case of any employee stock ownership or similar
- -------- -------
plan of the Corporation or of any Subsidiary in which the beneficiaries thereof
possess the right to vote any shares of Voting Stock held by such plan, no such
plan nor any trustee with respect thereto (nor any Affiliate of such trustee),
solely by reason of such capacity of such trustee, shall be deemed, for any
purposes hereof, to Beneficially Own any shares of Voting Stock held under any
such plan; and provided, however, that in case of any individual retirement
-------- -------
account or similar plan for which any Subsidiary serves as trustee or custodian
and for which the beneficiary thereof possesses the right to vote any shares of
Voting Stock held by such account or plan, no such account or plan nor any
trustee or custodian with respect thereto (nor any Affiliate of such trustee or
custodian) solely by reason of such capacity as trustee or custodian, shall be
deemed, for any purposes hereof, to Beneficially Own any shares of Voting Stock
held under any such plan or account.
(d) For the purposes of determining whether a person is an Interested
Shareholder pursuant to paragraph (b) of this Section 10.3, the number of shares
of Voting Stock deemed to be outstanding shall include shares deemed to be
Beneficially Owned by such person through application of paragraph (c) of this
Section 10.3 but shall not include any other unissued shares of Voting Stock
which may be issuable pursuant to any agreement, arrangement or understanding,
or upon exercise of conversion rights, warrants or options, or otherwise.
(e) "Affiliate" or "Associate" shall have the respective meaning
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 these
Articles of Incorporation.
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(f) "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
- -------- --------
Shareholder set forth in paragraph (b) of this Section 10.3, 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.
(g) "Whole Board" means the total number of directors which the
Corporation would have if there were no vacancies on the Board of Directors;
(h) The "Fair Market Value" of any assets, securities or other
property shall mean the fair market value thereof, as determined by a majority
of the Whole Board in good faith after reasonable inquiry.
10.4 A majority of the Whole Board shall have the power and duty to
determine in good faith, on the basis of information known to them after
reasonable inquiry, all facts necessary to determine compliance with this
Article X, including, without limitation, (i) whether a person is an Interested
Shareholder, (ii) the number of shares of Voting Stock Beneficially Owned by any
person, and (iii) whether a person is an Affiliate or Associate of another.
10.5 A majority of the Whole Board shall have the right to demand that any
person who is reasonably believed to be an Interested Shareholder (or to hold or
record shares of Voting Stock Beneficially Owned by any Interested Shareholder)
supply the Corporation with complete information as to (a) the record owner(s)
of all shares Beneficially Owned by such person who is reasonably believed to be
an Interested Shareholder (or to hold of record any such Shares), (b) the number
of, and class or series of, shares Beneficially Owned by such person who is
reasonably believed to be an Interested Shareholder (or to hold of record any
such Shares) and held or record by each such record owner and the number(s) of
the stock certificate(s) evidencing such shares, and (c) any other factual
matter relating to the applicability or effect of this Article X, as may be
reasonably requested of such person, and such person shall furnish such
information within ten (10) days after receipt of such demand.
10.6 Nothing contained in this Article X shall be construed to relieve any
Interested Shareholder from any fiduciary obligation imposed by law.
10.7 Notwithstanding any other provisions of these Articles of
Incorporation or any provision of law which might otherwise provide for 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, these Articles
of Incorporation or any Preferred Stock Designation, the affirmative vote of (a)
the holders of at least eighty percent (80%) of the voting power of all of the
then-outstanding shares of the Voting Stock, voting together as a single class,
and (b) the holders of at least a majority of the voting power of all of the
then-outstanding shares of the Voting Stock not Beneficially Owned by any
Interested Shareholder or any Affiliate or Associate of any Interested
Shareholder, voting together as single class, shall be required to alter, amend
or repeal this Article X.
ARTICLE XI - AMENDMENT OF ARTICLES OF INCORPORATION
11.1 Except as otherwise specifically set forth in these Articles of
Incorporation, the Corporation reserves the right to amend, alter, change or
repeal any provision contained in these Articles of Incorporation, and
amendments to the Articles of Incorporation shall be made in the manner
prescribed by The General and Business Corporation Law of Missouri. The power
to make, alter, amend, or repeal the Bylaws of the Corporation shall be vested
exclusively in the Board of Directors, unless otherwise provided in such Bylaws.
11.2 The Board of Directors shall have and exercise such further powers as
are provided it under present or future laws of the State of Missouri.
* * *
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<PAGE>
IN WITNESS WHEREOF, these Articles of Incorporation have been signed this
20th day of November, 1998.
/s/Eldon R. Mette
------------------------------------
Eldon R. Mette, Incorporator
STATE OF MISSOURI )
) ss
COUNTY OF MARION )
I, Joyce A. Williams, a notary public, do hereby certify that on the 20/th/
day of November, 1998, personally appeared before me, Eldon R. Mette, who being
by me first duly sworn, declared that he is the person(s) who signed the
foregoing document as incorporator, that he is a natural person of the age of
eighteen years or more, and that the statements therein contained are true.
/s/Joyce A. Williams
------------------------------------
Notary Public
(NOTARIAL SEAL)
My commission expires August 27, 2002.
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<PAGE>
EXHIBIT 3.2
BYLAWS
OF
PFSB BANCORP, INC.
ARTICLE I - OFFICES
SECTION 1.01. PRINCIPAL OFFICE. The principal office of the Corporation
in the State of Missouri shall be located at 123 West Lafayette Street, Palmyra,
Missouri 63461. The Corporation may have such other office(s), either within or
without the State of Missouri, as the Board of Directors may designate or as the
business of the Corporation may require from time to time.
SECTION 1.02. REGISTERED OFFICE. The registered office of the Corporation
required by The General and Business Corporation Law of Missouri to be
maintained in the State of Missouri may be, but need not be, identical with its
principal office in the State of Missouri, and the address of the registered
office may be changed from time to time by the Board of Directors.
ARTICLE II - SHAREHOLDERS
SECTION 2.01. ANNUAL MEETING. The annual meeting of the shareholders
shall be held on the third Thursday in January of each year, beginning with the
year 2000, at the hour of 2:00 p.m., or at such other date and hour as shall be
determined by the Board of Directors and stated in the notice of the meeting,
for the purpose of electing directors and for the transaction of such other
business as may come before the meeting. If the day fixed for the annual
meeting shall be a legal holiday in the State of Missouri, such meeting shall be
held on the next succeeding business day. If the election of directors shall
not be held on the day designated herein for any annual meeting of the
shareholders, or at any adjournment thereof, the Board of Directors shall cause
the election to be held at a special meeting of the shareholders as soon
thereafter as conveniently may be arranged.
SECTION 2.02. SPECIAL MEETINGS. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute, may be called
by the President or by the Board of Directors at any time in their sole
discretion. At any special meeting of shareholders, only such business shall be
conducted as shall have been set forth in the notice of meeting sent in
accordance with Section 2.04 of this Article II.
SECTION 2.03. PLACE OF MEETING. The Board of Directors may designate any
place, either within or without the State of Missouri, as the place of meeting
for any annual meeting of the shareholders or for any special meeting of the
shareholders called by the Board of Directors, except that a meeting called
expressly for the purpose of removal of a director for cause shall be held at
the registered office or principal business office of the Corporation in the
State of Missouri or in the county of the State of Missouri in which the
principal business office of the Corporation is located. A waiver of notice
signed by all shareholders entitled to vote at a meeting may designate any
place, either within or without the State of Missouri, as the place for the
holding of such meeting unless such meeting is called expressly for the purpose
of removal of one or more directors for cause, in which event such meeting shall
be held at the registered office or principal business office of the Corporation
in the State of Missouri or in the county of the State of Missouri in which the
principal business office of the Corporation is located. If no designation is
made, the place of meeting shall be the registered office of the Corporation in
the State of Missouri.
SECTION 2.04. NOTICE OF MEETING. Written notice stating the place, day
and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall, unless otherwise prescribed by
statute, be delivered not less then ten nor more than seventy days before the
date of the meeting, either personally or by mail, by or at the direction of the
President, or the Secretary, or the persons 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 United States mail,
addressed to the shareholder at his or her address as it appears on the stock
transfer books of the Corporation, with postage thereon prepaid.
<PAGE>
SECTION 2.05. MEETINGS. HOW CONVENED. Every meeting, for whatever
purpose, of the shareholders of the Corporation shall be convened by the
President, or the Secretary, or the persons calling the meeting by notice given
as herein provided.
SECTION 2.06. CLOSING TRANSFER BOOKS; RECORD DATE. The Board of Directors
shall have power to close the transfer books of the Corporation for a period not
exceeding seventy days preceding the date of any meeting of shareholders, or the
date of payment of any dividend, or the date for the allotment of rights, or the
date when any change or conversion or exchange of shares shall go into effect;
provided, however that in lieu of closing the stock transfer books, the Board of
Directors may fix in advance a date, not exceeding seventy days preceding the
date of any meeting of shareholders, or the date for the payment of any
dividend, or the date for the allotment of rights, or the date when any change
or conversion or exchange of shares shall go into effect, as a record date for
the determination of the shareholders entitled to notice of, and to vote at, the
meeting and any adjournment thereof, or to receive payment of the dividend, or
to receive the allotment of rights, or to exercise the rights in respect of the
change, conversion or exchange of shares. In such case, only the shareholders
who are shareholders of record on the date of closing the transfer books, or on
the record date so fixed, shall be entitled to notice of, and to vote at, the
meeting and any adjournment thereof, or to receive payment of the dividend, or
to receive the allotment of rights, or to exercise the rights, as the case may
be, notwithstanding any transfer of any shares on the books of the Corporation
after the date of closing of the transfer books or the record date fixed as
aforesaid. If the Board of Directors does not close the transfer books or set a
record date, only the shareholders who are shareholders of record at the close
of business on the twentieth day preceding the date of the meeting shall be
entitled to notice of, and to vote at, the meeting, and any adjournment of the
meeting.
SECTION 2.07. VOTING LISTS. The officer or agent having charge of the
stock transfer book for shares of the Corporation shall make, at least ten days
before each meeting of the shareholders, a complete list of the shareholders
entitled to vote at such meeting, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
ten days prior to such meeting shall be kept on file at the registered office of
the Corporation and shall be subject to inspection by any shareholder at any
time during usual business hours. Such list shall also be produced and subject
to the inspection of any shareholder at any time during the meeting. The
original share ledger or transfer books, or a duplicate thereof kept in the
State of Missouri, shall be prima facie evidence as to who are the shareholders
entitled to examine such list or share ledger or transfer book or to vote at any
meeting of the shareholders.
SECTION 2.08. QUORUM. A majority of the outstanding shares of the
Corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at any meeting of shareholders. If less than a quorum is
present, a majority of the shares so represented may adjourn the meeting until a
specified date, not longer than ninety days after such adjournment, and no
notice need be given of such adjournment to shareholders not present at the
meeting. Every decision of a majority of such quorum shall be valid as a
corporate act unless a different vote is required by law, the Articles of
Incorporation or the Bylaws of the Corporation. The shareholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
SECTION 2.09. PROXIES. At all meetings of shareholders, a shareholder may
vote in person or by proxy executed in writing by the shareholder or by the
shareholder's duly authorized attorney in fact. Such proxy shall be filed with
the Secretary of the Corporation before or at the time of the meeting. No proxy
shall be valid after eleven months from the date of its execution, unless
otherwise provided in the proxy. A duly executed proxy shall be irrevocable
only if it states that it is irrevocable and if, and only so long as, it is
coupled with an interest sufficient in law to support an irrevocable power of
attorney. The interest with which it is coupled need not be an interest in the
shares themselves. If any instrument of proxy designates two or more persons to
act as proxy, in the absence of any provisions in the proxy to the contrary, the
persons designated may represent and vote the shares in accordance with the vote
or consent of the majority of the persons named as proxies. If only one such
proxy is present, the proxy may vote all of the shares, and all the shares
standing in the name of the principal or principals for whom such proxy
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acts shall be deemed represented for the purpose of obtaining a quorum. The
foregoing provisions shall apply to the voting of shares by proxies for any two
or more personal representatives, trustees or other fiduciaries, unless an
instrument or order of court appointing them otherwise directs.
SECTION 2.10. VOTING OF SHARES. Subject to the provisions of Section 2.13
of this Article II, each outstanding share entitled to vote shall be entitled to
one vote upon each matter submitted to a vote at a meeting of the shareholders.
SECTION 2.11. VOTING OF SHARES BY CERTAIN HOLDERS. Shares standing in the
name of another corporation may be voted by such 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 standing in the name of a deceased person may be voted by his or her
personal representative, either in person or by proxy. Shares standing in the
name of a conservator or trustee may be voted by such fiduciary, either in
person or by proxy, but no conservator or trustee shall be entitled as a
fiduciary to vote shares held by him or her without a transfer of such shares
into his or her name.
Shares standing in the name of a receiver may be voted by such receiver,
and shares held by or under the control of a receiver may be voted by such
receiver without the transfer thereof into his or her name if authority to do so
be contained in an appropriate order of the court 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 pledges, and
thereafter the pledges shall be entitled to vote the shares so transferred.
SECTION 2.12. SHAREHOLDER ACTING WITHOUT A MEETING. Any action required
to be taken at a meeting of the shareholders, or any action which may be taken
at a meeting of the shareholders, may be taken without a meeting if consents in
writing, setting forth the action so taken, shall be signed by all of the
shareholders entitled to vote with respect to the subject matter thereof. Such
consents shall have the same force and effect as a unanimous vote of the
shareholders at a meeting duly held. The Secretary of the Corporation shall
file such consents with the minutes of the meetings of the shareholders.
SECTION 2.13. CUMULATIVE VOTING RIGHTS DENIED. In all elections for
directors, each shareholder entitled to vote shall have the right to cast only
as many votes as shall equal the number of voting shares held by him in the
Corporation. There shall be no right to cumulative voting in the election of
directors.
SECTION 2.14. SHAREHOLDERS' RIGHT TO EXAMINE BOOKS AND RECORDS. This
Corporation shall keep correct and complete books and records of account,
including the amount of its assets and liabilities, minutes of the proceedings
of its shareholders and Board of Directors, and the names and places of
residence of its officers; and it shall keep at its registered office or
principal place of business in this state, or at the office of its transfer
agent, if any, books and records in which shall be recorded the number of shares
subscribed, the names of the owners of the shares, the numbers owned by them
respectively, the amount of shares paid, and by whom, and the transfer of such
shares with the date of transfer. Each shareholder may, upon written demand
under oath stating the purpose thereof, during normal business hours, have
access to the books of the Corporation, to examine the same for any proper
purpose. The Board of Directors may, from time to time, further prescribe
regulations with respect to any such examination.
SECTION 2.15. SHARES OF OTHER CORPORATIONS. Shares of another corporation
owned by or standing in the name of the Corporation may be voted by such person
or persons as may be designated by the Board of Directors and in the absence of
any such designation, the President shall have the power to vote such shares.
