As filed with the Securities and Exchange Commission on March 11, 1999
Registration No. 333-_______
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Steelton Bancorp, Inc.
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(Exact name of Small Business Issuer as specified in charter)
Pennsylvania 6035 Requested
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(State or other jurisdiction (Primary SIC No.) (I.R.S. Employer
of incorporation or Identification No.)
organization)
51 South Front Street, Steelton, Pennsylvania 17113 (717) 939-1966
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(Address and telephone number of principal executive offices and principal place
of business)
Mr. Harold E. Stremmel, President and Chief Executive Officer
Steelton Bancorp, Inc.
51 South Front Street, Steelton, Pennsylvania 17113
(717) 939-1966
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(Name, address and telephone number of agent for service)
Please send copies of all communications to:
Samuel J. Malizia, Esq.
Gregory A. Gehlmann, Esq.
Tiffany A. Henricks, Esq.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
1301 K Street, N.W., Suite 700 East, Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO
THE PUBLIC: As soon as practicable after this registration
statement becomes effective.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier 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 Shares Proposed Maximum Proposed Maximum Amount of
Class of Securities to be Offering Price Aggregate Registration
To Be Registered Registered Per Unit Offering Price(1) Fee
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<S> <C> <C> <C> <C>
Common Stock,
$.10 Par Value 575,288 $10.00 $5,752,880 $1599.30
Interests of participants
in the 401(k) Plan 25,841(2) $10.00 $258,410 --(3)
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(1) Estimated solely for purposes of calculating the registration fee.
(2) These shares are included in the 575,288 shares being registered.
(3) The $258,410 of participations to be registered are based upon the
assets of the 401(k) Plan. Pursuant to Rule 457(h)(2) under the
Securities Act of 1933, no additional fee is required with respect to
the interests of participants of the 401(k) Plan.
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the
registrant shall file a further amendment which specifically states
that this registration statement shall thereafter become effective in
accordance with Section 8(a) of the Securities Act of 1933 or until the
registration statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
PROSPECTUS SUPPLEMENT
Supplement to the Steelton Bancorp, Inc.
Prospectus dated ___________, 1999
STEELTON BANCORP, INC.
COMMON STOCK, $0.10 PAR VALUE
MECHANICS SAVINGS & LOAN FSA
EMPLOYEES' SAVINGS & PROFIT SHARING PLAN AND TRUST
(25,841 SHARES OF COMMON STOCK AND PARTICIPATION THEREIN)
This Prospectus Supplement relates to the offer and sale to
participants (the "Participants") under the Mechanics Savings & Loan FSA
Employees' Savings & Profit Sharing Plan (the "Plan") of participation interests
offered under the Plan and of a maximum of 25,841 shares of common stock of
Steelton Bancorp, Inc., par value $0.10 per share (the "Common Stock"), as set
forth herein.
In connection with the proposed conversion of the Mechanics Savings &
Loan FSA (the "Association") from a federally chartered mutual savings
association to a federally chartered stock savings bank (the "Conversion"), the
Plan has been amended effective April 1, 1999, to permit the investment of Plan
assets in various participant directed investment alternatives, including
investment in Common Stock of Steelton Bancorp, Inc. (the "Company"). The Plan
will permit Participants to direct the trustee of the Plan (the "Trustee") to
purchase Common Stock with Plan assets which are attributable to such
Participants. This Prospectus Supplement relates to the one time election of a
Participant to direct the purchase of Common Stock under the Plan in connection
with the Conversion and to the purchase of the Common Stock under the Plan
thereafter in the open market.
The Prospectus dated _______________, 1999 of the Company (the
"Prospectus"), which is attached to this Prospectus Supplement, includes
detailed information with respect to the Conversion, the Common Stock, and the
financial condition, results of operation, and business of the Association. This
Prospectus Supplement, which provides detailed information with respect to the
Plan, should be read only in conjunction with the Prospectus.
For a discussion of certain factors that should be considered by each
Participant, see "Special Considerations" in the Prospectus.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, OR ANY
OTHER FEDERAL AGENCY OR ANY STATE SECURITIES COMMISSION, NOR HAS SUCH
COMMISSION, OFFICE, OR OTHER AGENCY OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS SUPPLEMENT. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK AND THE PARTICIPATION INTERESTS UNDER THE
PLAN OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS AND ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
The date of this Prospectus Supplement is ______________, 1999.
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No person has been authorized to give any information or to make any
representations other than those contained in the Prospectus or this Prospectus
Supplement, and, if given or made, such information or representations must not
be relied upon as having been authorized by the Company, the Association, or the
Plan. This Prospectus Supplement does not constitute an offer to sell or
solicitation of an offer to buy any securities in any jurisdiction to any person
to whom it is unlawful to make such offer or solicitation in such jurisdiction.
Neither the delivery of this Prospectus Supplement and the Prospectus nor any
sale made hereunder shall under any circumstances create any implication that
there has been no change in the affairs of the Association or the Plan since the
date hereof, or that the information herein contained or incorporated by
reference is correct as of any time subsequent to the date hereof. This
Prospectus Supplement should be read only in conjunction with the Prospectus
that is attached hereto and should be retained for future reference.
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TABLE OF CONTENTS
The Offering...........................................................1
Securities Offered............................................1
Election to Purchase Common Stock in Connection
with the Conversion......................................1
Value of Participation Interests..............................1
Method of Directing Investments...............................1
Time for Directing Investment.................................2
Irrevocability of Investment Direction........................2
Purchase Price of Common Stock................................2
Direction to Purchase Common Stock After......................2
the Conversion
Purchase Price of Common Stock................................2
Nature of Participant's Interest in the
Common Stock.........................................3
Voting and Tender Rights of Common Stock......................3
Minimum Investment............................................3
Description of the Plan................................................3
General.......................................................3
Eligibility and Participation.................................4
Contributions and Benefits Under the Plan.....................4
Limitations on Contributions..................................5
Investment of Plan Assets.....................................7
Employer Stock Fund...........................................8
Investment Accounts...........................................9
Benefits Under the Plan......................................10
Withdrawals and Distributions From the Plan..................11
Administration of the Plan...................................14
Reports to Plan Participants.................................14
Amendment and Termination....................................14
Merger, Consolidation, or Transfer...........................14
Federal Income Tax Consequences..............................15
ERISA and Other Qualifications...............................17
Restrictions on Resale.......................................17
SEC Reporting and Short-Swing Liability......................18
Additional Information.......................................19
Legal Opinions........................................................19
Investment Election Form......................................Appendix A
Change of Investment Allocation Form...........................Exhibit B
<PAGE>
THE OFFERING
Securities Offered
The securities offered hereby are participation interests in the Plan
and up to 25,841 shares (assuming the actual purchase price is $10 per share) of
Common Stock which may be acquired by the Plan for the accounts of employees
participating in the Plan. The Company is the issuer of the Common Stock. Only
employees of the Association who meet the eligibility requirements under the
Plan may participate in the Plan. Information with regard to the Plan is
contained in this Prospectus Supplement and information with regard to the
Conversion and the financial condition, results of operation, and business of
the Association is contained in the attached Prospectus. The address of the
principal executive office of the Association is 51 South Front Street,
Steelton, Pennsylvania 17113. The Association's telephone number is (717)
939-1966.
Election to Purchase Common Stock in Connection with the Conversion
In connection with the Association's Conversion, the Plan has been
amended to permit each Participant to direct that all or part of the funds which
represent his or her beneficial interest in the assets of the Plan may be
transferred to a new investment fund ("the Employer Stock Fund") and which will
used to purchase Common Stock issued in connection with the Conversion.
Participants will also be permitted to direct ongoing purchases of Common Stock
under the Plan after the Conversion. See "Direction to Purchase Common Stock
After Conversion." The Plan's Trustee will follow the Participants' investment
directions. Amounts not transferred to the Employer Stock Fund will remain
invested in the other investment funds of the Plan as directed by the
Participant (see "Investment of Plan Assets" herein).
Value of Participation Interests
The assets of the Plan were valued as of March 8, 1999, and each
Participant was informed of the value of his or her beneficial interest in the
Plan. This value represented the market value as of March 8, 1999 of past
contributions to the Plan by the Association and by the Participants and
earnings thereon, less previous withdrawals, if any. Participants may direct up
to 100% of the value of their account assets to invest in the Employer Stock
Fund. However, in connection with the initial offering of Common Stock,
Participants who elect to purchase Common Stock in connection with the
Conversion are required to invest a minimum amount of their Account assets in
the Employer Stock Fund (see "Minimum Investment" herein).
Method of Directing Investments
Appendix A of this Prospectus Supplement includes a form to direct a
transfer to the Employer Stock Fund (the "Investment Form") of all or a portion
of a Participant's account ("Account") under the Plan. Appendix B of this
Prospectus Supplement includes Pentegra's Change of Investment Allocation Form.
If a Participant wishes to transfer all or part of his or her beneficial
interest in the assets of the Plan to the purchase of Common Stock issued in
connection with the Conversion, he or she should indicate that investment
decision on the Investment Form and Change of Investment Allocation Form. The
Investment Form and Change of Investment Allocation Form must be properly signed
by the Participant in order for such Investment Form and Change of Investment
Allocation Form to be honored by the Plan Trustee. Additionally, a Participant
may indicate the directed investment of future
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contributions under the Plan for investment in the Employer Stock Fund. If a
Participant does not wish to make an investment election to purchase Common
Stock under the Plan in the Conversion, or thereafter, he or she does not need
to take any action.
Time for Directing Investment
The deadline for submitting the Investment Form and Change of
Investment Allocation Form directing the transfer of amounts to the Employer
Stock Fund in order to purchase Common Stock issued in connection with the
Conversion is ______________, 1999. The Investment Form and Change of Investment
Allocation Form, which are both required to be completed correctly by a
Participant at the time such forms are submitted, must be returned to the
Association's Personnel Department by 12:00 p.m. (local time) on
__________________, 1999.
Subsequent to the Conversion, Participants will continue to be able to
direct the investment of their Accounts under the Plan in the Employer Stock
Fund and in the other investment alternatives, as detailed below.
Irrevocability of Investment Direction
A Participant's direction to transfer amounts credited to such
Participant's Account in the Plan to the Employer Stock Fund in order to
purchase shares of Common Stock in connection with the Conversion shall be
irrevocable as of noon on ___________________, 1999. If a Participant fails to
submit a completed Investment Form and Change of Investment Allocation Form on
or before noon on __________________, 1999, such Participant will not be allowed
to direct his or her Account to purchase Common Stock in the Company's initial
public offering. However, Participants will be able to direct their Accounts to
purchase Common Stock after the Conversion by directing amounts in their
Accounts into the Employer Stock Fund.
Direction to Purchase Common Stock After the Conversion
Following completion of the Conversion, a Participant shall be permitted to
direct that a certain percentage of such Participant's interests in the Trust
Fund be transferred to the Employer Stock Fund and invested in Common Stock, or
to the other investment funds available under the Plan. Alternatively, a
Participant may direct that a certain percentage of such Participant's interest
in the Employer Stock Fund be transferred to the Trust Fund to be invested in
the other investment funds available in accordance with the terms of the Plan.
Participants will be permitted to direct that future contributions made to the
Plan by or on their behalf will be invested in the Employer Stock Fund investing
in the Common Stock. Following the initial election, the allocation of a
Participant's interest in the Employer Stock Fund may be changed daily by filing
a Change of Investment Allocation Form with the Plan Administrator or by calling
Pentegra's voice response unit at (800) 433-4422 and changing their investment
allocation by phone.
Purchase Price of Common Stock
The funds transferred to the Employer Stock Fund for the purchase of
Common Stock in connection with the Conversion will be used by the Trustee to
purchase shares of Common Stock. The price paid for such shares of Common Stock
will be the same price as is paid by all other persons who purchase shares of
Common Stock in the Conversion.
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Account assets directed for investment in the Employer Stock Fund after
the Conversion shall be invested by the Trustee to purchase shares of Common
Stock in open market transactions. The price paid by the Trustee for shares of
Common Stock in the Conversion, or otherwise, will not exceed "adequate
consideration" as defined in Section 3(18) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA").
Nature of Participant's Interest in the Common Stock
The Common Stock will be held in the name of the Trustee for the Plan,
as trustee. Each Participant has an allocable interest in the investment funds
of the Plan but not in any particular assets of the Plan. Accordingly, a
specific number of shares of Common Stock will not be directly attributable to
the Account of any Participant. Dividend rights associated with the Common Stock
held by the Employer Stock Fund shall be allocated to such Employer Stock Fund.
Any increase (or decrease) in the value of such fund attributed to dividend
rights shall be reflected in a Participant's allocable interest in the Employer
Stock Fund.
Voting and Tender Rights of Common Stock
The Trustee generally will exercise voting and tender rights
attributable to all Common Stock held by the Trust as directed by Participants
with interests in the Employer Stock Fund. With respect to each matter as to
which holders of Common Stock have a right to vote or tender, each Participant
will be allocated a number of voting or tender instruction rights reflecting
such Participant's proportionate interest in the Employer Stock Fund. The number
of shares of Common Stock held in the Employer Stock Fund that are voted or
tendered in the affirmative and negative on each matter shall be determined by
the number of voting instruction rights or tender instruction rights exercised
in the affirmative and negative, respectively, from the Participants. With
respect to shares for which no voting instruction rights or tender instruction
rights are received by the Trustee, the Trustee shall vote or tender such shares
within its discretion as a fiduciary under the Plan or as directed by the Plan
Administrator.
Minimum Investment
The minimum investment of assets directed by a Participant for the
purchase of Common Stock in the Conversion shall be $250.00 and may only be
specified in increments of $10.00 Funds may be directed for the purchase of such
Common Stock attributable to a Participant's Account whether or not such Account
assets are 100% vested at the time of such investment election. With respect to
investment in the Employer Stock Fund after the Conversion, there is no minimum
level of investment specific to this investment fund.
DESCRIPTION OF THE PLAN
General
The Association adopted a multiple employer defined contribution plan
(the "Financial Institutions Thrift Plan") effective May 1, 1993. The
Association withdrew from the Financial Institutions Thrift Plan and adopted the
Plan effective April 1, 1999, in order to permit the investment of Plan assets
in Common Stock. The Plan is a deferred compensation arrangement established in
accordance with the requirements under Section 401(a) and Section 401(k) of the
Internal Revenue Code of 1986 (the "Code"). The Plan will be submitted to the
Internal Revenue Service (the "IRS") in a timely manner for
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a determination that the Plan is qualified under Section 401(a) of the Code and
that its trust is qualified under Section 501(a) of the Code. The Association
intends that the Plan, in operation, will comply with the requirements under
Section 401(a) and Section 401(k) of the Code. The Association will adopt any
amendments to the Plan that may be necessary to ensure the continued qualified
status of the Plan under the Code and applicable Treasury Regulations.
Employee Retirement Income Security Act. The Plan is an "individual
account plan" other than a "money purchase pension plan" within the meaning of
ERISA. As such, the Plan is subject to all of the provisions of Title I
(Protection of Employee Benefit Rights) and Title II (Amendments to the Internal
Revenue Code Relating to Retirement Plans) of ERISA, except the funding
requirements contained in Part 3 of Title I of ERISA, which by their terms do
not apply to an individual account plan (other than a money purchase plan). The
Plan is not subject to Title IV (Plan Termination Insurance) of ERISA. Neither
the funding requirements contained in Part 3 of Title I of ERISA nor the plan
termination insurance provisions contained in Title IV of ERISA will be extended
to Participants (as defined below) or beneficiaries under the Plan.
APPLICABLE FEDERAL LAW REQUIRES THE PLAN TO IMPOSE SUBSTANTIAL
RESTRICTIONS ON THE RIGHT OF A PLAN PARTICIPANT TO WITHDRAW AMOUNTS HELD FOR HIS
OR HER BENEFIT UNDER THE PLAN PRIOR TO THE PARTICIPANT'S TERMINATION OF
EMPLOYMENT WITH THE ASSOCIATION. A SUBSTANTIAL FEDERAL TAX PENALTY MAY ALSO BE
IMPOSED ON WITHDRAWALS MADE PRIOR TO THE PARTICIPANT'S ATTAINMENT OF AGE 59-1/2,
REGARDLESS OF WHETHER SUCH A WITHDRAWAL OCCURS DURING HIS OR HER EMPLOYMENT WITH
THE ASSOCIATION OR AFTER TERMINATION OF EMPLOYMENT.
Reference to Full Text of Plan. The statements contained in this
Prospectus Supplement are summaries of certain provisions of the Plan. They are
not complete and are qualified in their entirety by the full text of the Plan
which is filed as an exhibit to the registration statement filed with the
Securities and Exchange Commission. Copies of the Plan are available for
inspection to all employees by filing a request with the Plan Administrator.
Each employee is urged to read carefully the full text of the Plan.
Eligibility and Participation
All employees of the Association, are eligible to participate in the
Plan as of the 1st day of the calendar month following completion of 500 hours
of service during a 6-month period with the Association. As of March 1, 1999,
there were approximately 14 employees eligible to participate in the Plan and 13
employees had elected to participate in the Plan. The plan year is January 1 to
December 31.
Contributions and Benefits Under the Plan
Employee Contributions. Each Participant in the Plan is permitted to
elect to reduce his monthly Salary (as defined below) pursuant to a "Salary
Reduction Agreement" by an amount not less than 1% and not more than 15% and
have that amount ("Elective Deferral") contributed to the Plan on such
Participant's behalf. Changes in the level of such Elective Deferrals may be
made to be effective as of the following pay period. Participants may suspend
such Elective Deferrals at any time. Such amounts are credited to the
Participant's "Salary Reduction Account." For purposes of the Plan, "Salary"
means
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a Participant's total taxable compensation as reported on his or her Form W-2
(exclusive of any compensation deferred from a prior year), plus pre-tax
contributions made to this Plan or a section 125 cafeteria plan. A Participant
may elect to modify the amount contributed to the Plan under such Participant's
Salary Reduction Agreement each pay period by providing notice to the Plan
Administrator in accordance with procedures established by the Plan
Administrator from time to time. Elective Deferrals are transferred by the
Association to the Trustee of the Plan.
Matching Contributions. The Association will contribute a matching
contribution ("Matching Contributions") in addition to each Participant's
Elective Deferral of up to 50% of the amount of a Participant's Elective
Deferral to a maximum of 6% of the Participant's Salary. Such Matching
Contributions are subject to revision by the Association from time to time. Such
Matching Contributions shall be subject to the applicable vesting schedule noted
hereinafter.
Limitations on Contributions
Limitations on Annual Additions and Benefits. Pursuant to the
requirements of the Code, the Plan provides that the amount of contributions and
forfeitures allocated to each Participant's Salary Reduction Account during any
Plan Year may not exceed the lesser of 25% of the Participant's ss. 415
Compensation for the Plan Year or $30,000 (adjusted for increases in the cost of
living as permitted by the Code). A Participant's ss. 415 Compensation is a
Participant's compensation, excluding any employer contribution to the Plan or
to any other plan of deferred compensation or any distributions from a plan of
deferred compensation. In addition, annual additions are limited to the extent
necessary to prevent the limitations for the combined qualified plans of the
Association from being exceeded. To the extent that these limitations would be
exceeded by reason of excess annual additions with respect to a Participant,
such excess will be disposed of as follows:
(i) Return any elective deferral contributions, including
earnings, to reduce the excess amount in your accounts;
(ii) Any excess amount in the Participant's Account will be
used to reduce the Association's contributions for such Participant in
the next limitation year, and each succeeding limitation year if
necessary;
(iii) If an excess amount still exists, and the Participant is
not covered by the Plan at the end of the limitation year, the excess
amount will be held unallocated in a suspense account which will then
be applied to reduce future Association contributions for all remaining
Participants in the next limitation year, and each succeeding
limitation year if necessary; and
(iv) If a suspense account is in existence at any time during
the limitation year, the Participant will not receive an allocation of
investment gains and losses.
Limitation on Employee Contributions. The amount of a Participant's
Elective Deferrals (when aggregated with any elective deferrals of the
Participant under a simplified employee pension plan or a tax-deferred annuity),
on an annual basis, may not exceed $10,000 adjusted for increases in the cost of
living as permitted by the Code. Contributions in excess of this limitation
("excess deferrals") will be included in the Participant's gross income for
federal income tax purposes in the year they are made. In addition, any such
excess deferral will again be subject to federal income tax when distributed by
the Plan to the Participant, unless the excess deferral (together with any
income allocable thereto) is
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distributed to the Participant not later than the first April 15th following the
close of the taxable year in which the excess deferral is made. Any income on
the excess deferral that is distributed not later than such date shall be
treated, for federal income tax purposes, as earned and received by the
Participant in the taxable year in which the excess deferral is made.
Limitation on Plan Contributions for Highly Compensated Employees.
Section 401(k) of the Code limits the amount of Elective Deferrals that may be
made to the Plan in any Plan Year on behalf of Highly Compensated Employees
(defined below) in relation to the amount of Elective Deferrals made by or on
behalf of all other employees eligible to participate in the Plan. Specifically,
the actual deferral percentage (i.e., the average of the ratios, calculated
separately for each eligible employee in each group, by dividing the amount of
Elective Deferrals credited to the Salary Reduction Account of such eligible
employee by such eligible employee's compensation for the Plan Year) of the
Highly Compensated Employees may not exceed the greater of (i) 125% of the
actual deferral percentage of all other eligible employees, or (ii) the lesser
of (a) 200% of the actual deferral percentage of all other eligible employees,
or (b) the actual deferral percentage of all other eligible employees plus two
percentage points. In addition, the actual contribution percentage for such Plan
Years (i.e., the average of the ratios calculated separately for each eligible
employee in each group, by dividing the amount of voluntary employee and
employer matching contributions credited to the Account of such eligible
employee by such eligible employee's compensation for the Plan Year) of the
Highly Compensated Employees may not exceed the greater of (i) 125% of the
actual contribution percentage of all other eligible employees, or (ii) the
lesser of (a) 200% of the actual contribution percentage of all other eligible
employees, or (b) the actual contribution percentage of all other eligible
employees plus two percentage points.
In general, a Highly Compensated Employee includes any employee who,
during the Plan Year (1) was a 5% owner (i.e., owns directly or indirectly more
than 5% of the stock of an employer, or stock possessing more than 5% of the
total combined voting power of all stock of an employer), or (2) received
compensation from an employer for the preceding year in excess of $80,000 and,
if the employer so elects, was in the top 20% of employees by compensation for
such year. The dollar amounts in the foregoing sentence adjust annually to
reflect increases in the cost of living.
In order to prevent the disqualification of the Plan, any amount
contributed by Highly Compensated Employees that exceed the average deferral
limitation in any Plan Year ("excess contributions"), together with any income
allocable thereto, must be distributed to such Highly Compensated Employees
before the close of the following Plan Year. However, the Association will be
subject to a 10% excise tax on any excess contributions unless such excess
contributions, together with any income allocable thereto, either are
recharacterized or are distributed before the close of the first 2 1/2 months
following the Plan Year to which such excess contributions relate.
Top-Heavy Plan Requirements. If for any Plan Year the Plan is a
Top-Heavy Plan (as defined below), then (i) the Association may be required to
make certain minimum contributions to the Plan on behalf of non-key employees
(as defined below), and (ii) certain additional restrictions would apply with
respect to the combination of annual additions to the Plan and projected annual
benefits under any defined benefit plan maintained by the Association.
In general, the Plan will be regarded as a "Top-Heavy Plan" for any
Plan Year if, as of the last day of the preceding Plan Year, the aggregate
balance of the Accounts of Participants who are Key Employees exceeds 60% of the
aggregate balance of the Accounts of all Participants. Key Employees generally
include any employee who, at any time during the Plan Year or any of the four
preceding Plan
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Years, is (1) an officer of the Association having annual compensation in excess
of $65,000 who is in an administrative or policy-making capacity, (2) one of the
ten employees having annual compensation in excess of $30,000 and owning,
directly or indirectly, the largest interests in the Company, (3) a 5% owner of
the Association, (i.e., owns directly or indirectly more than 5% of the stock of
the Company, or stock possessing more than 5% of the total combined voting power
of all stock of the Company), or (4) a 1% owner of the Company having annual
compensation in excess of $150,000.
Investment of Plan Assets
All amounts credited to Participants' Accounts under the Plan are held
in the Plan's trust (the "Trust") which is administered by the Trustee appointed
by the Association's Board of Directors. Prior to the Conversion, all Plan
assets are invested in the funds listed below, except for the Employer Stock
Fund. Upon the Conversion, the Accounts of a Participant held in Trust under the
Plan will be invested by the Trustee, at the direction of the Participant, in
the following funds, including the Employer Stock Fund:
a. S&P 500 Stock Fund
b. Stable Value Fund
c. S&P MidCap Stock Fund
d. Money Market Fund
e. Government Bond Fund
f. Income Plus Asset Allocation Fund
g. Growth and Income Asset Allocation Fund
h. Growth Asset Allocation Fund
i. International Stock Fund
A brief summary of such funds is as follows:
S&P 500 Stock Fund: Invests in the stocks of a broad array of
established U.S. companies. Its objective is long-term: to earn higher returns
by investing in the largest companies in the U.S. economy.
Stable Value Fund: Invests primarily in Guaranteed Investment Contracts
and Synthetic Guaranteed Investment Contracts. Its objective is
short-to-intermediate term: to achieve a stable return over short to
intermediate periods of time while preserving the value of a Participant's
investment.
S&P MidCap Stock Fund: Invests in the stocks of mid-sized U.S.
companies. Its objective is long-term: to earn higher returns which reflect the
growth potential of such companies.
Money Market Fund: Invests in a broad range of high-quality short-term
instruments. Its objective is short-term to achieve competitive short-term rates
or return while preserving the value of the Participant's principal.
Government Bond Fund: Invests in U.S. Treasury bonds with a maturity of
20 years or more. Its objective is long-term: to earn a higher level of income
along with the potential for capital appreciation.
Income Plus Asset Allocation Fund: Invests approximately 80% of its
portfolio in a combination of stable value investments and U.S. bonds. The
balance is invested in U.S. and international stocks.
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Its objective is intermediate-term: to preserve the value of a Participant's
investment over short periods of time and to offer some potential for growth.
Growth and Income Asset Allocation Fund: Invests in U.S. domestic and
international stocks, U.S. domestic bonds, and stable value investments. Its
objective is intermediate-term: to provide a balance between the pursuit of
growth and protection from risk.
Growth Asset Allocation Fund: Invests the majority of its assets in
stocks -- domestic as well as international. Its objective is long-term: to
pursue high growth of a Participant's investment over time.
International Stock Fund: Invests in over 1,000 foreign stocks in 20
countries. Its objective is long-term: to offer the potential return of
investing in the stocks of established non-U.S. companies, as well as the
potential risk-reduction of broad diversification.
Employer Stock Fund
The Employer Stock Fund will consist of investments in Common Stock
made on the effective date of the Conversion. Cash dividends paid on Common
Stock held in the Employer Stock Fund will be credited to a cash dividend
subaccount for each Participant investing in the Employer Stock Fund. On the
occasion of a payment of a cash dividend, the Trustee may use the dividend to
purchase additional shares of Common Stock. The Trustee will, to the extent
practicable, use all amounts held by it in the Employer Stock Fund (except the
amounts credited to cash dividend subaccounts) to purchase shares of Common
Stock of the Company as of the effective date of the Conversion. Following the
Conversion, the Employer Stock Fund may purchase shares of Common Stock in the
open market or from Participants' Accounts directing the sale of such Account
assets. Pending investment in Common Stock, assets held in the Employer Stock
Fund will be placed in bank deposits or other short-term investments.
When Common Stock is purchased in the Conversion no sales commissions
will be paid. The Association expects to pay any transfer fees and other
expenses incurred in the purchase of Common Stock for the Employer Stock Fund. A
Participant's Account will be adjusted to reflect changes in the value of shares
of Common Stock resulting from stock dividends, stock splits, and similar
changes.
As of the date of this Prospectus Supplement, none of the shares of
Common Stock have been issued or are outstanding and there is no established
market for the Common Stock. Accordingly, there is no record of the historical
performance of the Employer Stock Fund.
In connection with the Conversion, Participants may, prior to the
expiration of the Subscription Offering being conducted by the Company in
connection with the Conversion, elect to liquidate all or part of their
investments in the other investment funds under the Plan and transfer the
liquidation proceeds to the Employer Stock Fund. See "Time for Directing
Investment." Such an investment election will be evidenced by a properly signed
and timely delivered Investment Form and Change of Investment Allocation Form.
The Trustee will then subscribe to purchase in the Conversion the maximum number
of shares of Common Stock of the Holding Company that may be purchased by
Participants with the amounts allocated to the Employer Stock Fund as of the end
of the subscription period. In all instances, purchases by Participants shall be
subject to the individual purchase limitations set forth in the Association's
Plan of Conversion. If there is not enough Common Stock in the Conversion to
fill all subscriptions, the Common Stock would be apportioned and the Plan may
not be able to purchase all of
8
<PAGE>
the Common Stock requested by the Participants. In such case, all unvested funds
will be invested according to the most recent investment election on file for
the Participant.
The Association or the Plan Trustee may adopt investment guidelines,
which may limit or restrict a Participant's investment in the Employer Stock
Fund. In no event may any Participant purchase in the aggregate shares of Common
Stock through the Employer Stock Fund, or otherwise, in an amount in excess of
10,000 shares of Common Stock being offered by the Company in the Conversion.
(See the discussion under "The Conversion -- Limitations on Purchases of Shares"
in the accompanying Prospectus for clarification of purchases aggregated for
purposes of this purchase limitation.)
Each Participant who makes an election to direct investment of assets
under the Employer Stock Fund may liquidate such investment at a future date, in
whole, or in part, by filing Form 7 - Change of Investment Allocation Form with
Pentegra, or by using Pentegra's voice response unit by calling (800) 433-4422,
in accordance with established procedures to dispose of such Plan investment and
reinvest the net proceeds in an alternative investment under the Plan. The
Trustee shall complete such sale as soon as administratively feasible. The
proceeds of such sale, net of expenses, shall be allocated to the Participant's
Account and reinvested in accordance with the Plan.
Please refer to the section "Restrictions on Resale" contained herein
for additional information related to the sale of Common Stock held under the
Employer Stock Fund as an investment in a Participant's Account.
Investments in the Employer Stock Fund may involve certain special
risks related to investment in Common Stock of the Company. For a discussion of
these risk factors, see "Special Considerations" in the Prospectus. Please note
that investment in the Employer Stock Fund is not an investment in a savings
account or certificate of deposit, and such investment in the Common Stock
through the Employer Stock Fund is not insured by the FDIC or any other
regulatory agency. Further, no assurances can be given with respect to the price
at which such Common Stock may be sold in the future.
Investment Accounts
The Trust assets are invested by the Trustee pursuant to Participants'
directions, as described below. Each investment fund is valued as of the end of
each business day.
Each Participant directs that the contributions made shall be invested
to purchase units for his or her credit in one or more of the above listed
funds. Participants may elect a new investment mix for future contributions to
the Plan once per business day. Participants are entitled to designate what
percentage of employee contributions made on their behalf will be invested in
the various investment funds offered by the Plan. Reallocation and reinvestment
of previously invested contributions may be made daily. To the extent that a
Participant fails to make an investment direction, his or her accounts are
invested in units of the Money Market Fund.
The Plan provides that a Participant may direct the Trustee to invest
all or a portion of his or her Account in the investment funds set forth above.
In addition, as of April 1, 1999, a Participant may make an investment election
to invest all, or a portion thereof, of a Participant's Account in the Employer
Stock Fund for the purchase of Common Stock to be purchased in the Conversion,
or thereafter, as described below. Participants may change their investment
directions or direct a transfer among
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<PAGE>
investment funds, provided that changes of investment direction or directions to
transfer are made in accordance with the terms of the Plan.
A Participant may elect to have both past and future contributions and
additions to the Participant's accounts invested in such other accounts as set
forth above. These elections will be effective, provided such notice is filed in
accordance with procedures established by the Plan Administrator from time to
time. Any amounts credited to a Participant's Account for which investment
directions are not given will be invested in accordance with the terms of the
Plan.
The net gain (or loss) of the invested funds from investments
(including interest payments, dividends, realized and unrealized gains and
losses on securities, and expenses paid from the Trust) will be determined daily
during the Plan Year. For purposes of such allocations, all assets of the Trust
are valued at their fair market value.
Contributions under the Plan have been invested in the various
investment accounts available for investment under the funds as described
herein. The annual percentage return on these funds for calendar years 1998,
1997 and 1996 was approximately:
<TABLE>
<CAPTION>
Fund 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Money Market Fund 5.5% 5.5% 5.6%
Stable Value Fund 5.9% 6.2% 6.5%
Government Bond Fund 13.8% 15.4% (2.3%)
S&P 500 Stock Fund 27.9% 32.7% 22.3%
S&P MidCap Stock Fund 18.6% 31.5% 18.6%
International Stock Fund 19.3% 3.6% 10.6%
Income Plus Asset Allocation Fund 9.7% 8.9% 8.3%
Growth Asset Allocation Fund 24.3% 19.0% 18.0%
Growth & Income Asset Allocation Fund 15.5% 13.6% 12.3%
Employer Stock Fund N/A N/A N/A
</TABLE>
Benefits Under the Plan
Vesting. A Participant, at all times, has a fully vested,
nonforfeitable interest in any contributions that such Participant makes to the
Plan, including the earnings thereon.
A Participant will become vested and have a nonforfeitable interest in
contributions from the Association based on the number of years of service and
the vesting schedule set forth below.
Number of Full Years of Service Nonforfeitable % of Account
------------------------------- ---------------------------
1 25%
2 50%
3 75%
4 100%
You are also 100% vested in employer contributions made to your
account, regardless of your years of employment, upon attainment of normal
retirement age under the Plan, death or approved
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<PAGE>
disability. Any non-vested employer contributions which are forfeited shall be
used at the option of the Association to:
(1) reduce administrative expenses;
(2) offset any contribution to be made for the plan year; or
(3) be allocated to all eligible members at the end of the plan year in
the same ratio as each member's salary bears to the total of the salary of all
members.
Withdrawals and Distributions From the Plan
All payments in respect of a Participant's Account shall be made in
cash from the Plan's Trust fund and in accordance with the provisions of the
Plan. The amount of payment will be determined in accordance with the Unit (as
defined in the Plan) values on the valuation date coinciding with or next
following the date proper notice is filed with the Administrator, unless
following such valuation date a decrease in the Unit values of the Participant's
investment in any of the available investment funds occurs prior to the date
such Units of the Participant are redeemed in which case that part of the
payment which must be provided through the sale of existing Units shall equal
the value of such Units determined on the date of redemption which date shall
occur as soon as administratively practicable on or following the valuation date
such proper notice is filed with the Administrator. The redemption date Unit
value with respect to a Participant's investment in any of the available
investment funds shall equal the value of a Unit in such investment fund, as
determined in accordance with the valuation method applicable to Unit
investments in such investment fund on the date the Participant's investment is
redeemed.
Payments will generally be made in a lump sum as soon as practicable
after such valuation date or date of redemption, as may be applicable, subject
to any applicable restriction on redemption imposed on amounts invested in any
of the available Investment Funds.
Any partial withdrawal shall be deemed to come initially from the
Participant's after-tax contributions made prior to January 1, 1987, then from
the Participant's after-tax contributions made after December 31, 1986 plus
earnings on all of the Participant's after-tax contributions. Any partial
withdrawal amounts exceeding the two preceding categories will be deemed to come
from additional categories as provided in Section 7.1 of the Plan.
Withdrawals Prior to Termination of Employment. The Association may, at
its option, permit Participants to make withdrawals from one or more of the
portions of their Accounts while employed by the Association under the terms and
provisions described in the Plan.
To the extent permitted by the Association, a Participant may
voluntarily withdraw some or all of his or her Account (other than his or her
Elective Deferrals and qualified nonelective contributions treated as 401(k)
deferrals except as hereinafter permitted) while in employment by filing a
notice of withdrawal with the Administrator. Only one in-service withdrawal may
be made in any Plan Year from each of the rollover amount of the Participant's
Account and the remainder of the Participant's Account. This restriction shall
not, however, apply to a withdrawal in conjunction with a hardship withdrawal.
Notwithstanding the foregoing paragraph, a Participant may not withdraw
any matching, supplemental, or qualified nonelective contributions unless (i)
the Participant has completed 60 months
11
<PAGE>
of participation in the Plan; (ii) the withdrawal occurs at least 24 months
after such contributions were made by the Association; (iii) the Association
terminates the Plan without establishing a qualified successor plan; or (iv) the
Participant dies, is disabled, retires, attains age 59 1/2 or terminates
employment with the Association. For purposes of the preceding requirements, if
the Participant's Account includes amounts which have been transferred from a
defined contribution plan established prior to the adoption of the Plan by the
Association, the period of time during which amounts were held on behalf of such
Participant and the periods of participation of such Participant under such
defined contribution plan shall be taken in account. You may make a withdrawal
from your regular account and rollover account once per calendar year.
A Participant may make a withdrawal of his Elective Deferrals,
qualified nonelective contributions which are treated as elective deferrals, and
any earnings credited thereto prior to January 1, 1989, prior to attaining age
59 1/2, provided that the withdrawal is solely on account of an immediate and
heavy financial need and is necessary to satisfy such financial need. The term
"immediate and heavy financial need" shall be limited to the need of funds for
(i) the payment of medical expenses (described in Section 213(d) of the Code)
incurred by the Participant, the Participant's spouse, or any of the
Participant's dependents (as defined in Section 152 of the Code), (ii) the
payment of tuition and room and board for the next 12 months of post-secondary
education of the Participant, the Participant's spouse, the Participant's
children, or any of the Participant's dependents (as defined in Section 152 of
the Code), (iii) the purchase (excluding mortgage payments) of a principal
residence for the Participant, or (iv) the prevention of eviction of the
Participant from his principal residence or the prevention of foreclosure on the
mortgage of the Participant's principal residence. The amount of any hardship
withdrawal shall not exceed the amount required to meet the demonstrated
financial hardship, including any amounts necessary to pay any federal income
taxes and penalties reasonably anticipated to result from the distribution as
certified to the Administrator by the Participant.
Distributions Upon Termination of Employment. A Participant who
terminates employment with the Association may request a distribution of his or
her Account at any time thereafter up to attainment of age 70 1/2; provided,
however, such Participant files a request for distribution with the
Administrator. If a Participant does not file such a request, the value of his
or her Account will be paid as soon as practicable after the Participant's
attainment of age 70 1/2, but in no event shall payment commence later than
April 1 of the calendar year following the calendar year in which the
Participant attains age 70 1/2 unless otherwise provided by law. A Participant
may request a distribution of all or a part of his or her Account no more
frequently than once per calendar year by filing the proper request for
distribution with the Administrator.
In lieu of any lump sum payment of his or her total Account, a
Participant who has terminated employment may elect in the request for
distribution to be paid in up to 20 annual installments, provided that a
Participant shall not be permitted to elect an installment period in excess of
his or her remaining life expectancy. The amount of each installment will be
equal to the value of the total Units in the Participant's Account, multiplied
by a fraction, the numerator of which is one and the denominator of which is the
number of remaining annual installments including the one then being paid, so
that at the end of the installment period so elected, the total Account will be
liquidated. The value of the Units will be determined in accordance with the
Unit values on the valuation date on or next following the Administrator's
receipt of the Participant's request for distribution and on each anniversary
thereafter subject to applicable Treasury Regulations under Code Section
401(a)(9). The election to receive installment payments may not be subsequently
changed by the Participant unless written notice is provided to the
Administrator. A Participant may withdraw the balance of the Units in his or her
Account in a
12
<PAGE>
lump sum at any time, notwithstanding the fact that the Participant previously
received a distribution in the same calendar year.
Distributions due to Disability. A Participant who is separated from
employment by reason of a disability (as defined by the Plan) may withdraw his
or her total Account balance under the Plan and have such amounts paid to him or
her in accordance with the terms of the Plan. If a disabled Participant becomes
reemployed subsequent to withdrawal of some or all of his or her Account
balance, such Participant may not repay to the Plan any such withdrawn amounts.
Distributions due to Death. If you die prior to the benefit
commencement date for retirement, disability or termination of employment, your
benefit will be paid to your surviving spouse or beneficiary in a lump sum,
unless the payment would exceed $500 and you elected prior to death that the
payment be made in annual installments over a period not to exceed 5 years, or
10 years if your spouse is your beneficiary. If no election is in effect at the
time of your death, your beneficiary may elect to receive the benefit in the
form of annual installments over a period not to exceed 5 years, or 10 years if
your spouse is the beneficiary, or make withdrawals as often as once per year,
except that any balance remaining must be withdrawn by the fifth anniversary of
your death, or tenth anniversary if your spouse is the beneficiary. If you die
after distribution of your interest has begun, the remaining portion of such
interests will continue to be distributed as rapidly as under the method of
distribution being used prior to your death.
Distributions of Common Stock. Participants receiving a distribution
from the Plan where assets under the Plan have been directed by the Participant
to be invested in the Employer Stock Fund may have such assets distributed in
kind in the form of Common Stock.
Nonalienation of Benefits. Except with respect to federal income tax
withholding and as provided with respect to a qualified domestic relations order
(as defined in the Code), benefits payable under the Plan shall not be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance, charge, garnishment, execution, or levy of any kind, either
voluntary or involuntary, and any attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber, charge or otherwise dispose of any rights to
benefits payable under the Plan shall be void.
Plan Loans. A Participant may borrow money from the vested portion of
his or her account. The minimum amount a Participant may borrow is $1,000. The
maximum amount is 50% of a Participant's vested Account balance. A participant
may never borrow more than $50,000 minus the highest outstanding balance on any
individual loan during the last 12 months.
A Participant may take up to five years to repay a general purpose
loan. If the Participant is using the loan to purchase his or her primary
residence, a repayment period of 15 years is permissible. A Participant must
repay the loan through payroll deductions.
If a Participant fails to make any loan repayment when due, his or her
loan will be in default. If such default occurs after the first 12 monthly
payments of the loan have been satisfied, the full amount of the loan will be
due and payable within 60 days of the due date of the last monthly installment
payment. If the outstanding balance of the loan is in default and is not repaid
in the aforementioned time period, the Participant will be deemed to have
received a distribution of said amount.
13
<PAGE>
Administration of the Plan
The Association, effective April 1, 1999, will administer the Plan. The
Trustee with respect to the Plan is the named fiduciary of the Plan for purposes
of Section 402 of ERISA. The Bank of New York will serve as Trustee and
Custodian for all investment funds under the Plan except the Employer Stock
Fund. The Association's Executive Vice President, Harold E. Stremmel, will serve
as trustee with respect to the Employer Stock Fund ("Employer Stock Fund
Trustee") during the Conversion. After the Employer Stock is trading on a public
exchange, the Bank of New York will be the Employer Stock Fund Trustee. The Plan
Administrator is responsible for the administration of the Plan, interpretation
of the provisions of the Plan, prescribing procedure for filing applications for
benefits, preparation and distribution of information explaining the Plan,
maintenance of plan records, books of account and all other data necessary for
the proper administration of the Plan, and preparation and filing of all returns
and reports relating to the Plan which are required to be filed with the U.S.
Department of Labor and the IRS, and for all disclosures required to be made to
Participants, beneficiaries and others under Sections 104 and 105 of ERISA.
The Trustee receives and holds the contributions to the Plan in Trust
and distributes them to Participants and beneficiaries in accordance with the
terms of the Plan and the directions of the Plan Administrator. The Trustee is
responsible for investment of the assets of the Trust. The address of the Plan
Administrator and the Employer Stock Fund Trustee is 51 South Front Street,
Steelton, Pennsylvania, 17113. The address of the Bank of New York is One Wall
Street, New York, New York, 10286.
Reports to Plan Participants
The Administrator will furnish to each Participant a statement at least
quarterly showing (i) the balance in the Participant's Account as of the end of
that period, (ii) the amount of contributions allocated to the Participant's
Account for that period, and (iii) the adjustments to such Participant's Account
to reflect earnings or losses (if any). Participants investing in the Employer
Stock Fund shall also receive a copy of the Company's Annual Report to
Stockholders and a proxy statement related to stockholder meetings.
Amendment and Termination
It is the intention of the Association to continue the Plan
indefinitely. Nevertheless, the Association, within its sole discretion may
terminate the Plan at any time. If the Plan is terminated in whole or in part,
then regardless of other provisions in the Plan, you will have a fully vested
interest in your accounts. The Association reserves the right to make, from time
to time, any amendment or amendments to the Plan that do not cause any part of
the Trust to be used for, or diverted to, any purpose other than the exclusive
benefit of Participants or their beneficiaries; provided, however, that the
Association may make any amendment it determines necessary or desirable, with or
without retroactive effect, to comply with ERISA.
Merger, Consolidation, or Transfer
In the event of the merger or consolidation of the Plan with another
plan, or the transfer of the Trust assets to another plan, the Plan requires
that each Participant would (if either the Plan or the other plan then
terminated) receive a benefit immediately after the merger, consolidation, or
transfer that is
14
<PAGE>
equal to or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation, or transfer (if the Plan had then
terminated).
Federal Income Tax Consequences
The following discussion is only a brief summary of certain federal
income tax aspects of the Plan which are of general application under the Code
and is not intended to be a complete or definitive description of the federal
income tax consequences of participating in or receiving distributions from the
Plan. The summary is necessarily general in nature and does not purport to be
complete. Moreover, statutory provisions are subject to change, as are their
interpretations, and their application may vary in individual circumstances.
Finally, the consequences under applicable state and local income tax laws may
not be the same as under the federal income tax laws. Participants are urged to
consult their tax advisors with respect to any distribution from the Plan and
transactions involving the Plan.
The Plan will be submitted to the IRS for a determination that it is
qualified under Section 401(a) and 401(k) of the Code, and that the related
Trust is exempt from tax under Section 501(a) of the Code. A plan that is
"qualified" under these sections of the Code is afforded special tax treatment
which include the following: (1) The sponsoring employer is allowed an immediate
tax deduction for the amount contributed to the Plan each year; (2) Participants
pay no current income tax on amounts contributed by the employer on their
behalf; and (3) earnings of the plan are tax-exempt thereby permitting the
tax-free accumulation of income and gains on investments. The Plan will be
administered to comply in operation with the requirements of the Code as of the
applicable effective date of any change in the law. The Association expects to
timely adopt any amendments to the Plan that may be necessary to maintain the
qualified status of the Plan under the Code.
Assuming that the Plan is administered in accordance with the
requirements of the Code and that the IRS issues a favorable determination as
described in the preceding paragraph, participation in the Plan under existing
federal income tax laws will have the following effects:
(a) Amounts contributed to a Participant's Salary Reduction Account and
the investment earnings on this Account are not includable in a
Participant's federal taxable income until such contributions or earnings
are actually distributed or withdrawn from the Plan. Special tax treatment
may apply to the taxable portion of any distribution that includes Common
Stock or qualifies as a Lump Sum Distribution (as described below).
(b) Income earned on assets held by the Trust will not be taxable to
the Trust.
Lump Sum Distribution. A distribution from the Plan to a Participant or
the beneficiary of a Participant will qualify as a Lump Sum Distribution if it
is made: (i) within one taxable year of the Participant or beneficiary; (ii) on
account of the Participant's death, disability, or separation from service, or
after the Participant attains age 59 1/2; and (iii) consists of the balance to
the credit of the Participant under this Plan and all other profit sharing
plans, if any, maintained by the Association. The portion of any Lump Sum
Distribution that is required to be included in the Participant's or
beneficiary's taxable income for federal income tax purposes (the "total taxable
amount") consists of the entire amount of such Lump Sum Distribution less the
amount of after-tax contributions, if any, made by the Participant to any other
profit sharing plans maintained by the Association which is included in such
distribution.
15
<PAGE>
Averaging Rules. The portion of the total taxable amount of a Lump Sum
Distribution that is attributable to participation in this Plan or in any other
profit-sharing plan maintained by the Association (the "ordinary income
portion") will be taxable generally as ordinary income for federal income tax
purposes. However, a Participant who has completed at least five years of
participation in this Plan before the taxable year in which the distribution is
made, or a beneficiary who receives a Lump Sum Distribution on account of the
Participant's death (regardless of the period of the Participant's participation
in this Plan or any other profit-sharing plan maintained by an employer), may
elect to have the ordinary income portion of such Lump Sum Distribution taxed
according to a special averaging rule ("five-year averaging"). The election of
the special averaging rules may apply only to one Lump Sum Distribution received
by the Participant or beneficiary, provided such amount is received on or after
the Participant turns 59 1/2 and the recipient elects to have any other Lump Sum
Distribution from a qualified plan received in the same taxable year taxed under
the special averaging rule. Under a special grandfather rule, individuals who
turned 50 by 1986 may elect to have their Lump Sum Distribution taxed under
either the five-year averaging rule or under the prior law ten-year averaging
rule. Such individuals also may elect to have that portion of the Lump Sum
Distribution attributable to the participant's pre-1974 participation in the
Plan taxed at a flat 20% rate as gain from the sale of capital assets.
Common Stock Included in Lump Sum Distribution. If a Lump Sum
Distribution includes Common Stock, the distribution generally will be taxed in
the manner described above, except that the total taxable amount will be reduced
by the amount of any net unrealized appreciation with respect to such Common
Stock (i.e., the excess of the value of such Common Stock at the time of the
distribution over its cost to the Plan). The tax basis of such Common Stock to
the Participant or beneficiary for purposes of computing gain or loss on its
subsequent sale will be the value of the Common Stock at the time of
distribution less the amount of net unrealized appreciation. Any gain on a
subsequent sale or other taxable disposition of such Common Stock, to the extent
of the amount of net unrealized appreciation at the time of distribution will be
considered either short-term capital gain or long-term capital gain depending
upon the length of the holding period of the Common Stock. The recipient of a
distribution may elect to include the amount of any net unrealized appreciation
in the total taxable amount of such distribution to the extent allowed by the
Treasury Regulations.
Distributions: Rollovers and Direct Transfers to Another Qualified Plan
or to an IRA. Pursuant to a change in the law, effective January 1, 1993,
virtually all distributions from the Plan may be rolled over to another
qualified plan or to an individual retirement account ("IRA") without regard to
whether the distribution is a Lump Sum Distribution or a Partial Distribution.
Effective January 1, 1993, Participants have the right to elect to have the
Trustee transfer all or any portion of an "eligible rollover distribution"
directly to another plan qualified under Section 401(a) of the Code or to an
IRA. If the Participant does not elect to have an "eligible rollover
distribution" transferred directly to another qualified plan or to an IRA, the
distribution will be subject to a mandatory federal withholding tax equal to 20%
of the taxable distribution. An "eligible rollover distribution means any amount
distributed from the Plan except: (i) a distribution that is (a) one of a series
of substantially equal periodic payments (not less frequently than annually)
made for the life (or life expectancy) of the Participant or the joint lives of
the Participant and his or her designated beneficiary, or (b) for a specified
period of ten years or more; (ii) any amount that is required to be distributed
under the minimum distribution rules; and (iii) any other distributions excepted
under applicable federal law. The tax law change described above did not modify
the special tax treatment of Lump Sum Distributions that are not rolled over or
transferred.
Additional Tax on Early Distributions. A Participant who receives a
distribution from the Plan prior to attaining age 59 1/2 will be subject to an
additional income tax equal to 10% of the taxable
16
<PAGE>
amount of the distribution. The 10% additional income tax will not apply,
however, to the extent the distribution is rolled over into an IRA or another
qualified plan or the distribution is (i) made to a beneficiary (or to the
estate of the Participant) on or after the death of the Participant, (ii)
attributable to the Participant's being disabled within the meaning of Section
72(m)(7) of the Code, (iii) part of a series of substantially equal periodic
payments (not less frequently than annually) made for the life (or life
expectancy) of the Participant or the joint lives (or joint life expectancies)
of the Participant and his beneficiary, (iv) made to the Participant after
separation from service on account of early retirement under the Plan after
attainment of age 55, (v) made to pay medical expenses to the extent deductible
for federal income tax purposes, (vi) pursuant to a qualified domestic relations
order, or (vii) made to effect the distribution of excess contributions or
excess deferrals.
The foregoing is only a brief summary of certain federal income tax
aspects of the Plan which are of general application under the Code and is not
intended to be a complete or definitive description of the federal income tax
consequences of participating in or receiving distributions from the Plan.
Accordingly, each Participant is urged to consult a tax advisor concerning the
federal, state and local tax consequences of participating in and receiving
distributions from the Plan.
ERISA and Other Qualifications
As noted above, the Plan is subject to certain provisions of ERISA
(including special provisions relating to control over the Plan's assets by
participant's and beneficiaries), and will be submitted to the IRS for a
determination that it is qualified under Section 401(a) of the Code. The Plan is
intended to satisfy the requirements of Section 404(c) of ERISA relating to
control over plan assets by a participant or beneficiary. The effect of this is
two-fold. First, you will not be deemed a 'fiduciary' because of your exercise
of investment discretion. Second, no person who otherwise is a fiduciary, such
as your employer, the Plan Administrator, or the Plan's trustee is liable under
the fiduciary responsibility provision of ERISA for any loss which results from
your exercise of control over the assets in your plan account.
Because you will be entitled to invest all or a portion of your account
balance in the Plan in Common Stock, the regulations under Section 404(c) of
ERISA require that the Plan establish procedures that ensure the confidentiality
of your decision to purchase, hold, or sell employer securities, except to the
extent that disclosure of such information is necessary to comply with federal
or state laws not preempted by ERISA. These regulations also require that your
exercise of voting and similar rights with respect to the Common Stock be
conducted in a way that ensures the confidentiality of your exercise of these
rights. Accordingly, the Plan committee designates Harold Stremmel, Executive
Vice President of the Association, as the person to whom your investment
instructions should be returned. Mr. Stremmel will transfer your investment
instructions directly to Pentegra Group, the Plan's third-party administrator.
In the case of an event that involves a potential for undue employer influence
such as a tender offer, you will be instructed to return your instructions
directly to Pentegra Group.
Restrictions on Resale
Any person receiving shares of Common Stock under the Plan who is an
"affiliate" of the Association or the Company as the term "affiliate" is used in
Rules 144 and 405 under the Securities Act of 1933 (e.g., directors, officers,
and substantial shareholders of the Company) may reoffer or resell such shares
only pursuant to a registration statement filed under the Securities Act of 1933
or, assuming the availability thereof, pursuant to Rule 144 or some other
exemption of the registration requirements of the
17
<PAGE>
Securities Act of 1933 (the "Securities Act"). Any person who may be an
"affiliate" of the Association or the Company may wish to consult with counsel
before transferring any Common Stock owned by him. Participants who serve as
directors, officers or 10% stockholders of the Company are advised to consult
with counsel as to the applicability of Section 16 of the 1934 Act which may
restrict the sale of Common Stock where acquired under the Plan, or other sales
of Common Stock. In addition, directors and officers of the Association may be
restricted from transferring shares purchased in the Conversion for a period of
one year in accordance with regulations of the Office of Thrift Supervision.
Persons who are not deemed to be "affiliates" of the Association or the
Company at the time of resale will be free to resell any shares of Common Stock
received by them under the Plan, either publicly or privately, without regard to
the Registration and Prospectus delivery requirements of the Securities Act or
compliance with the restrictions and conditions contained in the exemptive rules
thereunder. An "affiliate" is someone who directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control,
with the Association or the Company. Normally, a director, principal officer or
major shareholder of a corporation may be deemed to be an "affiliate of that
corporation. A person who may be deemed an "affiliate" at the time of a proposed
resale will be permitted to make public resales of the Common Stock only
pursuant to a "reoffer" prospectus or in accordance with the restrictions and
conditions contained in Rule 144. Such sales may be made only though brokers
without solicitation and only at a time when the Company is current in filing
the reports required of it under the 1934 Act.
SEC Reporting and Short-Swing Liability
Section 16 of the 1934 Act imposes reporting and liability requirements
on officers, directors, and persons beneficially owning more than ten percent of
the stock of public companies, such as the Company. Section 16(a) of the 1934
Act requires the filing of reports of beneficial ownership. Within ten days of
becoming a person subject to the reporting requirements of Section 16(a), a Form
3 reporting initial beneficial ownership must be filed with the Securities and
Exchange Commission ("SEC"). Certain changes in beneficial ownership, such as
purchases, sales, gifts, and participation in savings and retirement plans must
be reported periodically, either on a Form 4 within ten days after the end of
the month in which a change occurs, or annually on a Form 5 within 45 days after
the close of the Company's fiscal year. Participation in the Employer Stock Fund
of the Plan by officers, directors, and persons beneficially owning more than
ten percent of the Common Stock of the Company must be reported to the SEC
annually on a Form 5 by such individuals.
In addition to the reporting requirements described above, Section
16(b) of the 1934 Act provides for the recovery by the Company of profits
realized by any officer, director, or any person beneficially owning more than
ten percent of the Common Stock ("Section 16(b) Persons") resulting from the
purchase and sale or sale and purchase of the Common Stock within any six-month
period. The SEC has adopted rules that provide exemption from the profit
recovery provisions of Section 16(b) for participant- directed employer security
transactions within an employee benefit plan, such as the Plan, provided certain
requirements are met. These requirements generally involve restrictions upon the
timing of elections to acquire or dispose of employer securities for the
accounts of Section 16(b) Persons. Except for distributions of Common Stock due
to death, disability, retirement, termination of employment, or under a
qualified domestic relations order, under the Plan, Section 16(b) Persons are
required to hold shares of Common Stock distributed for six months after
receiving such a distribution.
18
<PAGE>
Additional Information
This Prospectus Supplement dated ________________________, 1999, is
part of the Prospectus of the Company dated ____________________, 1999. This
Prospectus Supplement shall be delivered to Plan Participants in conjunction
with the Prospectus and is not complete unless it is accompanied by the
Prospectus dated ________________________, 1999.
LEGAL OPINIONS
The validity of the issuance of the Common Stock will be passed upon by
Malizia, Spidi, Sloane & Fisch, P.C., Washington, D.C., which firm acted as
special counsel for the Company and the Association in connection with the
Conversion.
19
<PAGE>
Appendix-A: Investment Form
<PAGE>
Appendix-A
MECHANICS SAVINGS & LOAN FSA EMPLOYEES'
SAVINGS & PROFIT SHARING PLAN AND TRUST
---------------------------
Participant Voluntary Investment Election Form
---------------------------
Name of Plan Participant:
-----------------------------------
Social Security Number:
------------------------------------
1. Instructions.
------------
In connection with the proposed Conversion of the Mechanics Savings &
Loan FSA ("Association") from a federally chartered mutual savings association
to a federally chartered stock savings bank (the "Conversion"), the Association
has adopted the Mechanics Savings & Loan FSA Employees' Savings & Profit Sharing
Plan ("Plan") to permit Participants to direct all, or a portion, of the assets
attributable to their Participant Account into a new fund: the Employer Stock
Fund. The assets attributable to a Participant's Account under the Plan
transferred at the direction of the Participant into the Employer Stock Fund
will be used to purchase shares of common stock (the "Common Stock") of Steelton
Bancorp, Inc. ("Company") to be issued in the initial stock offering of the
Company.
To direct a transfer of all or a part of the funds credited to your
Accounts to the Employer Stock Fund, you should complete and file this form with
Harold E. Stremmel, at 51 South Front Street, Steelton, Pennsylvania, 17113, who
will retain this form and return a copy to you. If you need any assistance in
completing this form, please contact Harold E. Stremmel at (717) 939-1966. If
you do not complete and return this form to the Plan Administrator by
_______________________, 1999, at 12:00 p.m., the funds credited to your
Accounts under the Plan will continue to be invested in accordance with your
prior investment direction, or in accordance with the terms of the Plan if no
investment direction has been provided.
2. Investment Directions.
---------------------
As a Participant in the Plan, I hereby voluntarily elect to direct the
Trustee of the Plan to invest the below indicated dollar sum of my Participant
Account balance under the Plan as indicated below.
I hereby voluntarily elect and request to direct investment of the
below indicated dollar amount of my Participant Account funds for the purchase
of the Common Stock to be issued in the Association's mutual-to-stock Conversion
as indicated below (minimum investment of $250.00; rounded to the nearest $10.00
increment; maximum investment permissible is 10,000 shares of the Common Stock
being offered or $100,000): $___________. Enter your $ level of requested
purchase through the Plan. Such amount does not exceed the vested portion of
assets held under the Plan for the underlying Participant.
<PAGE>
Please note that the actual number of shares of Common Stock purchased on your
behalf under the Plan may be limited or reduced in accordance with the Plan of
Stock Conversion of the Association based upon the total number of shares of
Common Stock subscribed for by other parties.
All other funds in my Participant Account will remain invested as
previously requested. All future contributions under the Plan will continue to
be invested as previously requested.
3. Acknowledgement.
---------------
I fully understand that this self-directed portion of my Participant
Account does not share in the overall net earnings, gains, losses, and
appreciation or depreciation in the value of assets held by the Plan's other
investment funds, but only in my Account's allocable portion of such items from
the Directed Investment Account invested in the Common Stock. I understand that
the Plan's Trustee, in complying with this election and in following my
directions for the investment of my Account, is not responsible or liable in any
way for the expenses or losses that may be incurred by my Account assets
invested in Common Stock under the Employer Stock Fund.
I further understand that this one time election shall become
irrevocable by me upon execution and submission of this Investment Form. Only
properly signed forms delivered to the Plan Trustee on or before __________,
1999, at 12:00 p.m., will be honored.
The undersigned Participant acknowledges that he or she has received
and read the Prospectus of the Steelton Bancorp, Inc., dated __________________,
1999, the Prospectus Supplement dated ____________, 1999, regarding the
Mechanics Savings & Loan FSA Employees' Savings & Profit Sharing Plan and Trust
as adopted by Mechanics Savings & Loan FSA and this Investment Form. The
undersigned hereby acknowledges that the shares of Common Stock to be purchased
with the funds noted above are not savings accounts or deposits and are not
insured by the Federal Deposit Insurance Corporation, the Association Insurance
Fund, the Savings Bank Insurance Fund, or any other governmental agency.
Investment in such Common Stock will expose the undersigned to the investment
risks and potential fluctuations in the market price of such Common Stock. Such
investment in the Common Stock does not offer any guarantees regarding
maintenance of the principal value of such investment or any projections or
guarantees associated with future value or dividend payments with respect to
such Common Stock. The undersigned has read and understands the above listed
documents and hereby voluntarily makes and consents to this investment election
and voluntarily signed his (her) name as of the date listed below. If you so
elect, you may choose not to make any investment decision at this time.
- ---------------------- ------------- ------------------------ -------------
Witness Date Participant Date
- ---------------------- ------------- ------------------------ -------------
Witness Date Participant's Spouse Date
For the Trustee For the Plan Administrator
- ---------------------- ------------- ------------------------ -------------
Date Date
<PAGE>
Appendix-B: Change in Investment Allocation Form
<PAGE>
Appendix-B
----------
Change of Investment Allocation Form
MECHANICS SAVINGS & LOAN FSA
CHANGE OF INVESTMENT ALLOCATION
- -------------------------------
1. Member Data
- ------------------------------------------------------------------------------
Print your full name above (Last, first, middle initial) Social Security Number
- ------------------------------------------------------------------------------
Street Address City State Zip
2. Instructions
Mechanics Savings & Loan FSA Employees' Savings & Profit Sharing Plan and Trust
(the "Plan") is giving members a special opportunity to invest their 401(k)
account balances in a new investment fund - the Employer Stock Fund - which is
comprised primarily of common stock ("Common Stock") issued by Steelton Bancorp,
Inc. (the "Company") in connection with the reorganization of Mechanics Savings
& Loan FSA into the two-tier holding company form of organization. The
percentage of a member's account transferred at the direction of the member into
the Employer Stock Fund will be used to purchase shares of Common Stock during
the Subscription and Community Offering. Please review the Prospectus (the
"Prospectus") and the Prospectus Supplement ( the "Supplement") before making
any decision.
In the event of an oversubscription in the Offering so that the total amount you
allocate to the Employer Stock Fund can not be used by the trustee to purchase
Common Stock, your account will be reinvested in the other funds of the Plan as
previously directed in your last investment election.
Investing in Common Stock entails some risks, and we encourage you to discuss
this investment decision with your spouse and investment advisor. The Plan
trustee and the Plan administrator are not authorized to make any
representations about this investment other than what appears in the Prospectus
and Supplement, and you should not rely on any information other than what is
contained in the Prospectus and Supplement. For a discussion of certain factors
that should be considered by each member as to an investment in the Common
Stock, see "Risk Factors" beginning on page __ of the Prospectus. Any shares
purchased by the Plan pursuant to your election will be subject to the
conditions or restrictions otherwise applicable to Common Stock, as discussed in
the Prospectus and Supplement.
3. Investment Directions (Applicable to Accumulated Balances Only) To direct a
transfer of all or part of the funds credited to your accounts to the Employer
Stock Fund, you should complete and file this form with Harold E. Stremmel,
Executive Vice President, Mechanics Savings & Loan FSA, no later than
_________________________________________ at 12:00 noon. If you need any
assistance in completing this form, please contact Mr. Stremmel at (717)
939-1966. If you do not complete and return this form to Mr. Stremmel by
_____________________________________ at 12:00 noon, the funds credited to
accounts under the Plan will continue to be invested in accordance with your
prior investment direction, or in accordance with the terms of the 401(k) Plan
if no investment direction had been provided.
<PAGE>
I hereby revoke any previous investment direction and now direct that the market
value of the units that I have invested in the following funds, to the extent
permissible, be transferred out of the specified fund and invested (in whole
percentages) in the Employer Stock Fund as follows:
Fund Percentage to be transferred
---- ----------------------------
S&P 500 Stock Fund _____ %
Stable Value Fund _____ %
S&P MidCap Stock Fund _____ %
Money Market Fund _____ %
Government Bond Fund _____ %
International Stock Fund _____ %
Income Plus Fund _____ %
Growth & Income Fund _____ %
Growth Fund _____ %
Note: The total amount transferred may not exceed the total value of your
accounts.
4. Investment Directions (Applicable to Future Contributions Only)I hereby
revoke any previous investment instructions and now direct that any future
contributions and/or loan repayments, if any, made by me or on my behalf by
Mechanics Savings & Loan FSA, including those contributions and/or repayments
received by Mechanics Savings & Loan FSA Employees' Savings & Profit Sharing
Plan and Trust during the same reporting period as this form, be invested in the
following whole percentages. If I elect to invest in Steelton Bancorp, Inc.
Common Stock, such future contributions or loan repayments, if any, will be
invested in the Employer Stock Fund the month following the conclusion of the
Offering.
Fund Percentage
---- ----------
S&P 500 Stock Fund ____ %
Stable Value Fund ____ %
S&P MidCap Stock Fund ____ %
Money Market Fund ____ %
Government Bond Fund ____ %
International Stock Fund ____ %
Income Plus Fund ____ %
Growth & Income Fund ____ %
Growth Fund ____ %
Employer Stock Fund ____ %
Total (Important!) 100 %
Notes: No amounts invested in the Stable Value Fund may be transferred directly
to the Money Market Fund. Stable Value Fund amounts invested in the S&P 500
Stock Fund, S&P MidCap Stock Fund, Government Bond Fund, International Stock
Fund, Income Plus Fund, Growth & Income Fund, Growth Fund and/or Employer Stock
Fund, for a period of three months may be transferred to the Money Market Fund
upon the submission of a separate Change of Investment Allocation form.
The percentage that can be transferred to the Money Market Fund may be limited
by any amounts previously transferred from the Stable Value Fund that have not
satisfied the equity wash requirement. Such amounts will remain in either the
S&P 500 Stock Fund, S&P MidCap Stock Fund, Government Bond Fund, International
Stock Fund, Income Plus Fund, Growth & Income Fund, Growth Fund and/or Employer
Stock Fund and a separate direction to transfer them to the Money Market Fund
will be required when they become available.
<PAGE>
5. Participant Signature and Acknowledgment - Required
By signing this Change Of Investment Allocation form, I authorize and direct the
Plan administrator and trustee to carry out my instructions. I acknowledge that
I have been provided with and read a copy of the Prospectus and Supplement
relating to the issuance of Common Stock. I am aware of the risks involved in
the investment in Common Stock, and understand that the trustee and Pan
administrator are not responsible for my choice of investment.
MEMBER'S SIGNATURE
- ------------------------------------------------------ ---------------------
Signature of Member Date
Pentegra Services, Inc. is hereby authorized to make the above listed change(s)
to this member's record.
- ------------------------------------------------------ ---------------------
Signature of Mechanics Savings & Loan FSA Date
Authorized Representative
Please complete and return by 12:00 noon on __________________________________ .
<PAGE>
PROSPECTUS
500,250 Shares
of
Common Stock
of
Steelton Bancorp, Inc.
(Holding Company for Mechanics Savings Bank)
51 South Front Street
Steelton, Pennsylvania, 17113
(717) 939-1966
- --------------------------------------------------------------------------------
Steelton Bancorp, Inc. is offering for sale up to 500,250 shares of
common stock at $10.00 per share in accordance with Mechanics Savings and Loan,
FSA's conversion from a federal mutual savings association to a federal stock
savings bank, to be known as Mechanics Savings Bank. As part of the conversion,
Mechanics Savings and Loan, FSA will become a wholly owned subsidiary of
Steelton Bancorp, Inc. The deadline for ordering stock is __________ p.m. on
____________ ____, 1999, and may be extended to ______________, 1999. All funds
submitted shall be placed in a deposit account at Mechanics Savings and Loan,
FSA until the shares are issued or the funds are returned. No stock will be sold
if Steelton Bancorp, Inc. does not receive orders for at least the minimum
number of shares.
There is currently no public market for the stock. The stock is
expected to be quoted on the OTC Bulletin Board under the symbol "_______."
Capital Resources, Inc. is not required to sell any specific number or
dollar amount of stock but will use their best efforts to sell the stock
offered.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
--------------------------------------------------------------
MINIMUM MIDPOINT MAXIMUM
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Number of Shares 369,750 435,000 500,250
- -----------------------------------------------------------------------------------------------------------------------------
Total Underwriting Commissions and Expenses $ 310,000 $ 310,000 $ 310,000
- -----------------------------------------------------------------------------------------------------------------------------
Net Proceeds $3,387,500 $4,040,000 $4,692,500
- -----------------------------------------------------------------------------------------------------------------------------
Net Proceeds Per Share $ 9.16 $ 9.29 $ 9.38
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Based upon market conditions and the approval of the Office of Thrift
Supervision, Steelton Bancorp, Inc. may increase the offering by up to 15% of
the 500,250 shares to be sold (i.e., 575,288 shares).
Please refer to Risk Factors beginning on page ____ of this document.
These securities are not deposits or savings accounts and are not insured or
guaranteed by the Federal Deposit Insurance Corporation or any other
governmental agency.
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, nor any state securities regulator has approved or disapproved
these securities or determined if this prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
Capital Resources, Inc.
The Date of this Prospectus is __________ ____, 1999
<PAGE>
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[MAP GOES HERE]
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2
<PAGE>
SUMMARY
This summary highlights selected information from this document and may
not contain all the information that is important to you. To understand the
stock offering fully, you should read this entire document carefully, including
the consolidated financial statements and the notes to the consolidated
financial statements.
Steelton Bancorp, Inc.
Steelton Bancorp is not an operating company and has not engaged in any
significant business to date. Its primary activity will be owning all the stock
of Mechanics Savings Bank. See pages ______.
Mechanics Savings and Loan, FSA.
Mechanics Savings and Loan, FSA is a federally chartered mutual savings
institution. It is converting from the mutual to the stock form of ownership as
part of the conversion. The converted federal stock savings bank will be called
"Mechanics Savings Bank." See pages _______.
Our use of the proceeds raised from the sale of stock.
Steelton Bancorp will use approximately 50% of the cash received in the
offering to purchase all of Mechanics Savings' stock. Steelton Bancorp will also
lend the Mechanics Savings' employee stock ownership plan cash to enable the
plan to buy 8% of the shares sold in the offering. The balance will be retained
as Steelton Bancorp's initial capitalization. See pages __________.
How we determined the price per share and the number of shares we are offering.
The number of shares offered is based on an independent appraisal of
the pro forma estimated market value of the stock by FinPro, Inc. divided by the
purchase price of $10.00 and multiplied by the percentage of shares being
offered to the public. The $10.00 per share was determined by the Board of
Directors in consultation with Capital Resources. According to the appraisal,
which was based on information at March 1, 1999, the ratio of our $10.00
purchase price to pro forma net income per share represented a premium to the
average ratio of trading price to earnings per share of all publicly traded
savings and loan holding companies. Also, at that date, the ratio of our $10.00
purchase price to pro forma book value, or stockholders' equity, per share
represented a discount to the average ratio of trading price to book value per
share of all publicly traded savings and loan holding companies.
Based on various assumptions about the offering and the reinvestment of
the amount of cash raised in the offering, Steelton Bancorp's ratio of offering
price to pro forma net income per share based on fiscal 1998 earnings measured:
3
<PAGE>
o 23.8x at the minimum;
o 24.4x at the midpoint;
o 27.8x at the maximum; and
o 28.6x at the adjusted maximum, of the estimated valuation range.
Based on market price information as of March 1, 1999, the mean ratio
of trading price to earnings per share for all fully converted publicly traded
thrift holding companies was 17.4x. The median ratio of trading price to
earnings per share for all fully converted publicly traded thrift holding
companies was 15.4x.
Steelton Bancorp's ratio of offering price to pro forma stockholders'
equity per share at December 31, 1998 measured:
o 55.7% at the minimum;
o 60.3% at the midpoint;
o 64.2% at the maximum; and
o 68.1% at the adjusted maximum
of the estimated valuation range.
Based on market price information as of March 1, 1999, the mean ratio
of trading price to book value per share for all fully converted publicly traded
thrift holding companies was 128.4%. The median ratio of trading price to book
value per share for all fully converted publicly traded thrift holding companies
was 114.7%.
Because of possible differences in important factors such as operating
characteristics, financial performance, asset size, capital structure, and
business prospects between Steelton Bancorp and other savings and loan holding
companies, you should not rely on these comparative valuation ratios as an
indication as to whether or not the stock is a good investment for you. See --
"Risk Factors -- There is No Guarantee that the Price of Our Stock Will Increase
to a Level Comparable to Other Publicly Traded Savings and Loan Holding
Companies" and "Pro Forma Data" and "The Offering -- Stock Pricing and the
Number of Shares to be Offered."
The amount of stock you may purchase.
Minimum purchase = 25 shares
Maximum purchase = 10,000 shares for any person or persons acting
together
How we will prioritize orders if we receive orders for more shares than are
available.
You might not receive any or all of the stock you want to purchase.
Mechanics Savings and Loan, FSA has granted subscription rights in the following
order of priority:
o Priority 1 - Depositors of Mechanics Savings and Loan, FSA at
the close of business on December 31, 1997 with deposits of at
least $50.00.
o Priority 2 - The tax qualified employee stock benefit plans of
Mechanics Savings Bank.
4
<PAGE>
o Priority 3 - Depositors of Mechanics Savings and Loan, FSA at
the close of business on March 31, 1999 with deposits of at
least $50.00.
o Priority 4 - Other depositors and certain borrowers of
Mechanics Savings and Loan, FSA as of _______________, 1999
who are entitled to vote on the conversion.
To the extent that shares remain available and subject to market
conditions at or near the completion of the subscription offering, we will
conduct one or more of a community and syndicated community offering. In a
community offering, preference will be given to persons who reside in Dauphin
County, Pennsylvania. Any remaining shares may be offered to the general public
through a group of brokers/dealers organized by Capital Resources. Steelton
Bancorp and Mechanics Savings have the right to reject any stock order received
in the community offering or offering through broker/dealers.
Our officers, directors and employees will receive benefits from the offering or
within one year of the offering.
In order to tie our employees' and directors' interests closer to our
stockholders' interests, we intend to establish certain benefit plans that use
our stock as compensation. Officers, directors, and employees will not be
required to pay cash in exchange for ESOP or restricted shares but will be
required to pay the exercise price to exercise options.
The following table presents information regarding the participants in
each plan, total amount, the percentage, and the dollar value of the stock that
we intend to set aside for our employee stock ownership plan and stock-based
incentive plans. The stock-based incentive plans may not be adopted for at least
six months after the offering and must be approved by a majority vote of the
public stockholders. The table below assumes the sale of 435,000 shares in the
offering. It is assumed that the value of the stock in the table is $10 per
share. Options are given no value because their exercise price will be equal to
the fair market value of the stock on the day the options are granted. As a
result, anyone who receives an option will only benefit from the option if the
price of the stock rises above the exercise price. See pages __________ for more
information, including regulatory restrictions on the maximum amount of benefits
participants may receive and the rate at which benefits may be earned under the
incentive plans.
Percentage of
Total Shares
Estimated Sold in the
Participants Value of Shares Offering
------------ --------------- -------------
Employee Stock Ownership Plan.... Employees $348,000 8.0%
Stock-Based Incentive Plans:
Stock Awards................. Officers 174,000 4.0
and
Directors
Stock Options................ Officers -- 10.0
and -------- ----
Directors
Total................... $522,000 22.0%
======= ====
5
<PAGE>
As a public company, it is important for us to reassure our management
of our commitment to their employment with Mechanics Savings. With this in mind,
some of our employees will receive employment agreements. The agreements provide
that if Steelton Bancorp or Mechanics Savings is acquired and the employee is
terminated, the employee will receive a cash payment. Participants in our
stock-based benefit plans may also receive benefits if Steelton Bancorp or
Mechanics Savings is acquired.
Dividends
We anticipate paying cash dividends after the conversion, although the
timing, amount and frequency have not been determined. There are restrictions on
our ability to pay dividends. See pages __________.
Deadlines for purchasing stock.
The subscription offering will terminate at ____:____ __________,
Pennsylvania time, on __________ ____, 1999. The community offering and the
other offering through broker/dealers, if any, may terminate at any time without
notice but no later than __________ ____, 1999.
Subscription rights are not transferrable.
Selling or transferring your right to buy stock in the subscription
offering is illegal. If you exercise this right you must tell Steelton Bancorp
that you are purchasing stock for your own account. If Steelton Bancorp believes
your order violates this restriction, your order will not be filled. You also
may be subject to penalties imposed by the Office of Thrift Supervision.
There are conditions that must be satisfied before we can complete the offering
and issue the stock.
The following must occur before we can complete the offering and issue
our stock:
o We must receive all the required approvals from the government agencies
that regulate us;
o Mechanics Savings and Loan, FSA's members must approve the conversion;
and
o We must sell at least the minimum number of shares offered.
6
<PAGE>
RISK FACTORS
In addition to the other information in this document, you should
consider carefully the following risk factors in evaluating an investment in our
common stock.
Future changes in interest rates may reduce our profits.
Our ability to make a profit largely depends on our net interest
income. Net interest income is the difference between:
o the interest income we earn on our interest-earning assets, such as
mortgage loans and investment securities; and
o the interest expense we pay on our interest-bearing liabilities, such
as deposits and amounts we borrow.