SECTION 2.16. NOTICE OF SHAREHOLDER NOMINEES. Only persons who are
nominated in accordance with the procedures set forth in this Section 2.16 of
Article II shall be eligible for election as Directors of the Corporation.
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Nominations of persons for election to the Board of Directors of the Corporation
may be made at a meeting of shareholders (a) by or at the direction of the Board
of Directors or (b) by any shareholder of the Corporation entitled to vote for
the election of Directors at such meeting who complies with the procedures set
forth in this Section 2.16 of Article II. All nominations by shareholders shall
be made pursuant to timely notice in proper written form to the Secretary of the
Corporation. To be timely, a shareholder's notice shall be delivered to or
mailed and received at the principal executive offices of the Corporation not
less than sixty days nor more than ninety days prior to the meeting; provided,
however, that in the event that less than seventy-one days' notice or prior
public disclosure of the date of the meeting is given or made to shareholders,
notice by the shareholder to be timely must be so received not later than the
close of business on the tenth day following the day on which such notice of the
date of the meeting was mailed or such public disclosure was made.
To be in proper written form, such shareholder's notice shall set forth in
writing (a) as to each person whom the shareholder 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 or 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, without
limitation, such person's written consent to being named in the proxy statement
as a nominee and to serving as a Director if elected; and (b) as to the
shareholder giving the notice (i) the name and address, as they appear on the
Corporation's books, of such shareholder and (ii) the class and number of shares
of the Corporation which are beneficially owned by such shareholder.
At the request of the Board of Directors, any person nominated for election
as a director shall furnish to the Secretary of the Corporation that information
required to be set forth in a shareholder's notice of nomination which pertains
to the nominee. In the event that a shareholder seeks to nominate one or more
directors, the Secretary shall appoint two inspectors, who shall not be
affiliated with the Corporation, to determine whether a shareholder has complied
with this Section 2.16 of Article II. If the inspectors shall determine that a
shareholder has not complied with this Section 2.16 of Article II, the
inspectors shall direct the chairman of the meeting to declare to the meeting
that the nomination was not made in accordance with the procedures prescribed by
the Bylaws of the Corporation, and the chairman shall so declare to the meeting
and the defective nomination shall be disregarded.
SECTION 2.17. PROCEDURES FOR SUBMISSION OF SHAREHOLDER PROPOSALS AT ANNUAL
MEETING. At any annual meeting of the shareholders of the Corporation, 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 shareholder
of the Corporation who complies with the procedures set forth in this Section
2.17 of Article II. For business properly to be brought before an annual
meeting by a shareholder, the shareholder must have given timely notice thereof
in proper written form to the Secretary of the Corporation. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Corporation not less than sixty days nor more
than ninety days prior to the meeting; provided, however, that in the event that
less than seventy-one days' notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder to be timely
must be received not later than the close of business on the tenth day following
the day on which such notice of the date of the annual meeting was mailed or
such public disclosure was made.
To be in proper written form, a shareholder's notice to the Secretary shall
set forth in writing as to each matter the shareholder proposes to bring before
the annual meeting (a) 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, (b) the name and address, as they appear on the Corporation's
books, of the shareholder proposing such business, (c) the class and number of
shares of the Corporation which are beneficially owned by the shareholder and
(d) any material interest of the shareholder in such business.
Notwithstanding anything in the Bylaws to the contrary, no business shall
be conducted at an annual meeting, except in accordance with the procedures set
forth in Section 2.17 of Article II. The chairman of a meeting shall, if the
facts warrant, determine and declare to the meeting that business was not
properly brought before the meeting
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<PAGE>
in accordance with the provisions of this Section 2.17 of Article II, and, if he
or she should so determine, shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
ARTICLE III - BOARD OF DIRECTORS
SECTION 3.01. GENERAL POWERS. The property and business of the
Corporation shall be controlled and managed by its Board of Directors.
SECTION 3.02. NUMBER, TERM AND QUALIFICATIONS. The number of directors to
constitute the Board of Directors shall be seven (7); provided, however, that
such number may be fixed, from time to time, at not less than five (5) nor more
than fifteen (15) by resolution of the Board of Directors adopted by the vote or
consent of at least sixty-six and two-thirds percent (66-2/3%) of the number of
directors then in office. The directors shall be divided into three classes as
more particularly set forth in the Articles of Incorporation of the Corporation.
Each director shall hold office until his or her successor shall have been
elected and qualified. The directors need not be residents of the State of
Missouri or shareholders of the Corporation.
SECTION 3.03. 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, either within or
without the State of Missouri, for the holding of additional regular meetings
without other notice than such resolution.
SECTION 3.04. SPECIAL MEETINGS. A special meeting of the Board of
Directors may be called by, or at the request of, the President or any director.
The person or persons authorized to call such special meeting of the Board of
Directors may fix any place, either within or without the State of Missouri, as
the place for holding such special meeting.
SECTION 3.05. NOTICE. Notice of any special meeting shall be delivered at
least two days prior thereto by written notice delivered personally or left at
or mailed to each director at his or her business or residence address, or by
telegram or telefax. If mailed, such notice shall be deemed to be delivered
when deposited in the United States mail, so addressed, with postage thereon
prepaid. If notice be given by telegram or telefax, such notice shall be deemed
to be delivered when the text of the telegram or telefax is delivered to the
telegraph or telefax company. The attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends a
meeting for the express purpose of objecting to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of the
Board of Directors need be specified in the notice or waiver of notice of such
meeting.
SECTION 3.06. QUORUM; PARTICIPATION BY TELEPHONE. A majority of the full
Board of Directors shall constitute a quorum for the transaction of business,
but if less than a majority are present at a meeting, a majority of the
directors present may adjourn the meeting from time to time without further
notice. Members of the Board of Directors may participate in a meeting of the
Board of Directors, whether regular or special, by means of conference telephone
or similar communications equipment whereby all persons participating in the
meeting can hear each other, and participation in a meeting in this manner shall
constitute presence in person at the meeting.
SECTION 3.07. MANNER OF ACTING. The Board shall select a Chairman to
preside at meetings of the Board. The act of a majority of the directors
present at a meeting at which a quorum is present shall be the act of the Board
of Directors, unless the act of a different number is required by statute, the
Articles of Incorporation or these Bylaws.
SECTION 3.08. ACTION WITHOUT A MEETING. Any action that may be taken at a
meeting of the Board of Directors or of a committee of directors may be taken
without a meeting if consents in writing, setting forth the action so taken, are
signed by all of the members of the Board of Directors or of the committee, as
the case may be. Such written consents shall be filed by the Secretary with the
minutes of the proceedings of the Board of Directors or of
-5-
<PAGE>
the committee, as the case may be, and shall have the same force and effect as a
unanimous vote at a meeting duly held.
SECTION 3.09. RESIGNATIONS. Any director may resign at any time by
delivering written notice to the Board of Directors, the President or the
Secretary of the Corporation. Any written notice delivered in person to the
President or the Secretary shall be effective upon delivery, unless otherwise
provided therein. Written notice may be delivered by certified or registered
mail, with postage thereon prepaid and a return receipt requested. Such
resignation shall take effect on the date of the receipt of such notice which
date of receipt shall be deemed to be the date indicated upon the registered or
certified mail return receipt, or at any later time specified therein. Unless
otherwise specified, acceptance of such resignation shall not be necessary to
make it effective.
SECTION 3.10. COMPENSATION. By resolution of the Board of Directors, each
director may be paid his or her expenses, if any, of attendance at each meeting
of the Board of Directors, and may be paid a stated salary as director or a
fixed sum for attendance at each meeting of the Board of Directors or both. No
such payment shall preclude any director from serving the Corporation in any
other capacity and receiving compensation therefor.
SECTION 3.11. PRESUMPTION OF ASSENT. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any matter is
taken shall be presumed to have assented to the action taken unless the director
dissents or abstains at such meeting, and the fact of such dissent or abstention
(a) is entered in the minutes of the meeting, or (b) shall be filed by the
director in writing with the person acting as secretary of the meeting before
the adjournment thereof, or (c) shall have been recorded by the director and
forwarded by registered mail to the Secretary of the Corporation promptly after
the adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
SECTION 3.12. COMMITTEES. The Board of Directors, by resolution adopted
by a majority of the Board, may designate two or more directors to constitute
(a) an executive committee, which committee shall have and exercise all of the
authority of the Board of Directors in the management of the Corporation, or (b)
any other committee which shall have the name, purpose and authority delegated
to it by such resolution.
SECTION 3.13. AGE LIMITATION. No persons seventy-five years of age shall
be eligible for election, reelection, appointment or reappointment to the Board
of Directors. No director shall serve as such beyond the annual meeting of the
Corporation immediately following the director becoming seventy-five years of
age, except that a director serving on the date of adoption of these bylaws may
complete the term as director. This age limitation does not apply to an
advisory director or a director emeritus.
ARTICLE IV. OFFICERS
SECTION 4.01. NUMBER. The officers of the Corporation shall be the
President, one or more Vice Presidents (the number and any descriptive title
hereof to be determined by the Board of Directors), a Secretary and a Treasurer,
each of whom shall be elected by the Board of Directors. Such other officers
and assistant officers as may be deemed necessary may be elected by the Board of
Directors or appointed by the President, with the approval of the Board. Any
two or more offices may be held by the same person.
SECTION 4.02. ELECTION AND TERM OF OFFICE. The officers of the
Corporation to be elected by the Board of Directors shall be elected annually by
the Board of Directors at the first meeting of the Board of Directors held after
the annual meeting of the shareholders. If the election of officers shall not
be held at such meeting, such election shall be held as soon thereafter as
conveniently may be arranged. Each officer shall hold office until his or her
successor shall have been duly elected and shall have qualified or until his or
her death or until he or she shall resign or shall have been removed in the
manner hereinafter provided.
-6-
<PAGE>
SECTION 4.03. REMOVAL. Any officer, agent, or other employee elected or
appointed by the Board of Directors may be removed by the Board of Directors,
with or without cause, whenever in its judgment the best interests of the
Corporation will be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed. Election or
appointment of an officer or agent shall not of itself create contract rights.
SECTION 4.04. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors, the President or the Secretary of the
Corporation. Any written notice delivered in person to the President or the
Secretary shall be effective upon delivery unless otherwise provided therein.
Written notice may be delivered by certified or registered mail, with postage
thereon prepaid and a return receipt requested. Such resignation shall take
effect on the date of the receipt of such notice which date of receipt shall be
deemed to be the date indicated upon the registered or certified mail return
receipt, or any later time specified therein. Unless otherwise specified
herein, the acceptance of such resignation shall not be necessary to make it
effective.
SECTION 4.05. VACANCIES. A vacancy in any office because of death,
incapacity, resignation, removal, disqualification or otherwise, may be filled
by the Board of Directors for the unexpired portion of the term.
SECTION 4.06. PRESIDENT. The President shall be the chief executive
officer of the Corporation and shall in general supervise and control the
operations of the Corporation. The President shall preside at all meetings of
the shareholders. The President may sign, with the Secretary or any other
proper officer of the Corporation thereunto authorized by the Board of
Directors, certificates for shares of the Corporation, any deeds, mortgages,
bonds, contracts, or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
Bylaws to some other officer or agent of the Corporation, or shall be required
by law to be otherwise signed or executed. The President may vote in person or
by proxy shares in other corporations standing in the name of this Corporation.
The President shall in general perform all duties incident to the office of
President and such other duties as may be prescribed by the Board of Directors
from time to time.
SECTION 4.07. VICE PRESIDENT. In the absence of the President, whether
due to resignation, incapacity or any other cause, or in the event of the
President's death, inability or refusal to act, the Vice President (or in the
event there be more than one Vice President, the Vice Presidents in the order
designated at the time of their election, or in the absence of any designation,
then in the order of their election) shall perform the duties of the President,
and when so acting, shall have all powers of and be subject to all the
restrictions upon the President. The Vice President shall exercise such powers
only so long as the President remains absent or incapacitated, or until the
Board of Directors elects a new President. Any Vice President may sign with the
Secretary, or until the Board of Directors elects a new President. Any Vice
President may sign, with the Secretary, an Assistant Secretary, Treasurer or an
Assistant Treasurer, certificates for shares of the Corporation; and shall
perform such other duties as from time to time may be assigned to him or her by
the President or by the Board of Directors.
SECTION 4.08. SECRETARY. The Secretary shall (a) keep the minutes of the
proceedings of the shareholders and of the Board of Directors in one or more
books provided for that purpose; (b) see that all notices are duly given in
accordance with the provisions of these Bylaws or as required by law; (c) be
custodian of the corporate records and of the seal of the Corporation and see
that the seal of the Corporation is affixed to all documents the execution of
which on behalf of the Corporation under its seal is duly authorized; (d) keep a
register of the post office address of each shareholder which shall be furnished
to the Secretary by such shareholder; (e) sign with the President, or a Vice
President, certificates for shares of the Corporation, the issuance of which
shall have been authorized by resolution of the Board of Directors; (f) have
general charge of the stock transfer books of the Corporation; (g) in general
perform all duties incident to the office of Secretary and such other duties as
from time to time may be assigned to the Secretary by the President or by the
Board of Directors.
-7-
<PAGE>
SECTION 4.09. TREASURER. The Treasurer shall: (a) have charge and
custody of and be responsible for all funds and securities of the Corporation;
(b) receive and give receipts for monies due and payable to the Corporation from
any source whatsoever, and deposit all such monies in the name of the
Corporation in such banks, trust companies or other depositories as shall be
selected in accordance with the provisions of Article V of these Bylaws; and (c)
in general perform all of the duties incident to the office of Treasurer and
such other duties as from time to time may be assigned to the Treasurer by the
President or by the Board of Directors. If required by the Board of Directors,
the Treasurer shall give a bond for the faithful discharge of the Treasurer's
duties in such sum and with such surety or sureties as the Board of Directors
shall determine. If no Treasurer is elected, then such duties shall be carried
out by the Vice President in charge of the Corporation's financial affairs, or
such other officer as the Board of Directors may determine.
SECTION 4.10. SALARIES. The salaries of the officers shall be fixed from
time to time by the Board of Directors and no officer shall be prevented from
receiving such salary by reason of the fact that the officer is also a director
of the Corporation.
ARTICLE V. CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 5.01. CONTRACTS. The Board of Directors may authorize any officer
or officers, agent or agents, to enter into any contract or execute and deliver
any instrument in the name of and on behalf of the Corporation, and such
authority may be general or confined to specific instances.
SECTION 5.02. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in its name unless
authorized by a resolution of the Board of Directors. Such authority may be
general or confined to specific instances.
SECTION 5.03. CHECKS, DRAFTS, ETC. All checks, drafts or other orders for
the payment of money, notes or other evidences of indebtedness issued in the
name of the Corporation shall be signed by such officer or officers, agent or
agents of the Corporation and in such manner as shall from time to time be
determined by resolution of the Board of Directors.
SECTION 5.04. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as the Board of Directors
may select.
ARTICLE VI. CERTIFICATES FOR SHARES AND THEIR TRANSFER
SECTION 6.01. CERTIFICATES FOR SHARES. Certificates representing shares
of the Corporation shall be in such form as shall be determined by the Board of
Directors. The shares of the Corporation shall be represented by certificates
signed by the President or a Vice President, and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer of the
Corporation and sealed with the seal of the Corporation or a facsimile thereof.
Any signatures on the certificates may be facsimile. All certificates for
shares shall be consecutively numbered or otherwise identified. The name and
address of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the stock transfer
books of the Corporation. All certificates surrendered to the Corporation for
transfer shall be canceled, and no new certificate shall be issued until the
former certificate or a like number of shares shall have been surrendered and
canceled, except that in case of a lost, destroyed or mutilated certificate a
new one may be issued therefor upon such terms as the Board of Directors may
prescribe.
SECTION 6.02. TRANSFER OF SHARES. Transfer of shares of the Corporation
shall be made only on the stock transfer books of the Corporation by the holder
of record thereof or by his or her legal representative, or by his or her
attorney thereunto authorized by power of attorney duly executed and filed with
the Secretary of the Corporation,
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<PAGE>
and on surrender for cancellation of the certificate for such shares. The person
in whose name shares stand on the books of the Corporation shall be deemed by
the Corporation to be the owner thereof for all purposes.
ARTICLE VII - FISCAL YEAR
The fiscal year of the Corporation shall begin on the first day of October
and end on the thirtieth day of September in each year.
ARTICLE VIII - DIVIDENDS
The Board of Directors may, from time to time, declare and the Corporation
may pay dividends on its outstanding shares in the manner, and upon the terms
and conditions provided by law and the Articles of Incorporation of the
Corporation.
ARTICLE IX - CORPORATE SEAL
The Board of Directors shall provide a corporate seal in the form of a
circle with the name of the Corporation inscribed thereon.
ARTICLE X - WAIVER OF NOTICE
Whenever any notice is required to be given to any shareholder or director
of the Corporation under the provisions of these Bylaws or of the Articles of
Incorporation or The General and Business Corporation Law of Missouri, a waiver
thereof in writing signed by the person or person entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice.
ARTICLE XI - AMENDMENTS
These Bylaws may be altered, amended or repealed and new Bylaws adopted by
action of the Board of Directors at any regular or special meeting provided that
any amendment, alteration, change or repeal by the Board of Directors of Section
3.02 of Article III or this Article XI or the adoption of any provision
inconsistent therewith shall require the affirmative vote or consent of sixty-
six and two-thirds percent (66-2/3%) of the number of directors then authorized
by, or in the manner provided in, the Bylaws.
* * *
Adopted on December 3, 1998.
/s/ Eldon R. Mette
-------------------------------------
Eldon R. Mette
President
ATTEST:
/s/ Ronald L. Nelson
- -------------------------------
Ronald L. Nelson
Secretary
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<PAGE>
EXHIBIT 4.0
COMMON STOCK COMMON STOCK
PAR VALUE $.01 SEE REVERSE FOR CERTAIN DEFINITIONS
CUSIP
PFSB BANCORP, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF MISSOURI
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
PFSB BANCORP, INC.
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, PFSB Bancorp, Inc. has caused this certificate to
be executed by the facsimile signatures of its duly authorized officers and has
caused a facsimile of its corporate seal to be hereunto affixed.
Dated: [SEAL]
President Secretary
<PAGE>
PFSB BANCORP, INC.
The shares represented by this certificate are subject to a limitation
contained in the Articles 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. The Articles of Incorporation require the
affirmative vote of the holders of at least 66 2/3% of the voting stock of the
Corporation, voting together as a single class, 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:
<TABLE>
<S> <C>
TEN COM - as tenants in common UNIF GIFTS MIN ACT -_______ custodian __________
(Cust) (Minor)
TEN ENT - as tenants by the entireties under Uniform Gifts to Minors Act
____________________
(State)
</TABLE>
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>
______________, 1998
Board of Directors
PFSB Bancorp, Inc.
123 West Lafayette Street
Palmyra, Missouri 63461
Re: The offering of up to 991,875 shares of
PFSB Bancorp, Inc. Common Stock
-------------------------------
Ladies and Gentlemen:
You have requested our opinion concerning certain matters of Missouri law
in connection with the conversion of Palmyra Saving and Building Association,
F.A. (the "Bank"), a federally-chartered savings association, from the mutual
form of ownership to a federally-chartered capital stock savings bank to be
named Palmyra Savings (the "Conversion"), and the related subscription offering,
community offering and syndicated community offering (the "Offerings") by PFSB
Bancorp, Inc., a Missouri corporation (the "Company"), of up to 862,500 shares
of its common stock, par value $.01 per share ("Common Stock") (991,875 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 articles of incorporation filed with the
Secretary of State, Corporate Division of Missouri on November 25, 1998 (the
"Articles 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 December __, 1998 (the "Registration Statement"); 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 Secretary of State, Corporation
Division of Missouri, certifying the Company's good standing as a Missouri
corporation. Capitalized terms used but not defined herein shall have the
meaning given them in the Articles of Incorporation.
<PAGE>
Board of Directors
PFSB Bancorp, Inc.
December __, 1998
Page 2
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 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 Missouri law, it is our opinion that:
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 in
accordance with the terms set forth in the Prospectus and such resolution of the
Pricing Committee and certificates representing such shares in the form provided
to us are duly and properly issued, will be validly issued, fully paid and
nonassessable.
The following provisions of the Articles of Incorporation may not be given
effect by a court applying Missouri 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:
Subsections 3.2(c) and (f) of ARTICLE III and Section 10.5 of Article
X, which grant the Board the authority to construe and apply the
provisions of those Articles, subsection 3.2(d) of Article III, to the
extent that subsection obligates any person to provide to the Board
the information such subsection authorizes the Board to demand,
subsection 3.2(a) of Article III, to the extent that subsection limits
the amount of shares of Common Stock a shareholder may vote, and
Subsection 10.3(h) of Article X empowering the Board to determine the
Fair Market Value of property offered or paid for the Company's stock
by an Interested Shareholder, in each case to the extent, if any, that
a court applying Missouri law were to impose equitable limitations
upon such authority.
<PAGE>
Board of Directors
PFSB Bancorp, Inc.
December __, 1998
Page 3
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 8.1
FORM OF TAX OPINION
________________, 1998 DRAFT
Board of Directors
PFSB Bancorp, Inc.
123 West Lafayette Street
Palmyra, Missouri 63461-0072
Board of Directors
Palmyra Saving and Building Association, F.A.
123 West Lafayette Street
Palmyra, Missouri 63461-0072
Re: Federal Tax Consequences of the Conversion of Palmyra Saving and
Building Association, F.A. from a Federally-chartered Mutual Savings
and Loan Association to a Federally-chartered Stock Savings Bank and
the Offer and Sale of Common Stock of PFSB Bancorp, Inc. (the
"Conversion")
To the Members of the Board of Directors:
You have requested an opinion regarding the federal income tax consequences
of the proposed conversion of Palmyra Saving and Building Association, F.A. (the
"Association") from a federally-chartered mutual savings and loan association to
a federally-chartered stock savings bank (the "Converted Bank") and the
acquisition of the Converted Bank's capital stock by PFSB Bancorp, Inc., a
Missouri corporation (the "Holding Company"), pursuant to the plan of conversion
adopted by the Board of Directors on September 24, 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 DRAFT
____________________, 1998
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 factual 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.
The Association, with its headquarters in Palmyra, Missouri, 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 "shareholders." A shareholder 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 shareholder 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 stock savings
bank, 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 Converted Bank 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 Holding Company and the Converted Bank. The Conversion and sale of the
Common Stock will be subject to applicable regulatory approval and the approval
by the affirmative vote of a majority of the Members.
<PAGE>
Board of Directors DRAFT
____________________, 1998
Page 3
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
Converted Bank for the benefit of the Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain their deposit accounts at the
Converted 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
deposit 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 Converted Bank (and
only in such event), following all liquidation payments to creditors (including
those to Account Holders to the extent of their deposit 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 deposit accounts then held,
before any liquidation distribution may be made to any holders of the Converted
Bank's capital stock. No merger, consolidation, purchase of bulk assets with
assumption of Savings Accounts and other liabilities, or similar transaction
with a Federal Deposit Insurance Corporation ("FDIC") institution, in which the
Converted 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.
LIMITATIONS ON OPINION
----------------------
Our opinions expressed herein are based solely upon current provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), 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.
FEDERAL TAX OPINION
-------------------
Based upon the Representations and the other factual information referred
to in this letter, 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:
<PAGE>
Board of Directors DRAFT
____________________, 1998
Page 4
(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 shareholder
in a mutual entity is more nominal than real, unlike that of a
shareholder of a corporation, the Conversion of the Association from a
mutual entity to a stock savings bank 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
Bank shall recognize gain or loss as a result of the Conversion. The
Association and the Converted Bank 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 Bank or the
Holding Company on the receipt by the Converted Bank of money from the
Holding Company in exchange for shares of the Converted Bank'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 Bank 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 Bank 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 them of withdrawable deposit accounts in the Converted
Bank plus interests in the liquidation account of the Converted Bank
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
<PAGE>
Board of Directors DRAFT
____________________, 1998
Page 5
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 Bank to be received
by the Eligible Account Holders, Supplemental Eligible Account Holders
and other shareholders 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 Bank to be
received by the Eligible Account Holders and Supplemental 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 have received a letter from RP Financial, LC, 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 Bank may be taxable on the distribution of the subscription
rights.
* * *
<PAGE>
Board of Directors DRAFT
____________________, 1998
Page 6
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
Application for Conversion of the Association and the references to and summary
of this opinion in such Application for Conversion. We also consent to the
inclusion of this opinion as an exhibit to the Form SB-2 Registration Statement
and the Form H-(e)1-S Application of PFSB Bancorp, Inc. and the references to
and summary of this opinion in both the Form SB-2 and the Form H-(e)1-S.
Sincerely,
MULDOON, MURPHY & FAUCETTE
<PAGE>
FORM OF MISSOURI TAX OPINION
Board of Directors
Palmyra Saving and Building Association, F.A.
Palmyra, Missouri 63461
RE: Certain Missouri Income Tax Consequences Relating to Proposed Holding
Company Conversion
Gentlemen:
In accordance with your request, set forth herein is the opinion of this firm
relating to certain Missouri income tax consequences of (i) the proposed
conversion of Palmyra Saving and Building Association, F.A. (the "Bank") from a
federally-chartered mutual savings bank to a federally-chartered stock savings
bank (the "Converted Bank") (the "Stock Conversion") and (ii) the concurrent
acquisition of 100% of the outstanding capital stock of the Converted Bank by a
parent holding company formed at the direction of the Board of Directors of the
Bank and to be known as PFSB Bancorp, Inc. (the "Holding Company").
You have previously received the opinion of Muldoon, Murphy & Faucette regarding
the federal income tax consequences of the Stock Conversion and Holding Company
formation to the Bank, the Converted Bank, and the Holding Company and the
deposit account holders of the Bank under the Internal Revenue Code of 1986, as
amended (the "Code"). The federal tax opinion concludes, inter alia, that the
----- -----
proposed transactions qualify as a tax-free reorganization under Section
368(a)(1)(F) of the Code.
The State of Missouri will, for income tax purposes, treat the proposed
transactions in an identical manner as they are treated by the Internal Revenue
Service for federal income tax purposes. Based upon the facts and circumstances
attendant to the Stock Conversion, and applicable provisions of the Internal
Revenue Code, it is our opinion that, under the laws of the State of Missouri,
no adverse Missouri tax consequences will be incurred by the parties to the
proposed transactions, including deposit account holders, as a result of the
Stock Conversion and Holding Company formation.
<PAGE>
Board of Directors
Palmyra Saving and Building Association, F.A.
Page 2
No opinion is expressed on any matter other than income tax consequences
including, but not limited to, any franchise or capital stock taxes which might
result from the implementation of the proposed transactions.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement (Form SB) of the Holding Company filed under the
Securities Act of 1933, as amended, the Bank's Application for Approval of
Conversion (Form AC) filed with the Office of Thrift Supervision ("OTS"), and to
the reference to us in the prospectus and proxy statement included therein. We
also consent to the filing of this opinion as an exhibit to the Holding Company
Application H-(e)1-S filed on behalf of the Holding Company with the OTS.
Mexico, Missouri
, 1998
<PAGE>
EXHIBIT 10.1
FORM OF
PALMYRA SAVINGS
EMPLOYEE STOCK OWNERSHIP PLAN
EFFECTIVE [JANUARY 1, 1999]
<PAGE>
FORM OF
PALMYRA SAVINGS
EMPLOYEE STOCK OWNERSHIP PLAN
CERTIFICATION
I, L. Edward Schaeffer, Chairman of the Board of Directors and President of
Palmyra Savings, a federal savings bank, hereby certify that the attached
Palmyra Savings Employee Stock Ownership Plan, effective [JANUARY 1, 1999], was
adopted at a duly held meeting of the Board of Directors of the Bank.
ATTEST: Palmyra Savings
_________________________ By:_______________________________________
L. Edward Schaeffer
Chairman of the Board of Directors and
President
_________________________
Date
<PAGE>
FORM OF
PALMYRA SAVINGS
EMPLOYEE STOCK OWNERSHIP PLAN
TABLE OF CONTENTS
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..............................................
<PAGE>
FORM OF
PALMYRA SAVINGS
EMPLOYEE STOCK OWNERSHIP PLAN
SECTION 1
INTRODUCTION
SECTION 1.01 NATURE OF THE PLAN.
------------------
Effective as of January 1, 1999, (the "Effective Date"), Palmyra Savings, a
federal savings bank (the "Bank"), hereby establishes the Palmyra Savings
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
PFSB Bancorp, Inc., the holding company of the Bank (the "Company"). The Bank
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 Bank'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 Bank and each of its Affiliates (as defined in Section 2.01(c) of the Plan)
which, with the consent of the Bank, 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 Bank, 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 Bank 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) "BANK" means Palmyra Savings, Palmyra, Missouri and any entity which
succeeds to the business of Palmyra Savings 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" shall mean an event of a nature that: (i) would be
required to be reported in response to Item 1(a) of the current report on Form
8-K, as in effect on the date hereof, pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"); or (ii) results in a
Change in Control of the Bank or the Holding Company within the meaning of the
Home Owners' Loan Act of 1933, as amended, the Federal Deposit Insurance Act or
the Rules and Regulations promulgated by the Office of Thrift Supervision
("OTS") (or its predecessor agency) as in effect on the date hereof (provided
that in applying the definition of change in control as set forth under the
rules and regulations of the OTS, the Board shall substitute its judgment for
that of the OTS); or (iii) without limitation such a Change in Control shall be
deemed to have occurred at such time as (A) any "person" (as the term is used in
Sections 13(d) and 14(d) of the Exchange Act) is or becomes the "beneficial
owner" (as defined in Rule 13d-3 under the Exchange Act), directly
2
<PAGE>
or indirectly, of securities of the Bank or the Holding Company representing 20%
or more of the Bank's or the Holding Company's outstanding securities except for
any securities of the Bank purchased by the Holding Company in connection with
the conversion of the Bank to the stock form and any securities purchased by any
tax qualified employee benefit plan of the Bank; 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 Bank
or the Holding Company or similar transaction occurs in which the Bank or
Holding Company is not the resulting entity.