Most of our mortgage loans have rates of interest which are fixed for the life
of the loan and are generally originated for periods of up to 30 years, while
our deposit accounts have significantly shorter periods to maturity. Because our
interest-earning assets generally have fixed rates of interest and have longer
effective maturities than our interest-bearing liabilities, the yield on our
interest-earning assets generally will adjust more slowly to changes in interest
rates than the cost of our interest-bearing liabilities, which are primarily
time deposits. As a result, our net interest income may be reduced when interest
rates increase significantly for long periods of time. In addition, rising
interest rates may reduce our earnings because there may be a lack of customer
demand for loans. Declining interest rates may also reduce our net interest
income if adjustable rate or fixed rate mortgage loans are refinanced at reduced
rates or paid off earlier than expected, and we reinvest these funds in assets
which earn us a lower rate of interest. Mechanics Savings has remaining
approximately $1.8 million of IRA accounts, which were originally deposited in
the 1980s at a rate of 8%, as part of a promotion to attract long-term deposits
for IRAs. In addition, the Association has approximately $2.2 million of IRA
accounts that have a weighed average yield of 6.93%, which is significantly
above the rates paid on current deposits. Since these IRAs do not mature until
approximately 2003, they will continue to adversely affect Mechanics Savings'
net interest margin. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Management of Interest Rate Risk and
Market Risk."
We intend to increase our commercial real estate and consumer lending after the
offering. The risk related to these types of loans is greater than the risk
related to residential loans.
The risk that commercial real estate and consumer loans will not be
repaid is generally greater than the risk that residential loans will not be
repaid. As Mechanics Savings increases the amount of commercial real estate and
consumer loans it makes and holds for investment, the likelihood increases that
some of its loans will not be repaid or will be late in paying. Any failure to
pay or late payments would hurt our earnings.
If our return on equity after the offering is low, this may negatively affect
the price of our stock.
The net proceeds from the offering will substantially increase our
equity capital. It will take some time to carefully invest this capital. The
stock based benefit plans and cost of preparing reports for stockholders and the
SEC will cause our expenses to increase. The development of new types of
7
<PAGE>
commercial and consumer loan products will also increase expenses. As a result,
our return on equity, which is the ratio of our earnings divided by our equity
capital, may decrease as compared to previous years and may be lower than that
of similar companies. To the extent that the stock market values a company based
on its return on equity, a decline in our return on equity could cause the
trading price of our stock to decline.
The expenses related to our stock-based benefit plans will reduce our earnings.
We intend to adopt an employee stock ownership plan as part of the
conversion. We also intend to adopt other stock-based benefit plans. The money
that we use to buy stock to fund our stock-based benefit plans will not be
available for investment. Also, our future expenses are expected to increase
because we are adopting these plans. Both of these factors will cause our
earnings to be lower than they would be if we chose not to adopt stock-based
benefit plans. See "Pro Forma Data" and "Management - Executive Compensation -
Employee Stock Ownership Plan."
We intend to remain independent and have taken steps to discourage takeover
attempts.
Mechanics Savings has operated as an independent community oriented
savings association since 1900. It is the intent of Steelton Bancorp to continue
that tradition. Accordingly, you are urged not to invest in our common stock if
you are anticipating a quick sale of Steelton Bancorp.
Takeover attempts are discouraged by the following:
Provisions in our articles and bylaws. Provisions in Steelton Bancorp's
articles of incorporation and bylaws, the general corporation code of
Pennsylvania, and certain federal regulations may make it difficult for someone
to pursue a tender offer, change in control or takeover attempt which is opposed
by our management and Board of Directors. These provisions include: restrictions
on the acquisition of Steelton Bancorp's equity securities and limitations on
voting rights; the election of only one-fourth of the Board of Directors each
year; certain provisions relating to meetings of stockholders; denial of
cumulative voting to stockholders in the election of directors; the ability to
issue additional shares of preferred stock and common stock without shareholder
approval; and 66 2/3% shareholder vote requirement for the approval of certain
business combinations. As a result, stockholders who might desire to participate
in such a transaction may not have an opportunity to do so. Such provisions will
also render the removal of the current Board of Directors or management of
Steelton Bancorp more difficult. In addition, the effect of these provisions
could be to limit the trading price potential of Steelton Bancorp common stock.
The overall effect of these provisions: (1) may result in Steelton
Bancorp being less attractive to a potential acquiror; (2) may be to deter a
future non-negotiated takeover offer that a majority of the shareholders might
possibly view to be in their best interest as the offer might include a
substantial premium over the market price of the Steelton Bancorp's common stock
at that time; and (3) may result in shareholders receiving less for their shares
than otherwise might be available in the event of a takeover attempt.
Furthermore, these provisions may have the effect of entrenching management
against the wishes of the shareholders. See "Restrictions on Acquisition of the
Company."
Ownership and control of common stock by management. Our directors and
executive officers are expected to purchase approximately 67,500 shares of stock
in the offering, 15.5% if 435,000 shares are sold. In addition, approximately 8%
of the shares of common stock issued in the offering are expected to be
purchased by the Association's employee stock ownership plan. Shares owned by
the Mechanics Savings' employee stock ownership plan but not yet allocated to
the accounts
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of employees participating in the plan will be voted by a committee of
non-employee directors. To the extent we implement stock benefit plans, the
ownership and control by officers and directors would increase. The ownership
and control of common stock by directors and officers could make it difficult to
obtain majority support for stockholder proposals that are opposed by management
and the Board of Directors. In addition, directors and officers could vote the
shares they own or control to block the approval of transactions, such as
business combinations and amendments to Steelton Bancorp's articles of
incorporation or bylaws, that are required by Steelton Bancorp's articles of
incorporation to be approved by at least 80% of the stockholders. See
"Management - Executive Compensation - Employee Stock Ownership Plan" and "-
Potential Stock Benefit Plans."
Whether or not we make a profit after the offering depends on our local economy
and our competition.
Our business of attracting deposits and making loans is primarily
conducted within our market area. A downturn in the local economy could reduce
the amount of funds available for deposit and the ability of borrowers to repay
their loans. As a result, our profitability could be hurt. We face substantial
competition for deposits and loans, and many of our competitors have greater
resources. Our ability to compete successfully will affect our profitability.
If our computer systems do not work properly with the Year 2000 date, we may not
be able to continue running our business properly.
A great deal of information has been disseminated about the global
computer crash that may occur in the year 2000. Many computer programs that can
only distinguish the final two digits of the year entered are expected to read
entries for the year 2000 as the year 1900 and compute payment, interest or
delinquency based on the wrong date or are expected to be unable to compute
payment, interest or delinquency. Rapid and accurate data processing is
essential to our operations. Data processing is also essential to most other
financial institutions and many other companies.
Failure to resolve year 2000 issues presents the following risks to
Mechanics Savings:
(1) we could lose customers to other financial institutions,
resulting in a loss of revenue, if our third party service
bureau is unable to process properly customer transactions;
(2) governmental agencies, such as the Federal Home Loan Bank, and
correspondent banks could fail to provide funds to Mechanics
Savings which could materially impair our liquidity and affect
our 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 Mechanics Savings experiencing deposit outflows prior to
December 31, 1999; and
(4) we could incur increased personal costs if additional staff is
required to perform functions that inoperative systems would
have otherwise performed.
Most of our material data processing that could be affected by this
problem is provided by a third party service bureau. If our third party service
bureau does not resolve this problem, we would likely experience significant
data processing delays, mistakes or failures. These delays, mistakes or failures
could have a significant adverse impact on our financial condition and
profitability. See
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"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations - Year 2000 Readiness Disclosure."
Future laws or regulations could hurt our profitability and the trading price of
our stock.
We operate in a highly regulated industry. The U.S. government could
adopt regulations or enact laws which restrict our operations or impose
burdensome requirements upon us. This could reduce our profitability and the
value of our franchise which could hurt the trading price of our stock.
The small amount of stock being issued to the public may make it difficult to
buy or sell our stock in the future.
Due to the relatively small size of the offering to the public, you
have no assurance that an active market for the stock will exist after the
offering. This might make it difficult to buy or sell the stock. See "Market for
the Stock."
There is no guarantee that the price of our stock will increase to a level
comparable to other publicly traded financial institution holding companies.
There is no guarantee that the price of our stock will increase to the
relative levels of other publicly traded financial institution holding
companies. In making a decision whether to buy our stock you should consider,
among other things, the unique characteristics of each publicly traded financial
institution holding company. For more information see "Pro Forma Data."
Before you buy the stock, you must understand that any information
contained in this document, related to FinPro's independent appraisal of
Steelton Bancorp, must not be interpreted as financial advice to you as a
potential investor in Steelton Bancorp. A copy of the appraisal report is
available for your review at our main office and all the information presented
should be considered before buying the stock. In addition, the Board of
Directors of Steelton Bancorp does not make any recommendation as to whether or
not the stock will be a good investment for you.
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THE OFFERING
General
Concurrently with the conversion, we, Steelton Bancorp, are offering
between a minimum of 369,750 shares and an anticipated maximum of 500,250 shares
of common stock in the offering (subject to adjustment to up to 575,288 shares
if our estimated pro forma market value has increased at the conclusion of the
offering), which will expire at 12:00 noon, Pennsylvania time, on __________
____, 1999 unless extended. The minimum purchase is 25 shares of common stock
(minimum investment of $250). Our common stock is being offered at a fixed price
of $10.00 per share in the offering.
Subscription funds may be held by the Association for up to 45 days
after the last day of the subscription offering in order to consummate the
conversion and offering and thus, unless waived by the Association, all orders
will be irrevocable until __________ __, 1999. In addition, the conversion and
offering may not be consummated until the Association receives approval from the
OTS. Approval by the OTS is not a recommendation of the conversion or offering.
Consummation of the conversion and offering will be delayed, and resolicitation
will be required, if the OTS does not issue a letter of approval within 45 days
after the last day of the subscription offering, or in the event the OTS
requires a material change to the offering prior to the issuance of its
approval. If the conversion and offering are not completed by ________, 1999,
Pennsylvania time, subscribers will have the right to modify or rescind their
subscriptions and to have their subscription funds returned with interest at the
Association's passbook rate and all withdrawal authorizations will be canceled.
We may cancel the offering at any time, and orders for common stock
which have been submitted are subject to cancellation under such circumstances.
Conduct of the Offering
Subject to the limitations of the plan, shares of common stock are
being offered in descending order of priority in the subscription offering to:
o Eligible Account Holders;
o the employee stock ownership plan;
o Supplemental Eligible Account Holders; and
o Other Members.
To the extent that shares remain available and subject to market
conditions at or near the completion of the subscription offering, we will
conduct one or more of a community and syndicated community offering.
We have the right, in our sole discretion, to determine whether
prospective purchasers are "associates" or "acting in concert." All such
determinations are in our sole discretion and may be based on whatever evidence
we believe to be relevant.
Subscription Offering
Subscription Rights. Non-transferable subscription rights to subscribe
for the purchase of common stock have been granted under the plan of conversion
to the following persons:
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Priority 1: Eligible Account Holders. Each Eligible Account Holder
shall be given the opportunity to purchase up to 10,000 shares, or $100,000, of
common stock offered in the subscription offering; subject to the overall
limitations described under " - Limitations on Purchases of Common Stock." If
there are insufficient shares available to satisfy all subscriptions of Eligible
Account Holders, shares will be allocated to Eligible Account Holders so as to
permit each subscribing Eligible Account Holder to purchase a number of shares
sufficient to make his total allocation equal to the lesser of 100 shares or the
number of shares ordered. Thereafter, unallocated shares will be allocated to
remaining subscribing Eligible Account Holders whose subscriptions remain
unfilled in the same proportion that each such subscriber's qualifying deposit
bears to the total amount of qualifying deposits of all subscribing Eligible
Account Holders, in each case on December 31, 1997, whose subscriptions remain
unfilled. Subscription rights received by executive officers and directors,
based on their increased deposits in the Association in the one year preceding
the eligibility record date will be subordinated to the subscription rights of
other eligible account holders. To ensure proper allocation of stock, each
Eligible Account Holder must list on his order form all accounts in which he had
an ownership interest as of the Eligibility Record Date.
Priority 2: The Employee Plans. The tax qualified employee plans may be
given the opportunity to purchase in the aggregate up to 10% of the common stock
issued in the subscription offering. It is expected that the employee stock
ownership plan will purchase up to 8% of the common stock issued in the
offering. If an oversubscription occurs in the offering by Eligible Account
Holders, the employee stock ownership plan may, in whole or in part, fill its
order through open market purchases subsequent to the closing of the offering.
See also "Risk Factors - Expenses Associated with Stock Benefit Plans Will
Reduce Our Earnings."
Priority 3: Supplemental Eligible Account Holders. To the extent there
are sufficient shares remaining after satisfaction of subscriptions by Eligible
Account Holders and the employee stock ownership plan and other tax-qualified
employee stock benefit plans, if any, each Supplemental Eligible Account Holder
shall have the opportunity to purchase up to 10,000 shares, or $100,000, of
common stock offered in the subscription offering, subject to the overall
limitations described under "Limitations on Purchases of Common Stock." If
Supplemental Eligible Account Holders subscribe for a number of shares which,
when added to the shares subscribed for by Eligible Account Holders and the
employee stock ownership plan and other tax-qualified employee stock benefit
plans, if any, is in excess of the total number of shares offered in the
offering, the shares of common stock will be allocated among subscribing
Supplemental Eligible Account Holders first so as to permit each subscribing
Supplemental Eligible Account Holder to purchase a number of shares sufficient
to make his total allocation equal to the lesser of 100 shares or the number of
shares ordered. Thereafter, unallocated shares will be allocated to each
subscribing Supplemental Eligible account Holder whose subscription remains
unfilled in the same proportion that such subscriber's qualifying deposits bear
to the total amount of qualifying deposits of all subscribing Supplemental
Eligible Account Holders, in each case on March 31, 1999, whose subscriptions
remain unfilled. To ensure proper allocation of stock each Supplemental Eligible
Account Holder must list on his order form all accounts in which he had an
ownership interest as of the Supplemental Eligibility Record Date.
Priority 4: Other Members. To the extent that there are sufficient
shares remaining after satisfaction of all subscriptions by the Eligible Account
Holders, the tax-qualified employee stock benefit plans, and Supplemental
Eligible Account Holders, each Other Member who is not an Eligible or
Supplemental Eligible Account Holder shall have the opportunity to purchase up
to 10,000 shares, or $100,000, of common stock offered in the subscription
offering, subject to the overall limitations described under "- Limitations on
Purchases of Common Stock." If Other Members subscribe for a number of shares
which, when added to the shares subscribed for by Eligible Account Holders, the
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tax-qualified employee stock benefit plans and Supplemental Eligible Account
Holder, is in excess of the total number of shares offered in the offering, the
subscriptions of Other Members will be allocated among subscribing Other Members
so as to permit each subscribing Other Member, to the extent possible, to
purchase a number of shares sufficient to make his total allocation of common
stock equal to the lesser of 100 shares or the number of shares subscribed for
by Other Members. Any shares remaining will be allocated among the subscribing
Other Members whose subscriptions remain unsatisfied on a 100 shares (or
whatever lesser amount is available) per order basis until all orders have been
filled or the remaining shares have been allocated.
State Securities Laws. We, in our sole discretion, may make reasonable
efforts to comply with the securities laws of any state in the United States in
which the Association members reside, and will only offer and sell the common
stock in states in which the offers and sales comply with state securities laws.
However, no person will be offered or allowed to purchase any common stock under
the plan if he resides in a foreign country or in a state of the United States
with respect to which:
o a small number of persons otherwise eligible to purchase shares under
the plan reside in such state or foreign country; or
o the offer or sale of shares of common stock to such persons would
require us or the Association or our employees to register, under the
securities laws of such state or foreign country, as a broker or dealer
or to register or otherwise qualify its securities for sale in such
state or foreign country and such registration or qualification would
be impracticable for reasons of cost or otherwise.
Restrictions on Transfer of Subscription Rights and Shares. The plan
prohibits any person with subscription rights, including Eligible Account
Holders, Supplemental Eligible Account Holders, and Other Members, from
transferring or entering into any agreement or understanding to transfer the
legal or beneficial ownership of the subscription rights issued under the plan
or the shares of common stock to be issued when they are exercised. Such rights
may be exercised only by the person to whom they are granted and only for his or
her account. Each person subscribing for shares will be required to certify that
such person is purchasing shares solely for his or her own account and that such
person has no agreement or understanding regarding the sale or transfer of such
shares. The regulations also prohibit any person from offering or making an
announcement of an offer or intent to make an offer to purchase such
subscription rights or shares of common stock before the completion of the
offering.
Steelton Bancorp and the Association will pursue any and all legal and
equitable remedies in the event we become aware of the transfer of subscription
rights and will not honor orders which we determine involve the transfer of such
rights.
Expiration Date. The subscription offering will expire at 12:00 noon,
Pennsylvania time, on __________ ____, 1999, unless it is extended, up to an
additional 45 days with the approval of the OTS, if necessary, but without
additional notice to subscribers (the "expiration date"). Subscription rights
will become void if not exercised prior to the expiration date.
Community Offering
If less than the total number of shares of common stock to be
subscribed for in the offering are sold in the subscription offering, shares
remaining unsubscribed may be made available for
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purchase in the community offering to certain members of the general public. The
maximum amount of common stock that any person may purchase in the community
offering is 10,000 shares, or $100,000. In the community offering, if any,
shares will be available for purchase by the general public with preference
given first to natural persons residing in Dauphin County in Pennsylvania and
second, to natural persons residing in the State of Pennsylvania. We will
attempt to issue common stock in such a manner as to promote a wide distribution
of common stock.
If purchasers in the community offering, whose orders would otherwise
be accepted, subscribe for more shares than are available for purchase, the
shares available to them will be allocated among persons submitting orders in
the community offering in an equitable manner we determine.
The community offering, if any, may commence simultaneously with,
during or subsequent to the completion of the subscription offering and if
commenced simultaneously with or during the subscription offering the community
offering may be limited to residents of Dauphin County in Pennsylvania. The
community offering, if any, must be completed within 45 days after the
completion of the subscription offering unless otherwise extended by the OTS.
We, in our absolute discretion, reserve the right to reject any or all
orders in whole or in part which are received in the community offering, at the
time of receipt or as soon as practicable following the completion of the
community offering.
Syndicated Community Offering
To the extent that shares remain available and subject to market
conditions at or near the completion of the subscription offering, we may offer
shares, to selected persons in a syndicated community offering on a best-efforts
basis through Capital Resources in such a manner as to promote a wide
distribution of the common stock. Orders received in connection with the
syndicated community offering, if any, will receive a lower priority than orders
received in the subscription offering and community offering. Common stock sold
in the syndicated community offering will be sold at the same price as all other
shares in the subscription offering. We have the right to reject orders, in
whole or in part, in our sole discretion in the syndicated community offering.
No person will be permitted to purchase more than 10,000 shares, or $100,000, of
common stock in the syndicated community offering.
If a syndicate of broker-dealers ("selected dealers") is formed to
assist in the syndicated community offering, a purchaser may pay for his shares
with funds held or deposited with a selected dealer. If an order form is
executed and forwarded to the selected dealer or if the selected dealer is
authorized to execute the order form on behalf of a purchaser, the selected
dealer is required to forward the order form and funds to the Association for
deposit in a segregated account on or before noon of the business day following
receipt of the order form or execution of the order form by the selected dealer.
Alternatively, selected dealers may solicit indications of interest from their
customers to place orders for shares. Such selected dealers shall subsequently
contact their customers who indicated an interest and seek their confirmation as
to their intent to purchase. Those indicating an intent to purchase shall
execute order forms and forward them to their selected dealer or authorize the
selected dealer to execute such forms. The selected dealer will acknowledge
receipt of the order to its customer in writing on the following business day
and will debit such customer's account on the third business day after the
customer has confirmed his intent to purchase (the "debit date") and on or
before noon of the next business day following the debit date will send order
forms and funds to the Association for deposit in a segregated account. Although
purchasers' funds are not required to be in
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their accounts with selected dealers until the debit date in the event that such
alternative procedure is employed once a confirmation of an intent to purchase
has been received by the selected dealer, the purchaser has no right to rescind
his order.
The date by which orders must be received in the syndicated community
offering will be set by us at the time of commencement of the syndicated
community offering; provided however, if the syndicated community offering is
extended beyond ___________, 1999, each purchaser will have the opportunity to
maintain, modify, or rescind his order. In such event, all funds received in the
syndicated community offering will be promptly returned with interest to each
purchaser unless he affirmatively indicates otherwise.
If an order in the syndicated community offering is accepted, promptly
after the completion of the conversion, a certificate for the appropriate amount
of shares will be forwarded to Capital Resources as nominee for the beneficial
owner. If an order is not accepted or the conversion is not consummated, the
Association will promptly refund with interest the funds received to Capital
Resources which will then return the funds to subscribers' accounts. If the
aggregate pro forma market value of the Association, as converted, is less than
$3,697,500 or more than $5,752,880, each purchaser will have the right to modify
or rescind his or her order.
Limitations on Purchases of Common Stock
The following additional limitations have been imposed on purchases of
shares of common stock:
1. The maximum number of shares of common stock which may be
purchased in the subscription offering by any person in the
first priority, third priority and fourth priority shall not
exceed 10,000 shares, or $100,000.
2. The maximum number of shares of common stock which may be
subscribed for or purchased in all categories in the offering
by any person together with any associate or group of persons
acting in concert shall not exceed 10,000 shares, or $100,000,
except for our employee plans, which in the aggregate may
subscribe for up to 10% of the common stock issued in the
offering.
3. The maximum number of shares of common stock which may be
purchased in all categories in the offering by officers and
directors of the Association and their associates in the
aggregate shall not exceed 35% of the total number of shares
of common stock issued in the offering.
4. The minimum order is 25 shares of common stock to the extent
those shares are available.
5. If the number of shares of common stock otherwise allocable to
any person or that person's associates would be in excess of
the maximum number of shares permitted as set forth above, the
number of shares of common stock allocated to each such person
shall be reduced to the lowest limitation applicable to that
person, and then the number of shares allocated to each group
consisting of a person and that person's associates shall be
reduced so that the aggregate allocation to that person and
his associates complies with the above maximums, and such
maximum number of shares
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shall be reallocated among that person and his associates in
proportion to the shares subscribed by each (after first
applying the maximums applicable to each person, separately).
6. Depending on market or financial conditions, the Board of
Directors of the Association, without further approval of the
depositors, may decrease or increase the purchase limitations
in the plan, provided that the maximum purchase limitations
may not be increased to a percentage in excess of 5% of the
offering. If Steelton Bancorp increases the maximum purchase
limitations, Steelton Bancorp is only required to resolicit
persons who subscribed for the maximum purchase amount and
may, in the sole discretion of Steelton Bancorp, resolicit
certain other large subscribers.
7. If the total number of shares offered increases in the
offering due to an increase in the maximum of the estimated
valuation range of up to 15% (the adjusted maximum") the
additional shares will be used in the following order of
priority: (i) to fill the Employee Plan's subscription up to
10% of the adjusted maximum; (ii) if there is an
oversubscription at the Eligible Account Holder level, to fill
unfilled subscriptions of Eligible Account Holders exclusive
of the adjusted maximum; (iii) if there is an oversubscription
at the Supplemental Eligible Account Holder level, to fill
unfilled subscriptions of Supplemental Eligible Account
Holders exclusive of the adjusted maximum; (iv) if there is an
oversubscription at the other member level, to fill unfilled
subscriptions of other members exclusive of the adjusted
maximum; and (v) to fill unfilled subscriptions in the
community offering exclusive of the adjusted maximum, with
preference given to persons residing in the local community.
8. No person shall be entitled to purchase any common stock to
the extent such purchase would be illegal under any federal
law or state law or regulation or would violate regulations or
policies of the NASD, particularly those regarding free riding
and withholding. Steelton Bancorp or the Association and/or
its agents may ask for an acceptable legal opinion from any
purchaser as to the legality of such purchase and may refuse
to honor any purchase order if such opinion is not timely
furnished.
9. The Board of Directors has the right to reject any order
submitted by a person whose representations the Board of
Directors believes to be false or who it otherwise believes,
either alone or acting in concert with others, is violating,
circumventing, or intends to violate, evade, or circumvent the
terms and conditions of the plan.
10. The foregoing restrictions on purchases by any person also
apply to purchases by persons acting in concert under
applicable regulations of the OTS. Under regulations of the
OTS, directors of the Association are not deemed to be
affiliates or a group acting in concert with other directors
solely as a result of membership on the Board of Directors of
the Association.
The term "associate" of a person is defined in the plan to mean (1) 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, (2) 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 stock benefit
plans or tax-qualified employee stock benefit plans in which a person has a
substantial beneficial interest or serves as a trustee or in a similar fiduciary
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capacity and except that, for purposes of aggregating total shares that may be
held by officers and directors, the term "Associate" does not include any
tax-qualified employee stock benefit plan, and (3) 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 trustee 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
individually could purchase under the above limitations.
Each person purchasing shares of the common stock in the offering will
be deemed to confirm that such purchase does not conflict with the maximum
purchase limitation. If this purchase limitation is violated by any person or
any associate or group of persons affiliated or otherwise acting in concert with
such persons, we will have the right to purchase from such person at the
purchase price per share all shares acquired by such person in excess of such
purchase limitation or, if such excess shares have been sold by such person, to
receive the difference between the purchase price per share paid for such excess
shares and the price at which such excess shares were sold by such person.
Our right to purchase such excess shares will be assignable.
Common stock purchased pursuant to the offering will be freely
transferable, except for shares purchased by directors and officers of the
Association. For certain restrictions on the common stock purchased by directors
and officers, see "- Restrictions on Transferability by Directors and Officers."
In addition, 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 after the purchase of such securities.
Ordering and Receiving Common Stock
Use of Order Forms. Rights to subscribe may only be exercised by
completion of an order form. Any person receiving an order form who desires to
subscribe for shares of common stock must do so prior to the applicable
expiration date by delivering by mail or in person to the Association a properly
executed and completed order form, together with full payment of the purchase
price for all shares for which subscription is made; provided, however, that if
the employee plans subscribe for shares during the subscription offering, the
employee plans will not be required to pay for the shares at the time they
subscribe but rather may pay for the shares after the conversion. Except for
institutional investors, all subscription rights under the plan will expire on
the expiration date, whether or not the Association has been able to locate each
person entitled to such subscription rights. The Association shall have the
right, in its sole discretion, to permit institutional investors to submit
contractually irrevocable orders in the syndicated community offering at any
time before completing the syndicated community offering. Once tendered,
subscription orders cannot be revoked without the consent of the Association
unless the conversion is not completed within 45 days of the expiration date.
If an stock order form:
o is not delivered and is returned to the Association by the United
States Postal Service or the Association is unable to locate the
addressee;
o is not received or is received after the applicable expiration date;
o is not completed correctly or executed;
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o is not accompanied by the full required payment for the shares
subscribed for including instances where a savings account or
certificate balance from which withdrawal is authorized is insufficient
to fund the amount of such required payment, but excluding
subscriptions by the Employee Plans or, in the case of an institutional
investor in the syndicated community offering, by delivering
irrevocable orders together with a legally binding commitment to pay
the full purchase price prior to 48 hours before the conversion is
completed; or
o is not mailed pursuant to a "no mail" order placed in effect by the
account holder, the subscription rights for the person to whom such
rights have been granted will lapse as though such person failed to
return the completed order form within the time period specified.
However, we may, but will not be required to, waive any irregularity on any
order form or require the submission of corrected order forms or the remittance
of full payment for subscribed shares by such date as we may otherwise specify.
The waiver of an irregularity on an order form in no way obligates us to waive
any other irregularity on any other order form. Waivers will be considered on a
case by case basis. We reserve the right in our sole discretion to accept or
reject orders received on photocopies or facsimile order forms, or whose payment
is to be made by wire transfer or payment from private third parties. Our
interpretation of the terms and conditions of the plan and of the acceptability
of the order forms will be final, subject to the authority of the OTS.
To ensure that each purchaser receives a prospectus at least 48 hours
before the applicable expiration date, in accordance with Rule 15c2-8 of the
Securities Exchange Act of 1934, no prospectus will be mailed any later than
five days prior to 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.
Payment for Shares. For subscriptions to be valid, payment for all
subscribed shares will be required to accompany all properly completed order
forms, on or prior to the expiration date specified on the order form unless we
extend the date. Employee Plans subscribing for shares during the subscription
offering may pay for such shares after the offering. Payment for shares of
common stock may be made
o in cash, if delivered in person,
o by check or money order, or
o for shares of common stock subscribed for in the subscription offering,
by authorization of withdrawal from savings accounts maintained with
the Association.
Payment for subscriptions of $25,000 or more must be paid by account withdrawal,
certified or cashier's check, or money order.
Appropriate means by which such withdrawals may be authorized are
provided in the order form. Once such a withdrawal has been authorized, none of
the designated withdrawal amount may be used by a subscriber for any purpose
other than to purchase the common stock for which a subscription has been made
until the offering has been completed or terminated. In the case of payments
authorized to be made through withdrawal from savings accounts, all sums
authorized for withdrawal will continue to earn interest at the contract rate
until the offering has been completed or terminated. Interest penalties for
early withdrawal applicable to certificate accounts will not apply to
withdrawals authorized for the purchase of shares, however, if a partial
withdrawal results in a certificate account with a balance less than the
applicable minimum balance requirement, the certificate shall be canceled at the
time of withdrawal, without penalty, and the remaining balance will
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<PAGE>
earn interest at the passbook savings account rate subsequent to the withdrawal.
In the case of payments made in cash or by check or money order, such funds will
be placed in a segregated account and interest will be paid by the Association
at the passbook savings account rate from the date payment is received until the
offering is completed or terminated. An executed order form, once we receive it,
may not be modified, amended, or rescinded without our consent, unless the
offering is not completed within 45 days after the conclusion of the
subscription offering, in which event subscribers may be given the opportunity
to increase, decrease, or rescind their subscription for a specified period of
time. If the offering is not completed for any reason, all funds submitted
pursuant to the offerings will be promptly refunded with interest as described
above.
Owners of self-directed IRAs may use the assets of such IRAs to
purchase shares of common stock in the offerings, provided that such IRAs are
not maintained on deposit at the Association. Persons with IRAs maintained at
the Association must have their accounts transferred to an unaffiliated
institution or broker to purchase shares of common stock in the offerings. There
is no early withdrawal or IRS interest penalties for such transfers.
Instructions on how to transfer self- directed IRAs maintained at the
Association can be obtained from the stock information center. Depositors
interested in using funds in a the Association IRA to purchase common stock
should contact the stock information center as soon as possible so that the
necessary forms may be forwarded, executed and returned prior to the expiration
date.
Federal regulations prohibit the Association from lending funds or
extending credit to any person to purchase the common stock in the conversion.
Stock Center. The stock center is located at 51 South Front Street,
Steelton, Pennsylvania 17113. Its phone number is (717) 939-3100.
Delivery of Stock Certificates. Certificates representing common stock
issued in the offering will be mailed to the persons entitled thereto at the
address noted on the order form, as soon as practicable following consummation
of the offering. Any certificates returned as undeliverable will be held until
claimed by persons legally entitled thereto or otherwise disposed of in
accordance with applicable law. Until certificates for the common stock are
available and delivered to subscribers, subscribers may not be able to sell the
shares of stock for which they subscribed.
Restriction on Sales Activities
Our directors and executive officers may participate in the
solicitation of offers to purchase common stock in jurisdictions where such
participation is not prohibited. Other employees of the Association may
participate in the offering in ministerial capacities. Such other employees have
been instructed not to solicit offers to purchase common stock or provide advice
regarding the purchase of common stock. Questions of prospective purchasers will
be directed to executive officers of the Association or registered
representatives of Capital Resources. No officer, director or employee of the
Association will be compensated in connection with such person's solicitations
or other participation in the offering by the payment of commissions or other
remuneration based either directly or indirectly on transactions in the common
stock.
Restrictions on Repurchase of Shares
Generally, during the first year following the conversion, Steelton
Bancorp may not repurchase its shares. During each of the second and third years
following the conversion, Steelton Bancorp may repurchase up to five percent of
the outstanding shares provided they are purchased in
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<PAGE>
open-market transactions. Repurchases must not cause us to become
undercapitalized and at least 10 days prior notice of the repurchase must be
provided to the OTS. The OTS may disapprove a repurchase program after it
determines that:
o the repurchase program would adversely affect our financial condition;
o the information submitted is not enough to base a conclusion as to
whether our financial condition would be adversely affected; or
o a valid business purpose was not demonstrated.
In addition, SEC rules also govern the method, time, price, and number of shares
of common stock that may be repurchased by Steelton Bancorp and affiliated
purchasers. If, in the future, the rules and regulations regarding the
repurchase of stock are liberalized, Steelton Bancorp may utilize the rules and
regulations then in effect.
Stock Pricing and the Number of Shares to be Offered
FinPro, which is experienced in the valuation and appraisal of business
entities, including savings institutions, has been retained to prepare an
appraisal of the estimated pro forma market value of the common stock (the
"Independent Valuation"). This independent valuation will express our pro forma
market value in terms of an aggregate dollar amount. FinPro will receive fees of
$23,000 for its appraisal services, including the independent valuation and
subsequent updates, and assistance in preparation of our business plan, plus its
reasonable out-of-pocket expenses incurred in connection with the independent
valuation and business plan. The Association has agreed to indemnify FinPro
under certain circumstances against liabilities and expenses arising out of or
based on any misstatement or untrue statement of a material fact contained in
the information supplied by the Association to FinPro, except where FinPro is
determined to have been negligent or failed to exercise due diligence in the
preparation of the independent valuation.
Pursuant to the plan, the number of shares of common stock to be
offered in the offering will be based on the estimated pro forma market value of
the common stock and the purchase price of $10.00 per share. FinPro has
determined that as of March 1, 1999, our estimated aggregate pro forma market
value was $4,350,000. Pursuant to regulations, this estimate must be included
within a range with a minimum of $3,697,500 and a maximum of $5,002,500. We have
determined to offer shares of common stock in the offering at a price of $10.00
per share. We are offering a maximum of 500,250 shares in the offering, subject
to adjustment. In determining the offering range, the Board of Directors
reviewed FinPro's appraisal. The appraisal contains an analysis of a number of
factors, including but not limited to our financial condition and results of
operations as of December 31, 1998, our operating trends, the competitive
environment in which we operate, operating trends of certain savings
institutions and savings and loan holding companies, relevant economic
conditions both nationally and in the Commonwealth of Pennsylvania which affect
the operations of savings institutions, stock market values of certain
institutions, and stock market conditions for publicly traded savings
institutions and savings and loan holding companies. In addition, FinPro has
advised us that it has considered and will consider the effect of the additional
capital raised by the sale of the common stock on the estimated pro forma market
value. The Board also reviewed the methodology and the assumptions used by
FinPro in preparing its appraisal. The number of shares is subject to change if
the independent valuation changes at the conclusion of the offering.
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<PAGE>
The number of shares and price per share of common stock was determined
by the Board of Directors based on the independent valuation. The actual number
of shares to be sold in the offering may be increased or decreased before
completion of the offering, subject to approval and conditions that may be
imposed by the OTS, to reflect any change in our estimated pro forma market
value.
Depending on market and financial conditions at the time of the
completion of the offering, the Association may increase or decrease the number
of shares to be issued in the conversion and offering. No resolicitation of
purchasers will be made and purchasers will not be permitted to modify or cancel
their purchase orders unless the change in the number of shares to be issued in
the offering results in fewer than 369,750 shares or more than 575,288 shares
being sold in the offering at the purchase price of $10.00, in which event the
Association may also elect to terminate the offering. If the Association
terminates the offering, purchasers will receive a prompt refund of their
purchase orders, together with interest earned thereon from the date of receipt
to the date of termination of the offering. Furthermore, any account withdrawal
authorizations will be terminated. If we receive orders for less than 369,750
shares, at the discretion of the Board of Directors and subject to approval of
the OTS, we may establish a new offering range and resolicit purchasers. If we
resolicit, purchasers will be allowed to modify or cancel their purchase orders.
Any adjustments in our pro forma market value as a result of market and
financial conditions or a resolicitation of prospective purchasers must be
approved by the OTS.
The independent valuation will be updated at the time of the completion
of the offering, and the number of shares to be issued may increase or decrease
to reflect the changes in market conditions, the results of the offering, or the
estimated pro forma market value of the Association. If the updated estimate of
the pro forma market value of the Association immediately after the offering
changes, there will be a corresponding change to the shares sold to subscribers
in the offering. For example, if the independent valuation at the conclusion of
the offering increases to $5,002,500, or decreases to $3,697,500, then the total
number of shares outstanding after the conversion and offering will be 500,250
or 369,750, respectively. If the updated independent valuation increases,
Steelton Bancorp may increase the number of shares sold in the offering to up to
575,288 shares. Subscribers will not be given the opportunity to change or
withdraw their orders unless more than 575,288 shares or fewer than 369,750
shares are sold in the offering. Any adjustment of shares of common stock sold
will have a corresponding effect on the estimated net proceeds of the offering
and the pro forma capitalization and per share data of the Association. An
increase in the total number of shares to be issued in the conversion would
decrease a subscriber's percentage ownership interest and pro forma net worth
(book value) per share and increase the pro forma net income and net worth (book
value) on an aggregate basis. In the event of a reduction in the valuation,
Steelton Bancorp may decrease the number of shares to be issued to reflect the
reduced valuation. A decrease in the number of shares to be issued in the
conversion would increase a subscriber's percentage ownership interest and the
pro forma net worth (book value) per share and decrease the pro forma net income
and net worth on an aggregate basis. For a presentation of the possible effects
of an increase or decrease in the number of shares to be issued, see Pro Forma
Data.
The independent valuation is not intended, and must not be construed,
as a recommendation of any kind as to the advisability of purchasing the common
stock. In preparing the independent valuation, FinPro has relied on and assumed
the accuracy and completeness of financial and statistical information provided
by the Association. FinPro did not independently verify the consolidated
financial statements and other information provided by the Association, nor did
FinPro value independently the assets and liabilities of the Association. The
independent valuation considers the Association only as a going concern and
should not be considered as a indication of the liquidation value of the
Association. Moreover, because such
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<PAGE>
independent valuation is based on estimates and projections on a number of
matters, all of which are subject to change from time to time, no assurance can
be given that persons purchasing the common stock will be able to sell such
shares at a price equal to or greater than the purchase price.
No sale of shares of common stock may be consummated unless FinPro
confirms that, to the best of its knowledge, nothing of a material nature has
occurred that, taking into account all relevant factors, would cause FinPro to
conclude that the independent valuation is incompatible with its estimate of our
pro forma market value at the conclusion of the offering. Any change that would
result in an aggregate value that is below $3,697,500 or above $5,752,880 would
be subject to OTS approval. If confirmation from FinPro is not received, the
Association may extend the offering, reopen or commence a new offering, request
a new Independent Valuation, establish a new offering range and commence a
resolicitation of all purchasers with the approval of the OTS, or take such
other action as permitted by the OTS in order to complete the offering.
Plan of Distribution/Marketing Arrangements
The common stock will be offered in the offering principally by the
distribution of this prospectus and through activities conducted at the stock
information center. It is expected that a registered representative employed by
Capital Resources will be working at, and supervising the operation of, the
stock center. Capital Resources will be responsible for overseeing the mailing
of material relating to the offering, responding to questions regarding the
conversion and the offering and processing order forms.
The Association and Steelton Bancorp have entered into an agency
agreement with Capital Resources under which Capital Resources will provide
advisory assistance and assist, on a best efforts basis, in the solicitation of
subscriptions and purchase orders for the common stock in the offering. Capital
Resources is a broker-dealer registered with the National Association of
Securities Dealers, Inc. Specifically, Capital Resources will assist in the
offering in the following manner:
o assisting in the collection of proxies from depositors for use at the
Special Meeting;
o keeping records of subscriptions and orders for common stock;
o training and educating the Association's employees regarding the
mechanics and regulatory requirements of the stock conversion process;
o assisting in the design and implementation of a marketing strategy for
the offering;
o assisting the Association's management in scheduling and preparing for
meetings, if any, with potential investors and broker-dealers; and
o providing such other general advice and assistance as may be requested
to promote the successful completion of the offering.
Capital Resources will receive, as compensation, an advisory and
marketing fee of $75,000. Fifteen thousand dollars was paid when Capital
Resources was retained; another $15,000 is due upon regulatory approval; and the
balance is due at the closing. If common stock is sold through licensed brokers
under a selected dealers agreement, we will pay the sales commission payable to
the selected dealer pursuant to the agreement and any sponsoring dealer's fees
of typically up to 4.0% of the
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<PAGE>
aggregate price of such shares. Capital Resources will also be reimbursed for
its legal fees and out-of-pocket expenses, not to exceed $25,000 without the
Association's approval. The Association has agreed to indemnify Capital
Resources, to the extent allowed by law, for reasonable costs and expenses in
connection with certain claims or liabilities, including certain liabilities
under the Securities Act of 1933, as amended. Capital Resources will also
receive a fee of $10,000 for records management services in connection with the
conversion, plus reimbursement for out-of-pocket expenses, not to exceed $4,500
without the Association's approval. See "Pro Forma Data" for further information
regarding expenses of the offering.
Restrictions on Transferability by Directors and Officers
Shares of the common stock purchased by directors or officers of the
Association cannot be sold for a period of one year following completion of the
conversion, except for a disposition of shares after the death of a stockholder.
Accordingly, shares of the common stock issued to directors and officers will
bear a legend restricting their sale. Any shares issued to directors and
officers as a stock dividend, stock split, or otherwise with respect to
restricted stock will be subject to the same restriction.
For a period of three years following the conversion, no director or
officer of the Association or their associates may, without the prior approval
of the OTS, purchase our common stock except from a broker or dealer registered
with the SEC. This prohibition does not apply to negotiated transactions
including more than 1% of our common stock or purchases made for tax qualified
or non-tax qualified employee stock benefit plans which may be attributable to
individual officers or directors.
Restrictions on Agreements or Understandings Regarding Transfer of Common Stock
to be Purchased in the Offering
Before the completion of the conversion and offering, no depositor may
transfer or enter into an agreement or understanding to transfer any
subscription rights or the legal or beneficial ownership of the shares of common
stock to be purchased by such person in the offering. Depositors who submit an
order form will be required to certify that their purchase of common stock is
solely for their own account and there is no agreement or understanding
regarding the sale or transfer of their shares. We intend to pursue any and all
legal and equitable remedies after it becomes aware of any such agreement or
understanding, and will not honor orders we reasonably believe to involve such
an agreement or understanding.
Conditions to the Offering
Completion of the offering is subject to:
1. completion of the conversion, which requires approvals from certain
government agencies, the ratification of the Association's voting
depositor and borrower members, and the receipt of rulings and/or
opinions of counsel as to the tax consequences of the conversion;
2. the receipt of all the required approvals for the issuance of common
stock in the offering, including the approval of the OTS; and
3. the sale of a minimum of shares 369,750 of common stock.
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If conditions 1 and 2 above are not met before we complete the offering, all
funds received will be promptly returned with interest at the Association's
passbook rate and all withdrawal authorizations will be canceled.
MECHANICS SAVINGS AND LOAN, FSA
Mechanics Savings and Loan, FSA is a federally chartered mutual savings
institution, originally chartered in 1900 as Mechanics Building and Loan
Association of Steelton. The Association converted from a Pennsylvania mutual
savings charter to a federal mutual savings charter in 1993. The Association's
deposits have been federally insured since 1949 and are currently insured by the
Savings Association Insurance Fund ("SAIF") as administered by the Federal
Deposit Insurance Corporation ("FDIC"). The Association is regulated by the
Office of Thrift Supervision ("OTS") and the FDIC.
The Association is a community-oriented savings association offering
traditional deposit, residential real estate mortgage loans and, to a lesser
extent, consumer loans, commercial real estate loans, and other loans. Through
its main office located in Steelton and its branch office located in Lower
Swatara Township, Pennsylvania, the Association provides retail banking
services, with an emphasis on one- to four-family residential mortgages.
Currently, the Association originates 15 year and 30 year conforming fixed rate
residential mortgage loans primarily for its asset portfolio. At December 31,
1998, net loans receivable amounted to approximately $27.8 million or 66.93% of
total assets, of which approximately $23.3 million or 82.74% of such total was
secured by one- to four-family residential real estate. The Association invests
excess liquidity in mortgage-backed and investment securities, primarily in U.S.
government agency securities. Investment and mortgage-backed securities amounted
to $9.2 million or 22.17% of total assets at December 31, 1998. At December 31,
1998, the Association had total assets, deposits and total equity of $41.5
million, $28.3 million, and $3.7 million, respectively. See "Business of the
Association."
STEELTON BANCORP, INC.
Steelton Bancorp, Inc. (the "Company") is a Pennsylvania chartered
corporation that was organized in February, 1999 for the purpose of acquiring
all of the capital stock that the Association will issue upon its conversion
from the mutual to stock form of ownership. The Company has not engaged in any
significant business to date but will serve as a holding company of the
Association following the conversion. The Company has applied for approval to
acquire control of the Association. We will retain up to 50% of the net proceeds
from the issuance of shares of stock as our initial capitalization. Part of the
proceeds retained by us will be used to fund the loan to the Association's ESOP.
We will use the balance of the net proceeds to purchase all of the common stock
of the Association to be issued upon conversion. Upon consummation of the
conversion, we will have no significant assets other than that portion of the
net proceeds of the offering, the promissory note representing the amount of our
loan to the Association's ESOP, and the shares of the Association's capital
stock acquired in the conversion, and we will have no significant liabilities.
Our cash flow will be dependent upon earnings from the investment of the portion
of net proceeds we retain in the conversion and any dividends received from the
Association. See "Use of Proceeds."
Management believes that the holding company structure will provide
flexibility for possible diversification of business activities through existing
or newly-formed subsidiaries, or through acquisitions of or mergers with both
savings institutions and commercial banks, as well as other financial services
related companies. Although there are no current arrangements, understandings,
or agreements regarding any such opportunities, the Company will be in a
position after the conversion,
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subject to regulatory limitations and the Company's financial condition, to take
advantage of any such acquisition and expansion opportunities that may arise.
However, some of these activities could be deemed to entail a greater risk than
the activities permissible for federally chartered savings institutions such as
the Association. The initial activities of the Company are anticipated to be
funded by the portion of the net proceeds retained by the Company and earnings
thereon.
USE OF PROCEEDS
The net proceeds will depend on the total number of shares of stock
issued in the offering, which will depend on the independent valuation and
marketing considerations, and the expenses incurred by the Company and the
Association in connection with the offering. Although the actual net proceeds
from the sale of the common stock cannot be determined until the offering is
completed, we estimate that we will receive net proceeds from the sale of common
stock of between $3,388,000 at the minimum and $5,443,000 at the maximum, as
adjusted.
Assuming the sale of $4,350,000 of common stock at the midpoint of the
offering range and the purchase of 8% of the shares by the employee stock
ownership plan, the following table shows the manner in which we will use the
net proceeds:
Loan to employee stock ownership plan $ 348,000
Investment in Mechanics Savings $2,020,000
Steelton Bancorp working capital $1,672,000
----------
$4,040,000
==========
These funds will initially be invested in U.S. government and federal
agency securities, marketable securities, or a combination of both. We may also
use the net proceeds to repurchase our stock. See "The Offering - Restrictions
on Repurchases of Shares."
The funds received by Mechanics Savings from Steelton Bancorp in return
for the purchase of all its stock to be issued will be used for general
corporate purposes. The funds will increase Mechanics Savings' total capital to
expand investment and lending within its existing market area and expansion of
its consumer and commercial lending programs. The funds may also be used for an
expansion of the Association's main office, including the installation of
drive-through facilities at that location. However, there are no current
agreements or arrangements regarding expansion. Net proceeds may also be used by
the Association to make contributions to the employee stock ownership plan which
in turn would be used to repay the loan from Steelton Bancorp.
If the employee stock ownership plan does not purchase common stock in
the offering, it may purchase shares of common stock in the market after the
conversion. In the event the purchase price of the common stock is higher than
$10.00 per share, the amount of proceeds required for the purchase by the ESOP
will increase and the resulting stockholders' equity will decrease.
The net proceeds may vary because total expenses of the conversion may
be more or less than those estimated. The net proceeds will also vary if the
number of shares to be issued in the conversion are adjusted to reflect a change
in the estimated pro forma market value of Steelton
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Bancorp and Mechanics Savings. Payments for shares made through withdrawals from
existing Mechanics Savings deposit accounts will not result in the receipt of
new funds for investment by Mechanics Savings but will result in a reduction of
its deposits and interest expense as funds are transferred from interest bearing
certificates or other deposit accounts.
DIVIDEND POLICY
The Company anticipates the establishment of a policy to pay cash
dividends. The timing, frequency and initial annual amount of the dividends have
not yet been determined. Dividends will be subject to determination and
declaration by the Company's Board of Directors. In making its decision, the
Board of Directors will consider several factors, including:
o the Company's financial condition;
o results of operations;
o tax considerations;
o industry standards; and
o economic conditions;
There can be no assurance that dividends will in fact be paid on the
stock or that, if paid, such dividends will not be reduced or eliminated in
future periods.
Steelton Bancorp's ability to pay dividends also depends on the receipt
of dividends from Mechanics Savings which is subject to a variety of regulatory
limitations on the payment of dividends. See "Regulation -- Regulation of the
Association -- Dividend and Other Capital Distribution Limitations."
Furthermore, as a condition to OTS approval of the conversion, Steelton Bancorp
has agreed that it will not initiate any action within one year of completion of
the conversion in the furtherance of payment of a special distribution or return
of capital to stockholders of the Company.
In addition, earnings of the Association appropriated to bad debt
reserves and deducted for federal income tax purposes are not available for
payment of cash dividends or other distributions to stockholders without payment
of taxes at the then-current tax rate by Mechanics Savings on the amount of
earnings deemed to be removed from the reserves for such distribution. See
"Taxation" and Note 9 of the consolidated financial statements. Mechanics
Savings does not contemplate any distribution out of its bad debt reserve which
would cause such tax liability.
MARKET FOR THE STOCK
Steelton Bancorp has never issued capital stock. Consequently, there is
not, at this time, any market for the stock. Following the completion of the
offering, Steelton Bancorp anticipates that its stock will be traded on the
over-the-counter market with quotations available through the OTC Electronic
Bulletin Board. Steelton Bancorp expects that Capital Resources will make a
market in the stock. Making a market may include the solicitation of potential
buyers and sellers in order to match buy and sell orders. However, Capital
Resources will not be obligated with respect to such efforts. If the common
stock cannot be quoted and traded on the OTC Bulletin Board, Steelton Bancorp
expects that transactions in the stock will be reported in the pink sheets of
the National Quotation Bureau, Inc.
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The development of an active trading market depends on the existence of
willing buyers and sellers. Due to the small size of the offering, it is highly
unlikely that an active trading market will develop and be maintained. You could
have difficulty disposing of your shares and you should not view the shares as a
short term investment. You may not be able to sell your shares at a price equal
to or above the price you paid.
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CAPITALIZATION
Set forth below is the historical capitalization of the Association as
of December 31, 1998, and the pro forma capitalization of Steelton Bancorp after
giving effect to the offering. The table also gives affect to the assumptions
set forth under "Pro Forma Data." A change in the number of shares sold in the
offering may affect materially the pro forma capitalization.
<TABLE>
<CAPTION>
Pro Forma Capitalization at December 31, 1998
------------------------------------------------------------
Maximum,
Minimum Midpoint Maximum as adjusted
369,750 435,000 500,250 575,288
Actual, at Shares at Shares at Shares at Shares at
December 31, $10.00 per $10.00 per $10.00 per $10.00 per
1998 share share share share(1)
------------ ----------- ----------- ---------- -----------
(In thousands)
<S> <C> <C> <C> <C> <C>
Deposits(2)................................. $28,272 $28,272 $28,272 $28,272 $28,272
Borrowed funds.............................. 9,257 9,257 9,257 9,257 9,257
------ ------ ------ ------ ------
Total deposits and borrowed funds........... $37,529 $37,529 $37,529 $37,529 $37,529
====== ====== ====== ====== ======
Stockholders' equity:
Preferred stock, no par value, 2,000,000
shares authorized; none to be issued...... $ -- $ -- $ -- $ -- $ --
Common stock, $0.10 par value, 8,000,000
shares authorized, assuming shares
outstanding as shown(3)................. -- 37 44 50 58
Additional paid-in capital(3)............... -- 3,351 3,996 4,643 5,385
Retained earnings........................... 3,712 3,712 3,712 3,712 3,712
Unrealized gain on securities available (14) (14) (14) (14) (14)
for sale, net.............................
Less:
Common stock acquired by ESOP(4).......... -- (296) (348) (400) (460)
Common stock acquired by
stock programs(5)....................... -- (148) (174) (200) (230)
------- ------ ------ ------ ------
Total equity/stockholders' equity........... $ 3,698 $ 6,642 $ 7,216 $ 7,791 $ 8,451
====== ====== ====== ====== ======
</TABLE>
- ------------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the independent valuation and a
commensurate increase in the offering range of up to 15% to reflect
changes in market and financial conditions.
(2) Does not reflect withdrawals from deposit accounts for the purchase of
stock in the offering. Such withdrawals would reduce pro forma deposits
by the amount of such withdrawals.
(3) No effect has been given to the issuance of additional shares of stock
pursuant to any stock option plans that may be adopted by Steelton
Bancorp and the Association and presented for approval by the
stockholders after the offering. An amount equal to 10% of the shares
of stock sold in the offering would be reserved for issuance upon the
exercise of options to be granted under the stock option plans within
one year following the conversion. See "Risk Factors - Expenses
Associated with Stock Benefit Plans Will Reduce Our Earnings" and
"Management - Potential Stock Benefit Plans - Stock Options Plans."
(4) Assumes that 8.0% of the shares sold in the offering will be purchased
by the employee stock ownership plan, and that the funds used to
acquire the ESOP shares will be borrowed from Steelton Bancorp. For an
estimate of the impact of the loan on earnings, see "Pro Forma Data."
The Association intends to make scheduled discretionary contributions
to the employee stock ownership plan sufficient to enable the plan to
service and repay its debt over a ten year period. The amount of shares
to be acquired by the ESOP is reflected as a reduction of stockholders'
equity. See "Management - Executive Compensation - Employee Stock
Ownership Plan." If the employee stock ownership plan is unable to
purchase stock in the conversion due to an oversubscription in the
offering by Eligible Account Holders, and the purchase price in the
open market is greater than the original $10.00 price per share, there
will be a corresponding reduction in stockholders' equity.
(5) Assumes that an amount equal to 4% of the shares of stock sold in the
offering is purchased by stock programs within one year following the
conversion. The stock purchased by the stock programs is reflected as a
reduction of stockholders' equity. See footnote (2) to the table under
"Pro Forma Data." See "Risk Factors - Expenses Associated with Stock
Benefit Plans Will Reduce Our Earnings" and "Management - Potential
Stock Benefit Plans - Stock Programs."
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PRO FORMA DATA
The actual net proceeds from the sale of the stock cannot be determined
until the offering is completed. However, net proceeds to Steelton Bancorp are
currently estimated to be between $3.4 million and $4.7 million (or $5.4 million
if the independent valuation is increased by 15%) based on the following
assumptions:
o an amount equal to 8% of the shares issued will be loaned to the ESOP
to fund its purchase of 8% of the shares issued;
o an amount equal to 4% of the shares issued will be awarded pursuant to
the stock programs adopted no sooner than six months following the
offering, funded through open market purchases; and
o expenses of the offering are estimated to be $310,000.
We have prepared the following table, which sets forth our historical
net earnings and net worth prior to the conversion and our pro forma
consolidated net income and stockholders' equity following the conversion. In
preparing this table and in calculating pro forma data, we have made the
following assumptions:
o Pro forma earnings have been calculated assuming the stock had been
sold at the beginning of the period and the net proceeds had been
invested at an average yield of 4.59% for the year ended December 31,
1998, which approximates the yield on a one-year U.S. Treasury bill on
December 31, 1998. The yield on a one-year U.S. Treasury bill, rather
than an arithmetic average of the average yield on interest-earning
assets and average rate paid on deposits, has been used to estimate
income on net proceeds because it is believed that the one-year U.S.
Treasury bill rate is a more accurate estimate of the rate that would
be obtained on an investment of net proceeds from the offering.
o The pro forma after-tax yield on the net proceeds is assumed to be
2.94% for the year ended December 31, 1998, based on an effective tax
rate of 36%.
o We did not include any withdrawals from deposit accounts to purchase
shares in the offering.
o Historical and pro forma per share amounts have been calculated by
dividing historical and pro forma amounts by the indicated number of
shares of stock, as adjusted in the pro forma net earnings per share to
give effect to the purchase of shares by the employee stock ownership
plan.
o Pro forma stockholders' equity amounts have been calculated as if the
stock had been sold on December 31, 1998 and, accordingly, no effect
has been given to the assumed earnings effect of the transactions.
The following pro forma data relies on the assumptions we outlined
above, and this data does not represent the fair market value of the common
stock, the current value of assets or liabilities, or the amount of money that
would be distributed to stockholders if we liquidated Steelton Bancorp.
The pro forma data does not predict how much we will earn in the future.
29
<PAGE>
The following tables summarize historical data of Mechanics Savings and
Loan, FSA and pro forma data of Steelton Bancorp at or for the year ended
December 31, 1998, based on the assumptions set forth above and in the tables
and should not be used as a basis for projections of market value of the stock
following the conversion. No effect has been given in the tables to the possible
issuance of additional stock reserved for future issuance pursuant to a stock
option plan that may be adopted by the Board of Directors of Steelton Bancorp
within one year following the conversion, nor does book value give any effect to
the liquidation account to be established for the benefit of Eligible Account
Holders and Supplemental Eligible Account Holders or the bad debt reserve in
liquidation. See "The Conversion - Effects of Conversion - Liquidation Rights"
and "Management - Potential Stock Benefit Plans - Stock Option Plans."
30
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1998
---------------------------------------------------------------
$3,697,500 $4,350,000 $5,002,500 $5,752,880
Independent Independent Independent Independent
Valuation Valuation Valuation Valuation
----------- ----------- ----------- -----------
369,750 435,000 500,250 575,288
Shares Shares Shares Shares
----------- ----------- ----------- -----------
(Dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Gross proceeds...................................... $ 3,698 $ 4,350 $ 5,003 $ 5,753
Less expenses....................................... (310) (310) (310) (310)
-------- -------- -------- --------
Estimated net proceeds........................... 3,388 4,040 4,693 5,443
Less ESOP funded by Steelton Bancorp................ (296) (348) (400) (460)
Less stock programs adjustment...................... (148) (174) (200) (230)
-------- -------- -------- --------
Estimated investable net proceeds................ $ 2,944 $ 3,518 $ 4,093 $ 4,753
======== ======== ======== ========
Net Income:
Historical....................................... $ 100 $ 100 $ 100 $ 100
Pro forma income on net proceeds................. 87 103 120 140
Pro forma ESOP adjustments(1).................... (19) (22) (26) (29)
Pro forma stock programs adjustment(2)........... (19) (22) (26) (29)
-------- -------- -------- --------
Pro forma net income(1)(3)(4).................... $ 149 $ 159 $ 168 $ 182
======== ======== ======== ========
Per share net income
Historical....................................... $ 0.29 $ 0.25 $ 0.22 $ 0.19
Pro forma income on net proceeds................. 0.25 0.26 0.26 0.26
Pro forma ESOP adjustments(1).................... (0.06) (0.05) (0.06) (0.05)
Pro forma stock programs adjustment(2)........... (0.06) (0.05) (0.06) (0.05)
-------- -------- -------- --------
Pro forma net income per share(1)(3)(4).......... $ 0.42 $ 0.41 $ 0.36 $ 0.35
======== ======== ======== ========
Shares used in calculation of income per share(1)...
Stockholders' equity:
Historical ...................................... $ 3,698 $ 3,698 $ 3,698 $ 3,698
Estimated net proceeds........................... 3,388 4,040 4,693 5,443
Less: Common Stock acquired ESOP(1).............. (296) (348) (400) (460)
Less: Common Stock acquired by stock
programs(2)................................ (148) (174) (200) (230)
-------- -------- -------- --------
Pro forma stockholders' equity(1)(3)(4).......... $ 6,642 $ 7,216 $ 7,791 $ 8,451
======== ======== ======== ========
Stockholders' equity per share:
Historical....................................... $ 10.00 $ 8.50 $ 7.39 $6.43
Estimated net proceeds........................... 9.16 9.29 9.38 9.46
Less: Common Stock acquired by the ESOP(1)....... (0.80) (0.80) (0.80) (0.80)
Less: Common stock acquired by stock
programs(2)................................ (0.40) (0.40) (0.40) (0.40)
-------- -------- -------- --------
Pro forma stockholders' equity per share(4)...... $ 17.96 $ 16.59 $ 15.57 $ 14.69
======== ======== ======== ========
Offering price as a percentage of pro forma
stockholders' equity per share.................... 55.7% 60.3% 64.2% 68.1%
======== ======== ======== ========
Offering price to pro forma
net income per share.............................. 23.8X 24.4X 27.8X 28.6X
======== ======== ======== ========
Shares used in calculation of earnings per share.... 343,128 403,680 464,232 533,867
</TABLE>
- ---------------------
(1) Assumes that 8% of the shares of stock sold in the offering will be
purchased by the employee stock ownership plan and that the plan will
borrow funds from Steelton Bancorp. The stock acquired by the employee
stock ownership plan is reflected as a reduction of stockholder's
equity. The Association intends to make annual contributions to the
plan in an amount at least equal to the principal and interest
requirement of the loan. This table assumes a 10 year amortization
period. See "Management -
31
<PAGE>
Executive Compensation - Employee Stock Ownership Plan." The pro forma
net earnings assumes: (i) that the Association's contribution to the
employee stock ownership plan for the principal portion of the debt
service requirement for the year ended December 31, 1998 were made at
the end of the period; (ii) that 2,958, 3,480, 4,002, and 4,602 shares
at the minimum, midpoint, maximum, and 15% above the maximum of the
range, respectively, were committed to be released during the year
ended December 31, 1998 at an average fair value of $10.00 per share
and were accounted for as a charge to expense in accordance with
Statement of Position ("SOP") No. 93-6; and (iii) only the employee
stock ownership plan shares committed to be released were considered
outstanding for purposes of the net earnings per share calculations,
while all such plan shares were considered outstanding for purposes of
the stockholders' equity per share calculations. See also "Risk Factors
- Expenses Associated and Stock Benefit Plans Will Reduce Our Earnings"
for a discussion of possible added costs for the employee stock
ownership plan.
(2) Gives effect to the stock programs that may be adopted by the
Association following the conversion and presented for approval at a
meeting of stockholders to be held within one year after completion of
the conversion. If the stock programs are approved by the stockholders,
the stock programs would be expected to acquire an amount of stock
equal to 4% of the shares of stock sold in the offering, or 14,790,
17,400, 20,010, and 23,012 shares of stock respectively at the minimum,
midpoint, maximum and 15% above the maximum of the range through open
market purchases. Funds used by the stock programs to purchase the
shares will be contributed to the stock programs by the Association. In
calculating the pro forma effect of the stock programs, it is assumed
that the required stockholder approval has been received, that the
shares were acquired by the stock programs at the beginning of the year
ended December 31, 1998 through open market purchases, at $10.00 per
share, and that 20% of the amount contributed was amortized to expense
during the year ended December 31, 1998. The issuance of authorized but
unissued shares of stock to the stock plans instead of open market
purchases would dilute the voting interests of existing shareholders by
approximately 4.5% and pro forma net income per share would be $0.43,
$0.39, $0.36 and $0.34 at the minimum, midpoint, maximum and 15% above
the maximum of the range, respectively, and pro forma stockholders'
equity per share would be $17.27, $15.95, $14.98 and $14.13 at the
minimum, midpoint, maximum and 15% above the maximum of the range,
respectively. There can be no assurance that stockholder approval of
the stock programs will be obtained, or the actual purchase price of
the shares will be equal to $10.00 per share. See "Management -
Potential Stock Benefit Plans - Stock Programs."
(3) The retained earnings of Steelton Bancorp and the Association will
continue to be substantially restricted after the conversion. See
"Dividend Policy," "The Conversion - Effects of Conversion Liquidation
Rights" and "Regulation - Regulation of the Association - Dividends and
Other Capital Distribution Limitations."
(4) No effect has been given to the issuance of additional shares of stock
pursuant to the stock option plans that may be adopted by the
Association following the conversion which, in turn, would be presented
for approval at a meeting of stockholders to be held within one year
after the completion of the conversion. If the stock option plans are
presented and approved by stockholders, an amount equal to 10% of the
stock sold in the offering, or 36,975, 43,500, 50,025, and 57,529
shares at the minimum, midpoint, maximum and 15% above the maximum of
the range, respectively, will be reserved for future issuance upon the
exercise of options to be granted under the stock option plans. The
issuance of stock pursuant to the exercise of options under the stock
option plans will result in the dilution of existing stockholders'
interests. Assuming stockholder approval of the stock option plans and
the exercise of all options at the end of the period at an exercise
price of $10.00 per share, the pro forma net earnings per share would
be $0.39, $0.36, $0.33, and $0.31, respectively at the minimum,
midpoint, maximum and 15% above the maximum of the range for the year
ended December 31, 1998; pro forma stockholders' equity per share would
be $17.24, $15.99, $15.07 and $14.26, respectively at the minimum,
midpoint, maximum and 15% above the maximum of the range for the year
ended December 31, 1998. See "Management - Potential Stock Benefit
Plans - Stock Option Plans."
32
<PAGE>
HISTORICAL AND PRO FORMA CAPITAL COMPLIANCE
The following table presents the Mechanics Savings' historical and pro
forma capital position relative to its capital requirements as of December 31,
1998. Pro forma capital levels assume receipt by Mechanics Savings of the net
proceeds of the offering and retention by Steelton Bancorp of 50% of the net
proceeds, and that the ESOP purchases 8% of the stock sold in the offering, and
that 4% of the shares of stock sold in the offering is purchased by the stock
programs at the purchase price subsequent to the offering. 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 - Regulation of the Association - Regulatory
Capital Requirements."
<TABLE>
<CAPTION>
Pro Forma at December 31, 1998
-----------------------------------------------------------------------------
Actual, at $3,697,500 $4,350,000 $5,002,500 $5,752,880
December 31, 1998 Offering Offering Offering Offering(1)
------------------- ------------------ ----------------- ------------------ -----------------
Percentage Percentage Percentage Percentage Percentage
of of of of of
Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2) Amount Assets(2)
------ --------- ------ --------- ------ --------- ------ --------- ------ ---------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
GAAP Capital(3)............... $ 3,698 8.91% $ 4,948 11.57% $ 5,196 12.08% $ 5,445 12.59% $ 5,730 13.16%
====== ==== ====== ===== ====== ===== ====== ===== ====== =====
Core Capital:
Actual or Pro Forma......... $ 3,712 8.93% $ 4,962 11.59% $ 5,210 12.10% $ 5,459 12.61% $ 5,744 13.18%
Required.................... 1,662 4.00 1,712 4.00 1,722 4.00 1,732 4.00 1,743 4.00
----- ---- ------ ----- ------ ----- ------ ----- ------ -----
Excess...................... $2,050 6.99% $ 3,250 7.59% $ 3,488 8.10% $ 3,727 8.61% $ 4,001 9.18%
===== ==== ====== ===== ====== ===== ====== ===== ====== =====
Tier 1 Capital:
Actual or Pro Forma......... $ 3,712 18.41% $ 4,962 23.86% $ 5,210 24.91% $ 5,459 25.95% $ 5,744 27.12%
Required(4)................. 807 4.00 832 4.00 837 4.00 842 4.00 847 4.00
----- ---- ------ ----- ------ ----- ------ ----- ------ -----
Excess...................... $ 2,905 14.41% $ 4,130 19.86% $ 4,373 20.91% $ 4,617 21.94% $ 4,897 23.12%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
Risk-Based Capital:
Actual or Pro Forma(5)(6)... $ 3,878 19.23% $ 5,128 24.66% $ 5,376 25.70% $ 5,625 26.73% $ 5,910 27.90%
Required.................... 1,613 8.00 1,663 8.00 1,673 8.00 1,683 8.00 1,695 8.00
------ ---- ------ ----- ------ ----- ------ ----- ------ -----
Excess...................... $ 2,265 11.23% $ 3,465 16.66% $ 3,703 17.70% $ 3,942 18.74% $ 4,215 19.90%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
- -----------------
(1) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the offering range of up to 15% as a
result of regulatory considerations or changes in market or general
financial and economic conditions following the commencement of the
offerings.
(2) Core capital levels are shown as a percentage of total adjusted assets.
Tier 1 and Risk-based capital levels are shown as a percentage of
risk-weighted assets.
(3) GAAP Capital includes unrealized gain on available-for-sale securities,
net, which is not included as regulatory capital.
(4) The current OTS core capital requirement for savings associations is 3%
of total adjusted assets. The OTS has proposed core capital
requirements which would require a core capital ratio of 3% of total
adjusted assets for thrifts that receive the highest supervisory rating
for safety and soundness and a 4% to 5% core capital ratio requirement
for all other thrifts. See "Regulation - Regulation of the
Association-Regulatory Capital Requirements.
(5) Assumes net proceeds are invested in assets that carry a 50%
risk-weighing.
(6) The difference between equity under GAAP and regulatory risk-based
capital is attributable to the addition of the general valuation
allowance of $166,000 at December 31, 1998 and the subtraction of the
unrealized loss on available- for-sale securities, net of $14,000.
33
<PAGE>
SELECTED FINANCIAL AND OTHER DATA
Selected Financial Data
At December 31,
-----------------------------------
1998 1997 1996
-------- --------- ----------
(Dollars in thousands)
Total Amount of:
Assets................................. $41,511 $37,232 $36,527
Loans receivable, net.................. 27,784 32,118 31,667
Mortgage-backed securities, net(1)..... 7,122 1,414 955
Investment securities(2)............... 2,083 957 1,624
Cash and cash equivalents.............. 2,388 789 858
Deposits............................... 28,272 23,468 22,908
FHLB advances.......................... 9,257 9,817 9,853
Retained earnings
(substantially restricted(3))........ 3,698 3,612 3,450
Number of:
Real estate loans outstanding.......... 352 412 449
Deposit accounts....................... 3,241 2,454 2,241
Offices................................ 2 2 1
- -------------------
(1) Includes mortgage-backed securities available for sale of $3.7 million,
$0, and $0, respectively.
(2) Includes investment securities available for sale of $299,000, $0, and
$0, respectively.
(3) Includes accumulated other comprehensive income (loss) of $(14,000),
$0, and $0, respectively.
34
<PAGE>
Summary of Operations
Year Ended December 31,
----------------------------------------
1998 1997 1996
-------- ---------- ---------
(In thousands)
Interest and dividend income........ $2,880 $2,831 $2,938
Interest expense.................... 1,794 1,775 1,925
----- ----- -----
Net interest income............... 1,086 1,056 1,013
Provision for loan losses........... 50 12 18
----- ----- -----
Net interest income after
provision for loan losses........ 1,036 1,044 995
Non-interest income................. 175 121 57
----- ----- -----
Non-interest expenses............... 1,092 923 903(1)
----- ----- -----
Income before income taxes.......... 119 242 149
Provision for income taxes.......... 19 79 37
----- ----- -----
Net income.......................... $ 100 $ 163 $ 112
===== ===== =====
- -----------------
(1) Includes a non-recurring expense of $155,000 for the year ended
December 31, 1996 for a one-time deposit insurance premium to
recapitalize the SAIF.
35
<PAGE>
Selected Financial Ratios
<TABLE>
<CAPTION>
At or For the Year Ended
December 31,
------------------------------------------------
1998 1997 1996
--------------- --------------- ------------
<S> <C> <C> <C>
Return on average assets (net income
divided by average total assets).......................... 0.25% 0.43% 0.27%
Return on average equity (net income
divided by average equity)................................ 2.77 4.62 3.33
Average equity to average assets ratios
(average equity divided by average total assets).......... 9.14 9.41 9.03
Equity to assets at period end.............................. 8.91 9.70 9.43
Net interest rate spread.................................... 2.58 2.56 2.33
Net yield on average interest-earnings assets............... 2.88 2.93 2.79
Non-performing assets to total assets....................... 0.78 1.59 0.57
Average interest-earning assets to average
interest-bearing liabilities.............................. 106.37 107.68 108.12
Net interest income after provision for loan losses,
to total other expenses................................. 94.89 113.00 110.07
Non-performing loans to total loans......................... 1.16 1.84 0.65
</TABLE>
36
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Management's discussion and analysis of Mechanics Savings and Loan,
FSA's financial condition and results of operations is intended to provide
assistance and understanding of the Association's financial condition and
results of operations. The information in this section should be read with the
consolidated financial statements and the notes to consolidated financial
statements beginning at page F-2.
The Association's results of operations are primarily dependent on its
net interest income. Net interest income is a function of the balances of loans
and investments outstanding in any one period, the yields earned on such loans
and investments and the interest paid on deposits and borrowed funds that were
outstanding in that same period. The Association's noninterest income consists
primarily of fees and service charges. The results of operations are
significantly impacted by the amount of provisions for loan losses which, in
turn, are dependent upon, among other things, the size and makeup of the loan
portfolio, loan quality and loan trends. The noninterest expenses consist
primarily of employee compensation and benefits, occupancy and equipment
expenses, data processing costs, marketing costs, professional fees and federal
deposit insurance premiums. The Association's results of operations are affected
by general economic and competitive conditions, including changes in prevailing
interest rates and the policies of regulatory agencies.
Forward - Looking Statements
This document contains statements that project the future operations of
Steelton Bancorp which involve risks and uncertainties. Steelton Bancorp's
actual results may differ significantly from the results discussed in these
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in "Risk Factors" beginning on page ____
of this document.
Business Strategy
The Association's business strategy has been to operate as a
well-capitalized independent community savings association dedicated to
providing quality service at competitive prices. Generally, the Association has
sought to implement this strategy by maintaining a substantial part of its
assets in loans secured by one- to four- family residential real estate located
in the Association's market area, home equity and second mortgage loans,
mortgage-backed securities, state and local government obligations, and U.S.
Government and agency obligations.
Management believes that the Association benefits from its ability to
quickly and effectively provide personal service tailored to customer needs and
inquiries, in comparison to many of its local competitors. In 1997, the
Association enhanced its capabilities as a full service community association
with the issuance of debit cards and the installation of Steelton's first
24-hour full-service ATM at the Association's main office. A second ATM was
installed at the Association's branch office, which opened in October, 1997.
37
<PAGE>
To the extent that new deposits have exceeded loan originations, the
Association has invested these deposits primarily in mortgage-backed securities,
particularly adjustable rate mortgage-backed securities. In addition, the
Association has increased its focus on refinancing mortgage loans and consumer
lending, including home equity loans.
While management intends to maintain its community orientation by
continuing to emphasize traditional deposit and loan products, primarily
single-family residential mortgages, the additional capital provided by the
offering will allow the Association to take the following steps to achieve
greater growth and profitability. Specifically, the Association intends to:
o increase its percentage of commercial real estate and consumer loans and
commercial deposit accounts, among other products;
o expand the Association's main office, including purchasing land to be used
as a parking lot and installing drive-through facilities; and
o invest in appropriate technology that will enable the Association to serve
its customers effectively, including telephone banking services.
By seeking to broaden the range of its products and services offered,
the Association believes it will offset the declining margins in the competitive
market for one- to four-family residential mortgage loans.
Analysis of Net Interest Income
The Association's earnings have historically depended primarily upon
the Association's net interest income, which is the difference between interest
income earned on its loans and investments ("interest-earning assets") and
interest paid on its deposits and any borrowed funds ("interest-bearing
liabilities"). Net interest income is affected by (a) the difference between
rates of interest earned on the Association's interest-earning assets and rates
paid on its interest-bearing liabilities ("interest rate spread") and (b) the
relative amounts of its interest-earnings assets and interest-bearing
liabilities.
38
<PAGE>
Average Balance Sheet. The following table sets forth certain
information relating to the Association at and for the periods indicated. The
average yields and costs are derived by dividing income or expense by the
average balance of assets or liabilities, respectively, for the periods
presented. Similar information is provided as of December 31, 1998. Average
balances are derived from month-end balances. Management does not believe that
the use of month-end balances instead of daily average balances has caused any
material differences in the information presented.
<TABLE>
At December 31, Year Ended December 31,
------------------------- ---------------------------------------------------------------
1998 1998 1997
------------------------- -------------------------------- -----------------------------
Average Average Average Average Average
Balance Yield/Cost Balance Interest Yield/Cost Balance Interest Yield/Cost
------- ---------- ------- -------- ---------- ------- -------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans receivable(1)..................... $27,784 9.13% $29,889 $2,537 8.49% $32,131 $2,657 .27%
Investment securities................... 9,204 2.82 5,660 259 4.58 2,424 111 4.56
Other interest-earning assets........... 2,519 3.33 2,203 84 3.81 1,484 63 4.25
------ ------- ----- ------ -----
Total interest-earning assets........ 39,507 7.29 37,752 2,880 7.63 36,039 2,831 7.86
------ ------- ----- ------ -----
Non-interest-earning assets.............. 2,004 1,800 1,444
------ ------ ------
Total assets........................... $41,511 $39,552 $37,483
====== ====== ======
Interest-bearing liabilities:
NOW and commercial checking............. $ 2,290 0.56 $ 1,936 16 0.82 $ 1,273 13 1.02
Money market accounts................... 1,606 1.83 1,389 34 2.43 1,094 29 2.65
Savings accounts........................ 3,960 2.46 3,670 97 2.65 3,147 84 2.67
Certificates of deposit................. 20,416 5.22 18,351 1,066 5.81 17,388 1,028 5.91
Other liabilities....................... 9,257 6.71 10,147 581 5.72 10,568 621 5.88
------ ------- ----- ------ -----
Total interest-bearing liabilities..... 37,530 4.78 35,493 1,794 5.05 33,470 1,775 5.30
------ ------- ----- ------ -----
Non-interest-bearing liabilities......... 283 443 485
------ ------ ------
Total liabilities....................... 37,813 35,936 33,955
------ ------ ------
Equity................................... 3,698 3,616 3,528
------ ------ ------
Total liabilities and equity............ $41,511 $39,552 $37,483
------ ------ ------
Net interest income...................... $1,086 $1,056
===== =====
Interest rate spread(2).................. 2.51% 2.58% 2.56%
==== ==== ====
Net yield on interest-earning assets(3).. 2.75% 2.88% 2.93%
==== ==== ====
Ratio of average interest-earning assets
to average interest-bearing liabilities. 1.05X 1.06X 1.08X
==== ==== ====
</TABLE>
- --------------------------------
(1) Average balances include non-accrual loans.
(2) Interest-rate spread represents the difference between the average yield on
interest-earning assets and the average cost of interest-bearing
liabilities.
(3) Net yield on interest-earning assets represents net interest income as a
percentage of average interest-earning assets.
39
<PAGE>
Rate/Volume Analysis. The relationship between the volume and rates of
the Association's interest-bearing assets and interest-bearing liabilities
influence the Association's net interest income. The following table reflects
the sensitivity of the Association's interest income and interest expense to
changes in volume and in prevailing interest rates during the periods indicated.
Each category reflects the: (1) changes in volume (changes in volume multiplied
by old rate); (2) changes in rate (changes in rate multiplied by old volume);
(3) changes in rate/volume (change in rate multiplied by the change in volume);
and (4) net change. The net change attributable to the combined impact of volume
and rate has been allocated proportionally to the absolute dollar amounts of
change in each.
Year Ended December 31,
----------------------------------------
1998 vs. 1997
Increase (Decrease)
Due to
----------------------------------------
Rate/
Volume Rate Volume Net
------ ---- ------ ---
(In thousands)
Income:
Loans receivable ...................... $(185) $ 70 $ (5) $(120)
Mortgage-backed securities
Investment securities ................. 148 -- 1 149
Other interest earning assets ......... 31 (7) (3) 21
----- ----- ----- -----
Total interest-earning assets ........ $ (6) $ 63 $ (7) $ 50
===== ===== ===== =====
Interest expense:
Commercial checking and NOW
accounts ............................... 7 (2) (1) 4
Savings accounts ....................... 14 -- -- 14
Money market accounts .................. 8 (3) (1) 4
Certificates of deposit ................ 57 (18) (1) 38
Other liabilities ...................... (25) (16) 1 (40)
----- ----- ----- -----
Total interest bearing
liabilities .......................... $ 61 $ (39) $ (2) $ 20
===== ===== ===== =====
Net change in interest income .......... $ (67) $ 102 $ (5) $ 30
===== ===== ===== =====
40
<PAGE>
Management of Interest Rate Risk and Market Risk
Qualitative Analysis. Because the majority of the Association's assets
and liabilities are sensitive to changes in interest rates, the Association's
most significant form of market risk is interest rate risk, or changes in
interest rates. The Association, is vulnerable to an increase in interest rates
to the extent that interest-bearing liabilities mature or reprice more rapidly
than interest-earning assets. The lending activities of the Association have
historically emphasized the origination of long-term, fixed rate loans secured
by single-family residences. The primary source of funds has been deposits with
substantially shorter maturities. While having interest-bearing liabilities that
reprice more frequently than interest-earning assets is generally beneficial to
net interest income during a period of declining interest rates, such an
asset/liability mismatch is generally detrimental during periods of rising
interest rates.
The Board of Directors has established an asset/liability committee
which consists of the Association's executive vice president, senior vice
president, chief financial officer and two members of the Board of Directors.
The committee meets on a monthly basis to review loan and deposit pricing and
production volumes, interest rate risk analysis, liquidity and borrowing needs,
and a variety of other assets and liability management topics.
To reduce the effect of interest rate changes on net interest income
the Association has adopted various strategies to enable it to improve matching
of interest-earning asset maturities to interest-bearing liability maturities.
The principal elements of these strategies include: (a) the Association seeks to
originate commercial real-estate and consumer loans with adjustable rate
features or fixed rate loans with short maturities; (b) the Association seeks to
lengthen the maturities of its liabilities when deemed cost effective through
the pricing and promotion of certificates of deposit and utilization of FHLB
advances; (c) the Association seeks to attract low cost checking and transaction
accounts which tend to be less interest rate sensitive when interest rates rise;
and (d) the Association seeks, when market conditions permit, to originate and
hold in its portfolio adjustable rate loans which have annual interest rate
adjustments. The Association also maintains an investment portfolio that
provides a stable cash flow, thereby providing investable funds in varying
interest rate cycles.
The Association has also made a significant effort to maintain its
level of lower cost deposits as a method of enhancing profitability. In the past
year, the Association's level of demand deposits has increased significantly. At
December 31, 1998, the Association had approximately 25% of its deposits in
low-cost savings, checking and money market accounts. These deposits have
traditionally remained relatively stable and are expected to be only moderately
affected in a period of rising interest rates. This stability has enabled the
Association to offset the impact of rising rates in other deposit accounts.
Quantitative Analysis. Exposure to interest rate risk is actively
monitored by management. The Association's objective is to maintain a consistent
level of profitability within acceptable risk tolerances across a broad range of
potential interest rate environments. The Association uses the OTS Net Portfolio
Value ("NPV") Model to monitor its exposure to interest rate risk, which
calculates changes in net portfolio value. Reports generated from assumptions
provided and modified by management are reviewed by the Asset/Liability
Management Committee and reported to the Board of Directors quarterly. The
Interest Rate Sensitivity of Net Portfolio Value Report shows the degree to
which balance sheet line items and net portfolio value are potentially affected
by a 100 to 400 basis point (1/100th of a percentage point) upward and downward
parallel shift (shock) in the Treasury yield curve.
41
<PAGE>
The following table presents the Association's NPV as of December 31,
1998. The NPV was calculated by the OTS, based on information provided by the
Association.
Net Portfolio Value ("NPV") NPV as % of Present Value of Assets
--------------------------- -----------------------------------
Change Basis Point
in Rates $ Amount $ Change % Change NPV Ratio Change
-------- -------- -------- -------- --------- ------
(Dollars in thousands)
+400 bp $1,821 -2,579 -59 % 4.77 % -560 bp
+300 bp 2,584 -1,816 -41 % 6.57 % -380 bp
+200 bp 3,323 -1,077 -24 % 8.21 % -216 bp
+100 bp 3,966 -434 -10 % 9.54 % -82 bp
0 bp 4,400 10.37 %
-100 bp 4,592 192 +4 % 10.65 % +29 bp
-200 bp 4,724 324 +7 % 10.80 % +44 bp
-300 bp 4,928 528 +12 % 11.09 % +72 bp
-400 bp 5,085 685 +16 % 11.27 % +90 bp
Future interest rates or their effects on NPV or net interest income
are not predictable. Nevertheless, the Association's management does not expect
current interest rates to have a material adverse effect on the Association's
NPV or net interest income in the near future. Computations of prospective
effects of hypothetical interest rate changes are based on numerous assumptions,
including relative levels of market interest rates, prepayments, and deposit
run-offs, and should not be relied upon as indicative of actual results. Certain
shortcomings are inherent in such computations. Although certain assets and
liabilities may have similar maturity or periods of repricing, they may react at
different times and in different degrees to changes in the market interest
rates. The interest rate on certain types of assets and liabilities may
fluctuate in advance of changes in market interest rates, while rates on other
types of assets and liabilities may lag behind changes in market interest rates.
Certain assets such as adjustable rate mortgages, generally have features which
restrict changes in interest rates on a short-term basis and over the life of
the asset. In the event of a change in interest rates, prepayments and early
withdrawal levels could deviate significantly from those assumed in making
calculations set forth above. Additionally, an increased credit risk may result
as the ability of many borrowers to service their debt may decrease in the event
of an interest rate increase.
Comparison of Financial Condition at December 31, 1998 and 1997
Assets. Total assets increased $4.3 million, or 11.6%, to $41.5 million
at December 31, 1998 from $37.2 million at December 31, 1997. The increase in
total assets resulted primarily from: a $5.7 million increase in mortgage-backed
securities, a $1.6 million increase in cash and cash equivalents, and a $1.1
million increase in investment securities, partially offset by a reduction of
$4.3 million in net loans outstanding. The Association purchased adjustable-rate
mortgage-backed securities during 1998 as part of its interest rate risk
management. Loans receivable decreased due to continued refinancings. The
Association's increase in investment and mortgage-backed securities outpaced its
loan originations as the Association purchased adjustable rate mortgage-backed
securities and obligations of local and state governments as part of the
Association's interest rate risk management and tax strategies, respectively.
Liabilities. Total liabilities increased $4.2 million, or 12.5%, to
$37.8 million at December 31, 1998 from $33.6 million at December 31, 1997. The
increase in total liabilities resulted primarily from a $4.8 million increase in
deposits, primarily demand deposits, partially offset by a
42
<PAGE>
decrease in FHLB advances of $600,000. The increase in deposits is primarily
attributable to the opening of the Woodridge branch office in October, 1997 as
well as increased emphasis on checking and over 55 savings account programs.
Equity. The increase in the Association's equity reflects the $100,000
in net income for the year ended December 31, 1998 offset somewhat by an
increase of $14,000 in unrealized losses on investments available for sale, net
of tax.
Liquidity and Capital Resources
The liquidity of a savings institution reflects its ability to provide
funds to meet loan requests, to accommodate possible outflows in deposits, and
to take advantage of interest rate market opportunities. Funding of loan
requests, providing for liability outflows, and management of interest rate
fluctuations require continuous analysis in order to match the maturities of
specific categories of short-term loans and investments with specific types of
deposits and borrowings. Savings institution liquidity is normally considered in
terms of the nature and mix of the savings institution's sources and uses of
funds.
Asset liquidity is provided through loan repayments and the management
of maturity distributions for loans and securities. An important aspect of
liquidity lies in maintaining sufficient levels of loans and mortgage-backed
securities that generate monthly cash flows.
Net cash provided by the Association's operations for 1998 was $47,000,
compared to net cash provided by its operating activities of $264,000 for 1997.
Net cash used for the Association's investing activities (i.e., cash
disbursed, primarily for investment securities and mortgage-backed securities
portfolios and the Association's loan portfolio) totaled $2.7 million for 1998,
an increase of $1.8 million from 1997.
Net cash provided by our financing activities (i.e., cash receipts from
our net increases in deposits) totaled $4.2 million in 1998, compared to net
cash provided by financing activities totaling $500,000 in 1997.
The Association is subject to federal regulations that impose certain
minimum capital requirements. For a discussion on such capital levels, see
"Historical and Pro Forma Capital Compliance" and "Regulation - Regulation of
the Association - Regulatory Capital Requirements."
Management is not aware of any known trends, events or uncertainties
that will have or are reasonably likely to have a material effect on the
Association's liquidity, capital or operations nor is management aware of any
current recommendation by regulatory authorities, which if implemented, would
have such an effect.
Comparison of Operating Results for Year Ended December 31, 1998 to Year Ended
December 31, 1997
Net Income. Net income for 1998 decreased 39% to $100,000 compared to
net income of $163,000 for 1997. The decrease is attributable in part to a
$38,000 increase in provision for loan losses and an increase of $168,000 in
non-interest expenses, partially offset by an increase in non-interest income of
$54,000.
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<PAGE>
Net Interest Income. Net interest income increased 30,000, or 2.7%, in
1998 compared to 1997. This increase resulted from a increase in interest income
of $49,000 which was partially offset by an increase in interest expense of
$19,000.
Interest Income. Total interest income increased $49,000, or 1.7%, in
1998 compared to 1997, as a result of a $1.7 million increase in average
interest-earning assets, principally mortgage-backed securities, partially
offset by a decrease of 32 basis points in the average interest rates earned.
Interest income on loans decreased by $120,000 to $2.5 million for 1998 from
$2.6 million for 1997 due primarily to a $2.2 million decrease in the average
balance of loans. The average yield on loans, however, increased by 22 basis
points from 8.27% for 1997 to 8.49% for 1998 due to increased yields on the
Association's adjustable rate portfolio and a slight increase in consumer loans.
Interest income on investment securities increased by $148,000 primarily due to
a $3.2 million increase in the average balance as excess liquidity was invested
in obligations of states and local governments to take advantage of the lower
taxes on such investments.
Interest Expense. Total interest expense increased by $19,000 in 1998,
as a result of an increase in average interest-bearing liabilities. Average
interest-bearing liabilities increased to $35.5 million for 1998 from $33.5
million for 1997. The increase is partly attributable to the opening of the
Woodridge branch. The average interest rate paid on interest-bearing liabilities
was 5.05% for 1998 compared to 5.30% for 1997, a decrease of 25 basis points.
The decrease in rates paid on interest-bearing liabilities reflects market
rates. Total interest expense increased $19,000 to $1.8 million for 1998. This
increase was a result of an increase of $2.0 million in the average balance of
interest-bearing liabilities to $35.0 million in 1998 from $33.0 million in 1997
partially offset by a decrease of 25 basis points in the average rate to 5.05%
in 1998 from 5.30% in 1997.
Provision for Loan Losses. The Association attempts to provide a
reserve for future losses by maintaining general reserves. The Association sets
reserve levels based on the general level of loan delinquency, an evaluation of
the level of risk by type of loan, and an evaluation of the general economic
conditions as estimated by management. The provision for loan losses was $50,000
at December 31, 1998 compared to $12,000 at December 31, 1997. The increase in
the provision for loan losses relates primarily to management's assessment of
the mix of its loan portfolio, particularly the increase in commercial loans and
due to a reevaluation of loan loss reserves for FHA Title I loans purchased by
the Association. The allowance for loan losses increased from $126,000 at
December 31, 1997 to $166,000 at December 31, 1998. The current allowance
represents 0.60% of total loans outstanding at December 31, 1998. The
Association had net charge-offs of $10,000 for the year ended December 31, 1998
compared to net charge-offs of $5,000 for the year ended December 31, 1997. See
"Business of the Association -- Non-Performing Loans and Problem Assets." The
Association monitors its loan portfolio on a continuing basis and intends to
continue to provide for loan losses based on its ongoing review of the loan
portfolio and general market conditions.
Other Income. Other income, primarily fees and service charges
increased $54,000, or 30.8% from 1997 to 1998. This increase reflects the
Association's continuing emphasis on charging appropriate fees for its services.
The Association continues to review its products with a goal to increase sources
of non-interest income, including fees and service charges.
Other Expense. Other expense increased by $168,000 to $1.1 million for
1998 from $900,000 for 1997 primarily due to an increase in compensation and
employee benefits, an average 5% increase in salary adjustments, and a full year
of staff cost and other costs, including occupancy, telephone, and supplies,
associated with the Association's new branch that opened in October 1997.
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<PAGE>
The Board of Directors and management analyzed the potential effect of
each of these expenditures prior to approval and believe that these expenditures
will have an overall positive effect on Steelton Bancorp's franchise and
shareholder value, but also realize that the expenditures will depress
profitability ratios in the short term. The Board of Directors and management
also expect that both interest income and fee income will increase as a result
of the new branch office and new employees. However, it is not possible to
precisely estimate such revenue increases, if any, at this time.
Statements concerning future performance, developments, or events,
concerning expectations for growth and market forecasts, and any other guidance
on future periods, constitute forward-looking statements which are subject to a
number of risks and uncertainties, including interest rate fluctuations and
government and regulatory actions which might cause actual results to differ
materially from stated expectations or estimates.
Steelton Bancorp expects increased expenses in the future as a result
of the establishment of the employee stock ownership plan, potential stock
benefit plans, and the adoption of the directors and executive retirement plans,
as well as increased costs associated with being a public company (e.g.,
periodic reporting, annual meeting materials, transfer agent, and professional
fees).
Provision for Income Taxes. Provision for income taxes decreased by
$60,000 from $79,000 in 1997 to $19,000 in 1998, due to reduced earnings and
deferred taxes.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 131, "Disclosures about Segments
of an Enterprise and Related Information (Statement No. 131)," which changes the
way public companies report information about segments of their business and
requires them to report selected segment information in their quarterly reports
issued to stockholders. Among other things, Statement No. 131 requires public
companies to report (1) certain financial and descriptive information about its
reportable operating segments (as defined), and (2) certain enterprise-wide
financial information about products and services, geographic areas and major
customers. The required segment financial disclosures include a measure of
profit or loss, certain specific revenue and expense items, and total assets.
Statement No. 131 is effective for reporting by public companies in fiscal years
beginning after December 15, 1997 and, accordingly, would be adopted by the
Association upon completion of its conversion. Statement No. 131 is not expected
to have a significant impact on the Association's financial reporting.
In February 1998, the FASB issued Statement of Financial Accounting
Standards No. 132, "Employers' Disclosures about Pensions and Other
Postretirement Benefits." This statement addresses disclosures only. The
disclosure requirements of SFAS No. 132 are effective for fiscal years beginning
after December 15, 1997 and have had no impact on the financial condition or
operations of the Association.
In June 1998, the FASB issued Statement of Financial Accounting Standards
No. 133 "Accounting for Derivative Instruments and Hedging Activities"
(Statement No. 133). Statement No. 133 establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts (collectively referred to as derivatives) and for
hedging activities. It requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. Statement No. 133 is effective for all fiscal
quarters of fiscal years beginning after June 15, 1999. Initial application of
this
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<PAGE>
Statement should be as of the beginning of an entity's fiscal quarter, on that
date, hedging relationships must be designated anew and documented pursuant to
the provisions of this Statement. Earlier application of all of the provisions
of Statement No. 133 is encouraged, but it is permitted only as of the beginning
of any fiscal quarter that begins after issuance of this Statement. This
Statement should not be applied retroactively to financial statements of prior
periods. Statement No. 133 is not expected to have a material impact on the
Association's consolidated financial statement presentations.
Year 2000 Readiness Disclosure
Rapid and accurate data processing is essential to the Association's
operations. Many computer programs that can only distinguish the final two
digits of the year entered (a common programming practice in prior years) are
expected to read entries for the year 2000 as the year 1900 or as zero and
incorrectly attempt to compute payment, interest, delinquency and other data.
The following discussion of the implications of the year 2000 problem
for the Association, contains numerous forward looking statements based on
inherently uncertain information. The cost of the project and the date on which
the Association plans to complete the internal year 2000 modifications are based
on management's best estimates, which are derived utilizing a number of
assumptions of future events including the continued availability of internal
and external resources, third party modifications and other factors. However,
there can be no guarantee that these statements will be achieved and actual
results could differ. Moreover, although management believes it will be able to
make the necessary modifications in advance, there can be no guarantee that
failure to modify the systems would not have a material adverse effect on the
Association or Steelton Bancorp.
The Association places a high degree of reliance on computer systems of
third parties, such as customers, suppliers, and other financial and
governmental institutions. Although the Association is assessing the readiness
of these third parties and preparing contingency plans, there can be no
guarantee that the failure of these third parties to modify their systems in
advance of December 31, 1999 would not have a material adverse affect on the
Association.
The Association's Year 2000 Plan (the "Plan") was presented to the
Board of Directors in December, 1997. The Plan was developed using the
guidelines outlined in the Federal Financial Institutions Examination Council's
"The Effect of Year 2000 on Computer Systems." The Year 2000 Committee is
responsible for the Plan with the Board of Directors receiving Year 2000
progress reports on no less than a quarterly basis. Our primary operating
systems, as provided by a third party service bureau ("External Provider"), have
been tested satisfactorily. The main hardware and software used to serve our
customer base and maintain the customer transaction histories and company
accounting records are currently operating on Year 2000 compliant systems.
An OTS on-site examination was conducted in December, 1998 and based
upon the examination results, the Association was progressing satisfactorily
towards completing the Plan requirements.
The primary operating software for the Association is the External
Provider. The Association is maintaining ongoing contact with this vendor so
that modification of the software for Year 2000 readiness is a top priority. The
Association has performed significant testing of the software utilized by the
External Provider with successful results. The External Provider has represented
that the software currently being utilized for the Association's current
operations is Year 2000 compliant.
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<PAGE>
The Association has contacted all other material vendors and suppliers
regarding their Year 2000 readiness. Each of these third parties has delivered
written assurance to the Association that they expect to be Year 2000 compliant
prior to the Year 2000. The Association is in the process of contacting all
significant customers and non-information technology suppliers (i.e. utility
systems, telephone systems, etc.), regarding their year 2000 state of readiness.
The Association has identified three vendors and systems as mission
critical, each of which is 95% Year 2000 compliant. The only critical vendors
that have not confirmed that they are Year 2000 compliant are the utility
companies and some of our correspondent banks.
Testing has been completed on the most significant vendor applications,
except the utilities as noted above, however, final testing remains on a few
critical applications. This final testing, and development of contingency plans,
is expected to be completed for all critical and important applications and
services by June 30, 1999. Most of the items identified as minor are services
that are performed by outside vendors. We have received communication from these
vendors indicating they will be in compliance for Year 2000 without any
disruption in service. Appropriate testing, if possible, and any related
contingency plans would be performed in the second and third quarter of 1999.
We are unable to test the Year 2000 readiness of our significant
suppliers of utilities. We are relying on the utility companies' internal
testing and representations to provide the required services that drive our data
systems.
Software provided by our External Provider is supported by a
contractual agreement that states the software will be Year 2000 compliant prior
to January 1, 2000. The contracts for our other systems and services do not
contain similar statements since they have longer terms and were not subject to
specific contract negotiation in the past few years.
All non-information technology providers that were identified have been
contacted. They have assured us that the Year 2000 will not be an issue or that
the issue will be satisfactorily resolved prior to the end of 1999.
If the Plan fails to significantly address the Year 2000 issues of the
Association, the following, among other things, could negatively affect the
Association:
(a) utility service companies may be unable to provide the
necessary service to drive our data systems or provide
sufficient sanitary conditions for our offices;
(b) our primary software provider could have a major malfunction
in its system or their service could be disrupted due to its
utility providers, or some combination of the two; or
(c) the Association may have to transact its business manually.
The Association will attempt to monitor these uncertainties by
continuing to request an update on all critical and important vendors throughout
the remainder of 1999. If the Association identifies any concern related to any
critical or important vendor, the contingency plans will be implemented
immediately to assure continued service to the Association's customers.
Costs will be incurred to replace certain non-compliant software and
hardware. The Association does not anticipate that direct costs for renovating
or replacing non-compliant hardware and software will exceed $50,000, of which
approximately $25,000 had been expended as of
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<PAGE>
December 31, 1998. No assurance can be given that the Year 2000 Plan will be
completed successfully by the Year 2000, in which event the Association could
incur significant costs. If the External Provider fails to maintain its system
in compliant state or incurs other obstacles prior to Year 2000, the Association
would likely experience significant data processing delays, mistakes or
failures. These delays, mistakes or failures could have a significant adverse
impact on the consolidated financial statements of the Association.
Successful and timely completion of the Year 2000 project is based on
management's best estimates derived from various assumptions of future events,
which are inherently uncertain, including the progress and results of the
External Provider, testing plans, and all vendors, suppliers and customer
readiness.
Despite the best efforts of management to address this issue, the vast
number of external entities that have direct and indirect business relationships
with the Association, such as customers, vendors, payment system providers and
other financial institution, makes it impossible to assure that a failure to
achieve compliance by one or more of these entities would not have material
adverse impact on the operations of the Association.
Impact of Inflation and Changing Prices
The consolidated financial statements and accompanying notes presented
elsewhere in this Prospectus have been prepared in accordance with GAAP which
generally requires 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 and due to inflation. The impact of
inflation is reflected in the increased cost of the Association's operations. As
a result, interest rates have a greater impact on the Association's performance
than do the effects of general levels of inflation. Interest rates do not
necessarily move in the same direction or, to the same extent, as prices of
goods and services.
BUSINESS OF STEELTON BANCORP, INC.
Upon consummation of the conversion we will own all of the stock of the
Association. We have not engaged in any significant business to date. Prior to
the conversion, we will not transact any material business. We will invest our
initial capitalization as discussed in the "Use of Proceeds" section. In the
future, we may pursue other business activities, including mergers and
acquisitions, investment alternatives and diversification of operations. There
are, however, no current plans for such activities. Initially, we will not
maintain offices separate from those of the Association or employ any persons
other than the Association's officers. Officers of Steelton Bancorp will not be
separately compensated for such service.
BUSINESS OF MECHANICS SAVINGS AND LOAN, FSA
General
The Association provides retail banking services, with an emphasis on
one- to four-family residential mortgage loans, home equity loans and lines of
credit and other consumer loans as well as certificates of deposit, checking
accounts and savings accounts. In addition, to a much lesser extent, the
Association originates commercial real estate loans within its market area. At
December 31, 1998, the Association had total assets, deposits, and equity of
$41.5 million, $28.3 million, and $3.7 million, respectively.
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The Association attracts deposits from the general public and uses
these deposits primarily to originate loans and to purchase investment,
mortgage-backed and other securities. The principal sources of funds for the
Association's lending and investing activities are deposits, FHLB advances, the
repayment and maturity of loans and sale, maturity, and call of securities. The
principal source of income is interest on loans and investment and
mortgage-backed securities. The principal expense is interest paid on deposits
and FHLB advances.
Market Area and Competition
The Association operates from its main office in Steelton and one
branch office in Lower Swatara Township. Both locations are in Dauphin County
which is situated in central Pennsylvania. The Association's primary market area
is the southern half of Dauphin County. As neighboring cities of Harrisburg, the
state capital, both Steelton and Lower Swatara Township benefit from their
proximity to the state government, one of the largest employers in the state.
There are approximately 43,000 residents and 18,000 households within the
Association's primary market area.
Although once heavily dependent on the steel industry, central
Pennsylvania has undergone a successful restructuring over the past decade. The
economic base is now more diverse and includes the government, manufacturing,
tourism and transportation.
The Association faces strong competition in its primary market area for
the attraction of retail deposits and in the origination of loans. The
Association's most direct competition for deposits has historically come from
commercial banks, other thrift institutions, and credit unions operating in its
primary market area. The Association's competition for loans also comes from
banks, other thrifts, and credit unions, in addition to mortgage bankers and
brokers. The Association's market area can be characterized as a market with
moderate incomes and increasing wealth, representing an attractive market that
can be served by a community financial institution such as the Association.
Lending Activities
General. The Association primarily originates one- to four-family
residential real estate loans and, to a lesser extent consumer loans, commercial
real estate loans, construction loans and other loans. Management attributes the
Association's increasing focus on consumer loans to the attractive features of
these types of loans, including shorter maturities and greater interest yields
as compared to residential mortgage loans. The Association's commercial real
estate loans consist primarily of mortgage loans secured by multi-family
properties, commercial office/retail space, and space occupied by local
fraternal, church or service organizations. The Association's construction loans
consist of loans to local builders for the construction of single-family homes.
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Loan Portfolio Composition. The following table analyzes the composition of
the Association's loan portfolio by loan category at the dates indicated.
<TABLE>
At December 31,
1998 1997
------------------- ---------------------
$ % $ %
----- ------ ------ ------
(Dollars in thousands)
Type of Loans:
Real estate:
<S> <C> <C> <C> <C>
1-4 family................................. $23,537 83.52% $28,310 86.80%
Non-residential............................ 764 2.72 838 2.57
Consumer loans:
Home equity and second mortgage loans...... 3,234 11.47 2,969 9.10
Share loans................................ 277 0.98 363 1.11
Other(1)................................... 289 1.03 137 0.42
Commercial (business) loans.................. 79 0.28 -- --
------ ------ ------ ------
Total loans.................................. 28,181 100.00% 32,617 100.00%
====== ====== ====== ======
Less:
Loans in process(2)........................ 51 138
Deferred loan origination fees and costs... 180 234
Allowance for loan losses.................. 166 127
------ ------
Total loans, net............................. $27,784 $32,118
====== ======
</TABLE>
- --------------------
(1) Consists of personal secured, auto secured, credit card loans, and
premiums on loans purchased.
(2) Relates to construction loans.
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Loan Maturity Schedule. The following table sets forth the maturity or
repricing of Association's loan portfolio at December 31, 1998. Demand loans,
loans having no stated maturity and overdrafts are shown as due in one year or
less.
<TABLE>
Home
1-4 Family Non Equity and
Real Estate Residential Second Other Commercial
Mortgage(1) Real Estate Mortgages Consumer Business Total
----------- ----------- --------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Non-performing ......... $ 223 $ 55 $ 44 $ -- $ -- $ 322
Amounts Due:
Within 3 months ........ 600 -- 135 17 -- 752
3 months to 1 Year ..... 2,379 -- 137 117 -- 2,633
After 1 year:
1 to 3 years .......... 2,143 230 265 132 -- 2,770
3 to 5 years .......... 148 -- 254 140 79 621
5 to 10 years ......... 596 231 1,400 63 -- 2,290
10 to 20 years ......... 4,962 249 999 97 -- 6,307
Over 20 years .......... 12,486 -- -- -- -- 12,486
-------- -------- -------- -------- -------- --------
Total due after one year 20,335 710 2,918 432 79 24,474
-------- -------- -------- -------- -------- --------
Total amount due ....... 23,537 765 3,234 566 79 28,181
Less:
Allowance for loan loss (96) -- (57) (5) (8) (166)
Loans in process ....... (51) -- -- -- -- (51)
Deferred loan fees ..... (180) -- -- -- -- (180)
-------- -------- -------- -------- -------- --------
Loans receivable, net .. $ 23,210 $ 765 $ 3,177 $ 561 $ 71 $ 27,784
======== ======== ======== ======== ======== ========
</TABLE>
(1) Includes mortgage-backed securities and construction loans.
The following table sets forth the dollar amount of all loans due after
December 31, 1999, which have pre-determined interest rates and which have
floating or adjustable interest rates.
Floating or
Fixed Rates Adjustable Rates Total
----------- ---------------- -----
(In thousands)
One-to-four family........... $ 17,480 $ 5,591 $ 23,071
Non-residential real estate.. 537 173 710
Home Equity and Second
Mortgages.................. 2,918 -- 2,918
Other consumer............... 431 -- 431
Commercial (Business)........ 79 -- 79
------- ------ -------
Total...................... $ 21,445 $ 5,764 $ 27,209
======= ====== =======
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Residential Lending. The Association's primary lending activity
consists of the origination of one- to four-family residential mortgage loans
secured by property located in the Association's market area. The Association
generally originates single-family residential mortgage loans in amounts up to
80% of the lesser of the appraised value or selling price of the mortgaged
property without requiring private mortgage insurance. The Association will
originate a mortgage loan in an amount up to 97% of the lesser of the appraised
value or selling price of a mortgaged property, however, private mortgage
insurance for the borrower is required on the amount financed in excess of 80%.
For multi-family and commercial properties, the Association will originate a
mortgage loan in an amount up to 75% of the lesser of the appraised value or
selling price.
The Association originates both fixed rate and adjustable rate mortgage
loans. The majority of the mortgage loans are fixed rate loans with terms of 30
years, however the Association also originates a significant amount of loans
with terms of 15 years. Adjustable rate mortgage loans are tied to the 1-year
U.S. Treasury Security Index or the 3-year Treasury Security Index. The
Association has originated adjustable rate mortgage loans since 1988.
The Association generally makes its fixed rate mortgage loans to meet
the secondary mortgage market standards of the Federal Home Loan Mortgage
Corporation ("FHLMC") but also makes non-conforming loans. While the Association
is an approved FHLMC seller/servicer, it has not sold any mortgage loans in the
secondary mortgage market for the three-year period ended December 31, 1998. The
Association may in the future sell fixed rate mortgage loans in the secondary
market, as markets and the Association's own portfolio needs dictate.
Substantially all of the Association's residential mortgages include
"due on sale" clauses, which are provisions giving the Association the right to
declare a loan immediately payable if the borrower sells or otherwise transfers
an interest in the property to a third party.
Property appraisals on real estate securing the Association's
single-family residential loans are made by state certified and licensed
independent appraisers approved by the Board of Directors. Appraisals are
performed in accordance with applicable regulations and policies. The
Association obtains title insurance policies on all first mortgage real estate
loans originated. All property secured loans require fire and casualty
insurance. Loans made on property located in designated flood zones require
minimum flood insurance coverage based on the amount of the loan.
Construction Lending. The Association engages in lending including
loans to qualified borrowers for construction of single-family residential
properties in the Association's market area. Construction loans are made to
builders on a speculative basis and to owners for construction of their primary
residence on a construction/permanent basis. The Association is a limited lender
to local builders engaged in the construction of single-family homes. The
Association limits residential construction loans to not more than two units per
builder and has never had more than seven construction loans outstanding an any
on time. At December 31, 1998, the Association had three construction loans
outstanding.
Construction lending is generally considered to involve a higher degree
of credit risk than long term financing of residential properties. The
Association's risk of loss on a construction loan is dependent largely upon the
accuracy of the initial estimate of the property's value at completion of
construction and the estimated cost of construction. If the estimate of
construction cost and the marketability of the property upon completion of the
project prove to be inaccurate, the Association
52
<PAGE>
may be compelled to advance additional funds to complete the construction.
Furthermore, if the final value of the completed property is less than the
estimated amount, the value of the property might not be sufficient to assure
the repayment of the loan.
Consumer Loans. As of December 31, 1998, consumer loans amounted to
$3.8 million or 13.6% of the Association's total loan portfolio and consisted
primarily of home equity loans and FHA Title I home improvement loans. To a
lesser extent, the Association originates personal loans (secured and
unsecured), savings secured loans (share loans), auto loans, and credit card
loans. Consumer loans are originated in the Association's market area and have
maturities of up to 15 years. For share loans, the Association will lend up to
90% of the account balance.
Consumer loans generally have shorter terms and higher interest rates
than residential loans. The consumer loan market can be helpful in improving the
spread between average loan yield and costs of funds and at the same time
improve the matching of the rate sensitive assets and liabilities.
Consumer loans entail greater risks than one- to four-family
residential mortgage loans, particularly consumer loans secured by rapidly
depreciable assets such as automobiles or loans that are unsecured. In such
cases, any repossessed collateral for a defaulted loan may not provide an
adequate source of repayment of the outstanding loan balance, since there is a
greater likelihood of damage, loss or depreciation of the underlying collateral.
Further, consumer loan collections are dependent on the borrower's continuing
financial stability, and therefore are more likely to be adversely affected by
job loss, divorce, illness or personal bankruptcy. Even for consumer loans
secured by real estate the risk to the Association is greater than that inherent
in the single family loan portfolio in that the security for consumer loans is
generally not the first lien on the property and ultimate collection of amounts
due may be dependent on whether any value remains after collection by a holder
with a higher priority than the Association. Finally, the application of various
federal laws, including federal and state bankruptcy and insolvency laws, may
limit the amount which can be recovered on such loans in the event of a default.
The underwriting standards employed by the Association for consumer
loans include a determination of the applicant's credit history and an
assessment of the applicant's ability to meet existing obligations and payments
on the proposed loan. The stability of the applicant's monthly income may be
determined by verification of gross monthly income from primary employment, and
additionally from any verifiable secondary income. Creditworthiness of the
applicant is of primary consideration; however, the underwriting process also
includes a comparison of the value of the collateral in relation to the proposed
loan amount.
Commercial Real Estate and Other Loans. The Association originates a
limited number of commercial real estate mortgage loans, including loans on
multi-family dwellings, retail/service space, and space occupied by local
fraternal, church or service organizations. The Association requires no less
than 25% downpayment or equity for commercial real estate mortgage loans. The
average loan size is approximately $150,000. Typically these loans are made with
adjustable rates of interest with terms of up to 20 years. Essentially all
originated commercial real estate loans are within the Association's market area
and all are within the Commonwealth of Pennsylvania. As of December 31, 1998,
the Association had commercial real estate loans, totalling $765,000 or 2.7% of
the Association's total loan portfolio. The Association's largest commercial
real estate loan had a balance of $239,000 on December 31, 1998 and was secured
by a multi-family apartment building located in the Association's market area.
53
<PAGE>
Commercial real estate loans, including multi-family loans, generally
are deemed to entail significantly greater risk than that which is involved with
single family real estate lending. The repayment of these loans typically is
dependent on the successful operations and income stream of the commercial real
estate and the borrower. Such risks can be significantly affected by economic
conditions. In addition, commercial real estate lending generally requires
substantially greater oversight efforts compared to residential real estate
lending.
Loans to One Borrower. Under federal law, savings institutions have,
subject to certain exemptions, lending limits to one borrower in an amount equal
to the greater of $500,000 or 15% of the institution's unimpaired capital and
surplus. As of December 31, 1998, the Association's largest aggregation of loans
to one borrower was $323,000 consisting of seven loans primarily secured by
single-family residential rental units in Middletown and Lititz, Pennsylvania,
which was within the Association's legal lending limit to one borrower of
$556,886 at such date. At December 31, 1998, the loans were current. The
increase in the capital of the Association from this offering will increase its
lending limit.
Loan Solicitation and Processing. The Association's customary sources
of mortgage loan applications include repeat customers, walk-ins, and referrals
from home builders and real estate brokers.
Upon receipt of any loan application from a prospective borrower, a
credit report and verifications are ordered to confirm specific information
relating to the loan applicant's employment, income and credit standing. An
appraisal of the real estate intended to secure the proposed loan is undertaken
by an independent fee appraiser. In connection with the loan approval process,
the Executive Committee of the Board of Directors analyzes the loan applications
and the property involved and approves all mortgage loans in amounts above
$30,000. The Executive Vice President, Mr. Harold E. Stremmel, and the Senior
Vice President, Mr. James S. Nelson, have authority to jointly approve mortgage
loans in amounts up to $30,000. The Executive Committee ratifies most loans
below $30,000 approved by Mr. Stremmel and Mr. Nelson. Individually, Messrs.
Stremmel and Nelson have the authority to approve consumer loans in amounts up
to $15,000. The Executive Committee approves consumer loans in amount above
$30,000. The full Board of Directors ratifies all loans.
Loan applicants are promptly notified of the decision of the
Association by a letter setting forth the terms and conditions of the decision.
If approved, these terms and conditions include the amount of the loan, interest
rate basis, amortization term, a brief description of real estate to be
mortgaged to the Association, tax escrow and the notice of requirement of
insurance coverage to be maintained to protect the Association's interest.
Loan Commitments. The Association gives written commitments to
prospective borrowers on all approved real estate loans. Generally, the
commitment requires acceptance within 30 days of the date of the issuance. The
total amount of the Association's commitments to extend credit as of December
31, 1998, was $275,000.
Loan Origination and Other Fees. In addition to interest earned on
loans, the Association receives loan origination and commitment fees for
originating or purchasing certain loans. The Association generally receives
between two and three points on mortgage loans originated.
54
<PAGE>
The Association also receives other fees and charges relating to
existing loans, which include late charges, and fees collected in connection
with a change in borrower or other loan modifications.
These fees and charges have not constituted a material source of income.
Non-performing Loans and Problem Assets
Collection Procedures. The Association's collection procedures provide
that when a loan is 10 to 20 days delinquent, the borrower is notified by mail.
If the loan becomes 45 days delinquent, the borrower is sent a written
delinquent notice requiring payment. If the delinquency continues, subsequent
efforts are made to contact the delinquent borrower. In certain instances, the
Association may modify the loan or grant a limited moratorium on loan payments
to enable the borrower to reorganize his financial affairs and the Association
attempts to work with the borrower to establish a repayment schedule to cure the
delinquency. As to mortgage loans, if the borrower is unable to cure the
delinquency or reach a payment agreement with the Association within 90 days,
the Association will institute foreclosure actions. If a foreclosure action is
taken and the loan is not reinstated, paid in full or refinanced, the property
is sold at judicial sale at which the Association may be the buyer if there are
no adequate offers to satisfy the debt. Any property acquired as the result of
foreclosure or by deed in lieu of foreclosure is classified as real estate owned
("REO") until such time as it is sold or otherwise disposed of by the
Association. When REO is acquired, it is recorded at the lower of the unpaid
principal balance of the related loan or its fair market value less estimated
selling costs. The initial writedown of the property is charged to the allowance
for loan losses.
Loans are reviewed on a regular basis and are placed on a non-accrual
status when they are more than 90 days delinquent. Loans may be placed on a
non-accrual status at any time if, in the opinion of management, the collection
of additional interest is doubtful. Interest accrued and unpaid at the time a
loan is placed on non-accrual status is charged against interest income.
Subsequent payments are either applied to the outstanding principal balance or
recorded as interest income, depending on the assessment of the ultimate
collectibility of the loan. At December 31, 1998, the Association had $322,000
of loans that were held on a non-accrual basis.
55
<PAGE>
Non-Performing Assets. The following table provides information
regarding the Association's non-performing loans and other non-performing assets
as of the end of each of the last three fiscal years. As of each of the dates
indicated, the Association did not have any troubled debt restructurings within
the meaning of Statement of Financial Accounting Standards No. 114.
<TABLE>
<CAPTION>
At December 31,
---------------------
1998 1997 1996
---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C>
Loans accounted for on a non-accrual basis:
Mortgage loans:
1-4 family residential real estate ........................... $223 $236 $ --
Non-residential .............................................. 55 292 --
Non-mortgage loans:
Home equity and second mortgages ............................. 44 7 --
Other consumer ............................................... -- 8 --
Commercial (business) ........................................ -- -- --
--- --- ---
Total .......................................................... $322 $543 $ --
=== === ===
Accruing loans which are contractually past due 90 days or more:
Mortgage loans:
1-4 family residential real estate ........................... $ -- $ 42 $ 65
Non-residential .............................................. -- -- 57
Non-mortgage loans:
Home equity and second mortgages ............................. -- -- --
Other consumer ............................................... -- 6 58
=== === ===
Total .......................................................... $ -- $ 48 $180
=== === ===
Total non-accrual and accrual loans ............................ $322 $591 $180
=== === ===
Real estate owned .............................................. $ -- $ -- $ 27
=== === ===
Other non-performing assets .................................... $ -- $ -- $ --
=== === ===
Total non-performing assets .................................... $322 $591 $207
==== ==== ====
Total non-accrual and accrual loans to net loans ............... 1.16% 1.84% 0.65%
==== ==== ====
Total non-accrual and accrual loans to total assets ............ 0.78% 1.59% 0.49%
==== ==== ====
Total non-performing assets to total assets .................... 0.78% 1.59% 0.57%
==== ==== ====
</TABLE>
During the year ended December 31, 1998, approximately $7,000 of
interest would have been recorded on loans accounted for on a non-accrual basis
if such loans had been current according to the original loan agreements for the
entire period. These amounts were not included in the Association's interest
income for the respective periods. The amount of interest income on loans
accounted for on a non-accrual basis that was included in income during the same
periods was insignificant during December 31, 1998.
Classified Assets. Management, in compliance with OTS guidelines, has
instituted an internal loan review program, whereby loans are classified as
special mention, substandard, doubtful or loss. When a loan is classified as
substandard or doubtful, management is required to establish a valuation reserve
for loan losses in an amount that is deemed prudent. When management classifies
a loan as a
56
<PAGE>
loss asset, a reserve equal to 100% of the loan balance is required to be
established or the loan is to be charged-off. This allowance for loan losses is
composed of an allowance for both inherent risk associated with lending
activities and particular problem assets.
An asset is considered "substandard" if it is inadequately protected by
the paying capacity and net worth of the obligor or the collateral pledged, if
any. Substandard assets include those characterized by the distinct possibility
that the insured institution will sustain some loss if the deficiencies are not
corrected. Assets classified as doubtful have all of the weaknesses inherent in
those classified substandard, with the added characteristic that the weaknesses
present make collection or liquidation in full, highly questionable and
improbable, on the basis of currently existing facts, conditions, and values.
Assets classified as loss are those considered uncollectible and of such little
value that their continuance as assets without the establishment of a loss
reserve is not warranted. Assets which do not currently expose the insured
institution to a sufficient degree of risk to warrant classification in one of
the aforementioned categories but possess credit deficiencies or potential
weaknesses are required to be designated special mention by management.
Management's evaluation of the classification of assets and the
adequacy of the allowance for loan losses is reviewed by the Board on a regular
basis and by the regulatory agencies as part of their examination process.
At
December 31,
1998
(In thousands)
Special mention............................. $ --
Substandard................................. 291
Doubtful.................................... --
Loss........................................ --
----
Total..................................... $ 291
====
Allowance for Loan Losses. The Association segregates the loan
portfolio for loan losses into the following broad categories: residential real
estate, commercial real estate, and consumer loans. The Association provides for
a general allowance for losses inherent in the portfolio by the above
categories, which consists of two components. General loss percentages are
calculated based upon historical analyses and other factors. A supplemental
portion of the allowance is calculated for inherent losses which probably exist
as of the evaluation date even though they might not have been identified by the
more objective processes used. This is due to the risk of error and/or inherent
imprecision in the process. This portion of the allowance is particularly
subjective and requires judgments based on qualitative factors which do not lend
themselves to exact mathematical calculations such as:
o trends in delinquencies and nonaccruals;
o trends in volume, terms and portfolio mix;
o new credit products;
o changes in lending policies and procedures;
o changes in the outlook for the local, regional and national economy; and
o peer group comparisons.
57
<PAGE>
At least quarterly, the Association's management evaluates the need to
establish reserves against losses on loans and other assets based on estimated
losses on specific loans and on any real estate held for sale or investment when
a finding is made that a loss is estimable and probable. Such evaluation
includes a review of all loans for which full collectibility may not be
reasonably assured and considers, among other matters: (1) the estimated market
value of the underlying collateral of problem loans, (2) prior loss experience,
(3) economic conditions and (4) overall portfolio quality.
Provisions for losses are charged against earnings in the period they
are established. The Association had $166,000 in allowances for loan losses at
December 31, 1998.
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 significantly increase its allowance for loan losses, or that
general economic conditions, a deteriorating real estate market, or other
factors will not cause the Association to significantly increase its allowance
for loans losses, therefore negatively affecting the Association's financial
condition and earnings.
In making loans, the Association recognizes that credit 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 and, in the case of a secured loan, the quality of the security for the
loan.
It is the Association's policy to review its loan portfolio, in
accordance with regulatory classification procedures, on at least a quarterly
basis. Additionally, the Association maintains a program of reviewing loan
applications prior to making the loan and immediately after loans are made in an
effort to maintain loan quality.
58
<PAGE>
The following table sets forth information with respect to the
Association's allowance for loan losses at the dates indicated:
At December 31,
---------------------------
1998 1997
---- ----
(Dollars in thousands)
Total loans outstanding (net)................... $27,784 $32,118
====== ======
Average loans outstanding....................... 29,889 32,131
====== ======
Allowance balances (at beginning of period)..... 126 119
Provision (credit):
1-4 family residential........................ 30 --
Non-residential real estate................... 8 --
Consumer...................................... 12 12
Net Charge-offs (recoveries):
1-4 family residential........................ -- 4
Non-residential real estate................... -- --
Consumer...................................... 10 1
Commercial (business)......................... -- --
------ ------
Allowance balance (at end of period)............ $ 166 $ 126
====== ======
Allowance for loan losses as a percent
of total loans outstanding.................... .60% .39%
Net loans charged off as a percent
of average loans outstanding.................. .04% --%
Allocation of Allowance for Loan Losses. The following table sets forth
the allocation of the Association's allowance for loan losses by loan category
and the percent of loans in each category to total loans receivable, net, at the
dates indicated. The portion of the loan loss allowance allocated to each loan
category does not represent the total available for future losses which may
occur within the loan category since the total loan loss allowance is a
valuation reserve applicable to the entire loan portfolio.
At December 31,
-----------------------------------------------
1998 1997
--------------------- -----------------------
Percent of Percent of
Loans to Loans to
Amount Total Loans Amount Total Loans
------ ----------- ------ -----------
(Dollars in thousands)
At end of period allocated
to:
1-4 family.................. $126 83.52% $ 96 86.80%
Non-residential real estate. 8 2.72 -- 2.57
Consumer.................... 32 13.48 30 10.63
Commercial (business)....... -- 0.28 -- --
--- ------ --- ------
Total allowance............. $166 100.00% $127 100.00%
=== ====== === ======
59
<PAGE>
Investment Activities
General. Federally chartered savings associations have the authority to
invest in various types of liquid assets, including United States Treasury
obligations, securities of various Federal agencies (including securities
collateralized by mortgages), certain certificates of deposits of insured banks
and savings institutions, municipal securities, corporate debt securities and
loans to other banking institutions.
The Association maintains liquid assets which may be invested in
specified short-term securities and certain other investments. See "Regulation -
Regulation of the Association - Federal Home Loan Association System" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources". Liquidity levels may be increased
or decreased depending upon the yields on investment alternatives and upon
management's judgment as to the attractiveness of the yields then available in
relation to other opportunities and its expectation of future yield levels, as
well as management's projections as to the short-term demand for funds to be
used in the Association's loan origination and other activities. The Association
maintains an investment securities portfolio and a mortgage-backed securities
portfolio as part of its investment portfolio. At December 31, 1998, the
Association had an investment securities portfolio of $2.1 million (5.0% of
total assets) and a mortgage-backed securities portfolio of $7.1 million (17.2%
of total assets). At December 31, 1998, the market value of the investment
securities portfolio was $2.1 million and the market value of the
mortgage-backed securities portfolio was $7.2 million. See Note 2 of the
consolidated financial statements.
Investment Policies. The investment policy of the Association, which is
established by the Board of Directors, is designed to foster earnings and
liquidity within prudent interest rate risk guidelines, while complementing the
Association's lending activities. The policy provides for available for sale,
held to maturity and trading classifications. However, the Association does not
currently use a trading classification and does not anticipate doing so in the
future. The policy permits investments in high credit quality instruments with
diversified cash flows while permitting the Association to maximize total return
within the guidelines set forth in the Association's interest rate risk and
liquidity management policy. Permitted investments include but are not limited
to U. S. government obligations, government agency or government-sponsored
agency obligations, state, county and municipal obligations, mortgage backed
securities and collateralized mortgage obligations guaranteed by government or
government-sponsored agencies, investment grade corporate debt securities, and
commercial paper. The Association also invests in FHLB overnight deposits and
federal funds, but these instruments are not considered part of the investment
portfolio.
The policy also includes several specific guidelines and restrictions
to insure adherence with safe and sound activities. The policy prohibits
investments in high risk mortgage derivative products, as defined within its
policy, without prior approval from the Board of Directors. Management must
demonstrate the business advantage of such investments. In addition, the policy
limits the maximum amount of the investment in a specific investment category.
The Association does not participate in hedging programs, interest rate swaps,
or other activities involving the use of off-balance sheet derivative financial
instruments. Further, the Association does not invest in securities which are
not rated investment grade.
All transactions are reported to the Board of Directors monthly, with
the entire portfolio reported quarterly, including market values and unrealized
gains (losses).
60
<PAGE>
Investment Securities. The Association maintains a portfolio of
investment securities, classified as either available for sale or held to
maturity, to enhance total return on investments. At December 31, 1998, all of
the Association's investment securities consisted of obligations of state and
local governments and U.S. Government Agency obligations with varying
characteristics as to rate, maturity and call provisions. Callable agency
securities, representing 64% of the Association's U.S. Government Agency
obligations, totalling approximately $700,000 at December 31, 1998, could reduce
the Association's investment yield if these securities are called prior to
maturity. The Association has recently invested in obligations of state and
local governments as part of the Association's efforts to lower its tax burden.
Mortgage-backed Securities. The Association invests in mortgage-backed
securities to provide earnings, liquidity, cash flows, and diversification to
the Associations' overall balance sheet. These mortgage-backed securities are
classified as either available for sale or held to maturity. These securities
are participation certificates issued and guaranteed by the Government National
Mortgage Association ("GNMA"), the FNMA and the Federal Home Loan Mortgage
Corporation ("FHLMC") and secured by interest in pools of mortgages.
Mortgage-backed securities typically represent a participation interest in a
pool of single-family or multi-family mortgages, although the Association
focuses its investments on mortgage-backed securities secured by single-family
mortgages.
Expected maturities will differ from contractual maturities due to
scheduled repayments and because borrowers may have the right to call or prepay
obligations with or without prepayment penalties.
Mortgage-backed securities typically are issued with stated principal
amounts. The securities are backed by pools of mortgages that have loans with
interest rates that are within a set range and have varying maturities. The
underlying pool of mortgages can be composed of either fixed-rate or adjustable
rate mortgage loans. Mortgage-backed securities are generally referred to as
mortgage participation certificates or pass-through certificates. The interest
rate risk characteristics of the underlying pool of mortgages (i.e., fixed-rate
or adjustable-rate) and the prepayment risk, are passed on to the certificate
holder. The life of a mortgage-backed pass-through security is equal to the life
of the underlying mortgages.
Collateralized Mortgage Obligations ("CMOs"). The Association also
invests in CMOs, issued or sponsored by FNMA and FHLMC which totalled $304,000
at December 31, 1998. CMOs are a type of debt security that aggregates pools of
mortgages and mortgage-backed securities and creates different classes of CMO
securities with varying maturities and amortization schedules as well as a
residual interest with each class having different risk characteristics. The
cash flows from the underlying collateral are usually divided into "tranches" or
classes whereby tranches have descending priorities with respect to the
distribution of principal and interest repayment of the underlying mortgages and
mortgage-backed securities as opposed to pass through mortgage-backed securities
where cash flows are distributed pro rata to all security holders. Unlike
mortgage-backed securities from which cash flow is received and prepayment risk
is shared pro rata by all securities holders, cash flows from the mortgages and
mortgage-backed securities underlying CMOs are paid in accordance with a
predetermined priority to investors holding various tranches of such securities
or obligations. A particular tranche or class may carry prepayment risk which
may be different from that of the underlying collateral and other tranches.
Investing in CMOs allows the Association to moderate reinvestment risk resulting
from unexpected prepayment activity associated with conventional mortgage-backed
securities. Management believes these securities represent attractive
alternatives relative to other investments due to the wide variety of maturity,
repayment and interest rate options available.
61
<PAGE>
Other Securities. Other securities used by the Association, but not
necessarily included in the investment portfolio, consist of equity securities,
interest-bearing deposits and federal funds sold. Equity securities owned
consist of a $564,600 investment in FHLB of Pittsburgh common stock (this amount
is not shown in the securities portfolio). As a member of the FHLB of
Pittsburgh, ownership of FHLB of Pittsburgh common shares is required. The
remaining securities provide diversification and complement the Association's
overall investment strategy.
The following table sets forth the carrying value of the Association's
investment and mortgage-backed securities portfolio at the dates indicated.
At December 31,
-----------------------
1998 1997
---- ----
(In thousands)
Securities Held to Maturity:
U.S. Government and Federal Agencies............... $ 500 $ 497
Mortgage-backed Securities......................... 3,405 1,414
Obligations of State and Local Governments......... 1,295 460
------ -------
Total Securities Held to Maturity................ 5,200 2,371
------ -------
Securities Available for Sale (at fair value):
U.S. Government and Federal Agencies............... 200 --
Mortgage-backed Securities......................... 3,705 --
Obligations of State and Local Governments......... 99 --
------ -------
Total Securities Available for Sale.............. 4,004 --
------ -------
Total Investment and
Mortgage-backed Securities....................... $ 9,204 $ 2,371
====== =======
62
<PAGE>
The following table sets forth certain information regarding the
carrying values, weighted average yields and maturities of the Association's
investment and mortgage-backed securities portfolio at December 31, 1998.
<TABLE>
<CAPTION>
At December 31, 1998
One Year or Less One to Five Years Five to Ten Years More than Ten Years Total Investment Securities
----------------- ----------------- ------------------- ------------------- ---------------------------
Carrying Average Carrying Average Carrying Average Carrying Average Carrying Average Market
Value Yield Value Yield Value Yield Value Yield Value Yield Value
----- ----- ----- ----- ----- ----- ----- ----- ----- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government and
Federal Agencies......... $-- --% $ 250 4.15% $ 200 6.02% $ 250 7.00% $ 700 4.58% $ 682
Mortgage-backed securities. -- -- -- -- -- -- 7,110 6.41 7,110 6.41 7,175
Obligations of State and
local governments........ -- -- 382 3.93 415 4.30 597 5.18 1,394 5.70 1,407
--- --- ---- ---- ---- ---- ----- ---- ----- ---- -----
Total.................... $-- --% $ 632 4.02% $ 615 4.86% $7,957 6.33% $9,204 6.08% $9,264
=== === ==== ==== ==== ==== ===== ==== ===== ==== =====
</TABLE>
63
<PAGE>
Sources of Funds
General. Deposits are the major source of the Association's funds for
lending and other investment purposes. Borrowings (principally from the FHLB)
are used to supplement the amount of funds for lending and investment. In
addition to deposits and borrowings, the Association derives funds from loan and
mortgage-backed securities principal repayments, and proceeds from the maturity,
call and sale of mortgage-backed securities and investment securities. Loan and
mortgage-backed securities payments are a relatively stable source of funds,
while deposit inflows are significantly influenced by general interest rates and
money market conditions.
Deposits. The Association offers a variety of deposit accounts. Over
the past year, demand deposits have increased significantly. The increase in
non-interest bearing checking accounts is attributed to the fact that the
Association, unlike local competitors, does not require a minimum balance on
this type of account. A majority of deposits are in fixed-term, market-rate
certificate accounts. Deposit account terms vary, primarily as to the required
minimum balance amount, the amount of time that the funds must remain on deposit
and the applicable interest rate.
The Association's current deposit products include certificates of
deposit accounts ranging in terms from 90 days to ten years as well as checking,
savings, NOW, money market and club accounts. Individual retirement accounts
(IRAs) are included in these accounts, depending on the customers investment
preference.
Deposits are obtained primarily from residents of Dauphin County. The
Association attracts deposit accounts by offering outstanding service,
competitive interest rates, and convenient locations and service hours. The
Association uses traditional methods of advertising to attract new customers and
deposits, including print media advertising, billboards, radio and direct mail.
The Association does not utilize the services of deposit brokers and management
believes that an insignificant number of deposit accounts are held by
non-residents of Pennsylvania.
The Association pays interest on its deposits which are competitive in
its market. Interest rates on deposits are set weekly by senior management,
based upon a number of factors, including: (1) the Association's need for funds
based on loan demand, current maturities of deposits and other cash flow needs;
(2) a current survey of a selected group of competitors' rates for similar
products; (3) the Association's current cost of funds and its yield on assets;
and (4) the alternate cost of funds on a wholesale basis, in particular the cost
of advances from the FHLB of Pittsburgh.
Beginning in the 1980's the Association offered IRA accounts that
originally offered interest rates of 8 percent. Approximately $4.0 million of
these 8% IRAs were issued. The Association has since early 1998 reduced the
interest rate offered on these accounts as the accounts individually mature. At
December 31, 1998, $1.8 million of these deposits still had a rate of 8% and a
remaining average maturity of less than 6 months. At December 31, 1998, however,
the Association still had $2.2 million of these IRAs with a weighted average
yield of 6.93% and a weighted average maturity of 49 months, which is still
above market rates.
From time to time, the Association has offered depositors incentives
for making deposits into its accounts. These offers have been made on a limited
basis for a limited amount of time. In 1997, when the Association opened a new
branch in Woodridge, the Association offered premiums for new deposits for a
period of three months. The Association does not currently offer any premiums
and has no plans to do so in the near future.
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Because of the large percentage of certificates of deposit in the
deposit portfolio (72.2% at December 31, 1998), the Association's liquidity
could be reduced if a significant amount of certificates of deposit, maturing
within a short period of time, were not renewed. A significant portion of the
certificates of deposit remain with the Association after they mature and the
Association believes that this will continue. However, the need to retain these
time deposits could result in an increase in the Association's cost of funds.
Deposits in the Association as of December 31, 1998, were represented
by various types of savings programs described below.
<TABLE>
<CAPTION>
Minimum Balance at Percentage of
Category Term Interest Rate(1) Balance Amount December 31, 1998 Total Deposits
- -------- ---- ---------------- -------------- ----------------- --------------
(In thousands)
<S> <C> <C> <C> <C> <C>
Checking Accounts None --% $ -- $1,096 3.88%
NOW Accounts None 1.50 300 1,194 4.22
Savings Accounts None 2.67 100 3,960 14.01
Money Market Accounts None 2.47 2,500 1,606 5.68
Certificates of Deposit(2):
Fixed Term, Fixed Rate 3 Months 3.57 1,000 272 0.96
Fixed Term, Fixed Rate 6 Months 4.62 1,000 1,424 5.04
Fixed Term, Fixed Rate 9 Months 4.21 500 848 3.00
Fixed Term, Fixed Rate 12 Months 4.95 500 4,347 15.38
Fixed Term, Fixed Rate 24 Months 6.29 500 4,938 17.47
Fixed Term, Fixed Rate 36 Months 5.72 500 4,623 16.35
Fixed Term, Fixed Rate 48 Months 6.36 500 21 0.07
Fixed Term, Fixed Rate 60 Months 6.66 500 3,184 11.26
Fixed Term, Fixed Rate 120 Months 5.87 500 759 2.68
------ ------
Total $28,272 100.00%
====== ======
</TABLE>
- ---------------
(1) Weighted average rate as of December 31, 1998.
(2) Includes jumbo certificates of deposit of $1,934,000. See table of
maturities of certificates of deposit of $100,00 or more.
The following table sets forth the time deposits in the Association
classified by interest rate as of the dates indicated.
At December 31,
-------------------------
1998 1997
---- ----
(In thousands)
Interest Rate
3.99% or less.............. $ 176 $ 671
4.00-4.99%................. 4,369 3,118
5.00-5.99%................. 8,154 5,774
6.00-6.99%................. 3,655 3,196
7.00-7.99%................. 2,076 545
8.00% or more.............. 1,986 4,373
------ ------
Total....................$ 20,416 $17,677
====== ======
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The following table sets forth the amount and maturities of time
deposits at December 31, 1998.
<TABLE>
<CAPTION>
Amount Due
------------------------------------------------------------------
After
December 31, December 31, December 31, December 31,
Interest Rate 1999 2000 2001 2002 Total
- ------------- ----------- ----------- ------------ ------------ -------
(In thousands)
<S> <C> <C> <C> <C> <C>
3.99% or less.............. $ 177 $ -- $ -- $ -- $ 177
4.00-4.99%................. 3,780 425 164 -- 4,369
5.00-5.99%................. 4,910 1,261 989 994 8,154
6.00-6.99%................. 1,226 2,119 26 284 3,655
7.00-7.99%................. 11 114 -- 1,951 2,076
8.00% or more.............. 1,768 69 -- 148 1,985
------
Total $20,416
======
</TABLE>
The following table shows the amount of the Association's certificates
of deposit of $100,000 or more by time remaining until maturity as of December
31, 1998.
Certificates
Maturity Period of Deposits
- --------------- -----------
(In thousands)
Three months or less................. $ 300
Over three through six months........ 220
Over six through twelve months....... 714
Over twelve months................... 700
-----
$1,934
=====
The following table sets forth the savings activities of the
Association for the periods indicated:
Years Ended December 31,
------------------------
1998 1997 1996
---- ---- ----
(In thousands)
Net increase (decrease) before interest credited...$4,809 $ 557 $(89)
Interest credited.................................. (891) (827) (765)
Net increase (decrease) in savings deposits........$3,918 $(270) $(854)
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Borrowings. Deposits are the primary source of funds of the
Association's lending and investment activities and for its general business
purposes. The Association, as the need arises or in order to take advantage of
funding opportunities, borrows funds in the form of advances from the FHLB to
supplement its supply of lendable funds and to meet deposit withdrawal
requirements. Advances from the FHLB are typically secured by the Association's
stock in the FHLB and a portion of the Association's residential mortgage loans
and may be secured by other assets, mainly securities which are obligations of
or guaranteed by the U.S. Government. The Association typically has funded loan
demand and investment opportunities out of current loan and mortgage-backed
securities repayments, investment maturities and new deposits. However, the
Association recently has utilized FHLB advances to supplement these sources and
as a match against certain assets in order to better manage interest rate risk.
See Note 8 to Notes to Consolidated Financial Statements.
Subsidiary Activity
The Association is permitted to invest its assets in the capital stock
of, or originate secured or unsecured loans to, subsidiary corporations. The
Association's only subsidiary is Baldwin Service Corporation. The sole purpose
of Baldwin Service Corporation is to hold a six-unit apartment house that nearly
adjoins the Association's main office location. Baldwin Service Corporation has
owned the property since 1988. The Association expects to use the land at the
apartment location for future expansion of that office, however, no timetable
for that expansion has been developed. Currently, Baldwin Service Corporation
leases the apartments.
Personnel
As of December 31, 1998, the Association had 14 full-time employees and
4 part-time employees. The employees are not represented by a collective
bargaining unit. The Association believes its relationship with its employees to
be satisfactory.
Competition
The Association faces strong competition in its attraction of deposits,
which are its primary source of funds for lending, and in the origination of
real estate, commercial and consumer loans. The Association's competition for
deposits and loans historically has come from local and regional commercial
banks and credit unions located in the Association's market area. The
Association also competes with mortgage banking companies for real estate loans,
and commercial banks and savings institutions for consumer loans; and faces
competition for investor funds from mutual fund accounts, short-term money funds
and corporate and government securities. The Association's primary market area
is the southern half of Dauphin County, Pennsylvania.
The Association competes for loans by charging competitive interest
rates and loan fees, and emphasizing outstanding service for its customers. The
Association offers consumer banking services such as checking and savings
accounts, certificates of deposit, retirement accounts, overdraft protection,
and consumer and mortgage loans. The Association provides drive-up facilities at
its Woodridge branch office and MAC machines at both its main office and branch
office. The Association also offers a debit card program. The emphasis on
outstanding services differentiates the Association in its competition for
deposits. The Association offers overall market rates on deposits. Although the
Association has seen an increase in new accounts recently, many of the regional
commercial banking competitors of the Association offer a much broader array of
services and products.
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<PAGE>
Properties and Equipment
The Association's main office is located at 51 South Front Street in
Steelton, Pennsylvania. The Association also conducts its business through a
branch office in Middletown, Pennsylvania, in Lower Swatara Township. The
following table sets forth the location of both of the Association's offices,
the year the office was opened and the net book value of both offices and their
related equipment.
Net Book
Year Value at
Facility Leased or December 31,
Building/Office Location Opened Owned 1998
- ------------------------ ------ ----- ----
Main Office, Steelton 1980 Owned $ 185,000
Branch Office, Middletown 1997 Owned 748,000
Legal Proceedings
The Association, from time to time, is a party to routine litigation,
which arises in the normal course of business, 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 business of the Association. There were no lawsuits
pending or known to be contemplated against the Association at December 31, 1998
that would have a material effect on our operations or income.
REGULATION
Set forth below is a brief description of certain laws which relate to
the regulation of the Association and Steelton Bancorp. The description does not
purport to be complete and is qualified in its entirety by reference to
applicable laws and regulations.
Regulation of the Association
General. As a federally chartered, SAIF-insured savings association,
the Association is subject to extensive regulation by the OTS and the FDIC.
Lending activities and other investments must comply with federal statutory and
regulatory requirements. The Association is also subject to reserve requirements
of the Federal Reserve System. Federal regulation and supervision establishes a
comprehensive framework of activities in which an institution can engage and is
intended primarily for the protection of the SAIF and members. 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.
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The OTS regularly examines the Association and prepares reports for
consideration by the Association's Board of Directors on deficiencies, if any,
found in the Association's operations. The Association's relationship with its
members and borrowers is also regulated by federal law, especially in such
matters as the ownership of savings accounts and the form and content of the
Association's mortgage documents.
The Association must file reports with the OTS and the FDIC concerning
its activities and financial condition, and must obtain regulatory approvals
prior to entering into certain transactions such as mergers with or acquisitions
of other financial institutions. Any change in such regulations, whether by the
OTS, the FDIC or the United States Congress, could have a material adverse
impact on Steelton Bancorp and the Association, and their operations.
Insurance of Deposit Accounts. The deposit accounts held by the
Association are insured by the SAIF to a maximum of $100,000 for each insured
member (as defined by law and regulation). Insurance of deposits may be
terminated by the FDIC upon a finding that the institution has engaged in unsafe
or unsound practices, is in an unsafe or unsound condition to continue
operations or has violated any applicable law, regulation, rule, order or
condition imposed by the FDIC or the institution's primary regulator.
As a member of the SAIF, the Association paid an insurance premium to
the FDIC equal to a minimum of 0.23% of its total deposits during 1996 and prior
years. The FDIC also maintains another insurance fund, the Association Insurance
Fund ("BIF"), which primarily insures commercial bank deposits. In 1996, the
annual insurance premium for most BIF members was lowered to $2,000. The lower
insurance premiums for BIF members placed SAIF members at a competitive
disadvantage to BIF members.
Effective December 31, 1996, federal law was revised to mandate a
one-time special assessment on SAIF members such as the Association of
approximately 0.657% of deposits held on March 31, 1995. Beginning January 1,
1997, the deposit insurance assessment for most SAIF members was reduced to
0.064% of deposits on an annual basis through the end of 1999. During this same
period, BIF members will be assessed approximately 0.013% of deposits. After
1999, assessments for BIF and SAIF members should be the same. It is expected
that these continuing assessments for both SAIF and BIF members will be used to
repay outstanding Financing Corporation bond obligations. As a result of these
changes, beginning January 1, 1997, the rate of deposit insurance assessed the
Association declined by approximately 70%.
Regulatory Capital Requirements. OTS capital regulations require
savings institutions to meet three capital standards: (1) tangible capital equal
to 1.5% of total adjusted assets, (2) core capital equal to at least 3% of total
adjusted assets, and (3) risk-based capital equal to 8% of total risk- weighted
assets. The Association's capital ratios are set forth under "Historical and Pro
Forma Capital Compliance."
Tangible capital is defined as core capital less all intangible assets
(including supervisory goodwill), less certain mortgage servicing rights and
less certain investments. Core capital is defined as common stockholders' equity
(including retained earnings), noncumulative perpetual preferred stock and
minority interests in the equity accounts of consolidated subsidiaries, certain
nonwithdrawable accounts and pledged deposits of mutual savings associations and
qualifying supervisory goodwill, less nonqualifying intangible assets, certain
mortgage servicing rights and certain investments.
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<PAGE>
The risk-based capital standard for savings institutions requires the
maintenance of total risk- based capital (which is defined as core capital plus
supplementary capital) of 8% of risk-weighted assets. The components of
supplementary capital include, among other items, cumulative perpetual preferred
stock, perpetual subordinated debt, mandatory convertible subordinated debt,
intermediate-term preferred stock, and the portion of the allowance for loan
losses not designated for specific loan losses. The portion of the allowance for
loan and lease losses includable in supplementary capital is limited to a
maximum of 1.25% of risk-weighted assets. Overall, supplementary capital is
limited to 100% of core capital. A savings association must calculate its
risk-weighted assets by multiplying each asset and off-balance sheet item by
various risk factors as determined by the OTS, which range from 0% for cash to
100% for delinquent loans, property acquired through foreclosure, commercial
loans, and other assets.
The OTS has adopted a rule requiring a deduction from capital for
institutions with certain levels of interest rate risk. The OTS calculates the
sensitivity of an institution's net portfolio value based on data submitted by
the institution in a schedule to its quarterly Thrift Financial Report and using
the interest rate risk measurement model adopted by the OTS. The amount of the
interest rate risk component, if any, to be deducted from an institution's total
capital will be based on the institution's Thrift Financial Report filed two
quarters earlier. Federal savings institutions with less than $300 million in
assets and a risk-based capital ratio above 12% are generally exempt from filing
the interest rate risk schedule with their Thrift Financial Reports. However,
the OTS may require any exempt institution that it determines may have a high
level of interest rate risk exposure to file such schedule on a quarterly basis
and may be subject to an additional capital requirement based upon its level of
interest rate risk as compared to its peers.
Dividend and Other Capital Distribution Limitations. The OTS imposes
various restrictions or requirements on the ability of savings institutions to
make capital distributions, including dividend payments.
OTS regulations impose limitations upon all capital distributions by
savings institutions, such as cash dividends, payments to repurchase or
otherwise acquire its shares, payments to stockholders of another institution in
a cash-out merger, and other distributions charged against capital. The rule
establishes three tiers of institutions based primarily on an institution's
capital level. An institution that exceeds all capital requirements before and
after a proposed capital distribution ("Tier 1 institution") and has not been
advised by the OTS that it is in need of more than the normal supervision can,
after prior notice but without the approval of the OTS, make capital
distributions during a calendar year equal to the greater of (1) 100% of its net
income to date during the calendar year plus the amount that would reduce by
one-half its "surplus capital ratio" (the excess capital over its fully
phased-in capital requirements) at the beginning of the calendar year, or (2)
75% of its net income over the most recent four-quarter period. Any additional
capital distributions require prior regulatory notice. As of December 31, 1998,
the Association was a Tier 1 institution.
In the event the Association's capital falls below its fully phased-in
requirement or the OTS notified it that it was in need of more than normal
supervision, the Association would become a Tier 2 or Tier 3 institution and, as
a result, its ability to make capital distributions could be restricted. Tier 2
institutions, which are institutions that before and after the proposed
distribution meet their current minimum capital requirements, may only make
capital distributions of up to 75% of net income over the most recent
four-quarter period. Tier 3 institutions, which are institutions that do not
meet current minimum capital requirements and propose to make any capital
distribution, and Tier 2 institutions that propose to make a capital
distribution in excess of the noted safe harbor level, must
70
<PAGE>
obtain OTS approval prior to making such distribution. In addition, the OTS
could prohibit a proposed capital distribution by any institution, which would
otherwise be permitted by the regulation, if the OTS determines that such
distribution would constitute an unsafe or unsound practice. The OTS recently
relaxed certain approval and notice requirements for well-capitalized
institutions.
In January 1999, the OTS amended its regulations with respect to
capital distributions by savings associations. Under the new regulation, savings
associations that remain at least adequately capitalized following the capital
distribution, and that meet other specified requirements, are not required to
file a notice or application for capital distributions (such as cash dividends)
declared below specified amounts. Under the new regulation, savings associations
which are eligible for expedited treatment under current OTS regulations are not
required to file a notice or an application with the OTS if (1) the savings
association would remain at least adequately capitalized following the capital
distribution and (2) the amount of capital distribution does not exceed an
amount equal to the savings association's net income for that year to date, plus
the savings association's retained net income for the previous two years. Thus,
only undistributed net income for the prior two years may be distributed in
addition to the current year's undistributed net income without the filing of an
application with the OTS. Savings associations which do not qualify for
expedited treatment or which desire to make a capital distribution in excess of
the specified amount, must file an application with, and obtain the approval of,
the OTS prior to making the capital distribution. Under certain other
circumstances, savings associations will be required to file a notice with OTS
prior to making the capital distribution. These limitations on capital
distributions are similar to the limitations imposed upon national banks. Prior
notice is required for all savings associations owned by a holding company (such
as the Association upon completion of the conversion).
A federal savings institution is prohibited from making a capital
distribution if, after making the distribution, the savings institution would be
undercapitalized (i.e., not meet any one of its minimum regulatory capital
requirements). Further, a federal savings institution cannot distribute
regulatory capital that is needed for its liquidation account.
Qualified Thrift Lender Test. Federal savings institutions must meet a
qualified thrift lender ("QTL") test or they become subject to certain operating
restrictions. If we maintain an appropriate level of qualified thrift
investments ("QTIs") (primarily residential mortgages and related investments,
including certain mortgage-related securities) and otherwise qualify as a QTL,
we will have full borrowing privileges from the FHLB of Pittsburgh. The required
percentage of QTIs is 65% of portfolio assets (defined as all assets minus
intangible assets, property used by the institution in conducting its business
and liquid assets equal to 10% of total assets). Certain assets are subject to a
percentage limitation of 20% of portfolio assets. In addition, federal savings
institutions may include shares of stock of the FHLBs, FNMA, and FHLMC as QTIs.
Compliance with the QTL test is determined on a monthly basis in nine out of
every twelve months.
Transactions With Affiliates. Generally, federal banking law requires
that transactions between a savings institution or its subsidiaries and its
affiliates must be on terms as favorable to the savings institution as
comparable transactions with non-affiliates. In addition, certain types of these
transactions are restricted to an aggregate percentage of the savings
institution's capital. Collateral in specified amounts must usually be provided
by affiliates in order to receive loans from the savings institution. In
addition, a savings institution may not extend credit to any affiliate engaged
in activities not permissible for a bank holding company or acquire the
securities of any affiliate that is not a subsidiary. The OTS has the discretion
to treat subsidiaries of savings institution as affiliates on a case-by-case
basis.
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<PAGE>
Liquidity Requirements. All federal savings institutions are required
to maintain an average daily balance of liquid assets equal to a certain
percentage of the sum of its average daily balance of net withdrawable deposit
accounts and borrowings payable in one year or less. The liquidity requirement
may vary from time to time (between 4% and 10%) depending upon economic
conditions and savings flows of all savings institutions. Monetary penalties may
be imposed upon institutions for violations of liquidity requirements.
Federal Home Loan Bank System. We are a member of the FHLB of
Pittsburgh, which is one of 12 regional FHLBs. Each FHLB serves as a reserve or
central bank for its members within its assigned region. It is funded primarily
from funds deposited by savings institutions and proceeds derived from the sale
of consolidated obligations of the FHLB System. It makes loans to members (i.e.,
advances) in accordance with policies and procedures established by the Board of
Directors of the FHLB.
As a member, we are required to purchase and maintain stock in the FHLB
of Pittsburgh in an amount equal to at least 1% of our aggregate unpaid
residential mortgage loans, home purchase contracts or similar obligations at
the beginning of each year. We are in compliance with this requirement. The FHLB
imposes various limitations on advances such as limiting the amount of certain
types of real estate related collateral to 30% of a member's capital and
limiting total advances to a member.
The FHLBs are required to provide funds for the resolution of troubled
savings institutions and to contribute to affordable housing programs through
direct loans or interest subsidies on advances targeted for community investment
and low- and moderate-income housing projects. These contributions have
adversely affected the level of FHLB dividends paid and could continue to do so
in the future.
Federal Reserve System. The Federal Reserve System requires all
depository institutions to maintain non-interest bearing reserves at specified
levels against their transaction accounts (primarily checking, NOW and Super NOW
checking accounts) and non-personal time deposits. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve System may be used
to satisfy the liquidity requirements that are imposed by the OTS.
Savings institutions have authority to borrow from the Federal Reserve
System "discount window," but Federal Reserve System policy generally requires
savings institutions to exhaust all other sources before borrowing from the
Federal Reserve System.
Regulation of Steelton Bancorp
General. Upon completion of the conversion, Steelton Bancorp will
become a unitary savings and loan holding company within the meaning of Section
10(o) of the Home Owners' Loan Act ("HOLA"). Steelton Bancorp will be required
to register and file reports with the OTS and will be subject to regulation and
examination by the OTS. In addition, the OTS will have enforcement authority
over Steelton Bancorp and any non-savings institution subsidiaries. This will
permit the OTS to restrict or prohibit activities that it determines to be a
serious risk to us. This regulation is intended primarily for the protection of
our members and not for the benefit of you, as stockholders of Steelton Bancorp.
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<PAGE>
QTL Test. Since Steelton Bancorp will only own one savings institution,
it will, under current law, be able to diversify its operations into activities
not related to banking, but only so long as the Association satisfies the QTL
test. If Steelton Bancorp controls more than one savings institution, it would
lose the ability to diversify its operations into nonbanking related activities,
unless such other savings institutions each also qualify as a QTL or were
acquired in a supervised acquisition. See "Regulation of the Association -
Qualified Thrift Lender Test."
Restrictions on Acquisitions. Steelton Bancorp must obtain approval
from the OTS before acquiring control of any other SAIF-insured savings
institution. No person may acquire control of a federally insured savings
institution without providing at least 60 days written notice to the OTS and
giving the OTS an opportunity to disapprove the proposed acquisition.
TAXATION
Federal Taxation
Savings institutions are subject to the provisions of the Internal
Revenue Code of 1986, as amended (the "Code"), in the same general manner as
other corporations. Prior to certain changes to the Code in 1996, thrift
institutions enjoyed a tax advantage over banks with respect to determining
additions to its bad debt reserves. All thrift institutions, prior to 1996, were
generally allowed a deduction for additions to a reserve for bad debts. In
contrast, only "small banks" (the average adjusted bases of all assets of such
institution equals $500 million or less) were allowed a similar deduction for
additions to their bad debt reserves. In addition, while small banks were only
allowed to use the experience method in determining their annual addition to a
bad debt reserve, all thrift institutions generally enjoyed a choice between (1)
the percentage of taxable income method and, (2) the experience method, for
determining the annual addition to their bad debt reserve. This choice of
methods provided a distinct advantage to thrift institutions that continually
experienced little or no losses from bad debts, over small banks in a similar
situation, because thrift institutions in comparison to small banks were
generally allowed a greater tax deduction by using the percentage of taxable
income method (rather than the experience method) to determine their deductible
addition to their bad debt reserves.
The Code was revised in August 1996 to equalize the taxation of thrift
institutions and banks, effective for taxable years beginning after 1995. All
thrift institutions are now subject to the same provisions as banks with respect
to deductions for bad debt. Now only thrift institutions that are treated as
small banks under the Code may continue to account for bad debts under the
reserve method; however such institutions may only use the experience method for
determining additions to their bad debt reserve. Thrift institutions that are
not treated as small banks may no longer use the reserve method to account for
their bad debts but must now use the specific charge-off method.
The revisions to the Code in 1996 also provided that all thrift
institutions must generally recapture any "applicable excess reserves" into
their taxable income, over a six year period beginning in 1996; however, such
recapture may be delayed up to two years if a thrift institution meets a
residential-lending test. Generally, a thrift institution's applicable excess
reserves equals the excess of (1) the balance of its bad debt reserves as of the
close of its taxable year beginning before January 1, 1996, over (2) the balance
of such reserves as of the close of its last taxable year beginning before
January 1, 1988 ("pre-1988 reserves"). The Association will be required to
recapture $181,000 of applicable excess reserve.