(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 PFSB Bancorp, Inc. and any entity which succeeds to the
business of PFSB Bancorp, Inc.
(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 Bank 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 a Participant's base salary and overtime paid during
the Plan Year, plus elective deferrals under a plan meeting the requirements of
Section 401(k) or 125 of the Code for such Plan Year.
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.
3
<PAGE>
(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 JANUARY 1, 1999.
(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.
(r) "EMPLOYEE" means any person who is employed by the Bank 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 Bank or an
Affiliate, as well as any other person qualifying as a common-law employee of
the Bank or an Affiliate, except that such term shall not include:
(i) Any individual who performs services for the Bank 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 Bank 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 Bank or an Affiliate pursuant to an agreement between the Bank or
Affiliate and any other person, including a leasing organization.
(s) "EMPLOYER" or "EMPLOYERS" means the Bank 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 Bank 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 the month 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.
4
<PAGE>
(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 Bank and its Affiliates exceeding $80,000 (as
periodically adjusted pursuant to Section 414(q)(1) of the Code),
and
(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
5
<PAGE>
(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 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.
6
<PAGE>
(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 Palmyra Savings 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:
(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.
(kk) "SERVICE" means employment with the Bank or an Affiliate.
(ll) "TREASURY REGULATIONS" means the regulations promulgated by the Department
of Treasury under the Code.
(mm) "TRUST" means the Palmyra Savings Employee Stock Ownership Plan Trust
created in connection with the establishment of the Plan.
(nn) "TRUST AGREEMENT" means the trust agreement establishing the Trust.
7
<PAGE>
(oo) "TRUST FUND" means the assets held in the Trust for the benefit of
Participants and their Beneficiaries.
(pp) "TRUSTEE" means the trustee or trustees from time to time in office under
the Trust Agreement.
(qq) "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.
(rr) "VALUATION PERIOD" means the period following a Valuation Date and ending
with the next Valuation Date.
(ss) "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
<PAGE>
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 Bank
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 Bank 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 Bank's "Plan of Conversion" (as filed
with the appropriate governmental agencies in connection with the Bank'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.
12
<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.
13
<PAGE>
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 of 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 Bank 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.
16
<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.
RESERVED
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 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 Bank) nonrecognition of gain
under Section 1042 of the Code, 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
17
<PAGE>
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 Bank or any Affiliate, or
(ii) the total value of any class of outstanding stock of the Bank 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 Bank, 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.
(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
18
<PAGE>
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.
----------------------------
RESERVED
19
<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 2 Years of Service 0%
2 Years of Service 20%
3 Years of Service 40%
4 Years of Service 60%
5 Years of Service 80%
6 or more Years of Service 100%
For purposes of vesting, a Participant's Year of Service shall be
determined using the Plan Year as the computation period.
(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 herein); or
(iv) Termination of employment by reason of death or Disability.
20
<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.
21
<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.
22
<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
23
<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.
24
<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
25
<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
is 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
26
<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.
27
<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.
28
<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 Bank.
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
Bank 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 Bank. The Bank 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 Bank, the Employers, or the Trustee under the Plan and
Trust Agreement;
(ii) delegated in writing to other persons by the Bank, 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.
29
<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 Bank'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.
30
<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
31
<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.
32
<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 respect to his claim,
including the reasons for such decision and the particular Plan provisions upon
which it is based.
33
<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 Bank, 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 investments
comply with Section 401(a)(28)(B) and such transfer is not otherwise prohibited
under
34
<PAGE>
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.
35
<PAGE>
SECTION 12
ADOPTION, AMENDMENT AND TERMINATION
SECTION 12.01 ADOPTION OF PLAN BY OTHER EMPLOYERS.
-----------------------------------
With the consent of the Bank, 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 returned
to it and this Plan shall be terminated. In the event that this Plan is amended
after its initial
36
<PAGE>
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 Bank 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 Bank 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 Bank, the Trustee shall continue to administer the Trust and pay benefits
in accordance with the Plan and the Committee's instructions.
37
<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
Bank and the Trustee, or such other person as may be designated from time to
time by the Bank.
38
<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 Indiana 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.
39
<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 Bank 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 Bank or any of its Affiliates that includes a Key
Employee and each plan of the Bank 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 Bank 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.
40
<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.
41
<PAGE>
FORM OF
TRUST AGREEMENT
BETWEEN
PALMYRA SAVINGS
AND
-------------------
FOR THE
PALMYRA SAVINGS
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
<PAGE>
CONTENTS
<TABLE>
Page No.
<S> <C>
Section 1 Creation of Trust.................................... 1
Section 2 Investment of Trust Fund and Administrative Powers
of the Trustee....................................... 2
Section 3 Compensation and Indemnification of Trustee
and Payment of Expenses and Taxes.................... 7
Section 4 Records and Valuation................................ 8
Section 5 Instructions from Committee.......................... 9
Section 6 Change of Trustees................................... 9
Section 7 Miscellaneous........................................ 9
</TABLE>
<PAGE>
This TRUST AGREEMENT dated _____________, 199_ BETWEEN Palmyra Savings,
with its principal office at 123 West LaFayette, Palmyra, Missouri 63461
(hereinafter called the "Bank"), AND ___________________________ (hereinafter
each referred to as the "Trustee"),
W I T N E S S E T H T H A T:
WHEREAS, effective January 1, 1999, the Bank approved and adopted an
employee stock ownership plan for the benefit of its employees, known as the
Palmyra Savings Employee Stock Ownership Plan (hereinafter called the "Plan");
and
WHEREAS, the Bank has authorized the execution of this Trust Agreement and
has appointed ____________________________ each as Trustee of the Trust Fund
created pursuant to the Plan; and
WHEREAS, _______________________________ each 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 Bank and each of the Trustees agree as follows:
Section 1. Creation of Trust.
------------------
1.1 Trustees. __________________________________ shall each be a trustee
--------
of the Trust Fund (as defined below) created in accordance with and in
furtherance of the Plan, and shall serve as Trustee until his/her removal or
resignation in accordance with Section 6 (unless otherwise noted, all Section
references contained herein are to this Trust Agreement).
1.2 Trust Fund. The Trustee hereby agrees to accept contributions from the
-----------
Employer (as such term is 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 "Palmyra Savings
----------------------
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, unless otherwise specifically defined in this Trust Agreement.
1.4 Name. The name of this trust shall be "Palmyra Savings 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 Plan fails
to qualify initially under Section 401(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), or
1
<PAGE>
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 Stock
Obligations, and the Trustee shall not deal in any way with Stock except in
accordance with the written instructions of the Committee. The Trustee shall
invest, or keep invested, all or a portion of the Trust Fund in Stock, and shall
pay Stock Obligations out of assets of the Trust Fund, as instructed from time
to time by the Committee. The Trustee shall invest any balance of the Trust Fund
(the "Investment Fund") in such other property as the Committee, in its sole
discretion, shall deem advisable, subject to any delegation of such investment
responsibility pursuant to Section 2.2. Nothing contained herein shall provide
investment discretion authority or any like kind responsibility in regard to the
assets of the Trust Fund.
In connection with instructions from the Committee 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 the Employee Retirement Income Security
Act of 1974, as amended ("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 Agreement, (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
related trust), (iii) is prohibited by Section 406 or 407 of ERISA or Section
4975 of the Code, 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, as defined in Section
3(38) of ERISA, 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 Bank except as otherwise agreed by the Bank 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 direction by the Committee and 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 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 Committee 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 non-income 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 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 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 participants' accounts for which the Trustee
has received no written direction and all unallocated Employer securities will
be voted in accordance with Section 8.01 of the Plan. Whenever such voting
rights are to be exercised, the Employer, the Committee and the Trustee shall
see that all Participants and Beneficiaries are provided with adequate
opportunity to deliver their instructions to the Trustee regarding voting of
Stock allocated to their accounts. The instructions of the Participants with
respect to the voting of allocated shares hereunder shall be confidential;
2.3-11 to abandon any property, real or personal, which the Trustee at the
direction of the Committee, 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
4
<PAGE>
upkeep of any such property; to permit any such property to be lost by tax sale
or other proceedings, and to convey any such property for a nominal
consideration or without consideration;
2.3-12 to borrow money from an Employer or from others (including the
Trustee), and to enter into installment contracts, for the purchase of Stock
upon such terms and conditions and at such reasonable rates of interest as the
Committee may deem to be advisable, to issue its promissory notes as Trustee to
evidence such debt, to secure the payment of such notes by pledging any property
of the Trust Fund, and to authorize the holders of any such notes to pledge them
to secure obligations of the holders and in connection therewith to repledge any
assets of the Trust as security therefor; provided that, with respect to any
extension of credit to the Trust involving, as a lender or guarantor, an
Employer or another "disqualified person" within the meaning of Section
4975(e)(2) of the Code --
(a) each loan or installment contract is primarily for the benefit of
Participants and Beneficiaries of the Plan;
(b) any interest on a loan or installment contract does not exceed a
reasonable rate;
(c) the proceeds of any loan shall be used only to acquire Stock, to
repay the loan, or to repay a previous loan meeting these
conditions, and the subject of any installment contract shall be
only the Trust's purchase of Stock;
(d) any collateral pledged to a creditor by the Trustee shall consist
only of the assets purchased with borrowed funds or received in
accordance with an installment contract and the creditor shall
have no recourse against the Trust Fund except with respect to the
collateral (although the creditor may have recourse against an
Employer as guarantor);
(e) payments with respect to a loan or installment contract shall be
made only from those amounts contributed by the Employer to the
Trust Fund, from amounts earned on such contributions, and from
cash dividends received on unallocated Stock held by the Trust as
collateral for such an obligation; and
(f) upon the payment of any portion of balance due on a loan or upon
any installment payment, a proportionate part of any assets
originally pledged as collateral for such indebtedness shall be
released from encumbrance in accordance with Section 4.2 of the
Plan and the Committee shall at least annually advise the Trustee
of the number of shares of Stock so released and the proper
allocation of such shares under the terms of the Plan;
2.3-13 to manage and operate any real property which shall at any time
constitute an asset of the Trust Fund; to make repairs, alterations, and
improvements thereto; to insure such property against loss by fire or other
casualty; to lease or grant options for the sale of such property, which lease
or option may be for a period of time which may extend beyond the life of this
Trust; and to take any other action or enter into any other contract respecting
such property which is consistent with the best interests of the Trust;
2.3-14 to pay any and all reasonable and normal expenses incurred in
connection with the exercise of any power, right, authority or discretion
granted herein, and, upon prior notice to the
5
<PAGE>
Bank, 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 Committee, 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 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.
6
<PAGE>
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; provided, however, that any individual serving as Trustee who already
receives full-time pay from the Employer shall not receive compensation from the
Plan. Fee changes resulting in fee increases shall be effective upon not less
than 30 days' notice to the Bank. 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 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 of any kind that may be levied or assessed upon the
------
Trust Fund, its income or assets, shall be paid from the Trust Fund, but the
Trustee shall not be obliged to pay such tax so long as it shall contest the
validity of such levy or assessment upon the advice of counsel.
7
<PAGE>
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 5 of
the Plan and shall deliver copies of the balance sheet to the Committee and the
Employer. In the absence of any written objections to the balance sheet by the
Committee or an Employer within 90 days after its delivery to them, the Trustee
shall be entitled to presume and to rely upon its correctness for all purposes.
Section 5. Instructions from Committee.
----------------------------
5.1 Certification of Members and Employees. From time to time the
---------------------------------------
Bank 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 Bank notifying it of any
changes.
5.2 Instructions to Trustee. The Trustee shall pay such sums to such
-----------------------
persons and shall take such other actions as shall be set forth in written
instructions from a single member of the Committee, whose name shall beiting to
the Trustee by the Bank from time to time. The Trustee shall be fully protected
in taking any action based upon such written instructions and shall have no
power, authority, or duty to interpret the Plan or to inquire into the decisions
or determinations of the Committee, or to question the instructions given to it
by the Committee.
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.
8
<PAGE>
Section 6. Change of Trustees.
-------------------
The Bank 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 Bank. Any such removal or resignation shall take effect within 30
days after notice has been given by the Trustee or by the Bank, 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 Bank 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 Bank; provided, however, that any
amendment affecting the powers, duties or liabilities of the Trustee must be
approved by the Trustee, and provided, further, that no amendment may divert any
portion of the Trust Fund to purposes other than the exclusive benefit of the
Participants and their Beneficiaries prior to the satisfaction of all
liabilities for benefits. Any amendment shall apply to the Trust Fund as
constituted at the time of the amendment as well as to that portion of the Trust
Fund which is subsequently acquired.
7.2 Compliance with ERISA. In the exercise of its powers and the
----------------------
performance of its duties, the Trustee shall act in good faith and in accordance
with the applicable requirements under ERISA. Except as may be otherwise
required by ERISA, the Trustee shall not be required to furnish any bond in any
jurisdiction for the performance of its duties and, if a bond is required
despite this provision, no surety shall be required on it.
7.3 Nonresponsibility for Funding. The Trustee shall be under no duty
------------------------------
to enforce the payment of any contributions and shall not be responsible for the
adequacy of the Trust Fund to satisfy any obligations for benefits, expenses,
and liabilities under the Plan.
7.4 Reports. The Trustee shall file any report which it is required
--------
by law to file with any governmental authority with respect to this Trust, and
the Committee shall furnish to the Trustee whatever information is necessary to
prepare the report.
7.5 Dealings with Trustee. Persons dealing with the Trustee,
----------------------
including but not limited to banks, brokers, dealers, and insurers, shall be
under no obligation to inquire concerning the validity of anything which the
Trustee purports to do, nor need any person see to the proper application of
9
<PAGE>
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.
As to the existence or non-existence of any fact or as to the
sufficiency or validity of any instrument, paper or proceedings, the Trustee
shall be entitled to rely upon a certificate signed on behalf of the Committee
as sufficient evidence of the facts therein contained but may at its discretion
secure such further evidence deemed necessary or advisable, but shall in no case
be bound to secure the same. The Trustee shall not be answerable for other than
its gross negligence or willful misconduct.