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<PAGE>
In addition, all thrift institutions must continue to keep track of
their pre-1988 reserves because this amount remains subject to recapture in the
future under the Code. A thrift institution such as the Association, would
generally be required to recapture into its taxable income its pre-1988 reserves
in the case of certain excess distributions to, and redemptions of the
Association's stockholders and in the case of a reduction in the Association's
outstanding loans when comparing loans currently outstanding to loans
outstanding at the end of the base year. For taxable years after 1995, the
Association will continue to account for its bad debts under the reserve method.
The balance of the Association's pre-1988 reserves equaled $700,000.
Steelton Bancorp may exclude from its income 100% of dividends received
from the Association as a member of the same affiliated group of corporations. A
70% dividends received deduction generally applies with respect to dividends
received from corporations that are not members of such affiliated group.
The Association's federal income tax returns for the last five tax
years have not been audited by the IRS.
State Taxation
The Association is subject to the Mutual Thrift Institutions Tax of the
Commonwealth of Pennsylvania based on its financial net income determined in
accordance with generally accepted accounting principles with certain
adjustments. The Association's tax rate under the Mutual Thrift Institution Tax
is 11.5%. Interest on state and federal obligations is excluded from net income.
An allocable portion of net interest expense incurred to carry the obligations
is disallowed as a deduction. Three year carryforwards of losses are allowed.
Upon consummation of the Conversion, Steelton Bancorp will also be
subject to the Corporate Net Income Tax and the Capital Stock Tax of the
Commonwealth of Pennsylvania.
The Association's state tax returns have not been audited for the past
five years.
MANAGEMENT
Directors and Executive Officers
The Association's Board of Directors is composed of seven members each
of whom serves for a term of three years, with approximately one-third of the
directors elected each year. Steelton Bancorp's proposed articles of
incorporation and bylaws require that directors be divided into four classes, as
nearly equal in number as possible, with approximately one-fourth of the
directors elected each year. The Association's officers are elected annually by
our board and serve at the board's discretion. These same provisions apply to
Steelton Bancorp, which will have the same directors and executive officers as
the Association.
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The following table sets forth information with respect to the
directors and executive officers, all of whom will continue to serve in the same
capacities after the conversion.
Age at Current
December 31, Director Term
Name 1998 Position Since Expires (1)
---- ---- -------- ----- -----------
Marino Falcone 79 President, Director 1961 2001
Harold E. Stremmel 64 Executive Vice President, 1991 2000
CEO, Director
James F. Stone 70 Vice President, Director 1970 2000
Joseph A. Wiedeman 59 Treasurer, Director 1979 2002
Victor J. Segina 71 Secretary, Director 1980 2000
Richard E. Farina 67 Director 1966 2001
James S. Nelson 50 Senior Vice President, 1994 2001
Director
Shannon Aylesworth 28 Vice President, Chief
Financial Officer
Barbara G. Coates 50 Vice President
Michael S. Leonzo 55 Vice President
- -------------------
(1) The terms for directors of Steelton Bancorp are the same as those of
the Association except that Harold E. Stremmel's term will expire in
2002 and James S. Nelson's term will expire in 2003.
The business experience for the past five years of each of the
directors and executive officers is as follows:
Marino Falcone has been president of the Association's Board since 1987
and has been a director of the Association since 1961. Since 1986, Mr. Falcone
has been retired. He was previously the sole owner of Steelton Coal and Oil
Company in Steelton, Pennsylvania.
Harold E. Stremmel has been Executive Vice President and Chief
Executive Officer of the Association since 1987 and has been a director of the
Association since 1991. Mr. Stremmel is the past president and treasurer of the
Harrisburg East Shore Kiwanis Club and was previously the treasurer of the New
Steelton Association.
James F. Stone is Vice President of the Association's Board and has
been a director of the Association since 1970. Since 1992, Mr. Stone has been
retired. He was previously owner and operator of Stone Funeral Home in Steelton,
Pennsylvania.
Joseph A. Wiedeman is Treasurer of the Association and has been a
director of the Association since 1979. Since 1974, Mr. Wiedeman has been a
majority stockholder of Wiedeman & Douty, P.C., Certified Public Accountants, an
accounting firm located in Steelton, Pennsylvania.
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Victor J. Segina has been a director of the Association since 1980 and
is Secretary of the Association. Mr. Segina retired in 1998. He was previously
the sole owner of an architectural firm located in Harrisburg, Pennsylvania. Mr.
Segina serves on the Building Commission of the Harrisburg Catholic Diocese.
Richard E. Farina has been a director of the Association since 1966.
Since 1994, Mr. Farina has been retired. He was previously a branch manager for
the Pennsylvania Insurance Company in Harrisburg, Pennsylvania.
James S. Nelson is Senior Vice President of the Association and chief
lending officer. He has been a director of the Association since 1994 and has
been employed by the Association since 1987. Mr. Nelson is a director and the
treasurer of the Church of the Brethren Disaster Relief Auction, Inc. and
previously served as chairman of the board of the Ridgeway Community Church of
the Brethren.
Shannon Aylesworth has been Chief Financial Officer of the Association
since 1996 and a Vice President since January, 1999. Ms. Aylesworth has been
employed by the Association since 1990.
Barbara G. Coates has been a Vice President of the Association since
1997. Ms. Coates has been employed by the Association since 1978.
Michael S. Leonzo has been a Vice President of the Association since
1997. Mr. Leonzo has been employed by the Association since 1997 and was
previously Vice President of marketing for First Federal Savings and Loan of
Harrisburg.
Meetings and Committees of the Board of Directors
The Board of Directors conducts its business through meetings of the
board and through activities of its committees. During the year ended December
31, 1998, the Board of Directors held 12 regular meetings. No director attended
fewer than 75% of the total meetings of the Board of Directors and committees on
which such director served during the year ended December 31, 1998. The
Association has a standing audit committee, as well as other standing committees
such as the executive, budget and asset/liability committees. The entire Board
of Directors serves as a nominating committee and a compensation committee.
The audit committee of the Association consists of Directors Wiedeman,
Stone and Segina and Ms. Coates, an officer of the Association. The audit
committee meets quarterly and meets with the Association's independent certified
public accountants to review the results of the annual audit and other related
matters. The audit committee met 4 times during the year ended December 31,
1998.
Director Compensation
Board Fees. During 1998 each director was paid a fee of $5,200. The
president of the board, the secretary, and the treasurer receive an additional
yearly fee of $2,756, $2,756 and $1,985, respectively. Directors do not receive
compensation for attending committee meetings. The total fees paid to the
directors for the year ended December 31, 1998 were approximately $44,000.
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Executive Compensation
Summary Compensation Table. The following table sets forth the cash and
non-cash compensation awarded to or earned by our chief executive officer for
the year ended December 31, 1998. No current executive officer received a total
annual salary and bonus in excess of $100,000 during the reporting period.
Annual Compensation
--------------------------------------------------
Other Annual
Fiscal Compensation
Name and Principal Position Year Salary Bonus (1)
- --------------------------- ---- ------ ----- -------------
Harold E. Stremmel, 1998 $56,753 $ -- $7,045
Executive Vice President
and Chief Executive Officer
- --------------------
(1) Includes directors fees.
Employment Agreements. The Association has entered into an employment
agreement with its President, Harold E. Stremmel. Mr. Stremmel's current base
salary under the employment agreement is $59,591. The employment agreement has a
term of three years. The agreement is terminable by us for "just cause" as
defined in the agreement. If we terminate Mr. Stremmel without just cause, he
will be entitled to a continuation of his salary from the date of termination
through the remaining term of the agreement, but in no event for a period of
less than 1 year. The employment agreement contains a provision stating that in
the event of the termination of employment in connection with any change in
control of us, Mr. Stremmel will be paid a lump sum amount equal to 2.99 times
his five-year average annual taxable cash compensation. If a payment had been
made under the agreement as of December 31, 1998, the payment would have equaled
approximately $178,177. The aggregate payment that would have been made to Mr.
Stremmel would be an expense to us and would have resulted in reductions to our
net income and capital. The agreement may be renewed annually by our Board of
Directors upon a determination of satisfactory performance within the board's
sole discretion. If Mr. Stremmel shall become disabled during the term of the
agreement, he shall continue to receive payment of 100% of the base salary for a
period of 12 months and 65% of such base salary for the remaining term of the
agreement. Such payments shall be reduced by any other benefit payments made
under other disability programs in effect for our employees. The Association has
also entered into employment agreements with two other executive officers and
the aggregate payment (based upon current salaries) that may have to be made to
these two executives upon a change in control of the Association is
approximately $234,028.
Pension Plan. The Pension Plan provides for benefits as a life annuity
payable monthly after retirement or termination. Generally, the compensation
covered under the Pension Plan includes total cash compensation paid to a
participant as reported or reportable on IRS Form W-2, including non-cash
compensation. If a participant retires at age 65 his monthly income payable will
be 1.5% of his Average Monthly Compensation, multiplied by the number of years
of service under the Pension Plan (not to exceed 25 years). Average Monthly
Compensation is based on the participant's total number of years of service and
is averaged over the five-year consecutive period within the ten-year period
preceding the date of termination of employment which produces the highest
average.
Employee Stock Ownership Plan. We have established an employee stock
ownership plan for the exclusive benefit of participating employees of ours, to
be implemented after the completion of the
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reorganization. Participating employees are employees who have completed one
year of service with us or our subsidiary and have attained the age of 21. An
application for a letter of determination as to the tax-qualified status of the
employee stock ownership plan will be submitted to the IRS. Although no
assurances can be given, we expect that the employee stock ownership plan will
receive a favorable letter of determination from the IRS.
The employee stock ownership plan is to be funded by contributions made
by us in cash or common stock. Benefits may be paid either in shares of the
common stock or in cash. The plan will borrow funds with which to acquire up to
8% of the common stock to be issued in the offering. The employee stock
ownership plan intends to borrow funds from Steelton Bancorp. The loan is
expected to be for a term of ten years at an annual interest rate equal to the
prime rate as published in The Wall Street Journal. Presently it is anticipated
that the employee stock ownership plan will purchase up to 8% of the common
stock to be issued in the offering. The loan will be secured by the shares
purchased and earnings of employee stock ownership plan assets. Shares purchased
with such loan proceeds will be held in a suspense account for allocation among
participants as the loan is repaid. It is anticipated that all such
contributions will be tax-deductible. This loan is expected to be fully repaid
in approximately 10 years.
Shares sold above the maximum of the offering range (i.e., more than
500,250 shares) may be sold to the employee stock ownership plan before
satisfying remaining unfilled orders of Eligible Account Holders to fill the
plan's subscription, or the plan may purchase some or all of the shares covered
by its subscription after the offering in the open market.
Contributions to the employee stock ownership plan and shares released
from the suspense account will be allocated among participants on the basis of
total compensation. All participants must be employed at least 1,000 hours in a
plan year, or have terminated employment following death, disability or
retirement, in order to receive an allocation. Participant benefits become fully
vested in plan allocations following five years of service. Employment before
the adoption of the employee stock ownership plan shall be credited for the
purposes of vesting. Our contributions to the employee stock ownership plan are
discretionary and may cause a reduction in other forms of compensation.
As a result, benefits payable under this plan cannot be estimated.
The board of directors has appointed the non-employee directors to a
committee that will administer the plan and to serve as the plan's trustees. The
trustees must vote all allocated shares held in the plan as directed by plan
participants. Unallocated shares and allocated shares for which no timely
direction is received will be voted as directed by the board of directors or the
plan's committee, subject to the trustees' fiduciary duties.
401(k) Savings Plan. The Association sponsors a tax-qualified defined
contribution savings plan ("401(k) Plan") for the benefit of its employees.
Employees become eligible to participate under the 401(k) Plan after reaching
age 21 and completing three months of service. Under the 401(k) Plan, employees
may voluntarily elect to defer between 0% and 15% of compensation, not to exceed
applicable limits under the Code (i.e., $10,000 in calendar 1998). The
Association matches a minimum of 50% of the first 6% of employee contributions.
Employee and matching contributions immediately vest. The 401(k) Plan permits
voluntary investments of plan assets by participants in the offering.
Benefits are payable upon termination of employment, retirement, death,
disability, or plan termination. Normal retirement age under the 401(k) Plan is
65. Additionally, funds under the
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401(k) Plan may be distributed upon application to the plan administrator upon
severe financial hardship in accordance with uniform guidelines which comply
with those specified by the Code. It is intended that the 401(k) Plan operate in
compliance with the provisions of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), and the requirements of Section 401(a) of the Code.
Contributions to the 401(k) Plan by the Association for employees may be reduced
in the future or eliminated as a result of contributions made to the Employee
Stock Ownership Plan. See "Employee Stock Ownership Plan."
Potential Stock Benefit Plans
Stock Option Plans. Following the offering, we intend to adopt a stock
option plan for directors and key employees within one year after the
conversion. Any plan adopted will be subject to stockholder approval and
applicable laws. Any plan adopted within one year of the conversion will require
the approval of a majority of our stockholders and will also be subject to
various other regulatory limitations. Up to 10% of the shares of common stock
sold in the offering will be reserved for issuance under the stock option plan.
No determinations have been made as to the specific terms of, or awards under,
the stock option plan.
The purpose of the stock option plan will be to attract and retain
qualified personnel in key positions, provide officers, key employees and
directors with a proprietary interest in Steelton Bancorp as an incentive to
contribute to our success and reward officers and key employees for outstanding
performance. Although the terms of the stock option plan have not yet been
determined, it is expected that the stock option plan will provide for the grant
of: (2) options to purchase the common stock intended to qualify as incentive
stock options under the Code (incentive stock options); and (2) options that do
not so qualify (non-statutory stock options). Any stock option plans would be in
effect for up to ten years from the earlier of adoption by the Board of
Directors or approval by the stockholders.
Under the OTS conversion regulations, a stock option plan adopted
within a year of the conversion, would provide for a term of 10 years, after
which no awards could be made, unless earlier terminated by the Board of
Directors pursuant to the option plan and the options would vest over a five
year period (i.e., 20% per year), beginning one year after the date of grant of
the option. Options would expire no later than 10 years from the date granted
and would expire earlier if the option committee so determines or in the event
of termination of employment. Options would be granted based upon several
factors, including seniority, job duties and responsibilities, job performance,
our financial performance and a comparison of awards given by other savings
institutions converting from mutual to stock form.
Stock Programs. Following the offering, we also intend to establish
stock programs to provide our officers and outside directors with a proprietary
interest in Steelton Bancorp. The stock programs are expected to provide for the
award of common stock, subject to vesting restrictions, to eligible officers,
employees and directors. Any plan adopted within one year of the conversion
would require the approval of a majority of our stockholders and will also be
subject to various other regulatory limitations.
We expect to contribute funds to stock programs to acquire, in the
aggregate, up to 4% of the shares of common stock sold in the offering. Shares
used to fund the stock programs may be acquired through open market purchases or
from authorized but unissued shares. No determinations have been made as to the
specific terms of stock programs.
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Restrictions on Stock Benefit Plans. OTS regulations provide that in
the event we implement stock option or management and/or employee stock benefit
plans within one year from the date of conversion, such plans must comply with
the following restrictions:
o the plans must be fully disclosed in the prospectus;
o for stock option plans, the total number of shares for which options may be
granted may not exceed 10% of the shares issued in the conversion;
o for restricted stock plans such as the MRP, the shares may not exceed 3% of
the shares issued in the conversion (4% for institutions with 10% or
greater tangible capital);
o the aggregate amount of stock purchased by the ESOP in the conversion may
not exceed 10% (12% for well-capitalized institutions utilizing a 4%
management recognition plan);
o no individual employee may receive more than 25% of the available awards
under the option plan or a restricted stock plan;
o directors who are not employees may not receive more than 5% individually
or 30% in the aggregate of the awards under any plan;
o all plans must be approved by a majority of the total votes eligible to be
cast at any duly called meeting of Steelton Bancorp's stockholders held no
earlier than six months following the conversion;
o for stock option plans, the exercise price must be at least equal to the
market price of the stock at the time of grant;
o for restricted stock plans, no stock issued in a mutual-to-stock conversion
may by used to fund the plan;
o neither stock option awards nor restricted stock awards may vest earlier
than 20% as of one year after the date of stockholder approval and 20% per
year thereafter, and vesting may be accelerated only in the case of
disability of death (or if not inconsistent with applicable OTS regulations
in effect at such time, in the event of a change in control,
o the proxy material must clearly state that the OTS in no way endorses or
approves of the plans; and
o prior to implementing the plans, all plans must be submitted to the
Regional Director of the OTS within five days after stockholder approval
with a certification that the plans approved by the stockholders are the
same plans that were filed with and disclosed in the proxy materials
relating to the meeting at which stockholder approval was received.
Transactions with Management and Others
No directors, executive officers or immediate family members of such
individuals were engaged in transactions with the Association or any subsidiary
involving more than $60,000 (other than through a loan) during the year ended
December 31, 1998. Furthermore, the Association had no "interlocking"
relationships in which (2) any executive officer is a member of the Board of
Directors or of another entity, one of whose executive officers are a member of
the Association's Board of Directors, or where (2) any executive officer is a
member of the compensation committee of another entity, one of whose executive
officers is a member of the Association's Board of Directors.
The Association has followed the policy of offering residential
mortgage loans for the financing of personal residences, share loans, and
consumer loans to its officers, directors and employees. Share loans and
consumer loans are made in the ordinary course of business and also made on
substantially the same terms and conditions, including interest rate and
collateral, as those of comparable transactions prevailing at the time with
other persons, and do not include more than the
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normal risk of collectibility or present other unfavorable features. The
Association offers mortgage loans to full-time employees for the purchase or
refinance of a permanent residence on special terms and conditions including
waiver of appraisal and credit report fees and a one percent reduction in
service charges and interest rate. If the employee is terminated, or the
residence is no longer owner-occupied, the one percent reduction is eliminated.
As of December 31, 1998, the aggregate principal balance of loans outstanding to
all directors, executive officers and immediate family members of such
individuals was approximately $302,000.
Proposed Stock Purchases by Management
The following table sets forth for each of the directors and executive
officers of the Association and for all such directors and executive officers as
a group (including in each case all "associates" of such persons) the number of
shares of common stock which such person or group intends to purchase, assuming
the sale of 435,000 shares of common stock at $10.00 per share. The table does
not include purchases by the employee stock ownership plan (8% of the common
stock sold in the offering or 34,800 shares), and does not take into account any
stock benefit plans to be adopted within one year following the conversion. See
"Management - Potential Stock Benefit Plans."
Percentage of
Total Number Total Dollar 435,000 Total
of Shares Amount of Shares Shares Sold in
Name to be Purchased to be Purchased the Offering(1)
- ------------------- --------------- --------------- ---------------
Marino Falcone 5,000 50,000 1.1%
Harold E. Stremmel 10,000 100,000 2.3
James F. Stone 10,000 100,000 2.3
Joseph A. Wiedeman 10,000 100,000 2.3
Victor J. Segina 10,000 100,000 2.3
Richard E. Farina 2,500 25,000 1.0
James S. Nelson 10,000 100,000 2.3
Other officers 10,000 100,000 2.3
------ ------- -----
Total 67,500 $ 675,000 15.5%
====== ======= =====
- -------------------------------
(1) In the event the stockholders of Steelton Bancorp approve the stock
benefit plans as discussed in this prospectus (stock programs (4% of
the common stock sold in the offering) and the stock option plans (10%
of the common stock sold in the offering)), and all of the common stock
is awarded pursuant to the stock benefit plans and all options are
exercised (increasing the number of outstanding shares), directors and
executive officers would own 128,400 or 29.5% of the shares of common
stock outstanding. If fewer than 435,000 shares were publicly sold,
these percentage ownership estimates would increase.
See "- Potential Stock Benefit Plans."
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THE CONVERSION
THE BOARD OF DIRECTORS OF MECHANICS SAVINGS AND LOAN, FSA HAS ADOPTED
THE PLAN AUTHORIZING THE CONVERSION AND THE OFFERING, SUBJECT TO THE APPROVAL OF
THE OTS AND OF THE MEMBERS OF THE ASSOCIATION AND THE SATISFACTION OF CERTAIN
OTHER CONDITIONS. OTS APPROVAL DOES NOT CONSTITUTE A RECOMMENDATION OR
ENDORSEMENT OF THE PLAN BY THE OTS.
General
On January 27, 1999, the Board of Directors of Mechanics Savings and
Loan, FSA adopted the plan of conversion and stock issuance which was
subsequently amended, pursuant to which the Association proposes to reorganize
from a federally chartered mutual savings institution to a federally chartered
stock savings institution. The Association will become a wholly owned subsidiary
of Steelton Bancorp. Concurrently with the conversion, Steelton Bancorp will
sell its common stock in the offering to the Association's members and, if
necessary, the general public. The Board of Directors unanimously adopted the
Plan after consideration of the advantages and the disadvantages of the
conversion and offering. After we receive all the required approvals from the
government agencies that regulate us, the approval of the plan by the
Association's members and the satisfaction of all other conditions precedent to
the conversion, the Association will effect the conversion by exchanging its
federal mutual savings institution charter for a federal stock savings
institution charter and becoming a wholly owned subsidiary of Steelton Bancorp,
and having the depositors of the Association receive such liquidation interests
in the newly formed stock savings institution as they have in the Association
before the conversion. See "- Description of the Conversion." On the effective
date, Steelton Bancorp will commence business as Steelton Bancorp, a savings and
loan holding company, and the Association will commence business as Mechanics
Savings Bank, a federally chartered stock savings bank. The conversion will be
accomplished in accordance with the procedures set forth in the plan, the
requirements of applicable laws and regulations, and the policies of the OTS.
For additional information concerning the offering, see "The Offering."
Purposes of the Conversion
The Board of Directors of Mechanics Savings and Loan has determined
that the conversion is in the best interest of the Association and has several
business purposes for the conversion.
The conversion will structure the Association in the stock form, which
is used by commercial banks, most major business corporations and an increasing
number of savings institutions. Formation of the Association as a capital stock
savings institution subsidiary of Steelton Bancorp will permit Steelton Bancorp
to issue stock, which is a source of capital not available to mutual savings
institutions. The holding company form of organization is expected to provide
additional flexibility to diversify the Association's business activities
through existing or newly formed subsidiaries, or through acquisitions of or
mergers with other financial institutions, as well as other companies. Although
the Association has no current arrangements, understandings or agreements
regarding any
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such opportunities, Steelton Bancorp will be in a position after the conversion
and offering, subject to regulatory limitations and Steelton Bancorp's financial
position, to take advantage of any such opportunities that may arise.
Steelton Bancorp is offering for sale its common stock in the offering
at an aggregate price based on an independent appraisal. The proceeds from the
sale of common stock of Steelton Bancorp will provide the Association with new
equity capital, which will support future deposit growth and expanded
operations. The ability of Steelton Bancorp to sell stock also will enable
Steelton Bancorp and the Association to increase capital in response to the
changing capital requirements of the OTS. While the Association currently meets
or exceeds all regulatory capital requirements, the sale of stock in connection
with the conversion, coupled with the accumulation of earnings, less dividends
or other reductions in capital, from year to year, represents a means for the
orderly preservation and expansion of the Association's capital base, and allows
flexibility to respond to sudden and unanticipated capital needs. After the
conversion and offering, Steelton Bancorp may repurchase shares of its common
stock. The investment of the net proceeds of the offering also will provide
additional income to enhance further the Association's future capital position.
The ability of Steelton Bancorp to issue stock also will enable it in
the future to establish stock benefit plans for management and employees of
Steelton Bancorp and the Association, including incentive stock option plans,
stock award plans, and employee stock ownership plans.
Steelton Bancorp will also be able to borrow funds, on a secured and
unsecured basis, and to issue debt to the public or in a private placement. The
proceeds of any such borrowings or debt issuance may be contributed to the
Association as core capital for regulatory capital purposes. Steelton Bancorp
has not made a determination to borrow funds or issue debt at the present time.
Description of the Conversion
After receiving all of the required approvals from the government
agencies that regulate us and the ratification of the plan of conversion by the
Association's members, the conversion will be completed. After the conversion,
the legal existence of the Association will not terminate, the converted stock
bank will be a continuation of the Association and all property of the
Association, including its right, title, and interest in and to all property of
any kind and nature, interest and asset of every conceivable value or benefit
then existing or pertaining to the Association, or which would inure to the
Association immediately by operation of law and without the necessity of any
conveyance or transfer and without any further act or deed, will continue to be
owned by the Association. The Association will possess, hold and enjoy the same
in its right and fully and to the same extent as the same was possessed, held
and enjoyed by the Association. The Association will continue to have, succeed
to, and be responsible for all the rights, liabilities, and obligations of the
Association and will maintain its headquarters operations at the Association's
present location.
The foregoing description of the conversion is qualified in its
entirety by reference to the plan and the charter and bylaws of the Association
and Steelton Bancorp to be effective after the conversion.
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Effects of the Conversion
General. The conversion will not have any effect on the Association's
present business of accepting deposits and investing its funds in loans and
other investments permitted by law. The conversion will not result in any change
in the existing services provided to depositors and borrowers, or in existing
offices, management, and staff. After the conversion, the Association will
continue to be subject to regulation, supervision, and examination by the OTS
and the FDIC.
Deposits and Loans. Each holder of a deposit account in the Association
at the time of the conversion will continue as an account holder in the
Association after the conversion, and the conversion will not affect the deposit
balance, interest rate, and other terms of such accounts. Each such account will
be insured by the FDIC to the same extent as before the conversion. Depositors
will continue to hold their existing certificates, passbooks, checkbooks, and
other evidence of their accounts. The conversion will not affect the loans of
any borrower from the Association. The amount, interest rate, maturity, security
for, and obligations under each loan will remain contractually fixed as they
existed prior to the conversion. See "- Voting Rights" and "- Liquidation
Rights" below for a discussion of the effects of the conversion on the voting
and liquidation rights of the depositors and borrowers of the Association.
Voting Rights. As a federally chartered mutual savings institution, the
Association has no authority to issue capital stock and thus, no stockholders.
Control of the Association in its mutual form is vested in the Board of
Directors of the Association. The Directors are elected by the Association's
members. Holders of qualifying deposits in the Association and borrowers of the
Association with loans outstanding on February 1, 1993 which remain outstanding
are members of the Association. In the consideration of all questions requiring
action by members of the Association, each holder of a qualifying deposit is
permitted to cast one vote for each $100, or fraction thereof, of the withdrawal
value of the voting depositor's account. Voting borrowers are entitled to cast
one vote. No member may cast more than 1,000 votes.
After the conversion, all voting rights will be held solely by
stockholders. A stockholder will be entitled to one vote for each share of
common stock owned.
Tax Effects. We have received an opinion from our counsel, Malizia,
Spidi, Sloane & Fisch, P.C. on the federal tax consequences of the conversion.
The opinion has been filed as an exhibit to the registration statement of which
this prospectus is a part and covers those federal tax matters that are material
to the transaction. The opinion provides, in part, that:
* the conversion will qualify as a reorganization under Section
368(a)(1)(F) of the Code, and no gain or loss will be recognized
by us by reason of the proposed conversion;
* no gain or loss will be recognized by us upon the receipt of
money from Steelton Bancorp for our stock, and no gain or loss
will be recognized by Steelton Bancorp upon the receipt of money
for the shares;
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* no gain or loss will be recognized by the Eligible Account
Holders, Supplemental Eligible Account Holders, and Other Members
upon the issuance to them of withdrawable savings accounts in us
in the stock form in the same dollar amount as their savings
accounts in us in the mutual form plus an interest in the
liquidation account of us in the stock form in exchange for their
savings accounts in us in the mutual form;
* provided that the amount to be paid for the shares pursuant to
the subscription rights is equal to the fair market value of such
shares, no gain or loss will be recognized by Eligible Account
Holders, Supplemental Eligible Account Holders, and Other Members
under the Plan upon the distribution to them of nontransferable
subscription rights.
The opinion from Malizia, Spidi, Sloane & Fisch, P.C. is based in part
on the assumption that the exercise price of the subscription rights will be
approximately equal to the fair market value of those shares at the time of the
completion of the proposed conversion. We have received an opinion of FinPro
which, based on certain assumptions, concludes that the subscription rights to
be received by Eligible Account Holders and other eligible subscribers do not
have any economic value at the time of distribution or at the time the
subscription rights are exercised. Such opinion is based on the fact that such
rights are: (i) acquired by the recipients without payment therefor, (ii)
non-transferable, (iii) of short duration, and (iv) afford the recipients the
right only to purchase shares at a price equal to their estimated fair market
value, which will be the same price at which shares for which no subscription
right is received in the subscription offering will be offered in the community
offering, public or syndicated public offering. If the subscription rights
granted to Eligible Account Holders or other eligible subscribers are deemed to
have an ascertainable value, receipt of such rights would be taxable only to
those Eligible Account Holders or other eligible subscribers who exercise the
subscription rights in an amount equal to such value (either as a capital gain
or ordinary income), and we could recognize gain on such distribution.
We are also subject to Pennsylvania income taxes and have received an
opinion from Malizia, Spidi, Sloane & Fisch, P.C. that the conversion will be
treated for Pennsylvania state tax purposes similar to the conversion's
treatment for federal tax purposes. The opinion has been filed as an exhibit to
the registration statement to which this Prospectus is a part and covers those
state tax matters that are material to the transaction.
Unlike a private letter ruling, the opinions of Malizia, Spidi, Sloane
& Fisch, P.C. and FinPro have no binding effect or official status, and no
assurance can be given that the conclusions reached in any of those opinions
would be sustained by a court if contested by the IRS or the Pennsylvania tax
authorities. Eligible Account Holders, Supplemental Eligible Account Holders,
and Other Members are encouraged to consult with their own tax advisers as to
the tax consequences in the event the subscription rights are deemed to have an
ascertainable value. If the subscription rights are deemed to have an
ascertainable value, eligible account holders, supplemental eligible account
holders, and other members may be deemed to have taxable income based upon the
value of the subscription rights.
Liquidation Account. In the unlikely event of our complete liquidation
in our present mutual form, each depositor is entitled to share in a
distribution of our assets, remaining after payment of claims of all creditors
(including the claims of all depositors to the withdrawal value of their
accounts). Each depositor's pro rata share of such remaining assets would be in
the same proportion
85
<PAGE>
as the value of his deposit accounts was to the total value of all deposit
accounts in us at the time of liquidation.
Upon a complete liquidation after the conversion, each depositor would
have a claim, as a creditor, of the same general priority as the claims of all
other general creditors of ours. Therefore, except as described below, a
depositor's claim would be solely in the amount of the balance in his deposit
account plus accrued interest. A depositor would not have an interest in the
residual value of our assets above that amount, if any.
The Plan provides for the establishment, upon the completion of the
conversion, of a special "liquidation account" for the benefit of Eligible
Account Holders and Supplemental Eligible Account Holders. Each Eligible Account
Holder and Supplemental Eligible Account Holder, if he continues to maintain his
deposit account with us, would be entitled on a complete liquidation of us after
conversion, to an interest in the liquidation account prior to any payment to
stockholders. Each Eligible Account Holder would have an initial interest in
such liquidation account for each deposit account held in us on the qualifying
date, ___________, 199_. Each Supplemental Eligible Account Holder would have a
similar interest as of the qualifying date, ________, 1999. The interest as to
each deposit account would be in the same proportion of the total liquidation
account as the balance of the deposit account on the qualifying dates was to the
aggregate balance in all the deposit accounts of Eligible Account Holders and
Supplemental Eligible Account Holders on such qualifying dates. However, if the
amount in the deposit account on any annual closing date of ours (December 31)
is less than the amount in such account on the respective qualifying dates, then
the interest in this special liquidation account would be reduced from time to
time by an amount proportionate to any such reduction, and the interest would
cease to exist if such deposit account were closed. The interest in the special
liquidation account will never be increased despite any increase in the related
deposit account after the respective qualifying dates.
No merger, consolidation, purchase of bulk assets with assumptions of
savings accounts and other liabilities, or similar transactions with another
insured institution in which we, in our converted form, are not the surviving
institution, shall be considered a complete liquidation. In such transactions,
the liquidation account shall be assumed by the surviving institution.
Accounting Consequences
The conversion will be accounted for in a manner similar to a
pooling-of-interests under GAAP. Accordingly, the carrying value of the
Association's assets, liabilities, and capital will be unaffected by the
conversion and will be reflected in Steelton Bancorp's and the Association's
consolidated financial statements based on their historical amounts.
Conditions to the Conversion
Before we can complete the conversion, Steelton Bancorp and the
Association must receive all the required approvals from the government agencies
that regulate us, including various approvals or non-objections from the OTS.
The receipt of such approvals or non-objections from the OTS does not constitute
a recommendation or endorsement of the plan or conversion by the OTS.
Consummation of the conversion also is subject to ratification of the plan by a
majority of the total votes of depositors at a special meeting called for the
purpose of approving the plan. The Board of Directors may decide to consummate
the conversion without forming a holding company.
86
<PAGE>
Amendment or Termination of the Plan of Conversion
If deemed necessary or desirable by the Board of Directors of the
Association, the plan may be amended by a two-thirds vote of the Association's
Board of Directors, with the concurrence of the OTS, at any time prior to or
after submission of the plan to members of the Association for ratification. The
plan may be terminated by the Board of Directors of the Association at any time
prior to or after ratification by the members, by a two-thirds vote with the
concurrence of the OTS.
RESTRICTIONS ON ACQUISITION OF STEELTON BANCORP, INC.
General
The following discussion is a summary of statutory and regulatory
restrictions on the acquisition of our common stock. In addition, the following
discussion summarizes provisions of our articles of incorporation and bylaws and
regulatory provisions that have an anti-takeover effect.
Change in Association Control Act
Federal law provides that no person, acting directly or indirectly or
through or in concert with one or more other persons, may acquire control of a
savings association unless the OTS has been given 60 days prior written notice.
Federal law provides that no company may acquire control of a savings and loan
holding company without the prior approval of the OTS. Any company that acquires
control becomes a "savings and loan holding company" subject to registration,
examination and regulation by the OTS. Pursuant to federal regulations, control
is conclusively deemed to have occurred when an entity, among other things, has
acquired more than 25 percent of any class of voting stock of the institution or
the ability to control the election of a majority of the directors of an
institution. Moreover, control is presumed to have occurred, subject to
rebuttal, upon the acquisition of more than 10 percent of any class of voting
stock, or of more than 25 percent of any class of stock, of a savings
institution, where certain enumerated control factors are also present in the
acquisition. The OTS may prohibit an acquisition of control if: (1) it would
result in a monopoly or substantially lessen competition; (2) the financial
condition of the acquiring person might jeopardize the financial stability of
the institution; or (3) the competence, experience or integrity of the acquiring
person indicates that it would not be in the interest of the depositors or of
the public to permit the acquisition of control by such person. The foregoing
restrictions do not apply to the acquisition of stock by one or more
tax-qualified employee stock benefit plans, provided that the plan or plans do
not have beneficial ownership in the aggregate of more than 25 percent of any
class of our equity security.
Steelton Bancorp's Articles of Incorporation and Bylaws
General. Our articles of incorporation and bylaws are available at our
administrative office or by writing or calling us, 51 South Front Street,
Steelton, Pennsylvania 17113 (our telephone number is (717) 939-1966).
Classified Board of Directors and Related Provisions. Our Board of
Directors is divided into four classes which are as nearly equal in number as
possible. Directors serve for terms of four years. As a result, each year, only
one-fourth of the directors are to be elected and it would take at least two
years to elect a majority of our directors. A director may be removed only by
the affirmative vote of the holders of a majority of the shares then entitled to
vote.
87
<PAGE>
Restrictions on Voting of Securities. The charter provides that any
shares of common stock beneficially owned directly or indirectly in excess of
10% by any person will not be counted as shares entitled to vote, shall not be
voted by any person or counted as voting shares in connection with any matter
submitted to stockholders for a vote, and shall not be counted as outstanding
for purposes of determining a quorum or the affirmative vote necessary to
approve any matter submitted to the stockholders for a vote. It is possible for
such a person to have voting authority for less than 10% of our shares,
depending on how the shares are registered. The purpose of this provision is to
reduce the chance that large stockholders could challenge our management.
Prohibition Against Cumulative Voting. Our charter prohibits cumulative
voting by stockholders in the election of directors. The absence of cumulative
voting rights effectively means that the holders of a majority of the shares
voted at a meeting of stockholders may, if they so choose, elect all directors
elected at the meeting, thus precluding a minority stockholder from obtaining
representation on the Board of Directors unless the minority stockholder is able
to obtain the support of a majority.
Procedures for Certain Business Combinations. Our articles of
incorporation require the affirmative vote of at least 80% of the outstanding
shares entitled to vote in the election of directors in order for us to engage
in or enter into certain "Business Combinations," as defined in the articles of
incorporation, with any Principal Shareholder (as defined below) or any
affiliates of the Principal Shareholder, unless the proposed transaction has
been approved in advance by our Board of Directors, excluding those who were not
directors prior to the time the Principal Shareholder became the Principal
Shareholder. The term "Principal Shareholder" is defined to include any person
and the affiliates and associates of the person (other than Steelton Bancorp or
its subsidiary) who beneficially owns, directly or indirectly, 20% or more of
the outstanding shares of voting stock. Any amendment to this provision requires
the affirmative vote of at least 80% of the shares of entitled to vote generally
in an election of directors.
Furthermore, any merger, consolidation, liquidation, or dissolution of
Steelton Bancorp or any action that would result in the sale or other
disposition of all or substantially all of the assets of Steelton Bancorp shall
require the affirmative vote of the holders of at least eighty percent (80%) of
the outstanding shares of capital stock of Steelton Bancorp eligible to vote at
a legal meeting, unless the transaction is approved by two-thirds of the entire
board of directors.
Amendment to Articles of Incorporation and Bylaws. Amendments to our
articles of incorporation must be approved by our Board of Directors and also by
a majority of the outstanding shares of our voting stock, provided, however,
that approval by at least 80% of the outstanding voting stock is generally
required for certain provisions (i.e., provisions relating to restrictions on
the acquisition and voting of greater than 10% of the common stock; number,
classification, election and removal of directors; amendment of bylaws; call of
special stockholder meetings; director liability; certain business combinations;
power of indemnification; and amendments to provisions relating to the foregoing
in the articles of incorporation).
The bylaws may be amended by a majority vote of the Board of Directors
or the affirmative vote of the holders of at least 80% of the outstanding shares
of entitled to vote in the election of directors cast at a meeting called for
that purpose.
Additional Anti-Takeover Provisions. The provisions described above are
not the only provisions of our charter and bylaws having an anti-takeover
effect. For example, the charter
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<PAGE>
authorizes the issuance of up to two million shares of preferred stock, which
conceivably would represent an additional class of stock required to approve any
proposed acquisition. This preferred stock, none of which has been issued,
together with authorized but unissued shares of the common stock (the charter
authorizes the issuance of up to eight million shares of the common stock), also
could represent additional capital required to be purchased by the acquiror.
In addition to discouraging a takeover attempt which a majority of our
stockholders might determine to be in their best interest or in which our
stockholders might receive a premium over the current market prices for their
shares, the effect of these provisions may render the removal of our management
more difficult.
DESCRIPTION OF CAPITAL STOCK
Steelton Bancorp is authorized to issue 8,000,000 shares of common
stock, par value $0.10 per share and 2,000,000 shares of preferred stock, no par
value. We currently expect to issue between 369,750 and 500,250 (subject to an
increase of up to 15% of the 500,250 shares to be sold, i.e., 575,288 shares)
shares of common stock in the conversion. See "Capitalization." Upon payment of
the purchase price shares of common stock issued in the offering will be fully
paid and non-assessable. The common stock will represent nonwithdrawable
capital, will not be an account of insurable type and will not be insured by the
FDIC or any other governmental agency. See also "Dividend Policy."
Voting Rights
The holders of common stock will possess exclusive voting rights in
Steelton Bancorp. The holder of shares of common stock will be entitled to one
vote for each share held on all matters subject to stockholder vote. See also
"The Conversion - Effects of the Conversion - Voting Rights"
Liquidation Rights
In the event of any liquidation, dissolution, or winding-up of Steelton
Bancorp, the holders of the common stock generally would be entitled to receive,
after payment of all debts and liabilities of Steelton Bancorp (including all
debts and liabilities of the Association), all assets of Steelton Bancorp
available for distribution. See also "The Conversion - Effects of the Conversion
- - Liquidation Rights."
Preemptive Rights; Redemption
The holders of the common stock do not have any preemptive rights with
respect to any shares we may issue. Therefore the Board of Directors may sell
shares of capital stock of Steelton Bancorp without first offering such shares
to existing stockholders of Steelton Bancorp. The common stock will not be
subject to any redemption provisions.
Preferred Stock
We are authorized to issue up to 2,000,000 shares of preferred stock
and to fix and state voting powers, designations, preferences, or other special
rights of such shares and the qualifications,
89
<PAGE>
limitations and restrictions of those shares as the Board of Directors may
determine in its discretion. Preferred stock may be issued in distinctly
designated series, may be convertible into common stock and may rank prior to
the common stock as to dividends rights, liquidation preferences, or both, and
may have full or limited voting rights. Accordingly, the issuance of preferred
stock could adversely affect the voting and other rights of holders of common
stock.
The authorized but unissued shares of preferred stock and the
authorized but unissued and unreserved shares of common stock will be available
for issuance in future mergers or acquisitions, in future public offerings or
private placements. Except as otherwise required to approve the transaction in
which the additional authorized shares of preferred stock would be issued, no
stockholder approval generally would be required for the issuance of these
shares.
LEGAL AND TAX OPINIONS
The legality of the issuance of the common stock being offered and
certain matters relating to the conversion and federal and state taxation will
be passed upon for us by Malizia, Spidi, Sloane & Fisch, P.C., Washington, D.C.
Certain legal matters will be passed upon for Capital Resources, Inc.
by Steele, Silcox & Browning, P.C.
EXPERTS
The consolidated financial statements of Mechanics Savings and Loan,
FSA as of December 31, 1998 and 1997 and for each of the years in the three year
period ended December 31, 1998 have been included in this prospectus in reliance
upon the report of McKonly & Asbury, LLP, independent certified public
accountants, appearing elsewhere in this prospectus, and upon the authority of
said firm as experts in accounting and auditing.
FinPro, Inc. has consented to the publication in this document of a
summary of its letter to Mechanics Savings and Loan, FSA setting forth its
opinion as to the estimated pro forma market value of the common stock upon the
conversion and stock offering and its opinion setting forth the value of
subscription rights and to the use of its name and statements with respect to it
appearing in this document.
90
<PAGE>
REGISTRATION REQUIREMENTS
Our common stock will be registered pursuant to Section 12(g) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). We will be
subject to the information, proxy solicitation, insider trading restrictions,
tender offer rules, periodic reporting and other requirements of the SEC under
the Exchange Act. We may not deregister the common stock under the Exchange Act
for a period of at least three years following the conversion.
WHERE YOU CAN FIND ADDITIONAL INFORMATION
We are subject to the informational requirements of the Exchange Act
and must file reports and other information with the SEC.
We have filed with the SEC a registration statement on Form SB-2 under
the Securities Act of 1933, as amended, with respect to the common stock offered
in this document. As permitted by the rules and regulations of the SEC, this
document does not contain all the information set forth in the registration
statement. Such information can be examined without charge at the public
reference facilities of the SEC located at 450 Fifth Street, N.W., Washington,
D.C. 20549, and copies of such material can be obtained from the SEC at
prescribed rates. You may obtain information on the operation of the Public
Reference Room by calling 1-800-SEC-0330. The SEC also maintains an internet
address ("Web site") that contains reports, proxy and information statements and
other information regarding registrants, including Steelton Bancorp, that file
electronically with the SEC. The address for this Web site is
"http://www.sec.gov." The statements contained in this document as to the
contents of any contract or other document filed as an exhibit to the Form SB-2
are, of necessity, brief descriptions and are not necessarily complete; each
such statement is qualified by reference to such contract or document.
A copy of our articles of incorporation and bylaws, as well as those of
the Association, are available without charge from Mechanics Savings and Loan,
FSA. Copies of the plan of conversion are also available without charge.
The Association has filed an application for conversion with the OTS.
This prospectus omits certain information contained in that application. Such
information can be examined without charge at the public reference facilities of
the OTS located at 1700 G Street, N.W., Washington, D.C.
20552.
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<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Mechanics Savings and Loan, FSA
Independent Auditor's Report F-1
Consolidated Statements of Financial Condition
at December 31, 1998 and December 31, 1997 F-2
Consolidated Statements of Income for each of
the years in the two-year period ended
December 31, 1998 F-3
Consolidated Statements of Changes in Equity for
each of the years in the two-year period
ended December 31, 1998 F-4
Consolidated Statements of Cash Flows for each
of the years in the two-year period ended
December 31, 1998 F-5
Notes to Consolidated Financial Statements F-7
Other schedules are omitted as they are not required or are not applicable or
the required information is shown in the consolidated financial statements or
related notes.
Financial statements of Steelton Bancorp, Inc. have not been provided because
they have conducted no operations.
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<PAGE>
[LETTERHEAD OF McKONLY & ASBURY]
INDEPENDENT AUDITOR'S REPORT
The Board of Directors
Mechanics Savings and Loan, FSA
Steelton, Pennsylvania
We have audited the accompanying consolidated statements of financial condition
of Mechanics Savings and Loan FSA, and subsidiary (the Association) as of
December 31, 1998 and 1997, and the related consolidated statements of income
and changes in equity, and cash flows for the years then ended. These financial
statements are the responsibility of the Association's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Mechanics Savings
and Loan FSA, and subsidiary as of December 31, 1998 and 1997, and the results
of their operations and their cash flows for the years then ended in conformity
with generally accepted accounting principles.
/s/ McKonly & Asbury, LLP
---------------------------------------
McKonly & Asbury, LLP
Harrisburg, Pennsylvania
February 5, 1999
F-1
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
DECEMBER 31, 1998 AND 1997
ASSETS
Note 1998 1997
---- --------- -----------
(as restated)
Cash and cash equivalents
Cash and amounts due from depository
institutions 1 $ 433,414 $ 298,564
Interest bearing deposits in other banks 1 1,954,178 490,088
Investment securities
Securities available-for-sale 1, 2 4,004,294 --
Securities held-to-maturity 1, 2 5,200,205 2,370,739
Loans receivable, net 1, 3 27,784,386 32,118,391
Accrued interest receivable 1, 4 227,712 203,047
Federal Home Loan Bank stock, at cost 15 564,600 490,900
Office properties and equipment, net 1, 5 1,046,050 1,061,340
Rental property, net 1, 6 68,678 72,812
Deferred income taxes 1, 9 97,771 86,873
Other assets -- 129,986 39,640
---------- ----------
Total assets $41,511,274 $37,232,394
========== ==========
LIABILITIES AND EQUITY
Deposits 1, 7 $28,272,431 $23,467,695
Advances from Federal Home Loan Bank 8 9,257,408 9,816,528
Advances from borrowers for insurance and taxes - 167,315 186,361
Accrued interest payable 72,227 84,893
Other liabilities 43,404 64,662
---------- ----------
Total liabilities 37,812,785 33,620,139
---------- ----------
Commitments and contingencies 1, 3
Retained earnings (substantially restricted) 3,712,571 3,612,255
Accumulated other comprehensive income (loss) (14,082) -
---------- ----------
Total equity 3,698,489 3,612,255
---------- ----------
Total liabilities and equity $41,511,274 $37,232,394
========== ==========
See notes to consolidated financial statements.
F-2
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
Note 1998 1997
----------- ------------------- ------------------
<S> <C> <C> <C>
Interest income (as restated)
Loans 1 $2,536,713 $2,656,973
Investment securities 1, 2 259,160 110,581
Other interest earning assets 83,818 63,423
------------------- ------------------
Total interest income 2,879,691 2,830,977
------------------- ------------------
Interest expense
Deposits 7 1,213,091 1,154,062
Advances from Federal Home Loan Bank 8 580,763 620,860
------------------- ------------------
Total interest expense 1,793,854 1,774,922
------------------- ------------------
Net interest income 1,085,837 1,056,055
Provision for loan losses 1,3 50,000 12,000
------------------- ------------------
Net interest income after provision
for loan losses 1,035,837 1,044,055
------------------- ------------------
Other income
Fees and service charges 85,909 52,398
Dividends on FHLB stock 35,343 33,909
Other 54,208 35,036
------------------- ------------------
Total other income 175,460 121,343
------------------- ------------------
Other expense
Salaries and employee benefits 592,612 477,848
Occupancy expense of premises 92,560 60,038
Equipment 180,526 135,960
Advertising 40,859 66,214
Other 185,066 183,886
------------------- ------------------
Total other expense 1,091,623 923,946
------------------- ------------------
Income before income taxes 119,674 241,452
Income taxes 1, 9 19,358 78,704
------------------- ------------------
Net income $100,316 $162,748
=================== ==================
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
Retained Accumulated
Earnings Other
Substantially Comprehensive
Restricted Income (loss) Total Equity
-------------- --------------- ---------------
<S> <C> <C> <C>
Balance - January 1, 1997,
as restated $ 3,449,507 $ - $3,449,507
Comprehensive income
Net income, as restated 162,748 - 162,748
------------- ------------ ---------------
Balance - December 31, 1997,
as restated 3,612,255 - 3,612,255
Comprehensive income
Net income 100,316 - 100,316
Other comprehensive income (loss),
net of tax
Unrealized losses on
securities available for sale,
net of deferred income tax
benefit of $7,254 - (14,082) (14,082)
------------- ------------ ---------------
Total comprehensive income 100,316 (14,082) 86,234
------------- ------------ ---------------
Balance - December 31, 1998 $ 3,712,571 (14,082) $3,698,489
============= ============ ===============
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
1998 1997
--------- ---------
as restated)
Cash flows from operating activities
<S> <C> <C>
Net income $ 100,316 $ 162,748
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation 98,129 78,494
Gain on sale of foreclosed real estate -- 716
Amortization of deferred loan fees (75,735) (35,571)
Amortization of premiums on loans purchased 8,030 3,941
Accretion of investment security discounts
net of premium amortization 19,110 (500)
Provision for loan losses 50,000 12,000
Deferred income taxes (3,644) (8,118)
(Increase) decrease in
Accrued interest receivable (24,665) (43,161)
Other assets (90,346) 83,381
Increase (decrease) in
Accrued interest payable (12,666) (38,948)
Other liabilities (21,258) 48,589
---------- ---------
Net cash provided by operating
activities 47,271 263,571
---------- ---------
Cash flows from investing activities
Investment securities available-for-sale
Proceeds from sales and maturities of
mortgaged-backed securities 29,998 --
Purchase of mortgage-backed securities (3,956,056) --
Purchase of other securities (99,740) --
Investment securities held-to-maturity
Proceeds from maturities and repayments
Mortgage-backed securities 1,513,064 311,446
Other 510,000 1,115,000
Purchase of mortgage-backed securities (3,325,633) (769,954)
Purchase of other securities (1,545,839) (447,624)
Net (increase) decrease in loans 4,351,710 (431,798)
Purchase of office properties and equipment (78,705) (673,994)
Proceeds from sale of foreclosed real estate -- 26,266
Improvements to rental properties -- (3,743)
Purchase of Federal Home Loan Bank stock (73,700) (196,600)
Proceeds from sale of Federal Home Loan Bank stock -- 223,400
---------- ---------
Net cash used in
investing activities (2,674,901) (847,601)
---------- ---------
</TABLE>
(continued)
F-5
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS (Cont'd)
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
1998 1997
------------- ---------------
(as restated)
<S> <C> <C>
Cash flows from financing activities
Net increase (decrease) in
Deposits $4,804,736 $559,358
Advances from borrowers for insurance and taxes (19,046) (8,148)
Advances from Federal Home Loan Bank - 6,550,000
Repayment of Federal Home Loan Bank advances (559,120) (6,586,443)
------------- --------------
Net cash provided by
financing activities 4,226,570 514,767
------------- --------------
Net increase (decrease) in cash
and cash equivalents 1,598,940 (69,263)
Cash and cash equivalents - beginning 788,652 857,915
------------- --------------
Cash and cash equivalents - ending $2,387,592 $788,652
============= ==============
Supplemental disclosures
Cash paid during the year for interest $1,806,520 $1,813,870
============= ==============
Cash paid during the year for taxes $ 88,992 $ 36,948
============= ==============
Second mortgage received on sale
of foreclosed property $ - $ 9,770
============= ==============
Loans transferred to foreclosed real
estate during the year $ - $ 12,332
============= ==============
Deferred income tax benefit on recorded
unrealized losses on securities available-
for-sale $ 7,254 $ -
============== ==============
Recorded unrealized loss on securities
available-for-sale $ 21,336 $ -
============== ==============
</TABLE>
(continued)
F-6
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
The Association provides a variety of financial services to customers
through its two offices in Dauphin County, Pennsylvania. The
Association's primary deposit products are non-interest and
interest-bearing checking accounts, savings accounts and certificates of
deposit. Its primary lending products are single-family residential
loans.
The Association's wholly-owned subsidiary, Baldwin Service Corporation,
invests in rental properties. In excess of 99% of consolidated net
assets relate to the Association. The Association reports its activities
as one operating segment.
Basis of Consolidation
The consolidated financial statements include the accounts of Mechanics
Savings and Loan, FSA and its wholly-owned subsidiary, Baldwin Service
Corporation. All material inter-company balances and transactions have
been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Material estimates that are particularly susceptible to significant
change relate to the determination of the allowance for losses on loans
and the valuation of real estate acquired in connection with
foreclosures. In connection with the determination of the allowances for
losses on loans and foreclosed real estate, management obtains
independent appraisals for significant properties.
A majority of the Association's loan portfolio consists of single-family
residential loans in the area of Dauphin County, Pennsylvania. The
regional economy is currently stable and consists of various types of
industry, services, and government employment. Real estate prices in
this market are also stable; however, the ultimate collectibility of a
substantial portion of the Association's loan portfolio are susceptible
to change in local market conditions.
(continued)
F-7
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
Use of Estimates (Cont'd)
While management uses available information to recognize losses on loans
and foreclosed real estate, future additions to the allowances may be
necessary based on changes in local economic conditions. In addition,
regulatory agencies, as an integral part of their examination process,
periodically review the Association's allowances for losses on loans and
foreclosed real estate.
Such agencies may require the Association to recognize additions to the
allowances based on their judgments about information available to them
at the time of their examination. Because of these factors, it is
reasonably possible that the allowances for losses on loans and
foreclosed real estate may change materially in the near term. However,
the amount of the change that is reasonably possible cannot be
estimated.
Investment Securities
The Association's investments in securities are classified as
available-for-sale and held-to-maturity and are accounted for as
follows:
o Securities Held-to-Maturity Government, Federal agency, and corporate
debt securities that management has the positive intent and ability to
hold to maturity are reported at cost, adjusted for amortization of
premiums and accretion of discounts that are recognized in interest
income using methods approximating the interest method over the period
to maturity. Mortgage-backed securities represent participating
interests in pools of long-term first mortgage loans originated and
serviced by issuers of the securities. Mortgage-backed securities are
carried at unpaid principal balances, adjusted for unamortized
premiums and unearned discounts. Premiums and discounts are amortized
using methods approximating the interest method over the remaining
period to contractual maturity, adjusted for anticipated prepayments.
o Securities Available-for-sale Available-for-sale securities consist of
investment securities not classified as held-to-maturity securities.
Unrealized holding gains and losses, net of tax, on available-for-sale
securities are included in other comprehensive income. Realized gains
and losses on available-for-sale securities are included in other
income (expense) and, when applicable, are reported as a
reclassification adjustment, net of tax, in other comprehensive
income. Gains and losses on the sale of available-for-sale securities
are determined using the specific identification method. The
amortization of premiums and the accretion of discounts are recognized
in interest income using methods approximating the interest method
over the period of maturity.
(continued)
F-8
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
Loans and Allowance for Loan Losses
Loans are stated at unpaid principal balances, less the allowance for loan
losses and net deferred loan fees and costs.
Loan origination and commitment fees, as well as certain direct origination
costs, are deferred and amortized as a yield adjustment over the
contractual lives of the related loans using the interest method.
Interest income generally is not recognized on specific impaired loans
unless the likelihood of further loss is remote. Interest payments received
on such loans are applied as a reduction of the loan principal balance.
Interest income on other impaired loans is recognized only to the extent of
interest payments received.
An allowance for loan losses is maintained at a level considered adequate
to absorb loan losses. Management of the Association, in determining the
allowance for loan losses, considers the risks inherent in its loan
portfolio and changes in the nature and volume of its loan activities,
along with general economic and real estate market conditions. The
Association utilizes a two tier approach: (1) identification of impaired
loans and the establishment of specific loss allowances on such loans; and
(2) establishment of general loss allowances on the remainder of its loan
portfolio. The Association maintains a loan review system which allows for
a periodic review of its loan portfolio and the early identification of
potential impaired loans. Such system takes into consideration, among other
things, delinquency status, size of loans, type and estimated fair value of
collateral and financial condition of the borrowers. Specific loan loss
allowances are established for identified losses based on a review of such
information. General loan loss allowances are based on a combination of
factors including, but not limited to, actual loan loss experience,
composition of the loan portfolio, current economic conditions and
management's judgement. 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.
Office Properties and Equipment
Office properties and equipment are comprised of land, at cost, and
buildings, building improvements and furnishings and equipment, at cost
less accumulated depreciation. Depreciation charges are computed on the
straight-line and declining balance methods over the following estimated
useful lives:
Buildings and improvement 10 to 40 years
Furnishings and equipment 5 to 10 years
(continued)
F-9
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
Office Properties and Equipment (Cont'd)
Significant renewals and betterments are charged to the premises and
equipment account. Maintenance and repairs are charged to operations
in the period incurred.
Pension Plan
The Association has a pension plan covering substantially all
employees. The plan is a fully insured defined benefit plan provided
through a contract with a life insurance company that is currently
funded by the Association through annual premiums.
Income Taxes
Income taxes are provided for the tax effects of the transactions
reported in the financial statements and consist of taxes currently
due plus deferred taxes. The deferred tax assets and liabilities
represent the future tax return consequences of those differences,
which will either be taxable or deductible when the assets and
liabilities are recovered or settled. Deferred tax assets and
liabilities are reflected at income tax rates applicable to the period
in which the deferred tax assets or liabilities are expected to be
realized or settled. As changes in tax laws or rates are enacted,
deferred tax assets and liabilities are adjusted through the provision
for income taxes.
Comprehensive Income
In 1998, the Association adopted Statement of Financial Accounting
Standards (SFAS) No. 130, Reporting Comprehensive Income. SFAS No. 130
establishes reporting requirements of comprehensive income and its
components. Comprehensive income for the Association consist of net
income and unrealized losses on available for sale securities and is
presented in the consolidated statement of changes in equity. The
adoption of SFAS No. 130 had no impact on total equity. Prior year
financial statements have been reclassified to conform to the SFAS No.
130 requirements.
Statements of Cash Flows
The Association considers all cash and amounts due from depository
institutions and interest-bearing deposits in other banks to be cash
equivalents for purposes of the statements of cash flows.
(continued)
F-10
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
Reclassifications
Certain amounts in 1997 have been reclassified to conform with the
1998 presentation.
2. INVESTMENT SECURITIES
The amortized cost and estimated fair values of the Association's
investments in securities at December 31, 1998 and 1997 are summarized
as follows:
<TABLE>
December 31, 1998
-----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
--------------- ------------- --------------- ----------------
<S> <C> <C> <C> <C>
Securities available-
for-sale
U.S. Government and
federal agencies $ 200,000 $ 360 $ - $ 200,360
State and local
governments 99,745 - (1,245) 98,500
Mortgaged-backed
securities
FNMA 1,501,363 - (6,299) 1,495,064
GNMA 1,239,376 3,964 - 1,243,340
Other 985,146 - (18,116) 967,030
--------------- ------------- -------------- ---------------
$4,025,630 $ 4,324 $ (25,660) $4,004,294
=============== ============== =============== ===============
December 31, 1998
-----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
--------------- ------------- --------------- ----------------
Securities held-
to-maturity
U.S. Government and
federal agencies $ 500,000 $ - $ (17,835) $ 482,165
State and local
governments 1,295,177 13,202 - 1,308,379
Mortgaged-backed
securities
FHLMC 487,737 323 - 488,060
FNMA 2,511,591 64,839 - 2,576,430
GNMA 384,624 - (362) 384,262
Other 21,076 - (199) 20,877
--------------- -------------- --------------- ----------------
$5,200,205 $78,364 $ (18,396) $5,260,173
=============== ============== =============== ================
</TABLE>
(continued)
F-11
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
2. INVESTMENT SECURITIES (Cont'd)
The Association did not have securities classified as available-for-sale at
December 31, 1997.
<TABLE>
December 31, 1997
----------------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized
Cost Gains Losses Fair Value
--------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Securities held-
to-maturity
U.S. Government and
federal agencies $496,799 $ - $ (21,323) $ 475,476
State and local
governments 460,000 4,991 - 464,991
Mortgaged-backed
securities
FHLMC 517,404 4,384 - 521,788
FNMA 866,286 19,872 - 886,158
Other 30,250 - (80) 30,170
----------------- ---------------- ----------------- -----------------
$ 2,370,739 $ 29,247 $(21,403) $ 2,378,583
================= ================ ================= =================
</TABLE>
The following is a summary of maturities of available-for-sale and
securities held-to maturity at December 31, 1998:
<TABLE>
Available-for-sale Held-to-maturity
--------------------------------- -------------------------------------
Amortized Amortized
Cost Fair Value Cost Fair Value
--------------- ---------------- ----------------- ------------------
<S> <C> <C> <C> <C>
Amounts maturing in:
One year or less $ - $ - $ - $ -
After one year
through five years 99,745 98,500 533,893 520,794
After five years
through ten
years 200,000 200,360 414,498 419,080
After ten years 3,725,885 3,705,434 4,251,814 4,320,299
--------------- ---------------- ----------------- ------------------
$4,025,630 $4,004,294 $5,200,205 $ 5,260,173
=============== ================ ================= ==================
</TABLE>
(continued)
F-12
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
2. INVESTMENT SECURITIES (Cont'd)
The amortized cost and fair value of mortgage-backed securities are
presented by contractual maturity in the preceding table. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations without call or prepayment
penalties.
3. LOANS RECEIVABLE - NET
Loans receivable - net at December 31, 1998 and 1997 consists of the
following:
1998 1997
---------- ----------
Real estate
1 - 4 family $23,537,782 $28,309,779
Non-residential 765,331 837,824
Consumer loans
Home equity and second mortgage 3,233,871 2,968,903
Share loans 276,873 362,711
Other 289,183 137,589
Commercial loans 78,799 -
---------- ----------
28,181,839 32,616,806
Loans in process (51,175) (138,400)
Net deferred loan origination fees (180,078) (233,436)
Allowance for loan losses (166,200) (126,579)
---------- ----------
$27,784,386 $32,118,391
========== ==========
An analysis of the allowance for loan losses at December 31, 1998 and
1997 is as follows:
1998 1997
--------------- ---------------
Balance, beginning of year $ 126,579 $ 119,199
Provision for loan losses 50,000 12,000
Charge-offs (10,379) (4,620)
--------------- ---------------
Balance, end of year $ 166,200 $ 126,579
=============== ===============
(continued)
F-13
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
3. LOANS RECEIVABLE - NET (Cont'd)
Nonaccrual loans totaled $322,000 and $543,000 at December 31, 1998 and
1997. Nonaccrual loans are those on which income under the accrual
method has been discontinued with subsequent interest payments credited
to interest income and when received or, if the ultimate collectibility
of principal is in doubt, applied as principal reductions. The impact of
nonaccrual loans was to reduce interest income by $7,048 and $10,016 for
the years ended December 31, 1998 and 1997.
The Association has entered into lending transactions, in the ordinary
course of business, with executive officers and directors of the
Association and to their associates on the same terms as those
prevailing for comparable transactions with other borrowers. A summary
of activity related to such loans is as follows:
1998 1997
--------- ---------
Balance, beginning of year $ 201,805 $ 213,161
Loans 228,703 22,000
Repayments (128,124) (33,356)
--------- ---------
Balance, end of year $ 302,384 $ 201,805
========= =========
4. ACCRUED INTEREST RECEIVABLE
Accrued interest receivable consists of the following at December 31,
1998 and 1997:
1998 1997
--------- ---------
Loans $ 175,930 $ 204,993
Investments 68,110 20,600
--------- ---------
244,040 225,593
Allowance for uncollectible interest (16,328) (22,546)
--------- ---------
$ 227,712 $ 203,047
========= =========
(continued)
F-14
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
5. OFFICE PROPERTIES AND EQUIPMENT
A summary of office properties and equipment at December 31, 1998 and
1997 follows:
Description 1998 1997
-------------------------- ------------ ------------
Land $ 193,930 $ 193,930
Buildings and improvements 820,635 759,283
Furnishings and equipment 587,960 570,607
------------ ------------
1,602,525 1,523,820
Accumulated depreciation (556,475) (462,480)
------------ ------------
$1,046,050 $ 1,061,340
============ ============
6. RENTAL PROPERTY
A summary of rental property at December 31, 1998 and 1997 follows:
1998 1997
------------------ ------------------
Land $ 9,800 $ 9,800
Building and improvements 98,387 98,387
------------------ ------------------
108,187 108,187
Accumulated depreciation (39,509) (35,375)
------------------ ------------------
$ 68,678 $ 72,812
================== ==================
(continued)
F-15
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
7. DEPOSITS
Deposits at December 31, 1998 and 1997 consisted of the following:
1998 1997
------------------------- -------------------------
Percent Percent
of of
Total Total
Amount Deposits Amount Deposits
------------ ----------- ------------ -----------
Commercial checking $ 1,096,334 3.88% $ 552,759 2.36%
accounts
NOW accounts 1,193,744 4.22% 766,379 3.27%
Savings accounts 3,959,892 14.01% 3,312,062 14.11%
Money Market 1,606,027 5.68% 1,159,218 4.94%
Certificates of deposit
1 - 3 months 272,726 0.96% 16,140 0.07%
4 - 6 months 1,325,018 4.69% 899,152 3.83%
7 - 12 months 5,194,567 18.37% 3,396,575 14.47%
13 - 36 months 9,660,262 34.17% 10,909,867 46.49%
37 + months 3,963,861 14.02% 2,455,543 10.46%
------------ ------------ ------------- ------------
$28,272,431 100.00% $23,467,695 100.00%
============ ============ ============= ===========
The aggregate amount of certificates of deposit with a minimum denomination of
$100,000 was $1,933,731 at December 31, 1998 and $2,211,301 at December 31,
1997. Deposits in excess of $100,000 are not insured by the Savings Association
Insurance Fund.
Maturities of certificates of deposit at December 31, 1998 are as
follows:
1999 $11,772,014
2000 3,988,623
2001 1,179,655
2002 434,555
2003 and thereafter 3,041,587
-----------
$20,416,434
==========
(continued)
F-16
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
7. DEPOSITS (Cont'd)
Interest expense on deposits consists of:
1998 1997
------------------ ------------------
NOW accounts $ 15,931 $ 12,747
Money market $ 33,754 $ 29,469
Savings accounts 97,335 83,738
Certificates of Deposit 1,066,071 1,028,108
------------------ ------------------
$1,213,091 $1,154,062
================== ==================
8. ADVANCES FROM FEDERAL HOME LOAN BANK
Advances in the amount of $9,257,408 in 1998 and $9,816,528 in 1997
are due in each of the next five years and thereafter as follows:
Weighted Weighted
Average Average
December 31, Interest rate December 31, Interest rate
1998 1998 1997 1997
------------ ------------- ------------ -------------
Maturity
Within one year $3,000,000 5.48% $3,412,000 5.90%
Within two years 2,007,408 5.95% 3,000,000 5.47%
Within three years - - 2,404,528 6.12%
Within four years 1,000,000 6.08% - -
Five years and
thereafter 3,250,000 5.18% 1,000,000 6.08%
--------- ---------
$9,257,408 $9,816,528
========= =========
The Association's investment securities issued by the U.S. Government
and federal agencies, mortgage-backed securities and real estate
mortgage loans receivable with carrying values of approximately
$32,000,000 at December 31, 1998 are pledged as collateral for FHLB
advances.
(continued)
F-17
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
9. INCOME TAXES
The Association and subsidiary file a consolidated federal income tax
return. The consolidated provision for income taxes for 1998 and 1997
consists of the following: The difference between the statutory federal
income tax rate and the effective income tax rates are as follows:
1998 1997
------------- ----------------
(as restated)
Taxes currently payable
Federal $ 14,160 $ 72,890
State 8,842 16,272
Deferred taxes (benefit) (3,644) (10,458)
------------- ----------------
Total income tax expense $ 19,358 $ 78,704
============= ================
Effective income tax rate 16.18% 32.60%
============= ================
The difference between the statutory federal income tax rate and the
effective income tax rates are as follows:
1998 1997
------------- ------------------
(as restated)
Pre-tax income $ 119,674 $ 241,452
Expected tax provision at 34% rate 40,689 82,094
Tax-exempt interest income (15,292) (9,403)
Reserve for loan losses 13,640 (6,178)
State income tax, net of
federal income tax benefit 5,346 10,250
Reserve for uncollected interest (2,114) 5,735
Deferred loan fees (18,141) (10,023)
Other (4,770) 6,229
------------- ------------------
Actual income tax expense $ 19,358 $ 78,704
============= ==================
(continued)
F-18
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
9. INCOME TAXES (Cont'd)
The components of deferred tax assets (liabilities) at December 31, 1998
and 1997 are as follows:
1998 1997
------------ ------------------
(as restated)
Deferred loan fees $ 61,227 $ 79,368
Unrealized depreciation on securities
available-for-sale 7,254 -
Reserve for uncollected interest 5,552 7,666
Reserve for loan losses 54,514 40,874
Recapture of excess loan loss reserves (30,776) (41,035)
------------ ------------------
Net deferred tax asset $ 97,771 $ 86,873
============ ==================
The Association is permitted a special bad debt deduction for federal
income tax purposes which is limited generally to an amount calculated
under the experience method as defined in Section 585 of the Internal
Revenue Code. With the passage of the Small Business Jobs Protection Act
of 1996, thrift institutions are no longer permitted to use the
percentage of taxable income method of computing additions to their bad
debt reserves as provided for in Code Section 593. In addition, the
excess of the thrift's bad debt reserves over those permitted, as
defined under the provisions of the new Act, are required to be
recaptured into income for federal income tax purposes beginning in
calendar years after 1995 over a six year period. Excess reserves are
those reserves in excess of the base year reserves generally defined as
the balance of reserves as of December 31, 1987. In accordance with SFAS
109, "Accounting for Income Taxes", a deferred liability has not been
established for the tax bad debt base year reserve of the Association.
Therefore, retained earnings at December 31, 1998 and 1997 includes
approximately $703,000 representing such bad debt deductions for which
no deferred taxes have been provided. Reserves totaling $181,035 are
being recaptured into federal taxable income ratably over a six year
period that began in 1996.
No valuation allowance is considered necessary at December 31, 1998
and 1997.
(continued)
F-19
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
10. REGULATORY MATTERS
The Association is subject to various regulatory capital requirements
administered by its primary federal regulator, the Office of Thrift
Supervision (OTS). Failure to meet the minimum regulatory capital
requirements can initiate certain mandatory, and possible additional
discretionary actions by regulators, that if undertaken, could have a
direct material effect on the Association and the consolidated financial
statements. Under the regulatory capital adequacy guidelines and the
regulatory framework for prompt corrective action, the Association must
meet specific capital guidelines involving quantitative measures of the
Association's assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices. The Association's
capital amounts and classification are also subject to qualitative
judgements by the regulators about components, risk weightings, and
other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Association to maintain minimum amounts of ratios
of Total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined), and Tier 1 capital to assets (as
defined).
The following tables present a reconciliation of capital per generally
accepted accounting principles (GAAP) and regulatory capital and
information as to the Association's capital levels at the dates
presented (in thousands):
December December
31, 1998 31, 1997
-------- --------
GAAP equity $ 3,698 $ 3,565
Add: Unrealized losses on AFS securities
net of income taxes 14 -
-------- --------
Tangible and core capital 3,712 3,565
Add: General valuation allowance 166 126
-------- --------
Total regulatory capital $ 3,878 $ 3,691
======== ========
(continued)
F-20
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
10. REGULATORY MATTERS (Cont'd)
<TABLE>
December 31, 1998
--------------------------------------------------------------------------------------
To Be Well
Capitalized Under
Minimum Prompt Corrective
Actual Capital Requirements Action Provisions
----------------------- ------------------------- -----------------------------------
Amount Ratio Amount Ratio Amount Ratio
------------- --------- ------------ ------------- ------------------ -------------
(Thousands) (Thousands) (Thousands)
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk-
weighted assets) $ 3,878 19.23% $ 1,613 8.00% $ 2,017 10.00%
Tier 1 capital (to risk-
weighted assets) 3,712 18.41% - - 1,210 6.00%
Core (Tier 1) capital (to
adjusted total assets) 3,712 8.93% 1,622 4.00% 2,078 5.00%
Tangible equity (to
adjusted total assets) 3,712 8.93% 623 1.50% - -
December 31, 1997
------------------------------------------------------------------------------------
To Be Well
Capitalized Under
Minimum Prompt Corrective
Actual Capital Requirements Action Provisions
---------------------- ------------------------- ---------------------------------
Amount Ratio Amount Ratio Amount Ratio
------------- -------- ----------- ------------- ------------------ -------------
(Thousands) (Thousands) (Thousands)
Total capital (to risk- $ 3,691 17.90% $ 1,650 8.00% $ 2,062 10.00%
weighted assets)
Tier 1 capital (to risk- 3,565 17.29% - - $ 1,237 6.00%
weighted assets)
Core (Tier 1) capital (to
adjusted total assets) 3,565 9.56% 1,487 4.00% 1,859 5.00%
Tangible equity (to
adjusted total assets) 3,565 9.56% 558 1.50% - -
</TABLE>
(continued)
F-21
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
10. REGULATORY MATTERS (Cont'd)
As of November 30, 1998, the most recent notification from the OTS, the
Association was categorized as adequately capitalized under the
regulatory framework for prompt corrective action. There are no
conditions existing or events which have occurred since notification
that management believes have changed the institution's category.
11. PENSION PLAN
The Association has a qualified, noncontributory, fully insured defined
benefit pension plan which covers substantially all of the employees.
The benefits are primarily based on years of service and earnings. The
plan is fully insured through a contract with a life insurance company
and, as such, the benefits of the plan are covered by the insurance
contract. As a result, disclosure of the accumulated benefit
obligations, plan assets and the components of annual pension expense
required by Statement of Financial Accounting Standards No. 87,
"Employers' Accounting for Pensions" is not applicable.
The Association makes annual premium payments for plan years that
coincide with the Association's fiscal year. The Association has no
obligation for benefits covered by the plan other than the payment of
premiums due to the insurance company. Pension expense of the
Association, net of experienced-rated dividends for the years ended
December 31, 1998 and 1997 follows:
1998 1997
--------------- ---------------
Premium for plan year ended December 31, $ 67,096 $ 52,199
Experienced-rated dividends (15,712) (14,449)
--------------- ---------------
$ 51,384 $ 37,750
=============== ===============
12. RETIREMENT SAVINGS PLAN
The Association is a participant in the Financial Institutions Thrift
Plan. The plan covers substantially all employees and is in
participation with other institutions. The plan is a qualified 401(k)
salary deduction plan that permits participants to contribute up to 15%
of their salary to the plan. Additionally, the Association provides
matching contributions up to 6% of the participant salaries. For the
years ended December 31, 1998 and 1997, the Association's contributions
totaled $15,814 and $13,715.
(continued)
F-22
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
13. COMMITMENTS AND CONTINGENCIES
In the normal course of business, the Association has various
outstanding commitments and contingent liabilities that are not
reflected in the accompanying consolidated financial statements. The
financial commitments of the Association are as follows:
The Association has outstanding commitments to originate loans as
follows:
December 31,
----------------------------
1998 1997
--------------- -----------
First mortgage loans (fixed rate) $ 274,600 $208,800
=============== ===========
The range of interest rates on fixed rate first mortgage loan
commitments was 6.5% to 8.0% at December 31, 1998.
14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Association is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the
financial needs of its customers. These financial instruments consist of
commitments to extend credit. These instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in
the statement of financial position. The contract or notional amounts of
those instruments reflect the extent of involvement the Association has
in particular classes of financial instruments.
The Association's exposure to credit loss in the event of
non-performance by the other party to the financial instrument for
commitments to extend credit is represented by the contractual notional
amount of those instruments. The Association uses the same credit
policies in making commitments as it does for on-balance-sheet
instruments.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses. The Association evaluates each customer's
credit-worthiness on a case-by-case basis. The amount of collateral
obtained upon extension of credit is based on management's credit
evaluation of the counter party.
(continued)
F-23
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
15. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial Instruments" requires disclosure of fair value
information about financial instruments, whether or not recognized in
the statement of financial condition. In cases where quoted market
prices are not available, fair values are based on estimates using
present value or other valuation techniques. Those techniques are
significantly affected by the assumptions used, including the discount
rate and estimates of future cash flows. In that regard, the derived
fair value estimates cannot be substantiated by comparison to
independent markets and, in many cases, could not be realized in
immediate settlement of the instruments. Statement No. 107 excludes
certain financial instruments and all non-financial instruments from its
disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Association.
The following methods and assumptions were used by the Association in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents - The carrying amounts reported in the
statement of financial condition for cash and cash equivalents
approximate fair value.
Investment securities (including mortgage-backed securities) Fair
values for investment securities are based on quoted market
prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of
comparable instruments.
Loans - The fair values for loans are estimated using discounted
cash flow analysis, based on interest rates currently being
offered for loans with similar terms to borrowers of similar
credit quality. Loan fair value estimates include judgments
regarding future expected loss experience and risk
characteristics. The carrying amount of accrued interest
receivable approximates its fair value.
Federal Home Loan Bank Stock - No ready market exists for this
stock and it has no quoted market value. However, redemption of
this stock has historically been at par value. Accordingly, the
carrying amount is deemed to be a reasonable estimate of fair
value.
(continued)
F-24
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
15. FAIR VALUES OF FINANCIAL INSTRUMENTS (Cont'd)
Deposits - The fair values disclosed for demand deposits are, by
definition, equal to the amount payable on demand at the
reporting date (that is, their carrying amounts). The fair values
for certificates of deposit are estimated using a discounted cash
flow calculation that applies interest rates currently being
offered on certificates to a schedule of aggregated contractual
maturities on such time deposits. The carrying amount of accrued
interest payable approximates fair value.
Advances - The carrying amounts of advances from the Federal Home
Loan Bank are estimated using discounted cash flow analysis,
based on interest rates currently being offered for loans with
similar terms.
Commitments to extend credit - The fair value of these items
approximate their contractual amounts.
The carrying amounts and estimated fair values of the Association's
financial instruments at December 31, 1998 and 1997 are as follows:
<TABLE>
1998 1997
------------------------------ ----------------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
------------ ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Financial assets
Cash $433,414 $433,414 $298,564 $298,564
Interest-bearing
deposits 1,954,178 1,954,178 490,008 490,008
Investments
Available-for-sale 4,004,294 4,004,294 - -
Held-to-maturity 5,200,205 5,260,173 2,370,739 2,378,583
Loans receivable - net 27,784,386 28,324,393 32,118,391 32,772,000
Federal Home Loan
Bank stock 564,600 564,600 490,900 490,900
Financial liabilities
Deposits 28,272,431 28,492,224 23,467,695 23,506,660
Advances from Federal
Home Loan Bank 9,257,408 9,258,408 9,816,528 9,775,530
Off-balance sheet select
financial liabilities
Commitments to
originate loans 274,600 274,600 208,800 208,800
Unused lines of credit 201,000 201,000 115,000 115,000
</TABLE>
(continued)
F-25
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
15. FAIR VALUES OF FINANCIAL INSTRUMENTS (Cont'd)
The carrying amounts in the preceding table are included in the
Consolidated Statement of Financial Condition under the applicable
captions.
Fair value estimates are made at a specific point in time based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the entire holdings of a
particular financial instrument. Because no market exists for a
significant portion of the financial instruments, fair value estimates
are based on judgments regarding future expected loss experience,
current economic conditions, risk characteristics of various financial
instruments, and other factors. These estimates are subjective in
nature, involve uncertainties and matters of judgment and, therefore,
cannot be determined with precision. Changes in assumptions could
significantly affect the estimates.
Finally, reasonable comparability between financial institutions may not
be likely due to the wide range of permitted valuation techniques and
numerous estimates which must be made given the absence of active
secondary markets for many of the financial instruments. This lack of
uniform valuation methodologies introduces a greater degree of
subjectivity to these estimated fair values.
16. YEAR 2000 ISSUE
The Association has assessed and continues to assess the potential
impact that the year 2000 issue has on its operations. Procedures and
processes completed to date include upgrades or replacements of
non-compliant systems, testing of year 2000 compliant systems, and
development of contingency plans for each system deemed mission critical
to the Association. Costs of system upgrades or replacements have been
expensed or capitalized appropriately, as incurred. Anticipated costs to
upgrade or replace the Association's software or systems related to year
2000 compliance is not expected to exceed $50,000 in 1999. Although it
is not possible to quantify the effects year 2000 compliance issues will
have on customers or suppliers, the Association does not anticipate
related material adverse effects on its financial condition or results
of operations.
(continued)
F-26
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
17. PLAN OF CONVERSION
On January 27, 1999, the Board of Directors of the Association, subject
to regulatory approval, ratified a Plan of Conversion (the "plan") to
convert from a federally chartered mutual savings institution to a
federally chartered stock savings institution. The Association will
become a wholly owned subsidiary of a concurrently formed holding
company. The plan provides that the holding company will offer
nontransferable subscription rights to purchase common stock of the
holding company. The rights will be offered first to eligible account
holders, the employee stock ownership plan, which will be formed
concurrently with the reorganization, supplemental eligible account
holders and other members. Any shares remaining may then be offered to
the general public.
Costs associated with the conversion will be deferred and deducted from
the proceeds of the stock offering. If, for any reason, the offering is
not successful, the deferred costs will be charged to operations. As of
December 31, 1998 there were $5,000 of costs associated with the
conversion that have been deferred and presented as other assets.
18. PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The Association's financial statements as of December 31, 1997 have been
restated to reflect the deferred tax effects of certain temporary
differences between book and tax reserves. The effect of the restatement
is as follows:
As Previously
Reported As
Restated
--------------- ---------------
Statement of financial condition
Deferred tax assets $ 40,005 $86,873
Retained earnings 3,565,387 3,612,255
Additionally, the consolidated statement of changes in equity reflects an
increase in the Association's retained earnings of $40,657 as of January
1, 1997.
(continued)
F-27
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
19. IMPACT OF NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No 131, "Disclosures
about Segments of an Enterprise and Related Information" (Statement No.
131), which changes the way public companies report information about
segments of their businesses and requires them to report selected
segment information in their quarterly reports issued to stockholders.
Among other things, Statement No. 131 requires public companies to
report (1) certain financial and descriptive information about their
reportable operating segments (as defined), and (2) certain
enterprise-wide financial information about products and services,
geographic areas and major customers. The required segment financial
disclosures include a measure of profit or loss, certain specific
revenue and expense items, and total assets. Statement No. 131 is
effective for reporting by public companies in fiscal years beginning
after December 15, 1997 and, accordingly, would be adopted by the
Association upon completion of its conversion. Statement No. 131 is not
expected to have a significant impact on the Association's financial
reporting.
In February 1998, the FASB issued SFAS No. 132, "Employers' Disclosures
about Pensions and Other Postretirement Benefits." The statement
addresses disclosures only. The disclosure requirements of SFAS No. 132
are effective for fiscal years beginning after December 15, 1997 and
have had no impact on the financial condition or operations of the
Association.
In June 1998, FASB issued SFAS No. 133, "Accounting for Derivative
Instruments Hedging Activities". SFAS No. 133 establishes accounting and
reporting standards for derivative instruments and for hedging
activities. It requires an entity to recognize all derivatives as either
assets or liabilities in the statement of financial position and measure
those instruments at fair value. In addition, certain provisions of this
statement will permit, at the date of initial adoption of the statement,
the transfer of any held-to-maturity security into either the
available-for-sale or trading category and the transfer of any
available-for-sale security into the trading category. Transfers from
the held-to-maturity portfolio at the date of initial adoption will not
call into question the entity's intent to hold other debt securities to
maturity in the future. SFAS No. 133 is effective for fiscal quarters
beginning after June 15, 1999 and is not expected to have a material
impact on the Association. The Association does not intend to adopt SFAS
No. 133 earlier than required.
(continued)
F-28
<PAGE>
MECHANICS SAVINGS AND LOAN, FSA
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Cont'd)
19. IMPACT OF NEW ACCOUNTING STANDARDS (Cont'd)
In October 1998, the FASB issued SFAS No. 134, "Accounting for
Mortgaged-Backed Securities Retained after the Securitization of
Mortgage Loans Held for Sale by a Mortgage Banking Enterprise." SFAS No.
134 amends FASB Statement No. 65,"Accounting for Certain Mortgage
Banking Activities" as previously amended by FASB Statements No. 115,
"Accounting for Certain Investment in Debt and Equity Securities" and
FASB No. 125, "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities" to require that after the
securitization of mortgage loans held for sale, an entity engaged in
mortgage banking activities classify the resulting mortgage-backed
securities or other retained interests based on its ability and intent
to sell or hold those investments. SFAS No. 134 conforms the subsequent
accounting for securities retained after the securitization of mortgage
loans by a mortgage banking enterprise with the subsequent accounting
for securities retained after the securitization of other types of
assets by a non-mortgage banking enterprise. This statement is effective
for the first fiscal quarter beginning after December 15, 1998 and is
not expected to have a material impact on the Association.
F-29
<PAGE>
You should rely only on the information contained in this document. We have not
authorized anyone to provide you with information that is different. This
document does not constitute an offer to sell, or the solicitation of an offer
to buy, any of the securities offered hereby to any person in any jurisdiction
in which such offer or solicitation would be unlawful. The affairs of Mechanics
Savings and Loan, FSA or Steelton Bancorp, Inc. may change after the date of
this prospectus. Delivery of this document and the sales of shares made
hereunder does not mean otherwise.
TABLE OF CONTENTS
Page
----
Summary..........................................................
Risk Factors.....................................................
The Conversion...................................................
The Offering.....................................................
Mechanics Savings and Loan, FSA .................................
Steelton Bancorp, Inc............................................
Use of Proceeds..................................................
Dividend Policy..................................................
Market for the Stock.............................................
Capitalization...................................................
Pro Forma Data...................................................
Historical and Pro Forma Capital Compliance......................
Selected Financial and Other Data................................
Management's Discussion and Analysis of
Financial Condition and Results of Operations...................
Business of Steelton Bancorp, Inc................................
Business Mechanics Savings and Loan, FSA ........................
Regulation.......................................................
Taxation.........................................................
Management.......................................................
Restrictions on Acquisition of Steelton Bancorp, Inc.............
Description of Capital Stock.....................................
Legal and Tax Opinions...........................................
Experts..........................................................
Registration Requirements........................................
Where You Can Find Additional Information........................
Index to Consolidated Financial Statements.......................
Until the later of ______________________ or 90 days after commencement of the
offering, all dealers effecting transactions in 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.
Steelton Bancorp, Inc.
-------------------
PROSPECTUS
-------------------
Capital Resources, Inc.
__________ ____, 1999
THESE SECURITIES ARE NOT DEPOSITS OR
SAVINGS ACCOUNTS AND ARE NOT
FEDERALLY INSURED OR GUARANTEED.
<PAGE>
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Officers and Directors.
Sections 1741 through 1747 of the Pennsylvania Business Corporation Act
sets forth circumstances under which directors, officers, employees and agents
may be insured or indemnified against liability which they may incur in their
capacities as such.
The Articles of Incorporation of Steelton Bancorp, Inc. (the
"Articles"), attached as Exhibit 3(i) hereto, require indemnification of
directors, officers and employees to the fullest extent permitted by
Pennsylvania law.
Steelton Bancorp, Inc. (the "Company") may purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the Company or is or was serving at the request of the Company as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him
and incurred by him in any such capacity or arising out of his status as such,
whether or not the Company would have the power to indemnify him against such
liability under the provisions of the Articles.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND CONVERSION
* Special counsel and local counsel legal fees............ $ 55,000
* Printing and postage.................................... 35,000
* Appraisal/Business Plan................................. 25,000
* Accounting fees......................................... 30,000
* Data processing/Conversion agent........................ 10,000
* SEC Registration Fee.................................... 2,000
* OTS Filing Fees......................................... 8,400
* SEC EDGAR Filings....................................... 8,000
* Blue Sky legal and filing fees.......................... 10,000
* Underwriting fees, including expenses and legal fees.... 100,000
* Stock Certificates...................................... 1,000
* Transfer Agent.......................................... 5,000
* Reimbursable and other expenses......................... 20,600
-------
* TOTAL $310,000
=======
- -----------------
* Estimated.
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
Not Applicable
Item 27. Exhibits:
The exhibits filed as part of this Registration Statement are
as follows:
1 Form of Sales Agency Agreement with Capital Resources, Inc.
2 Plan of Conversion of Mechanics Savings & Loan, FSA
3(i) Articles of Incorporation of Steelton Bancorp, Inc.
3(ii) Bylaws of Steelton Bancorp, Inc.
4 Specimen Stock Certificate of Steelton Bancorp, Inc.
5.1 Opinion of Malizia, Spidi, Sloane & Fisch, P.C. regarding legality of
securities registered
5.2 Opinion of FinPro, Inc. as to the value of subscription rights
8.1 Federal Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
8.2 State Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
10.1 Form of Employment Agreement between the Bank and Harold E. Stremmel
23.1 Consent of Malizia, Spidi, Sloane & Fisch, P.C. (contained in its
opinions filed as Exhibits 5.1, 8.1 and 8.2)
23.2 Consent of McKonly & Asbury, LLP
23.3 Consent of FinPro, Inc.
24 Power of Attorney (reference is made to the signature page)
27 Financial Data Schedule*
99.1 Stock Order Form
99.2 Marketing Materials
- ------------------------------
* Electronic filing only
Item 28. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which it offers or sells securities, a
post-effective amendment to this registration statement to:
(i) Include any prospectus required by Section 10(a)(3) of the Securities
Act of 1933 ("Securities Act");
(ii) Reflect in the prospectus any facts or events which individually or
together, represent a fundamental change in the information in the registration
statement. Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would not
exceed that which was registered) and any deviation from the low or high end of
the estimated maximum offering range may be reflected in the form of prospectus
filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than a 20 percent change in the
maximum offering price set forth in the "Calculation of Registration Fee" table
in the effective registration statement.
<PAGE>
(iii) Include any additional or changed material information on the plan of
distribution.
(2) For determining liability under the Securities Act, the undersigned
registrant shall 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) The undersigned registrant shall file a post-effective amendment to
remove from registration any of the securities that remain unsold at the end of
the offering.
(4) The undersigned registrant hereby undertakes to provide 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.
(5) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act, and is therefore, unenforceable. In the event that a
claim for indemnification against 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 Securities Act and will be governed by the final adjudication
of such issue.
<PAGE>
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 for filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in Steelton,
Pennsylvania, on March 11, 1999.
By: /s/ Harold E. Stremmel
---------------------------------------------
Harold E. Stremmel
President and Chief Executive Officer and
Director
(Duly Authorized Representative)
We the undersigned directors and officers of Steelton Bancorp, Inc. do
hereby severally constitute and appoint Harold E. Stremmel our true and lawful
attorney and agent, to do any and all things and acts in our names in the
capacities indicated below and to execute all instruments for us and in our
names in the capacities indicated below which said Harold E. Stremmel may deem
necessary or advisable to enable Steelton Bancorp, Inc. to comply with the
Securities Act of 1933, as amended, and any rules, regulations and requirements
of the Securities and Exchange Commission, in connection with the registration
statement on Form SB-2 relating to the offering of Steelton Bancorp, Inc. common
stock, including specifically but not limited to, power and authority to sign
for us or any of us, in our names in the capacities indicated below, the
registration statement and any and all amendments (including post-effective
amendments) thereto; and we hereby ratify and confirm all that Harold E.
Stremmel shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities indicated as of March 11, 1999.
/s/ Marino Falcone /s/ Harold E. Stremmel
- -------------------------------- ---------------------------------
Marino Falcone Harold E. Stremmel
Chairman of the Board President and Chief Executive Officer
and Director
(Principal Executive Officer)
/s/ James F. Stone /s/ James S. Nelson
- -------------------------------- ---------------------------------
James F. Stone James S. Nelson
Vice President and Director Senior Vice President and Director
/s/ Shannon Aylesworth /s/ Victor J. Segina
- -------------------------------- ---------------------------------
Shannon Aylesworth Victor J. Segina
Chief Financial Officer Secretary and Director
(Principal Accounting
and Financial Officer)
/s/ Joseph A. Wiedeman /s/ Richard E. Farina
- -------------------------------- ---------------------------------
Joseph A. Wiedeman Richard E. Farina
Treasurer and Director Director
<PAGE>
As filed with the Securities and Exchange Commission on March 11, 1999
Registration No. 333-_______
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
EXHIBITS TO
FORM SB-2
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
Steelton Bancorp, Inc.
- --------------------------------------------------------------------------------
(Exact name of Small Business Issuer as specified in charter)
Pennsylvania 6035 Requested
- ------------------- --------------- -------------------
(State or other jurisdiction (Primary SIC No.) (I.R.S. Employer
of incorporation or Identification No.)
organization)
51 South Front Street, Steelton, Pennsylvania 17113
(717) 939-1966
- --------------------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code, of
principal executive offices and principal place of business)
Mr. Harold E. Stremmel
President and Chief Executive Officer
Steelton Bancorp, Inc.
51 South Front Street, Steelton, Pennsylvania 17113
(717) 939-1966
- --------------------------------------------------------------------------------
(Name, address and telephone number of agent for service)
Please send copies of all communications to:
Samuel J. Malizia, Esq.
Gregory A. Gehlmann, Esq.
Tiffany A. Henricks, Esq.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
1301 K Street, N.W., Suite 700 East, Washington, D.C. 20005
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO
THE PUBLIC: As soon as practicable after this registration
statement becomes effective.
<PAGE>
INDEX TO EXHIBITS TO FORM SB-2
Exhibit
1 Form of Sales Agency Agreement with Capital Resources, Inc.
2 Plan of Conversion of Mechanics Savings & Loan, FSA
3(i) Articles of Incorporation of Steelton Bancorp, Inc.
3(ii) Bylaws of Steelton Bancorp, Inc.
4 Specimen Stock Certificate of Steelton Bancorp, Inc.
5.1 Opinion of Malizia, Spidi, Sloane & Fisch, P.C. regarding legality of
securities registered
5.2 Opinion of FinPro, Inc. as to the value of subscription rights
8.1 Federal Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
8.2 State Tax Opinion of Malizia, Spidi, Sloane & Fisch, P.C.
10.1 Form of Employment Agreement between the Bank and Harold E. Stremmel
23.1 Consent of Malizia, Spidi, Sloane & Fisch, P.C. (contained in its opinions
filed as Exhibits 5.1, 8.1 and 8.2)
23.2 Consent of McKonly & Asbury, LLP
23.3 Consent of FinPro, Inc.
24 Power of Attorney (reference is made to the signature page)
27 Financial Data Schedule*
99.1 Stock Order Form
99.2 Marketing Materials
- --------------------------
* Electronic filing only
369,750 - 500,250 Shares
(subject to increase up to 575,288 shares
in the event of an oversubscription)
STEELTON BANCORP, INC.
(a Pennsylvania corporation)
COMMON STOCK
($0.10 Par Value Per Share)
Subscription Price: $10.00 Per Share
AGENCY AGREEMENT
_______________ , 1999
Capital Resources, Inc.
1211 Connecticut Avenue, N.W.
Suite 200
Washington, D.C. 20036
Ladies and Gentlemen:
Steelton Bancorp, Inc. (the "Company") and Mechanics Savings and Loan,
FSA, a federally chartered mutual savings and loan association (the
"Association"), with its deposit accounts insured by the Savings Association
Insurance Fund ("SAIF") administered by the Federal Deposit Insurance
Corporation ("FDIC"), hereby confirm their agreement with Capital Resources,
Inc. ("Capital Resources") as follows:
SECTION 1. The Offering. The Association, in accordance with and
pursuant to its plan of conversion adopted by the Board of Directors of the
Association (the "Plan"), intends to be converted from a federally chartered
mutual savings and loan association to a federally chartered stock savings and
loan association and will sell all of its issued and outstanding stock to the
Company. The Company will offer and sell its common stock (the "Common Stock")
in a subscription offering ("Subscription Offering") to (1) depositors of the
Association as of December 31, 1997 ("Eligible Account Holders"), (2) tax
qualified employee benefit plans of the Association, (3) depositors of the
Association as of March 31, 1999 ("Supplemental Eligible Account Holders"), and
(4) certain other members of the Association ("Other Members") pursuant to
rights to subscribe for shares of Common Stock (the "Shares"). Subject to the
prior subscription rights of the above-listed parties, and, depending on market
conditions, the Company may also offer the Common Stock for sale to persons
residing in communities near the Association's Offices in a community offering
and syndicated community offering (the "Community Offering") conducted after the
Subscription Offering and the Company may offer its Common Stock for sale in a
public offering to selected persons (the "Public Offering,") conducted after the
Community Offering. The Public Offering, the Community Offering and Subscription
Offering are refereed to collectively as the "Offering," and all such Offerees
being referred to in the aggregate as "Eligible Offerees." Shares may also be
sold in the Public Offering by a selling group of broker-dealers organized and
managed by Capital Resources. It is acknowledged that the purchase of Shares in
the Offering is subject to maximum and minimum purchase limitations as described
in the Plan and that the Company may reject in whole or in part any
subscriptions received from subscribers in the Public Offering or Direct
Community Offering.
<PAGE>
The Company and the Association desire to retain Capital Resources to
assist the Company with its sale of the Shares in the Offering. By and through
this Agreement, the Company and the Association confirm the retention of Capital
Resources to assist the Company and the Association during the Offering.
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form SB-2 (File No.___________)
containing an offering prospectus relating to the Offering for the registration
of the Shares under the Securities Act of 1933, as amended (the "1933 Act"), and
has filed such amendments thereto, if any, and such amended prospectuses as may
have been required to the date hereof (the "Registration Statement"). The
prospectus, as amended, included in the Registration Statement at the time it
initially becomes effective, is hereinafter called the "Offering Prospectus",
except that if any prospectus is filed by the Company pursuant to Rule 424(b) or
(c) of the rules and regulations of the Commission under the 1933 Act (the "1933
Act Regulations") differing from the offering prospectus included in the
Registration Statement at the time it initially becomes effective, the term
"Offering Prospectus" shall refer to the offering prospectus filed pursuant to
Rule 424(b) or (c) from and after the time said offering prospectus is filed
with or mailed to the Commission for filing.
In accordance with Title 12, Part 563b of the Code of Federal
Regulations (the "Conversion Regulations"), the Association has filed with the
Office of Thrift Supervision (the "OTS") an Application for Approval of
Conversion on Form AC (the "Conversion Application") including the Offering
Prospectus and has filed such amendments thereto, if any, as may have been
required by the OTS. The Conversion Application has been approved by the OTS.
The Company has filed with the OTS its application on Form H-(e)1-S (the
"Holding Company Application") to acquire the Association under the Home Owners'
Loan Act, as amended (12 U.S.C. '1467a) ("HOLA").
SECTION 2. Retention of Capital Resources; Compensation; Sale and Delivery
of the Shares. Subject to the terms and conditions herein set forth, the Company
and the Association hereby appoint Capital Resources as their agent to advise
and assist the Company and the Association with the Company's sale of the Shares
in the Offering.
On the basis of the representations, warranties, and agreements herein
contained, but subject to the terms and conditions herein set forth, Capital
Resources accepts such appointment and agrees to consult with and advise the
Company and the Association as to matters relating to the Conversion and the
Offering. It is acknowledged by the Company and the Association that Capital
Resources shall not be required to purchase any Shares and shall not be
obligated to take any action which is inconsistent with any applicable laws,
regulations, decisions or orders. If requested by the Company or the
Association, Capital Resources also may assemble and manage a selling group of
broker dealers which are members of the National Association of Securities
Dealers, Inc. (the "NASD") to participate in the solicitation of purchase orders
for Shares under a selected dealers' agreement ("Selected Dealers' Agreement").
A form of Selected Dealers' Agreement is annexed as Exhibit B. The obligations
of Capital Resources pursuant to this Agreement shall terminate upon the
completion or termination or abandonment of the Plan by the Company or the
Association, or if the terms of the Conversion are substantially amended so as
to materially and adversely change the role of Capital Resources, but in no
event later than 45 days after the completion of the Offering (the "End Date").
All fees due to Capital Resources but unpaid will be payable to Capital
Resources in next day funds at the earlier of the Closing Date (as hereinafter
defined) or the End Date. In the event the Offering is extended beyond the End
Date, the Company, the Association and Capital Resources may agree to renew this
Agreement under mutually acceptable terms.
In the event the Company is unable to sell a minimum of $3,697,500 of
Common Stock within the period herein provided, this Agreement shall terminate,
and the Company shall refund to any persons who have subscribed for any of the
Shares, the full amount which it may have received from them plus accrued
interest as
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set forth in the Offering Prospectus; and none of the parties to this Agreement
shall have any obligation to the other parties hereunder, except as set forth in
this Section 2 and in Sections 7, 9 and 10 hereof.
In the event the closing does not occur, the Conversion is terminated
or otherwise abandoned, or the terms of the Conversion are substantially amended
so as to materially and adversely change the role of Capital Resources, Capital
Resources shall be entitled to retain any compensation already received for
consulting services prior to the closing, and shall be reimbursed for all
reasonable legal fees and actual, accountable out-of-pocket expenses subject to
the limits set forth in paragraph (b) below for rendering financial advice to
the Association concerning the structure of the Conversion, preparing a market
and financial analysis, performing due diligence and assisting in the
preparation of the Application for Conversion and the Registration Statement,
which shall be paid upon such termination, abandonment or amendment or within
five days of such event.
If all conditions precedent to the consummation of the Conversion,
including, without limitation, the sale of all Shares required by the Plan to be
sold, are satisfied, the Company agrees to issue or have issued the Shares sold
in the Offering and to release for delivery certificates for such Shares on the
Closing Date (as hereinafter defined) against payment to the Company by any
means authorized by the Plan, provided, however, that no certificates shall be
released for such shares until the conditions specified in Section 7 hereof
shall have been complied with to the reasonable satisfaction of Capital
Resources and its counsel. The release of Shares against payment therefor shall
be made on a date and at a time and place acceptable to the Company, the
Association and Capital Resources. The date upon which the Company shall release
or deliver the Shares sold in the Offering, in accordance with the terms hereof,
is herein called the "Closing Date."
Capital Resources shall receive the following compensation for its
services hereunder:
(a) a marketing fee in the amount of $75,000 (of which $15,000 was paid on
execution of the engagement letter dated January 25, 1999 and $15,000 was paid
on regulatory approval of the Conversion Application for consulting work
performed prior to the Offering, and the balance will be paid upon closing of
the Conversion).
(b) Capital Resources shall be reimbursed for all reasonable
out-of-pocket expenses, including, but not limited to, legal fees, travel,
communications and postage, incurred by it whether or not the Conversion is
successfully completed as set forth in Section 7 hereof. Reimbursement for
Capital Resources' legal and other expenses shall not exceed $25,000, unless
otherwise approved by the Association. Capital Resources shall be reimbursed
promptly for all out-of-pocket expenses upon receipt by the Company or the
Association of a monthly itemized bill summarizing such expenses since the date
of the last bill, if any, to the date of the current bill.
(c) In the event other broker-dealers are assembled and managed by Capital
Resources to participate in the sale of the shares pursuant to a Selected
Dealers' Agreement or other arrangement, the Company and the Association will
enter into a separate agreement for the payment of selected dealers'
commissions.
All subscription funds received by Capital Resources (and if by check
shall be made payable to the Company) or by other NASD registered broker-dealers
soliciting subscriptions (if any) shall be transmitted (either by U.S. Mail or
similar type of transmittal) to the Company by noon of the following business
day.
SECTION 3. Offering Prospectus; the Offering. The Shares are to be offered
in the Offering at the Purchase Price as set forth on the cover page of the
Offering Prospectus.
SECTION 4. Representations and Warranties. The Company and the Association
jointly and severally represent and warrant to Capital Resources as follows:
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(a) The Registration Statement was declared effective by the Commission on
__________, 1999. At the time the Registration Statement, including the Offering
Prospectus contained therein (including any amendment or supplement thereto),
became effective, the Registration Statement complied in all material respects
with the requirements of the 1933 Act and the 1933 Act Regulations and the
Registration Statement, including the Offering Prospectus contained therein
(including any amendment or supplement thereto), any Blue Sky Application or any
Sales Information (as such terms are defined previously herein or in Section 8
hereof) authorized by the Company or the Association for use in connection with
the Offering did not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and at the time any Rule 424(b) or (c) Offering Prospectus was
filed with the Commission for filing and at the Closing Date referred to in
Section 2, the Registration Statement including the Offering Prospectus
contained therein (including any amendment or supplement thereto), any Blue Sky
Application or any Sales Information (as such terms are defined previously
herein or in Section 8 hereof) authorized by the Company or the Association for
use in connection with the Offering will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the representations and warranties
in this Section 4(a) shall not apply to statements in or omissions from such
Registration Statement or Offering Prospectus made in reliance upon and in
conformity with written information furnished to the Company or the Association
by Capital Resources expressly regarding Capital Resources for use under the
caption "The Offering-Plan of Distribution/Marketing Arrangements."
(b) The Conversion Application, including the Offering Prospectus, was
approved by the OTS on _____________, 1999. At the time of the approval of the
Conversion Application, including the Offering Prospectus, by the OTS (including
any amendment or supplement thereto) and at all times subsequent thereto until
the Closing Date, the Conversion Application, including the Offering Prospectus,
will comply in all material respects with the Conversion Regulations and any
other rules and regulations of the OTS. The Conversion Application, including
the Offering Prospectus (including any amendment or supplement thereto), does
not include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that representations or warranties in this
Section 4(b) shall not apply to statements or omissions made in reliance upon
and in conformity with written information furnished to the Association by
Capital Resources expressly regarding Capital Resources for use in the Offering
Prospectus contained in the Conversion Application under the caption "The
Offering-Plan of Distribution/Marketing Arrangements."
(c) The Company has filed with the OTS the Holding Company Application and
will have received from the OTS, as of the Closing Date, approval of its
acquisition of the Association.
(d) No order has been issued by the OTS, the Commission, the FDIC (and
hereinafter reference to the FDIC shall include the BIF), or to the best
knowledge of the Company or the Association any State regulatory or Blue Sky
authority, preventing or suspending the use of the Offering Prospectus and no
action by or before any such government entity to revoke any approval,
authorization or order of effectiveness related to the Conversion is, to the
best knowledge of the Association or the Company, pending or threatened.
(e) At the Closing Date referred to in Section 2, the Plan will have been
adopted by the Board of Directors of both the Company and the Association, the
Company and the Association will have completed in all material respects the
conditions precedent to the Conversion and the offer and sale of the Shares will
have been conducted in all material respects in accordance with the Plan, the
Conversion Regulations and all other applicable laws, regulations, decisions and
orders, including all terms, conditions, requirements and provisions
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precedent to the Conversion imposed upon the Company or the Association by the
OTS, the Commission or any other regulatory authority and in all materials
respects in the manner described in the Offering Prospectus. At the Closing
Date, no person will have sought to obtain review of the final action of the
OTS, to the knowledge of the Company or the Association, in approving the Plan
or in approving the Conversion or the Company's application to acquire all of
the capital stock and control of the Association pursuant to the HOLA or any
other statute or regulation.
(f) The Association is now a duly organized and validly existing
federally chartered savings and loan association in mutual form of organization
and upon the Conversion will become a duly organized and validly existing
federally chartered savings and loan association in capital stock form of
organization, in both instances duly authorized to conduct its business and own
its property as described in the Registration Statement and the Offering
Prospectus; the Company and the Association have obtained all material licenses,
permits and other governmental authorizations currently required for the conduct
of their respective businesses; all such licenses, permits and governmental
authorizations are in full force and effect, and the Company and the Association
are in all material respects complying with all laws, rules, regulations and
orders applicable to the operation of their businesses; and the Association is
in good standing under the laws of the United States and is duly qualified as a
foreign corporation to transact business and is in good standing in each
jurisdiction in which its ownership of property or leasing of properties or the
conduct of its business requires such qualification, unless the failure to be so
qualified in one or more of such jurisdictions would not have a material adverse
effect on the condition, financial or otherwise, or the business, operations or
income of the Association. The Association does not own equity securities or any
equity interest in any other business enterprise except as described in the
Offering Prospectus. Upon the completion of the Conversion of the Association to
a federally chartered stock savings bank pursuant to the Plan, (i) all of the
authorized and outstanding capital stock of the Association will be owned by the
Company, and (ii) the Company will have no direct subsidiaries other than the
Association. The Conversion will have been effected in all material respects in
accordance with all applicable statutes, regulations, decisions and orders; and
except with respect to the filing of certain post-sale, post-conversion reports
and documents in compliance with the 1933 Act Regulations or the OTS's
resolutions or letters of approval. All terms, conditions, requirements and
provisions with respect to the Conversion imposed by the Commission, the OTS and
the FDIC, if any, will have been complied with by the Company and the
Association in all material respects or appropriate waivers will have been
obtained and all material notice and waiting periods will have been satisfied,
waived or elapsed.
(g) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the Commonwealth of Pennsylvania
with corporate power and authority to own, lease and operate its properties and
to conduct its business as described in the Registration Statement and the
Offering Prospectus, and the Company is qualified to do business as a foreign
corporation in any jurisdiction in which the conduct of its business requires
such qualification, except where the failure to so qualify would not have a
material adverse effect on the business of the Company.
(h) The Association is a member of the Federal Home Loan Bank of Pittsburgh
("FHLBPB"); and the deposit accounts of the Association are insured by the FDIC
up to the applicable limits. Upon consummation of the Conversion, the
liquidation account for the benefit of Eligible Account Holders and Supplemental
Eligible Account Holders will be duly established in accordance with the
requirements of the Conversion Regulations.
(i) The Company and the Association have good and marketable title to all
assets owned by them which are material to the business of the Company and the
Association and to those assets described in the Registration Statement and
Offering Prospectus as owned by them, free and clear of all liens, charges,
encumbrances or restrictions, except such as are described in the Registration
Statement and Offering Prospectus or are not materially significant or important
in relation to the business of the Company and the Association; and
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all of the leases and subleases material to the business of the Company and the
Association under which the Company or the Association holds properties,
including those described in the Registration Statement and Offering Prospectus,
are in full force and effect.
(j) The Association has received an opinion of its counsel, Malizia,
Spidi, Sloane & Fisch, P.C., with respect to the federal income tax consequences
of the Conversion of the Association from mutual to stock form, the acquisition
of the capital stock of the Association by the Company, the sale of the Shares,
and the reorganization of the Association as described in the Registration
Statement and the Offering Prospectus and an opinion from Malizia, Spidi, Sloane
& Fisch, P.C. with respect to the Commonwealth of Pennsylvania income tax
consequences of the proposed transaction; all material aspects of the opinions
of Malizia, Spidi, Sloane & Fisch, P.C. are accurately summarized in the
Offering Prospectus; and the facts and representations upon which such opinions
are based are truthful, accurate and complete, and neither the Association nor
the Company will take any action inconsistent therewith.
(k) The Company and the Association have all such power, authority,
authorizations, approvals and orders as may be required to enter into this
Agreement, to carry out the provisions and conditions hereof and to issue and
sell the Capital Stock of the Association to the Company and Shares to be sold
by the Company as provided herein and as described in the Offering Prospectus.
The consummation of the Conversion, the execution, delivery and performance of
this Agreement and the consummation of the transactions herein contemplated have
been duly and validly authorized by all necessary corporate action on the part
of the Company and the Association and this Agreement has been validly executed
and delivered by the Company and the Association and is the valid, legal and
binding agreement of the Company and the Association enforceable in accordance
with its terms (except as the enforceability thereof may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws relating to
or affecting the enforcement of creditors' rights generally or the rights of
creditors of savings and loan holding companies, the accounts of whose
subsidiaries are insured by the FDIC or by general equity principles regardless
of whether such enforceability is considered in a proceeding in equity or at
law, and except to the extent, if any, that the provisions of Sections 9 and 10
hereof may be unenforceable as against public policy or pursuant to Section 23A
of the Federal Reserve Act).
(l) The Company and the Association have conducted their businesses in
compliance in all material respects with all applicable federal and state laws,
rules, and regulations of the OTS, the FDIC, and the Commission. The Company and
the Association are not in violation of any directive which has been delivered
to the Company or the Association, or of which management of the Company or the
Association has actual knowledge from the OTS, the Commission, the FDIC or any
other agency to make any material change in the method of conducting their
businesses so as to comply in all material respects with all applicable statutes
and regulations (including, without limitation, regulations, decisions,
directives and orders of the OTS, the Commission and the FDIC) and except as set
forth in the Registration Statement and the Offering Prospectus, there is no
suit or proceeding or, to the knowledge of the Company or the Association,
charge, investigation or action before or by any court, regulatory authority or
governmental agency or body, pending or, to the knowledge of the Company or the
Association, threatened, which might materially and adversely affect the
Conversion, the performance of this Agreement or the consummation of the
transactions contemplated in the Plan and as described in the Registration
Statement or which might result in any material adverse change in the condition
(financial or otherwise), earnings, capital, properties, business affairs or
business prospects of the Company or the Association, considered as one
enterprise, or which would materially affect their properties and assets.
(m) The financial statements which are included in the Registration
Statement and which are part of the Offering Prospectus fairly present the
financial condition, results of operations, retained earnings and cash flows of
the Association at the respective dates thereof and for the respective periods
covered thereby, and comply as to form in all material respects with the
applicable accounting requirements of Title 12 of the Code of Federal
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Regulations and generally accepted accounting principles ("GAAP") (including
those requiring the recording of certain assets at their current market value).
Such financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied through the periods
involved, present fairly in all material respects the information required to be
stated therein and are consistent with the most recent financial statements and
other reports filed by the Association with the OTS and the FDIC, except that
accounting principles employed in such filings conform to requirements of such
authorities and not necessarily to generally accepted accounting principles. The
other financial, statistical and pro forma information and related notes
included in the Offering Prospectus present fairly the information shown therein
on a basis consistent with the audited and unaudited financial statements, if
any, of the Association included in the Offering Prospectus, and as to the pro
forma adjustments, the adjustments made therein have been properly applied on
the basis described therein.
(n) Since the respective dates as of which information is given in the
Registration Statement and the Offering Prospectus, except as may otherwise be
stated therein: (i) there has not been any material adverse change in the
financial condition of the Company or the Association, or of the Company and the
Association considered as one enterprise, or in the earnings, capital,
properties, business affairs or business prospects of the Company or the
Association, whether or not arising in the ordinary course of business, (ii)
there has not been (A) an increase of greater than $_________ in the long term
debt of the Association or (B) an increase of $_________, in non performing
assets (consisting of accruing loans past due 90 days or more, non-accruing
loans and foreclosed assets) or (C) a decrease of $__________ or more in the
allowance for loan losses or (D) any decrease in total equity or (E) a decrease
in net income from December 31, 1998 to date when compared to the like period in
1998 or (F) any change in total assets of the Association in an amount greater
than $____________ (excluding the proceeds of stock subscriptions) or (H) any
other material change which would require an amendment to the Offering
Prospectus; (iii) the Association has not issued any securities or incurred any
liability or obligation for borrowing other than in the ordinary course of
business; (iv) there have not been any material transactions entered into by the
Company or the Association, except with respect to those transactions entered
into in the ordinary course of business; and (v) the capitalization,
liabilities, assets, properties and business of the Company and the Association
conform in all material respects to the descriptions thereof contained in the
Offering Prospectus, and neither the Company nor the Association have any
material liabilities of any kind, contingent or otherwise, except as set forth
in the Offering Prospectus.
(o) As of the date hereof and as of the Closing Date, neither the
Company nor the Association is in violation of its certificate of incorporation
or charter, respectively, or its bylaws (and the Association will not be in
violation of its charter or bylaws in capital stock form as of the Closing Date)
or in default in the performance or observance of any material obligation,
agreement, covenant, or condition contained in any contract, lease, loan
agreement, indenture or other instrument to which it is a party or by which it,
or any of its property may be bound which would result in a material adverse
change in the condition (financial or otherwise), earnings, capital, properties,
business affairs or business prospects of the Company or Association or which
would materially affect their properties or assets. The consummation of the
transactions herein contemplated will not (i) conflict with or constitute a
breach of, or default under, the certificate of incorporation and bylaws of the
Company, the charter and bylaws of the Association (in either mutual or capital
stock form), or any material contract, lease or other instrument to which the
Company or the Association has a beneficial interest, or any applicable law,
rule, regulation or order; (ii) violate any authorization, approval, judgment,
decree, order, statute, rule or regulation applicable to the Company or the
Association; or (iii) with the exception of the Liquidation Account established
in the Conversion, result in the creation of any material lien, charge or
encumbrance upon any property of the Company or the Association.
(p) No default exists, and no event has occurred which with notice or lapse
of time, or both, would constitute a default on the part of the Company or the
Association, in the due performance and observance of any
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term, covenant or condition of any indenture, mortgage, deed of trust, note,
Association loan or credit agreement or any other instrument or agreement to
which the Company or the Association is a party or by which any of them or any
of their property is bound or affected in any respect which, in any such cases,
is material to the Company or the Association; such agreements are in full force
and effect; and no other party to any such agreements has instituted or, to the
best knowledge of the Company or the Association, threatened any action or
proceeding wherein the Company or the Association would or might be alleged to
be in default thereunder.
(q) Upon consummation of the Conversion, the authorized, issued and
outstanding equity capital of the Company will be within the range set forth in
the Registration Statement under the caption "Capitalization," and no shares of
Common Stock have been or will be issued and outstanding prior to the Closing
Date referred to in Section 2; the Shares will have been duly and validly
authorized for issuance and, when issued and delivered by the Company pursuant
to the Plan against payment of the consideration calculated as set forth in the
Plan and in the Offering Prospectus, will be duly and validly issued and fully
paid and non-assessable; the issuance of the Shares will not violate any
preemptive rights; the Shares will be issued in conformity with the provisions
of the Plan, the Offering Prospectus, and the Conversion Regulations; and the
terms and provisions of the Shares will conform in all material respects to the
description thereof contained in the Registration Statement and the Offering
Prospectus. Upon the issuance of the Shares, good title to the Shares will be
transferred from the Company to the purchasers thereof against payment therefor,
subject to such claims as may be asserted against the purchasers thereof by
third party claimants.
(r) No approval of any regulatory or supervisory or other public authority
is required in connection with the execution and delivery of this Agreement or
the issuance of the Shares, except for the approval of the OTS, the Commission
and any necessary qualification or registration under the securities or blue sky
laws of the various states in which the Shares are to be offered and as may be
required under the regulations-of the National Association of Securities
Dealers, Inc. ("NASD").
(s) McKonly & Asbury LLP, which has certified the financial statements of
the Association included in the Registration Statement, are with respect to the
Company and the Association independent public accountants within the meaning of
the Code of Professional Ethics of the American Institute of Certified Public
Accountants and Title 12 of the Code of Federal Regulations, Section 571.2(c)(3)
and the 1933 Act and the 1933 Act Regulations.
(t) The Company and the Association have (subject to all properly obtained
extensions) timely filed all required federal and state tax returns, have paid
all taxes that have become due and payable in respect of such returns, have made
adequate reserves for similar future tax liabilities and no deficiency has been
asserted with respect thereto by any taxing authority.
(u) Appropriate arrangements have been made for placing the funds received
from subscriptions for Shares in a special interest-bearing account with the
Association until all Shares are sold and paid for, with provision for refund to
the purchasers in the event that the Conversion is not completed for whatever
reason or for delivery to the Company if all Shares are sold.
(v) To the knowledge of the Company and the Association, none of the
Company, the Association nor employees of the Company or the Association have
made any payment of funds of the Company or the Association as a loan to any
person for the purchase of the Shares other than the Employee Stock Ownership
Plan Trust.
(w) Prior to the Conversion, the Association was not authorized to issue
shares of capital stock and neither the Company nor the Association has: (i)
issued any securities within the last 18 months (except for notes
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to evidence other Association loans and reverse repurchase agreements or other
liabilities); (ii) had any material dealings within the twelve months prior to
the date hereof with any member of the NASD, or any person related to or
associated with such member, other than discussions and meetings relating to the
proposed the Offering and routine purchases and sales of U.S. government and
agency securities and other investment securities; (iii) entered into a
financial or management consulting agreement except as contemplated hereunder;
and (iv) engaged any intermediary between Capital Resources and the Company and
the Association in connection with the offering of Common Stock, and no person
is being compensated in any manner for such service.
(x) All pending legal proceedings to which the Company or the Bank is a
party or of which any of their property is the subject which are not described
in the Registration Statement and the Offering Prospectus, including ordinary
routine litigation incidental to the business are, considered in the aggregate,
not material.
(y) To the knowledge of the Company and the Association, the Company and
the Association comply in all material respects with all laws, rules and
regulations relating to environmental protection, and neither the Company nor
the Association has been notified or is otherwise aware that any of them is
potentially liable, or is considered potentially liable in any material respect,
under the Comprehensive Environmental Response, Compensation and Liability Act
of 1980, as amended, or any similar state or local laws. There are no actions,
suits, regulatory investigations or other proceedings pending or, to the
knowledge of the Company or the Association, threatened against the Company or
the Association relating to environmental protection, nor does the Company or
the Association have any reason to believe any such proceedings may be brought
against any of them.
(z) The Association has one subsidiary, Baldwin Service Corporation.
Any certificates signed by an officer of the Company or the Association and
delivered to Capital Resources or its counsel that refer to this Agreement shall
be deemed to be a representation and warranty by the Company or the Association
to Capital Resources as to the matters covered thereby with the same effect as
if such representation and warranty were set forth herein.
SECTION 5. Capital Resources represents and warrants to the Company and the
Association that:
(a) Capital Resources is a corporation and is validly existing in good
standing under the laws of the District of Columbia with full power and
authority to provide the services to be furnished to the Company and the
Association hereunder.
(b) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
all necessary action on the part of Capital Resources, and this Agreement has
been duly and validly executed and delivered by Capital Resources and is the
legal, valid and binding agreement of Capital Resources, enforceable in
accordance with its terms.
(c) Each of Capital Resources and its employees, agents and representatives
who shall perform any of the services hereunder shall be duly authorized and
empowered, and shall have all licenses, approvals and permits necessary, to
perform such services and Capital Resources is a registered selling agent in the
jurisdictions listed in Exhibit A hereto and will remain registered in such
jurisdictions in which the Company is relying on such registration for the sale
of the Shares, until the Conversion is consummated or terminated.
(d) The execution and delivery of this Agreement by Capital Resources, the
consummation of the transactions contemplated hereby and compliance with the
terms and provisions hereof will not conflict
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with, or result in a breach of, any of the terms, provisions or conditions of,
or constitute a default (or event which with notice or lapse of time or both
would constitute a default) under, the certificate of incorporation of Capital
Resources or any agreement, indenture or other instrument to which Capital
Resources is a party or by which its property is bound, or law or regulation by
which Capital Resources is bound.
(e) Funds received by Capital Resources to purchase Common Stock will be
handled in accordance with Rule 15c2-4 under the Securities Exchange Act of
1934, as amended.
SECTION 6. Covenants of the Company and Association. The Company and the
Association hereby jointly and severally covenant with Capital Resources as
follows:
(a) The Company will not, at any time after the date the Registration
Statement is declared effective, file any amendment or supplement to the
Registration Statement without providing Capital Resources and its counsel
reasonable time to review such amendment or file any amendment or supplement to
which amendment Capital Resources or its counsel shall reasonably object.
(b) The Association has filed the Conversion Application with the OTS. The
Association will not, at any time after the date the Conversion Application is
approved, file any amendment or supplement to the Conversion Application without
providing Capital Resources and its counsel an opportunity to review such
amendment or supplement or file any amendment or supplement to which amendment
or supplement Capital Resources or its counsel shall reasonably object.
(c) The Company and the Association will use their best efforts to cause
any post-effective amendment to the Registration Statement to be declared
effective by the Commission and any post-effective amendment to the Conversion
Application to be approved by the OTS and will immediately upon receipt of any
information concerning the events listed below notify Capital Resources and
promptly confirm the notice in writing: (i) when the Registration Statement, as
amended, has become effective; (ii) when the Conversion Application, as amended,
has been approved by the OTS; (iii) of the receipt of any comments from the
Commission, the OTS or the FDIC or any other governmental entity with respect to
the Conversion or the transactions contemplated by this Agreement; (iv) of the
request by the Commission, the OTS or the FDIC or any other governmental entity
for any amendment or supplement to the Registration Statement or for additional
information; (v) of the issuance by the Commission, the OTS, the FDIC or any
other governmental entity of any order or other action suspending the Offering
or the use of the Registration Statement or the Offering Prospectus or any other
filing of the Company and the Association under the Conversion Regulations or
other applicable law, or the threat of any such action; (vi) the issuance by the
Commission, the OTS or the FDIC, or any state authority, of any stop order
suspending the effectiveness of the Registration Statement or of the initiation
or threat of initiation or threat of any proceedings for that purpose; or (vii)
of the occurrence of any event mentioned in paragraph (h) below. The Company and
the Association will make every reasonable effort to prevent the issuance by the
Commission, the OTS or the FDIC, or any state authority of any such order and,
if any such order shall at any time be issued, to obtain the lifting thereof at
the earliest possible time.
(d) The Company and the Association will deliver to Capital Resources and
to its counsel two conformed copies of each of the following documents, with all
exhibits: the Conversion Application and the Holding Company Application, as
originally filed and of each amendment or supplement thereto, and the
Registration Statement, as originally filed and each amendment thereto. Further,
the Company and the Association will deliver such additional copies of the
foregoing documents to counsel for Capital Resources as may be required for any
NASD and blue sky filings. In addition, the Company and the Association will
also deliver to Capital Resources such number of copies of the Offering
Prospectus, as amended or supplemented,
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as Capital Resources may reasonably request.
(e) The Company will furnish to Capital Resources, from time to time during
the period when the Offering Prospectus (or any later prospectus related to this
Offering) is required to be delivered under the 1933 Act or the Securities
Exchange Act of 1934 (the "1934 Act"), such number of copies of such Offering
Prospectus (as amended or supplemented) as Capital Resources may reasonably
request for the purposes contemplated by the 1933 Act or the 1934 Act or the
respective applicable rules and regulations of the Commission thereunder. The
Company authorizes Capital Resources to use the Offering Prospectus (as amended
or supplemented, if amended or supplemented) for any lawful manner in connection
with the sale of the Shares by Capital Resources.
(f) The Company and the Association will comply in all material respects
with any and all terms, conditions, requirements and provisions with respect to
the Conversion and the transactions contemplated thereby imposed by the
Commission, by applicable state law and regulations, and by the 1933 Act, the
1934 Act and the rules and regulations of the Commission promulgated under such
statutes, to be complied with prior to or subsequent to the Closing Date and
when the Offering Prospectus is required to be delivered, the Company and the
Association will comply in all material respects, at their own expense, with all
requirements imposed upon them by the OTS, the Conversion Regulations, the FDIC,
the Commission, by applicable state law and regulations and by the 1933 Act, the
1934 Act and the rules and regulations of the Commission promulgated under such
statutes, including, without limitation, Regulation M under the 1934 Act, in
each case as from time to time in force, so far as necessary to permit the
continuance of sales or dealing in shares of Common Stock during such period in
accordance with the provisions hereof and the Offering Prospectus.
(g) If, at any time during the period when the Offering Prospectus relating
to the Shares is required to be delivered, any event relating to or affecting
the Company or the Association shall occur, as a result of which it is necessary
or appropriate, in the reasonable opinion of counsel for the Company and the
Association or in the reasonable opinion of Capital Resources' counsel, to amend
or supplement the Registration Statement or Offering Prospectus in order to make
the Registration Statement or Offering Prospectus not misleading in light of the
circumstances existing at the time it is delivered to a purchaser, the Company
and the Association will, at their expense, forthwith prepare, file with the
Commission and the OTS and furnish to Capital Resources a reasonable number of
copies of any amendment or amendments of, or a supplement or supplements to, the
Registration Statement or Offering Prospectus (in form and substance reasonably
satisfactory to Capital Resources and its counsel after a reasonable time for
review) which will amend or supplement the Registration Statement or Offering
Prospectus so that as amended or supplemented it will not contain an untrue
statement of a material fact or omit to state a material fact necessary in order
to make the statements therein, in light of the circumstances existing at the
time the Offering Prospectus reasonably is delivered to a purchaser, not
misleading. For the purpose of this Agreement, the Company and the Association
each will timely furnish to Capital Resources such information with respect to
itself as Capital Resources may from time to time request.
(h) The Company and the Association will take all necessary actions, in
cooperation with Capital Resources, and furnish to the appropriate agency,
entity, or person, such information as may be required to qualify or register
the Shares for offering and sale by the Company under the applicable securities
or blue sky laws of such jurisdictions in which the shares are required under
the Conversion Regulations to be sold or as Capital Resources and the
Association may jointly agree; provided, however, that the Company shall not be
obligated to file any general consent to service of process or to qualify to do
business in any jurisdiction in which it is not so qualified. In each
jurisdiction where any of the Shares shall have been qualified or registered as
above provided, the Company will make and file such statements and reports in
each fiscal period as are or may be required by the laws of such jurisdiction.
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(i) The liquidation account for the benefit of account holders with account
balances of $50 or more as of the applicable record dates will be duly
established and maintained in accordance with the requirements of the OTS.
(j) The Company and the Association will not sell or issue, contract to
sell or otherwise dispose of, for a period of 180 days after the date hereof,
without Capital Resources' prior written consent, any shares of Common Stock
other than in connection with any plan or arrangement described in the Offering
Prospectus.
(k) The Company shall register its Common Stock under Section 12(g) of the
1934 Act concurrent with the stock offering pursuant to the Plan and shall
request that such registration be effective upon completion of the Conversion.
The Company shall maintain the effectiveness of such registration for not less
than three years or such shorter period as permitted by the OTS.
(l) During the period during which the Company's common stock is registered
under the 1934 Act or for three years from the date hereof, whichever period is
greater, the Company will furnish to its stockholders as soon as practicable
after the end of each fiscal year an annual report (including a balance sheet
and statements of income, stockholders' equity and changes in financial position
or cash flow statement of the Company as at the end of and for such year,
certified by independent public accountants and prepared in accordance with
Regulation S-X under the 1934 Act).
(m) During the period of three years from the date hereof, the Company will
furnish to Capital Resources: (i) a copy of each public report of the Company
furnished to or filed with the Commission under the 1934 Act or any national
securities exchange or system on which any class of securities of the Company is
listed or quoted (including but not limited to, reports on Form 10-K, 10-Q, and
8-K and all proxy statements and annual reports to stockholders), a copy of each
public report of the Company mailed to its stockholders or filed with the
Commission or the OTS or any other supervisory or regulatory authority or any
national securities exchange or system on which any class of securities of the
Company is listed or quoted, each press release and material news items and
additional public documents and information with respect to the Company or the
Association as Capital Resources may reasonably request, and (ii) from time to
time, such other publicly available information concerning the Company and the
Association as Capital Resources may reasonably request.
(n) The Company and the Association will use the net proceeds from the sale
of the Shares in the manner set forth in the Offering Prospectus under the
caption "Use of Proceeds."
(o) Other than as permitted by the Conversion Regulations, the 1933 Act,
the 1933 Act Regulations and the laws of any state in which the Shares are
qualified for sale, neither the Company nor the Association will distribute any
prospectus, offering circular or other offering material in connection with the
offer and sale of the Shares.
(p) The Company will make generally available to its security holders as
soon as practicable, but not later than 90 days after the close of the period an
earnings statement (in form complying with the provisions of Rule 158 under the
1933 Act) covering a twelve-month period beginning not later than the first day
of the Company's fiscal quarter next following the effective date (as defined in
said Rule 158) of the Registration Statement.
(q) The Company will maintain quotation of the shares in the
over-the-counter market effective on the Closing Date.
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(r) The Association will maintain appropriate arrangements for depositing
all funds received from persons mailing subscriptions for or orders to purchase
Shares in the Offering on an interest-bearing basis at the rate described in the
Offering Prospectus until the Closing Date and satisfaction of all conditions
precedent to the release of the Association's obligation to refund payments
received from persons subscribing for or ordering Shares in the Offering in
accordance with the Plan as described in the Offering Prospectus or until
refunds of such funds have been made to the persons entitled thereto or
withdrawal authorizations canceled in accordance with the Plan and as described
in the Offering Prospectus. The Association will maintain such records of all
funds received to permit the funds of each subscriber to be separately insured
by the FDIC (to the maximum extent allowable) and to enable the Association to
make the appropriate refunds of such funds in the event that such refunds are
required to be made in accordance with the Plan and as described in the Offering
Prospectus.
(s) The Company will register as a savings and loan holding company under
the HOLA within the period required by applicable law.
(t) The Company and the Association will take such actions and furnish such
information as are reasonably requested by Capital Resources in order for
Capital Resources to ensure compliance with the "Interpretation of the Board of
Governors of the NASD on Free Riding and Withholding."
(u) The Association will not amend the Plan of Conversion without Capital
Resources' prior written consent in any manner that, in the reasonable opinion
of Capital Resources, would materially and adversely affect the sale of the
Shares or the terms of this Agreement except as to comply with any regulatory
requirement.
(v) The Company shall advise Capital Resources, if necessary, as to the
allocation of the Shares in the event of an oversubscription and shall provide
Capital Resources with any information necessary to assist Capital Resources in
allocating the Shares in such event and such information shall be accurate and
reliable.
(w) The Company and the Association shall promptly advise Capital Resources
in writing of all relationships or facts which would render persons subscribing
or purchasing Shares in the Conversion Associates or Acting in Concert within
the meaning of the Conversion Regulations, and shall further advise Capital
Resources of all appropriate limitations on the purchase of shares by such
persons imposed by the Conversion Regulations and such information furnished
shall be accurate and reliable in all material respects.
SECTION 7. Payment of Expenses. Whether or not this Agreement becomes
effective, the Conversion is completed or the sale of the Shares by the Company
is consummated, the Company and Association jointly and severally agree to pay
directly for or to reimburse Capital Resources for (to the extent that such
expenses have been reasonably incurred by Capital Resources) (a) all filing fees
and expenses incurred in connection with the qualification or registration of
the Shares for offer and sale by the Company under the securities or blue sky
laws of any jurisdictions Capital Resources and the Company may agree upon
pursuant to subsection (i) of Section 6 above, including counsel fees paid or
incurred by the Company, the Association or Capital Resources in connection with
such qualification or registration or exemption from qualification or
registration; (b) all filing fees in connection with all filings with the NASD;
(c) any stock issue or transfer taxes which may be payable with respect to the
sale of the Shares to purchasers in the Conversion; (d) reasonable and necessary
expenses of the Conversion, including but not limited to, attorneys' fees,
transfer agent, registrar and other agent charges, fees relating to auditing and
accounting or other advisors and costs of printing all documents necessary in
connection with the Conversion; and (e) out-of-pocket expenses incurred by
Capital Resources in connection with the Conversion or any of the transactions
contemplated hereby, including, without limitation, the
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fees of its attorneys, and reasonable communication and travel expenses, as
limited by Section 2 hereof.
SECTION 8. Conditions to Capital Resources' Obligations. Capital Resources'
obligations hereunder, as to the Shares to be delivered at the Closing Date, are
subject to the condition that all representations and warranties and other
statements of the Company and the Association herein are, at and as of the
commencement of the Offering and at and as of the Closing Date, true and correct
in all material respects, the condition that the Company and the Association
shall have performed in all material respects all of their obligations hereunder
to be performed on or before such dates, and to the following further
conditions:
(a) At the Closing Date, the Company and the Association will have
completed the conditions precedent to, and shall have conducted the Conversion
in all material respects in accordance with, the Plan, the Conversion
Regulations and all other applicable laws, regulations, decisions and orders,
including all terms, conditions, requirements and provisions precedent to the
Conversion imposed upon them by the OTS.
(b) The Registration Statement shall have been declared effective by the
Commission and the Conversion Application approved by the OTS not later than
5:30 p.m. (eastern time) on the date of this Agreement, or with Capital
Resources' consent at a later time and date; and at the Closing Date no stop
order suspending the effectiveness of the Registration Statement shall have been
issued under the 1933 Act or proceedings therefore initiated or threatened by
the Commission or any state authority, and no order or other action suspending
the authorization of the Offering Prospectus or the consummation of the
Conversion shall have been issued or proceedings therefore initiated or, to the
Company's or Association's knowledge, threatened by the Commission, the OTS, the
FDIC or any state authority.
(c) At the Closing Date, Capital Resources shall have received:
(1) The favorable opinion, dated as of the Closing Date addressed to
Capital Resources and for its benefit, of Malizia, Spidi, Sloane & Fisch, P.C.,
counsel for the Company and the Association dated the Closing Date, addressed to
Capital Resources and in form and substance to the effect that:
(i) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the Commonwealth of Pennsylvania.
(ii) The Company has corporate power and authority to own, lease and
operate its properties and to conduct its business as described in the
Registration Statement and the Offering Prospectus; and the Company is qualified
to do business in Pennsylvania, to such counsel's knowledge based on the
conferences and document review specified in item (xii) below, the only state in
which it is doing business.
(iii) The Association was duly organized and is a validly existing
federally chartered savings association in mutual form of organization and upon
the consummation of the Conversion will become a duly organized and validly
existing federally chartered savings association in capital stock form of
organization, in both instances duly authorized to conduct its business and own
its property as described in the Registration Statement; and the Association is
validly existing under the laws of the United States and is duly qualified as a
foreign corporation to transact business and is in good standing in each
jurisdiction in which its ownership of property or leasing of properties or the
conduct of its business requires such qualification unless the failure to be so
qualified in one or more such jurisdictions would not have a material adverse
effect on the condition, financial or otherwise, or the business, operations or
income or business prospects of the Association. The activities of the
Association as described in the Offering Prospectus, insofar as they are
material to the operations and financial condition of the Association, are
permitted by the rules, regulations and resolutions and practices of the OTS or
the FDIC and any other federal or state authorities.
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(iv) The Association is a member of the FHLBPB, and the deposit accounts of
the Association are insured by the FDIC up to the maximum amount allowed under
law and to the best of such counsel's knowledge no proceedings for the
termination or revocation of such insurance are pending or threatened; and the
description of the liquidation account as set forth in the Registration
Statement and the Offering Prospectus under the caption "The Conversion -
Effects of the Conversion Liquidation Account" has been reviewed by such counsel
and is accurate in all material respects.
(v) Upon consummation of the Conversion, the authorized, issued and
outstanding capital stock of the Company will be as set forth in the
Registration Statement and the Offering Prospectus under the caption
"Capitalization, " and no shares of Common Stock have been issued prior to the
Closing Date; at the time of the Conversion, the Shares subscribed for pursuant
to the Offerings will have been duly and validly authorized for issuance, and
when issued and delivered by the Company pursuant to the Plan against payment of
the consideration calculated as set forth in the Plan, will be duly and validly
issued and fully paid and non-assessable; and the issuance of the Shares is not
subject to preemptive rights.
(vi) The issuance and sale of the common stock of the Association to the
Company have been duly and validly authorized by all necessary corporate action
on the part of the Company and the Association and, upon payment therefor in
accordance with the terms of the Plan, will be duly and validly issued, fully
paid and non-assessable and will be owned of record by the Company, free and
clear of any mortgage, pledge, lien, encumbrance or claim (legal or equitable).
(vii) The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
all necessary action on the part of the Company and the Association; and this
Agreement is a valid and binding obligation of the Company and the Association,
enforceable in accordance with its terms (except as the enforceability thereof
may be limited by Association bankruptcy, insolvency, moratorium, reorganization
or similar laws relating to or affecting the enforcement of creditors' rights
generally or the rights of creditors of savings associations or savings and loan
holding companies, the accounts of whose subsidiaries are insured by the FDIC or
by general equity principles, regardless of whether such enforceability is
considered in a proceeding in equity or at law, and except to the extent, if
any, that the provisions of Sections 9 and 10 hereof may be unenforceable as
against public policy).
(viii) The Plan has been duly adopted by the required vote of the Directors
of the Company and the Association and members of the Association.
(ix) Subject to the satisfaction of the conditions to the OTS's approval of
the Conversion and the Company's application to acquire the Association, no
further approval, registration, authorization, consent or other order of any
regulatory agency, public board or body is required in connection with the
execution and delivery of this Agreement, the issuance of the Shares and the
consummation of the Conversion, except as may be required under the regulations
of the NASD. The Conversion has been consummated in all material respects in
accordance with all applicable provisions of the HOLA, the Conversion
Regulations, Federal and State law and all applicable rules and regulations
promulgated thereunder.
(x) The Conversion Application has been approved by the OTS. The OTS has
issued its order of approval under the savings and loan holding company
provisions of the HOLA, and the purchase by the Company of all of the issued and
outstanding capital stock of the Association has been authorized by the OTS and
no action has been taken, or to counsel's knowledge is pending or threatened, to
revoke any such authorization or approval, by way of judicial review of the
final action of the OTS approving the Conversion Application or in approving the
Holding Company Application or otherwise.
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(xi) The Registration Statement is effective under the 1933 Act and, to
counsel's knowledge, no stop order suspending the effectiveness has been issued
under the 1933 Act or proceedings therefor initiated or, threatened by the
Commission.
(xii) At the time the Conversion Application, including the Offering
Prospectus contained therein, was approved, the Conversion Application including
the Offering Prospectus contained therein (as amended or supplemented, if so
amended or supplemented) complied as to form in all material respects with the
requirements of all applicable federal laws and the rules, regulations,
decisions and orders of the OTS (except as to the financial statements, other
financial data and stock valuation information included therein as to which such
counsel need express no opinion); to the best of such counsel's knowledge, based
on conferences with management of and the independent accountants for the
Company and the Association, and on such investigation of the corporate records
of the Company and the Association as such counsel conducted in connection with
the preparation of the Registration Statement and the Conversion Application,
all material documents and exhibits required to be filed with the Conversion
Application (as amended or supplemented, if so amended or supplemented) have
been so filed. The description in the Conversion Application and the Offering
Prospectus contained therein of such documents and exhibits is accurate in all
material respects and fairly presents the information required to be shown.
(xiii) At the time that the Registration Statement became effective, (i)
the Registration Statement (as amended or supplemented if so amended or
supplemented) (other than the financial statements and other financial and
statistical data and stock valuation information included therein, as to which
no opinion need be rendered), complied as to form in all material respects with
the requirements of the 1933 Act and the 1933 Act Regulations and (ii) the
Offering Prospectus (other than the financial statements and other financial and
statistical data and the stock valuation and pro forma information included
therein, as to which no opinion need be rendered) complied as to form in all
material respects with the requirements of the 1933 Act, the 1933 Act
Regulations, and Federal and State law (other than state blue sky law as to
which we express no opinion). To the best of such counsel's knowledge based on
the conferences and document review specified in item (xii) above, all material
documents and exhibits required to be filed with the Registration Statement (as
amended or supplemented, if so amended or supplemented) have been so filed. The
description in the Registration Statement and the Offering Prospectus of such
documents and exhibits is accurate in all material respects and fairly presents
the information required to be shown.
(xiv) During the course of such counsel's representation of the Company and
the Association, nothing has come to such counsel's attention that caused it to
believe that (i) the Company and the Association have not conducted the
Conversion, in all material respects, in accordance with all applicable
requirements of the Plan and applicable law, and (ii) the Plan, the Conversion
Application, the Registration Statement and the Offering Prospectus (other than
the financial statements and other financial and statistical data and the stock
valuation information included therein as to which no opinion need be rendered)
do not comply in all material respects with all applicable laws, rules,
regulations, decisions and orders including, but not limited to, the Conversion
Regulations, the HOLA, the 1933 Act and 1933 Act Regulations and all other
applicable laws, regulations, decisions and orders, including all applicable
terms, conditions, requirements and provisions precedent to the Conversion
imposed upon it by the OTS, the Commission and the FDIC, if any.
(xv) The terms and provisions of the Common Stock of the Company conform to
the description thereof contained in the Registration Statement and the Offering
Prospectus, and the form of certificates used to evidence the Shares complies
with all applicable requirements of Pennsylvania law.
(xvi) To such counsel's knowledge, there are no legal or governmental
proceedings pending or threatened which are required to be disclosed in the
Registration Statement and the Offering Prospectus, other
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than those disclosed therein, and all pending legal and governmental proceedings
to which the Company or the Association is a party or of which any of their
property is the subject which are not described in the Registration Statement
and the Offering Prospectus, including ordinary routine litigation incidental to
the business, are, considered in the aggregate, not material; provided that for
this purpose, any litigation or governmental proceeding is not considered to be
"threatened" unless the potential litigant or governmental authority has
manifested to the management of the Company or the Association, or to such
counsel, a present intention to initiate such litigation or proceeding.
(xvii) To such counsel's knowledge, the Company and the Association are not
in violation of any directive from the OTS or the FDIC to make any material
change in the method of conducting their business and the Company and the
Association have conducted and are conducting their business so as to comply in
all material respects with all applicable statutes and regulations (including,
without limitation, regulations, decisions, directives and orders of the OTS and
the FDIC).
(xviii) The information in the Registration Statement and Offering
Prospectus under the captions "Regulation," "Restrictions on Acquisition of
Steelton Bancorp, Inc.," "The Conversion," AThe Offering," "Description of
Capital Stock" and the information in response to Items 7(d)(l), 7(f), 7(g) and
7(i) of the Form PS of the Conversion Regulations, to the extent that it
constitutes matters of law, summaries of legal matters, documents or
proceedings, or legal conclusions, has been reviewed by such counsel and is
correct in all material respects (except as to the financial statements and
other financial data included therein as to which such counsel need express no
opinion).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws of any jurisdiction other than the United
States, to the extent such counsel deems proper and specified in such opinion
satisfactory to Capital Resources, upon the opinion of other counsel of good
standing (providing that such counsel states that Capital Resources is justified
in relying upon such specified opinion or opinions), and (B) as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and the Association and public officials (but not on
conclusions of law which may be set forth in said certificates); provided copies
of any such opinion(s) or certificates are delivered pursuant hereto to Capital
Resources together with the opinion to be rendered hereunder by special counsel
to the Company and the Association. Such counsel may assume that any agreement
is the valid and binding obligation of any parties to such agreement other than
the Company or the Association.
(2) The favorable opinion, dated as of the Closing Date addressed to
Capital Resources and for its benefit, of ______________________, Pennsylvania
counsel for the Company and the Association dated the Closing Date, addressed to
Capital Resources and in form and substance to the effect that:
(i) To such counsel's knowledge, the Company and the Association have
obtained all licenses, permits and other governmental authorizations required
for the conduct of their respective businesses, except where the failure to have
such licenses, permits or authorizations would not have a material adverse
effect on the business, financial condition operations or income or business
prospects of the Company and the Association, and all such licenses, permits and
other governmental authorizations are in full force and effect, and the Company
and the Association are in all material respects complying therewith.
(ii) To such counsel's knowledge, neither the Company nor the Association
is in contravention of its certificate of incorporation or its charter,
respectively, or its bylaws (and the Association will not be in contravention of
its charter or bylaws in stock form upon consummation of the Conversion) or, to
such counsel's knowledge, in default or violation of any obligation, agreement,
covenant or condition contained in any
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material contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which it is a party or by which it or its property may be bound
which default or violation would be material to the business of the Company and
the Association considered as one enterprise; to such counsel's knowledge, any
such default or violation will not constitute a material breach of, or default
under, or result in the creation or imposition of any material lien, charge or
encumbrance upon any property or assets of the Company or the Association which
are material to their business considered as one enterprise, pursuant to any
contract, indenture, mortgage, loan agreement, note, lease or other instrument
to which the Company or the Association is a party or by which any of them may
be bound, or to which any of the property or assets of the Company or the
Association is subject. In addition, such action will not result in any default
or violation of the provisions of the certificate of incorporation or bylaws of
the Company or the Association or to such counsel's knowledge, any applicable
law, act, regulation or order or court order, writ, injunction or decree. The
charter of the Association in stock form has been approved by the OTS.
(iii) To such counsel's knowledge, the Company and the Association have
good and marketable title to all properties and assets described in the
Registration Statement as owned by them, free and clear of all liens, charges,
encumbrances or restrictions, except such as are described in the Registration
Statement or are not material in relation to the business of the Company and the
Association considered as one enterprise; and to the best of such counsel's
knowledge, all of the leases and subleases material to the business of the
Company and the Association under which the Company and the Association hold
properties, as described in the Registration Statement, are in full force and
effect.
(3) The letter of Malizia, Spidi, Sloane & Fisch, P.C., counsel for the
Company and the Association addressed to Capital Resources, dated the Closing
Date, in form and substance to the effect that:
During the preparation of the Conversion Application, the Registration
Statement and the Offering Prospectus, such counsel participated in conferences
with management of, and the independent public accountants for the Company and
the Association. Based upon such conferences and a review of corporate records
of the Company and the Association as such counsel conducted in connection with
the preparation of the Registration Statement and Conversion Application,
nothing has come to their attention that would lead them to believe that the
Conversion Application, the Registration Statement, the Offering Prospectus, or
any amendment or supplement thereto (other than the financial statements and
other financial and statistical data and stock valuation information included
therein, as to which such counsel need express no view), contained an untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(4) The favorable opinion, dated as of the Closing Date, of Steele, Silcox,
& Browning, P.C., counsel to Capital Resources, with respect to such matters as
Capital Resources may reasonably require. Such opinion may rely upon the
opinions of counsel to the Company and the Association, and as to matters of
fact, upon certificates of officers and directors of the Company and the
Association delivered pursuant hereto or as such counsel shall reasonably
request.
(d) At the Closing Date, counsel to Capital Resources shall have been
furnished with such documents and opinions as they may reasonably require for
the purpose of enabling them to render the opinion as herein contemplated, or in
order to evidence the occurrence or completeness of any of the representations
or warranties, or the fulfillment of any of the conditions, herein contained.
(e) At the Closing Date, Capital Resources shall receive a certificate of
the Chief Executive Officer and the Chief Financial Officer of the Company and
of the Chief Executive Officer and Chief Financial Officer of the Association,
dated as of such Closing Date, to the effect that: (i) they have carefully
examined the
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Offering Prospectus and, in their opinion, at the time the Offering Prospectus
became authorized for final use, the Offering Prospectus did not contain an
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading; (ii) since the date the Offering
Prospectus became authorized for final use, in their opinion no event has
occurred which should have been set forth in an amendment or supplement to the
Offering Prospectus which has not been so set forth, including specifically, but
without limitation, any material adverse change in the condition, financial or
otherwise, or in the earnings, capital, properties, business prospects or
business affairs of the Company or the Association, and the conditions set forth
in this Section 8 have been satisfied; (iii) since the respective dates as of
which information is given in the Registration Statement and the Offering
Prospectus, there has been no material adverse change in the condition,
financial or otherwise, or in the earnings, capital, properties, business
affairs or business prospects of the Company or the Association, independently,
or of the Company and the Association considered as one enterprise, whether or
not arising in the ordinary course of business; (iv) to the best knowledge of
such officers the representations and warranties in Section 4 are true and
correct with the same force and effect as though expressly made at and as of the
Closing Date; (v) to the best knowledge of such officers, the Company and the
Association have complied with all material agreements and satisfied, in all
material respects at or prior to the Closing Date, all obligations required to
be met by such date and will in all material respects comply with all
obligations to be satisfied by them after Conversion; (vi) no stop order
suspending the effectiveness of the Registration Statement has been initiated
or, to the best knowledge of the Company or Association, threatened by the
Commission or any state authority; (vii) no order suspending the Offering, the
Conversion, the acquisition of all of the shares of the Association by the
Company or the effectiveness of the Offering Prospectus has been issued and to
the best knowledge of the Company or Association, no proceedings for that
purpose have been initiated or threatened by the OTS, the Commission, the FDIC,
or any state authority; and (viii) to the best of their knowledge, no person has
sought to obtain review of the final action of the OTS approving the Plan.
(f) Prior to and at the Closing Date: (i) in the reasonable opinion of
Capital Resources, there shall have been no material adverse change in the
condition, financial or otherwise, or in the earnings, or the business affairs
or business prospects of the Company or the Association independently, or of the
Company or the Association, considered as one enterprise, since the latest dates
as of which such condition is set forth in the Offering Prospectus, except as
referred to therein; (ii) there shall have been no material transaction entered
into by the Company or the Association from the latest date as of which the
financial condition of the Company or the Association is set forth in the
Offering Prospectus other than transactions referred to or contemplated therein;
(iii) the Company or the Association shall not have received from the OTS or the
FDIC any direction (oral or written) to make any material change in the method
of conducting their business with which it has not complied (which direction, if
any, shall have been disclosed to Capital Resources) and which would reasonably
be expected to have a material and adverse effect on the business, operations or
financial condition or income of the Company or the Association taken as a
whole; (iv) neither the Company nor the Association shall have been in default
(nor shall an event have occurred which, with notice or lapse of time or both,
would constitute a default) under any provision of and agreement or instrument
relating to any material outstanding indebtedness; (v) no action, suit or
proceedings, at law or in equity or before or by any federal or state
commission, board or other administrative agency, shall be pending, or, to the
knowledge of the Company or the Association, threatened against the Company or
the Association or affecting any of their properties wherein an unfavorable
decision, ruling or finding would reasonably be expected to have a material and
adverse effect on the business, operations, financial condition or income of the
Company or the Association, taken as a whole; and (vi) the Shares have been
qualified or registered for offering and sale under the securities or blue sky
laws of the jurisdictions as Capital Resources shall have requested and as
agreed to by the Company.
(g) Concurrently with the execution of this Agreement, Capital Resources
shall receive a letter from McKonly & Asbury LLP, dated the date hereof and
addressed to Capital Resources: (i) confirming
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that McKonly & Asbury LLP is a firm of independent public accountants within the
meaning of the Code of Professional Ethics of the American Institute of
Certified Public Accountants, the 1933 Act and the 1933 Act Regulations and 12
C.F.R. ' 571.2(c)(3) and no information concerning its relationship with or
interests in the Company and the Association is required to be disclosed in the
Offering Prospectus by the Conversion Regulations or Item 10 of the Registration
Statement, and stating in effect that in McKonly & Asbury LLP's opinion the
financial statements of the Association as are included in the Offering
Prospectus comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act, the 1934 Act and the related published
rules and regulations of the Commission thereunder and the Conversion
Regulations and generally accepted accounting principles; (ii) stating in effect
that, on the basis of certain agreed upon procedures (but not an audit
examination in accordance with generally accepted auditing standards) consisting
of a reading of the latest available unaudited interim financial statements of
the Association prepared by the Association, a reading of the minutes of the
meetings of the Board of Directors and members of the Association and
consultations with officers of the Association responsible for financial and
accounting matters, nothing came to their attention which caused them to believe
that: (A) during the period from the date of the latest unaudited summary
financial and other data as of and for the three month period ended March 31,
1999, as set forth under the heading "Recent Developments" in the Prospectus,
there has been (1) any increase in the long term debt of the Association or (2)
any increase in non-performing assets (consisting of accruing loans past due 90
days or more, non-accruing loans and foreclosed assets) or (3) any decrease in
the allowance for loan losses or (4) any decrease in total equity or (5) a
decrease in net income when compared to the like period in the preceding year or
(6) any change in total assets of the Association in an amount from March 31,
1999 to ____________, 1999 greater than $850,000.00 (excluding the proceeds of
stock subscriptions); and (iii) stating that, in addition to the audit
examination referred to in its opinion included in the Offering Prospectus and
the performance of the procedures referred to in clause (ii) of this subsection
(g), they have compared with the general accounting records of the Company
and/or the Association, as applicable, which are subject to the internal
controls of the Company and/or the Association, as applicable, accounting system
and other data prepared by the Company and/or the Association, as applicable,
directly from such accounting records, to the extent specified in such letter,
such amounts and/or percentages set forth in the Offering Prospectus as Capital
Resources may reasonably request; and they have found such amounts and
percentages to be in agreement therewith (subject to rounding).
(h) At the Closing Date, Capital Resources shall receive a letter from
McKonly & Asbury LLP, dated the Closing Date, addressed to Capital Resources,
confirming the statements made by its letter delivered by it pursuant to
subsection (g) of this Section 8, except that the "specified date" referred to
in clause (ii)(B) thereof to be a date specified in such letter, which shall not
be more than three business days prior to the Closing Date.
(i) The Company and the Association shall not have sustained since the date
of the latest audited financial statements included in the Registration
Statement and Offering Prospectus any loss or interference with its business
from fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order or
decree, otherwise than as set forth or contemplated in the Registration
Statement and Offering Prospectus, and since the respective dates as of which
information is given in the Registration Statement and Offering Prospectus,
there shall not have been any material change in the long term debt of the
Company or the Association other than debt incurred in relation to the purchase
of Shares by the Company's Tax-Qualified Employee Plans, or any change, or any
development involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of operations of
the Company or the Association, otherwise than as set forth or contemplated in
the Registration Statement and Offering Prospectus, the effect of which, in any
such case described above, is in Capital Resources' reasonable judgment
sufficiently material and adverse as to make it impracticable or inadvisable to
proceed with the Subscription or Public Offerings or the delivery of the Shares
on the terms and in the manner contemplated in the Offering Prospectus.
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<PAGE>
(j) At or prior to the Closing Date, Capital Resources shall receive (i) a
copy of the letter from the OTS authorizing the use of the Offering Prospectus,
(ii) a copy of the order from the Commission declaring the Registration
Statement effective, (iii) a copy of a certificate from the OTS evidencing the
valid existence of the Association, (iv) certificates of good standing from the
Commonwealth of Pennsylvania evidencing the good standing of the Company and
evidencing that the Company is duly qualified to do business in Pennsylvania and
(v) a copy of the letter from the OTS approving the Company's Holding Company
Application.
(k) As soon as available after the Closing Date, Capital Resources shall
receive a certified copy of the Association's stock charter.