Before taking any action hereunder at the request or direction of the
Committee, the Trustee may require that indemnity in form and amount
satisfactory to the Trustee be furnished for the reimbursement of any and all
costs and expenses to which it may be put including, without limitation,
reasonable attorneys' fees and to protect it against all liability, except
liability which is adjudicated to have resulted from the gross negligence or
willful misconduct of the Trustee by reason of any action so taken.
No provision of this Agreement shall require the Trustee to expend or
risk its own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder, or in the exercise of any of its rights or
powers, if it shall have reasonable grounds for believing that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it.
7.7 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
10
<PAGE>
Trustee shall be deemed to include any 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.
7.8 Governing State Law. This Trust Agreement shall be interpreted
--------------------
in accordance with the laws of the State of Missouri to the extent those laws
may be applicable under the provisions of ERISA.
IN WITNESS WHEREOF, the parties hereto have executed this Trust
Agreement as of the day and year first above written.
ATTEST: PALMYRA SAVINGS
_____________________________ By:_____________________________
ATTEST: PALMYRA SAVINGS
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
_____________________________
By:_____________________________
________________________________
_____________, as Trustee
________________________________
_____________, as Trustee
________________________________
_____________, as Trustee
________________________________
_____________, as Trustee
________________________________
_____________, as Trustee
11
<PAGE>
EXHIBIT 10.2
[PALMYRA SAVING AND BUILDING ASSOCIATION, F.A. LETTERHEAD]
______________, 199__
Palmyra Saving and Building Association, F.A.
123 West LaFayette
Palmyra, Missouri 63461
Dear Mr. _____________:
This letter confirms PFSB Bancorp, Inc.'s commitment to fund a
leveraged ESOP in an amount sufficient to purchase 8% of the shares offered in
the conversion of Palmyra Saving and Building Association, F.A. from mutual to
stock form of organization (the "Conversion"). The commitment is subject to the
following terms and conditions:
1. Lender: PFSB Bancorp, Inc. (the "Company").
------
2. Borrower: Palmyra Savings Employee Stock Ownership Plan.
--------
3. Trustee: ______________.
-------
4. Security: Unallocated shares of stock of the Company held in the
Palmyra Savings Employee Stock Ownership Plan Trust.
5. Maturity: Up to 10 years from takedown.
--------
6. Amortization: Equal quarterly principal and interest payments.
------------
7. Pricing:
-------
a. Lowest "prime rate" as published in the Wall Street Journal on
the date of the loan transaction.
<PAGE>
8. Interest Payments:
-----------------
a. Annual on a 365 day basis.
9. Prepayment: Voluntary prepayments are permitted at any time.
----------
10. 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 Palmyra Saving and Building
Association, F.A. or the Company.
If the terms and conditions are agreeable to you, please indicate your
acceptance by signing the enclosed copy and returning it to my attention.
Sincerely,
Accepted on Behalf of
Palmyra Saving and Building Association, F.A.
By: _________________________________ Date: _____________________
<PAGE>
FORM OF
PALMYRA SAVINGS
EMPLOYEE STOCK OWNERSHIP PLAN TRUST
LOAN AND SECURITY AGREEMENT
PFSB Bancorp, Inc. ___________, 199_
123 West LaFayette
Palmyra, Missouri 63461
Gentlemen:
The undersigned Trustee, ________________ ("Borrower"), not individually
but solely as Trustee under the Palmyra Savings Employee Stock Ownership Plan
Trust (the "Trust") effective __________, 199_, applies to you, PFSB Bancorp,
Inc., (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 Palmyra Savings, the
sponsoring employer of the Palmyra Savings 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 ____________, 20__ in an aggregate principal amount ("Loan
Amount") sufficient to permit the Borrower to acquire a number of shares
("Shares") of common stock, par value $0.01 ("Common Stock") of PFSB Bancorp,
Inc., a Missouri 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)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), as
defined in Section 54.4975-7(b) of the Treasury Regulations (the "Regulations"),
as described in Section 408(b)(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA") and as described in Department of Labor
Regulations Section 2550.408b-3 (collectively, the "Exempt Loan Rules").
1.2 THE NOTE. The disbursement of the Loan pursuant to Section 1.1 hereof
--------
shall be made against and evidenced by a promissory note of the Borrower in the
form annexed hereto as
<PAGE>
Exhibit A (the "Note"), such Note is to bear interest as hereinafter provided,
and to mature in forty (40) equal quarterly installments consisting of both
principal and interest amortized over a forty (40) month period in an amount
sufficient to repay all borrowed amounts plus interest, commencing on
___________ 31, 1999 and on the last day of each and every March, June,
September and December of each year thereafter, except that the final
installment in the amount of all principal and interest not sooner paid shall be
due on ___________ 31, 20__, 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 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
<PAGE>
2.2 BASIS AND PAYMENT DATES. All interest accruing on the Note prior to
-----------------------
maturity shall be due and payable on a quarterly basis on the last day of each
March, June, September and December in each year (commencing __________ 31,
1999) 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 365 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 Nine
------
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 a 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 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.
3
<PAGE>
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 123 West
LaFayette, Palmyra, Missouri 63461, 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. 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 Missouri, 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 represents and warrants, to the best of its knowledge, to the
Lender as follows:
5.1 The Trust is a duly organized, validly existing employee stock
ownership trust.
5.2 The proceeds of the disbursement of the Loan shall be applied in their
entirety to the payment of the purchase price for the Pledged Shares.
5.3 The Borrower has full right, power and authority to enter into this
Agreement, to make the borrowings hereunder provided for, to issue the Note in
evidence thereof and to perform each and all of the matters and things herein
and therein provided for and this Agreement does not, and the Note when issued
will not, nor will the performance or observance by the Borrower of any of the
matters or things herein or therein provided, contravene any provision of law or
the Trust or any other covenant or agreement affecting the Trust or any of its
assets. As of the date of the disbursement of the Loan, the Pledged Shares will
be fully paid and non-assessable and the Pledged Shares will be owned by the
Borrower free and clear of all liens, charges and encumbrances whatsoever,
except for any lien of Lender provided for herein.
5.4 Except as disclosed to the Lender in writing, there is no litigation
or governmental proceeding pending, nor to the knowledge of the Borrower
threatened, against the ESOP and Trust.
4
<PAGE>
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 Missouri, and is validly existing and in good standing under the laws of the
State of Missouri. The Lender has full power and authority and legal right to
make and perform this Agreement.
6.2 The execution, delivery and performance by the Lender of this
Agreement have been duly authorized by all necessary action by the Lender and is
not and will not violate any provisions of law applicable to the Lender, any
rules, regulations or orders applicable to the Lender or any judgments or
decrees binding upon the Lender. This Agreement is a valid and legally binding
obligation of the Lender enforceable against the Lender in accordance with its
terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting 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 (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.
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 Bank, threatened against or affecting the ESOP before
any court or governmental department, agency or instrumentality.
5
<PAGE>
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 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.
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).
7.3 The Lender shall have received copies (executed or certified, as may
be appropriate) of all legal documents or proceedings taken in connection with
the execution and delivery of this Agreement and the Note.
SECTION EIGHT. COVENANTS.
Borrower covenants and agrees that so long as any amount remains unpaid on
the Note or the Commitment is outstanding, except to the extent compliance in
any case or cases is waived in writing by the Lender:
8.1 COMPLIANCE. The Borrower will comply with all requirements of the
----------
Code, ERISA and any other law, rule or regulation applicable to it as such laws,
rules or regulations affect the ESOP or the Trust.
6
<PAGE>
8.2 REPORTS.
-------
(a) The Borrower will maintain a system of accounting for the ESOP and
the Trust in accordance with sound accounting practice and will, from time to
time, furnish to the Lender and its duly authorized representatives, such
information and data with respect to the financial condition of the ESOP and the
Trust as the Lender may reasonably request.
(b) Without any request the Borrower will furnish to the Lender promptly
after knowledge thereof shall have come to the attention of the Borrower,
written notice of the occurrence of any Default 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 events shall constitute a
--------
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;
(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 Shares; 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
7
<PAGE>
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 any Default has occurred and is continuing
--------------------
the Lender may, in addition to such other rights or remedies as it may have,
then or at any time or times thereafter exercise with respect to the Collateral
any and all of the rights, options and remedies of a secured party under the
Uniform Commercial Code of Indiana (the "UCC") including without limitation the
sale of all or any part of the Collateral at any brokers' board or any public or
private sale, provided, however that the Lender shall only be able to exercise
such rights and remedies to the extent of all interest and principal payments
which are due and payable as of the date of the 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 UCC as to reasonable notice
shall be met by the Lender personally delivering or mailing notice (by certified
mail - return receipt requested) to the Borrower at its address as provided in
Section 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.
9.4 ERISA RESTRICTIONS. The number of Pledged Shares 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.
8
<PAGE>
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 Missouri 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.
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: _________________; if to the
Lender at PFSB Bancorp, Inc., _____________________, Attn: Eldon R. Mette with
copy to Muldoon, Murphy & Faucette, 5101 Wisconsin Avenue, N.W., Washington,
D.C. 20016, Attn: Eric Kracov, 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.
9
<PAGE>
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 Missouri 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" asused 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 Palmyra Savings
Employee Stock Ownership Plan Trust effective __________, 199_, by and between
the undersigned and Palmyra Savings 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 the
-----------------
contrary notwithstanding, the sole and only recourse of the Lender and any other
holder of the Note for payment of the obligations hereunder and under the Note,
as against the Borrower for the payment of the obligations hereunder and under
the Note shall be to (i) the Collateral, (ii) contributions, other than employer
securities not constituting Collateral hereunder, made to the ESOP and the Trust
by sponsoring employers to enable the Borrower to meet its obligations hereunder
and under the Note, and (iii) earnings attributable to the Pledged Shares and to
the investment of such employer contributions, but only to the extent of the
failure of the Borrower to meet the payment schedule of the Loan provided for
herein. The Trust assets may be transferred to Lender upon the occurrence of a
Default 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
<PAGE>
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]
11
<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
Palmyra Savings Employee Stock Ownership
Plan Trust effective ___________, 199_
by and between the undersigned and
Palmyra Savings.
By___________________________________
Accepted and agreed to at Palmyra, Missouri as of the date last above
written.
PFSB Bancorp, Inc.
By___________________________________
12
<PAGE>
EXHIBIT A
PROMISSORY NOTE
Amount sufficient to satisfy the Loan Amount ___________,199_
Palmyra, Missouri
For VALUE RECEIVED, the undersigned, ______________, not individually but
solely as Trustee under that certain Palmyra Savings Employee Stock Ownership
Plan Trust effective ____________, 199_ by and between the undersigned
("Borrower") and Palmyra Savings promises to pay to the order of PFSB Bancorp,
Inc. (the "Lender") at its office at 123 West LaFayette, Palmyra, Missouri
63461, 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 forty (40) consecutive quarterly equal
installments, consisting of both principal and interest, amortized over a forty
(40) month period in an amount sufficient to repay all borrowed amounts plus
interest, payable annually on the last business day of __________ __, 1999, and
continuing on the last business day of each and every March, June, September and
December in each year thereafter, except that the final installment of principal
and interest not sooner paid shall be due on __________, 20__, the final
maturity hereof.
The Borrower promises to pay interest (computed on the basis of a year of
365 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 March, June, September
and December, commencing _________ __, 1999, 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 Palmyra
Savings 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 notwithstanding anything contained herein to the contrary. This Note
shall be governed by and construed in
<PAGE>
accordance with the laws of Missouri without regard to principles of conflicts
of laws. The Borrower hereby waives presentment for payment and demand.
Upon the occurrence of a 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.
______________ its successors
in trust, as Trustee under
that certain Palmyra Savings
Employee Stock Ownership Plan
Trust effective _________,
199_ by and between the
undersigned and Palmyra
Savings
By:__________________________
<PAGE>
EXHIBIT B
SECURITY AGREEMENT
INSTRUMENTS OR NEGOTIABLE DOCUMENTS TO BE DEPOSITED
For new value contemporaneously given by PFSB Bancorp, Inc., ("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 the
security interest hereby made:
All Shares of the common stock, par value $.01 per share, of PFSB Bancorp,
Inc., a Missouri 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 therefore.
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 Missouri,
particularly the Uniform Commercial Code, except where preempted by federal law.
Dated at ______________, the ____ day of ________, 199_.
_______________, and its successors
in trust, as Trustee under that
certain Palmyra Savings Employee
Stock Ownership Plan Trust
effective __________, 199_ by and
between the undersigned and Palmyra
Savings.
By:________________________________
<PAGE>
FORM OF EMPLOYMENT AGREEMENT
FOR SENIOR OFFICERS
THIS AGREEMENT is made effective as of ________________, 1999, by and
between PALMYRA SAVINGS (the "BANK"), PFSB BANCORP, INC., (the "COMPANY"), a
Missouri corporation; and _____________________ ("EXECUTIVE").
WHEREAS, EXECUTIVE serves in a position of substantial responsibility;
WHEREAS, the BANK wishes to assure itself of the services of EXECUTIVE for
the period provided in this Agreement; and
WHEREAS, EXECUTIVE is willing to serve in the employ of the BANK on a full-
time basis for said period.
NOW, THEREFORE, in consideration of the mutual covenants herein contained,
and upon the other terms and conditions hereinafter provided, the parties hereby
agree as follows:
1. POSITION AND RESPONSIBILITIES.
During the period of his employment hereunder, EXECUTIVE agrees to serve as
President of the Bank. EXECUTIVE also agrees to serve, if elected, as an officer
and director of the COMPANY or any subsidiary or affiliate of the COMPANY or the
BANK. Executive shall render administrative and management duties to the BANK
such as are customarily performed by persons situated in a similar executive
capacity.
2. TERMS AND DUTIES.
(a) The term of this Agreement shall be deemed to have commenced as of the
date first above written and shall continue for thirty six (36) months
thereafter. Commencing on the first anniversary date, and continuing at each
anniversary date thereafter, the Board of Directors of the BANK (the "Board")
may extend the Agreement for an additional year. Prior to the extension of the
Agreement as provided herein, the Board of Directors of the BANK will conduct a
formal performance evaluation of EXECUTIVE for purposes of determining whether
to extend the Agreement, and the results thereof shall be included in the
minutes of the Board's meeting.
(b) During the period of his employment hereunder, except for periods of
absence occasioned by illness, reasonable vacation periods, and reasonable
leaves of absence, EXECUTIVE shall devote substantially all his business time,
attention, skill, and efforts to the faithful performance of his duties
hereunder including activities and services related to the organization,
operation and management of the BANK; provided, however, that, with the approval
of the Board, as evidenced by a resolution of such Board, from time to time,
EXECUTIVE may serve, or continue to serve, on the boards of directors of, and
hold any other offices or positions in, companies or organizations, which, in
such Board's judgment, will not present any conflict of interest with the BANK,
or materially affect the performance of EXECUTIVE's duties pursuant to this
Agreement.