(1) Subsequent to the date hereof, there shall not have occurred any of the
following: (i) a suspension or limitation in trading in securities generally on
the New York Stock Exchange or American Stock Exchange or in the
over-the-counter market, or quotations halted generally on the NASDAQ National
Market, or minimum or maximum prices for trading being fixed, or maximum ranges
for prices for securities being required by either of such exchanges or the NASD
or by order of the Commission or any other governmental authority; (ii) a
general moratorium on the operations of commercial banks or federal savings
banks or general moratorium on the withdrawal of deposits from commercial
associations or federal savings associations declared by either federal or state
authorities; (iii) the engagement by the United States in hostilities which have
resulted in the declaration, on or after the date hereof, of a national
emergency or war; or (iv) a material decline in the price of equity or debt
securities if, as to clauses (iii) or (iv), the effect of such hostilities or
decline, in Capital Resources' reasonable judgment, makes it impracticable or
inadvisable to proceed with the Offering or the delivery of the Shares on the
terms and in the manner contemplated in the Registration Statement and the
Offering Prospectus.
All such opinions, certifications, letters and documents shall be in
compliance with the provisions hereof only if they are, in the reasonable
opinion of Capital Resources and its counsel, satisfactory to Capital Resources
and its counsel. Any certificates signed by an officer or director of the
Company or the Association and delivered to Capital Resources or its counsel
shall be deemed a representation and warranty by the Company or the Association
to Capital Resources as to the statements made therein.
If any of the conditions specified in this Section shall not have been
fulfilled when and as required by this Agreement, this Agreement and all of
Capital Resources' obligations hereunder may be canceled by Capital Resources by
notifying the Association of such cancellation in writing or by telegram at any
time at or prior to the Closing Date, and any such cancellation shall be without
liability of any party to any other party except as otherwise provided in
Sections 2, 7, 9 and 10 hereof. Notwithstanding the above, if this Agreement is
canceled pursuant to this paragraph, Capital Resources will be entitled to
retain any compensation already received for consulting services prior to the
closing (including reimbursed expenses as provided herein), and the Company and
the Association jointly and severally agree to reimburse Capital Resources for
all out-of-pocket expenses, (including without limitation the fees and expenses
of Capital Resources' counsel) reasonably incurred by Capital Resources and
Capital Resources' counsel at its normal rates, in connection with the
preparation of the Registration Statement and the Offering Prospectus, and in
contemplation of the proposed Subscription or Public Offerings to the extent
provided for, and subject to the limitations contained in Sections 2 and 7
hereof.
SECTION 9. Indemnification.
(a) The Company and the Association jointly and severally agree to
indemnify and hold harmless Capital Resources, its officers, directors, agents
and employees and each person, if any, who controls or is under common control
with Capital Resources within the meaning of Section 15 of the 1933 Act or
Section
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20(a) of the 1934 Act, against any and all loss, liability, claim, damage
or expense whatsoever (including but not limited to settlement expenses), joint
or several, that Capital Resources or any of them may suffer or to which Capital
Resources and any such persons upon written demand for any expenses (including
fees and disbursements of counsel) incurred by Capital Resources or any of them
in connection with investigating, preparing or defending any actions,
proceedings or claims (whether commenced or threatened) to the extent such
losses, claims, damages, liabilities or actions (i) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (or any amendment or supplement
thereto), Offering Prospectus (or any amendment or supplement thereto), the
Conversion Application (including any document required to be furnished
therewith), or any Blue Sky application or other instrument or document of the
Company or the Association or based upon written information supplied by the
Company or the Association filed in any state or jurisdiction to register or
qualify any or all of the Shares or the subscription rights applicable thereto
under the securities laws thereof (collectively, the "Blue Sky Application"), or
any application or other document, advertisement, oral statement, or
communication ("Sales Information") prepared, made or executed by or on behalf
of the Company with its consent or based upon written or oral information
furnished by or on behalf of the Company or the Association, whether or not
filed in any jurisdiction in order to qualify or register the Shares under the
securities laws thereof; (ii) arise out of or are based upon the omission or
alleged omission to state in any of the foregoing documents or information, a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; or, (iii) arise from any theory of liability whatsoever relating to
or arising from or based upon the Registration Statement (or any amendment or
supplement thereto), Offering Prospectus (or any amendment or supplement
thereto), the Conversion Application (including any document required to be
furnished therewith), any Blue Sky Application or Sales Information or other
documentation distributed in connection with the Conversion; provided, however,
that no indemnification is required under this paragraph (a) to the extent such
losses, claims, damages, liabilities or actions arise out of or are based upon
any untrue material statements or alleged untrue material statements in, or
material omission or alleged material omission from, the Registration Statement
(or any amendment or supplement thereto), the Conversion Application (including
any document required to be furnished therewith) , any Blue Sky Application, the
Offering Prospectus (or any amendment or supplement thereto), or Sales
Information made in reliance upon and in conformity with written information
furnished to the Company or the Association by Capital Resources regarding
Capital Resources expressly for use under the captions AThe Offering Plan of
Distribution/Marketing Arrangements" or "Community Offering" or ASyndicated
Community Offering" in the Offering Prospectus nor is indemnification required
for material oral misstatements made by Capital Resources, which are not based
upon information provided by the Association or the Company orally or in writing
or based on information contained in the Registration Statement (or any
amendment or supplement thereto), Offering Prospectus (or any amendment or
supplement thereto), the Conversion Application (including any document required
to be furnished therewith), any Blue Sky Application or Sales Information
distributed in connection with the Conversion. In addition, the Association and
the Company will not be liable under the foregoing provisions to the extent that
the loss, claim, damage, liability or actions is expressly found in a final
judgment by a court of competent jurisdiction to have resulted from Capital
Resources' bad faith or gross negligence.
(b) Capital Resources agrees to indemnify and hold harmless the Company and
the Association, their directors and officers, agents, servants and employees
and each person, if any, who controls the Company or the Association within the
meaning of Section 15 of the 1933 Act or Section 20(a) of the 1934 Act against
any and all loss, liability, claim, damage or expense whatsoever (including but
not limited to settlement expenses), joint or several which they, or any of
them, may suffer or to which they, or any of them, may become subject under all
applicable federal and state laws or otherwise, and to promptly reimburse the
Company, the Association and any such persons upon written demand for any
expenses (including fees and disbursements of counsel) incurred by them, or any
of them, in connection with investigating, preparing or defending any actions,
proceedings or claims (whether commenced or threatened) to the extent such
losses, claims, damages, liabilities
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<PAGE>
or actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement (or any
amendment of supplement thereto), or the Offering Prospectus (or any amendment
or supplement thereto), or the Conversion Application or any Blue Sky
Application or Sales Information or are based upon the omission or alleged
omission to state in any of the foregoing documents a material fact required to
be stated therein or necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading; provided, however,
that Capital Resources obligations under this Section 9(b) shall exist only if
and only to the extent that such untrue statement or alleged untrue statement
was made in, or such material fact or alleged material fact was omitted from,
the Registration Statement (or any amendment or supplement thereto), the
Offering Prospectus (or any amendment or supplement thereto), or the Conversion
Application, any Blue Sky Application or Sales Information in reliance upon and
in conformity with written information furnished to the Company or the
Association by Capital Resources regarding Capital Resources expressly for use
under the caption AThe Offering - Plan of Distribution/Marketing Arrangements"
or "Community Offering" or "Syndicated Community Offering" in the Offering
Prospectus or in the event of oral misstatements made by Capital Resources,
which are not based upon information provided by the Association or the Company
orally or in writing or based on information contained in the Registration
Statement (or any amendment or supplement thereto), Offering Prospectus (or any
amendment or supplement thereto), the Conversion Application, any Blue Sky
Application or Sales Information distributed in connection with the Conversion.
In addition, Capital Resources will not be liable under the foregoing provisions
to the extent that the loss, claim, damage, liability or actions is expressly
found in a final judgment by a court of competent jurisdiction to have resulted
from the Association's or the Company's bad faith or gross negligence.
(c) Each indemnified party shall give prompt written notice to each
indemnifying party of any action, proceeding, claim (whether commenced or
threatened), or suit instituted against it in respect of which indemnity may be
sought hereunder, but failure to so notify an indemnifying party shall not
relieve it from any liability which it may have on account of this Section 9 or
otherwise. An indemnifying party may participate at its own expense in the
defense of such action. In addition, if it so elects within a reasonable time
after receipt of such notice, an indemnifying party, jointly with any other
indemnifying parties receiving such notice, may assume defense of such action
with counsel chosen by it and approved by the indemnified parties that are
defendants in such action, unless such indemnified parties reasonably object to
such assumption on the ground that there may be legal defenses available to them
that are different from or in addition to those available to such indemnifying
party. If an indemnifying party assumes the defense of such action, the
indemnifying parties shall not be liable for any fees and expenses of counsel
for the indemnified parties incurred thereafter in connection with such action,
proceeding or claim, other than reasonable costs of investigation. In no event
shall the indemnifying parties be liable for the fees and expenses of more than
one separate firm of attorneys (and any special counsel that said firm may
retain) for all indemnified parties in connection with any one action,
proceeding or claim or separate but similar or related actions, proceedings or
claims in the same jurisdiction arising out of the same general allegations or
circumstances.
(d) The agreements contained in this Section 9 and in Section 10 hereof and
the representations and warranties of the Company and the Association set forth
in this Agreement shall remain operative and in full force and effect regardless
of: (i) any investigation made by or on behalf of Capital Resources or its
officers, directors or controlling persons, agents or employees or by or on
behalf of the Company or the Association or any officers, directors or
controlling persons, agents or employees of the Company or the Association or
any controlling person, director or officer of the Company or the Association;
(ii) delivery of and payment hereunder for the Shares; or (iii) any termination
of this Agreement.
(e) No indemnification by the Association under Section 9(a) hereof nor
contribution under Section 10 hereof shall be effective if the same shall be
deemed to be in violation of any law, rule or regulation applicable to the
Association including, without limitation, Section 23A of the Federal Reserve
Act. If the
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indemnification or contribution by the Association is not effective pursuant to
the preceding sentence, then the indemnification by Capital Resources pursuant
to Section 9(b) shall be given only to the Company, its directors and officers,
agents, servants and employees and not to the Association, its directors and
officers, agents, servants and employees and the Association shall not be
entitled to any contribution from Capital Resources pursuant to Section 10.
SECTION 10. Contribution. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in
Section 9 is due in accordance with its terms but is for any reason unavailable
as a result of Section 9(e) or held by a court to be unavailable from the
Company, the Association or Capital Resources, the Company, the Association and
Capital Resources shall contribute to the aggregate losses, claims, damages and
liabilities (including any investigation, legal and other expenses incurred in
connection with, and any amount paid in settlement of any action, suit or
proceeding of any claims asserted, but after deducting any contribution received
by the Company or the Association or Capital Resources from persons other than
the other party thereto, who may also be liable for contribution) in such
proportion so that Capital Resources is responsible for that portion represented
by the fees paid to Capital Resources pursuant to Section 2 of this Agreement
(not including expenses) bears to the gross proceeds received by the Company
from the sale of the Shares in the Offering and the Company and the Association
shall be responsible for the balance. If, however, the allocation provided above
is not permitted by applicable law or if the indemnified party failed to give
the notice required under Section 9 above, then each indemnifying party shall
contribute to such amount paid or payable by such indemnified party in such
proportion as is appropriate to reflect not only such relative fault of the
Company and the Association on the one hand and Capital Resources on the other
in connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities (or actions, proceedings or claims in respect
thereof), but also the relative benefits received by the Company and Association
on the one hand and Capital Resources on the other from the offering as well as
any other relevant equitable considerations. The relative benefits received by
the Company and the Association on the one hand and Capital Resources on the
other shall be deemed to be in the same proportion as the total gross proceeds
from the Offering (before deducting expenses) received by the Company bear to
the total fees (not including expenses) received by Capital Resources. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company and/or the Association on the one hand or Capital Resources on the other
and the parties' relative intent, good faith, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Company,
the Association and Capital Resources agree that it would not be just and
equitable if contribution pursuant to this Section 10 were determined by pro
rata allocation or by any other method of allocation which does not take account
of the equitable considerations referred to above in this Section 10. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or action, proceedings or claims in respect thereof)
referred to above in this Section 10 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action, proceeding or claim. It is expressly
agreed that Capital Resources shall not be liable for any loss, liability,
claim, damage or expense or be required to contribute any amount which in the
aggregate exceeds the amount paid (excluding reimbursable expenses) to Capital
Resources under this Agreement. It is understood that the above-stated
limitation on Capital Resources' liability is essential to Capital Resources and
that Capital Resources relied upon such limitation and would not have entered
into this Agreement if such limitation had not been agreed to by the parties to
this Agreement. No person found guilty of any fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not found guilty of such fraudulent
misrepresentation. The obligations of the Company and the Association under this
Section 10 and under Section 9 shall be in addition to any liability which the
Company and the Association may otherwise have. For purposes of this Section 10,
each of Capital Resources', the Company's or the Association's officers and
directors and each person, if any, who controls Capital Resources or the Company
or the Association within the meaning of the 1933 Act and the 1934 Act shall
have the same
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rights to contribution as the Company and the Association. Any party entitled to
contribution, promptly after receipt of notice of commencement of any action,
suit, claim or proceeding against such party in respect of which a claim for
contribution may be made against another party under this Section 10, will
notify such party from whom contribution may be sought, but the omission to so
notify such party shall not relieve the party from whom contribution may be
sought from any other obligation it may have hereunder or otherwise than under
this Section 10. This Section 10 is subject to and limited by the provisions of
Section 23A of the Federal Reserve Act, as applicable.
SECTION 11. Survival of Agreements, Representations and Indemnities. The
respective indemnities of the Company, the Association and Capital Resources and
the representations and warranties and other statements of the Company and the
Association set forth in or made pursuant to this Agreement shall remain in full
force and effect, regardless of any termination or cancellation of this
Agreement or any investigation made by or on behalf of Capital Resources, the
Company, the Association or any indemnified person referred to in Section 9
hereof, and shall survive the issuance of the Shares, and any legal
representative, successor or assign of Capital Resources, the Association, and
any such indemnified person shall be entitled to the benefit of the respective
agreements, indemnities, warranties and representations.
SECTION 12. Termination. Capital Resources may terminate this Agreement by
giving the notice indicated below in this Section at any time after this
Agreement becomes effective as follows:
(a) In the event the Company fails to sell all of the Shares within the
period specified, and in accordance with the provisions of the Plan or as
required by the Conversion Regulations and applicable law, this Agreement shall
terminate upon refund by the Association to each person who has subscribed for
or ordered any of the Shares the full amount which it may have received from
such person, together with interest as provided in the Offering Prospectus, and
no party to this Agreement shall have any obligation to the other hereunder,
except for payment by the Association and/or the Company as set forth in
Sections 2, 7, 9 and 10 hereof.
(b) If any of the conditions specified in Section 8 shall not have been
fulfilled when and as required by this Agreement, or by the Closing Date, or
waived in writing by Capital Resources, this Agreement and all of Capital
Resources obligations hereunder may be canceled by Capital Resources by
notifying the Association of such cancellation in writing or by telegram at any
time at or prior to the Closing Date, and, any such cancellation shall be
without liability of any party to any other party except as otherwise provided
in Sections 2, 7, 9 and 10 hereof.
(c) If Capital Resources elects to terminate this Agreement as provided in
this section, the Company and the Association shall be notified as provided in
Section 13 hereof, promptly by Capital Resources by telephone or telegram,
confirmed by letter.
SECTION 13. Notices. All communications hereunder, except as herein
otherwise specifically provided, shall be mailed in writing and if sent to
Capital Resources shall be mailed, delivered or telegraphed and confirmed to
Capital Resources, Inc., 1211 Connecticut Avenue, N.W., Suite 200, Washington,
D.C. 20036 Attention: Catherine K. Rochester (with a copy to Steele Silcox &
Browning, P.C., 1150 Connecticut Ave., NW, Ninth Floor, Washington, D.C. 20036,
Attention: Clark R. Silcox, Esq.) and, if sent to the Company and the
Association, shall be mailed, delivered or telegraphed and confirmed to the
Company and the Association at 51 South Front Street, Steelton, Pennsylvania
17113, Attention: Mr. Harold E. Stremmel (with a copy to Malizia, Spidi, Sloane
& Fisch, P.C., 1301 K Street, NW, Suite 700 East, Washington, D.C. 20005,
Attention: Samuel Malizia, Esq.)
SECTION 14. Parties. The Company and the Association shall be entitled to
act and rely on
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any request, notice, consent, waiver or agreement purportedly given on behalf of
Capital Resources when the same shall have been given by the undersigned.
Capital Resources shall be entitled to act and rely on any request, notice,
consent, waiver or agreement purportedly given on behalf or the Company or the
Association, when the same shall have been given by the undersigned or any other
officer of the Company or the Association. This Agreement shall inure solely to
the benefit of, and shall be binding upon, Capital Resources and the Company,
the Association and the controlling persons referred to in Section 9 hereof, and
their respective successors, legal representatives and assigns, and no other
person shall have or be construed to have any legal or equitable right, remedy
or claim under or in respect of or by virtue of this Agreement or any provision
herein contained.
SECTION 15. Closing. The closing for the sale of the Shares shall take
place on the Closing Date at the offices of Malizia, Spidi, Sloane & Fisch,
P.C., 1301 K Street, NW, Suite 700 East, Washington, D.C. 20005, or such other
location as mutually agreed upon by Capital Resources, the Company and the
Association. At the closing, the Association shall deliver to Capital Resources
in next day funds the commissions, fees and expenses due and owing to Capital
Resources as set forth in Sections 2 and 7 hereof and the opinions and
certificates required hereby and other documents deemed reasonably necessary by
Capital Resources shall be executed and delivered to effect the sale of the
Shares as contemplated hereby and pursuant to the terms of the Offering
Prospectus.
SECTION 16. Partial Invalidity. In the event that any term, provision or
covenant herein or the application thereof to any circumstances or situation
shall be invalid or unenforceable, in whole or in part, the remainder hereof and
the application of said term, provision or covenant to any other circumstance or
situation shall not be affected thereby, and each term, provision or covenant
herein shall be valid and enforceable to the full extent permitted by law.
SECTION 17. Construction. This Agreement shall be construed in accordance
with the laws of the District of Columbia.
SECTION 18. Counterparts. This Agreement may be executed in separate
counterparts, each of which so executed and delivered shall be an original, but
all of which together shall constitute but one and the same instrument.
Time shall be of the essence of this Agreement.
If the foregoing correctly sets forth the arrangement among the Company,
the Association and Capital Resources, please indicate acceptance thereof in the
space provided below for that purpose, whereupon this letter and Capital
Resources' acceptance shall constitute a binding agreement.
Very truly yours,
Steelton Bancorp, Inc..
By:
------------------------------------------------
Harold E. Stremmel, President and
Chief Executive Officer
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Mechanics Savings and Loan, FSA
By:
------------------------------------------------
Harold E. Stremmel, Executive Vice- President and
Chief Executive Officer
Accepted as of the date first above written.
CAPITAL RESOURCES, INC.
By: _____________________________________
Catherine K. Rochester
President
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EXHIBIT A
Capital Resources
Broker/Dealer Jurisdictions
California New Jersey
Colorado New Mexico
Connecticut New York
District of Columbia Nevada
Florida North Carolina
Georgia Ohio
Iowa Oregon
Idaho Pennsylvania
Illinois South Carolina
Indiana Tennessee
Kansas Texas
Kentucky Virginia
Louisiana West
Maryland Virginia
Massachusetts Wisconsin
Michigan
Minnesota
Missouri
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EXHIBIT B
(Form of Selected Dealers' Agreement)
369,750 - 500,250 Shares
(subject to increase up to 575,288 shares
in the event of an oversubscription)
STEELTON BANCORP, INC.
(a Pennsylvania corporation)
COMMON STOCK
($0.10 Par Value Per Share)
, 1999
[ ]
[ ]
[ ][ ]. [ ]
Gentlemen:
We have agreed to assist Steelton Bancorp, Inc. (the "Company") and
Mechanics Savings and Loan, FSA, a federally chartered mutual savings and loan
association (the "Bank"), in connection with the offer and sale of up to 575,288
shares of the Company's common stock, $0.10 par value (the "Shares"), to be
issued in connection with the conversion of the Bank to a federally chartered
stock savings association (the "Conversion"). The total number of Shares may be
decreased to a minimum of 369,750 Shares. The Shares, the number of shares to be
issued, and certain of the terms on which they are being offered, are more fully
described in the enclosed Prospectus dated _________________ , 1999 (the
"Prospectus").
In connection with its Conversion, the Company has offered the Shares in a
Subscription Offering to certain account holders and other members of the Bank
as well as in a Community Offering and Syndicated Community Offering. The Shares
are also being offered in accordance with the Plan of Conversion by a selling
group of broker-dealers.
We are offering the selected dealers (of which you are one) the opportunity
to participate in the solicitation of offers to buy the Shares and we will pay
you a fee in the amount of _______ percent (___ %) of the dollar amount of the
Shares sold on behalf of the Company by you, as evidenced by the authorized
designation of your firm on the order form or forms of such Shares accompanying
the funds transmitted for payment therefor to the special account established by
the Company for the purpose of holding such funds. It is understood, of course,
that payment of your fee will be made only out of compensation received by us
for the Shares sold on behalf of the Company by you, as evidenced in according
with the preceding sentence. As soon as practicable after the closing date of
the offering, we will remit to you, out of our compensation as provided above,
the fees to which you are entitled hereunder.
Each order form for the purchase of the Shares must set forth the identity
and address of each person to whom the certificates for such Shares should be
issued and delivered. Such order form should clearly identify your firm. You
shall instruct any subscriber who elects to send his order form to you to make
any accompanying check payable to "Steelton Bancorp, Inc."
This offer is made subject to the terms and conditions herein set forth and
is made only to selected
<PAGE>
dealers who are (i) members in good standing of the National Association of
Securities Dealers, Inc. ("NASD") who are to comply with all applicable rules of
the NASD, including without limitation, the "Free-Riding and Withholding"
interpretation (IM-2110-1) of the Board of Governors of the NASD and Conduct
Rule 2740 of the NASD's Conduct Rules, or (ii) foreign dealers not eligible for
membership in the NASD who agree (A) not to sell any Common Stock within the
United States, its territories or possessions or to persons who are citizens
thereof or residents therein and (B) in making other sales to comply with the
above-mentioned NASD Interpretation and Conduct Rules 2878, 2740, and 2750 as if
they were NASD members, and Conduct Rule 2420 as it applies to non-member
brokers or dealers in a foreign country.
Orders for Shares will be strictly subject to confirmation and we, acting
on behalf of the Company and the Bank, reserve the right in our uncontrolled
discretion to reject any order in whole or in part, to accept or reject orders
in the order of their receipt or otherwise, and to allot. Neither you nor any
person is authorized by the Company, the Bank or by us to give any information
or make any representations other than those contained in the Prospectus in
connection with the sale of the Shares. No selected dealer is authorized to act
as agent for us when soliciting offers to buy the Shares from the public or
otherwise. No selected dealer shall engage in any stabilizing (as defined in
Regulation M promulgated under the Securities Exchange Act of 1934, as amended)
with respect to the Shares during the offering.
We and each selected dealer assisting in selling Shares pursuant hereto
agree to comply with the applicable requirements of the Securities Exchange Act
of 1934, as amended and applicable state rules and regulations. In addition, we
and each selected dealer confirm that the Securities and Exchange Commission
interprets Rule 15c2-8 promulgated under the Securities Exchange Act of 1934, as
amended, as requiring that a Prospectus be supplied to each person who is
expected to receive a confirmation of sale 48 hours prior to delivery of such
person's order form.
We and each selected dealer further agree to the extent that our customers
desire to pay for shares with funds held by or to be deposited with us, in
accordance with the interpretation of the Securities Exchange Commission of Rule
15c2-4 promulgated under the Securities Exchange Act of 1934, as amended, either
(a) upon receipt of an executed order form or direction to execute an order on
behalf of a customer, to forward the offering price for the Shares ordered on or
before twelve noon of the business day following receipt or execution of an
order form by us to the Company for deposit in a segregated account or (b) to
solicit indications of interest in which event (i) we will subsequently contact
any customer indicating interest to confirm the interest and give an order form
or to receive authorization to execute the order form on the customer's behalf,
(ii) we will mail acknowledgments of receipt of orders to each customer
confirming interest on the business day following such confirmation, (iii) we
will debit accounts of such customers on the fifth business day (the "debit
date") following receipt of the confirmation referred to in (i) and (ii) we will
forward completed order forms together with such funds to the Company on or
before twelve noon on the next business day following the debit date for deposit
in a segregated account. We and each selected dealer acknowledge that if the
procedure in (b) is adopted, our customers' funds are not required to be in
their accounts until the debit date. We and each selected dealer agree that no
method of payment, other than as set forth in this paragraph, will be employed
for shares of Shares sold pursuant to this Agreement.
Unless earlier terminated by us, this Agreement shall terminate upon the
closing date of this offering. We may terminate this Agreement or any provisions
hereof at any time by written or telegraphic notice to you. Of course, our
obligations hereunder are subject to the successful completion of the offering.
You agree that at any time or times prior to the termination of this
Agreement you will, upon our request, report to us the number of Shares sold on
behalf of the Company by you under this Agreement.
We shall have full authority to take such actions as we may deem advisable
in respect of all matters pertaining to the offering. We shall be under no
liability to you except for the lack of good faith and for obligations expressly
assumed by us in this Agreement.
<PAGE>
Upon application to us, we will inform you as to the states in which we
believe the Shares have been qualified for sale under, or are exempt from the
requirements of, the respective blue sky law of such states, but we assume no
responsibility or obligation as to your rights to sell Shares in any state.
Additional copies of the Prospectus and any supplements thereto will be
supplied in reasonable quantities upon request.
Any notice from us to you shall be deemed to have been duly given if
mailed, telephoned, or telegraphed to you at the address to which this Agreement
is mailed.
This Agreement shall be construed in accordance with the laws of the
District of Columbia
Please confirm your agreement hereto by signing and returning the
confirmation accompanying this letter at once to us at Capital Resources, Inc.,
1211 Connecticut Ave., NW Suite 200, Washington, D.C. 20036. The enclosed
duplicate copy will evidence the agreement between us.
Sincerely,
CAPITAL RESOURCES, INC.
By:
-------------------------------------
PLAN OF CONVERSION
Adopted on
January 27, 1999
and Subsequently Amended
By the Board of Directors of
Mechanics Savings & Loan, FSA
Steelton, Pennsylvania
<PAGE>
TABLE OF CONTENTS
Page
----
1. Introduction................................................. 1
2. Definitions.................................................. 2
3. Procedure for Conversion..................................... 5
4. Holding Company Applications and Approvals................... 5
5. Sale of Conversion Stock..................................... 5
6. Number of Shares and Purchase Price of
Conversion Stock...................................... 6
7. Purchase by the Holding Company of the Stock
of the Institution.................................... 7
8. Subscription Rights of Eligible Account
Holders (First Priority).............................. 7
9. Subscription Rights of Employee Plans (Second Priority)...... 7
10. Subscription Rights of Supplemental Eligible
Account Holders (Third Priority)...................... 8
11. Subscription Rights of Other Members
(Fourth Priority)..................................... 8
12. Community Offering........................................... 9
13. Public Offering.............................................. 9
14. Limitation on Purchases...................................... 10
15. Payment for Conversion Stock................................. 11
16. Manner of Exercising Subscription Rights
Through Order Forms................................... 12
17. Undelivered, Defective or Late Order Forms or
Insufficient Payment.................................. 13
18. Restrictions on Resale or Subsequent Disposition............. 13
19. Voting Rights of Stockholders................................ 14
20. Establishment of Liquidation Account......................... 14
21. Transfer of Savings Accounts................................. 15
22. Restrictions on Acquisition of the Institution
and Holding Company................................... 16
23. Payment of Dividends and Repurchases of Stock................ 16
24. Amendment of Plan............................................ 16
25. Charter and Bylaws........................................... 16
26. Consummation of Conversion................................... 16
27. Registration and Marketing................................... 16
28. Residents of Foreign Countries and Certain States............ 16
29. Expenses of Conversion....................................... 17
30. Conditions to Conversion..................................... 17
31. Interpretation............................................... 17
<PAGE>
PLAN OF CONVERSION
FOR
MECHANICS SAVINGS & LOAN, FSA
STEELTON, PENNSYLVANIA
1. INTRODUCTION
This Plan of Conversion ("Plan") provides for the conversion of
Mechanics Savings & Loan, FSA ("INSTITUTION") from a Federal mutual savings
association to a federal capital stock savings bank, to be known as Mechanics
Savings Bank. The Board of Directors of the INSTITUTION currently contemplates
that all of the stock of the INSTITUTION shall be held by another corporation
(the "Holding Company"). The purpose of this conversion is to enable the
INSTITUTION to be in the stock form of organization, like commercial banks and
most other corporations. The conversion will result in an increase in the
INSTITUTION's capital available to support growth and for expansion of its
facilities, possible diversification into other related financial services
activities and further enhance the INSTITUTION's ability to render services to
the public and compete with other financial institutions. The use of the Holding
Company would also provide greater organizational flexibility. Shares of capital
stock of the INSTITUTION will be sold to the Holding Company and the Holding
Company will offer the Conversion Stock upon the terms and conditions set forth
herein to Eligible Account Holders, the tax-qualified employee stock benefit
plans (the "Employee Plans") established by the INSTITUTION or the Holding
Company, which may be funded by the Holding Company, Supplemental Eligible
Account Holders, and Other Members in the respective priorities set forth in
this Plan. Any shares of Conversion Stock not subscribed for by the foregoing
classes of persons may be offered for sale to certain members of the public
either directly by the INSTITUTION and the Holding Company through a Community
Offering or through a Public Offering by an Underwriter. In the event that the
INSTITUTION decides not to utilize the Holding Company in the conversion,
Conversion Stock of the INSTITUTION, in lieu of the Holding Company, will be
sold as set forth above and in the respective priorities set forth in this Plan.
In addition to the foregoing, the INSTITUTION and the Holding Company intend to
implement stock option plans and other stock benefit plans at the time of or
subsequent to the conversion and may provide employment or severance agreements
to certain management employees and certain other benefits to the directors,
officers and employees of the INSTITUTION as described in the prospectus for the
Conversion Stock.
This Plan, which has been approved by the Board of Directors of the
INSTITUTION, must also be approved by the affirmative vote of a majority of the
total number of votes entitled to be cast by Voting Members of the INSTITUTION
at a special meeting to be called for that purpose. Prior to the submission of
this Plan to the Voting Members for consideration, the Plan must be approved by
the Office of Thrift Supervision (the "OTS").
Upon conversion, each Account Holder having a Savings Account at the
INSTITUTION prior to conversion will continue to have a Savings Account, without
payment therefor, in the same amount and subject to the same terms and
conditions (except for voting and liquidation rights) as in effect prior to the
conversion. After conversion, the INSTITUTION will succeed to all the rights,
interests, duties and obligations of the INSTITUTION before conversion,
including but not limited to all rights and interests of the INSTITUTION in and
to its assets and properties, whether real, personal or mixed. The INSTITUTION
will become a member of the Federal Home Loan Bank System and all its insured
savings deposits will continue to be insured by the Federal Deposit Insurance
Corporation (the "FDIC") to the extent provided by applicable law.
A-1
<PAGE>
2. DEFINITIONS
For the purposes of this Plan, the following terms have the following
meanings:
Account Holder - The term Account Holder means any Person holding a
Savings Account in the INSTITUTION.
Acting in Concert - The Term "Acting in Concert" means (i) knowing
participation in a joint activity or interdependent conscious parallel action
towards a common goal whether or not pursuant to an express agreement; (ii) a
combination or pooling of voting or other interests in the securities of an
issuer for a common purpose pursuant to any contract, understanding,
relationship, agreement or other arrangement, whether written or otherwise; or
(iii) a person or company which acts in concert with another person or company
("other party") shall also be deemed to be acting in concert with any person or
company who is also acting in concert with that other party, except that any
tax-qualified employee stock benefit plan will not be deemed to be acting in
concert with its trustee or a person who serves in a similar capacity solely for
the purpose of determining whether stock held by the trustee and stock held by
the plan will be aggregated.
Associate - The term Associate when used to indicate a relationship
with any person, means (i) any corporation or organization (other than the
INSTITUTION or a majority-owned subsidiary of the INSTITUTION) of which such
person is an officer or partner or is, directly or indirectly, the beneficial
owner of 10 percent or more of any class of equity securities, (ii) any trust or
other estate in which such person has a substantial beneficial interest or as to
which such person serves as trustee or in a similar fiduciary capacity except
that for the purposes of Sections 9 and 14 hereof, the term "Associate" does not
include any Tax-Qualified Employee Stock Benefit Plan or any Non-Tax-Qualified
Employee Stock Benefit Plan in which a person has a substantial beneficial
interest or serves as a trustee or in a similar fiduciary capacity, and except
that, for purposes of aggregating total shares that may be held by Officers and
Directors the term "Associate" does not include any Tax-Qualified Employee Stock
Benefit Plan, and (iii) any relative or spouse of such person, or any relative
of such spouse, who has the same home as such person or who is a Director or
Officer of the INSTITUTION or the Holding Company, or any of its parents or
subsidiaries.
Community Offering - The term Community Offering, if applicable, means
the offering for sale to certain members of the general public directly by the
Holding Company, of shares not subscribed for in the Subscription Offering.
Conversion Stock - The term Conversion Stock means the $.10 par value
common stock offered and issued by the Holding Company upon conversion.
Director - The term Director means a member of the Board of Directors
of the INSTITUTION and, where applicable, a member of the Board of Directors of
the Holding Company.
Eligible Account Holder - The term Eligible Account Holder means any
person holding a Qualifying Deposit at the INSTITUTION on the Eligibility Record
Date. Only the name(s) of the Person(s) listed on the account as of the
Eligibility Record Date (or a successor entity or estate) is an Eligible Account
Holder. Any Person(s) added to a Qualifying Deposit after the Eligibility Record
Date is not an Eligible Account Holder.
Eligibility Record Date - The term Eligibility Record Date means the
date for determining Eligible Account Holders in the INSTITUTION and is the
close of business on December 31, 1997.
Employees - The term Employees means all Persons who are employed by
the INSTITUTION, excluding Directors and Officers.
A-2
<PAGE>
Employee Plans - The term Employee Plans means the Tax-Qualified
Employee Stock Benefit Plans, including the Employee Stock Ownership Plan,
approved by the Board of Directors of the INSTITUTION.
Estimated Valuation Range. The term Estimated Valuation Range means the
range of the estimated pro forma market value of the Conversion Stock as
determined by the Independent Appraiser prior to the Subscription Offering and
as it may be amended from time to time thereafter.
FDIC - The term FDIC means the Federal Deposit Insurance Corporation.
Holding Company - The term Holding Company means the corporation formed
for the purpose of acquiring all of the shares of capital stock of the
INSTITUTION to be issued upon its conversion to stock form unless the Holding
Company form of organization is not utilized. Shares of common stock of the
Holding Company will be issued in the Conversion to Participants and others in a
Subscription, Community, Public Offering, or through a combination thereof.
Independent Appraiser - The term Independent Appraiser means an
appraiser retained by the INSTITUTION to prepare an appraisal of the pro forma
market value of the Conversion Stock.
Institution - The term INSTITUTION means Mechanics Savings & Loan, FSA,
Steelton, Pennsylvania.
Local Community - The term local community means the county of Dauphin
in the Commonwealth of Pennsylvania.
Member - The term Member means any Person or entity who qualifies as a
member of the INSTITUTION pursuant to its charter and bylaws.
OTS - The term OTS means Office of Thrift Supervision of the Department
of the Treasury.
Officer - The term Officer means an executive officer of the
INSTITUTION and may include the Chairman of the Board, President, Vice
Presidents in charge of principal business functions, Secretary and Treasurer
and any individual performing functions similar to those performed by the
foregoing persons.
Order Form - The term Order Form means any form together with attached
cover letter, sent by the INSTITUTION to any Person containing among other
things a description of the alternatives available to such Person under the Plan
and by which any such Person may make elections regarding subscriptions for
Conversion Stock in the Subscription and Community Offerings.
Other Member - The term Other Member means any person, who is a Member
of the INSTITUTION (other than Eligible Account Holders or Supplemental Eligible
Account Holders) at the close of business on the voting record date.
Participants - The term Participants means the Eligible Account
Holders, Employee Plans, Supplemental Eligible Account Holders and Other
Members.
Person - The term Person means an individual, a corporation, a
partnership, an association, a joint-stock company, a trust (including
Individual Retirement Accounts and KEOGH Accounts), any unincorporated
organization, a government or political subdivision thereof.
Plan - The term Plan means this Plan of Conversion of the INSTITUTION
as it exists on the date hereof and as it may hereafter be amended in accordance
with its terms.
A-3
<PAGE>
Public Offering - The term Public Offering, if applicable, means the
offering for sale through the Underwriter to the general public of any shares of
Conversion Stock not subscribed for in the Subscription Offering.
Purchase Order - The term Purchase Order means any form together with
attached cover letter, sent by the Underwriter to any Person containing among
other things a description of the alternatives available to such Person under
the Plan and by which any such Person may make elections regarding subscriptions
for Conversion Stock in the Public Offering.
Purchase Price - The term Purchase Price means the per share price at
which the Conversion Stock will be sold in accordance with the terms hereof.
Qualifying Deposit - The term Qualifying Deposit means the balance of
each Savings Account of $50 or more in the INSTITUTION at the close of business
on the Eligibility Record Date or Supplemental Eligibility Record Date. Savings
Accounts with total deposit balances of less than $50 shall not constitute a
Qualifying Deposit. Pursuant to the authority contained in 12 C.F.R.
ss.563b.3(e)(1), the term Qualifying Deposit also includes demand accounts as
defined in 12 C.F.R. ss.561.16(a) of $50 or more in the INSTITUTION at the close
of business on the Eligibility Record Date or Supplemental Eligibility Record
Date.
SEC - The term SEC refers to the Securities and Exchange Commission.
Savings Account - The term Savings Account includes savings accounts as
defined in Section 561.42 of the Rules and Regulations of the OTS and includes
certificates of deposit.
Special Meeting of Members - The term Special Meeting of Members means
the special meeting and any adjournments thereof held to consider and vote upon
this Plan.
Subscription Offering - The term Subscription Offering means the
offering of Conversion Stock for purchase through Order Forms to Participants.
Supplemental Eligibility Record Date - The term Supplemental
Eligibility Record Date means the close of business on the last day of the
calendar quarter preceding the approval of the Plan by the OTS.
Supplemental Eligible Account Holder - The term Supplemental Eligible
Account Holder means a holder of a Qualifying Deposit in the INSTITUTION (other
than an officer or trustee or their Associates) at the close of business on the
Supplemental Eligibility Record Date.
Tax-Qualified Employee Stock Benefit Plan - The term Tax-Qualified
Employee Stock Benefit Plan means any defined benefit plan or defined
contribution plan, such as an employee stock ownership plan, stock bonus plan,
profit-sharing plan or other plan, which, with its related trust, meets the
requirements to be "qualified" under Section 401 of the Internal Revenue Code.
Underwriter - The term Underwriter means the investment banking firm or
firms through which the Conversion Stock will be offered and sold in the Public
Offering.
Voting Members - The term Voting Members means those Persons qualifying
as voting members of the INSTITUTION pursuant to its charter and bylaws.
Voting Record Date - The term Voting Record Date means the date fixed
by the Directors in accordance with OTS regulations for determining eligibility
to vote at the Special Meeting of Members.
A-4
<PAGE>
3. PROCEDURE FOR CONVERSION
After approval of the Plan by the Board of Directors of the
INSTITUTION, the Plan shall be submitted together with all other requisite
material to the OTS for its approval. Notice of the adoption of the Plan by the
Board of Directors of the INSTITUTION will be published in a newspaper having
general circulation in each community in which an office of the INSTITUTION is
located and copies of the Plan will be made available at each office of the
INSTITUTION for inspection by the Members. Upon filing the application with the
OTS, the INSTITUTION also will cause to be published a notice of the filing with
the OTS of an application to convert in accordance with the provisions of the
Plan. Following approval by the OTS, the Plan will be submitted to a vote of the
Voting Members at a Special Meeting of Members called for that purpose. Upon
approval of the Plan by a majority of the total votes eligible to be cast by the
Voting Members, the INSTITUTION will take all other necessary steps pursuant to
applicable laws and regulations to convert the INSTITUTION to stock form. The
conversion must be completed within 24 months of the approval of the Plan by the
Voting Members, unless a longer time period is permitted by governing laws and
regulations.
The Board of Directors of the INSTITUTION intends to take all necessary
steps to form the Holding Company including the filing of an Application on Form
H-(e)1 or H-(e)1-S, if available to the Holding Company, with the OTS. Upon
conversion, the INSTITUTION will issue its capital stock to the Holding Company
and the Holding Company will issue and sell the Conversion Stock in accordance
with this Plan.
The Board of Directors of the INSTITUTION may determine for any reason
at any time prior to the issuance of the Conversion Stock not to utilize a
holding company form of organization in the Conversion, in which case, the
Holding Company's registration statement on Form S-1 or Form SB-2 will be
withdrawn from the SEC, the INSTITUTION will take all steps necessary to
complete the conversion from the mutual to the stock form of organization,
including filing any necessary documents with the OTS and will issue and sell
the Conversion Stock in accordance with this Plan. In such event, any
subscriptions or orders received for Conversion Stock of the Holding Company
shall be deemed to be subscriptions or orders for Conversion Stock of the
INSTITUTION without any further action by the INSTITUTION or the subscribers for
the Conversion Stock. Any references to the Holding Company in this Plan shall
mean the INSTITUTION in the event the Holding Company is eliminated in the
Conversion.
The Conversion Stock will not be insured by the FDIC. The INSTITUTION
will not knowingly lend funds or otherwise extend credit to any Person to
purchase shares of the Conversion Stock.
4. HOLDING COMPANY APPLICATIONS AND APPROVALS
The Holding Company shall make timely applications for any requisite
regulatory approvals, including an Application on Form H-(e)1 or an H-(e)1-S, if
available to the Holding Company, to be filed with the OTS and a Registration
Statement on Form S-1 or Form SB-2 to be filed with the SEC. The INSTITUTION
shall be a wholly owned subsidiary of the Holding Company.
5. SALE OF CONVERSION STOCK
The Conversion Stock will be offered simultaneously in the Subscription
Offering to the Eligible Account Holders, Employee Plans, Supplemental Eligible
Account Holders and Other Members in the respective priorities set forth in
Sections 8 through 11 of this Plan. The Subscription Offering may be commenced
as early as the mailing of the Proxy Statement for the Special Meeting of
Members and must be commenced in time to complete the conversion within the time
period specified in Section 3.
Any shares of Conversion Stock not subscribed for in the Subscription
Offering may be offered for sale in the Community Offering, if any, as provided
in Section 12 of this Plan or offered in a Public Offering, as provided in
Section 13, if necessary and feasible. The Subscription Offering may be
commenced prior to the
A-5
<PAGE>
Special Meeting of Members and, in that event, the Community Offering or Public
Offering may also be commenced prior to the Special Meeting of Members. The
offer and sale of Conversion Stock, prior to the Special Meeting of Members
shall, however, be conditioned upon approval of the Plan by the Voting Members.
Shares of Conversion Stock may be sold in a Public Offering, as
provided in Section 13 of this Plan in a manner that will achieve the widest
distribution of the Conversion Stock as determined by the INSTITUTION. In the
event of a Public Offering, the sale of all Conversion Stock subscribed for in
the Subscription Offering will be consummated simultaneously on the date the
sale of Conversion Stock in the Public Offering is consummated and only if all
unsubscribed for Conversion Stock is sold.
The INSTITUTION may elect to pay fees on either a fixed fee or
commission basis or combination thereof to an investment banking firm which
assists it in the sale of the Conversion Stock in the offerings.
6. NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK
The total number of shares (or a range thereof) of Conversion Stock to
be issued and offered for sale will be determined by the Boards of Directors of
the INSTITUTION and the Holding Company, immediately prior to the commencement
of the Offerings, subject to adjustment thereafter if necessitated by a change
in the appraisal due to changes in market or financial conditions, with the
approval of the OTS, if necessary.
All shares sold in the Conversion will be sold at a uniform price per
share referred to in this Plan as the Purchase Price. The aggregate Purchase
Price for all shares of Conversion Stock will not be inconsistent with the
estimated consolidated pro forma market value of the INSTITUTION. The estimated
consolidated pro forma market value of the INSTITUTION will be determined for
such purpose by the Independent Appraiser. Prior to the commencement of the
Subscription and Community Offerings, an Estimated Valuation Range will be
established, which range will vary within 15% above to 15% below the midpoint of
such range. The number of shares of Conversion Stock to be issued and/or the
Purchase Price may be increased or decreased by the INSTITUTION. In the event
that the aggregate Purchase Price of the Conversion Stock is below the minimum
of the Estimated Valuation Range, or materially above the maximum of the
Estimated Valuation Range, a resolicitation only of persons who submitted a
purchase order may be required, provided that up to a 15% increase above the
maximum of the Estimated Valuation Range will not be deemed material so as to
require a resolicitation. Any such resolicitation shall be effected in such
manner and within such time as the INSTITUTION shall establish, with the
approval of the OTS, if required. Up to a 15% increase in the number of shares
to be issued which is supported by an appropriate change in the estimated pro
forma market value of the INSTITUTION or in order to fill the order by the
Employee Plans will not be deemed to be material so as to require a
resolicitation of subscriptions.
Based upon the independent valuation, as updated prior to the
consummation of the Subscription, Community and/or Public Offerings, the Boards
of Directors of the INSTITUTION and the Holding Company will fix the Purchase
Price.
Notwithstanding the foregoing, no sale of Conversion Stock may be
consummated unless, prior to such consummation, the Independent Appraiser
confirms to the INSTITUTION and Holding Company and to the OTS that, to the best
knowledge of the Independent Appraiser, nothing of a material nature has
occurred which, taking into account all relevant factors, would cause the
Independent Appraiser to conclude that the aggregate value of the Conversion
Stock sold at the Purchase Price is incompatible with its estimate of the
aggregate consolidated pro forma market value of the INSTITUTION. If such
confirmation is not received, the INSTITUTION may cancel the Subscription
Offering, Community Offering and/or the Public Offering, reopen or hold new
Offerings to take such other action as the OTS may permit.
The Conversion Stock to be issued in the Conversion shall be fully paid
and nonassessable.
A-6
<PAGE>
7. PURCHASE BY THE HOLDING COMPANY OF THE STOCK OF THE INSTITUTION
Upon the consummation of the sale of all of the Conversion Stock, the
Holding Company will purchase from the INSTITUTION all of the capital stock of
the INSTITUTION to be issued by the INSTITUTION in the conversion in exchange
for the Conversion proceeds that are not permitted to be retained by the Holding
Company.
The Holding Company will apply to the OTS to retain up to 50% of the
proceeds of the Conversion. Assuming the Holding Company is not eliminated, a
lesser percentage may be acceptable.
8. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS (FIRST PRIORITY)
A. Each Eligible Account Holder shall receive, without payment,
nontransferable subscription rights to subscribe for shares of Conversion Stock
equal to the greater of: (i) the maximum established for the Community Offering;
(ii) one-tenth of one percent of the Conversion Stock offered; or (iii) 15 times
the product (rounded down to the next whole number) obtained by multiplying the
total number of shares of Conversion Stock offered by a fraction of which the
numerator is the amount of the Qualifying Deposit of such Eligible Account
Holder and the denominator is the total amount of Qualifying Deposits of all
Eligible Account Holders but in no event greater than the maximum purchase
limitation specified in Section 14 hereof. All such purchases are subject to the
maximum and minimum purchase limitations specified in Section 14 and are
exclusive of an increase in the total number of shares issued due to an increase
in the maximum of the Estimated Valuation Range of up to 15%. Only a Person(s)
with a Qualifying Deposit as of the Eligibility Record Date (or a successor
entity or estate) shall receive subscription rights. Any Person(s) added to a
Qualifying Deposit after the Eligibility Record Date is not an Eligible Account
Holder.
B. In the event that Eligible Account Holders exercise Subscription
Rights for a number of shares of Conversion Stock in excess of the total number
of such shares eligible for subscription, the shares of Conversion Stock shall
be allocated among the subscribing Eligible Account Holders so as to permit each
subscribing Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his or her total allocation of Conversion
Stock equal to the lesser of 100 shares or the number of shares subscribed for
by the Eligible Account Holder. Any shares remaining after that allocation will
be allocated among the subscribing Eligible Account Holders whose subscriptions
remain unsatisfied in the proportion that the amount of the Qualifying Deposit
of each Eligible Account Holder whose subscription remains unsatisfied bears to
the total amount of the Qualifying Deposits of all Eligible Account Holders
whose subscriptions remain unsatisfied. If the amount so allocated exceeds the
amount subscribed for by any one or more Eligible Account Holders, the excess
shall be reallocated (one or more times as necessary) among those Eligible
Account Holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied.
C. Subscription rights as Eligible Account Holders received by
Directors and Officers and their Associates which are based on deposits made by
such persons during the twelve (12) months preceding the Eligibility Record Date
shall be subordinated to the Subscription Rights of all other Eligible Account
Holders.
9. SUBSCRIPTION RIGHTS OF EMPLOYEE PLANS (SECOND PRIORITY)
Subject to the availability of sufficient shares after filling
subscription orders of Eligible Account Holders under Section 8, the Employee
Plans shall receive without payment nontransferable subscription rights to
purchase in the Subscription Offering the number of shares of Conversion Stock
requested by such Plans, subject to the purchase limitations set forth in
Section 14.
The Employee Plans shall not be deemed to be associates or affiliates
of or Persons Acting in Concert with any Director or Officer of the Holding
Company or the INSTITUTION.
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10. SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS (THIRD PRIORITY)
A. In the event that the Eligibility Record Date is more than 15 months
prior to the date of the latest amendment to the Application filed prior to OTS
approval, then, and only in that event, each Supplemental Eligible Account
Holder shall receive, without payment, nontransferable subscription rights
entitling such Supplemental Eligible Account Holder to purchase that number of
shares of Conversion Stock which is equal to the greater of: (i) the maximum
purchase limitation established for the Community Offering; (ii) one-tenth of 1%
of the Conversion Stock Offered; and (iii) or 15 times the product (rounded down
to the next whole number) obtained by multiplying the total number of shares of
Conversion Stock to be issued by a fraction of which the numerator is the amount
of the Qualifying Deposit of the Supplemental Eligible Account Holder and the
denominator is the total amount of the Qualifying Deposits of all Supplemental
Eligible Account Holders. All such purchases are subject to the maximum and
minimum purchase limitations in Section 14 and are exclusive of an increase in
the total number of shares issued due to an increase in the maximum of the
Estimated Valuation Range of up to 15%.
B. Subscription rights received pursuant to this Category shall be
subordinated to the subscription rights received by Eligible Account Holders and
by the Employee Plans.
C. Any subscription rights to purchase shares of Conversion Stock
received by an Eligible Account Holder in accordance with Section 8 shall reduce
to the extent thereof the subscription rights to be distributed pursuant to this
Section.
D. In the event of an oversubscription for shares of Conversion Stock
pursuant to this Section, 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 Section 8) equal to 100 shares of Conversion Stock
or the total amount of his subscription, whichever is less.
(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.
11. SUBSCRIPTION RIGHTS OF OTHER MEMBERS (FOURTH PRIORITY)
A. Each Other Member shall receive, without payment, nontransferable
subscription rights to subscribe for shares of Conversion Stock in an amount
equal to the greater of the maximum purchase limitation established for the
Community Offering or one-tenth of one percent of the Conversion Stock offered,
subject to the maximum and minimum purchase limitations specified in Section 14
and exclusive of an increase in the total number of shares issued due to an
increase in the maximum of the Estimated Valuation Range of up to 15%, which
will be allocated only after first allocating to Eligible Account Holders, the
Employee Plans and Supplemental Eligible Account Holders all shares of
Conversion Stock subscribed for pursuant to Sections 8, 9 and 10 above.
B. In the event that such Other Members subscribe for a number of
shares of Conversion Stock which, when added to the shares of Conversion Stock
subscribed for by the Eligible Account Holders, the Employee Plans and the
Supplemental Eligible Account Holders is in excess of the total number of shares
of Conversion Stock being issued, the subscriptions of such Other Members will
be allocated among the subscribing Other Members so as to permit each
subscribing Other Member, to the extent possible, to purchase a number of shares
sufficient to make his total allocation of Conversion Stock equal to the lesser
of 100 shares or the number of shares subscribed for by the Other Member. Any
shares remaining will be allocated among the subscribing Other Members whose
subscriptions remain unsatisfied on a 100 shares (or whatever lesser amount is
available) per order basis until all orders have been filled or the remaining
shares have been allocated.
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12. COMMUNITY OFFERING
If less than the total number of shares of Conversion Stock to be
subscribed for in the Conversion are sold in the Subscription Offering, shares
remaining unsubscribed may be made available for purchase in the Community
Offering to certain members of the general public. The maximum number of shares
of Conversion Stock, which may be subscribed for in the Community Offering, if
any, by any Person shall not exceed such number of shares of Conversion Stock as
shall equal $100,000 divided by the Purchase Price, subject to the maximum and
minimum purchase limitations specified in Section 14. The shares may be made
available in the Community Offering, if any, through a direct community
marketing program which may provide for utilization of a broker, dealer,
consultant or investment banking firm, experienced and expert in the sale of
savings institution securities. In the Community Offering, if any, shares will
be available for purchase by the general public with preference given to natural
persons residing in the Local Community. Subject to these preferences, the
INSTITUTION shall make distribution of the Conversion Stock to be sold in the
Community Offering in such a manner as to promote the widest distribution of
Conversion Stock.
If Persons in the Community Offering, whose orders would otherwise be
accepted, subscribe for more shares than are available for purchase, the shares
available to them will be allocated among Persons submitting orders in the
Community Offering in an equitable manner as determined by the Board of
Directors. The INSTITUTION may establish all terms and conditions of such offer.
The Community Offering, if any, may commence simultaneously with,
during or subsequent to the completion of the Subscription Offering. The
Community Offering must be completed within 45 days after the completion of the
Subscription Offering unless otherwise extended by the OTS.
The INSTITUTION and the Holding Company, in their absolute discretion,
reserve the right to reject any or all orders in whole or in part which are
received in the Community Offering, at the time of receipt or as soon as
practicable following the completion of the Community Offering. Actions
concerning the rejection of orders should not be in contravention of law.
13. PUBLIC OFFERING
Any shares of Conversion Stock not sold in the Subscription Offering
may be sold through the Underwriter to the general public at the Purchase Price
in the Public Offering, subject to such terms, conditions and procedures as may
be determined by the Boards of Directors of the INSTITUTION and the Holding
Company, in a manner that will achieve the widest distribution of the Conversion
Stock and subject to the right of the INSTITUTION and the Holding Company, in
their absolute discretion, to accept or reject in whole or in part all
subscriptions in the Public Offering. In the Public Offering, if any, any Person
may purchase up to the maximum purchase limitation established for the Community
Offering, subject to the maximum and minimum purchase limitations specified in
Section 14. Shares purchased by any Person together with any Associate or group
of persons Acting in Concert pursuant to Section 12 shall be counted toward
meeting the maximum purchase limitation specified for this Section. Provided
that the Subscription Offering has commenced, the INSTITUTION may commence the
Public Offering at any time after the mailing to the Members of the Proxy
Statement to be used in connection with the Special Meeting of Members, provided
that the completion of the offer and sale of the Conversion Stock shall be
conditioned upon the approval of this Plan by the Voting Members. It is expected
that the Public Offering, if any, will commence just prior to, or as soon as
practicable after, the termination of the Subscription Offering. The Public
Offering shall be completed within 45 days after the termination of the
Subscription Offering, unless such period is extended as provided in Section 3,
above.
If for any reason a Public Offering of shares of Conversion Stock not
sold in the Subscription and Community Offerings can not be effected, other
purchase arrangements will be made for the sale of unsubscribed shares by the
INSTITUTION, if possible. Such other purchase arrangements will be subject to
the approval of the OTS.
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14. LIMITATION ON PURCHASES
The following limitations shall apply to all purchases of shares of
Conversion Stock:
A. The maximum number of shares of Conversion Stock which may be
purchased in the Subscription Offering, or Community Offering and/or Public
Offering by any Person (or persons through a single account) shall not exceed
such number of shares as shall equal $100,000 divided by the Purchase Price.
B. The maximum number of shares of Conversion Stock which may be
subscribed for or purchased in all categories in the Conversion by any Person
(or persons through a single account) or Participant together with any Associate
or group of persons Acting in Concert shall not exceed such number of shares as
shall equal $100,000 divided by the Purchase Price, except for Employee Plans,
which in the aggregate may subscribe for up to 10% of the Conversion Stock
issued. In accordance with Section 31, the Board of Directors shall have the
authority to determine whether persons are Acting in Concert or otherwise are in
compliance with the limitations on purchases.
C. The maximum number of shares of Conversion Stock which may be
purchased in all categories in the conversion by Officers and Directors of the
INSTITUTION and their Associates in the aggregate shall not exceed 35% of the
total number of shares of Conversion Stock issued.
D. A minimum of 25 shares of Conversion Stock must be purchased by each
Person purchasing shares in the conversion to the extent those shares are
available; provided, however, that the minimum number of shares requirement will
not apply if the number of shares of Conversion Stock purchased times the price
per share exceeds $500.
E. The Employee Plans shall not be deemed to be associates or
affiliates of or Persons Acting in Concert with any Director or Officer of the
Holding Company or the Institution.
If the number of shares of Conversion Stock otherwise allocable
pursuant to Sections 8 through 13, inclusive, to any Person or that Person's
Associates would be in excess of the maximum number of shares permitted as set
forth above, the number of shares of Conversion Stock allocated to each such
person shall be reduced to the lowest limitation applicable to that Person, and
then the number of shares allocated to each group consisting of a Person and
that Person's Associates shall be reduced so that the aggregate allocation to
that Person and his Associates complies with the above maximums, and such
maximum number of shares shall be reallocated among that Person and his
Associates as they may agree, or in the absence of an agreement, in proportion
to the shares subscribed by each (after first applying the maximums applicable
to each Person, separately).
Depending upon market or financial conditions, the Board of Directors
of the INSTITUTION and the Holding Company, without further approval of the
Members, may decrease or increase the purchase limitations in this Plan,
provided that the maximum purchase limitations may not be increased to a
percentage in excess of 5%. Notwithstanding the foregoing, the maximum purchase
limitation may be increased up to 9.99% provided that orders for Conversion
Stock exceeding 5% of the shares being offered shall not exceed, in the
aggregate, 10% of the total offering. If the INSTITUTION and the Holding Company
increase the maximum purchase limitations, the INSTITUTION and the Holding
Company are only required to resolicit Persons who subscribed for the maximum
purchase amount and may, in the sole discretion of the INSTITUTION and the
Holding Company, resolicit certain other large subscribers. For purposes of this
Section 14, the Directors of the INSTITUTION and the Holding Company shall not
be deemed to be Associates or a group affiliated with each other or otherwise
Acting in Concert solely as a result of their being Directors of the INSTITUTION
or the Holding Company.
In the event of an increase in the total number of shares offered in
the conversion due to an increase in the maximum of the Estimated Valuation
Range of up to 15% (the "Adjusted Maximum") the additional shares will be used
in the following order of priority: (i) to fill the Employees Plan's
subscription to up to 10% of the Adjusted Maximum; (ii) in the event that there
is an oversubscription at the Eligible Account Holder level, to fill unfilled
subscriptions of Eligible Account Holders exclusive of the Adjusted Maximum
according to Section 8; (iii) in the event that there is an oversubscription at
the Supplemental Eligible Account Holder level, to fill unfilled subscriptions
of Supplemental Eligible Account Holders exclusive of the Adjusted Maximum
according to Section
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10; (iv) in the event that there is an oversubscription at the Other Member
level, to fill unfilled subscriptions of Other Members exclusive of the Adjusted
Maximum in accordance with Section 11; and (v) to fill unfilled Subscriptions in
the Community Offering exclusive of the Adjusted Maximum.
Each Person purchasing Conversion Stock in the Conversion shall be
deemed to confirm that such purchase does not conflict with the above purchase
limitations contained in this Plan.
For a period of three years following the conversion, no Officer,
Director or their Associates shall purchase, without the prior written approval
of the OTS, any outstanding shares of common stock of the Holding Company,
except from a broker-dealer registered with the SEC. This provision shall not
apply to negotiated transactions involving more than one percent of the
outstanding shares of common stock of the Holding Company, the exercise of any
options pursuant to a stock option plan or purchases of common stock of the
Holding Company, made by or held by any Tax-Qualified Employee Stock Benefit
Plan or Non-Tax Qualified Employee Stock Benefit Plan of the INSTITUTION or the
Holding Company (including the Employee Plans) which may be attributable to any
Officer or Director. As used herein, the term "negotiated transaction" means a
transaction in which the securities are offered and the terms and arrangements
relating to any sale are arrived at through direct communications between the
seller or any person acting on its behalf and the purchaser or his investment
representative. The term "investment representative" shall mean a professional
investment advisor acting as agent for the purchaser and independent of the
seller and not acting on behalf of the seller in connection with the
transaction.
15. PAYMENT FOR CONVERSION STOCK
All payments for Conversion Stock subscribed for in the Subscription,
Community, Public Offerings must be delivered in full to the INSTITUTION,
together with a properly completed and executed Order Form, or Purchase Order in
the case of the Public Offering, on or prior to the expiration date specified on
the Order Form or Purchase Order, as the case may be, unless such date is
extended by the INSTITUTION; provided, however, that if the Employee Plans
subscribes for shares during the Subscription Offering, the Employee Plan will
not be required to pay for the shares at the time they subscribe but rather may
pay for such shares of Conversion Stock upon consummation of the Conversion. The
INSTITUTION may make scheduled discretionary contributions to an Employee Plan
provided such contributions do not cause the INSTITUTION to fail to meet its
regulatory capital requirement.
Notwithstanding the foregoing, the INSTITUTION and the Holding Company
shall have the right, in their sole discretion, to permit institutional
investors to submit contractually irrevocable orders in the Community Offering,
Public Offering and to thereafter submit payment for the Conversion Stock for
which they are subscribing in the Community Offering, Public Offering at any
time prior to the completion of the Conversion.
Payment for Conversion Stock subscribed for shall be made either in
cash (if delivered in person), check or money order. Alternatively, subscribers
in the Offerings may pay for the shares subscribed for by authorizing the
INSTITUTION on the Order Form or Purchase Order to make a withdrawal from the
subscriber's Qualifying Deposit at the INSTITUTION in an amount equal to the
purchase price of such shares. Such authorized withdrawal, whether from a
savings, passbook or certificate account, shall be without penalty as to
premature withdrawal. If the authorized withdrawal is from a certificate
account, and the remaining balance does not meet the applicable minimum balance
requirement, the certificate shall be canceled at the time of withdrawal,
without penalty, and the remaining balance will earn interest at the passbook
rate. Funds for which a withdrawal is authorized will remain in the subscriber's
Qualifying Deposit but may not be used by the subscriber until the Conversion
Stock has been sold or the 45-day period (or such longer period as may be
approved by the OTS) following the Subscription Offering has expired, whichever
occurs first. Thereafter, the withdrawal will be given effect only to the extent
necessary to satisfy the subscription (to the extent it can be filled) at the
Purchase Price per share. Interest will continue to be earned on any amounts
authorized for withdrawal until such withdrawal is given effect. Interest will
be paid by the INSTITUTION at not less than the passbook annual rate on payments
for Conversion Stock received
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in cash or by money order or check. Such interest will be paid from the date
payment is received by the INSTITUTION until consummation or termination of the
conversion. If for any reason the Conversion is not consummated, all payments
made by subscribers in the Offerings will be refunded to them with interest. In
case of amounts authorized for withdrawal from Qualifying Deposits, refunds will
be made by canceling the authorization for withdrawal.
16. MANNER OF EXERCISING SUBSCRIPTION RIGHTS THROUGH ORDER FORMS
As soon as practicable after the Prospectus prepared by the Holding
Company and INSTITUTION has been declared effective by the OTS and the SEC,
Order Forms will be distributed to the Participants at their last known
addresses appearing on the records of the INSTITUTION for the purpose of
subscribing to shares of Conversion Stock in the Subscription Offering.
Notwithstanding the foregoing, the INSTITUTION may elect to send Order Forms
only to those Persons who request them after such notice as is approved by the
OTS and is adequate to apprise the Participants of the pendency of the
Subscription Offering has been given. Such notice may be included with the proxy
statement for the Special Meeting of Members and may also be included in a
notice of the pendency of the conversion and the Special Meeting of Members sent
to all Eligible Account Holders in accordance with regulations of the OTS.
Each Order Form or Purchase Order will be preceded or accompanied by
the Prospectus (if a holding company form of organization is utilized) or the
Offering Circular (if the holding company form of organization is not utilized)
describing the Holding Company (if utilized), the INSTITUTION, the Conversion
Stock and the Offerings. Each Order Form or Purchase Order will contain, among
other things, the following:
A. A specified date by which all Order Forms and Purchase Orders must
be received by the INSTITUTION, which date shall be not less than twenty (20),
nor more than forty-five (45) days, following the date on which the Order Forms
are mailed by the INSTITUTION, and which date will constitute the termination of
the Subscription Offering;
B. The purchase price per share for shares of Conversion Stock to be sold
in the Offerings;
C. A description of the minimum and maximum number of shares of
Conversion Stock which may be subscribed for pursuant to the exercise of
Subscription Rights or otherwise purchased in the Community Offering or Public
Offering;
D. Instructions as to how the recipient of the Order Form or Purchase
Order is to indicate thereon the number of shares of Conversion Stock for which
such person elects to subscribe and the available alternative methods of payment
therefor;
E. An acknowledgment that the recipient of the Order Form or Purchase
Order has received a final copy of the Prospectus or Offering Circular, as the
case may be, prior to execution of the Order Form or Purchase Order.
F. A statement to the effect that all subscription rights are
nontransferable, will be void at the end of the Subscription Offering, and can
only be exercised by delivering within the subscription period such properly
completed and executed Order Form, together with cash (if delivered in person),
check or money order in the full amount of the purchase price as specified in
the Order Form for the shares of Conversion Stock for which the recipient elects
to subscribe in the Subscription Offering (or by authorizing on the Order Form
that the INSTITUTION withdraw said amount from the subscriber's Qualifying
Deposit at the INSTITUTION) to the INSTITUTION; and
G. A statement to the effect that the executed Order Form or Purchase
Order, once received by the INSTITUTION, may not be modified or amended by the
subscriber without the consent of the INSTITUTION.
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Notwithstanding the above, the INSTITUTION and the Holding Company
reserve the right in their sole discretion to accept or reject orders received
on photocopied or facsimiled order forms or whose payment is to be made by wire
transfer.
17. UNDELIVERED, DEFECTIVE OR LATE ORDER FORMS: INSUFFICIENT PAYMENT
In the event Order Forms (a) are not delivered and are returned to the
INSTITUTION by the United States Postal Service or the INSTITUTION is unable to
locate the addressee, (b) are not received back by the INSTITUTION or are
received by the INSTITUTION after the expiration date specified thereon, (c) are
defectively filled out or executed, (d) are not accompanied by the full required
payment, or, in the case of institutional investors in the Community Offering or
Public Offering, by delivering irrevocable orders together with a legally
binding commitment to pay in cash, check, money order or wire transfer the full
amount of the purchase price prior to 48 hours before the completion of the
conversion for the shares of Conversion Stock subscribed for (including cases in
which accounts from which withdrawals are authorized are insufficient to cover
the amount of the required payment), or (e) are not mailed pursuant to a "no
mail" order placed in effect by the account holder, the subscription rights of
the person to whom such rights have been granted will lapse as though such
person failed to return the completed Order Form within the time period
specified thereon; provided, however, that the INSTITUTION may, but will not be
required to, waive any immaterial irregularity on any Order Form or Purchase
Order or require the submission of corrected Order Forms or Purchase Orders or
the remittance of full payment for subscribed shares by such date as the
INSTITUTION may specify. The interpretation of the INSTITUTION of terms and
conditions of the Plan and of the Order Forms or Purchase Orders will be final,
subject to the authority of the OTS.
18. RESTRICTIONS ON RESALE OR SUBSEQUENT DISPOSITION
A. All shares of Conversion Stock purchased by Directors or Officers of
the INSTITUTION or the Holding Company in the conversion shall be subject to the
restriction that, except as provided in Section 18B, below, or as may be
approved by the OTS, no interest in such shares may be sold or otherwise
disposed of for value for a period of one (1) year following the date of
purchase.
B. The restriction on disposition of shares of Conversion Stock set
forth in Section 18A above shall not apply to the following:
(i) Any exchange of such shares in connection with a merger or
acquisition involving the INSTITUTION or the Holding Company, which has been
approved by the OTS; and
(ii) Any disposition of such shares following the death of the
person to whom such shares were initially sold under the terms of the Plan.
C. With respect to all shares of Conversion Stock subject to
restrictions on resale or subsequent disposition, each of the following
provisions shall apply;
(i) Each certificate representing shares restricted within the
meaning of Section 18A, above, shall bear a legend prominently stamped on its
face giving notice of the restriction;
(ii) Instructions shall be issued to the stock transfer agent
for the Holding Company not to recognize or effect any transfer of any
certificate or record of ownership of any such shares in violation of the
restriction on transfer; and
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(iii) Any shares of capital stock of the Holding Company
issued with respect to a stock dividend, stock split, or otherwise with respect
to ownership of outstanding shares of Conversion Stock subject to the
restriction on transfer hereunder shall be subject to the same restriction as is
applicable to such Conversion Stock.
19. VOTING RIGHTS OF STOCKHOLDERS
Upon conversion, the holders of the capital stock of the INSTITUTION
shall have the exclusive voting rights with respect to the INSTITUTION as
specified in its charter. The holders of the common stock of the Holding Company
shall have the exclusive voting rights with respect to the Holding Company.
20. ESTABLISHMENT OF LIQUIDATION ACCOUNT
The INSTITUTION 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
INSTITUTION for the benefit of the Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain their Savings Accounts at the
INSTITUTION. Each Eligible Account Holder and Supplemental Eligible Account
Holder shall, with respect to his Savings Account, hold a related inchoate
interest in a portion of the liquidation account balance, in relation to his
Savings Account balance at the Eligibility Record Date and Supplemental
Eligibility Record Date or to such balance as it may be subsequently reduced, as
hereinafter provided.
In the unlikely event of a complete liquidation of the INSTITUTION (and
only in such event), following all liquidation payments to creditors (including
those to Account Holders to the extent of their Savings Accounts) each Eligible
Account Holder and Supplemental Eligible Account Holder shall be entitled to
receive a liquidating distribution from the liquidation account, in the amount
of the then adjusted subaccount balance for his Savings Account then held,
before any liquidation distribution may be made to any holders of the
INSTITUTION's capital stock. No merger, consolidation, purchase of bulk assets
with assumption of Savings Accounts and other liabilities, or similar
transactions with an FDIC institution, in which the INSTITUTION is not the
surviving institution, shall be deemed to be a complete liquidation for this
purpose. In such transactions, the liquidation account shall be assumed by the
surviving institution.
The initial subaccount balance for a Savings Account held by an
Eligible Account Holder or Supplemental Eligible Account Holder shall be
determined by multiplying the opening balance in the liquidation account by a
fraction, the numerator of which is the amount of such Eligible Account Holder's
and Supplemental Eligible Account Holder's Qualifying Deposit and the
denominator of which is the total amount of all Qualifying Deposits of all
Eligible Account Holders and Supplemental Eligible Account Holders in the
INSTITUTION. Such initial subaccount balance shall not be increased, but shall
be subject to downward adjustment as described below.
If, at the close of business on any annual closing date, commencing on
or after the effective date of conversion, the deposit balance in the Savings
Account of an Eligible Account Holder or Supplemental Eligible Account Holder is
less than the lesser of (i) the balance in the Savings Account at the close of
business on any other annual closing date subsequent to the Eligibility Record
Date or Supplemental Eligibility Record Date, as applicable, or (ii) the amount
of the Qualifying Deposit in such Savings Account, the subaccount balance of
such Savings Account shall be adjusted by reducing such subaccount balance in an
amount proportionate to the reduction in such deposit balance. In the event of
such downward adjustment, the subaccount balance shall not be subsequently
increased, notwithstanding any subsequent increase in the deposit balance of the
related Savings Account. If any such Savings Account is closed, the related
subaccount shall be reduced to zero.
The creation and maintenance of the liquidation account shall not
operate to restrict the use or application of any of the net worth accounts of
the INSTITUTION.
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21. TRANSFER OF SAVINGS ACCOUNTS
Each person holding a Savings Account at the INSTITUTION at the time of
conversion shall retain an identical Savings Account at the INSTITUTION
following conversion in the same amount and subject to the same terms and
conditions (except as to voting and liquidation rights).
22. RESTRICTIONS ON ACQUISITION OF THE INSTITUTION AND HOLDING COMPANY
A. In accordance with OTS regulations, for a period of three years from
the date of consummation of conversion, no Person, other than the Holding
Company, shall directly or indirectly offer to acquire or acquire the beneficial
ownership of more than 10% of any class of an equity security of the INSTITUTION
without the prior written consent of the OTS.
B.1. The charter of the INSTITUTION contains a provision stipulating
that no person, except the Holding Company, for a period of five years following
the date of conversion shall directly or indirectly offer to acquire or acquire
the beneficial ownership of more than 10% of any class of an equity security of
the INSTITUTION, without the prior written approval of the OTS. In addition,
such charter may also provide that for a period of five years following the
conversion, shares beneficially owned in violation of the above-described
charter provision shall not be entitled to vote and shall not be voted by any
person or counted as voting stock in connection with any matter submitted to
stockholders for a vote. In addition, special meetings of the stockholders
relating to changes in control or amendment of the charter may only be called by
the Board of Directors, and shareholders shall not be permitted to cumulate
their votes for the election of directors.
B.2. The Certificate of Incorporation of the Holding Company will
contain a provision stipulating that in no event shall any record owner of any
outstanding shares of the Holding Company's common stock who beneficially owns
in excess of 10% of such outstanding shares be entitled or permitted to any vote
in respect to any shares held in excess of 10%. In addition, the Certificate of
Incorporation and Bylaws of the Holding Company provide for staggered terms of
the directors, noncumulative voting for directors, limitations on the calling of
special meetings, a fair price provision for certain business combinations and
certain notice requirements.
C. For the purposes of this Section 22, B.1.:
(i) The term "person" includes an individual, a group acting
in concert, a corporation, a partnership, an association, a joint stock company,
a trust, an unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution;
(ii) The term "offer" includes every offer to buy or acquire,
solicitation of an offer to sell, tender offer for, or request or invitation for
tenders of, a security or interest in a security for value;
(iii) The term "acquire" includes every type of acquisition,
whether effected by purchase, exchange, operation of law or otherwise; and
(iv) The term "security" includes non-transferable
subscription rights issued pursuant to a plan of conversion as well as a
"security" as defined in 15 U.S.C. ss.78c(a)(10).
23. PAYMENT OF DIVIDENDS AND REPURCHASES OF STOCK
The INSTITUTION shall not declare or pay a cash dividend on, or
repurchase any of, its capital stock if the effect thereof would cause its
regulatory capital to be reduced below (i) the amount required for the
Liquidation Account or (ii) the federal regulatory capital requirement in
Section 567.2 of the Rules and Regulations of the OTS.
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Otherwise, the INSTITUTION may declare dividends or make capital distributions
in accordance with applicable law and regulations.
24. AMENDMENT OF PLAN
If deemed necessary or desirable, the Plan may be substantively amended
at any time prior to solicitation of proxies from Members to vote on the Plan by
a two-thirds vote of the INSTITUTION's Board of Directors, and at any time
thereafter by such vote of such Board of Directors with the concurrence of the
OTS. Any amendment to the Plan made after approval by the Members with the
approval of the OTS shall not necessitate further approval by the Members unless
otherwise required by the OTS. The Plan may be terminated by majority vote of
the INSTITUTION's Board of Directors at any time prior to the Special Meeting of
Members to vote on the Plan, and at any time thereafter with the concurrence of
the OTS.
By adoption of the Plan, the Members of the INSTITUTION authorize the
Board of Directors to amend or terminate the Plan under the circumstances set
forth in this Section.
25. CHARTER AND BYLAWS
By voting to adopt the Plan, members of the INSTITUTION will be voting
to adopt a charter and bylaws to read in the form of charter and bylaws for a
federally chartered stock institution. The effective date of the INSTITUTION's
amended charter and bylaws shall be the date of issuance and sale of the
Conversion Stock as specified by the OTS.
26. CONSUMMATION OF CONVERSION
The conversion of the INSTITUTION shall be deemed to take place and be
effective upon the completion of all requisite organizational procedures for
obtaining the federal stock charter for the INSTITUTION and sale of all
Conversion Stock.
27. REGISTRATION AND MARKETING
Within the time period required by applicable laws and regulations, the
Holding Company will register the securities issued in connection with the
conversion pursuant to the Securities Exchange Act of 1934 and will not
deregister such securities for a period of at least three years thereafter,
except that the maintenance of registration for three years requirement may be
fulfilled by any successor to the Holding Company. In addition, the Holding
Company will use its best efforts to encourage and assist a market-maker to
establish and maintain a market for the Conversion Stock and to list those
securities on a national or regional securities exchange or the NASDAQ System.
28. RESIDENTS OF FOREIGN COUNTRIES AND CERTAIN STATES
The INSTITUTION will make reasonable efforts to comply with the
securities laws of all States in the United States in which Persons entitled to
subscribe for shares of Conversion Stock pursuant to the Plan reside. However,
no such Person will be issued subscription rights or be permitted to purchase
shares of Conversion Stock in the Subscription Offering if such Person resides
in a foreign country or in a state of the United States with respect to which
any of the following apply: (i) a small number of Persons otherwise eligible to
subscribe for shares under the Plan reside in such state; (ii) the issuance of
subscription rights or the offer or sale of shares of Conversion Stock to such
Persons would require the INSTITUTION or the Holding Company, as the case may
be, under the securities laws of such state, to register as a broker, dealer,
salesman or agent or to register or otherwise qualify its securities for sale in
such state; or (iii) such registration or qualification would be impracticable
for reasons of cost or otherwise.
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29. EXPENSES OF CONVERSION
The INSTITUTION shall use its best efforts to assure that expenses
incurred by it in connection with the conversion shall be reasonable.
30. CONDITIONS TO CONVERSION
The conversion of the INSTITUTION pursuant to this Plan is expressly
conditioned upon the following:
(a) Prior receipt by the INSTITUTION of rulings of the United States
Internal Revenue Service and the Commonwealth of Pennsylvania taxing
authorities, or opinions of counsel, substantially to the effect that the
conversion will not result in any adverse federal or state tax consequences to
Eligible Account Holders or the INSTITUTION and the Holding Company before or
after the conversion;
(b) The sale of all of the Conversion Stock offered in the conversion; and
(c) The completion of the conversion within the time period specified in
Section 3 of this Plan.
31. INTERPRETATION
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of the Board of Directors of the
INSTITUTION shall be final, subject to the authority of the OTS.
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ARTICLES OF INCORPORATION
OF
STEELTON BANCORP, INC.
Article 1. Name. The name of the corporation is Steelton Bancorp, Inc.
(hereinafter,
the "Company").
Article 2. Registered Office. The address of the initial registered office
of the Company in the Commonwealth of Pennsylvania is 51 South Front Street,
Steelton, Pennsylvania 17113.
Article 3. Nature of Business. The Company is organized under the Business
Corporation Law of 1988, as amended, of the Commonwealth of Pennsylvania (the
"BCL") for the purpose of engaging in any lawful act or activity for which a
corporation may be organized under the laws of the Commonwealth of Pennsylvania.
Article 4. Duration. The term of the existence of the Company shall be
perpetual.