<PAGE>
3. COMPENSATION AND REIMBURSEMENT.
(a) The compensation specified under this Agreement shall constitute the
salary and benefits paid for the duties described in Sections 1 and 2. The BANK
shall pay EXECUTIVE as compensation a salary of $(INSERT CURRENT BASE SALARY)
per year ("Base Salary"). Such Base Salary shall be payable in accordance with
the customary payroll practices of the BANK. During the period of this
Agreement, EXECUTIVE's Base Salary shall be reviewed at least annually; the
first such review will be made no later than one year from the date of this
Agreement. Such review shall be conducted by a Committee designated by the
Board, and the Board may increase EXECUTIVE's Base Salary. In addition to the
Base Salary provided in this Section 3(a), the BANK shall provide EXECUTIVE at
no cost to EXECUTIVE with all such other benefits as are provided uniformly to
permanent full-time employees of the BANK.
(b) The BANK will provide EXECUTIVE with employee benefit plans,
arrangements and perquisites substantially equivalent to those in which
EXECUTIVE was participating or otherwise deriving benefit from immediately prior
to the beginning of the term of this Agreement, and the BANK will not, without
EXECUTIVE's prior written consent, make any changes in such plans, arrangements
or perquisites which would adversely affect EXECUTIVE's rights or benefits
thereunder. Without limiting the generality of the foregoing provisions of this
Subsection (b), EXECUTIVE will be entitled to participate in or receive benefits
under any employee benefit plans including, but not limited to, retirement
plans, supplemental retirement plans, pension plans, profit-sharing plans,
health-and-accident plan, medical coverage or any other employee benefit plan or
arrangement made available by the BANK in the future to its senior executives
and key management employees, subject to, and on a basis consistent with, the
terms, conditions and overall administration of such plans and arrangements.
EXECUTIVE will be entitled to incentive compensation and bonuses as provided in
any plan, or pursuant to any arrangement of the BANK, in which EXECUTIVE is
eligible to participate. Nothing paid to EXECUTIVE under any such plan or
arrangement will be deemed to be in lieu of other compensation to which
EXECUTIVE is entitled under this Agreement, except as provided under Section
5(e).
(c) In addition to the Base Salary provided for by paragraph (a) of this
Section 3, the BANK shall pay or reimburse EXECUTIVE for all reasonable travel
and other obligations under this Agreement and may provide such additional
compensation in such form and such amounts as the Board may from time to time
determine.
4. PAYMENTS TO EXECUTIVE UPON AN EVENT OF TERMINATION.
(a) Upon the occurrence of an Event of Termination (as herein defined)
during EXECUTIVE's term of employment under this Agreement, the provisions of
this Section shall apply. As used in this Agreement, an "Event of Termination"
shall mean and include any one or more of the following: (i) the termination by
the BANK of EXECUTIVE's full-time employment hereunder for any reason other than
a Change in Control, as defined in Section 5(a) hereof; disability, as defined
in Section 6(a) hereof; death; retirement, as defined in Section 7 hereof; or
Termination for
2
<PAGE>
Cause, as defined in Section 8 hereof; (ii) EXECUTIVE's resignation from the
BANK's employ, upon (A) unless consented to by EXECUTIVE, a material change in
EXECUTIVE's function, duties, or responsibilities, which change would cause
EXECUTIVE's position to become one of lesser responsibility, importance, or
scope from the position and attributes thereof described in Sections 1 and 2,
above (any such material change shall be deemed a continuing breach of this
Agreement), (B) a relocation of EXECUTIVE's principal place of employment by
more than 35 miles from its location at the effective date of this Agreement, or
a material reduction in the benefits and perquisites to EXECUTIVE from those
being provided as of the effective date of this Agreement, (C) the liquidation
or dissolution of the BANK, or (D) any material breach of this Agreement by the
BANK. Upon the occurrence of any event described in clauses (A), (B), (C) or
(D), above, EXECUTIVE shall have the right to elect to terminate his employment
under this Agreement by resignation upon not less than sixty (60) days prior
written notice given within a reasonable period of time not to exceed, except in
case of a continuing breach, four (4) calendar months after the event giving
rise to said right to elect.
(b) Upon the occurrence of an Event of Termination, the BANK shall pay
EXECUTIVE, or, in the event of his subsequent death, his beneficiary or
beneficiaries, or his estate, as the case may be, as severance pay or liquidated
damages, or both, a sum equal to the payments due to EXECUTIVE for the remaining
term of the Agreement, including Base Salary, bonuses, and any other cash or
deferred compensation paid or to be paid (including the value of employer
contributions that would have been made on EXECUTIVE's behalf over the remaining
term of the agreement to any tax-qualified retirement plan sponsored by the BANK
as of the Date of Termination), to EXECUTIVE for the term of the Agreement
provided, however, that if the BANK is not in compliance with its minimum
capital requirements or if such payments would cause the BANK's capital to be
reduced below its minimum capital requirements, such payments shall be deferred
until such time as the BANK is in capital compliance. All payments made
pursuant to this Section 4(b) shall be paid in substantially equal monthly
installments over the remaining term of this Agreement following EXECUTIVE's
termination; provided, however, that if the remaining term of the Agreement is
less than one (1) year (determined as of EXECUTIVE's Date of Termination), such
payments and benefits shall be paid to EXECUTIVE in a lump sum within thirty
(30) days of the Date of Termination.
(c) Upon the occurrence of an Event of Termination, the BANK will cause to
be continued life, medical, dental and disability coverage substantially
identical to the coverage maintained by the BANK for EXECUTIVE prior to his
termination. Such coverage shall cease upon the expiration of the remaining
term of this Agreement.
5. CHANGE IN CONTROL.
(a) No benefit shall be paid under this Section 5 unless there shall have
occurred a Change in Control of the COMPANY or the BANK. For purposes of this
Agreement, a "Change in Control" of the COMPANY or the BANK shall be deemed to
occur if and when (a) there occurs a change in control of the BANK or the
COMPANY within the meaning of the Home Owners Loan
3
<PAGE>
Act of 1933 and 12 C.F.R. Part 574, (b) any person (as such term is used in
Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes the beneficial
owner, directly or indirectly, of securities of the COMPANY or the BANK
representing twenty-five percent (25%) or more of the combined voting power of
the COMPANY's or the BANK's then outstanding securities, (c) the membership of
the board of directors of the COMPANY or the BANK changes as the result of a
contested election, such that individuals who were directors at the beginning of
any twenty-four (24) month period (whether commencing before or after the date
of adoption of this Agreement) do not constitute a majority of the Board at the
end of such period, or (d) shareholders of the COMPANY or the BANK approve a
merger, consolidation, sale or disposition of all or substantially all of the
COMPANY's or the BANK's assets, or a plan of partial or complete liquidation.
(b) If any of the events described in Section 5(a) hereof constituting a
Change in Control have occurred or the Board of the BANK or the COMPANY has
reasonably determined that a Change in Control (as defined herein) has occurred,
EXECUTIVE shall be entitled to the benefits provided in paragraphs (c), (d) and
(e) of this Section 5 upon his subsequent involuntary termination following the
effective date of a Change in Control (or voluntary termination within twelve
(12) months of the effective date of a Change in Control following any material
demotion, loss of title, office or significant authority, material reduction in
his annual compensation or benefits (other than a reduction affecting the BANK's
personnel generally), or the relocation of his principal place of employment by
more than 35 miles from its location immediately prior to the Change in
Control), unless such termination is because of his death, retirement as
provided in Section 7, termination for Cause, or termination for Disability.
(c) Upon the occurrence of a Change in Control followed by EXECUTIVE's
termination of employment, the BANK shall pay EXECUTIVE, or in the event of his
subsequent death, his beneficiary or beneficiaries, or his estate, as the case
may be, as severance pay or liquidated damages, or both, a sum equal to 2.99
times EXECUTIVE's "base amount," within the meaning of (S)280G(b)(3) of the
Internal Revenue Code of 1986 ("Code"), as amended. Such payment shall be made
in a lump sum paid within ten (10) days of EXECUTIVE's Date of Termination.
(d) Upon the occurrence of a Change in Control followed by EXECUTIVE's
termination of employment, the BANK will cause to be continued life, medical,
dental and disability coverage substantially identical to the coverage
maintained by the BANK for EXECUTIVE prior to his severance. Such coverage
shall cease upon the expiration of thirty-six (36) months. In addition,
EXECUTIVE shall be entitled to receive the value of employer contributions that
would have been made on EXECUTIVE's behalf over the remaining term of the
agreement to any tax-qualified retirement plan sponsored by the BANK as of the
Date of Termination.
(e) Notwithstanding the preceding paragraphs of this Section 5, in the
event that the aggregate payments or benefits to be made or afforded to
EXECUTIVE under this Section, together with any other payments or benefits
received or to be received by EXECUTIVE in connection with a Change in Control,
would be deemed to include an "excess parachute payment" under (S)280G of the
Code, then, at the election of EXECUTIVE, (i) such payments or benefits shall be
payable or
4
<PAGE>
provided to EXECUTIVE over the minimum period necessary to reduce the present
value of such payments or benefits to an amount which is one dollar ($1.00) less
than three (3) times EXECUTIVE's "base amount" under (S)280G(b)(3) of the Code
or (ii) the payments or benefits to be provided under this Section 5 shall be
reduced to the extent necessary to avoid treatment as an excess parachute
payment with the allocation of the reduction among such payments and benefits to
be determined by EXECUTIVE.
6. TERMINATION FOR DISABILITY.
(a) If EXECUTIVE shall become disabled as defined in the BANK's then
current disability plan (or, if no such plan is then in effect, if EXECUTIVE is
permanently and totally disabled within the meaning of Section 22(e)(3) of the
Code as determined by a physician designated by the Board), the BANK may
terminate EXECUTIVE's employment for "Disability."
(b) Upon EXECUTIVE's termination of employment for Disability, the BANK
will pay EXECUTIVE, as disability pay, a bi-weekly payment equal to three-
quarters (3/4) of EXECUTIVE's bi-weekly rate of Base Salary on the effective
date of such termination. These disability payments shall commence on the
effective date of EXECUTIVE's termination and will end on the earlier of (i) the
date EXECUTIVE returns to the full-time employment of the BANK in the same
capacity as he was employed prior to his termination for Disability and pursuant
to an employment agreement between EXECUTIVE and the BANK; (ii) EXECUTIVE's
full-time employment by another employer; (iii) EXECUTIVE attaining the age of
sixty-five (65); or (iv) EXECUTIVE's death; or (v) the expiration of the term of
this Agreement. The disability pay shall be reduced by the amount, if any, paid
to EXECUTIVE under any plan of the BANK providing disability benefits to
EXECUTIVE.
(c) The BANK will cause to be continued life, medical, dental and
disability coverage substantially identical to the coverage maintained by the
BANK for EXECUTIVE prior to his termination for Disability. This coverage and
payments shall cease upon the earlier of (i) the date EXECUTIVE returns to the
full-time employment of the BANK, in the same capacity as he was employed prior
to his termination for Disability and pursuant to an employment agreement
between EXECUTIVE and the BANK; (ii) EXECUTIVE's full-time employment by another
employer; (iii) EXECUTIVE's attaining the age of sixty-five (65); (iv)
EXECUTIVE's death; or (v) the expiration of the term of this Agreement.
(d) Notwithstanding the foregoing, there will be no reduction in the
compensation otherwise payable to EXECUTIVE during any period during which
EXECUTIVE is incapable of performing his duties hereunder by reason of temporary
disability.
7. TERMINATION UPON RETIREMENT; DEATH OF EXECUTIVE; RESIGNATION
Termination by the BANK of EXECUTIVE based on "Retirement" shall mean
retirement at or after attaining age sixty-five (65) or in accordance with any
retirement arrangement established
5
<PAGE>
with EXECUTIVE's consent with respect to him. Upon termination of EXECUTIVE upon
Retirement, EXECUTIVE shall be entitled to all benefits under any retirement
plan of the BANK or the COMPANY and other plans to which EXECUTIVE is a party.
Upon the death of EXECUTIVE during the term of this Agreement, the BANK shall
pay to EXECUTIVE's estate the compensation due to EXECUTIVE through the last day
of the calendar month in which his death occurred. Upon the voluntary
resignation of EXECUTIVE during the term of this Agreement, other than in
connection with an Event of Termination, the BANK shall pay to EXECUTIVE the
compensation due to EXECUTIVE through his Date of Termination.
8. TERMINATION FOR CAUSE.
For purposes of this Agreement, "Termination for Cause" shall include
termination because of EXECUTIVE's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule, or
regulation (other than traffic violations or similar infractions) or final
cease-and-desist order, or material breach of any provision of this Agreement.
Notwithstanding the foregoing, EXECUTIVE shall not be deemed to have been
terminated for Cause unless and until there shall have been delivered to him a
copy of a resolution duly adopted by the affirmative vote of not less than
three-fourths (3/4) of the members of the Board at a meeting of the Board called
and held for that purpose (after reasonable notice to EXECUTIVE and an
opportunity for him, together with counsel, to be heard before the Board),
finding that in the good faith opinion of the Board, EXECUTIVE was guilty of
conduct justifying termination for Cause and specifying the reasons thereof.
EXECUTIVE shall not have the right to receive compensation or other benefits for
any period after termination for Cause. Any stock options granted to EXECUTIVE
under any stock option plan or any unvested awards granted under any other stock
benefit plan of the BANK, the COMPANY, or any subsidiary or affiliate thereof,
shall become null and void effective upon EXECUTIVE's receipt of Notice of
Termination for Cause pursuant to Section 10 hereof, and shall not be
exercisable by EXECUTIVE at any time subsequent to such Termination for Cause.
9. REQUIRED PROVISIONS.
(a) The BOARD may terminate EXECUTIVE's employment at any time, but any
termination by the BOARD, other than Termination for Cause, shall not prejudice
EXECUTIVE's right to compensation or other benefits under this Agreement.
EXECUTIVE shall not have the right to receive compensation or other benefits for
any period after Termination for Cause as defined in Section 8 herein.
(b) If EXECUTIVE is suspended and/or temporarily prohibited from
participating in the conduct of the BANK's affairs by a notice served under
Section 8(e)(3) or (g)(1) of the Federal Deposit Insurance Act ("FDIA") (12
U.S.C. 1818(e)(3) and (g)(1)), the BANK's obligations under the Agreement shall
be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the BANK may, in its
discretion, (i) pay EXECUTIVE all
6
<PAGE>
or part of the compensation withheld while its contract obligations were
suspended and (ii) reinstate (in whole or in part) any of its obligations that
were suspended.
(c) If EXECUTIVE is removed and/or permanently prohibited from
participating in the conduct of the BANK's affairs by an order issued under
Section 8(e)(4) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(4) or (g)(1)), all
obligations of the BANK under the Agreement shall terminate as of the effective
date of the order, but vested rights of the contracting parties shall not be
affected.
(d) If the BANK is in default (as defined in Section 3(x)(1) of the FDIA),
all obligations under this Agreement shall terminate as of the date of default,
but this paragraph shall not affect any vested rights of the parties.
(e) All obligations under this Agreement shall be terminated (except to the
extent determined that continuation of the Agreement is necessary for the
continued operation of the BANK): (i) by the Director of the Office of Thrift
Supervision (the "Director") or his designee at the time the Federal Deposit
Insurance Corporation enters into an agreement to provide assistance to or on
behalf of the BANK under the authority contained in Section 13(c) of the FDIA or
(ii) by the Director, or his designee at the time the Director or such designee
approves a supervisory merger to resolve problems related to operation of the
BANK or when the BANK is determined by the Director to be in an unsafe or
unsound condition. Any rights of the parties that have already vested, however,
shall not be affected by such action.
(f) Any payments made to EXECUTIVE pursuant to this Agreement, or
otherwise, are subject to and conditioned upon compliance with 12 U.S.C.
(S)1828(k) and any regulations promulgated thereunder.
10. NOTICE.
(a) Any purported termination by the BANK or by EXECUTIVE shall be
communicated by Notice of Termination to the other party hereto. For purposes
of this Agreement, a "Notice of Termination" shall mean a written notice which
shall indicate the specific termination provision in this Agreement relied upon
and shall set forth in reasonable detail the facts and circumstances claimed to
provide a basis for termination of EXECUTIVE's employment under the provision so
indicated.
(b) "Date of Termination" shall mean (A) if EXECUTIVE's employment is
terminated for Disability, thirty (30) days after a Notice of Termination is
given (provided that he shall not have returned to the performance of his duties
on a full-time basis during such thirty (30) day period), and (B) if his
employment is terminated for any other reason, other than Termination for
Cause, the date specified in the Notice of Termination . In the event of
EXECUTIVE's Termination for Cause, the Date of Termination shall be the same as
the date of the Notice of Termination.
7
<PAGE>
(c) If, within thirty (30) days after any Notice of Termination is given,
the party receiving such Notice of Termination notifies the other party that a
dispute exists concerning the termination, except upon the occurrence of a
Change in Control and voluntary termination by EXECUTIVE in which case the Date
of Termination shall be the date specified in the Notice, the Date of
Termination shall be the date on which the dispute is finally determined, either
by mutual written agreement of the parties, by a binding arbitration award, or
by a final judgment, order or decree of a court of competent jurisdiction (the
time for appeal 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.
11. NON-COMPETITION.
(a) Upon any termination of EXECUTIVE's employment hereunder pursuant to an
Event of Termination as provided in Section 4 hereof, EXECUTIVE agrees not to
compete with the BANK and/or the COMPANY for a period of one (1) year following
such termination in any city, town or county in which the BANK and/or the
COMPANY has an office or has filed an application for regulatory approval to
establish an office, determined as of the effective date of such termination.
EXECUTIVE agrees that during such period and within said cities, towns and
counties, EXECUTIVE shall not work for or advise, consult or otherwise serve
with, directly or indirectly, any entity whose business materially competes with
the depository, lending or other business activities of the BANK and/or the
COMPANY. The parties hereto, recognizing that irreparable injury will result to
the BANK and/or the COMPANY, its business and property in the event of
EXECUTIVE's breach of this Subsection 11(a) agree that in the event of any such
breach by EXECUTIVE, the BANK and/or the COMPANY will be entitled, in addition
to any other remedies and damages available, to an injunction to restrain the
violation hereof by EXECUTIVE, EXECUTIVE's partners, agents, servants,
employers, employees and all persons acting for or with EXECUTIVE. EXECUTIVE
represents and admits that in the event of the termination of his employment
pursuant to Section 4 hereof, EXECUTIVE's experience and capabilities are such
that EXECUTIVE can obtain employment in a business engaged in other lines and/or
of a different nature than the BANK and/or the COMPANY, and that the enforcement
of a remedy by way of injunction will not prevent EXECUTIVE from earning a
livelihood. Nothing herein will be construed as prohibiting the BANK and/or the
COMPANY from pursuing any other remedies available to the BANK and/or the
COMPANY for such breach or threatened breach, including the recovery of damages
from EXECUTIVE.
(b) EXECUTIVE recognizes and acknowledges that the knowledge of the
business activities and plans for business activities of the BANK and affiliates
thereof, as it may exist from time to time, is a valuable, special and unique
asset of the business of the BANK. EXECUTIVE will not, during or after the term
of his employment, disclose any knowledge of the past, present, planned or
considered business activities of the BANK or affiliates thereof to any person,
firm, corporation, or other entity for any reason or purpose whatsoever.
Notwithstanding the foregoing, EXECUTIVE may disclose any knowledge of banking,
financial and/or economic principles, concepts or ideas
8
<PAGE>
which are not solely and exclusively derived from the business plans and
activities of the BANK. In the event of a breach or threatened breach by
EXECUTIVE of the provisions of this Section, the BANK will be entitled to an
injunction restraining EXECUTIVE from disclosing, in whole or in part, the
knowledge of the past, present, planned or considered business activities of the
BANK or affiliates thereof, or from rendering any services to any person, firm,
corporation, other entity to whom such knowledge, in whole or in part, has been
disclosed or is threatened to be disclosed. Nothing herein will be construed as
prohibiting the BANK from pursuing any other remedies available to the BANK for
such breach or threatened breach, including the recovery of damages from
EXECUTIVE.
12. SOURCE OF PAYMENTS.
All payments provided in this Agreement shall be timely paid in cash or
check from the general funds of the BANK. The COMPANY, however, guarantees all
payments and the provision of all amounts and benefits due hereunder to
EXECUTIVE and, if such payments are not timely paid or provided by the BANK,
such amounts and benefits shall be paid or provided by the COMPANY.
13. EFFECT ON PRIOR AGREEMENTS AND EXISTING BENEFITS PLANS.
This Agreement contains the entire understanding between the parties hereto
and supersedes any prior employment agreement between the BANK or any
predecessor of the BANK and EXECUTIVE, except that this Agreement shall not
affect or operate to reduce any benefit or compensation inuring to EXECUTIVE of
a kind elsewhere provided. No provision of this Agreement shall be interpreted
to mean that EXECUTIVE is subject to receiving fewer benefits than those
available to him without reference to this Agreement.
14. NO ATTACHMENT.
(a) Except as required by law, no right to receive payments under this
Agreement shall be subject to anticipation, commutation, alienation, sale,
assignment, encumbrance, charge, pledge, or hypothecation, or to execution,
attachment, levy, or similar process or assignment by operation of law, and any
attempt, voluntary or involuntary, to affect any such action shall be null,
void, and of no effect.
(b) This Agreement shall be binding upon, and inure to the benefit of,
EXECUTIVE, the BANK, the COMPANY and their respective successors and assigns.
9
<PAGE>
15. MODIFICATION AND WAIVER.
(a) This Agreement may not be modified or amended except by an instrument
in writing signed by the parties hereto.
(b) No term or condition of this Agreement shall be deemed to have been
waived, nor shall there by any estoppel against the enforcement of any provision
of this Agreement, except by written instrument of the party charged with such
waiver or estoppel. No such written waiver shall be deemed a continuing waiver
unless specifically stated therein, and each such waiver shall operate only as
to the specific term or condition waived and shall not constitute a waiver of
such term or condition for the future as to any act other than that specifically
waived.
16. SEVERABILITY.
If, for any reason, any provision of this Agreement, or any part of any
provision, is held invalid, such invalidity shall not affect any other provision
of this Agreement or any part of such provision not held so invalid, and each
such other provision and part thereof shall to the full extent consistent with
law continue in full force and effect.
17. HEADINGS FOR REFERENCE ONLY.
The headings of sections and paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
18. GOVERNING LAW.
This Agreement shall be governed by the laws of the State of Missouri,
unless otherwise specified herein; provided, however, that in the event of a
conflict between the terms of this Agreement and any applicable federal or state
law or regulation, including , specifically, 12 C.F.R. Section 563.39(b), the
provisions of such law or regulation shall prevail.
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 BANK, if EXECUTIVE is successful pursuant to a legal
judgment, arbitration or settlement.
20. INDEMNIFICATION.
The BANK shall provide EXECUTIVE (including his heirs, executors and
administrators) with coverage under a standard directors' and officers'
liability insurance policy at its expense, or in lieu thereof, shall indemnify
EXECUTIVE (and his heirs, executors and administrators) to the fullest
10
<PAGE>
extent permitted under Missouri law against all expenses and liabilities
reasonably incurred by him in connection with or arising out of any action, suit
or proceeding in which he may be involved by reason of his having been a
director or officer of the BANK (whether or not he continues to be a directors
or officer at the time of incurring such expenses or liabilities), such expenses
and liabilities to include, but not be limited to, judgment, court costs and
attorneys' fees and the cost of reasonable settlements. The provisions of 12
C.F.R. 545.121 shall apply to the BANK's obligations under this Section 20.
21. SUCCESSOR TO THE BANK OR THE COMPANY.
The BANK and the COMPANY shall require any successor or assignee, whether
direct or indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the BANK or the COMPANY, expressly
and unconditionally to assume and agree to perform the BANK's or the COMPANY's
obligations under this Agreement, in the same manner and to the same extent that
the BANK or the COMPANY would be required to perform if no such succession or
assignment had taken place.
11
<PAGE>
IN WITNESS WHEREOF, the BANK and the COMPANY have caused this Agreement to
be executed and their seal to be affixed hereunto by a duly authorized officer,
and EXECUTIVE has signed this Agreement, all on the ___ day of __________, 1999
ATTEST: PALMYRA SAVINGS
_______________________________ BY:_________________________________
ATTEST: PFSB BANCORP, INC.
_______________________________ BY:_________________________________
WITNESS:
____________________________________
EXECUTIVE
12
<PAGE>
EXHIBIT 10.4
PALMYRA SAVINGS
EMPLOYEE SEVERANCE COMPENSATION PLAN
PLAN PURPOSE
The purpose of this Palmyra Savings Employee Severance Compensation Plan is
to assure the services of employees of the Bank in the event of a Change in
Control. The benefits contemplated by the Plan recognize the value to the Bank
of the services and contributions of the employees of the Bank and the effect
upon the Bank 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. The Board believes that the Plan will also aid
the Bank in attracting and retaining the highly qualified individuals who are
essential to its success and that the Plan's assurance of fair treatment of the
Bank'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 Bank hereby
establishes an employee severance compensation plan to be known as the Palmyra
Savings Employee Severance Compensation Plan." The purposes of the Plan are as
set forth above.
1.2 Application of Plan
-------------------
The benefits provided by this Plan shall be available to all employees of
the Bank, who, at or after the Effective Date, meet the eligibility requirements
of Article III, except for those officers of the Bank 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 in the event of a
Change in Control, enforceable by the Participant against the Employer, the
Bank, or both. The Plan does not provide, and should not be construed as
providing, benefits of any kind to any employee except in the event of a Change
in Control and, in the event of a Change in Control, only upon the involuntary
or voluntary termination of an employee in the manner contemplated herein.
<PAGE>
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions
-----------
Whenever used in the Plan, the following terms shall have the meanings set
forth below.
"Annual Compensation" of a Participant means and includes all wages and
salary paid (including accrued amounts) by an Employer as consideration for the
Participant's service during the 12-month period ending on the last day of the
month preceding the date of a Participant's termination pursuant to Section 4.2.
For purposes of this Plan, a Participant's "Monthly Compensation" shall equal
one-twelfth of a Participant's Annual Compensation as determined in accordance
with this paragraph.
"Bank" means Palmyra Savings or any successor as provided for in Article
VII hereof.
"Board" means the Board of Directors of the Bank.
"Change in Control" shall mean an event deemed to occur if and when (a) an
offeror other than the Corporation purchases shares of the stock of the
Corporation or the Bank pursuant to a tender or exchange offer for such shares,
(b) any person (as such term is used in Sections 13(d) and 14(d)(2) of the
Exchange Act) is or becomes the beneficial owner, directly or indirectly, of
securities of the Corporation or the Bank representing twenty-five percent (25%)
or more of the combined voting power of the Corporation's or the Bank's then
outstanding securities, (c) the membership of the board of directors of the
Corporation or the Bank changes as the result of a contested election, such that
individuals who were directors at the beginning of any twenty-four (24) month
period (whether commencing before or after the date of adoption of this Plan) do
not constitute a majority of the Board at the end of such period, or (d)
shareholders of the Corporation or the Bank approve a merger, consolidation,
sale or disposition of all or substantially all of the Corporation's or the
Bank's assets, or a plan of partial or complete liquidation. If any of the
events enumerated in clauses (a) - (d) occur, the Board shall determine the
effective date of the change in control resulting therefrom, for purposes of the
Plan.
"Company" means PFSB Bancorp, Inc., a Missouri corporation, the holding
company of the Bank.
"Disability" means the permanent and total inability by reason of mental or
physical infirmity, or both, of an employee to perform the work customarily
assigned to him. Additionally, a medical doctor selected or approved by the
Board 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.
"Effective Date" means the date the Plan is approved by the Board of the
Bank, or such other date as the Board shall designate in its resolution
approving the Plan.
<PAGE>
"Employer" means (i) the Bank or (ii) a subsidiary of the Bank or a parent
company of the Bank which has adopted the plan pursuant to Article VI hereof.
"Expiration Date" means a date ten (10) years from the Effective Date
unless earlier terminated pursuant to Section 8.2 or extended pursuant to
Section 8.1.
"Payment" means the payment of severance compensation as provided in
Article IV hereof.
"Participant" means an employee of an Employer who meets the eligibility
requirements of Article III.
"Plan" means this Palmyra Savings Employee Severance Compensation Plan.
"Termination for Cause" shall means termination because of Participant'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 other similar offenses) or any final cease-and desist order.
2.2 Applicable Law
--------------
The laws of the State of Missouri shall be 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 an Employer who have
completed at least _____ (_) year(s) of service with the Employer at the time of
any termination pursuant to Section 4.2 herein. For purposes of this Plan,
"years of service" shall include all years of employment with Bank in which an
employee was credited with at least 500 actual hours of service and "years of
service" shall be determined without regard to any break in service. In
addition, the term "Participant" shall, without regard to years of service,
include each employee who is a _____________ or ____________ of the Bank.
Notwithstanding the foregoing, an employee who has entered into and continues to
be covered by an individual employment contract or change in control agreement
with an Employer shall not be entitled to participate in this Plan.
<PAGE>
3.2 Duration of Participation
-------------------------
A Participant shall cease to be a Participant in the Plan when the
Participant ceases to be an employee of an Employer, unless such Participant is
entitled to a Payment as provided in the Plan. A Participant entitled to
receipt of a Payment shall remain a Participant in this Plan until the full
amount of such Payment has been paid to the Participant.