Article 5. Capital Stock.
A. Authorized Amount. The total number of shares of capital stock that
the Company has authority to issue is 10,000,000 of which 2,000,000 shall be
serial preferred stock, no par value (hereinafter, the "Preferred Stock") and
8,000,000 shall be common stock, par value $0.10 per share (hereinafter, the
"Common Stock"). Except to the extent required by governing law, rule, or
regulation, the shares of capital stock may be issued from time to time by the
board of directors of the Company (hereinafter, the "Board of Directors")
without further approval of stockholders. The Company shall have the authority
to purchase its capital stock out of funds lawfully available therefor.
B. Common Stock. Except as provided in this Article 5 (or in any
resolution or resolutions adopted by the Board of Directors pursuant hereto),
the exclusive voting power shall be vested in the Common Stock, with each holder
thereof being entitled to one vote for each share of such Common Stock standing
in the holder's name on the books of the Company. Subject to any rights and
preferences of any class of stock having preference over the Common Stock,
holders of Common Stock shall be entitled to such dividends as may be declared
by the Board of Directors out of funds lawfully available therefor. Upon any
liquidation, dissolution, or winding up of the affairs of the Company, whether
voluntary or involuntary, holders of Common Stock shall be entitled to receive
pro rata the remaining assets of the Company after the holders of any class of
stock having preference over the Common Stock have been paid in full any sums to
which they may be entitled.
<PAGE>
C. Authority of Board to Fix Terms of Preferred Stock. A description of
each class of shares and a statement of the voting rights, designations,
preferences, qualifications, privileges, limitations, options, conversion
rights, and other special rights granted to or imposed upon the shares of each
class and of the authority vested in the Board of Directors to establish series
of Preferred Stock or to determine that Preferred Stock will be issued as a
class without series and to fix and determine the voting rights, designations,
preferences, and other special rights of the Preferred Stock as a class or of
the series thereof are as follows:
Preferred Stock may be issued from time to time as a class without
series or in one or more series. Each series shall be designated in
supplementary sections or amendments to these Articles of Incorporation by the
Board of Directors so as to distinguish the shares thereof from the shares of
all other series and classes. The Board of Directors may by resolution and
amendment to these Articles of Incorporation from time to time divide shares of
Preferred Stock into series, or determine that the Preferred Stock shall be
issued as a class without series, fix and determine the number of shares in a
series and the terms and conditions of the issuance of the class or the series,
and, subject to the provisions of this Article 5, fix and determine the rights,
preferences, qualifications, privileges, limitations, and other special rights,
if any, of the class (if none of such shares of the class have been issued) or
of any series so established, including but not limited to, voting rights (which
may be limited, multiple, fractional, or non-voting rights), the rate of
dividend, if any, and whether or to what extent, if any, such dividends shall be
cumulative (including the date from which dividends shall be cumulative, if
any), the price at and the terms and conditions on which shares may be redeemed,
if any, the preference and the amounts payable on shares in the event of
voluntary or involuntary liquidation, sinking fund provisions for the redemption
or purchase of shares in the event shares of the class or of any series are
issued with sinking fund provisions, and the terms and conditions on which the
shares of the class or of any series may be converted in the event the shares of
the class or of any series are issued with the privilege of conversion.
The Board of Directors may, in its discretion, at any time or from time
to time, issue or cause to be issued all or any part of the authorized and
unissued shares of Preferred Stock for consideration of such character and value
as the Board of Directors shall from time to time fix or determine.
D. Repurchase of Shares. The Company may, from time to time, pursuant
to authorization by the Board of Directors and without action by the
stockholders, purchase or otherwise acquire shares of any class, bonds,
debentures, notes, scrip, warrants, obligations, evidences of indebtedness, or
other securities of the Company in such manner, upon such terms, and in such
amounts as the Board of Directors shall determine; subject, however, to such
limitations or restrictions, if any, as are contained in the express terms of
any class of shares of the Company outstanding at the time of the purchase or
acquisition in question or as are imposed by law or regulation.
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<PAGE>
Article 6. Incorporator. The name and business address of the sole
incorporator is as follows:
Name Address
Harold E. Stremmel 51 South Front Street
Steelton, Pennsylvania 17113
Article 7. Directors. The business and affairs of the Company shall be
managed by or under the direction of the Board of Directors.
A. Number. The number of directors of the Company shall be such number,
not less than 5 nor more than 15 (exclusive of directors, if any, to be elected
by holders of Preferred Stock, voting separately as a class), as shall be
provided from time to time in accordance with the bylaws, provided that no
decrease in the number of directors shall have the effect of shortening the term
of any incumbent director, and provided further that no action shall be taken to
decrease or increase the number of directors from time to time unless at least
eighty percent (80%) of the directors then in office shall concur in said
action.
B. Classified Board. The Board of Directors shall be divided into four
classes of directors that shall be designated Class I, Class II, Class III and
Class IV. The members of each class shall be elected for a term of four years
and until their successors are elected and qualified. Such classes shall be as
nearly equal in number as the then total number of directors constituting the
entire Board of Directors shall permit, with the term of office of Class I to
expire at the first annual meeting of stockholders, the term of office of Class
II to expire at the annual meeting of stockholders one year thereafter, the term
of office of Class III to expire at the annual meeting of stockholders two years
thereafter and the term of Class IV to expire at the annual meeting of
stockholders three years thereafter. At each annual meeting of stockholders
following such initial classification and election, directors elected to succeed
those directors whose terms expire shall be elected for a term of office to
expire at the four succeeding annual meeting of stockholders after their
election.
Should the number of directors of the Company be reduced, the
directorship(s) eliminated shall be allocated among the classes so that the
number of directors in each class is as specified in the immediately preceding
paragraph. The Board of Directors shall designate, by the name of the
incumbent(s), the position(s) to be abolished. Should the number of directors of
the Company be increased, the additional directorships shall be allocated among
such classes so that the number of directors in each class is as specified in
the immediately preceding paragraph.
Whenever the holders of any one or more series of Preferred Stock of
the Company shall have the right, voting separately as a class, to elect one or
more directors of the Company, the Board of Directors shall consist of said
directors so elected in addition to the number of directors fixed as provided
above in this Article 7. Notwithstanding the foregoing, and except as otherwise
may be required by law, whenever the holders of any one or more series of
Preferred
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<PAGE>
Stock of the Company shall have the right, voting separately as a class, to
elect one or more directors of the Company, the terms of the director or
directors elected by such holders shall expire at the next succeeding annual
meeting of stockholders.
The initial board of directors shall consist of the following
individuals divided into the following classes:
Class I Class II Class III Class IV
- ------- -------- --------- --------
James F. Stone Marino Falcone Harold E. Stremmel James S. Nelson
Victor J. Segina Richard E. Farina Joseph A. Wiedeman
C. No Cumulative Voting. Stockholders of the Company shall not be
permitted to cumulate their votes for the election of directors.
D. Vacancies. Subject to the rights of the holders of any series of
Preferred Stock then outstanding, any vacancy occurring on the Board of
Directors, including any vacancy created by reason of an increase in the number
of directors, shall be filled by a majority vote of the directors then in
office, whether or not a quorum is present, or by a sole remaining director, and
any director so chosen shall serve until the term of the class to which such
director was appointed shall expire and until a successor is elected and
qualified. When the number of directors is changed, the Board of Directors shall
determine the class or classes to which the increased or decreased number of
directors shall be appointed.
E. Removal. Unless otherwise required by law, a director (including
persons elected by directors to fill vacancies in the Board of Directors) may be
removed from office only for cause by an affirmative vote of not less than a
majority of the total votes eligible to be cast by stockholders. Cause for
removal by stockholders shall exist only if the director whose removal is
proposed has been either declared of unsound mind by an order of a court of
competent jurisdiction, convicted of a felony or of an offense punishable by
imprisonment for a term of more than one year by a court of competent
jurisdiction, or deemed liable by a court of competent jurisdiction for gross
negligence or misconduct in the performance of such director's duties to the
Company. At least 30 days prior to such meeting of stockholders, written notice
shall be sent to the director whose removal will be considered at the meeting.
Directors may also be removed from office in the manner provided in Sections
1726(b) and 1726(c) of the BCL, or any successors to such sections.
F. Nominations of Directors. Nominations of candidates for election as
directors at any annual meeting of stockholders may be made (a) by, or at the
direction of, a majority of the Board of Directors or (b) by any stockholder
entitled to vote at such annual meeting. Only persons nominated in accordance
with the procedures set forth in this Article 7.F shall be eligible for election
as directors at an annual meeting. Ballots bearing the names of all the
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<PAGE>
persons who have been nominated for election as directors at an annual meeting
in accordance with the procedures set forth in this Article 7.F shall be
provided for use at the annual meeting.
Nominations, other than those made by or at the direction of the Board
of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Company as set forth in this Article 7.F. To be timely, a
stockholder's notice shall be delivered to, or mailed and received at, the
principal executive offices of the Company not less than 60 days prior to the
anniversary date of the immediately preceding annual meeting of stockholders of
the Company; provided, however, that with respect to the first scheduled annual
meeting, notice by the stockholder must be so delivered or received no later
than the close of business on the tenth day following the day on which notice of
the date of the scheduled meeting was mailed and must be delivered or received
no later than the close of business on the fifth day preceding the date of the
meeting. Such stockholder's notice shall set forth (a) as to each person whom
the stockholder proposes to nominate for election or re-election as a director
and as to the stockholder giving the notice (i) the name, age, business address,
and residence address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of shares of Company stock
that are Beneficially Owned (as determined by Rule 13d-3 promulgated under the
Securities Exchange Act of 1934, as amended) by such person on the date of such
stockholder notice, and (iv) any other information relating to such person that
is required to be disclosed in solicitations of proxies with respect to nominees
for election as directors, pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act") or any successor thereto; and (b) as to the
stockholder giving the notice (i) the name and address, as they appear on the
Company's books, of such stockholder and any other stockholders known by such
stockholder to be supporting such nominees and (ii) the class and number of
shares of Company stock that are Beneficially Owned by such stockholder on the
date of such stockholder notice and, to the extent known, by any other
stockholders known by such stockholder to be supporting such nominees on the
date of such stockholder notice. At the request of the Board of Directors, any
person nominated by, or at the direction of, the Board of Directors for election
as a director at an annual meeting shall furnish to the Secretary of the Company
the same information required to be set forth in a stockholder's notice of
nomination which pertains to the nominee.
The Board of Directors may reject any nomination by a stockholder not
timely made in accordance with the requirements of this Article 7.F. If the
Board of Directors, or a designated committee thereof, determines that the
information provided in a stockholder's notice does not satisfy the
informational requirements of this Article 7.F in any material respect, the
Secretary of the Company shall notify such stockholder of the deficiency in the
notice. The stockholder shall have an opportunity to cure the deficiency by
providing additional information to the Secretary within such period of time,
not to exceed five days from the date such deficiency notice is given to the
stockholder, as the Board of Directors or such committee shall reasonably
determine. If the deficiency is not cured within such period, or if the Board of
Directors or such committee reasonably determines that the additional
information provided by the stockholder, together with information previously
provided, does not satisfy the requirements of this Article 7.F in any material
respect, then the Board of Directors may reject such stockholder's nomination.
The Secretary of the Company shall notify a stockholder in writing
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<PAGE>
whether such person's nomination has been made in accordance with the time and
informational requirements of this Article 7.F. Notwithstanding the procedures
set forth in this paragraph, if neither the Board of Directors nor such
committee makes a determination as to the validity of any nominations by a
stockholder, the presiding officer of the annual meeting shall determine and
declare at the annual meeting whether the nomination was made in accordance with
the terms of this Article 7.F. If the presiding officer determines that a
nomination was made in accordance with the terms of this Article 7.F, such
person shall so declare at the annual meeting and ballots shall be provided for
use at the meeting with respect to such nominee. If the presiding officer
determines that a nomination was not made in accordance with the terms of this
Article 7.F, such person shall so declare at the annual meeting and the
defective nomination shall be disregarded.
Notwithstanding the foregoing, and except as otherwise required by law,
whenever the holders of any one or more series of Preferred Stock shall have the
right, voting separately as a class, to elect one or more directors of the
Company, the provisions of this Article 7.F shall not apply with respect to the
director or directors elected by such holders of Preferred Stock.
Article 8. Preemptive Rights. No holder of any of the shares of any
class or series of stock or of options, warrants, or other rights to purchase
shares of any class or series or of other securities of the Company shall have
any preemptive right to purchase or subscribe for any unissued stock of any
class or series, any unissued bonds, certificates of indebtedness, debentures,
or other securities convertible into or exchangeable for stock of any class or
series or carrying any right to purchase stock of any class or series, or any
shares of any class, bonds, debentures, notes, scrip, warrants, obligations,
evidences of indebtedness, or other securities of the Company purchased by the
Company pursuant to Article 5.D; but any such unissued, or issued but not
outstanding, stock, bonds, certificates of indebtedness, debentures, or other
securities convertible into or exchangeable for stock or carrying any right to
purchase stock may be issued pursuant to resolution of the Board of Directors to
such persons, firms, corporations, or associations, whether or not holders
thereof, and upon such terms as may be deemed advisable by the Board of
Directors in the exercise of its sole discretion.
Article 9. Elimination of Directors' Liability. A director of the
Company shall not be personally liable, as such, for monetary damages for any
action taken unless: (i) the director has breached or failed to perform such
director's fiduciary duties, or other duties under Chapter 17, Subchapter B of
the BCL, of such director's office, and (ii) the breach or failure to perform
constitutes self-dealing, willful misconduct, or recklessness; provided,
however, that the foregoing shall not apply to (i) the responsibility or
liability of a director pursuant to any criminal statute; or (ii) the liability
of a director for the payment of taxes pursuant to federal, state, or local law.
If the laws of the Commonwealth of Pennsylvania are amended after the effective
date of these Articles of Incorporation to eliminate further or limit the
personal liability of directors, then the liability of a director of the Company
shall be eliminated or limited to the fullest extent permitted by law.
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<PAGE>
Any repeal or modification of the foregoing paragraph by the
stockholders of the Company shall not adversely affect any right or protection
of a director of the Company existing at the time of such repeal or
modification.
Article 10. Indemnification, etc. of Officers, Directors, Employees, and
Agents.
A. Persons. The Company shall indemnify any person who was or is a
party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, including actions by or in the right of
the Company, whether civil, criminal, administrative, or investigative, by
reason of the fact that such person is or was a director, officer, employee,
fiduciary, trustee, or agent of the Company, or is or was serving at the request
of the Company as a director, officer, employee, fiduciary, trustee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise.
B. Extent -- Derivative Actions. In the case of a threatened, pending,
or completed action or suit by or in the right of the Company against a person
named in paragraph A by reason of such person holding a position named in
paragraph A, the Company shall indemnify such person if such person satisfies
the standard in paragraph C, for expenses (including attorneys' fees) actually
and reasonably incurred by such person in connection with the defense or
settlement of the action or suit.
C. Standard -- Derivative Suits. In the case of a threatened, pending, or
completed action or suit by or in the right of the Company, a person named in
paragraph A shall be indemnified only if:
1. such person is successful on the merits or otherwise; or
2. such person acted in good faith in the transaction that is the
subject of the suit or action, and in a manner reasonably
believed to be in, or not opposed to, the best interests of the
Company, including, but not limited to, the taking of any and all
actions in connection with the Company's response to any tender
offer or any offer or proposal of another party to engage in a
Business Combination (as defined in Article 13 of these Articles)
not approved by the Board of Directors. However, such person
shall not be indemnified in respect of any claim, issue, or
matter as to which such person has been adjudged liable to the
Company unless (and only to the extent that) the court of common
pleas or the court in which the suit was brought shall determine,
upon application, that despite the adjudication of liability but
in view of all the circumstances, such person is fairly and
reasonably entitled to indemnity for such expenses as the court
shall deem proper.
D. Extent -- Nonderivative Suits. In case of a threatened, pending, or
completed suit, action, or proceeding (whether civil, criminal, administrative,
or investigative), other than a suit by or in the right of the Company, together
hereafter referred to as a nonderivative suit, against a person named in
paragraph A by reason of such person holding a position named in
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<PAGE>
paragraph A, the Company shall indemnify such person if such person satisfies
the standard in paragraph E, for amounts actually and reasonably incurred by
such person in connection with the defense or settlement of the nonderivative
suit, including, but not limited to (i) expenses (including attorneys' fees),
(ii) amounts paid in settlement, (iii) judgments, and (iv) fines.
E. Standard -- Nonderivative Suits. In case of a nonderivative suit, a
person named in paragraph A shall be indemnified only if:
1. such person is successful on the merits or otherwise; or
2. such person acted in good faith in the transaction that is the subject
of the nonderivative suit and in a manner such person reasonably believed to be
in, or not opposed to, the best interests of the Company, including, but not
limited to, the taking of any and all actions in connection with the Company's
response to any tender offer or any offer or proposal of another party to engage
in a Business Combination (as defined in Article 13 of these Articles) not
approved by the Board of Directors and, with respect to any criminal action or
proceeding, such person had no reasonable cause to believe such person's conduct
was unlawful. The termination of a nonderivative suit by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent
shall not, in itself, create a presumption that the person failed to satisfy the
standard of this paragraph E.2.
F. Determination That Standard Has Been Met. A determination that the
standard of paragraph C or E has been satisfied may be made by a court, or,
except as stated in paragraph C.2 (second sentence), the determination may be
made by:
1. the Board of Directors by a majority vote of a quorum consisting of
directors of the Company who were not parties to the action, suit, or
proceeding;
2. if such a quorum is not obtainable or if obtainable and a majority of a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion; or
3. the stockholders of the Company.
G. Proration. Anyone making a determination under paragraph F may determine
that a person has met the standard as to some matters but not as to others, and
may reasonably prorate amounts to be indemnified.
H. Advancement of Expenses. Reasonable expenses incurred by a director,
officer, employee, or agent of the Company in defending a civil or criminal
action, suit, or proceeding described in Article 10.A may be paid by the Company
in advance of the final disposition of such action, suit, or proceeding upon
receipt of an undertaking by or on behalf of such person
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<PAGE>
to repay such amount if it shall ultimately be determined that the person is not
entitled to be indemnified by the Company.
I. Other Rights. The indemnification and advancement of expenses
provided by or pursuant to this Article 10 shall not be deemed exclusive of any
other rights to which those seeking indemnification or advancement of expenses
may be entitled under any insurance or other agreement, vote of stockholders or
directors, or otherwise, both as to actions in their official capacity and as to
actions in another capacity while holding an office, and shall continue as to a
person who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors, and administrators of such person.
J. Insurance. The Company shall have the power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee,
or agent of the Company, or is or was serving at the request of the Company as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust, or other enterprise, against any liability asserted against such
person and incurred by such person in any such capacity, or arising out of such
person's status as such, whether or not the Company would have the power to
indemnify such person against such liability under the provisions of this
Article 10.
K. Security Fund; Indemnity Agreements. By action of the Board of
Directors (notwithstanding their interest in the transaction), the Company may
create and fund a trust fund or fund of any nature, and may enter into
agreements with its officers, directors, employees, and agents for the purpose
of securing or insuring in any manner its obligation to indemnify or advance
expenses provided for in this Article 10.
L. Modification. The duties of the Company to indemnify and to advance
expenses to any person as provided in this Article 10 shall be in the nature of
a contract between the Company and each such person, and no amendment or repeal
of any provision of this Article 10, and no amendment or termination of any
trust or other fund created pursuant to Article 10.K hereof, shall alter to the
detriment of such person the right of such person to the advancement of expenses
or indemnification related to a claim based on an act or failure to act which
took place prior to such amendment, repeal, or termination.
M. Proceedings Initiated by Indemnified Persons. Notwithstanding any
other provision in this Article 10, the Company shall not indemnify a director,
officer, employee, or agent for any liability incurred in an action, suit, or
proceeding initiated by (which shall not be deemed to include counter-claims or
affirmative defenses) or participated in as an intervenor or amicus curiae by
the person seeking indemnification unless such initiation of or participation in
the action, suit, or proceeding is authorized, either before or after its
commencement, by the affirmative vote of a majority of the directors then in
office.
N. Savings Clause. If this Article 10 or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Company shall nevertheless indemnify each director, officer, employee, and agent
of the Company as to costs, charges, and
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expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement with respect to any action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, including an action by or in the
right of the Company to the fullest extent permitted by any applicable portion
of this Article 10 that shall not have been invalidated and to the fullest
extent permitted by applicable law.
If the laws of the Commonwealth of Pennsylvania are amended to permit
further indemnification of the directors, officers, employees, and agents of the
Company, then the Company shall indemnify such persons to the fullest extent
permitted by law. Any repeal or modification of this Article by the stockholders
of the Company shall not adversely affect any right or protection of a director,
officer, employee, or agent existing at the time of such repeal or modification.
Article 11. Meetings of Stockholders and Stockholder Proposals.
A. Special Meetings of Stockholders. Special meetings of the
stockholders of the Company may be called only by the Board of Directors
pursuant to a resolution approved by the affirmative vote of a majority of the
directors then in office.
B. Action Without a Meeting. Notwithstanding any other provision of
these Articles or the Bylaws of the Company, no action required to be taken or
which may be taken at any annual or special meeting of the stockholders of the
Company may be taken without a meeting, and the power of stockholders to consent
in writing, without a meeting, to the taking of any action is specifically
denied.
C. Stockholder Proposals. At an annual meeting of stockholders, only
such new business shall be conducted, and only such proposals shall be acted
upon, as shall have been brought before the annual meeting by, or at the
direction of, (1) the Board of Directors or (2) any stockholder of the Company
who complies with all the requirements set forth in this Article 11.C.
Proposals, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Company as set forth in this Article 11.C. For stockholder proposals to
be considered at the annual meeting of stockholders, the stockholder's notice
shall be delivered to, or mailed and received at, the principal executive
offices of the Company not less than 60 days prior to the anniversary date of
the immediately preceding annual meeting of stockholders of the Company. Such
stockholder's notice shall set forth as to each matter the stockholder proposes
to bring before the annual meeting (a) a brief description of the proposal
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 Company's books, of the stockholder proposing such business and, to the
extent known, any other stockholders known by such stockholder to be supporting
such proposal, (c) the class and number of shares of the Company stock that are
Beneficially Owned by the stockholder on the date of such stockholder notice
and, to the extent known, by any other stockholders known by
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such stockholder to be supporting such proposal on the date of such stockholder
notice, and (d) any financial interest of the stockholder in such proposal
(other than interests which all stockholders would have).
The Board of Directors may reject any stockholder proposal not timely
made in accordance with the terms of this Article 11.C. If the Board of
Directors, or a designated committee thereof, determines that the information
provided in a stockholder's notice does not satisfy the informational
requirements of this Article 11.C in any material respect, the Secretary of the
Company shall promptly notify such stockholder of the deficiency in the notice.
The stockholder shall have an opportunity to cure the deficiency by providing
additional information to the Secretary within such period of time, not to
exceed five days from the date such deficiency notice is given to the
stockholder, as the Board of Directors or such committee shall reasonably
determine. If the deficiency is not cured within such period, or if the Board of
Directors or such committee determines that the additional information provided
by the stockholder, together with information previously provided, does not
satisfy the requirements of this Article 11.C in any material respect, then the
Board of Directors may reject such stockholder's proposal. The Secretary of the
Company shall notify a stockholder in writing whether such stockholder's
proposal has been made in accordance with the time and informational
requirements of this Article 11.C. Notwithstanding the procedures set forth in
this paragraph, if neither the Board of Directors nor such committee makes a
determination as to the validity of any stockholder proposal, the presiding
officer of the annual meeting shall determine and declare at the annual meeting
whether the stockholder proposal was made in accordance with the terms of this
Article 11.C. If the presiding officer determines that a stockholder proposal
was made in accordance with the terms of this Article 11.C, such person shall so
declare at the annual meeting and ballots shall be provided for use at the
meeting with respect to any such proposal. If the presiding officer determines
that a stockholder proposal was not made in accordance with the terms of this
Article 11.C, such person shall so declare at the annual meeting and any such
proposal shall not be acted upon at the annual meeting.
This provision shall not prevent the consideration and approval or
disapproval at the annual meeting of report of officers, directors, and
committees of the Board of Directors, but in connection with such reports, no
new business shall be acted upon at such annual meeting unless stated, filed,
and received as herein provided.
Article 12. Certain Limitations on Voting Rights
A. Limitations. Notwithstanding any other provision of these Articles,
in no event shall any record owner of any outstanding Common Stock which is
beneficially owned, directly or indirectly, by a person who, as of any record
date for the determination of stockholders entitled to vote on any matter,
beneficially owns in excess of 10% of the then-outstanding shares of Common
Stock (the "Limit"), be entitled, or permitted to any vote in respect of the
shares held in 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
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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.
Further, for a period of five years from the completion of the
conversion of Carnegie Savings Bank from mutual to stock form, no Person shall
directly or indirectly Offer to acquire or acquire the beneficial ownership of
more than 10% of any class of any equity security of the Company.
B. Definitions. The following definitions shall apply to this Article 12.
1. "Affiliate" shall have the meaning ascribed to it in Rule
12b-2 of the General Rules and Regulations under the Securities
Exchange Act of 1934, as in effect on the date of filing of this
Certificate.
2. "Beneficial Ownership" (including "Beneficially Owned")
shall be determined pursuant to Rule 13d-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934 (or any successor
rule or statutory provision), or, if said Rule 13d-3 shall be rescinded
and there shall be no successor rule or provision thereto, pursuant to
said Rule 13d-3 as in effect on the date of filing of this Certificate;
provided, however, that a Person shall, in any event, also be deemed
the "beneficial owner" of any Common Stock:
(a) which such Person or any of its Affiliates 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 (as defined in Article 13)
solely by reason of an agreement, contract, or other arrangement
with this Company to effect any transaction which is described in
Section A of Article 13) 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
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(c) which are 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 Company;
and provided further, however, that (1) no director or officer of this Company
(or any Affiliate of any such director or officer) shall, solely by reason of
any or all of such directors or officers acting in their capacities as such, be
deemed, for any purposes hereof, to Beneficially Own any Common Stock
Beneficially Owned by any other such director or officer (or any Affiliate
thereof), and (2) neither any employee stock ownership or similar plan of this
Company or any subsidiary of this Company, nor any trustee with respect thereto
or any Affiliate of such trustee (solely by reason of such capacity of such
trustee), shall be deemed, for any purposes hereof, to Beneficially Own any
Common Stock held under any such plan. For purposes of computing the percentage
Beneficial Ownership of Common Stock of a Person, the outstanding Common Stock
shall include shares deemed owned by such Person through application of this
subsection but shall not include any other Common Stock which may be issuable by
this Company 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 Company pursuant to any
agreement, or upon the exercise of conversion rights, warrants or options, or
otherwise.
3. The term "Offer" shall mean every written offer to buy or
acquire, solicitation of an offer to sell, tender offer or request or invitation
for tender of, a security or interest in a security for value; provided that the
term "Offer" shall not include (i) inquiries directed solely to the management
of the Company and not intended to be communicated to stockholders which are
designed to elicit an indication of management's receptivity to the basic
structure of a potential acquisition with respect to the amount of cash and or
securities, manner of acquisition and formula for determining price, or (ii)
non-binding expressions of understanding or letters of intent with the
management of the Company regarding the basic structure of a potential
acquisition with respect to the amount of cash and/or securities, manner of
acquisition and formula for determining price.
4. 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 Article 12 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 Article 12.
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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 holders of record of Common Stock Beneficially Owned by any Person
in excess of the Limit) supply the Company 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 Article 12 as may
reasonably be requested of such Person.
E. Except as otherwise provided by law or expressly provided in this
Article 12, the presence in person or by proxy of the holders of record of
shares of capital stock of the Company entitling the holders thereof to cast a
majority of the votes (after giving effect, if required, to the provisions of
this Article 12) entitled to be cast by the holders of shares of capital stock
of the Company entitled to vote shall constitute a quorum at all meetings of the
stockholders, and every reference in these Articles to a majority or other
proportion of capital stock (or the holders thereof) for purposes of determining
any quorum requirement or any requirement for stockholder consent or approval
shall be deemed to refer to such majority or other proportion of the votes (or
the holders thereof) then entitled to be cast in respect of such capital stock.
F. The provisions of this Article 12 shall not be applicable to any
tax-qualified defined benefit plan or defined contribution plan of the Company
or its subsidiaries or to the acquisition of more than 10% of any class of
equity security of the Company if such acquisition has been approved by
two-thirds of the entire Board of Directors, as described in Article 13 of this
Article; provided, however, that such approval shall only be effective if such
Directors shall have the power to construe and apply the provisions of this
Article 12 and to make all determinations necessary or desirable to implement
such provisions, including but not limited to matters with respect to (a) the
number of shares Beneficially Owned by any Person, (b) whether a Person has an
agreement, arrangement, or understanding with another as to the matters referred
to in the definition of Beneficial Ownership, (c) the application of any other
material fact relating to the applicability or effect of this Article 12. Any
constructions, applications, or determinations made by the Directors pursuant to
this Article 12 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 Company and its stockholders.
G. In the event any provision (or portion thereof) of this Article 12
shall be found to be invalid, prohibited or unenforceable for any reason, the
remaining provisions (or portions thereof) of this Article 12 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 Company and its stockholders that each
such remaining provision (or portion thereof) of this Article 12 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.
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Article 13. Stockholder Approval of Business Combinations
A. General Requirement. The definitions and other provisions set forth
in Article 12 are also applicable to this Article 13. The affirmative vote of
the holders of not less than eighty percent (80%) of the outstanding shares of
Voting Shares (as hereinafter defined) shall be required for the approval or
authorization of any "Business Combination" as defined and set forth below:
1. Any merger, consolidation, share exchange or division of
the Company or any Subsidiary of the Company with or into (i) any Interested
Shareholder (as hereinafter defined), or (ii) with, involving or resulting in
any other corporation (whether or not itself an Interested Shareholder of the
Company) which is, or after the merger, consolidation, share exchange or
division would be, an Affiliate or Associate of the Interested Shareholder;
2. A sale, lease, exchange, mortgage, pledge, transfer or
other disposition (in one transaction or series of transactions) to or with the
Interested Shareholders or any Affiliate or Associate or such Interested
Shareholder of assets of the Company or any Subsidiary of the Company (i) Having
an aggregate Market Value (as hereinafter defined) equal to 10% or more of the
aggregate Market Value of all the assets, determined on a consolidated bases, of
such Company; (ii) having an aggregate Market Value equal to 10% or more of the
aggregate Market Value of all outstanding shares of such Company; or (iii)
representing 10% or more of the earning power or net income, determined on a
consolidated basis, of such Company.
3. The issuance or transfer by the Company or any Subsidiary
of the Company (in one or a series of transactions) of any shares of such
Company or any Subsidiary of such Company which has an aggregate Market Value
equal to 5% or more of the aggregate Market Value of all the outstanding shares
of the Company to the Interested Shareholder or any Affiliate or Associate of
such Interested Shareholder except pursuant to the exercise of option rights to
purchase shares, or pursuant to the conversion of securities having conversion
rights, offered, or a dividend or distribution paid or made, pro rata to all
shareholders of the Company.
4. The adoption at any time of any plan or proposal for the
liquidation or dissolution of the Company proposed by, or pursuant to any
agreement, arrangement or understanding with the Interested Shareholder or any
Affiliate or Associate of such Interested Shareholder.
5. A reclassification of securities (including, without
limitation, any split of shares, dividend of shares, or other distribution of
shares in respect of shares, or any reverse split of shares), or
recapitalization of the Company, or any merger or consolidation of the Company
with any Subsidiary of the Company, or any other transaction (whether or not
with or into or otherwise involving the Interested Shareholder), proposed by, or
pursuant to any agreement, arrangement or understanding (whether or not in
writing) with, the Interested Shareholder or any Affiliate or Associate of the
Interested Shareholder, which has the effect, directly or indirectly, of
increasing the proportionate share of the outstanding shares of any class
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or series of Voting Shares or securities convertible into Voting Shares of the
Company or any Subsidiary of the Company which is, directly or indirectly, owned
by the Interested Shareholder or any Affiliate or Associate of the Interested
Shareholder, except as a result of immaterial changes due to fractional share
adjustments.
6. The receipt by the Interested Shareholder or any Affiliate
or Associate of the Interested Shareholder of the benefit, directly or
indirectly (except proportionately as a shareholder of the Company), of any
loans, advances, guarantees, pledges or other financial assistance or tax
credits or other tax advantages provided by or through the Company.
The affirmative vote required by this Article 13 shall be in addition
to the vote of the holders of any class or series of stock of the Company
otherwise required by law, by any other Article of these Articles of
Incorporation, as the same may be amended from time to time, by any resolution
of the Board of Directors providing for the issuance of a class or series of
stock, or by any agreement between the Company and any national securities
exchange.
B. Certain Definitions.
1. "Share Acquisition Date" means with respect to any Person
and the Company, the date that such person first became an Interested
Shareholder of the Company.
2. The "Market Value" of the common stock of the Company shall
be the highest closing sale price during the 30-day period immediately preceding
the date in question of the share of the composite tape for New York Stock
Exchange-listed shares, or, if the shares are not quoted on the composite tape
or if the shares are not listed on the exchange, on the principal United States
securities exchange registered under the exchange act, on which such shares are
listed, or, if the shares are not listed on any such exchange, the highest
closing bid quotation with respect to the share during the 30-day period
preceding the date in question on the National Association of Securities
Dealers, Inc. Automated Quotations System or any system then in use, or if no
quotations are available, the fair market value on the date in question of the
share as determined by the Board of Directors of the Company in good faith. In
the case of property other than cash or shares, the fair market value of the
property on the date in question as determined by the Board of Directors of the
Company in good faith.
3. The term "Interested Shareholder," means any Person (other
than the Company or any Subsidiary of the Company) that:
(i) Is the Beneficial Owner, directly or indirectly, of shares
entitling that Person to cast at least 20% of the votes that all shareholders
would be entitled to cast in an election of directors of the Company; or
(ii) Is an Affiliate or Associate of such Company and at any
time within the five-year period immediately prior to the date in question was
the Beneficial Owner, directly or
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indirectly, of shares entitling that Person to cast at least 20% of the votes
that all shareholders would be entitled to cast in an election of directors of
the Company.
Exception - For the purpose of determining whether a Person is an
Interested Shareholder:
(1) The number of votes that would be entitled to be cast in
an election of directors of the Company shall be calculated by including shares
deemed to be beneficially owned by the Person through application of the
definition of "Beneficial Owner" in section 12.B, but excluding any other
unissued shares of such Company which may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion or option rights or
otherwise; and
(2) There shall be excluded from the Beneficial Ownership of
the Interested Shareholder any:
Shares which were acquired pursuant to a stock split, stock dividend,
reclassification or similar recapitalization with respect to shares described
under this paragraph that have been held continuously since their issuance by
the Company by the natural Person or entity that acquired them from the Company.
For the purpose only of determining the percentage of the outstanding
shares of Voting Shares which any corporation, partnership, person, or other
entity beneficially owns, directly or indirectly, the outstanding shares of
Voting Shares will be deemed to include any shares of Voting Shares which such
corporation, partnership, person or other entity beneficially owns pursuant to
the foregoing provisions of this subsection (whether or not such shares of
Voting Shares are in fact issued or outstanding), but shall not include any
other shares of Voting Shares which may be issuable either immediately or at
some future date pursuant to any agreement, arrangement, or understanding or
upon exercise of conversion rights, exchange rights, warrants, options, or
otherwise.
4. The term "Voting Shares" shall mean any shares of the
authorized stock of the Company entitled to vote generally in the election of
directors.
C. Exceptions. The provisions of this Article 13 shall not apply to a
Business Combination which is approved by two-thirds of those members of the
Board of Directors who were directors prior to the time when the Interested
Shareholder became an Interested Shareholder (the "Continuing Directors"). The
provisions of this Article 13 also shall not apply to a Business Combination:
(1) Approved by the affirmative vote of the holders of shares
entitling such holders to cast a majority of the votes that all shareholders
would be entitled to cast in an election of directors of the Company, not
including any Voting Shares beneficially owned by the Interested Shareholder or
any Affiliate or Associate of such Interested Shareholder, at a meeting
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called for such purpose no earlier than three months after the Interested
Shareholder became, and if at the time of the meeting the Interested Shareholder
is, the Beneficial Owner, directly or indirectly, of shares entitling the
Interested Shareholder to cast at least 80% of the votes that all shareholders
would be entitled to cast in an election of directors of the Company; or
(2) Approved by the affirmative vote of all of the holders of
all of the outstanding common shares.
(3) Approved by the affirmative vote of the holders of shares
entitling such holders to cast a majority of the votes that all shareholders
would be entitled to cast in an election of directors of the Company, not
including any Voting Shares beneficially owned by the Interested Shareholder or
any Affiliate or Associate of the Interested Shareholder, at a meeting called
for such purpose no earlier than five years after the Interested Shareholder's
Share Acquisition Date.
(4) Approved at a shareholders' meeting called for such
purpose no earlier than five years after the Interested Shareholder's Share
Acquisition Date.
D. Additional Provisions. Nothing contained in this Article 13, shall
be construed to relieve an Interested Shareholder from any fiduciary obligation
imposed by law. In addition, nothing contained in this Article 13 shall prevent
any shareholder of the Company from objecting to any Business Combination and
from demanding any appraisal rights which may be available to such shareholder.
E. Amendments. Notwithstanding any provisions of these Articles of
Incorporation or the Bylaws of the Company (and notwithstanding the fact that a
lesser percentage may be specified by laws, these Articles of Incorporation or
the Bylaws of the Company), the affirmative vote of the holders of at least 80
percent of the outstanding shares entitled to vote thereon (and, if any class or
series is entitled to vote thereon separately, the affirmative vote of the
holders of at least 80 percent of the outstanding shares of each such class or
series) shall be required to amend or repeal this Article 13 or adopt any
provisions inconsistent with this Article.
Article 14. Evaluation of Offers. The Board of Directors of the
Company, when evaluating any offer to (A) make a tender or exchange offer for
any equity security of the Company, (B) merge or consolidate the Company with
another corporation or entity or (C) purchase or otherwise acquire all or
substantially all of the properties and assets of the Company, may, in
connection with the exercise of its judgment in determining what is in the best
interest of the Company and its stockholders, give due consideration to all
relevant factors, including, without limitation, the social and economic effect
of acceptance of such offer: on the Company's present and future customers and
employees and those of its subsidiaries; on the communities in which the Company
and its subsidiaries operate or are located; on the ability of the Company to
fulfill its corporate objectives as a financial institution holding company and
on the ability of its subsidiary financial institution to fulfill the objectives
of a federally insured financial institution under applicable statutes and
regulations.
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Article 15. Stockholder Approval of Business Combinations
A. Stockholder Vote. Any merger, consolidation, liquidation, or
dissolution of the Company or any action that would result in the sale or other
disposition of all or substantially all of the assets of the Company ("Business
Combination") shall require the affirmative vote of the holders of at least
eighty percent (80%) of the outstanding shares of capital stock of the Company
eligible to vote at a legal meeting.
B. Board Approval. The provisions of Article 15.A shall not apply to a
particular Business Combination, and such Business Combination shall require
only such stockholder vote, if any, as would be required by Pennsylvania law, if
such Business Combination is approved by two-thirds of the entire Board of
Directors of the Company.
Article 16. Amendment of Articles and Bylaws.
A. Articles. The Company reserves the right to amend, alter, change, or
repeal any provision contained in these Articles of Incorporation, in the manner
now or hereafter prescribed by law, and all rights conferred upon stockholders
herein are granted subject to this reservation. No amendment, addition,
alteration, change, or repeal of these Articles of Incorporation shall be made
unless such amendment addition, alteration, change, or repeal is first proposed
and approved by the Board of Directors pursuant to a resolution proposed and
adopted by the affirmative vote of a majority of the directors then in office,
and thereafter is approved by the holders of a majority (except as provided
below) of the shares of the Company entitled to vote generally in an election of
directors, voting together as a single class, as well as such additional vote of
the Preferred Stock as may be required by the provisions of any series thereof.
Notwithstanding anything contained in these Articles of Incorporation to the
contrary, the affirmative vote of the holders of at least eighty percent (80%)
of the shares of the Company entitled to vote generally in an election of
directors, voting together as a single class, as well as such additional vote of
the Preferred Stock as may be required by the provisions of any series thereof,
shall be required to amend, adopt, alter, change, or repeal any provision
inconsistent with Articles 7, 8, 9, 10, 11, 12, 13, 14, 15 and 16.
B. Bylaws. The Board of Directors or stockholders may adopt, alter,
amend, or repeal the Bylaws of the Company. Such action by the Board of
Directors shall require the affirmative vote of a majority of the directors then
in office at any regular or special meeting of the Board of Directors. Such
action by the stockholders shall require the affirmative vote of the holders of
at least eighty percent (80%) of the shares of the Company entitled to vote
generally in an election of directors, voting together as a single class, as
well as such additional vote of the Preferred Stock as may be required by the
provisions of any series thereof.
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BYLAWS
OF
STEELTON BANCORP, INC.
ARTICLE I. OFFICES
1.1 Registered Office and Registered Agent. The registered office of
Steelton Bancorp, Inc. (the "Company") shall be located in the Commonwealth of
Pennsylvania at such place as may be fixed from time to time by the board of
directors of the Company (the "Board" or "Board of Directors") upon filing of
such notices as may be required by law, and the registered agent shall have a
business office identical with such registered office.
1.2 Other Offices. The Company may have other offices within or outside
the Commonwealth of Pennsylvania at such place or places as the Board of
Directors may from time to time determine.
ARTICLE II. STOCKHOLDERS' MEETING
2.1 Meeting Place. All meetings of the stockholders shall be held at
the principal place of business of the Company, or at such other place within or
without the Commonwealth of Pennsylvania as shall be determined by the Board of
Directors and stated in the notice of such meeting.
2.2 Annual Meeting Time. The annual meeting of the stockholders for the
election of directors and for the transaction of such other business as may
properly come before the meeting shall be held each year on such date and time
as may be determined by the Board of Directors and stated in the notice of such
meeting.
2.3 Organization and Conduct. Each meeting of the stockholders shall be
presided over by the Chairman of the Board, or in the Chairman's absence by the
President, or if neither the Chairman nor the President is present, by any Vice
President. The Secretary, or in the Secretary's absence a temporary Secretary,
shall act as secretary of each meeting of the stockholders. In the absence of
the Secretary and any temporary Secretary, the chairman of the meeting may
appoint any person present to act as secretary of the meeting. The chairman of
any meeting of the stockholders, unless prescribed by law or regulation or
unless the Board of Directors has otherwise determined, shall determine the
order of the business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussions as shall be
deemed appropriate by such chairman in the chairman's sole discretion.
2.4 Notice.
(a) Notice of the date, time, and place of, and the general
business to be conducted at, an annual or special meeting of stockholders shall
be given by delivering personally, by facsimile transmission, or by mailing a
written or printed notice of the same, at least ten (10) days prior to the
meeting, to each stockholder of record entitled to vote at such meeting. When
any stockholders' meeting, either annual or special, is adjourned and a new
record date is fixed for an adjourned meeting of stockholders, 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 unless new business
<PAGE>
is to be transacted thereat or a new record date is fixed therefor, other than
an announcement at the meeting at which such adjournment is taken.
2.5 Voting Lists. The officer or agent having charge of the transfer
books for shares of the Company shall make a complete list of the shareholders
entitled to vote at any meeting of shareholders, arranged in alphabetical order,
with the address of and the number of shares held by each. The list shall be
produced and kept open at the time and place of the meeting and shall be subject
to inspection of any shareholder during the whole time of the meeting for the
purposes thereof.
2.6 Quorum. Except as otherwise required by law:
(a) A quorum at any annual or special meeting of stockholders
shall consist of stockholders representing, either in person or by proxy, a
majority of the outstanding capital stock of the Company entitled to vote at
such meeting without regard to any shares for which a broker indicates on a
proxy that it does not have discretionary authority as to such shares to vote on
such matter ("Broker Non-votes").
(b) The votes of a majority of those present, without regard
to Broker Non-votes or votes of abstention, at any properly called meeting or
adjourned meeting of stockholders, at which a quorum as defined above is
present, shall be sufficient to transact business, unless such greater vote is
required by these Bylaws, the Articles of Incorporation, or the laws of the
Commonwealth of Pennsylvania.
2.7 Voting of Shares.
(a) Except as otherwise provided in these Bylaws or to the
extent that voting rights of the shares of any class or classes are limited or
denied by the Articles of Incorporation, each stockholder, on each matter
submitted to a vote at a meeting of stockholders, shall have one vote for each
share of capital stock registered in such person's name on the books of the
Company.
(b) Directors are to be elected by a plurality of votes cast
by the shares entitled to vote in the election of directors at a meeting at
which a quorum is present. Stockholders shall not be permitted to cumulate their
votes for the election of directors. If, at any meeting of the stockholders, due
to a vacancy or vacancies or otherwise, directors of more than one class of the
Board of Directors are to be elected, each class of directors to be elected at
the meeting shall be elected in a separate election by a plurality vote.
2.8 Fixing Record Date. The Board of Directors may fix a time prior to
the date of any meeting of shareholders as a record date for the determination
of the shareholders entitled to notice of, or to vote at, the meeting, which
time, except in the case of an adjourned meeting, shall be not more than 90 days
prior to the date of the meeting of shareholders. Only shareholders of record on
the date fixed shall be so entitled notwithstanding any transfer of shares on
the books of the Company after any record date fixed as provided in this
subsection. The Board of Directors may similarly fix a record date for the
determination of shareholders of record for any other purpose. When a
determination of shareholders of record has been made as provided in this
section for purposes of a meeting, the determination shall apply to any
adjournment thereof unless the Board fixes a new record date for the adjourned
meeting.
2.9 Proxies. A stockholder may vote either in person or by proxy
executed in writing by the stockholder, or such person's duly authorized
attorney-in-fact. A telegram, telex, cablegram, datagram, or similar
transmission from a shareholder or attorney-in-fact, or a photographic,
facsimile, or similar reproduction of a writing executed by a shareholder or
attorney-in-fact may be treated as properly
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executed for purposes of this section and shall be so treated if it sets forth a
confidential and unique identification number or other mark furnished by the
Company to the shareholder for the purposes of a particular meeting or
transaction. No proxy shall be valid after three years from the date of its
execution, unless otherwise provided in the proxy.
2.10 Voting of Shares in the Name of Two or More Persons. Where shares
are held jointly or as tenants in common by two or more persons as fiduciaries
or otherwise, if only one or more of such persons is present in person or by
proxy, all of the shares standing in the names of such persons shall be deemed
to be represented for the purpose of determining a quorum and the Company shall
accept as the vote of all such shares the votes cast by such person or a
majority of them and if in any case such persons are equally divided upon the
manner of voting the shares held by them, the vote of such shares shall be
divided equally among such persons, without prejudice to the rights of such
joint owners or the beneficial owners thereof among themselves, except that, if
there shall have been filed with the Secretary of the Company a copy, certified
by an attorney-at-law to be correct, of the relevant portions of the agreements
under which such shares are held or the instrument by which the trust or estate
was created or the decree of court appointing them, or of a decree of court
directing the voting of such shares, the persons specified as having such voting
power in the latest such document so filed, and only such persons, shall be
entitled to vote such shares but only in accordance therewith.
2.11 Voting of Shares by Certain Holders. Shares standing in the name
of another corporation may be voted by an 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 such person,
either in person or by proxy, without a transfer of such shares into such
person's name. Shares standing in the name of a trustee may be voted by the
trustee, either in person or by proxy. Shares standing in the name of a receiver
may be voted by such receiver without the transfer thereof into the receiver's
name if authority to do so is contained in an appropriate order of the court or
other public authority by which such receiver was appointed. A stockholder whose
shares are pledged shall be entitled to vote such shares until the shares have
been transferred into the name of the pledgee or nominee, and thereafter the
pledgee or nominee shall be entitled to vote the shares so transferred.
2.12 Judges of Election. For each meeting of stockholders, the Board of
Directors may appoint the judges of election. If for any meeting the
inspector(s) appointed by the Board of Directors shall be unable to act or the
Board of Directors shall fail to appoint any inspector, one or more inspectors
may be appointed at the meeting by the chairman thereof. The number of
inspectors shall be one or three. Except for such duties as may be designated in
the Articles of Incorporation to another person, such inspectors determine the
number of shares outstanding and the voting power of each, the shares
represented at the meeting, the existence of a quorum, the authenticity,
validity, and effect of proxies, receive votes or ballots, hear and determine
all challenges and questions in any way arising in connection with the right to
vote, count and tabulate all votes, determine the result and do such acts as may
be proper to conduct the election or vote with fairness to all shareholders. If
there are three inspectors, the decision, act, or certificate of a majority
shall be effective in all respects as the decision, act, or certificate of all.
Inspectors need not be stockholders.
2.13 Action By Shareholders Without a Meeting. Action required to be
taken or which may be taken at any annual or special meeting of stockholders of
the Company may be taken without a meeting as set forth in the Articles of
Incorporation, which provisions are incorporated herein with the same effect as
if they were set forth herein.
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ARTICLE III. CAPITAL STOCK
3.1 Certificates. Certificates of stock shall be issued in numerical
order, and each stockholder shall be entitled to a certificate signed by the
President or a Vice President, and the Secretary or the Treasurer, and may be
sealed with the seal of the Company or a facsimile thereof. The signatures of
such officers may be facsimiles if the certificate is manually signed on behalf
of a transfer agent, or registered by a registrar, other than the Company itself
or an employee of the Company. If an officer who has signed or whose facsimile
signature has been placed upon such certificate ceases to be an officer of the
Company before the certificate is issued, it may be issued by the Company with
the same effect as if the person were an officer on the date of issue. Each
certificate of stock shall state:
(a) that the Company is incorporated under the laws of the Commonwealth of
Pennsylvania;
(b) the name of the person to whom issued;
(c) the number and class of shares and the designation of the series, if
any, which such certificate represents;
(d) the par value of each share represented by such certificate, or a
statement that such shares are without par value; and
(e) that the Company will furnish to any shareholder upon request and
without charge, a full statement of the designations, preferences, limitations,
and relative rights of each class authorized to be issued.
3.2 Transfers.
(a) Transfers of stock shall be made only upon the stock
transfer books of the Company, kept at the registered office of the Company or
at its principal place of business, or at the office of its transfer agent or
registrar, and before a new certificate is issued the old certificate shall be
surrendered for cancellation. The Board of Directors may, by resolution, open a
share register in any state of the United States, and may employ an agent or
agents to keep such register, and to record transfers of shares therein.
(b) Shares of stock shall be transferred by delivery of the
certificates therefor, accompanied either by an assignment in writing on the
back of the certificate or an assignment separate from the certificate, or by a
written power of attorney to sell, assign, and transfer the same, signed by the
holder of said certificate. No shares of stock shall be transferred on the books
of the Company until the outstanding certificates therefor have been surrendered
to the Company.
3.3 Registered Owner. Registered stockholders shall be treated by the
Company as the holders in fact of the stock standing in their respective names
and the Company shall not be bound to recognize any equitable or other claim to
or interest in any share on the part of any other person, whether or not it
shall have express or other notice thereof, except as expressly provided below
or by the laws of the Commonwealth of Pennsylvania. The Board of Directors may
adopt by resolution a procedure whereby a stockholder of the Company may certify
in writing to the Company that all or a portion of the shares registered in the
name of such stockholder are held for the account of a specified person or
persons. The resolution shall set forth:
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(a) The classification of stockholders who may certify;
(b) The purpose or purposes for which the certification may be
made;
(c) The form of certification and information to be contained
therein;
(d) If the certification is with respect to a record date or
closing of the stock transfer books, the date within which the certification
must be received by the Company; and
(e) Such other provisions with respect to the procedure as are
deemed necessary or desirable.
Upon receipt by the Company of a certification complying with a
resolution meeting the above requirements, the persons specified in the
certification shall be deemed, for the purpose or purposes set forth in the
certification, to be the holders of record of the number of shares specified in
place of the stockholder making the certification.
3.4 Mutilated, Lost, or Destroyed Certificates. In case of any
mutilation, loss, or destruction of any certificate of stock, another may be
issued in its place upon receipt of proof of such mutilation, loss, or
destruction. The Board of Directors may impose conditions on such issuance and
may require the giving of a satisfactory bond or indemnity to the Company in
such sum as the Board might determine, or the Board may establish such other
procedures as it deems necessary.
3.5 Fractional Shares or Scrip. The Company may (a) issue fractions of
a share which shall entitle the holder a proportional interest to exercise
voting rights, to receive dividends thereon, and to participate in any of the
assets of the Company in the event of liquidation; (b) arrange for the
disposition of fractional interests by those entitled thereto; (c) pay in cash
the fair value of fractions of a share as of the time when those entitled to
receive such shares are determined; or (d) issue scrip in registered or bearer
form which shall entitle to holder to receive a certificate for a full share
upon the surrender of such scrip aggregating a full share.
3.6 Shares of Another Company. Shares owned by the Company in another
corporation, domestic or foreign, may be voted by such officer, agent, or proxy
as the Board of Directors may determine or, in the absence of such
determination, by the President of the Company.
ARTICLE IV. BOARD OF DIRECTORS
4.1 Number and Powers. The management of all the affairs, property, and
interest of the Company shall be vested in a Board of Directors. The Board of
Directors shall be divided into four classes as nearly equal in number as
possible. The initial Board of Directors shall consist of seven (7) persons. The
classification and term of the directors shall be as set forth in the Articles
of Incorporation, which provisions are incorporated herein with the same effect
as if they were set forth herein. Directors need not be residents of the
Commonwealth of Pennsylvania. In addition to the powers, authorities, and duties
expressly conferred upon it by these Bylaws and the Articles of Incorporation,
the Board of Directors may exercise all such powers of the Company and do all
such lawful acts and things as are not by statute or by the Articles of
Incorporation or by these Bylaws directed or required to be exercised or done by
the stockholders.
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In discharging the powers and duties of their respective positions, the
Board of Directors, committees of the Board of Directors, and individual
directors may, in considering the best interests of the Company, consider to the
extent they deem appropriate the effects of any action upon any and all groups
affected by such action, including stockholders, employees, suppliers,
customers, and creditor of the Company, and upon the communities in which
offices or other establishments of the Company are located; the short-term and
long-term interests of the Company; the resources, intent, and conduct (past,
stated, and potential) of any person seeking to acquire control of the Company;
and any and all other factors, provided however, the Board of Directors,
committees of the Board of Directors, or any individual director shall not be
required, in considering the best interests of the Company or the effects of any
action, to regard any interest or interests of any particular group affected by
the action as a dominant or controlling interest or factor.
4.2 Change of Number. The number of directors may at any time be
increased or decreased by a vote of two-thirds of the Board of Directors,
provided that no decrease shall have the effect of shortening the term of any
incumbent director except as provided in Sections 4.4 and 4.5 hereunder.
Notwithstanding anything to the contrary contained within these Bylaws, the
number of directors may neither be less than five nor more than 15.
4.3 Resignation. Any director may resign at any time by sending a
written notice of such resignation to the home office of the Company addressed
to the Chairman or the President. Unless otherwise specified therein, such
resignation shall take effect upon receipt thereof by the Chairman or the
President.
4.4 Vacancies. All vacancies in the Board of Directors shall be filled
in the manner provided in the Articles of Incorporation, which provisions are
incorporated herein with the same effect as if they were set forth herein.
4.5 Removal of Directors. Directors may be removed in the manner
provided in the Articles of Incorporation, which provisions are incorporated
herein with the same effect as if they were set forth herein.
4.6 Regular Meetings. Regular meetings of the Board of Directors or any
committee thereof may be held without notice at the principal place of business
of the Company or at such other place or places, either within or without the
Commonwealth of Pennsylvania, as the Board of Directors or such committee, as
the case may be, may from time to time designate. The annual meeting of the
Board of Directors shall be held without notice immediately after the
adjournment of the annual meeting of stockholders.
4.7 Special Meetings.
(a) Special meetings of the Board of Directors may be called
at any time by the Chairman, President, or by a majority of the authorized
number of directors, to be held at the principal place of business of the
Company or at such other place or places as the Board of Directors or the person
or persons calling such meeting may from time to time designate. Notice of all
special meetings of the Board of Directors shall be given to each director at
least five (5) days prior to such meeting by telegram, telex, cablegram,
courier, facsimile, or other similar communication, by letter, or personally.
Such notice need neither specify the business to be transacted at, nor the
purpose of, the meeting.
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(b) Special meetings of any committee may be called at any
time by such person or persons and with such notice as shall be specified for
such committee by the Board of Directors, or in the absence of such
specification, in the manner and with the notice required for special meetings
of the Board of Directors.
4.8 Quorum. A majority of the Board of Directors shall be necessary at
all meetings to constitute a quorum for the transaction of business.
4.9 Waiver of Notice. Attendance of a director at a meeting shall
constitute a waiver of notice of such meeting, except where a director attends
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened. A waiver of notice signed by the
director or directors, whether before, during, or after the time stated for the
meeting, shall be equivalent to the giving of notice.
4.10 Registering Dissent. A director who is present at a meeting of the
Board of Directors at which action on a corporate matter is taken shall be
presumed to have assented to such action unless such director's dissent is
entered in the minutes of the meeting, or unless the director files a written
dissent to such action with the person acting as the secretary of the meeting
before the adjournment thereof, or unless the director delivers a dissent in
writing to the Secretary of the Company immediately after the adjournment of the
meeting. Such right to dissent shall not apply to a director who voted in favor
of such action.
4.11 Executive, Audit, and Other Committees. Standing or special
committees may be appointed by the Board of Directors from its own number from
time to time, and the Board of Directors may from time to time invest such
committees with such powers as it may see fit, subject to such conditions as may
be prescribed by the Board. An Executive Committee may be appointed by
resolution passed by a majority of the full Board of Directors. It shall have
and exercise all of the authority of the Board of Directors, except in reference
to the submission of any action requiring the approval of stockholders, the
creation or filling of vacancies on the Board of Directors, the adoption,
amendment, or repeal of these Bylaws, the amendment or repeal of any resolution
of the Board which, by its terms, is only amendable or repealable by the entire
Board, or any action on matters committed by these Bylaws or resolution of the
Board to another committee of the Board. An Audit Committee shall be appointed
by resolution passed by a majority of the full Board of Directors, and at least
a majority of the members of the Audit Committee shall be directors who are not
also officers of the Company. The Audit Committee shall review the records and
affairs of the Company to determine its financial condition, shall review the
Company's systems of internal control with management and the Company's
independent auditors, and shall monitor the Company's adherence in accounting
and financial reporting to generally accepted accounting principles, as well as
such other duties as may be assigned to it by the Board of Directors. All
committees appointed by the Board of Directors shall keep regular minutes of the
transactions of their meetings and shall cause them to be recorded in books kept
for that purpose in the office of the Company. The designation of any such
committee, and the delegation of authority thereto, shall not relieve the Board
of Directors, or any member thereof, of any responsibility imposed by law.
4.12 Remuneration. The Board of Directors, by the affirmative vote of a
majority of the directors then in office, and irrespective of any personal
interest of any of its members, shall have the authority to establish reasonable
fee for all directors for services to the Company as directors, officers, or
otherwise, or to delegate such authority to any appropriate committee; provided,
that nothing herein contained shall be construed to preclude any director from
serving the Company in any other capacity and receiving compensation therefor.
Members of standing or special committees may be allowed like compensation for
attending committee meetings.
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4.13 Action by Directors Without a Meeting. Any action which may be
taken at a meeting of the directors, or of a committee thereof, may be taken
without a meeting if a consent in writing, setting forth the action so taken or
to be taken, shall be signed by all of the directors, or all of the members of
the committee, as the case may be. Such consent shall have the same effect as a
unanimous vote.
4.14 Action of Directors by Communications Equipment. Any action which
may be taken at a meeting of directors, or of a committee thereof, may be taken
by means of a conference telephone or similar communications equipment by means
of which persons participating in the meeting can hear each other at the same
time. Participation in a meeting pursuant to this section shall constitute
presence in person at the meeting
ARTICLE V. OFFICERS
5.1 Designations. The officers of the Company may include the Chairman
of the Board, a President, a Secretary, and a Treasurer, as well as such Vice
Presidents (including Executive and Senior Vice Presidents), Assistant
Secretaries, and Assistant Treasurers as the Board may designate, who shall be
elected for one year by the directors at their first meeting after the annual
meeting of stockholders, and who shall hold office until their successors are
elected and qualify. Any two or more offices may be held by the same person,
except that the offices of President and Secretary and President and Treasurer
may not be held by the same person. The President and Chairman of the Board
shall be members of the Board.
5.2 Powers and Duties. The officers of the Company 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.
5.3 Delegation. In the case of absence or inability to act of any
officer of the Company and of any person herein authorized to act in such
officer's place, the Board of Directors may from time to time delegate the
powers or duties of such officer to any other officer or any director or other
person whom it may select.
5.4 Vacancies. Vacancies in any office arising from any cause may be
filled by the Board of Directors at any regular or special meeting of the Board.
5.5 Other Officers. The Board may appoint such other officers and
agents as it shall deem necessary or expedient, who shall hold their offices for
such terms and shall exercise such powers and perform such duties as shall be
determined from time to time by the Board of Directors.
5.7 Term - Removal. The officers of the Company shall hold office until
their successors are chosen and qualified. Any officer or agent elected or
appointed by the Board of Directors may be removed at any time, with or without
cause, by the affirmative vote of a majority of the whole Board of Directors,
but such removal shall be without prejudice to the contractual rights, if any,
of the person so removed. The election or appointment of an officer or agent
shall not in itself create contractual rights.
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ARTICLE VI. FISCAL YEAR; ANNUAL AUDIT
The fiscal year of the Company shall end on the 31st day of December of
each year. The Company shall be subject to an annual audit as of the end of its
fiscal year by independent public accountants appointed by and responsible to
the Board of Directors. The appointment of such accountants shall be subject to
annual ratification by the stockholders.
ARTICLE VII. DIVIDENDS AND FINANCE
7.1 Dividends. Dividends may be declared by the Board of Directors and
paid by the Company out of retained earnings of the Company subject to the
conditions and limitations imposed by the laws of the Commonwealth of
Pennsylvania.
7.2. Reserves. Before making any distribution of earned surplus, there
may be set aside out of the earned surplus of the Company such sum or sums as
the directors from time to time in their absolute discretion deem expedient as a
reserve fund to meet contingencies, or for equalizing dividends, or for
maintaining any property of the Company, or for any other purpose. Any earned
surplus of any year not distributed as dividends shall be deemed to have thus
been set apart until otherwise disposed of by the Board of Directors.
7.3 Depositories. The monies of the Company shall be deposited in the
name of the Company in such bank or banks or trust company or trust companies as
the Board of Directors shall designate, and shall be drawn out only by check or
other order for payment of money signed by such persons and in such manner as
may be determined by resolution of the Board of Directors.
ARTICLE VIII. NOTICES
Except as may otherwise be required by law, any notice to any
stockholder or director may be delivered personally, by mail, by telegram,
telex, or TWX (with answerback received), or by courier service or facsimile
transmission. If sent by mail, telegraph, or courier service, the notice shall
be deemed to have been given to the person when deposited in the United States
mail or with a telegraph or courier service for delivery to that person or, in
the case of telex or TWX, when dispatched to the address of the addressee at
such persons last known address (or to such persons telex, TWX, or facsimile
number) in the records of the Company, with postage or courier or other charges
thereon prepaid.
ARTICLE IX. SEAL
The corporate seal of the Company shall be in such form and bear such
inscription as may be adopted by resolution of the Board of Directors, or by
usage of the officers on behalf of the Company.
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ARTICLE X. BOOKS AND RECORDS
The Company shall keep correct and complete books and records of
account and shall keep minutes and proceedings of meetings of its stockholders
and Board of Directors; and it shall keep at its registered office or principal
place of business, or at the office of its transfer agent or registrar, a record
of its stockholders, giving the names and addresses of all stockholders and the
number and class of the shares held by each. Any books, records, and minutes may
be in written form or any other form capable of being converted into written
form within a reasonable time.
ARTICLE XI. AMENDMENTS
These Bylaws may be altered, amended or repealed only as set forth in
the Articles of Incorporation, which provisions are incorporated herein with the
same effect as if they were set forth herein.
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================================================================================
COMMON STOCK Steelton Bancorp, Inc. CUSIP
CERTIFICATE NO.
INCORPORATED UNDER THE
LAWS OF THE COMMONWEALTH OF PENNSYLVANIA
SEE REVERSE FOR
CERTAIN DEFINITIONS
THIS CERTIFIES THAT:
IS THE OWNER OF:
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK,
$0.10 PAR VALUE PER SHARE OF
Steelton 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 in
person, 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
contained in the corporation's official corporate papers filed with the
Department of State of the Commonwealth of Pennsylvania (copies of which are on
file with the Transfer Agent), to all of the provisions the holder by acceptance
hereof, assents.
This certificate is not valid unless countersigned and registered by
the Transfer Agent and Registrar.
THIS SECURITY IS NOT A DEPOSIT OR ACCOUNT AND IS NOT
FEDERALLY INSURED OR GUARANTEED.
In Witness Whereof, Steelton 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:
- ------------------------------------ ------------------------------------
PRESIDENT SECRETARY
SEAL
Incorporated 1999
================================================================================
<PAGE>
The shares represented by this certificate are subject to a limitation
contained in the articles of incorporation (the "Articles") 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. In addition, for five years from the initial sale of common stock, no
person or entity may offer to acquire or acquire more than 10% of the then
outstanding shares of any class of equity securities of the corporation.
The Board of Directors of the corporation is authorized by
resolution(s), from time to time adopted, to provide for the issuance of serial
preferred stock in series and to fix and state the voting powers, designations,
preferences, and relative, participating, optional, or other special rights of
the shares of each such series and the qualifications, limitations, and
restrictions thereof. The corporation will furnish to any shareholder upon
request and without charge a full description of each class of stock and any
series thereof.
The shares represented by this certificate may not be cumulatively
voted in the election of directors of the corporation. The Articles also require
the approval of not less than 80% of the corporation's voting stock prior to the
corporation engaging in certain business combinations (as defined in the
Articles) with a person who is the beneficial owner of 10% or more of the
corporation's outstanding voting stock, or with an affiliate or associate of the
corporation. This restriction does not apply if certain approvals are obtained
from the Board of Directors. The affirmative vote of holders of 80% of the
outstanding shares of capital stock of the corporation entitled to vote
generally in the election of directors (considered for this purpose as a single
class) is required to amend this and certain other provisions of the Articles.
The following abbreviations, when used in the inscription on the face
of this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UNIF TRANS MIN ACT - _________Custodian__________
(Cus) (Minor)
TEN ENT - as tenants by the entireties under Uniform Transfers to Minors Act
JT TEN - as joint tenants with right of ___________________________
survivorship and not as tenants (State)
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 IDENTIFYING NUMBER OF ASSIGNEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING 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 shares on the books of the within named
corporation with full power of substitution in the premises.
Dated _____________________ X___________________________________
X___________________________________
NOTICE: The signatures to this assignment must correspond with the
name(s) as written upon the face of the certificate in every particular, without
alteration or enlargement or any change whatever.
SIGNATURE(S) 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.
Countersigned and Registered:
Transfer Agent and Registrar
By: ____________________________________________
Authorized Signature
<PAGE>
March 11, 1999
Board of Directors
Steelton Bancorp, Inc.
51 South Front Street
Steelton, Pennsylvania 17113
Re: Registration Statement Under the Securities Act of 1933
-------------------------------------------------------
Ladies and Gentlemen:
This opinion is rendered in connection with the Registration Statement on
Form SB-2 to be filed with the Securities and Exchange Commission under the
Securities Act of 1933 relating to the offer and sale of up to 575,288 shares of
common stock, par value $0.10 per share (the "Common Stock"), of Steelton
Bancorp, Inc. (the "Company"), including shares to be issued to certain employee
benefit plans of the Company and its subsidiary. The Common Stock is proposed to
be issued pursuant to the Plan of Conversion (the "Plan") of Mechanics Savings &
Loan, FSA, (the "Institution") in connection with the Institution's conversion
from a federal mutual savings association to a federal capital stock savings
bank and reorganization into a wholly-owned subsidiary of the Company (the
"Conversion"). As special counsel to the Institution and the Company, we have
reviewed the corporate proceedings relating to the Plan and the Conversion and
such other legal matters as we have deemed appropriate for the purpose of
rendering this opinion.
Based on the foregoing, we are of the opinion that the shares of Common
Stock of the Company covered by the aforesaid Registration Statement will, when
issued in accordance with the terms of the Plan against full payment therefor,
be validly issued, fully paid, and non-assessable shares of Common Stock of the
Company.
We assume no obligation to advise you of changes that may hereafter be
brought to our attention.
We hereby consent to the use of this opinion and to the reference to our
firm appearing in the Company's Prospectus under the headings "The Conversion -
Effects of Conversion - Tax Effects" and "Legal and Tax Opinions." We also
consent to any references to our legal opinion referred to under the
aforementioned headings in the Prospectus.
Very truly yours,
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
<PAGE>
March 11, 1999
Board of Directors
Steelton Bancorp, Inc.
Mechanics Savings & Loan, FSA
51 South Front Street
Steelton, Pennsylvania 17113
Dear Board Members:
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
Mechanics Savings & Loan, FSA (the "Association"), whereby the Association will
convert from a federally chartered mutual savings association to a federally
chartered stock savings bank and issue all of the Association's stock to
Steelton 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 the Association's Common Stock in the Holding
Company are to be issued to (i) Eligible Account Holders, (ii) the ESOP, (iii)
Supplemental Eligible Account Holders, and (iv) Other Members. Based solely on
our observation that the Subscription Rights will be available to such
Recipients without cost, will be legally non-transferable and of short duration,
and will afford 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
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 opinion that:
the Subscription Rights will have no ascertainable market value; and
the price at which the Subscription Rights are excercisable 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 Association's value alone. Accordingly, no assurance
can be given that persons who subscribe to shares of Common Stock in the
Conversion will thereafter be able to buy or sell such shares at the same price
paid in the Subscription Offering.
Very Truly Yours,
/s/ FinPro, Inc.
----------------------------------
FinPro, Inc.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
ATTORNEYS AT LAW
1301 K STREET, N.W.
SUITE 700 EAST
WASHINGTON, D.C. 20005
(202) 434-4660
FACSIMILE: (202) 434-4661
March 11, 1999
Board of Directors
Mechanics Savings & Loan, FSA
51 South Front Street
Steelton, Pennsylvania 17113
Re: Federal Income Tax Opinion Relating to the Proposed Conversion of
Mechanics Savings & Loan, FSA from a Federal Mutual Savings
Association to a Federal Capital Stock Savings Bank Pursuant to
Section 368(a)(1)(F) of the Internal Revenue Code of 1986, as
amended
-----------------------------------------------------------------
Members of the Board:
In accordance with your request, set forth hereinbelow is the opinion
of this firm relating to the material federal income tax consequences of the
proposed conversion (the "Conversion") of Mechanics Savings & Loan, FSA (the
"Institution") from a federally-chartered mutual savings association to a
federally-chartered capital stock savings bank (the "Stock Bank"), and formation
of a parent holding company (the "Holding Company") which will simultaneously
acquire all of the outstanding stock of Stock Bank. As proposed, the Conversion
will be implemented pursuant to Section 368(a)(1)(F) of the Internal Revenue
Code of 1986, as amended (the "Code").
We have examined such corporate records, certificates and other
documents as we have considered necessary or appropriate for this opinion. In
such examination, we have accepted, and have not independently verified, the
authenticity of all original documents, the accuracy of all copies, and the
genuineness of all signatures. Further, the capitalized terms which are used in
this opinion and are not expressly defined herein shall have the meaning
ascribed to them in the Institution's Plan of Conversion adopted on January 27,
1999, as amended (the "Plan of Conversion").
STATEMENT OF FACTS
------------------
Based solely upon our review of such documents, and upon such
information as the Institution has provided to us (which we have not attempted
to verify in any respect), and in reliance upon such documents and information,
we understand the relevant facts with respect to the Conversion to be as
follows:
<PAGE>
Board of Directors
Mechanics Savings & Loan, FSA
March 11, 1999
Page 2
The Institution is a federally-chartered mutual savings association. As
a mutual savings association, the Institution has no authorized capital stock.
Instead, the Institution, in mutual form, has a unique equity structure. A
savings depositor of the Institution is entitled to interest income on his or
her account balance as declared and paid by the Institution. A savings depositor
has no right to a distribution of any earnings of the Institution, but rather
these amounts become retained earnings of the Institution. However, a savings
depositor has a right to share pro rata, with respect to the withdrawal value of
his or her respective savings account, in any liquidation proceeds distributed
in the event the Institution is ever liquidated. Voting rights in the
Institution are held by its members. Each member is entitled to cast one vote
for each $100 or a fraction thereof of the withdrawal value of the member's
account and each borrower member is entitled to one vote. Each member shall have
a maximum of 1,000 votes. All of the interests held by a savings depositor in
the Institution cease when such depositor closes his or her account(s) with the
Institution.
The Board of Directors of the Institution has decided that in order to
promote the growth and expansion of the Institution through the raising of
additional capital, it would be advantageous for the Institution to: (i) convert
from a federally-chartered mutual savings association to a federally-chartered
capital stock savings bank, and (ii) arrange for the Holding Company to
simultaneously acquire all of the Stock Bank's stock. The Institution's Board of
Directors has determined that in order to provide greater flexibility in future
operations of the Institution, including diversification of business
opportunities and acquisitions, it is advantageous to have the Stock Bank's
stock held by the Holding Company. Pursuant to the Plan of Conversion, the
Institution's certificate of incorporation to operate as a mutual savings
association will be amended and a new certificate of incorporation will be
acquired to allow it to continue its operations in the form of a
federally-chartered capital stock savings bank. The Plan of Conversion provides
for the conversion of the Institution from mutual-to-stock form, and an
appraisal of the pro forma market value of the stock of the Stock Bank, which
will be owned solely by the Holding Company. The Plan of Conversion must be
approved by the Office of Thrift Supervision ("OTS"), and by an affirmative vote
of at least a majority of the total votes eligible to be cast at a special
meeting of the Institution's members called to vote on the Plan of Conversion.
The Holding Company is being formed under the laws of the Commonwealth
of Pennsylvania, for the purpose of the proposed transaction described herein,
to engage in business as a savings and loan holding company and to hold all of
the stock of the Stock Bank. The Holding Company will issue shares of its voting
common stock ("Holding Company Stock") upon completion of the Conversion, as
described below, to persons purchasing such shares through a Subscription
Offering and to the general public in a Public Offering.
The aggregate purchase price at which all shares of Holding Company
Stock will be offered and sold pursuant to the Plan of Conversion will be equal
to the estimated pro forma
<PAGE>
Board of Directors
Mechanics Savings & Loan, FSA
March 11, 1999
Page 3
market value of the Institution at the time of the Conversion as held as a
subsidiary of the Holding Company. The estimated pro forma market value will be
determined by an independent appraiser. Pursuant to the Plan of Conversion, all
such shares of Holding Company Stock will be issued and sold at a uniform price
per share. The Conversion and the sale of newly issued shares of the Stock
Bank's stock to the Holding Company will be deemed effective concurrently with
the closing of the sale of Holding Company Stock.
As required by OTS regulations, shares of Holding Company Stock will be
offered pursuant to non-transferable subscription rights on the basis of
preference categories. All shares must be sold and to the extent that Holding
Company Stock is available, no subscriber will be allowed to purchase less than
25 shares of Holding Company Stock, unless the aggregate purchase price exceeds
$500. The Institution has established various preference categories under which
shares of Holding Company Stock may be purchased and a public offering category
for the sale of shares not purchased under the preference categories. If the
third preference category is determined to be inappropriate to the Conversion,
then there will only be three preference categories consisting of the first,
second, and fourth preference categories set forth below, and all references
herein to Supplemental Eligible Account Holder and the Supplemental Eligibility
Record Date shall not be applicable to the Conversion.
The first preference category is reserved for the Institution's
Eligible Account Holders. The Plan of Conversion defines "Eligible Account
Holder" as any person holding a Qualifying Deposit. The Plan of Conversion
defines "Qualifying Deposit" as the aggregate balance of all savings accounts of
an Eligible Account Holder in the Institution at the close of business on
December 31, 1997, which is at least equal to $50.00. If a savings account
holder of the Institution qualifies as an Eligible Account Holder, he or she
will receive, without payment, non-transferable subscription rights to purchase
Holding Company Stock. The number of shares that each Eligible Account Holder
may subscribe to is equal to the greater of (a) the maximum purchase limitation
established for the Public Offering; (b) one tenth of one percent of the total
offering of shares; or (c) fifteen times the product (rounded down to the next
whole number) obtained by multiplying the total number of shares of Holding
Company 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 the Qualifying Deposits of all Eligible Account Holders. If
there is an oversubscription, shares will be allocated among subscribing
Eligible Account Holders so as to permit each account holder, to the extent
possible, to purchase a number of shares sufficient to make his or her total
allocation equal to 100 shares. Any shares not then allocated shall be allocated
among the subscribing Eligible Account Holders on an equitable basis, related to
the amounts of their respective deposits as compared to the total deposits of
Eligible Account Holders on the Eligibility Record Date. Non-transferable
subscription rights to purchase Holding Company Stock received by officers and
directors of the Institution and their associates based on their increased
deposits in the Institution in the one year period preceding the Eligibility
Record Date shall be subordinated to all other subscriptions
<PAGE>
Board of Directors
Mechanics Savings & Loan, FSA
March 11, 1999
Page 4
involving the exercise of nontransferable subscription rights to purchase shares
of Holding Company Stock under the first preference category.
The second preference category is reserved for tax-qualified employee
stock benefit plans of the Stock Bank. The Plan of Conversion defines "tax
qualified employee stock benefit plans" as any defined benefit plan or defined
contribution plan, such as an employee stock ownership plan, stock bonus plan,
profit-sharing plan or other plan, which, with its related trust meets the
requirements to be "qualified" under Section 401 of the Code. Under the Plan of
Conversion, the Stock Bank's tax-qualified employee stock benefit plans may
subscribe for up to 10% of the shares of Holding Company Stock to be offered in
the Conversion.
The third preference category is reserved for the Institution's
Supplemental Eligible Account Holders. The Plan of Conversion defines
"Supplemental Eligible Account Holder" as any person (other than officers or
directors of the Institution and their associates) holding a deposit in the
Institution on the last day of the calendar quarter preceding the approval of
the Plan of Conversion by the OTS ("Supplemental Eligibility Record Date"). This
third preference category will only be used in the event that the Eligibility
Record Date is more than 15 months prior to the date of the latest amendment to
the Application for Approval of Conversion on Form AC filed prior to approval by
the OTS. The third preference category provides that each Supplemental Eligible
Account Holder will receive, without payment, nontransferable subscription
rights to purchase Holding Company Stock to the extent that such shares of
Holding Company Stock are available after satisfying subscriptions for shares in
the first and second preference categories above. The number of shares to which
a Supplemental Eligible Account Holder may subscribe to is the greater of (a)
the maximum purchase limitation established for the Community Offering; (b)
one-tenth of one percent of the total offering of shares; or (c) fifteen times
the product (rounded down to the next whole number) obtained by multiplying the
total number of the shares of Holding Company Stock to be issued by a fraction
of which the numerator is the amount of the deposit of the Supplemental Eligible
Account Holder and the denominator is the total amount of the deposits of all
Supplemental Eligible Account Holders on the Supplemental Eligibility Record
Date. Subscription rights received pursuant to the third preference category
shall be subordinated to all rights under the first and second preference
categories. Non-transferable subscription rights to be received by a
Supplemental Eligible Account Holder in the third preference category shall be
reduced by the subscription rights received by such account holder as an
Eligible Account Holder under the first and second preference categories. In the
event of an oversubscription, shares will be allocated so as to enable each
Supplemental Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his total allocation, including shares
previously allocated in the first and second preference categories, equal to 100
shares or the total amount of his subscription, whichever is less. Any shares
not then allocated shall be allocated among the subscribing Supplemental
Eligible Account Holders on an equitable basis related to the amount of their
<PAGE>
Board of Directors
Mechanics Savings & Loan, FSA
March 11, 1999
Page 5
respective deposits as compared to the total deposits of Supplemental Eligible
Account Holders on the Supplemental Eligibility Record Date.