ARTICLE IV
PAYMENTS
4.1 Right to Payment
----------------
A Participant shall be entitled to receive from his or her Employer a
Payment in the amount provided in Section 4.3 if a Change in Control occurs and
if, within one (1) year thereafter, the Participant's employment by an Employer
shall terminate for any reason specified in Section 4.2. A Participant shall
not be entitled to a Payment if termination occurs by reason of death, voluntary
retirement, voluntary termination other than for the reasons specified in
Section 4.2, Disability or Termination for Cause.
4.2 Reasons for Termination
-----------------------
Following a Change in Control, a Participant shall be entitled to a Payment
in accordance with Section 4.3 if employment by an Employer is terminated,
voluntarily or involuntary, 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, or as the
same may have been increased thereafter.
(b) The Employer materially changes 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 __________ (__) miles from the location of the Participant's
job or office immediately prior to the Change in Control provided that such new
location is not closer to Participant's home.
(d) The Employer materially reduces the benefits and perquisites
available to the Participant immediately prior to the Change in Control;
provided, however, that a material reduction in benefits and perquisites
generally provided to all employees of the Bank on a nondiscriminatory basis
shall not trigger a Payment pursuant to this Plan.
(e) A successor to the Employer fails or refuses to assume the
Employer's obligations under this Plan, as required by Article VII.
<PAGE>
(f) The Employer, or any successor to the Employer, 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 Termination for Cause.
4.3 Amount of Payment
-----------------
(a) Each Participant who was a _____________ of the Bank immediately
prior to the effective date of the Change in Control and entitled to a Payment
under this Plan shall receive from the Bank a lump sum cash payment equal to
______________________.
(b) Each Participant who was a _______________ of the Bank immediately
prior to the effective date of the Change in Control and entitled to a Payment
under this Plan shall receive from the Bank a lump sum cash payment equal to
_________________.
(c) Each Participant (other than a Participant entitled to a benefit
under Sections 4.3(a) and (b) of the Plan) entitled to a Payment under this Plan
shall receive from the Employer a lump sum cash payment equal to the product of
________ of the Participant's Monthly Compensation and the Participant's years
of service (including partial years rounded up to the nearest full month) from
the Participant's date of hire through the date of termination. Notwithstanding
anything herein to the contrary, (i) the maximum payment under this Section
4.3(c) to a Participant shall not exceed ________ (__%) of the Participant's
Annual Compensation and the (ii) minimum payment under this Section 4.3(c) shall
be the Participant's Monthly Compensation (determined without regard to the
Participant's period of service).
(d) 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 thirty (30) 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 of behalf of or for the benefit of the Participant's
estate.
<PAGE>
4.5 Suspension of Payment
---------------------
Notwithstanding the foregoing, no payments or portions thereof shall be
made under this Plan, if such payment or portion would result in the Bank
failing to meet its minimum regulatory capital requirements as required by 12
C.F.R. (S)567.2. Any payments or portions thereof not paid shall be suspended
until such time as their payment would not result in a failure to meet the
Bank's minimum regulatory capital requirements. Any portion of benefit payments
which have not been suspended will be paid on an equitable basis, pro rata based
upon amounts due each Participant, among all eligible Participants.
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's Employer any obligation to retain the Participant, to maintain the
status of the Participant's employment, or to change the Employer's policies
regarding termination of employment.
ARTICLE VI
PARTICIPATING EMPLOYERS
6.1 Upon approval by the Board of the Bank, this Plan may be adopted by
any subsidiary of the Bank or by the Company. Upon such adoption, the
subsidiary or the Company shall become an Employer hereunder and the provisions
of the Plan shall be fully applicable to the employees of that subsidiary or the
Company. The term "subsidiary" means any corporation in which the Bank,
directly or indirectly, holds a majority of the voting power of its outstanding
shares of capital stock.
ARTICLE VII
SUCCESSOR TO THE BANK
7.1 The Bank shall require any successor or assignee, whether direct or
indirect, by purchase, merger, consolidation or otherwise, to all or
substantially all the business or assets of the Bank, expressly and
unconditionally to assume and agree to perform the Bank's obligations under this
plan, in the same manner and to the same extent that the Bank would be required
to perform if no such succession or assignment had taken place.
<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, or unless
extended for an additional period or periods by resolution adopted by the Board
of the Bank.
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 the Bank, 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 Bank,
certifying that the amendment or termination has been approved by the Board. 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, each
employee, the Employer and their respective successors and assigns.
ARTICLE IX
LEGAL FEES AND EXPENSES
9.1 All reasonable legal fees and other expenses paid or incurred by a
party hereto pursuant to any dispute or question of interpretation relating to
this Plan shall be paid or reimbursed by the prevailing party in any legal
judgment, arbitration or settlement.
<PAGE>
ARTICLE X
REQUIRED PROVISIONS
10.1 The Bank may terminate the employee's employment at any time, but any
termination by the Bank, other than Termination for Cause, shall not prejudice
employee's right to compensation or other benefits under this Agreement if the
employee is otherwise entitled to a benefit. The employee shall not have the
right to receive compensation or other benefits for any period after Termination
for Cause as defined in Section 2.1 hereinabove.
10.2 If the employee is suspended and/or temporarily prohibited from
participating in the conduct of the Bank'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 Bank's obligations under this Plan to such employee
shall be suspended as of the date of service, unless stayed by appropriate
proceedings. If the charges in the notice are dismissed, the Bank may in its
discretion (i) pay 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 obligation which were suspended.
10.3 If the employee is removed and/or permanently prohibited from
participating in the conduct of the Bank's affairs by an order issued under
Section 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act, 12 U.S.C.
(S)1818(e)(4) or (g)(1), all obligations of the Bank under this Plan to the
employee 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 Bank is in default as defined in Section 3(x)(1) of the
Federal Deposit Insurance Act, 12 U.S.C. (S)1818(x)(1), all obligations of the
Bank under this Plan 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 of the Bank 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 or his or
her designee or (ii) the Federal Deposit Insurance Corporation ("FDIC") or the
Resolution Trust Corporation at the time the FDIC enters into an agreement to
provide assistance to or on behalf of the Bank 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 or his or her designee at the time the Director or his or
her designee approves a supervisory merger to resolve problems related to the
operations of the Bank or when the Bank is determined by the Director to be in
an unsafe or unsound condition. Any rights of the parties that have already
vested, however, shall not be affected by such action.
10.6 Any payments made to an employee pursuant to this Plan or otherwise
shall be conditioned upon compliance under 12 U.S.C. (S)1828(k) and any
regulations promulgated thereunder.
<PAGE>
ARTICLE XI
ADMINISTRATION OF THE PLAN
11.1 The Plan shall be administered by the Board (or, by a committee of
non-employee directors designated by the Board). Subject to the other
provisions of the Plan, the Board shall have authority to adopt, amend, alter
and repeal such administrative rules, guidelines and practices governing the
operation of the Plan as it shall from time to time consider advisable, to
interpret the provisions of the Plan and to decide all disputes arising in
connection with the Plan. The Board may correct any defect or supply any
omission or reconcile any inconsistency in the Plan in the manner and to the
extent it shall deem appropriate to carry the Plan into effect, in its sole and
absolute discretion. The Board's decisions and interpretations shall be final
and binding. Any action of the Board with respect to the administration of the
Plan shall be taken pursuant to a majority vote or by the unanimous written
consent of its members.
Having been adopted by its Board on ______________, 1998, this Plan is
executed by duly authorized officer of the Bank this ___ day of _______________,
199_.
Attest
_______________ _____________________________
Eldon R. Mette L. Edward Schaeffer
Secretary Chairman of the Board of Directors and
President
<PAGE>
[LETTERHEAD OF WADE, STABLES, SCHANBACHER & WALKER, P.C.]
December 15, 1998
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549
Gentlemen:
We have read the statements made by Palmyra Saving and Building Association, FA
made under the heading "Change in Accountants" contained in the prospectus that
we understand will be a part of the Registration Statement on Form SB-2 to be
filed with the Commission by PFSB Bancorp, Inc. We agree with the statements
concerning our Firm included therein.
Sincerely,
/s/ Wade, Stables, Schanbacher & Walker, P.C.
Wade, Stables, Schanbacher & Walker, P.C.
Certified Public Accountants
<PAGE>
CONSENT
We hereby consent to the references to this firm and our opinions in:
the Registration Statement on Form SB-2 filed by PFSB Bancorp, Inc. (the
"Company"), Palmyra, Missouri 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 Palmyra Saving and Building Association, F.A. (the "Bank"),
and all amendments thereto, relating to the conversion of the Bank from a
federally-chartered mutual savings association to a federally-chartered stock
savings bank, the concurrent issuance of the Bank's outstanding capital stock to
the Company, a holding company formed for such purpose, and the offering of the
Company's common stock.
/s/ MULDOON, MURPHY & FAUCETTE
MULDOON, MURPHY & FAUCETTE
Dated this 18th day of
December, 1998
<PAGE>
[LETTERHEAD OF MOORE, HORTON & CARLSON, P.C.]
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
PFSB Bancorp, Inc.
Palmyra Saving and Building Association, F.A.
Palmyra, Missouri 63461
We consent to the use in this Registration Statement on Form SB-2 on behalf of
PFSB Bancorp, Inc. of our report date November 18, 1998, relating to the
consolidated financial statements of Palmyra Saving and Building Association,
F.A. which appears in such Registration Statement. We also consent to the
reference to us under the headings "Legal and Tax Opinions" and "Experts"
contained in the Prospectus, which is a part of such Registration Statement.
/s/ Moore, Horton & Carlson, P.C.
Mexico, Missouri
December 17, 1998
<PAGE>
[RP FINANCIAL, LC. LETTERHEAD APPEARS HERE]
December 16, 1998
Board of Directors
Palmyra Saving and Building Association, F.A.
123 West Lafayette Street
Palmyra, Missouri 63461
Re: Plan of Conversion: Subscription Rights
Palmyra Saving and Building Association, F.A.
Gentlemen:
All capitalized terms not otherwise defined in this letter have the
meanings given such terms in the Plan of Conversion adopted by the Board of
Directors of Palmyra Saving and Building Association, F.A. ("Palmyra Saving" or
the "Association") whereby the Association will convert from a federally
chartered mutual savings and loan association to a federally chartered stock
savings bank and issue all of the Association's outstanding capital stock to
PFSB Bancorp, Inc. (the "Holding Company"). Simultaneously, the Holding Company
will issue shares of common stock.
We understand that in accordance with the Plan of Conversion,
subscription rights to purchase shares of common stock in the Holding Company
are to be issued to: (1) Eligible Account Holders; (2) the ESOP;
(3) Supplemental Eligible Account Holders; and (4) Other Members. Based solely
upon our observation that the subscription rights will be available to such
parties without cost, will be legally non-transferable and of short duration,
and will afford such parties the right only to purchase shares of common stock
at the same price as will be paid by members of the general public in the Direct
Community Offering, but without undertaking any independent investigation of
state or federal law or the position of the Internal Revenue Service with
respect to this issue, we are of the belief that, as a factual matter:
(1) the subscription rights will have no ascertainable market value;
and,
(2) the price at which the subscription rights are exercisable will not be
more or less than the pro forma market value of the shares upon
issuance.
Changes in the local and national economy, the legislative and
regulatory environment, the stock market, interest rates, and other external
forces (such as natural disasters or significant world events) may occur from
time to time, often with great unpredictability and may materially impact the
value of thrift stocks as a whole or the Holding Company's value alone.
Accordingly, no assurance can be given that persons who subscribe to shares of
common stock in the Subscription Offering will thereafter be able to buy or sell
such shares at the same price paid in the Subscription Offering.
Sincerely,
/s/ Gregory E. Dunn
Gregory E. Dunn
Senior Vice President
<PAGE>
[RP FINANCIAL, LC. LETTERHEAD APPEARS HERE]
December 16, 1998
Board of Directors
Palmyra Saving and Building Association, F.A.
123 West Lafayette Street
Palmyra, Missouri 63461
Gentlemen:
We hereby consent to the use of our firm's name in the Application for
Conversion of Palmyra Saving and Building Association, F.A., Palmyra, Missouri,
and any amendments thereto, and in the Form SB-2 Registration Statement and any
amendments thereto for PFSB Bancorp, Inc. We also hereby consent to the
inclusion of, summary of and references to our Appraisal Report and our
statement concerning subscription rights in such filings including the
Prospectus of PFSB Bancorp, Inc.
Sincerely,
RP FINANCIAL, LC.
/s/ Gregory E. Dunn
Gregory E. Dunn
Senior Vice President
<PAGE>
EXHIBIT 24.1
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENT, that each person whose signature appears
below constitutes and appoints Eldon R. Mette, as true and lawful attorney-in-
fact and agent 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 by Palmyra Saving and Building
Association, F.A. and the Form SB-2 Registration Statement by PFSB Bancorp, Inc.
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 (the "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 or 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 Power of Attorney prepared in conjunction
with the Application for Conversion and the Registration Statement has been duly
signed by the following persons in the capacities and on the dates indicated.
NAME DATE
---- ----
/s/ Eldon R. Mette December 18, 1998
- ----------------------------
Eldon R. Mette
President and Director
(principal executive officer)
PFSB Bancorp, Inc.
Executive Vice President, Secretary and Director
(principal executive officer)
Palmyra Saving and Building Association, F.A.
/s/ Ronald L. Nelson December 18, 1998
- ----------------------------
Ronald L. Nelson
Vice President and Secretary
(principal accounting and financial officer)
PFSB Bancorp, Inc.
Vice President, Treasurer and Secretary
(principal accounting and financial officer)
<PAGE>
Palmyra Saving and Building Association, F.A.
/s/ L. Edward Schaeffer December 18, 1998
- ----------------------------
L. Edward Schaeffer
Chairman of the Board
PFSB Bancorp, Inc.
Chairman of the Board and President
Palmyra Saving and Building Association, F.A.
/s/ Glenn J. Maddox December 18, 1998
- ----------------------------
Glenn J. Maddox
Director
PFSB Bancorp, Inc.
Vice President and Director
Palmyra Saving and Building Association, F.A.
/s/ Albert E. Davis December 18, 1998
- ----------------------------
Albert E. Davis
Director
PFSB Bancorp, Inc.
Director
Palmyra Saving and Building Association, F.A.
/s/ Robert M. Dearing December 18, 1998
- ----------------------------
Robert M. Dearing
Director
PFSB Bancorp, Inc.
Director
Palmyra Saving and Building Association, F.A.
<PAGE>
/s/ James D. Lovegreen December 18, 1998
- ----------------------------
James D. Lovegreen
Director
PFSB Bancorp, Inc.
Director
Palmyra Saving and Building Association, F.A.
/s/ Donald L. Slavin December 18, 1998
- ----------------------------
Donald L. Slavin
Director
PFSB Bancorp, Inc.
Director
Palmyra Saving and Building Association, F.A.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
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0
0
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<EXPENSE-OTHER> 1,104
<INCOME-PRETAX> 425
<INCOME-PRE-EXTRAORDINARY> 149
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