If there is no oversubscription of the Holding Company Stock in the
first, second, and third preference categories, the fourth preference category
becomes operable. In the fourth preference category, members of the Institution
entitled to vote at the special meeting of members to approve the Plan of
Conversion who are not Eligible Account Holders or Supplemental Eligible Account
Holders ("Other Members") will receive, without payment, non-transferable
subscription rights entitling them to purchase Holding Company Stock. Other
Members shall each receive subscription rights to purchase up to the maximum
purchase limitation established for the Public Offering or one-tenth of one
percent of the total offering of shares, to the extent that Holding Company
Stock is available. In the event of an oversubscription by Other Members,
Holding Company Stock will be allocated pro rata according to the number of
shares subscribed for by each Other Member.
The Plan of Conversion further provides for limitations upon purchases
of Holding Company Stock. Specifically, any person by himself or herself or with
an associate or a group of persons acting in concert may subscribe for not more
than $100,000 of Holding Company Stock offered pursuant to the Plan of
Conversion, except that Tax-Qualified Employee Stock Benefit Plans may purchase
up to 10% of the total shares of Holding Company Stock issued. Subject to any
required regulatory approval and the requirements of applicable laws and
regulations, the Institution may increase or decrease any of the purchase
limitations set forth herein at any time. The Board of Directors of the
Institution may, in its sole discretion, increase the maximum purchase
limitation up to 5.0%. Requests to purchase additional shares of Holding Company
Stock under this provision will be allocated by the Board of Directors on a pro
rata basis giving priority in accordance with the priority rights set forth in
the Plan of Conversion. Officers and directors of the Institution and their
associates may not purchase in the aggregate more than 35% of the Holding
Company Stock issued pursuant to the Conversion. Directors of the Institution
will not be deemed associates or a group acting in concert solely as a result of
their membership on the Board of Directors of the Institution. All of the shares
of Holding Company Stock purchased by officers and directors will be subject to
certain restrictions on sale for a period of one year.
The Plan of Conversion provides that no person will be issued any
subscription rights or be permitted to purchase any Holding Company Stock if
such person resides in a foreign country or in a state of the United States with
respect to which all of the following apply: (a) a small number of persons
otherwise eligible to subscribe for shares under the Plan of Conversion reside
in such state; (b) the issuance of subscription rights or the offer or sale of
the Holding Company Stock in such state, would require the Institution or the
Holding Company under the securities laws of such state to register as a broker
or dealer or to register or otherwise qualify its
<PAGE>
Board of Directors
Mechanics Savings & Loan, FSA
March 11, 1999
Page 6
securities for sale in such state; and (c) such registration or qualification
would be impracticable for reasons of cost or otherwise.
The Plan of Conversion also provides for the establishment of a
Liquidation Account by the Stock Bank for the benefit of all Eligible Account
Holders and Supplemental Eligible Account Holders (if applicable). The
Liquidation Account will be equal in amount to the net worth of Institution as
of the time of the Conversion. The establishment of the Liquidation Account will
not operate to restrict the use or application of any of the net worth accounts
of the Stock Bank, except that the Stock Bank will not declare or pay cash
dividends on or repurchase any of its stock if the result thereof would be to
reduce its net worth below the amount required to maintain the Liquidation
Account. The Liquidation Account will be for the benefit of the Institution's
Eligible Account Holders and Supplemental Eligible Account Holders who maintain
accounts in the Institution at the time of the Conversion. All such account
holders, including those not entitled to subscription rights for reasons of
foreign or out-of-state residency (as described above), will have an interest in
the Liquidation Account. The interest an Eligible Account Holder and
Supplemental Eligible Account Holder will have a right to receive, in the event
of a complete liquidation of the Stock Bank, is a distribution from the
Liquidation Account in the amount of the then current adjusted subaccount
balances for savings accounts then held, which will be made prior to any
liquidation distribution with respect to the capital stock of the Stock Bank.
The initial subaccount balance for a savings account held by an
Eligible Account Holder and/or 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 the qualifying deposit in the
savings account, and the denominator is the total amount of qualifying deposits
of all Eligible Account Holders and Supplemental Eligible Account Holders in the
Stock Bank. The initial subaccount balance will never be increased, but may be
decreased if the deposit balance in any qualifying savings account of any
Eligible Account Holder or any savings account of any Supplemental Eligible
Account Holder on any annual closing date subsequent to the Eligibility Record
Date or Supplemental Eligibility Record Date, whichever is applicable, is less
than the lesser of (1) the deposit balance in the 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 (2) the amount of
the qualifying deposit in such savings account. In such event, the subaccount
balance for the savings account will be adjusted by reducing each subaccount
balance in an amount proportionate to the reduction in the savings account
balance. Once decreased, the Plan of Conversion provides that the subaccount
balance will never be subsequently increased, and if the savings account of an
Eligible Account Holder or Supplemental Eligible Account Holder is closed, the
related subaccount balance in the Liquidation Account will be reduced to zero.
<PAGE>
Board of Directors
Mechanics Savings & Loan, FSA
March 11, 1999
Page 7
The net proceeds from the sale of the shares of Holding Company Stock
will become the permanent capital of Holding Company, and the Holding Company
will in turn purchase 100% of the stock issued by Stock Bank, in exchange for up
to 50% of the Holding Company's stock offering net proceeds or such other
percentage as is approved by the Board of Directors with the concurrence of the
OTS.
Following the Conversion, voting rights in Stock Bank will rest
exclusively in the Holding Company. Voting rights in the Holding Company will
rest exclusively in the stockholders of the Holding Company. The Conversion will
not interrupt the business of the Institution, and its business will continue as
usual under the Stock Bank. Each depositor will retain a withdrawable savings
account or accounts equal in amount to the withdrawable account or accounts at
the time of the Conversion. Mortgage loans of the Institution will remain
unchanged and retain their same characteristics in the Stock Bank after the
Conversion. The Stock Bank will continue membership in the Federal Home Loan
Bank System, and will remain subject to the regulatory authority of the OTS.
Immediately prior to the Conversion, the Institution will have a
positive net worth in accordance with generally accepted accounting principles.
The savings account holders of the Institution will pay expenses of the
Conversion solely attributable to them, if any. Further, the Institution will
pay its own expenses of the Conversion and will not pay any expenses solely
attributable to the Institution's savings account holders or to the purchasers
of Holding Company Stock.
REPRESENTATIONS BY MANAGEMENT
-----------------------------
In connection with the Conversion, the following statements,
representations and declarations have been made to us by management of the
Institution:
1. The Conversion will be implemented in accordance with the terms of
the Plan of Conversion and all conditions precedent contained in the Plan of
Conversion shall be performed prior to the consummation of the Conversion.
2. The fair market value of the withdrawable savings accounts plus
interests in the Liquidation Account to be constructively received under the
Plan of Conversion will in each instance be equal to the fair market value of
each savings account of the Institution plus the interest in the residual equity
of the Institution surrendered in exchange therefor. All proprietary rights in
the Institution form an integral part of the withdrawable savings accounts being
surrendered in the Conversion.
<PAGE>
Board of Directors
Mechanics Savings & Loan, FSA
March 11, 1999
Page 8
3. The Holding Company and the Stock Bank each have no plan or
intention to redeem or otherwise acquire any of the Holding Company Stock issued
in the proposed transaction.
4. To the best of the knowledge of the management of the Institution,
there is not now nor will there be at the time of the Conversion, any plan or
intention, on the part of the depositors in the Institution to withdraw their
deposits following the Conversion. Deposits withdrawn immediately prior to or
immediately subsequent to the Conversion (other than maturing deposits) are
considered in making these assumptions.
5. Immediately following the consummation of the proposed transaction,
the Stock Bank will possess the same assets and liabilities as the Institution
held immediately prior to the proposed transaction, plus substantially all of
the net proceeds from the sale of its stock to the Holding Company (except for
assets used to pay expenses in the Conversion). Assets used to pay expenses of
the Conversion (without reference to the expenses of the Subscription Offering
and the Public Offering) and all distributions (except for regular normal
interest payments made by the Institution immediately preceding the transaction)
will in the aggregate constitute less than one percent (1%) of the assets of the
Institution, net of liabilities associated with such assets, and will be paid by
the Institution and the Holding Company from the proceeds of the Subscription
Offering and Public Offering.
6. Following the Conversion, the Stock Bank will continue to engage in
its business in substantially the same manner as engaged in by the Institution
prior to the Conversion. The Stock Bank has no plan or intention to sell or
otherwise dispose of any of its assets, except in the ordinary course of
business.
7. No cash or property will be given to any member of the Institution
in lieu of subscription rights or an interest in the Liquidation Account of the
Stock Bank.
8. None of the compensation to be received by any deposit account
holder-employees of the Institution or the Holding Company will be separate
consideration for, or allocable to, any of their deposits in the Institution. No
interest in the Liquidation Account of the Stock Bank will be received by any
deposit account holder-employees as separate consideration for, or will
otherwise be allocable to, any employment agreement, and the compensation paid
to each deposit account holder-employee, during the twelve month period
preceding or subsequent to the Conversion, will be for services actually
rendered and will be commensurate with amounts paid to third parties bargaining
at arm's length for similar services. No shares of Holding Company Stock will be
issued to or purchased by any deposit account holder-employee of the Institution
or the Holding Company at a discount or as compensation in the Conversion.
<PAGE>
Board of Directors
Mechanics Savings & Loan, FSA
March 11, 1999
Page 9
9. The aggregate fair market value of the Qualifying Deposits held by
Eligible Account Holders or Supplemental Eligible Account Holders (if
applicable) as of the close of business on the Eligibility Record Date or
Supplemental Eligibility Record Date (if applicable) entitled to interests in
the Liquidation Account to be established by Stock Bank equalled or exceeded 99%
of the aggregate fair market value of all savings accounts (including those
accounts of less than $50.00) in the Institution as of the close of business on
such date.
10. There is no plan or intention for the Stock Bank to be liquidated
or merged with another corporation following the consummation of the Conversion.
11. The Institution and the Stock Bank are corporations within the
meaning of Section 7701(a)(3) of the Code.
12. The Holding Company has no plan or intention to sell or otherwise
dispose of the stock of the Stock Bank received by it in the proposed
transaction.
13. Both the Stock Bank and the Holding Company have no plan or
intention, either currently or at the time of the Conversion, to issue
additional shares of common stock following the proposed transaction, other than
shares that may be issued to employees or directors pursuant to certain stock
option and stock incentive plans or that may be issued to employee benefit
plans.
14. At the time of the proposed transaction, the fair market value of
the assets of the Institution on a going concern basis (including intangibles)
will equal or exceed the amount of its liabilities plus the amount of liability
to which such assets are subject. The Institution will have a positive
regulatory net worth at the time of the Conversion.
15. The Institution is not under the jurisdiction of a court in a Title
11 or similar case within the meaning of Section 368(a)(3)(A) of the Code. The
proposed transaction does not involve a receivership, foreclosure, or similar
proceeding before a federal or state agency involving a financial institution.
16. The Institution's savings depositors will pay expenses of the
Conversion solely attributable to them, if any. The Holding Company, the Stock
Bank, and the Institution will pay their own expenses of the Conversion and will
not pay any expenses solely attributable to the savings depositors or to the
Holding Company stockholders.
17. The liabilities of the Institution assumed by the Stock Bank plus
the liabilities, if any, to which the transferred assets are subject were
incurred by the Institution in the ordinary course of its business and are
associated with the assets transferred.
<PAGE>
Board of Directors
Mechanics Savings & Loan, FSA
March 11, 1999
Page 10
18. There will be no purchase price advantage for the Institution's
deposit account holders who purchase Holding Company Stock in the Conversion.
19. Neither the Institution nor the Stock Bank is an investment company
as defined in Sections 368(a)(2)(F)(iii) and (iv) of the Code.
20. No creditors of the Institution have taken any steps to enforce
their claims against the Institution by instituting bankruptcy or other legal
proceedings, in either a court or appropriate regulatory agency, that would
eliminate the proprietary interests of the members of the Institution prior to
the Conversion.
21. The proposed transaction does not involve the payment to the Stock
Bank or the Institution of financial assistance from federal agencies within the
meaning of Notice 89-102, 1989-40 C.B. 1.
22. The Eligible Account Holders' and Supplemental Eligible Account
Holders' proprietary interest in the Institution arise solely by virtue of the
fact that they are account holders in the Institution.
23. At the time of the Conversion, the Institution will not have
outstanding any warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire an equity interest in the
Holding Company or the Stock Bank.
24. The Stock Bank has no plan or intention to sell or otherwise
dispose of any of the assets of the Institution acquired in the transaction
(except for dispositions, including deposit withdrawals, made in the ordinary
course of business).
25. On a per share basis, the purchase price of the Holding Company
Stock in the Conversion will be equal to the fair market value of such stock at
the time of the completion of the proposed transaction.
26. The Institution has received or will receive an opinion from
FinPro, Inc. ("Appraiser's Opinion"), which concludes that subscription rights
to be received by Eligible Account Holders, Supplemental Eligible Account
Holders, and other eligible subscribers do not have any ascertainable fair
market value, because they are acquired by the recipients without cost, are
non-transferable, exist for such a short duration, and merely afford the
recipients a right only to purchase Holding Company Stock at a price equal to
its estimated fair market value, which will be the same price used in the Public
Offering for unsubscribed shares of Holding Company Stock.
<PAGE>
Board of Directors
Mechanics Savings & Loan, FSA
March 11, 1999
Page 11
27. The Institution will not have any net operating losses, capital
loss carryovers, or built-in losses at the time of the Conversion.
OPINION OF COUNSEL
------------------
Based solely upon the foregoing information and our analysis and
examination of current applicable federal income tax laws, rulings, regulations,
judicial precedents, and the Appraiser's Opinion, and provided the Conversion is
undertaken in accordance with the above assumptions, we render the following
opinion of counsel:
1. The change in the form of operation of the Institution from a
federally-chartered mutual savings association to a federally chartered capital
stock savings bank, as described above, will constitute a reorganization within
the meaning of Section 368(a)(1)(F) of the Code, and no gain or loss will be
recognized to either the Institution or to the Stock Bank as a result of such
Conversion. (See Rev. Rul. 80-105, 1980-1 C.B. 78). The Institution and the
Stock Bank will each be a party to a reorganization within the meaning of
Section 368(b) of the Code. (Rev. Rul. 72-206, 1972-1 C.B. 104).
2. No gain or loss will be recognized by the Stock Bank on the receipt
of money in exchange for shares of Stock Bank stock. (Section 1032(a) of the
Code).
3. The Holding Company will recognize no gain or loss upon its receipt
of money in exchange for shares of Holding Company Stock. (Section 1032(a) of
the Code).
4. Depositors will realize gain, if any, upon the issuance to them of
(i) withdrawable deposit accounts of the Stock Bank, (ii) subscription rights in
connection with the Conversion, and/or (iii) interests in the Liquidation
Account of the Stock Bank. Any gain resulting therefrom will be recognized, but
only in an amount not in excess of the fair market value of the Liquidation
Accounts and/or subscription rights received. The Liquidation Accounts will have
nominal, if any, fair market value. Based solely on the accuracy of the
conclusion reached in the Appraiser's Opinion, and our reliance on such opinion,
that the subscription rights have no value at the time of distribution or
exercise, no gain or loss will be required to be recognized by depositors upon
receipt or distribution of subscription rights. (Section 1001 of the Code). See
Paulsen v. Commissioner, 469 U.S. 131, 139 (1985).
Likewise, based solely on the accuracy of the aforesaid conclusion
reached in the Appraiser's Opinion, and our reliance thereon, we give the
following opinions: (a) no taxable income will be recognized by the borrowers,
directors, officers, and employees of the Institution upon distribution to them
of subscription rights or upon the exercise or lapse of the subscription rights
to acquire Holding Company Stock at fair market value; (b) no taxable income
will be realized by the depositors of the Institution as a result of the
exercise or lapse of the subscription
<PAGE>
Board of Directors
Mechanics Savings & Loan, FSA
March 11, 1999
Page 12
rights to purchase Holding Company Stock at fair market value (Rev. Rul. 56-572,
1956-2 C.B. 182); and (c) no taxable income will be realized by the Institution,
the Stock Bank, or the Holding Company on the issuance or distribution of
subscription rights to depositors of the Institution to purchase shares of
Holding Company Stock at fair market value (Section 311 of the Code).
Notwithstanding the Appraiser's Opinion, if the subscription rights are
subsequently found to have a fair market value greater than zero, income may be
recognized by various recipients of the subscription rights (in certain cases,
whether or not the rights are exercised) and the Holding Company and/or the
Stock Bank may be taxable on the distribution of the subscription rights.
(Section 311 of the Code). In this regard, the subscription rights may be taxed
partially or entirely at ordinary income tax rates.
5. The part of the taxable year of the Institution before the
Conversion and the part of the taxable year of the Stock Bank after the
Conversion will constitute a single taxable year of the Stock Bank. (See Rev.
Rul. 57-276, 1957-1 C.B. 126). Consequently, the Institution will not be
required to file a federal income tax return for any portion of such taxable
year (Section 1.381(b)-1(a)(2) of the Treasury Regulations).
6. As provided by Section 381(c)(2) of the Code and Section
1.381(c)(2)-1 of the Treasury Regulations, the Stock Bank will succeed to and
take into account the earnings and profits or deficit in earnings and profits of
the Institution as of the date or dates of transfer.
SCOPE OF OPINION
----------------
Our opinion is limited to the federal income tax matters described
above and does not address any other federal income tax considerations or any
state, local, foreign, or other tax considerations. If any of the information on
which we have relied is incorrect, or if changes in the relevant facts occur
after the date hereof, our opinion could be affected thereby. Moreover, our
opinion is based on the Internal Revenue Code of 1986, as amended, applicable
Treasury regulations promulgated thereunder, and Internal Revenue Service
rulings, procedures, and other pronouncements published by the United States
Internal Revenue Service. These authorities are all subject to change, and such
change may be made with retroactive effect. We can give no assurance that, after
such change, our opinion would not be different. We undertake no responsibility
to update or supplement our opinion. This opinion is not binding on the Internal
Revenue Service, and there can be no assurance, and none is hereby given, that
the Internal Revenue Service will not take a position contrary to one or more of
the positions reflected in the foregoing opinion, or that our opinion will be
upheld by the courts if challenged by the Internal Revenue Service.
<PAGE>
Board of Directors
Mechanics Savings & Loan, FSA
March 11, 1999
Page 13
USE OF OPINION
--------------
This opinion is given solely for the benefit of the parties to the
Merger Agreement and may not be relied upon by any other party or entity or
referred to in any document without our express written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Application for Conversion on Form AC of the Institution filed with the OTS, the
Application H-(e)(1)-S of the Holding Company filed with the OTS, and the
Registration Statement on Form SB-2 of the Holding Company filed under the
Securities Act of 1933, as amended, and to the reference of our firm in the
prospectus related to this opinion.
Very truly yours,
/s/ Malizia, Spidi, Sloane & Fisch, P.C.
-----------------------------------------
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
MALIZIA, SPIDI, SLOANE & FISCH, P.C.
ATTORNEYS AT LAW
1301 K STREET, N.W.
SUITE 700 EAST
WASHINGTON, D.C. 20005
(202) 434-4660
FACSIMILE: (202) 434-4661
March 11, 1999
Board of Directors
Mechanics Savings & Loan, FSA
51 South Front Street
Steelton, Pennsylvania 17113
Board Members:
You have requested our opinion regarding certain Pennsylvania tax
consequences to Mechanics Savings & Loan, FSA (the "Institution") and its
depositors under the laws of the Commonwealth of Pennsylvania of the proposed
conversion (the "Conversion") under which the Institution will be changed from a
federally-chartered mutual savings association to a federally-chartered capital
stock savings bank (the "Stock Bank"), the simultaneous formation of a parent
holding company incorporated in Pennsylvania (the "Holding Company") that will
acquire all of the outstanding stock of the Stock Bank (the "Acquisition"), and
the offering of the stock of the Holding Company to the public (the "Offering"),
pursuant to a Plan of Conversion adopted by the Board of Directors of the
Institution on January 27, 1999, as amended (the "Plan").
We have provided the Institution an opinion of this firm regarding
certain federal income tax consequences of the Conversion, the Acquisition, and
the Offering (the "Federal Tax Opinion"). Based upon the facts stated in the
Federal Tax Opinion, including certain representations of the Institution, the
Federal Tax Opinion concludes, among other things, that the Conversion qualifies
as a tax-free reorganization under ss. 368(a)(1)(F) of the Internal Revenue Code
of 1986, as amended (the "Code"), and that the Institution, the Stock Bank, and
the Holding Company and the depositors of the Institution will not recognize
income, gain, or loss for federal income tax purposes upon the implementation of
the Conversion, the Acquisition, and the Offering.
Based upon (1) the facts and circumstances attendant to the Conversion,
the Acquisition, and the Offering, including the representations of the
Institution, as described in the Federal Tax Opinion, (2) current provisions of
Pennsylvania law, as reflected in Pennsylvania statutes, administrative
regulations and rulings thereunder, and court decisions, (3) the Federal Tax
Opinion, and (4) the assumption that the Conversion, the Acquisition, and the
Offering will not result in the recognition of any gain or income on the books
of the Institution, the Stock Bank, or the Holding Company under generally
accepted accounting principles, it is our opinion that under the laws of the
Commonwealth of Pennsylvania, the implementation of the Conversion, the
Acquisition and the Offering will not cause any tax liability to be incurred (a)
by the
<PAGE>
Board of Directors
Mechanics Savings & Loan, FSA
March 11, 1999
Page 2
Institution or by the Stock Bank under the Pennsylvania Mutual Thrift
Institutions Tax ("MTIT"), 72 P.S. ss.8501 et seq., (b) by the depositors of the
Institution under the Pennsylvania Personal Income Tax ("PIT"), 72 P.S. ss.7301
et seq., and (c) by the Holding Company under the Pennsylvania Corporate Net
Income Tax ("CNIT"), 72 P.S. ss.7401 et seq.
Our opinions herein are expressly limited to those taxes specified in
the immediately preceding paragraph and specifically do not include any opinions
with respect to the consequences to depositors of the implementation of the
Conversion, the Acquisition, or the Offering under any other taxes imposed by
the Commonwealth of Pennsylvania or any other subdivision thereof, or imposed by
states other than Pennsylvania and local jurisdictions of such states. In
addition, the opinions herein specifically do not include (1) an opinion with
respect to the consequences to the Institution, the Stock Bank, and the Holding
Company of the implementation of the Conversion, the Acquisition, or the
Offering under any local taxes imposed by any political subdivision of the
Commonwealth of Pennsylvania, and under any state or local realty or other
transfer tax, or (2) an opinion with respect to tax liabilities under the MTIT,
the PIT, or the CNIT attributable to events after the Conversion, the
Acquisition and the Offering or to any assets held or acquired by the Holding
Company other than stock of the Stock Bank.
Our opinion is based on the facts and conditions as stated herein,
whether directly or by reference to the Federal Tax Opinion. If any of the facts
and conditions are not entirely complete or accurate, it is imperative that we
be informed immediately, as the inaccuracy or incompleteness could have a
material effect on our conclusions. In rendering our opinion, we are relying
upon the relevant provisions of the Code, the laws of the Commonwealth of
Pennsylvania, as amended, the regulations and rules thereunder and judicial and
administrative interpretations thereof, which are subject to change or
modification by subsequent legislative, regulatory, administrative, or judicial
decisions. Any such changes could also have an effect on the validity of our
opinion. We undertake no responsibility to update or supplement our opinion. Our
opinion is not binding on the Internal Revenue Service or the Commonwealth of
Pennsylvania, nor can any assurance be given that any of the foregoing parties
will not take a contrary position or that our opinion will be upheld if
challenged by such parties.
Finally, we hereby consent to the filing of this opinion as an exhibit
to the Application for Conversion on Form AC ("Form AC"), and any amendments
thereto, or similar filings of the Institution filed with the Office of Thrift
Supervision, the filing of this opinion as an exhibit to the Application
H-(e)(1)S of the Holding Company to be filed with the Office of Thrift
Supervision, and any amendments thereto, and the filing of this opinion as an
exhibit to the Holding Company's Registration Statement on Form SB-2 ("Form
SB-2") to be filed with the Securities and Exchange Commission, and any
amendments thereto, and to reference to our firm
<PAGE>
Board of Directors
Mechanics Savings & Loan, FSA
March 11, 1999
Page 3
in the offering circular contained in the Form AC, Form SB-2 and related
documents related to this opinion.
Very truly yours,
/s/ Malizia, Spidi, Sloane & Fisch, P.C.
------------------------------------------------
Malizia, Spidi, Sloane & Fisch, P.C.
EMPLOYMENT AGREEMENT
THIS AGREEMENT, is entered into this ___th day of ______________ 1999,
("Effective Date") by and between Mechanics Savings and Loan, FSA (the "Savings
Association") and Harold E. Stremmel (the "Executive").
WITNESSETH
WHEREAS, the Executive has heretofore been employed by the Savings
Association as the Executive Vice President and Chief Executive Officer and is
experienced in all phases of the business of the Savings Association; and
WHEREAS, the Savings Association desires to be ensured of the Executive's
continued active participation in the business of the Savings Association; and
WHEREAS, in order to induce the Executive to remain in the employ of the
Savings Association and in consideration of the Executive's agreeing to remain
in the employ of the Savings Association, the parties desire to specify the
continuing employment relationship between the Savings Association and the
Executive;
NOW THEREFORE, in consideration of the premises and the mutual agreements
herein contained, the parties hereby agree as follows:
1. Employment. The Savings Association hereby employs the Executive in the
capacity of Executive Vice President and Chief Executive Officer. The Executive
hereby accepts said employment and agrees to render such administrative and
management services to the Savings Association and to any to-be-formed parent
holding company ("Parent") as are currently rendered and as are customarily
performed by persons situated in a similar executive capacity. The Executive
shall promote the business of the Savings Association and Parent. The
Executive's other duties shall be such as the Board of Directors for the Savings
Association (the "Board of Directors" or "Board") may from time to time
reasonably direct, including normal duties as an officer of the Savings
Association.
2. Term of Employment. The term of employment of Executive under this
Agreement shall be for the period commencing on the Effective Date and ending
thirty-six (36) thereafter ("Term"). Additionally, on, or before, each annual
anniversary date from the Effective Date, the Term of employment under this
Agreement shall be extended for up to an additional period beyond the then
effective expiration date upon a determination and resolution of the Board of
Directors that the performance of the Executive has met the requirements and
standards of the Board, and that the Term of such Agreement shall be extended.
References herein to the Term of this Agreement shall refer both to the initial
term and successive terms.
<PAGE>
3. Compensation, Benefits and Expenses.
(a) Base Salary. The Savings Association shall compensate and pay the
Executive during the Term of this Agreement a minimum base salary at the rate of
$59,591.00 per annum ("Base Salary"), payable in cash not less frequently than
monthly; provided, that the rate of such salary shall be reviewed by the Board
of Directors not less often than annually, and the Executive shall be entitled
to receive increases at such percentages or in such amounts as determined by the
Board of Directors. The base salary may not be decreased without the Executive's
express written consent.
(b) Discretionary Bonus. The Executive shall be entitled to participate in
an equitable manner with all other senior management employees of the Savings
Association in discretionary bonuses that may be authorized and declared by the
Board of Directors to its senior management executives from time to time. No
other compensation provided for in this Agreement shall be deemed a substitute
for the Executive's right to participate in such discretionary bonuses when and
as declared by the Board.
(c) Participation in Benefit and Retirement Plans. The Executive shall be
entitled to participate in and receive the benefits of any plan of the Savings
Association which may be or may become applicable to senior management relating
to pension or other retirement benefit plans, profit-sharing, stock options or
incentive plans, or other plans, benefits and privileges given to employees and
executives of the Savings Association, to the extent commensurate with his then
duties and responsibilities, as fixed by the Board of Directors of the Savings
Association.
(d) Participation in Medical Plans and Insurance Policies. The Executive
shall be entitled to participate in and receive the benefits of any plan or
policy of the Savings Association which may be or may become applicable to
senior management relating to life insurance, short and long term disability,
medical, dental, eye-care, prescription drugs or medical reimbursement plans.
Additionally, Executive's dependent family shall be eligible to participate in
medical and dental insurance plans sponsored by the Savings Association or
Parent with the cost of such premiums paid by the Savings Association.
(e) Vacations and Sick Leave. The Executive shall be entitled to paid
annual vacation leave in accordance with the policies as established from time
to time by the Board of Directors, which shall in no event be less than four
weeks per annum. The Executive shall also be entitled to an annual sick leave
benefit as established by the Board for senior management employees of the
Savings Association. The Executive shall not be entitled to receive any
additional compensation from the Savings Association for failure to take a
vacation or sick leave, nor shall he be able to accumulate unused vacation or
sick leave from one year to the next, except to the extent authorized by the
Board of Directors.
(f) Expenses. The Savings Association shall reimburse the Executive or
otherwise provide for or pay for all reasonable expenses incurred by the
Executive in furtherance
2
<PAGE>
of, or in connection with the business of the Savings Association, including,
but not by way of limitation, automobile and traveling expenses, and all
reasonable entertainment expenses, subject to such reasonable documentation and
other limitations as may be established by the Board of Directors of the Savings
Association. If such expenses are paid in the first instance by the Executive,
the Savings Association shall reimburse the Executive therefor.
(g) Changes in Benefits. The Savings Association shall not make any changes
in such plans, benefits or privileges previously described in Section 3(c), (d)
and (e) which would adversely affect the Executive's rights or benefits
thereunder, unless such change occurs pursuant to a program applicable to all
executive officers of the Savings Association and does not result in a
proportionately greater adverse change in the rights of, or benefits to, the
Executive as compared with any other executive officer of the Savings
Association. Nothing paid to Executive under any plan or arrangement presently
in effect or made available in the future shall be deemed to be in lieu of the
salary payable to Executive pursuant to Section 3(a) hereof.
4. Loyalty; Noncompetition.
(a) The Executive shall devote his full time and attention to the
performance of his employment under this Agreement. During the term of the
Executive's employment under this Agreement, the Executive shall not engage in
any business or activity contrary to the business affairs or interests of the
Savings Association or Parent.
(b) Nothing contained in this Section 4 shall be deemed to prevent or limit
the right of Executive to invest in the capital stock or other securities of any
business dissimilar from that of the Savings Association or Parent, or, solely
as a passive or minority investor, in any business.
5. Standards. During the term of this Agreement, the Executive shall
perform his duties in accordance with such reasonable standards expected of
executives with comparable positions in comparable organizations and as may be
established from time to time by the Board of Directors.
6. Termination and Termination Pay. The Executive's employment under this
Agreement shall be terminated upon any of the following occurrences:
(a) The death of the Executive during the term of this Agreement, in which
event the Executive's estate shall be entitled to receive the compensation due
the Executive through the last day of the calendar month in which Executive's
death shall have occurred.
(b) The Board of Directors may terminate the Executive's employment at any
time, but any termination by the Board of Directors other than termination for
Just Cause, shall not prejudice the Executive's right to compensation or other
benefits under the Agreement. The Executive shall have no right to receive
compensation or other benefits for any period after
3
<PAGE>
termination for Just Cause. The Board may within its sole discretion, acting in
good faith, terminate the Executive for Just Cause and shall notify such
Executive accordingly. Termination for "Just Cause" shall include termination
because of the Executive's personal dishonesty, incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses) or final
cease-and-desist order, or material breach of any provision of the Agreement.
(c) Except as provided pursuant to Section 9 hereof, in the event
Executive's employment under this Agreement is terminated by the Board of
Directors without Just Cause, the Savings Association shall be obligated to
continue to pay the Executive the salary provided pursuant to Section 3(a)
herein, up to the date of termination of the remaining Term of this Agreement,
but in no event for a period of less than twelve months, and the cost of
Executive obtaining all health, life, disability, and other benefits which the
Executive would be eligible to participate in through such date based upon the
benefit levels substantially equal to those being provided Executive at the date
of termination of employment.
(d) The voluntary termination by the Executive during the term of this
Agreement with the delivery of no less than 60 days written notice to the Board
of Directors, other than pursuant to Section 9(b), in which case the Executive
shall be entitled to receive only the compensation, vested rights, and all
employee benefits up to the date of such termination.
7. Regulatory Exclusions.
(a) If the Executive is suspended and/or temporarily prohibited from
participating in the conduct of the Savings Association's affairs by a notice
served under Section 8(e)(3) or (g)(1) of the FDIA (12 U.S.C. 1818(e)(3) and
(g)(1)), the Savings Association'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 Savings Association may within
its discretion (i) pay the Executive all or part of the compensation withheld
while its contract obligations were suspended and (ii) reinstate any of its
obligations which were suspended.
(b) If the Executive is removed and/or permanently prohibited from
participating in the conduct of the Savings Association's affairs by an order
issued under Sections 8(e)(4) or 8(g)(1) of the Federal Deposit Insurance Act
("FDIA") (12 U.S.C. 1818(e)(4) and (g)(1)), all obligations of the Savings
Association under this Agreement shall terminate, as of the effective date of
the order, but the vested rights of the parties shall not be affected.
(c) If the Savings Association is in default (as defined in Section 3(x)(1)
of 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
contracting parties.
(d) All obligations under this Agreement shall be terminated, except to the
extent determined that continuation of this Agreement is necessary for the
continued operation of the
4
<PAGE>
Savings Association: (i) by the Director of the Office of Thrift Supervision
("Director of OTS"), or his or her designee, at the time that the Federal
Deposit Insurance Corporation ("FDIC") enters into an agreement to provide
assistance to or on behalf of the Savings Association under the authority
contained in Section 13(c) of FDIA; or (ii) by the Director of the OTS, or his
or her designee, at the time that the Director of the OTS, or his or her
designee approves a supervisory merger to resolve problems related to operation
of the Savings Association or when the Savings Association is determined by the
Director of the OTS 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.
(e) Notwithstanding anything herein to the contrary, any payments made to
the Executive pursuant to the Agreement, or otherwise, shall be subject to and
conditioned upon compliance with 12 USC Section 1828(k) and any regulations
promulgated thereunder.
8. Disability. If the Executive shall become disabled or incapacitated to
the extent that he is unable to perform his duties hereunder, by reason of
medically determinable physical or mental impairment, as determined by a doctor
engaged by the Board of Directors, Executive shall nevertheless continue to
receive the compensation and benefits provided under the terms of this Agreement
as follows: 100% of such compensation and benefits for a period of 12 months,
but not exceeding the remaining term of the Agreement, and 65% thereafter for
the remainder of the term of the Agreement. Such benefits noted herein shall be
reduced by any benefits otherwise provided to the Executive during such period
under the provisions of disability insurance coverage in effect for Savings
Association employees. Thereafter, Executive shall be eligible to receive
benefits provided by the Savings Association under the provisions of disability
insurance coverage in effect for Savings Association employees. Upon returning
to active full- time employment, the Executive's full compensation as set forth
in this Agreement shall be reinstated as of the date of commencement of such
activities. In the event that the Executive returns to active employment on
other than a full-time basis, then his compensation (as set forth in Section
3(a) of this Agreement) shall be reduced in proportion to the time spent in said
employment, or as shall otherwise be agreed to by the parties.
9. Change in Control.
(a) Notwithstanding any provision herein to the contrary, in the event of
the involuntary termination of Executive's employment during the term of this
Agreement following any Change in Control of the Savings Association or Parent,
or within 24 months thereafter of such Change in Control, absent Just Cause,
Executive shall be paid an amount equal to the product of 2.999 times the
Executive's "base amount" as defined in Section 280G(b)(3) of the Internal
Revenue Code of 1986, as amended (the "Code") and regulations promulgated
thereunder. Said sum shall be paid, at the option of Executive, either in one
(1) lump sum within thirty (30) days of such termination of service or in
periodic payments over the next 36 months or the remaining term of this
Agreement, whichever is less, as if Executive's employment had not been
terminated, and such payments shall be in lieu of any other future payments
which the Executive would be otherwise entitled to receive under Section 6 of
this
5
<PAGE>
Agreement. Notwithstanding the forgoing, all sums payable hereunder shall be
reduced in such manner and to such extent so that no such payments made
hereunder when aggregated with all other payments to be made to the Executive by
the Savings Association or the Parent shall be deemed an "excess parachute
payment" in accordance with Section 280G of the Code and be subject to the
excise tax provided at Section 4999(a) of the Code. The term "Change in Control"
shall refer to (i) the control of voting proxies whether related to stockholders
or mutual members by any person, other than the Board of Directors of the
Savings Association, to direct more than 25% of the outstanding votes of the
Savings Association, the control of the election of a majority of the Savings
Association's directors, or the exercise of a controlling influence over the
management or policies of the Savings Association by any person or by persons
acting as a group within the meaning of Section 13(d) of the Exchange Act, (ii)
an event whereby the OTS, FDIC or any other department, agency or quasi-agency
of the federal government cause or bring about, without the consent of the
Savings Association, a change in the corporate structure or organization of the
Savings Association; (iii) an event whereby the OTS, FDIC or any other agency or
quasi-agency of the federal government cause or bring about, without the consent
of the Savings Association, a taxation or involuntary distribution of retained
earnings or proceeds from the sale of securities to depositors, borrowers, any
government agency or organization or civic or charitable organization; or (iv) a
merger or other business combination between the Savings Association and another
corporate entity whereby the Savings Association is not the surviving entity. In
the event that the Savings Association shall convert in the future from
mutual-to-stock form, the term "Change in Control" shall also refer to: (i) the
sale of all, or a material portion, of the assets of the Savings Association or
the Parent; (ii) the merger or recapitalization of the Savings Association or
the Parent whereby the Savings Association or the Parent is not the surviving
entity; (iii)a change in control of the Savings Association or the Parent, as
otherwise defined or determined by the Office of Thrift Supervision or
regulations promulgated by it; or (iv) the acquisition, directly or indirectly,
of the beneficial ownership (within the meaning of that term as it is used in
Section 13(d) of the Securities Exchange Act of 1934 and the rules and
regulations promulgated thereunder) of twenty-five percent (25%) or more of the
outstanding voting securities of the Savings Association or the Parent by any
person, trust, entity or group. The term "person" means an individual other than
the Executive, or a corporation, partnership, trust, association, joint venture,
pool, syndicate, sole proprietorship, unincorporated organization or any other
form of entity not specifically listed herein.
(b) Notwithstanding any other provision of this Agreement to the contrary,
Executive may voluntarily terminate his employment during the term of this
Agreement following a Change in Control of the Savings Association or Parent, or
within twenty-four months following such Change in Control, and Executive shall
thereupon be entitled to receive the payment described in Section 9(a) of this
Agreement, upon the occurrence, or within 120 days thereafter, of any of the
following events, which have not been consented to in advance by the Executive
in writing: (i) if Executive would be required to move his personal residence or
perform his principal executive functions more than thirty-five (35) miles from
the Executive's primary office as of the signing of this Agreement; (ii) if in
the organizational structure of the Savings Association, Executive would be
required to report to a person or persons other than the Board of Directors of
the Savings Association; (iii) if the Savings Association should fail to
maintain Executive's base compensation in effect as of the date of the Change in
Control and
6
<PAGE>
the existing employee benefits plans, including material fringe benefit, stock
option and retirement plans; (iv) if Executive would be assigned duties and
responsibilities other than those normally associated with his position as
referenced at Section 1, herein; (v) if Executive's responsibilities or
authority have in any way been materially diminished or reduced; or (vi) if
Executive would not be reelected to the Board of Directors of the Savings
Association.
10. Withholding. All payments required to be made by the Savings
Association hereunder to the Executive shall be subject to the withholding of
such amounts, if any, relating to tax and other payroll deductions as the
Savings Association may reasonably determine should be withheld pursuant to any
applicable law or regulation.
11. Successors and Assigns.
(a) This Agreement shall inure to the benefit of and be binding upon any
corporate or other successor of the Savings Association or Parent which shall
acquire, directly or indirectly, by merger, consolidation, purchase or
otherwise, all or substantially all of the assets or stock of the Savings
Association or Parent.
(b) Since the Savings Association is contracting for the unique and
personal skills of the Executive, the Executive shall be precluded from
assigning or delegating his rights or duties hereunder without first obtaining
the written consent of the Savings Association.
12. Amendment; Waiver. No provisions of this Agreement may be modified,
waived or discharged unless such waiver, modification or discharge is agreed to
in writing, signed by the Executive and such officer or officers as may be
specifically designated by the Board of Directors of the Savings Association to
sign on its behalf. No waiver by any party hereto at any time of any breach by
any other party hereto of, or compliance with, any condition or provision of
this Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
13. Governing Law. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the United States
where applicable and otherwise by the substantive laws of the Commonwealth of
Pennsylvania.
14. Nature of Obligations. Nothing contained herein shall create or require
the Savings Association to create a trust of any kind to fund any benefits which
may be payable hereunder, and to the extent that the Executive acquires a right
to receive benefits from the Savings Association hereunder, such right shall be
no greater than the right of any unsecured general creditor of the Savings
Association.
15. Headings. The section headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
16. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or
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<PAGE>
enforceability of the other provisions of this Agreement, which shall remain in
full force and
effect.
17. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration in
accordance with the rules then in effect of the district office of the American
Arbitration Association ("AAA") nearest to the home office of the Savings
Association, and judgment upon the award rendered may be entered in any court
having jurisdiction thereof, except to the extent that the parties may otherwise
reach a mutual settlement of such issue. Further, the settlement of the dispute
to be approved by the Board of the Savings Association may include a provision
for the reimbursement by the Savings Association to the Executive for all
reasonable costs and expenses, including reasonable attorneys' fees, arising
from such dispute, proceedings or actions, or the Board of the Savings
Association or the Parent may authorize such reimbursement of such reasonable
costs and expenses by separate action upon a written action and determination of
the Board following settlement of the dispute. Such reimbursement shall be paid
within ten (10) days of Executive furnishing to the Savings Association or
Parent evidence, which may be in the form, among other things, of a canceled
check or receipt, of any costs or expenses incurred by Executive.
18. Confidential Information. The Executive acknowledges that during his or
her employment he or she will learn and have access to confidential information
regarding the Savings Association and the Parent and its customers and
businesses ("Confidential Information"). The Executive agrees and covenants not
to disclose or use for his or her own benefit, or the benefit of any other
person or entity, any such Confidential Information, unless or until the Savings
Association or the Parent consents to such disclosure or use or such information
becomes common knowledge in the industry or is otherwise legally in the public
domain. The Executive shall not knowingly disclose or reveal to any unauthorized
person any Confidential Information relating to the Savings Association, the
Parent, or any subsidiaries or affiliates, or to any of the businesses operated
by them, and the Executive confirms that such information constitutes the
exclusive property of the Savings Association and the Parent. The Executive
shall not otherwise knowingly act or conduct himself (a) to the material
detriment of the Savings Association or the Parent, or its subsidiaries, or
affiliates, or (b) in a manner which is inimical or contrary to the interests of
the Savings Association or the Parent. Executive acknowledges and agrees that
the existence of this Agreement and its terms and conditions constitutes
Confidential Information of the Savings Association, and the Executive agrees
not to disclose the Agreement or its contents without the prior written consent
of the Savings Association. Notwithstanding the foregoing, the Savings
Association reserves the right in its sole discretion to make disclosure of this
Agreement as it deems necessary or appropriate in compliance with its regulatory
reporting requirements. Notwithstanding anything herein to the contrary, failure
by the Executive to comply with the provisions of this Section may result in the
immediate termination of the Agreement within the sole discretion of the Savings
Association, disciplinary action against the Executive taken by the Savings
Association, including but not limited to the termination of employment of the
Executive for breach of the Agreement and the provisions of this Section, and
other remedies that may be available in law or in equity.
8
<PAGE>
19. Entire Agreement. This Agreement together with any understanding or
modifications thereof as agreed to in writing by the parties, shall constitute
the entire agreement between the parties hereto.
9
[LETTERHEAD OF McKONLY & ASBURY]
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form SB-2 and on
Form AC of our report dated February 5, 1999 relating to the financial
statements of Mechanics Savings and Loan, FSA and Subsidiary and to the
references to our Firm under the term "Experts", and elsewhere in the
Prospectus.
/s/ McKonly & Asbury LLP
---------------------------------------
Harrisburg, Pennsylvania
March 11, 1999
March 11, 1999
Board of Directors
Steelton Bancorp, Inc.
Mechanics Savings & Loan, FSA
51 South Front Street
Steelton, Pennsylvania 17113
Dear Board Members:
We hereby consent to the use of our firm's name, FinPro, Inc. ("FinPro") in
the Form AC Application for Conversion of Mechanics Savings & Loan, FSA,
Steelton, Pennsylvania, and any amendments thereto, in the Form SB-2
Registration Statement of Steelton Bancorp, Inc. and any amendments thereto, and
in the Application H-(e)l-S for Steelton Bancorp, Inc. We also hereby consent to
the use of our firm's name and the inclusion of, summary of, and references to
our Appraisal Report and our opinion concerning subscription rights in such
filings including the Prospectus of Steelton Bancorp, Inc.
Very Truly Yours,
/s/ FinPro, Inc.
----------------------------------------
FinPro, Inc.
Liberty Corner, New Jersey
March 11, 1999
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION DERIVED FROM THE
REGISTRATION STATEMENT ON FORM SB-2 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL INFORMATION.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 433
<INT-BEARING-DEPOSITS> 1,954
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,004
<INVESTMENTS-CARRYING> 9,204
<INVESTMENTS-MARKET> 9,264
<LOANS> 28,182
<ALLOWANCE> 166
<TOTAL-ASSETS> 41,511
<DEPOSITS> 28,272
<SHORT-TERM> 3,000
<LIABILITIES-OTHER> 283
<LONG-TERM> 6,257
0
0
<COMMON> 0
<OTHER-SE> 3,698
<TOTAL-LIABILITIES-AND-EQUITY> 41,511
<INTEREST-LOAN> 2,537
<INTEREST-INVEST> 259
<INTEREST-OTHER> 84
<INTEREST-TOTAL> 2,880
<INTEREST-DEPOSIT> 1,213
<INTEREST-EXPENSE> 1,794
<INTEREST-INCOME-NET> 1,086
<LOAN-LOSSES> 50
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,092
<INCOME-PRETAX> 120
<INCOME-PRE-EXTRAORDINARY> 120
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 100
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 2.88
<LOANS-NON> 322
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 127
<CHARGE-OFFS> 10
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 166
<ALLOWANCE-DOMESTIC> 166
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
[LOGO]
STOCK ORDER FORM
DEADLINE
This order form, properly executed and with the full payment must and will be
deemed received upon the date and the time of delivery of the form to one of our
offices. Please submit your order using the enclosed postage-paid envelope or
hand-delivering the order form to Mechanics Savings and Loan, FSA.
NUMBER OF SHARES
Fill in the number of shares you wish to purchase and the total amount due. No
fractional shares will be issued. The minimum order is 25 shares. With the
exception of the ESOP, no person (or persons who have subscription rights
through a single account) may purchase in the Offerings more than 10,000 shares
of Common Stock and no person (or persons who have subscription rights through a
single account), together with associates of persons acting in concert with such
person, may purchase in the aggregate more than 10,000 shares of Common Stock.
See the Prospectus for a description of purchase limitations, including how to
determine whether your purchases will be aggregated with any associates or
persons acting in concert.
METHOD OF PAYMENT
Check the appropriate box(es). You may pay by cash, check, or money order. If
paying by check or money order, please make it payable to Steelton Bancorp, Inc.
If paying by cash, please hand- deliver your order form. Your funds will earn
interest at the interest rate paid on passbook savings accounts from the date of
receipt until the offering is completed. You may also wish to pay by authorizing
withdrawal from your Mechanics Savings and Loan, FSA savings or certificate
account(s). If paying by withdrawal, please list the appropriate account
number(s); these designated funds will continue to earn interest at the
contractual rate, but cannot be withdrawn by you.
STOCK REGISTRATION
Print the name(s) in which you want the stock registered. If you are a voting
member, to protect your priority over other purchasers as described in the
Prospectus, you must take ownership in at least one of the account holders'
names.
Enter the Social Security Number (or Tax I.D. Number) of a registered owner.
Only one number is required.
Indicate the manner in which you wish to take ownership by checking the
appropriate box. If necessary, check "Other" and note ownership such as
corporation, estate or trust. If stock is purchased for a trust, the date of the
trust agreement and trust title must be included. See the reverse side of this
form for registration guidelines.
Total
Number of Purchase Total
Shares Price Amount
X $10.00 = $
- ---------- -------- ----------
[ ] Enclosed is a check or money order payable
to Steelton Bancorp, Inc. for
$__________.
[ ] I authorize withdrawal from the following
Mechanics Savings and Loan, FSA account(s):
Account Number(s) Amount
__________________ $ __________
__________________ $ __________
__________________ $ __________
Total Withdrawal $ __________
No penalty for early withdrawal.
- ----------------------------------------------------
Name(s) in which stock is to be registered.
- ----------------------------------------------------
Name(s) in which stock is to be registered.
- ----------------------------------------------------
Address
- ----------------------------------------------------
City County
- ----------------------------------------------------
State Zip Code
- ----------------------------------------------------
Social Security # or Tax ID #
[ ] Individual [ ]Joint Tenants [ ]Tenants in Common
[ ] Uniform Transfer to Minors [ ] Other
<PAGE>
Steelton Bancorp, Inc.
GUIDELINES FOR REGISTERING STOCK
For reasons of clarity and standardization, the stock transfer
industry has developed uniform stockholder registrations which we will utilize
in the issuance of your Steelton Bancorp, Inc. stock certificate(s). If you have
any questions, please consult your legal advisor.
Stock ownership must be registered in one of the following
manners:
- --------------------------------------------------------------------------------
INDIVIDUAL Avoid the use of two initials. Include the first given name,
middle initial and last name of the stockholder. Omit words of
limitation that do not affect ownership rights such as "special
account," "single man," "personal property," etc.
- --------------------------------------------------------------------------------
JOINT Joint ownership of stock by two or more persons shall be
inscribed on the certificate with one of the following types of
joint ownership. Names should be joined by "and," do not connect
with "or". Omit titles such as "Mrs.," "Dr.," etc. JOINT TENANTS
Joint Tenancy with Right of Survivorship and not as Tenants in
Common may be specified to identify two or more owners where
ownership is intended to pass automatically to the surviving
tenant(s). TENANTS IN COMMON Tenants in common may be specified
to identify two or more owners. When stock is held in a tenancy
in common, upon the death of one co-tenant, ownership of the
stock will be held by the surviving co-tenant(s) and by the heirs
of the deceased co-tenant. All parties must agree to the transfer
or sale of shares held in this form of ownership.
- --------------------------------------------------------------------------------
UNIFORM
TRANSFER
TO MINORS Stock may be held in the name of a custodian for a minor under
the Uniform Transfers to Minors laws of the individual states.
There may be only one custodian and one minor designated on a
stock certificate. The standard abbreviation of custodian is
"CUST," while the description "Uniform Transfers to Minors Act"
is abbreviated "UNIF TRANS MIN ACT." Standard U.S. Postal Service
state abbreviations should be used to describe the appropriate
state. For example, stock held by John P. Jones under the
Pennsylvania Uniform Transfers to Minors Act will be abbreviated.
JOHN P. JONES CUST SUSAN A. JONES
UNIF TRANS MIN ACT
- --------------------------------------------------------------------------------
FIDUCIARIES Stock held in a fiduciary capacity must contain the following:
1. The name(s) of the fiduciary --
* If an individual, list the first given name, middle initial,
and last name.
* If a corporation, list the corporate title
* If an individual and a corporation, list the corporation's
title before the initial.
2. The fiduciary capacity --
* Administrator
* Conservator
* Committee
* Executor
* Trustee
* Personal Representative
* Custodian
3. The type of document governing the fiduciary relationship.
Generally, such relationships are either under a form of
living trust agreement or pursuant to a court order. Without
a document establishing a fiduciary relationship, your stock
may not be registered in a fiduciary capacity.
4. The date of document governing the relationship. The date of
the document need not be used in the description of a trust
created by a will.
5. Either of the following: The name of the
maker, donor or testator
or
The name of the beneficiary
Example of Fiduciary Ownership:
JOHN D. SMITH, TRUSTEE FOR TOM A. SMITH
UNDER AGREEMENT DATED ___/___/___
<PAGE>
NASD AFFILIATIONS
Please refer to the National Association of Securities Dealers, Inc., ("NASD")
affiliation section and check the box, if applicable. The NASD Interpretation
With Respect to Free-Riding and Withholding (the "Interpretation") restricts the
sale of a "hot issue" (securities that trade at a premium in the aftermarket) to
NASD members, persons associated with NASD members (i.e., an owner, director,
officer, partner, employee, or agent of a NASD member) and certain members of
their families. Such persons are requested to indicate that they will comply
with certain conditions required for an exemption from the restrictions.
[ ] Check here and initial below if you are a member of the NASD or a person
associated with an NASD member or a partner with a securities brokerage firm or
a member of the immediate family of any such person to whose support such person
contributes directly or indirectly or if you have an account in which a NASD
member or a person associated with a NASD member has a beneficial interest. I
agree (i) not to sell, transfer or hypothecate the stock for a period of three
months following issuance, and (ii) to report this stock purchase in writing to
the applicable NASD member I am associated with within one day of the payment
for the stock. (Initials) _______________
TELEPHONE INFORMATION ACKNOWLEDGMENT Please enter both a daytime and an evening
telephone number where you may be reached in the event we cannot execute your
order as given. Please include your area code.
Daytime Phone ( ) ___________________
Evening Phone ( ) ___________________
ACKNOWLEDGEMENT
Sign and date the order form. When purchasing as a custodian, corporate officer,
etc., add your full title to your signature. An additional signature is required
only when payment is by withdrawal from an account that requires more than one
signature to withdraw funds. Your order will be filled according to the
provisions of the Plan of Conversion as described in the Prospectus.
I (WE) ACKNOWLEDGE THAT THIS SECURITY IS NOT
A SAVINGS ACCOUNT OR DEPOSIT AND IS NOT
FEDERALLY INSURED AND IS NOT GUARANTEED BY
MECHANICS SAVINGS AND LOAN, FSA OR THE
FEDERAL GOVERNMENT.
I (we) further certify that I (we) received a Prospectus prior to purchasing the
Common Stock of Steelton Bancorp, Inc. and acknowledge the terms and conditions
described therein. The Prospectus that I (we) received contains disclosure
concerning the nature of the security being offered and describes the risks
involved in the investment. These include, among others, (i) future changes in
interest rates which may reduce our profits; (ii) increase in commercial real
estate and consumer lending which carry a greater risk than residential loans;
(iii) decreased return on equity and increased expenses immediately after the
conversion which may negatively affect the price of our stock; (iv) expenses of
our stock-based benefit plans which will reduce our earnings; (v) anti-takeover
provisions and statutory provisions that could discourage takeover attempts;
(vi) possible downturn in local economy and competition which could hurt our
profitability; (vii) potential impact of the Year 2000 issues; (viii) adoption
of financial institution regulations that could reduce our profitability; (ix)
lack of an active market for our stock; and (x) risk that the price of our stock
will not increase to a level comparable to other publicly traded financial
institution holding companies.
If anyone asserts that this security is federally insured or guaranteed, or is
as safe as an insured deposit, I (we) should call the Office of Thrift
Supervision Regional Director for the Northeast Region, at (201) 413-1000.
I (we) understand that, after receipt by Steelton Bancorp, Inc. this order may
not be modified or withdrawn without the consent of Steelton Bancorp, Inc. or
Mechanics Savings and Loan, FSA. Further, I (we) certify that my (our) purchase
does not conflict with the purchase limitations in the Plan of Conversion and
that the shares being purchased are for my (our) account only and that there is
no present agreement or understanding regarding any subsequent sale or transfer
of such shares. Under penalties of perjury, I (we) certify that: (1) the Social
Security Number or Tax Identification Number given above is correct; and (2) I
(we) am (are) not subject to backup withholding. Instructions: You must cross
out #2 above if you have been notified by the Internal Revenue Service that you
are subject to withholding because of under-reporting interest or dividends on
your tax return.
- -----------------------------------------------------------
Signature Date
- -----------------------------------------------------------
Additional Signature (if required) Date
THIS ORDER NOT VALIDATED UNLESS SIGNED
FOR ASSISTANCE, PLEASE CALL OUR STOCK CENTER AT
(717) 939-3100 (STEELTON BANCORP, INC.)
FROM 9:00 A.M. TO 4:00 P.M., MONDAY THROUGH FRIDAY
<PAGE>
MECHANICS SAVINGS & LOAN, FSA
Answers to Frequently Asked Questions
About Our Stock Conversion and
Your Opportunity to Invest in
Steelton Bancorp
<PAGE>
You can be one of the initial stockholders of Steelton Bancorp, the
proposed holding company of Mechanics Savings Bank. Steelton Bancorp is "going
public" as part of Mechanics Savings & Loan's conversion from a federally
chartered mutual savings association to a federally chartered stock savings bank
to be known as Mechanics Savings Bank. Now you have the opportunity to invest in
Mechanics Savings Bank by purchasing stock in the initial offering of the
holding company, Steelton Bancorp. This brochure answers some of the most
frequently asked questions about the conversion to stock ownership and about
your opportunity to invest in Steelton Bancorp.
<PAGE>
ABOUT THE TRANSACTION
1. WHAT IS A CONVERSION?
Mechanics Savings & Loan is now a federally chartered mutual savings
association with directors being elected by our members. After the
conversion, we will be a stock savings bank owned by a holding company.
Stockholders will own the holding company, Steelton Bancorp, and will
have voting rights with respect to certain key business matters. The
holding company is offering shares of common stock to certain
depositors, borrowers, tax-qualified employee plans of Mechanics
Savings Bank and depending upon market conditions and the availability
of shares, may offer shares to selected persons in a public offering.
2. WHAT IS STEELTON BANCORP AND WHY WAS IT FORMED?
Mechanics Savings & Loan created Steelton Bancorp, specifically for the
purpose of purchasing 100% ownership in Mechanics Savings Bank. The
holding company currently has no stockholders, but is offering shares
of its common stock to certain depositors, borrowers, tax-qualified
employee plans of Mechanics Savings Bank and depending upon market
conditions and the availability of shares, may offer shares to selected
persons in a public offering. The additional capital provided through
the offering of Steelton Bancorp stock will support future banking
activities and local expansion of the financial services currently
offered through Mechanics Savings & Loan.
3. WHAT ARE THE BENEFITS AND RISKS OF CONVERSION?
The Conversion and sale of stock will increase Mechanics Savings &
Loan's capital, enabling it to do many things, including possibly the
following:
- support the expansion of its financial services
- enhance its ability to expand through acquisitions
- better compete with other financial institutions
- facilitate future access to the capital markets
Please review the "Use of Proceeds" section in the prospectus for the
initial plans of Mechanics Savings Bank and the holding company with
respect to the capital to be raised in the conversion.
Investing in Steelton Bancorp common stock entails certain risks. We
can only make an offer through a prospectus accompanied by a stock
order form and certification. Please review the prospectus prior to
making an investment decision, particularly the section entitled "Risk
Factors."
4. WILL THE CONVERSION HAVE ANY EFFECT ON MY SAVINGS OR LOAN
ACCOUNT?
No. The conversion will not affect the general terms of your savings
account, which will continue to be insured by the Federal Deposit
Insurance Corporation to the maximum legal limit. We will not be
convert your savings account to stock. The conversion will not affect
the obligations of borrowers under their loan agreements.
<PAGE>
5. HOW DO I BENEFIT FROM THE CONVERSION?
We will give eligible depositors and certain borrowers the opportunity
to subscribe or place an order to purchase stock in Steelton Bancorp
and thereby participate in any gain in the value of the shares and
future dividend payments, if any. Furthermore, the additional capital
will enable Mechanics Savings Bank to provide expanded services to its
customers and the community.
ABOUT PURCHASING STOCK
6. WHO MAY PURCHASE STOCK?
Steelton Bancorp is currently conducting a Subscription Offering.
Persons listed below may have the opportunity to subscribe to purchase
Steelton Bancorp's common stock during the Subscription Offering.
- Eligible Account Holders. Persons who had a savings deposit of at
least $50 at Mechanics Savings & Loan, FSA on December 31, 1997.
- Tax Qualified Employee Plans of Mechanics Savings Bank.
- Supplemental Eligible Account Holders. Persons who had a savings
deposit of at least $50 on March 31, 1999.
- Other Members. Depositors and certain borrowers as of
_________________, 1999.
Steelton Bancorp may, depending upon market conditions and the
availability of shares, offer stock to certain persons in a public
offering.
7. WHAT IS THE PRICE PER SHARE AND HOW MANY SHARES ARE BEING
OFFERED?
An independent, nationally recognized appraisal firm has determined the
aggregate value of Steelton Bancorp stock. Shares will be sold at a
purchase price of $10.00 per share. We will offer up to 500,250 shares
for sale. Under certain conditions, we will offer up to 575,288 shares.
Some of these conditions include a change in market and financial
conditions following commencement of the offering.
8. WILL EVERYONE PAY THE SAME PRICE FOR THE STOCK?
Yes. All subscribers, including Mechanics Savings & Loan's board of
directors and management, will pay the same price during the offering.
9. ARE DEPOSITORS OBLIGATED TO BUY STOCK?
No. But our depositors have a priority subscription right.
10. HOW MUCH STOCK MAY I BUY IN THE SUBSCRIPTION OFFERING?
Individuals cannot purchase more than 10,000 shares. Individuals acting
in concert or groups of persons are subject to this limit.
<PAGE>
11. WHAT IS THE MINIMUM AMOUNT OF STOCK I MAY BUY?
The minimum purchase requirement is 25 shares.
12. IS THE STOCK INSURED BY THE FDIC?
No. Like any other common stock, Steelton Bancorp stock will not be insured
by the FDIC or any governmental agency.
13. IN THE FUTURE, HOW MAY I PURCHASE MORE SHARES OR SELL MY SHARES?
If the common stock cannot be quoted and traded on the OTC Bulletin
Board, we expect that transactions in the stock will be reported in the
pink sheets of the National Quotation Bureau, Inc. The development of
an active trading market depends on the existence of willing buyers and
sellers. Due to the small size of the offering, it is highly unlikely
that an active trading market will develop and be maintained. You could
have difficulty disposing of your shares and you should not view the
shares as a short term investment. You may not be able to sell your
shares at a price equal to or above the price you paid.
14. WILL THERE BE ANY DIVIDENDS?
Steelton Bancorp anticipates the establishment of a policy to pay cash
dividends. The timing, frequency and initial amount of dividends have
not yet been determined. Dividends will be subject to the financial
conditions and results of operations of Steelton Bancorp, Mechanics
Savings Bank's compliance with its capital requirements, tax
considerations, industry standards and other factors.
15. HOW DO I ORDER STOCK AND WHAT METHODS CAN BE USED FOR PAYMENT OF MY
STOCK PURCHASES?
Complete the stock order form and certification as instructed.
Indicate the number of shares you wish to purchase, multiply the
number of shares subscribed for by $10.00 per share and enter the
total amount. Total payment for purchases in the offering must
accompany the order form and be received by Steelton Bancorp prior to
12:00 noon, Pennsylvania time, on ___________________, 1999. You can
pay for our stock as follows:
Check or money order sent or delivered to Mechanics Savings & Loan,
FSA or the Stock Center. If payment is made by check or money order,
interest will be earned at the passbook rate until the conversion is
completed.
Withdrawal of funds from any existing account of Mechanics Savings &
Loan in an amount equal to $10.00 per share times the number of shares
ordered. We will waive any penalties for early withdrawal from an
Mechanics Savings & Loan account if the funds are used to purchase
stock in the offering. Once we authorize the withdrawal of funds, you
may not withdraw the designated amount unless the plan of conversion
is terminated or as otherwise required by regulatory authorities. All
funds maintained in savings accounts are insured by the FDIC up to
legally applicable limits and will earn interest until completion of
the conversion.
-Orders of $25,000 or more must be paid by Mechanics Savings & Loan
account withdrawals, certified funds, cashier's check, or money
orders.
<PAGE>
-IRA purchases. If you wish to purchase shares of Steelton Bancorp
stock for an IRA account, either at Mechanics Savings & Loan or
elsewhere, we may be able to accommodate you. Please contact the stock
center as soon as possible at (717) 939-3100 so that we may assist you
with the appropriate procedures for such a purchase. It is important
that you contact us soon because making the IRA arrangements takes
time.
16. MAY I CHANGE MY MIND?
The stock order form you execute cannot be canceled or withdrawn.
However, you may order additional shares by completing another stock
order form, subject to the maximum purchase limitations.
17. ARE MY SUBSCRIPTION RIGHTS TRANSFERABLE?
No. No person may transfer or enter into any agreement to transfer his
or her subscription rights issued under the plan of conversion, or the
shares to be issued upon the exercise of such rights. Persons violating
such prohibition will lose their right to purchase stock in the
conversion and may be subject to further government sanctions.
ABOUT MEMBERS' VOTING RIGHTS
18. WHO IS ELIGIBLE TO VOTE ON THE PLAN OF CONVERSION?
Depositors and borrowers of Mechanics Savings & Loan with loans
outstanding on February 1, 1993, at _________________, 1999 who
continue to be depositors or borrowers at the date of the special
meeting of members are eligible to vote.
19. HOW IS THE NUMBER OF VOTES DETERMINED?
Each deposit account holder can cast one vote for each $100, or
fraction thereof, of the aggregate withdrawal value of all such account
holders deposit accounts on __________________, 1999. Borrowers have
one vote. The maximum number of votes per person is 1,000.
20. IF I VOTE FOR THE PLAN OF CONVERSION ON THE PROXY CARD, WILL I BE
OBLIGATED TO PURCHASE STEELTON BANCORP STOCK?
No. Signing the proxy card and voting for the conversion in no way
obligates you to purchase Steelton Bancorp stock. All members are urged to
vote for the conversion. THE BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED
THE PLAN OF CONVERSION AND RECOMMENDS MEMBERS VOTE "FOR" APPROVAL OF THE
PLAN OF CONVERSION.
21. WHAT HAPPENS IF I DON'T VOTE?
Failing to vote could be equivalent to voting against the plan of
conversion. YOUR VOTE IS EXTREMELY IMPORTANT! Please sign and mail your
proxy card(s) now.
22. MAY I COME TO THE SPECIAL MEETING AND VOTE?
Yes. However, every member is encouraged to send a proxy card(s) to
Mechanics Savings & Loan prior to the meeting even if the member plans
to attend the special meeting. The proxy is revocable and can be
changed by submitting a later dated proxy or by casting a ballot at the
meeting.
<PAGE>
23. I RECEIVED MORE THAN ONE PROXY CARD. CAN I VOTE THEM ALL?
Yes. Please vote ALL the proxy cards you receive. You may have more
than one account in different registrations. While some accounts have
been consolidated, it is not permissible to consolidate all accounts.
24. IF A SAVINGS ACCOUNT IS IN JOINT NAME, MUST BOTH NAMES BE SIGNED ON THE
PROXY CARD?
No. Two or more signatures are required only when two or more
signatures are needed to withdraw funds from the account.
25. IF I DON'T BUY STOCK WILL I HAVE A VOTE AT FUTURE ANNUAL MEETINGS?
No. After the conversion, only stockholders will have voting rights.
However, the operations of Mechanics Savings Bank and the general terms
and balances of your deposit accounts and loans will remain unchanged.
26. HOW MAY I GET MORE INFORMATION?
We hope that these questions and answers, combined with the prospectus
and the proxy statement, will help you better understand the conversion
and the stock offering. We urge you to carefully review the prospectus
and proxy statement before making an investment or voting decision. If
you desire further information, please contact the stock center at:
Telephone: (717) 939-3100
THIS BROCHURE IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER TO BUY
THESE SECURITIES. THE OFFER IS MADE ONLY BY THE PROSPECTUS ACCOMPANIED BY A
STOCK ORDER FORM AND CERTIFICATION COPIES OF WHICH MAY BE OBTAINED BY CONTACTING
THE STOCK CENTER. THE COMMON STOCK OFFERED IN THE CONVERSION IS NOT A DEPOSIT OR
ACCOUNT AND IS NOT FEDERALLY INSURED OR GUARANTEED.
<PAGE>
NEWSPAPER ADVERTISEMENT
NEW ISSUE
MECHANICS SAVINGS & LOAN, FSA
Steelton Bancorp
the proposed holding company for
Mechanics Savings Bank
Up to 575,288 shares of Common Stock are being offered
at a Subscription Price of $10.00 per share.
For Information Call:
Stock Center
Telephone (717) 939-3100
or stop by the stock center located at
====================================
The Subscription Offering period deadline is 12:00 noon, Pennsylvania time,
______________________, 1999.
- --------------------------------------------------------------------------------
This announcement is neither an offer to sell nor a solicitation of an offer to
buy securities. The offer is made only by the prospectus accompanied by a stock
order form and certification, copies of which may be obtained by contacting the
stock center. The common Stock offered in the conversion is not a deposit or
account and is not federally insured or guaranteed.
- --------------------------------------------------------------------------------
<PAGE>
YOU'RE INVITED
You are cordially invited to attend our Community Meeting where you will find
out more about Mechanics Savings & Loan, FSA and our stock offering including
o A presentation by senior management discussing Mechanics Savings &
Loan, FSA strategy and performance.
o An explanation of Mechanics Savings & Loan, FSA plan for converting to
a stock form of ownership.
o A question and answer period, followed by a reception where you can
personally meet and talk with the officers and directors of Mechanics
Savings & Loan, FSA.
For more details Steelton Bancorp stock offering, attend this informative and
convenient Community Meeting:
Location:
Date:
Time:
To make a reservation or to receive a prospectus, call (717) 939-3100.
Share Our Future.
- --------------------------------------------------------------------------------
This announcement is neither an offer to sell nor a solicitation of an offer to
buy securities. The offer is made only by the prospectus accompanied by a stock
order form and certification, copies of which may be obtained by contacting the
stock center. The common stock offered in the conversion is not a deposit or
account and is not federally insured or guaranteed.
- --------------------------------------------------------------------------------
<PAGE>
1. Letter to Members and Friends (Closed Accounts)
__________________, 1999
Dear Members and Friends:
Mechanics Savings & Loan, FSA has adopted a plan to convert from a
federally chartered mutual savings association to a federally chartered stock
savings bank to be known as Mechanics Savings Bank. As part of the Conversion,
Mechanics Savings & Loan has formed a holding company, Steelton Bancorp.
Steelton Bancorp. will own all of the common stock of Mechanics Savings Bank.
Steelton Bancorp is offering up to 575,288 shares of its common stock to
customers of Mechanics Savings & Loan at a subscription price of $ 10.00 per
share.
For your convenience this packet includes the following materials:
- - PROSPECTUS which describes the Offering;
- - BROCHURE which briefly answers questions about the conversion and offering;
and
- - STOCK ORDER FORM and CERTIFICATION, which must be returned with full
payment if you wish to invest.
If you would like to purchase Steelton Bancorp stock in your IRA
account, using IRA funds, we may be able to accommodate you. Please
contact the stock center as soon as possible at (717) 939-3100.
If you are a current member of Mechanics Savings & Loan, you will also
find enclosed a proxy statement and proxy card(s). On behalf of the Board. we
ask that you help Mechanics Savings & Loan take this important step by signing
the enclosed proxy card(s), casting your vote in favor of the Plan of
Conversion. Your vote is very important! Please mail your proxy card(s) today in
the enclosed postage paid return envelope.
We believe it is in the best interest of Mechanics Savings & Loan to
have our customers and members of the communities we serve as our stockholders.
We encourage you to review this investment opportunity carefully. If you have
any questions, please call the stock center at (717) 939-3100.
Sincerely,
Harold E. Stremmel
Executive Vice President and
Chief Executive Officer
Enclosures
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This letter is neither an offer to sell nor a solicitation of an offer to buy
securities. The offer is made only by the prospectus accompanied by a stock
order form and certification. The shares of common stock offered are not savings
accounts or deposits and are not insured or guaranteed by the Federal Deposit
Insurance Corporation or any other government agency.
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<PAGE>
2. Letter for branch packages, Stock Center, non-members.
__________ ___, 1999
Dear Prospective Investor:
Mechanics Savings & Loan, FSA is converting from a federal mutual
savings association to a federal stock savings bank to be known as Mechanics
Savings Bank. As part of the Conversion, Mechanics Savings & Loan has formed a
holding company, Steelton Bancorp. Steelton Bancorp will own all of the common
stock of Mechanics Savings Bank. Steelton Bancorp, Inc. is offering to customers
of Mechanics Savings & Loan up to 575,288 shares of its common stock at a
purchase price of $10.00 per share. Even if you are not currently a member of
Mechanics Savings & Loan, you may have the opportunity to purchase shares
without paying a fee or commission. Members have priority rights to purchase
shares in the Offering and no assurance can be given that your order will be
filled.
For your convenience, enclosed are the following materials:
- - PROSPECTUS which describes the Offering; and
- - STOCK ORDER FORM and CERTIFICATION, which must be returned with full
payment if you wish to invest.
We encourage you to review this investment opportunity carefully. If
you have any questions, please call our Stock Center at (717) 939-3100.
We are pleased to offer you this opportunity to invest in Steelton
Bancorp.
Sincerely,
Harold E. Stremmel
Executive Vice President and
Chief Executive Officer
Enclosures
- --------------------------------------------------------------------------------
This letter is neither an offer to sell nor a solicitation of an offer to buy
securities. The offer is made only by the prospectus accompanied by a stock
order form and certification, copies of which may be obtained by contacting the
stock center. The common Stock offered in the conversion is not a deposit or
account and is not federally insured or guaranteed.
- --------------------------------------------------------------------------------
<PAGE>
3. Capital Resources Cover Letter to Blue-Sky States
__________ ___, 1999
To Depositors and Friends of Mechanics Savings & Loan, FSA:
Capital Resources, Inc. is an NASD member broker/dealer assisting
Mechanics Savings & Loan, FSA ("Mechanics Savings & Loan") in its conversion
from a mutual to a stock organization to be known as Mechanics Savings Bank.
At the request of Mechanics Savings & Loan and Steelton Bancorp, the
proposed parent holding company of Mechanics Savings Bank, we enclose certain
materials regarding the sale and issuance of common stock in connection with the
conversion of Mechanics Savings & Loan. These materials include a prospectus
which offers you the opportunity to subscribe to purchase shares of common stock
of Steelton Bancorp.
We have been asked to forward these documents to you in view of certain
requirements of the securities laws of your state. We should not be understood
as recommending or soliciting in any way any action by you with regard to the
enclosed materials. If you have any questions, please contact us at the Stock
Center at (717) 939-3100.
Very truly yours,
Capital Resources, Inc.
Enclosures
- --------------------------------------------------------------------------------
This Letter Is Neither An Offer To Sell Nor A Solicitation Of An Offer To Buy
Securities. The Offer Is Made Only By The Prospectus Accompanied By A Stock
Order Form And Certification. The Shares Of Common Stock Offered Are Not Savings
Accounts Or Deposits And Are Not Insured Or Guaranteed By The Federal Deposit
Insurance Corporation Or Any Other Government Agency.
- --------------------------------------------------------------------------------
<PAGE>
4. Letter to Members in "Dark Blue-Sky" States and Foreign Accounts
__________ ___, 1999
Dear Member:
Mechanics Savings & Loan, FSA is converting from a federal mutual
savings association to a federal stock savings bank to be known as Mechanics
Savings Bank with the concurrent formation of a holding company, Steelton
Bancorp.
Enclosed you will find a proxy statement and prospectus describing the
conversion and proxy card(s). As a current member of Mechanics Savings & Loan,
we ask you to participate in the conversion by reviewing the information
provided and voting on the conversion by completing and mailing the enclosed
proxy card(s) in the enclosed postage-paid envelope as soon as possible. The
Board of Directors recommends that you vote in favor of the plan of conversion.
Although you may vote on Mechanics Savings & Loan's plan of conversion,
Steelton Bancorp unfortunately is unable to either offer or sell its common
stock to you because (i) the small number of eligible subscribers in your
jurisdiction makes registration or qualification of the common stock under the
securities laws of your jurisdiction impractical, for reasons of cost or
otherwise; or (ii) the small number of eligible subscribers in your jurisdiction
makes registration or qualification of Steelton Bancorp, its officers,
directors, employees and persons acting on its behalf as broker/dealer in your
jurisdiction impractical, for reasons of cost or otherwise. Accordingly, neither
this letter nor the enclosed material should be considered an offer to sell or a
solicitation of an offer to buy the common stock of Steelton Bancorp.
If you have any questions about your voting rights or the conversion in
general, please call the stock center at (717) 939-3100.
Sincerely,
Harold E. Stremmel
Executive Vice President and
Chief Executive officer
Enclosures
- --------------------------------------------------------------------------------
This letter is neither an offer to sell nor a solicitation of an offer to buy
securities. The offer is made only by the prospectus accompanied by a stock
order form and certification, copies of which may be obtained by contacting the
stock center. The common Stock offered in the conversion is not a deposit or
account and is not federally insured or guaranteed.
- --------------------------------------------------------------------------------
<PAGE>
IMPORTANT
PROXY REMINDER
MECHANICS SAVINGS & LOAN, FSA
Steelton Bancorp
YOUR VOTE ON STEELTON BANCORP'S STOCK CONVERSION IS VERY
IMPORTANT.
VOTING FOR THE CONVERSION WILL NOT AFFECT THE INSURANCE OF YOUR
DEPOSIT ACCOUNT. YOUR ACCOUNT WILL CONTINUE TO BE INSURED UP TO
THE MAXIMUM LEGAL LIMIT BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, AN AGENCY OF THE U.S. GOVERNMENT.
REMEMBER, VOTING FOR THE CONVERSION DOES NOT OBLIGATE YOU TO
BUY ANY STOCK.
PLEASE ACT PROMPTLY! SIGN YOUR PROXY CARD(S) AND MAIL OR DELIVER
THEM TO STEELTON BANCORP TODAY. WE RECOMMEND THAT YOU VOTE
FOR THE PLAN OF CONVERSION.
THE BOARD OF DIRECTORS
MECHANICS SAVINGS & LOAN, FSA
================================================================================
If you have already mailed your proxy card(s), please
accept our thanks and disregard this request.
For Further Information, Please Call
The Stock Center
at (717) 939-3100
- --------------------------------------------------------------------------------
THIS ANNOUNCEMENT IS NEITHER AN OFFER TO SELL NOR A SOLICITATION OF AN OFFER
TO BUY THESE SECURITIES. THE OFFER IS MADE ONLY BY THE PROSPECTUS
ACCOMPANIED BY A STOCK ORDER FORM AND CERTIFICATION, COPIES OF WHICH MAY
BE OBTAINED BY CONTACTING THE STOCK CENTER. THE COMMON STOCK OFFERED IN
THE CONVERSION IS NOT A DEPOSIT OR ACCOUNT AND IS NOT FEDERALLY INSURED OR
GUARANTEED.
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